Q1 2024 Gatos Silver Inc Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Gatos Silver's first quarter 2024 results conference call. Presenting today will be Dale Andres, CEO of Gatos Silver, and Andrei Van Niekerk, Chief Financial Officer. We will conclude today's session with a question and answer period where other members of the Gatos Silver management team will be available. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the pound.
Ladies and gentlemen, thank you for standing by.
Operator: <unk> got this Joe versus first quarter 'twenty 'twenty four results conference call presenting today will be bail in debt C. E O Scott the silver and Andre Van Niekerk, Chief Financial Officer, We will conclude today's session with a question and answer period for other members of the got the silver management team will be available.
Operator: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Operator: You would like to withdraw your question press the pound key at this time all participants' lines have been placed on mute for the duration of the presentation to prevent any background noise.
Operator: At this time, all participant lines have been placed on mute for the duration of the presentation to prevent any background noise. Turning your attention to slide two, please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Gatos Silver does not assume the obligation to update any forward-looking statement. I would now like to turn the call over to Dale Andres. Please go ahead.
Operator: Turning your attention to slide two please note that this call contains forward looking statements various risks and uncertainties may cause actual results to vary got the silver and does not assume the obligation to update any forward looking statements I would now like to turn the call over to Dale Andres. Please go ahead.
Dale Andres: Thank you, operator, and good morning, everyone. Turning to slide three, our strong operating performance and cash flow generation continued in the first quarter of 2024. So the Los Gatos Joint Venture set yet another record mil throughput rate. During the quarter, we averaged a mil throughput rate of over 3,200 tonnes per day, and we are well on our way to our medium-term target of sustainable production at 3,500 tonnes per day. Our first quarter production puts us in a strong position for the remainder of the year, and the Serola Skeptilis production is expected in the top half of our guidance range, as a result of the strong operating performance this quarter. All in all, sustaining cost metrics for the full year are expected to remain in the lower half of the guidance range, despite the strengthening peso and inflationary pressure.
Dale Andres: Thank you operator, and good morning, everyone.
Dale Andres: Turning to slide three or our strong operating performance and cash flow generation continued in the first quarter of 2024.
Dale Andres: So los Gatos joint venture.
Dale Andres: Other record mill throughput rate.
Dale Andres: During the quarter, we averaged a mill throughput rate of over 3200 tonnes per day.
Dale Andres: Well on our way to our medium term target of sustainable production of 3500 tonnes per day.
Dale Andres: Our first quarter production puts us in a strong position for the remainder of the year.
Dale Andres: And the <unk> production is expected in the top half of our guidance range.
Dale Andres: As a result of the strong operating performance this quarter.
Dale Andres: Our all in sustaining cost metrics for the full year are expected to remain in the lower house of the guidance range, despite the strengthening peso and inflationary pressures.
Dale Andres: Gatos Silver continues to receive regular cash distributions from the joint venture. Andres will talk about this in more detail, but I do want to highlight the Los Gatos Joint Venture's free cash flow of over $25 million in the first quarter of 2024 and continuing distributions received in April of this year. Gatos Silver had a cash balance of over $85 million at the end of April.
Dale Andres: Capsules silver continues to receive regular cash distributions from the joint venture.
Dale Andres: Andre will talk about this in more detail, but I do want to highlight the Los Gatos joint ventures free cash flow of over $25 million in the first quarter of 2024 and continuing distributions received in April of this year.
Dale Andres: Capital of silver had a cash balance of over $85 million at the end of April.
Dale Andres: Yeah.
Dale Andres: We are on track to update our Lightful Mine plan in the third quarter this year and are aiming to increase throughput and also extend the mine life. Importantly, we have now started to ramp up exploration efforts on both near the mine and other targets in the highly prospective Los Gatos. Turning to slide four.
Andres: We are on track to update our life of mine plan in the third quarter. This year and are aiming to increase throughput and also extend the mine lives.
Dale Andres: Importantly, we have now started to ramp up exploration efforts on both near mine and other targets in the highly prospective <unk> district.
Dale Andres: District.
Dale Andres: As mentioned before, mill throughput in the quarter was over 3200 tons per day, with a higher throughput offset by lower silver grades as expected in the mine plant. Production was similar compared to the comparable quarter in 2023, with silver at 2.4 million ounces and silver equivalent production, which includes zinc, lead, and gold, and now starting copper soon at 3.7 million ounces for the quarter. In March, we achieved an average milk throughput rate of over 3300 tons per day, which was the best monthly performance on record.
Dale Andres: Turning to slide four.
