Q4 2023 Silvercorp Metals Inc. Earnings Call
Speaker 1: And.
Speaker 1: you
Speaker 2: Thank you for standing by. Good morning. My name is Jenny and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp fourth quarter and full year fiscal 2023 financial results conference call.
Speaker 2: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two.
Speaker 2: Thank you. I would now like to turn the conference over to Lon Shaver, Vice President for Opening Remarks. Please go ahead, sir.
Speaker 3: That's great. Thank you, Jenny. On behalf of Silvercorp, I'd like to welcome everyone for joining the call this morning or afternoon, wherever you may be, to discuss our fourth quarter and full year 2023 financial results, which were released yesterday after market slows.
Speaker 3: A copy of the news release, the MD&A, and the financial statements for today's call are available on our website.
Speaker 3: Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws.
Speaker 3: Please review the cautionary statements included in our news release and presentation, as well as the risk factors described in our most recent 10Q and Form 40F and AIS.
Speaker 3: So to kick off and recap the quarter with respect to Q4, despite the regular impact of the Chinese New Year slowdown, our minds operated roughly in line with expectations.
Speaker 3: as reflected in our previously released production numbers. Revenue for the quarter in Q4 was 34.1 million. That was down 18 percent compared to the prior year quarter and this included a decrease of 4.6 million due to lower silver, lead, and zinc sold as compared to last year's quarter.
Speaker 3: Also, a decrease of $3.6 million due to lower realized selling prices for all these metals.
Speaker 3: based on production levels and the realized prices we...
Speaker 3: obtained in the quarter. Silver was 57% of revenues on a net basis compared to 55% in Q4 of last year.
Speaker 3: Our fourth quarter net income attributable to equity shareholders was $0.2 million or nil per share compared to a net income of $0.04 million or $0.02 a share for the same period last year. The main contributor to the decrease was the factors I mentioned before which affected revenue.
Speaker 3: As well, we had a mark-to-market loss of $1.1 million on equity investments and a $1.9 million impairment charge against a short-term investment in certain bonds.
Speaker 3: On an adjusted basis, with adjustments made to remove the impacts of non-tash and unusual items such as impairment charges, share-based comp, foreign exchange changes, the share and loss of our associates' operating results.
Speaker 3: Gains and losses on investments and one-time items. Earnings for the quarter were $0.05 million or $0.03 a share compared to $9.7 million or $0.05 a share for the same period last year.
Speaker 3: And just a reminder, we're providing the suggested earnings as a supplemental non-GAAP measure to give investors another metric to better measure the performance of our underlying business, its profitability and growth potential.
Speaker 3: Our cash flow from operating activities in the corridor was $5.7 million. That compared to $11.4 million in the prior year quarter.
Speaker 3: Decrease was mainly due to these other factors I mentioned before affecting revenue and net income and a $5.8 million adjustment in non-cash working capital. Before changes in non-cash working capital, our cash flow in the quarter was $11.6 million compared to $14 million in Q4 last year.
Speaker 3: Capital expenditures total approximately $9.5 million in the quarter, down slightly from $10 million in Q4 of fiscal 2022.
Speaker 3: and we ended the quarter with $203.3 million in cash and cash equivalents and short-term investments down from $212.9 million at the end of last fiscal year and that was mainly due to a negative $8.7 million translation impact arising from the appreciation of the US dollar.
Speaker 3: against the Canadian dollar and Chinese R&B. This cash position does not include our investments in Associates and other companies, which had a total market value of $141.9 million on March 31st.
Speaker 3: of which I'll just note New Pacific was 120 million of that.
Speaker 3: To quickly recap the full year financial results, revenue for the fiscal year was 208.1 million. This is down 4% compared to the prior year, reflecting a few factors, one of which is a 16.6 million decrease.
Speaker 3: due to lower realized selling prices of silver, lead and zinc. And secondly, a 3.6 million decrease due to lower zinc sales.
Speaker 3: However, this was offset by a 9.7 million increase from higher silver, gold and lead sold year over year.
Speaker 3: Net income to equity shareholders was $20.6 million or 12 cents a share compared to $30.6 million or 17 cents in fiscal 2022. Decrease primarily reflects the aforementioned factors affecting revenue and as well during the year, early in the year we took a $20.2 million impairment charge against.
