Q2 2023 SilverCrest Metals Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Silvercrest reports second quarter 2013 results conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you required immediate assistance. Please press star zero for operator.

This call is being recorded on Thursday.

August 2020.

I would now like to turn the conference over to Eric <unk> CEO and director. Please go ahead Sir.

Thank you operator, and good morning, everybody.

Everybody for and thanks for joining.

Today, we will be providing commentary on our robust Q2, 2023 results and <unk> guidance.

After which we'll be happy to take questions. The slide deck will be referring to in this presentation is available on our website at silvercrest metals dot com under the investors tab.

Before I get started I'd like to direct you to the forward looking statements on slide two.

All figures discussed this morning are in U S dollars, unless otherwise stated and any references to the report are in relationship to the recently re released updated technical report.

All of the ounces all of the outlets comments on ounce and per ounce references discussed will be based on silver equivalent ounces unless otherwise specified.

On the call with me today is Chris Ritchie, President <unk>, Chief operating officer, starting on slide three.

Q2 marked another successful quarter for production.

We have continued to generate free cash flow after eliminating our debt with $25 million repayment in the quarter.

Also adding approximately $4 million in bullion and $8 million of cash to our treasury assets, while spending about $10 million in sustaining capital our balance sheet continues to be a differentiator among our peers.

The <unk> operation continues to perform well with 13400 ounces of gold and one side's 145 million ounces of silver sold in the quarter in line with estimates in the report.

And quarterly levels outlined in our guidance almost all operating parameters showed improvement over Q1, 2023, including underground mine ramp up which continued to progress well with an average mining rate of 818 tons per day for the quarter.

A 16% increase from Q1 and in line with the updated technical report estimates.

Last week, we released the results of the updated technical report, which will be filed within 45 days. The data used to compile the report was generated from actual underground operations, resulting in a production and cost profile that we are confident in the change in the broader economy.

And our project from the last three years warranted an updated study that is more in line with current operating environment. We hope the release of these Q2.

Results are we'll continue to highlight our strong margins and balance sheet as well as our unique position to opportunistically allocate our capital we continue to advance our ESG initiatives, including a strong focus on health and safety as well as managed.

The risks and opportunities within the communities, which we operate.

During the quarter, we delivered our inaugural ESG report and important derisking event to align our disclosures with the meaningful work that has been completed to date. We are very proud to have been recognized in Mexico with this ESR socially responsible company.

<unk> for 2023.

I will now pass it to Chris to discuss financial results for the quarter.

Thanks, Eric moving to slide four.

The operational performance of the list Las <unk> asset was highlighted by our strong free cash flow and growth on our balance sheet, while increasing our sustaining capital spend and repaying $25 million of debt.

In the quarter, we generated generated revenue of $62 million.

Our cost of sales was $23 7 million reflecting.

Strong mine operating margin of 62%.

As cost tend to track prices in our industry. These margins can be a significant differentiator relative to other assets.

Net income in the quarter was $23 7 million or <unk> 16 per share.

This is inclusive of an $8 6 million or <unk> <unk> per share unrealized foreign currency loss, which compares to a $1 $1 million unrealized foreign currency gain or <unk> <unk> per share in Q1 2023.

Net free cash flow was $43 7 million for <unk> 30 per share, which compares to $21 8 million in Q1.

Our net free cash flow in the quarter benefited from financial items like the return of value added taxes, and deferral of payables and taxes, which are scheduled to be paid in Q1 2024.

We ended the quarter with $59 million of Treasury assets, which included approximately $53 million in cash and $6 million of bullion.

And undrawn $70 million revolving credit facility remains available.

Now on to slide five.

Capital allocation is critical to the success of any business and given our strong margins and free cash flow, we find ourselves in a unique position to have choices.

A single asset company.

Our first allocation priority is to maintain a defensive balance sheet that allows us to weather the uncertainties of this business, but also to be well positioned to be opportunistic.

Equally as important is our focus on growth.