Dale Andres: Mentioned before mill throughput in the quarter was over 3200 tonnes per day.
Dale Andres: With the higher throughput offset by lower silver grades as expected in the mine plan.
Dale Andres: Production was similar compared to the comparable quarter in 2023, the silver at $2 4 million ounces and silver equivalent production, which include zinc lead and gold and now starting copper soon at $3 7 million ounces for the quarter.
Dale Andres: In March we achieved an average mill throughput rate of over 3300 tons per day, which was the best monthly performance on record.
Dale Andres: With the minor modifications to the mill made this year, we believe the current mill capacity is already at the 3500 ton per day rate on a calendar day basis. However, to achieve these levels through the mill, we need to first show that we can sustain and then increase mining rates, which continue to be the bottleneck. We have various initiatives underway to increase those mining rates, including rebuilding the core mining fleet, other Maintenance Improvement Projects, optimizing mine plans and schedules to support the higher rates, and a major focus on operational execution, including short interval control.
Dale Andres: With some minor modifications to the mill made this year. We believe the current mill capacity is already at the 3500 tonne per day rate on a calendar day basis.
Dale Andres: However to achieve these levels through the mill, we need to first show that we can sustain and then increase mining rates, which continue to be the bottleneck.
Dale Andres: We have various initiatives underway to increase those mining rates, including rebuilding the core mining fleet.
Dale Andres: Other maintenance improvement projects Optum.
Dale Andres: Optimizing mine plans and schedules to support the higher rates.
Dale Andres: The major focus on operational execution, including short interval control.
Dale Andres: Cost of sales for the first quarter increased by 18% compared to the comparable quarter last year, but this was primarily due to the 12% increase in tons processed and a 17% increase in concentrate tons sold. Cost of sales were also impacted by the continued strengthening of the Mexican peso during the quarter.
Dale Andres: Cost of sales for the first quarter increased by 18% compared to the comparable quarter last year, but this was primarily due to the 12% increase in tonnes processed and a 17% increase in the concentrate tons sold.
Dale Andres: Cost of sales were also impacted by the continued strengthening of the Mexican peso during the quarter.
Dale Andres: All in sustaining costs per payable ounce of silver, and that's after byproduct credit, were just over $10 an ounce compared to just over $6 an ounce in the first quarter of 2023, and that is in the lower half of our guidance range for 2024. We now expect full-year production to be in the upper half of our guidance range for 2024. And I'm speaking to slide 5 now.
Dale Andres: All in sustaining costs per payable ounce of silver and Thats. After byproduct credits were just over $10 an ounce compared to.
Dale Andres: Just over $6 an ounce in the first quarter of 2023.
Dale Andres: And that is in the lower house of our guidance range for 2024.
Dale Andres: As you can see in the table, silver and silver equivalent production is at 27% and 26%, respectively, compared to the midpoint of guidance, and our unit cost metrics are tracking 4% below the midpoint in the first quarter. Based on the strong performance in the first quarter, we now expect throughput rates at the Cerro Los Gatos mine to average in the top half of our 3,000 to 3,300 ton per day guidance range for the full year.
Dale Andres: We now expect full year production to be in the upper half of our guidance range for 2024, and I'm speaking to slide five now as you can see in the table silver and silver equivalent production of 27% and 26% respectively compared to the midpoint of guidance and our youth.
Dale Andres: That cost metrics are tracking 4% below midpoint in the first quarter.
Dale Andres: Based on the strong performance in the first quarter, we now expect throughput rates at the Cerro Los Gatos.
Dale Andres: Mind to average in the top half of our 3000 to 3300 tonne per day guidance range in 2024 for the full year.
Dale Andres: We still expect exploration and definition drilling spend to be at $18 million for 2024, and our sustaining capital expenditures to be approximately $45 million. And the majority of that spend will be on underground development, with a continued focus on opening up the southeast area and some of those mine equipment rebuilds and other infrastructure projects, as I mentioned. I'll now turn the call over to Andres to present our financial results.
Dale Andres: We still expect exploration and definition drilling spend to be at $18 million for 2024, and our sustaining capital expenditures to be approximately $45 million.
Andres: And thats with the majority of that spend on underground development with the continued focus on opening up the southeast area.
Andres: Some of those mine equipment rebuilds and other infrastructure projects as I mentioned.
Andres: I will now turn the call over to Andre to present, our financial results.
Andr van Niekerk: Thank you, Dale. Good morning, everyone.
Andres: Thank you Dale good morning, everyone.