Speaker 3: the Lajeska project.
Speaker 3: Our adjusted earnings for the year were $0.37 million or $0.21 a share compared to $52.4 million or $0.30 a share last year.
Speaker 3: Cash flow from operating activities for the year was $85.6 million, down from $107.4 million in the prior year due to those previously mentioned factors that impacted revenue and net income.
Speaker 3: and as well a $2 million adjustment in non-cash working capital.
Speaker 3: Before changes in non-cash working capital, cash flow for this fiscal year was $87.7 million compared to $101 million in fiscal 2022.
Speaker 3: Capital expenditures in the year were approximately $58 million for fiscal 2023.
Speaker 3: That was up slightly from the $54 million in the same prior period, mainly due to increases in exploration and development tunneling, as well as certain equipment and facilities upgrades at both operations.
Speaker 3: Quarterly production recap. In terms of quarterly production previously reported we mined 182,000 tons of ore and milled 179,000 tons.
Speaker 3: That was up 1% and down 2% respectively compared to the same quarter last year. Produced in the quarter, 1.1 million ounces of silver, 1,000 ounces of gold, 10.9 million pounds of lead and 3.6 million pounds of zinc. Those were decreases of 3, 9 and 13%.
Speaker 3: respectively in silver, lead and zinc production due to some lower head grades, but a 100% increase in gold production over the same quarter of last year.
Speaker 3: The cash cost, pronounced silver net of by-product credit, was 92 cents in the fourth quarter as compared to a negative 54 in the prior year quarter. We experienced a 2.6 million decrease in expense production costs, but this was more than offset by
Speaker 3: a 4.2 million decrease in by-product credits impacting that cash cost number. On an all-in sustained basis, our cash, sorry, our cost to produce an ounce of silver net of by-product credits in the quarter was $1385, this compared to $1260 in Q4 of fiscal 2022.
Speaker 3: 1.1 million tons of ore in the fiscal year. Both of those were up 7% compared to fiscal 2022.
Speaker 3: and our production of 6.6 million ounces of silver, 4.4 thousand ounces of gold, 68.1 million pounds of lead, and 23.5 million pounds of zinc represented. Increases in production of 8%, 29, and 6% respectively in silver, gold, and lead.
Speaker 3: mainly due to higher mining and milling rates and a decrease of 12% in zinc production over the last year mainly due to lower headgrades in the ore.
Speaker 3: On a year basis, the cash cost per ounce of silver net of by-product credits.
Speaker 3: was negative 42 cents compared to negative $1.29 in fiscal 2022, an increase mainly due to a 2.1 million decrease in byproduct credits and a 3.2 million increase in expense production costs.
Speaker 3: And on an all-in sustaining basis, the cost to produce an ounce of silver net of by-product credits in fiscal 2023 was $9.73 compared to $8.77 last year. This increase reflects the same factors that impacted the consolidated cash cost per ounce.
Speaker 3: as well as a $7.7 million increase in certain sustaining capital expenditures, but offset by a $2.7 million decrease in admin expenses and mineral resources tax.
Speaker 3: Now, looking ahead to this current fiscal year, fiscal 2024, we're reiterating our production and cost guidance that we announced on February 9.
Speaker 3: Expect to produce between 6.8 and 7.2 million ounces of silver, 4.4 to 5.5 thousand ounces of gold, between 70.5 and 73.8 million pounds of lead, and 27.7 to 29.7 million pounds of zinc. Midpoints of these numbers reflect an increase in the number of silver and zinc.
Speaker 3: results.
Speaker 3: In terms of cost guidance for the year, we're anticipating on a consolidated basis.
Speaker 3: between 78.2 to 80.5 per ton on a cash cost basis.
Speaker 3: which is 4 to 7 percent below our actual performance in fiscal 2023.
Speaker 3: And on an all-in sustaining basis, we're looking ahead to between 136.4 to 142.4 per ton, which is roughly in line to 4% below actual fiscal 2023 performance.
Speaker 3: Now, turning to growth projects, looking ahead, we completed a total of 8,000.