Our infrastructure has been built and adding more ounces to the production profile through exploration success has the potential to benefit our valuation.

Another priority is to add bolt into our balance sheet as another currency to be managed we believe ounces above the ground are worth more than ounces in the ground given that the risk of producing them has been incurred and we believe that these ounces are a better store of value than Fiat currency.

While we look for new projects to develop we believe that <unk> on our balance sheet will enhance our multiple relative to cash while providing healthier leverage for our investors and a hedge against inflation.

We are also happy to have announced a share buyback or normal course issuer bid yesterday supporting our capital allocation priority to return capital to shareholders. We are in a healthy operational and financial position because of the support of our shareholders and despite our risk being significantly reduced approximately one third of the shares issued were done so at.

Higher levels than the share price today.

We are well aware of the challenges to discover permit finance build and operate a mine and as a result, we see the NCI is an opportunity to both reinvest in our own asset at a much lower risk level and recognize our supporters.

With that I will now pass it on to Pierre to discuss operations at Los <unk>.

Thanks, Chris I'm now on slide six.

Ramp up of underground mining rate increased during the quarter, averaging over 800 tonnes per day in.

In line with the reports.

Underground mining rates start to stabilize at these level in <unk> as we prepared to ramp up.

In 2024.

During Q2, the lateral development rate increased to 33 meter per day.

This is a significant improvement over Q1 and a level similar to the expectation to the report.

During the quarter. The third part told was also establish to access the last two specific tier one's progressed enough to Syria is expected to provide more fronts and ease the transition.

Two an increase to development rate of 42 meter per day.

In Q3, we plan to resume contract negotiation with mining contractors, including our current contractors and we're still targeting to complete these discussion in each two of 23.

As highlighted in our release last week, we've made allocation to reflect the potential impact of lease negotiation.

The <unk> processing plant average daily throughput at 11, <unk> hundred 86 tons per day.

A number that is in line with expectation.

We recently.

Recently released technical report.

The plan to recover to 84 million silver equivalent ounces in Q2 as a result of much improved silver recovery.

And an increase in feed grade.

As outlined in the report the company continues to benefit from strategy stockpiled used to supplement processing plant feed as the mine is gradually developed in tonnage ramped up.

Still on slide six our corporate level, ASIC, which align with World Gold Council definition was $12 70 per ounce silver equivalent.

At the mine level ASIC was $11 41.

An increase over Q1 due to a planned increase in mine development and an increase in mine output.

Over the next few quarters, one important measure of success will be our ability to execute on the development plan and as a result, we expect the sustaining part of our ASIC to increase accordingly.

We should note that we've adjusted Q1 'twenty three results to align with our new silver equivalent ratio from the technical report of <unk> 79, 5% to one and to align better with the costing and the report it's.

It is important to highlight that making this ratio change impact silver equivalent per meters by about 5%.

I will now pass it back to Erik to present, the age through 2023 guidance.

The presentation.

Thanks Pierre.

Moving on to slide seven with the release of the updated technical report.

We are now in a position to release guidance for the remainder of the year for <unk> 2023, the company expects to produce four eight to $5 2 million ounces at cash cost of between seven to $8.

<unk>.

Per ounce sold.

Also for each to mine level all in sustaining costs are expected to be 11, 75 to 13 point.

Five.

Per ounce sold and all in sustaining cost is defined by the World Gold Council are expected to range from $13 75 to $15 50.

Ounce sold.

Please note that our guidance is based on 20% to one Mexican peso to U S dollar exchange rate.

And we've had a notable moves and the rate to levels of 17, 7% to one we estimate about 40% to 50% of our costs are peso denominated.

Full year 2023 guidance is nine 8% to $10 2 million ounces at all in sustaining cost between $12 75 to $13 $75 per ounce sold.

<unk> costs for <unk> are projected to be higher based on increased sustaining costs related to underground development.

Moving on to slide eight.

Next <unk>.