Andr van Niekerk: The 70% and Los Gatos joint venture's strong operating performance is underscored by yet another quarter of robust cash flow generation. Cash flow provided by operations was approximately $37 million. The joint venture generated free cash flow of $25.5 million this quarter, 14% higher than the $22.3 million in Q4 2023 and 11% lower than the $28.7 million in Q1 2023. The drop from the comparable quarter last year was primarily due to lower realized metal prices and higher operating costs than in Q1 2023, associated largely with higher mining and processing rates.
Andres: The 70% Los Gatos joint venture strong operating performance is underscored by yet another quarter of robust cash flow generation.
Andr van Niekerk: Cash flow provided by operations was approximately $37 million.
Andr van Niekerk: Joint venture generated free cash flow of $25 $5 million this quarter, 14% higher than the $22 3 million in Q4, 2023, and 11% lower than the $28 7 million in Q1 2023.
Andr van Niekerk: The drop from the comparable quarter last year, primarily due to lower realized metal prices and higher operating costs in Q1, 2023 associated largely with higher mining and processing rates.
Andr van Niekerk: Cash flow used in investing activities was $11.8 million in Q1 2024, and similar to the $11.4 million in Q1 2023. Of that amount, resource development drilling totaled $3.2 million for the quarter, with most of the spending focused on infill drilling on the southeast edge.
Andr van Niekerk: Cash flow used in investing activities was $11 $8 million in Q1 2024.
Andr van Niekerk: And similar to the $11 $4 million in Q1 2023 of that amount resource development drilling totaled $3 2 million for the quarter with most of the spending focused on the infill drilling in the southeast Steve.
Andr van Niekerk: As a result of the continued strong free cash flow generation in the first quarter, the joint venture made a capital distribution of $30 million in February. As a reminder, a total of $85 million will be distributed in 2023. Subsequent to the end of the quarter, in April, the joint venture made a further quarterly capital distribution to its partners of $25 million. Now, turning to slide seven, to look at the financial results of the Los Gatos Joint Venture for GORAC.
Andr van Niekerk: As a result of the continued strong free cash flow generation in the first quarter. The joint venture made a capital distribution of $30 million in February.
Andr van Niekerk: As a reminder, a total of $85 million was distributed in 2023.
Andr van Niekerk: Subsequent to the end of the quarter in April.
Andr van Niekerk: Joint venture made a further quarterly capital distributions to the partners of <unk>.
Andr van Niekerk: $5 million.
Andr van Niekerk: Now turning to slide seven to look at the financial results of the Los Gatos joint venture for the quarter.
Andr van Niekerk: Okay.
Andr van Niekerk: Revenue increased to $72.2 million in the first quarter of 2024, but higher volumes of metal sold were offset by significantly lower silver, zinc, and lead prices. The provisional revenue adjustment was a $900,000 negative adjustment in this quarter compared to a $13.6 million negative adjustment in Q1 2023. Cost of sales increased by 18%, primarily due to higher mining and processing costs as a result of a 12% increase in mold throughput and a 17% increase in the tonnage of concentrates sold.
Andr van Niekerk: Revenue increased to $72 2 million in the first quarter of 2024.
Andr van Niekerk: Higher volumes of metal sold were offset by significantly lower silver zinc and lead prices.
Andr van Niekerk: The provisional revenue adjustment was a 900000 negative adjustment in this quarter compared to $13 6 million negative adjustment in Q1 2023.
Andr van Niekerk: Yeah.
Andr van Niekerk: Cost of sales increased by 18%, primarily due to higher mining and processing costs as a result of a 12% increase in most of it but and a 17% increase in the tonnage of concentrates sold.
Andr van Niekerk: Costal sales were further impacted by the strengthening of the Mexican peso against the US dollar, which was partly offset by productivity improvement and cost reduction initiatives as part of our continuous improvement program. Depreciation, depletion, and amortization expense decreased by approximately 3%, primarily due to the increase in the mineral reserves and the extension of the mine life, offset by additional DDNA on recent capital additions. The income tax expense of $4.8 million for the quarter was 20% lower than in Q1 2023, primarily due to lower taxable income for the period.
Andr van Niekerk: Golf ball sales were further impacted by the strengthening of the Mexican peso against the U S dollar, which was partly offset by productivity improvements and cost reduction initiatives as part of our continuous improvement program.
Andr van Niekerk: Depreciation depletion and amortization expense decreased by approximately 3% primarily due to the increase in the mineral reserves and the extension of the mine life offset by additional DD&A on recent capital additions.
Andr van Niekerk: The income tax expense of $4 $8 million for the quarter was 20% lower than in Q1, <unk>, primarily due to lower taxable income for the period.