Speaker 3: 485 meters of drilling in this last fiscal year at the Kuan Ping project. Recall this is a satellite property located north of Ying that we inquired in November of 2021. In December of 2022, we received the Kuan Ping mining license from the Department of Natural Resources, which covers an approximate 7 square kilometer.
Speaker 3: remaining ancillary permits. Further updates on the mine construction plan and cost estimates will be provided upon completion of these reports.
Speaker 3: In fiscal 2023, we spent a total of $4.8 million on the construction of the new tailing storage facility and a new 3,000 tonne per day flotation mill at Ying. This was, if you look back at guidance, significantly below what we had anticipated for the year.
Speaker 3: A total of 3,233 meters or 64% of the drainage tunnels have been completed. Site preparation for the new mill was also completed. Also, we can confirm we've received all government approval to construct both projects. In addition, over the last year we spent $2 million on the new mill.
Speaker 3: A similar program at Ying. Overall capex in fiscal 2024 is budgeted at $64.7 million, with roughly $21.8 million of that going towards Ying's equipment and facilities, construction of the tailing storage facilities, and construction of the storage facilities.
Speaker 3: the addition of a paste backfill plant, and as I mentioned, an XRT ore sorting system at Ying to optimize the mine plan and improve ore processing headgrades.
Speaker 3: You'll note that on May 15th, we announced a non-binding term sheet for the acquisition of Celsius resources.
Speaker 3: The final structure of the proposed transaction will be governed by the terms of a definitive agreement, which we are in the process of negotiating and finalizing. And after we've entered into this agreement, which we anticipate within one month of the term sheet, we'll be driving ahead with the
Speaker 3: of the documentation to complete this transaction. Celsius' flagship project is the MCB Copper-Gold Project located on the main island of Luzon in the Philippines. Mineralization in the project area was first discovered in the early 1930s. For more information on this project, visit www.mar Middleton.
Speaker 3: But modern exploration was limited until Freeport entered in 2006.
Speaker 3: Over the next seven years, Freeport conducted systematic exploration work that included approximately 25,000 meters of drilling and 46 diamond drill holes. This work was what was largely underpinned. The initial MCB JORC compliant mineral resource estimate.
Speaker 3: that Celsius tabled in 2021. Additional drilling between 2021 and 2022 by Celsius led to an updated JORC compliant mineral resource estimate, which was announced in December of 2022, which include measured and indicated resources of 296 million tons.
Speaker 3: grading 0.46 copper and 0.12 grams per ton gold, and an inferred resource of 42 million tons grading 0.52 copper and 0.11 grams per ton gold.
Speaker 3: Celsius had also released a scoping study on the MCV project in December of 2021 based entirely on a high-grade subset of that initial resource.
Speaker 3: the indicated component of the initial resource that had been published in January 2021. That study that they completed outlined a potential 2.28 million tonne per year underground operation, mining and milling approximately 49 million tonnes of ore.
Speaker 3: at 0.85 copper and 0.41 gold over a 25-year life, with a standard flotation process producing a clean copper-gold concentrate and delivering on average 16,000 tons of copper and 19,000 ounces of gold per year over that life of mine.
Speaker 3: at a C1
Speaker 3: cash cost of $1.29 per pound of copper net of gold credits.
Speaker 3: However, the study also encompassed a first 10-year profile where the annual output was 22,000 tons of copper and 27,000 ounces of gold over that 10-year period at a cost of 73 cents per pound of copper net of gold credits.
Speaker 3: The study estimated an initial capital cost of US $253 million and generated a post-tax NPV at an 8% discount rate.
Speaker 3: of $464 million, assuming a $4 copper price and $16.95 per ounce of copper.
Speaker 3: of gold.
Speaker 3: We believe the acquisition of the MCB project gives Silvercorp exposure to a high-grade copper-gold project well suited to our extensive underground mining experience.
Speaker 3: in a promising jurisdiction and with substantial local relationships and support that has been developed by the Celsius team. We look forward to providing investors with updates on the proposed Celsius transaction and the MCV project over the coming months.
Speaker 3: And with that, I would be happy to open the call for questions.
Speaker 2: Thank you, sir. Ladies and gentlemen, we will now conduct a question-and-answer session. If you would like to ask a question, please press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, too.
Speaker 2: If you are using a speakerphone, please lift a handset before pressing any keys.