Exploration efforts will continue with a newly approved $10 million drilling budget through Q1 2020 for phase one of the program will target 10 million ounces $10 million higher grade ounces silver and silver resources in proximity to current.

And planned operations for potential reserve replacement phase II, we will focus on another 5 million inferred ounces in each to 2024 went underground access for these areas become available.

Program will also target earlier stage opportunities.

With over 23 kilometers of under explored veins at Las <unk> that we are looking forward to start exploring.

That wraps up our formal commentary for today operator, please open the line for questions.

Thank you, ladies and gentlemen, we will now conduct a question and answer session. If you have a question. Please press star followed by the number one on your Touchtone phone.

You will hear at Raytheon prompt acknowledging your request if you will.

I'd like to cancel your request please press star two please.

Please enter your lift the handset if youre using a speakerphone before pressing any case once again at the star one to ask a question.

Your first question comes from the line of Steve Ben Stevens from Stifel. Your line is now open.

Hey, guys. Congrats on a good quarter extinguishing the debt and building the balance sheet quickly as is an impressive feat.

I just had a question around the stockpile accounting.

The use of some higher higher cost stockpiles looked like in the quarter.

Kind of drove up a little bit of the unit cost a little bit can you just maybe provide some color on that and then how we should think about that going forward compared to I believe it was a credit from the stockpiles in Q1. Thanks.

So I think the high level answer for you there Stephen Thanks for the question is we did a lot of pre development. We had a lot of stockpiles available as time progresses, we need to ramp up the mind and make sure we're delivering more tons from the mine.

Relative to the tons, we're delivering from the stockpiles. So the costs were going to be incurring should go up as the tons coming from the main increase in the ratio.

Okay. Thanks, So that's what we saw this quarter was a higher proportion of <unk>.

Primary mined tonnes hitting the mill versus.

Versus material sourced from the stockpile ore I thought there was some commentary about the cost allocation within the stockpiled actually used this quarter versus previous quarter.

Okay.

Yes, the average time to.

Coming from the underground is going to increase.

Okay, sorry from banks on the stockpile, sorry from the stockpile apologies.

Okay.

Got it.

No. That's helpful. I appreciate that and then I guess just one other one on from the accounting on taxes, I mean, no no cash taxes paid this quarter you mentioned that will that will probably continue until it's true up in Q1.

And then from that point forward will be regular cash tax payments are we would expect to see this kind of build through the year and then big cash outflow in the first quarter of each year.

File your taxes.

Yes, correct, we expect to start paying cash taxes in Q1, and that'll be sort of an ongoing quarterly event from that timeline.

Perfect. Thanks.

That's it for me I'll offer up the line for anyone else here. Thanks, a lot guys.

As a reminder, if you would like to ask a question. Please press star one.

Your next question comes from the line of John <unk> from the Jarden. Your line is now open.

Hey, guys. Thanks for taking my question, guys and great quarter, there and very aggressive Echo Steven's comments there on how quickly you paid off the debt obviously shows free cash flows I wrap it up here.

My question is just on the exploration budget of $10 million I'm, just wondering how much of that will be capitalized and how much of that is going to be expensed.

I guess related to that if youre going to look at Alphacat show or if it's going to be really kind of more near near mine exploration.

Yes, most of it will be focused on the near mine.

Exploration, Okay. We have no planned budget right now for Bocaccio, we're waiting for some permits there.

So.

From a split of non sustaining to sustaining a majority is going to.

Reserve replacement, which would be on the sustaining side.

Okay. So we shouldnt expect to see much of that exploration budget expense then is that fair.

Sorry that was unsustainable site.

There you go.

Not the sustaining capital side okay.

Okay great.

Okay.

Yes, no that's it for me and great quarter, and looks very very strict court. Thanks a lot.

There are no further questions at this time I will now hand over to Eric for closing remarks.

Great. Thanks, everybody for attending the Silvercrest metals Q2, 2023 results call.

Have a great day.

Okay.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.