Andr van Niekerk: Finally, the LGJV recorded net income of approximately $10.2 million for the quarter, 20% lower than in Q1 2023. Moving on to slide 8 to review the financial results for Gatos Silver. Gatos Silver recorded net income of $2.5 million, or $0.04 per basic and diluted share. That's up 203% from Q1 2023. Equity income in affiliates increased to $7.3 million primarily due to a reduction in the obligation under the Priority Distribution Agreement with DOA, partly offset by lower equity income from the LGJV.
Andr van Niekerk: Finally, the algae JV recorded net income of approximately $10 $2 million for the quarter, 20% lower than in Q1 2023.
Andr van Niekerk: Moving on to slide eight to review the financial results, regardless silver.
Andr van Niekerk: Schedule. So recorded net income of $2 5 million or <unk> <unk> per basic and diluted share.
Andr van Niekerk: That's up 203% from Q1 2023.
Andr van Niekerk: Equity income in affiliates increased to $7 $3 million.
Andr van Niekerk: Primarily due to a reduction in the obligation under the priority distribution agreement with Delek.
Andr van Niekerk: Partially offset by lower equity income from the algae JV.
Andr van Niekerk: Yeah.
Andr van Niekerk: Corporate GNI was approximately $1.4 million higher in Q1 2024 than in Q1 2023, mainly due to a $900,000 increase in non-cash stock-based compensation expense as a result of 2023 and 2024 equity grants and a $600,000 increase in non-recurring legals. Turning to slide 9.
Andr van Niekerk: Corporate G&A was approximately $1 $4 million higher than.
Andr van Niekerk: In Q1 2024 than in Q1, 2023, mainly due to a $900000 increase in non cash stock based compensation expense as a result of <unk> 23 in 2020 for equity grants.
Andr van Niekerk: And a $600000 increase in nonrecurring legal fees.
Andr van Niekerk: Turning to slide nine.
Andr van Niekerk: As mentioned earlier, the joint venture paid a capital distribution of $30 million to its partners, Gatos Silver and DABA, during the first quarter, of which we received $21 million. As a result, Gatos Silver ended the first quarter with a cash balance of $70.6 million. After the end of the quarter in April, the LGJV made another capital distribution of $25 million, of which we received $17.5 million, bringing the company's cash balance to $85.4 million on April 30, 2024.
Andr van Niekerk: As was mentioned earlier, the joint venture capital distribution of $30 million to its partners got the silver Entebbe during the first quarter of which we received $301 million.
Andr van Niekerk: As a result, Caddo slower ended the first quarter with a cash balance of $76 million.
Andr van Niekerk: After the end of the quarter in April the LTE JV made another capital distribution of $25 million.
Andr van Niekerk: Of which we received $17 5 million.
Andr van Niekerk: The company's cash balance to $85 4 million.
Andr van Niekerk: At April 30th pretty dreadful.
Andr van Niekerk: The company, along with its insurers, has also fully funded both the U.S. and Canadian class action lawsuits, and the cash balance at the end of April is after our portion of the payments has been made. The distribution of the settlement amounts is now pending final court approval, which we expect by the end of Q2. The LGJV entered the first quarter with a cash balance of $29.8 million and had a cash balance of $20 million on April 30, 2024. Both GSI and the LGJV remain debt-free, and the company's $50 million revolver remains in place. I will now hand it back to Gatos.
Andr van Niekerk: The company along with its insurers is also fully funded both the U S and Canadian class action lawsuits and a cash balance at the end of April is after our portion of the payments have been made.
Andr van Niekerk: The distributions of the settlement amount is now pending final court approval, which we expect by the end of Q2.
Gatos: The LTE JV ended the first quarter with a cash balance of $29 $8 million and had a cash balance of $20 million at April 32024.
Andr van Niekerk: Both GSI, Andy algae, JV remained debt free and the company is $50 million revolver remains in place.
Gatos: I'll now hand, it back to Dale.
Dale Andres: Thanks, Andres. And turning to slide 10, we wanted to highlight how our business improvement initiatives and increased throughput are delivering results. Specifically, site operating costs per tonne have decreased by 9% over the past three years, despite inflationary pressures, including the 5.5% per year increase in labor costs and a substantial strengthening of the Mexican peso. Our numerous continuous improvement and cost optimization programs also contribute to the lower cost per ton.
Gatos: Thanks, Don Great turning to slide 10, we wanted to highlight how our business improvement initiatives and increased throughput are delivering results at the mine.
Dale Andres: Site operating costs per ton have decreased by 9% over the past three years, despite despite inflationary pressures.