Speaker 2: One moment, please, for your first question. Your first question is from Joseph Reger from Roth MKM. Please ask your question. Hey, Lon. Thanks for taking the questions. Hi, Joe.
Speaker 3: So first thing on GC the cost guidance suggests you know most of the drop from last year will occur there. Is there anything in particular driving the lower cost per ton at GC?
Speaker 3: Well, I think it's just been a renewed focus. Obviously, GC was not a great performer for much of this past fiscal year.
Speaker 3: just a variety of reasons. Nothing is a constant in mining and so you had some issues that arose and in particular obviously you saw that we had a production curtailment
Speaker 3: because of some additional capital investment that had to be done at GC. The small numbers in this case really threw things off. So I think this is more of a return to a more normal steady state.
Speaker 4: Okay, fair enough. And then, you know, last year in general, I think it was in the fall of 2020, I think
Speaker 4: A lot of the production came in a little below expectation, but zinc was well below.
Speaker 4: Like what's your confidence level that you guys have resolved whatever caused that issue?
Speaker 3: I think the confidence level is good. I think it is useful to go back and look at the 43-101 that was published in September . There were a number of changes and approaches to really looking at and addressing what the zinc numbers were.
Speaker 3: I think the confidence level is good. I think it is useful to go back and look at the 43-101 that was published in September . There were a number of changes and approaches to really looking at and addressing what the zinc numbers were.
Speaker 3: and sort of what type of zinc mineralization is going to be included in those numbers. So I do think that the bad news on that zinc front is behind us and the targets that we've put out for this coming year are achievable.
Speaker 3: I think the thing I would add is that you're dealing with fiscal 2023 Zinc.
Speaker 3: at a ying, you know, 0.7%. You know, what are we calling for in 2024?
Speaker 3: you know, 0.7%. You know, what are we, we're calling for in 2024? 0.8.
Speaker 3: So we're not dealing with...
Speaker 3: know big numbers or incredibly aggressive forecasts I think it's just
Speaker 3: And some of that is obviously factored in with rounding, but...
Speaker 3: I do think we've addressed those issues. Okay, well congrats on a good year despite the challenges. Thanks Joe, appreciate the support.
Speaker 4: we've addressed those issues. Okay, well congrats on a good year despite the challenges. Thanks Joe, appreciate the support.
Speaker 2: Thank you. Your next question is from Felix Shafikolan from 8 Capital. Please ask your question.
Speaker 4: Hi, Lon. Thanks for taking the question. Hi, Felix. Hi. So my question I guess is sort of built on the previous questions, but your reiterated guidance, higher production, lower costs, could you just sort of provide a rough roadmap of how you're planning to achieve?
Speaker 3: drilling. So I would say that from identification of resources and reserves, we have a better visibility and a better scheduling program looking at where that ore is coming from. So I think that's going to help address the great question.
Speaker 3: Obviously we're looking at certain things like ore sorting and some of this is a bit of a trade-off question because there are certain areas in the mine where you can make a call to go with a resuming mining method, more surgical, more labour intensive, higher cost where you can minimize dilution. On the other hand, we're looking at the
Speaker 3: shrinkage, cheaper overall mining, more dilution, lower grade, but then can you you know bring the grade up and still be delivering to the mill the ore of the grades that you're you know you're targeting. So you know I think that is really some of the optimization and some of the planning that's going into this mine plan.
Speaker 3: On the flip side, from a cost standpoint, there's a lot of factors that go into that. It's always noisy when we have this exchange rate changes, how it impacts the selling prices in the market when you've got silver moving, the US dollar moving.
Speaker 3: On the one hand, a strengthening US dollar is going to be a factor leading to lower costs on a reported basis.
Speaker 3: On the other hand, we then see the noise in the income statement when the US dollar strengthens and that has an impact on conversion of other currencies in our cash and other asset balance. So, I think to kind of get into all the details would be a number of factors and sort of probably too much for this call.
Speaker 3: But it's a our our projections are you know based on what we're you know what we're seeing for the year in terms of cost performance and And as I said that enhanced my plan
Speaker 3: Our projections are based on what we're seeing for the year in terms of cost performance. And as I said, that enhanced mine plan. Okay, thank you. And just a quick follow-up question.
Speaker 4: Last quarter when you announced that the new mill at the Ying mine will be delayed by about a year, I recall that it was around permitting. Have you cleared that hurdle successfully at this point? Yes, as noted in the disclosure in my comments, we've got all the permits to proceed with the mill. Okay, thanks. Thank you very much, Léon. You're welcome. Thanks, Felix.
Speaker 2: Thank you once again. Please press star 1 should you wish to ask a question. The next one is from Justin Stevens from PI Financial. Please ask your question.
Speaker 4: Hey Lon, just a few questions on my side. As far as the ore sorting tech, are you looking at a trial by TechEdGC before you try it at Ying or are you potentially looking at targeting that for both mines simultaneously?
Speaker 3: Simultaneously, I guess is probably the best word. Obviously, GC's got it first. We're not waiting for the final results on the sorting program at GC to go ahead at Ying. So we will be doing that.
Speaker 4: Got it. And as far as the Ying application, are you looking at sort of running potentially a mine by mine, like doing it at the portal or more sort of the call it the mill, doing it on the whole feed, I guess on a campaign basis.
Speaker 3: Great question. It's more mine by mine, but as you recall, the location of LMW, LME, and TLP are somewhat close. We've been working on a lot of underground access and ramps and tunnels to be able to integrate the flow between those mines. If I recall correctly, I think it's at the LMW mine.
Speaker 5: the thinking there is that like you were sort of saying the you know obviously re-suing is can be great but it's obviously pretty high cost and if you can move to a more mechanized method the trade-offs at least on stuff that would probably be marginal probably tilt pretty aggressively if you can reject a lot of that on economic material.
Speaker 3: Yeah, yeah, I think to the other of this question and to the previous one to sort of elaborate, this isn't talking about an abrupt change, but fine tuning at the margin where you look at certain veins and certain stoves that you might have mined on a resuming basis.
Speaker 3: you know, now based on economics and the overall picture and doing all the math, you realize, yeah, actually this one now is probably better on an overall basis to run with shrinkage. And so then you realize with that comes some certain compromises.
Speaker 3: in terms of greater dilution from the stope and so can we implement an ore sorting program to on a cost-effective basis you know bring the trucked ore grade back up to where our targets are but it's not it's not you know meant to be an abrupt
Speaker 3: sort of hard pivot here in terms of how we're doing things. It's just looking at things where they improve, you know, stope by stope, area by area, you know, mind planning focus.
Speaker 5: For sure, and I mean XRT should react pretty well with the material you're looking at here. So hopefully it pans out well.
Speaker 5: Last one I think for me, given that the military plan has been pushed out, are you sort of looking at targeting some of those shallow depth high-grade gold structures at Ying now?
Speaker 5: and maybe pushing those out to run that mill would be operational given the enhanced ability to recover gold with the new mill.
Speaker 3: No, we've been working on that and arguably it's taken longer than anticipated because just given the orientation of those structures, they are requiring definitely a different mining approach to them. We have added
Speaker 3: We've been working on that and arguably it's taken longer than anticipated because just given the orientation of those structures, they are requiring definitely a different mining approach to them and we have added
Speaker 3: we've added to the flow sheet the ability to do gravity concentration. So for some of those particularly higher grade areas in the gold, we've been trial mining that. So that will, based on the forecast, and you can see that in the projections in terms of production guidance in terms of gold ore for the year.
Speaker 3: That is still our target for this year and it's independent of the mill.
Speaker 5: So, it is sort of working its way into the mind plan just like you say, it probably took a little bit longer just given the, the, the different orientation, the different mining approach that you have to take for those versus the rest of the bands. Exactly. Yeah.
Speaker 5: Perfect. Great. That's it for me. Thanks.
Speaker 5: Thanks. Thanks, Justin. Thanks, Justin.
Speaker 2: There are no further questions at this time, sir. This concludes the question and answer session. I would now like to turn the conference back to Lorne Schaber for any closing remarks.
Speaker 3: That's great. Thank you, Jenny, and thanks everyone for tuning in today. That's all the time we have for this call. But as always, if anyone has any additional questions, please don't hesitate to call or reach out to us by email. We're happy to sit down and answer those questions in greater detail. Again, thank you everyone and have a great day.