Dale Andres: <unk>, the five 5% per year increase in labor costs.
Dale Andres: The substantial strengthening of the Mexican peso.
Dale Andres: Our numerous continuous improvement and cost optimization programs also contribute to the lower cost per ton.
Dale Andres: On the design side, we have successfully switched more of our mining areas from cut and fill to long-haul stopping, including transverse stokes where the geometry and ground conditions are suitable, which is a more cost-effective mining method. We are continuing our equipment rebuild program this year and working on our underground productivity initiatives to work towards first sustainably mining at the 3,200 to 3,300 ton per day rate, which we're currently achieving, and then to further extend that towards 3,500 tons per day in the medium term.
Dale Andres: On the design side, we have successfully switched to more of our mining areas from cut and fill to long hole stoping.
Dale Andres: Including transfer stopes, where the geometry and ground conditions are suitable which is a more cost effective mining method.
Dale Andres: We are continuing our equipment rebuild program this year and working on our underground productivity initiatives too.
Dale Andres: To work towards first sustainable sustainably mining at the 32 to 3300 tonne per day rate, which we're currently achieving.
Dale Andres: And then to further extend that towards the 3500 tonnes per day in the medium term.
Dale Andres: Turning to slide 11, we are on track to provide our updated lifeline plan and mineral reserves in the third quarter of 2024 this year and targeting the throughput rate in the plan. The current plan averages 2,950 tons per day, and we're looking at increasing that. Even with mining more of our mineral reserves faster, we still expect an extension to the life of the mine. The new life of mine plan will be based on an additional 66 kilometers of drilling that's been completed over the past 12 months up to the end of the first quarter, and we've now made that data cutoff.
Dale Andres: Turning to slide 11, we are on track to provide our updated life of mine plan and mineral reserves in the third quarter of 2024 this year.
Dale Andres: And the throughput and targeting the throughput rate in the plan.
Dale Andres: Current plan averages 20, 950 tons per day, and we're looking at.
Dale Andres: Increasing now.
Dale Andres: Even with some even with mining more of our mineral reserves.
Dale Andres: The faster, we still expect an extension to the life of mine.
Dale Andres: The new life of mine plan will be based on an additional 66 kilometers of drilling that's complete been completed over the past 12 month period up to the end of the first quarter and was now made that data cutoff.
Dale Andres: In the Southeast Deeps conversion drilling that we did between that April 2023 to the end of March 2024 timeframe, it was done on 50 meter spacing targeting the higher grade trends in the zone. We still have two drills dedicated to further infill drilling and resource expansion on the Southeast Deep. On the recovery side of things, we are completing detailed engineering for a copper separation circuit and anticipate making a decision in the third quarter of this year. We are also evaluating technology and various options for increasing the recovery of silver, gold, and zinc.
Dale Andres: In the southeast Steeps conversion drilling that we did between that April 2023 at the end of March 2024 timeframe was done on 50 meter spacing targeting the higher grade trends in the zone.
Dale Andres: We still have two drills dedicated to further until drilling and resource expansion on the southeast deeps.
Dale Andres: On the recovery side of things, we are completing detailed engineering for our copper separation circuit and anticipate making a decision in the third quarter of this year.
Dale Andres: We are also evaluating technology and various options for increasing the recovery of silver gold and zinc.
Dale Andres: Turning to slide 12, this figure shows a few of the key targets that are within a few kilometers of the existing mine workings and potentially accessible from existing underground infrastructure. Now that we have passed that database cutoff for this year's reserve update, we are excited by the opportunity to ramp up the exploration work on the rest of our 103,000 hectare land package. After the end of the quarter, we announced the appointment of Chad Uhas, our new Vice President of Exploration and Technical Services, and we are really pleased to have Chad on board to guide these critical parts of our business.
Dale Andres: Turning to slide 12. This figure shows a few of the key targets that are within a few kilometers of the existing mine workings and potentially accessible from existing underground infrastructure.
Dale Andres: Now that we have passed that database cutoff for this year's reserve update we are excited by the opportunity to ramp up the exploration work on the rest of our 103000 hectare land package.
Dale Andres: After the end of the quarter, we announced the appointment of Chad you have our new Vice President of exploration and technical services and we're really pleased to have Chad on board to guide these critical parts of our business.
Dale Andres: First up, we are starting on targets within three to four kilometers of the mine operations, as it'll be easiest to bring anything we find here into production. We do have two rigs working now to the southeast of the mine in the Portugueno area. The first holes stepped along the Gatos Fault and are now stepping south along the Dragon Fault towards the Thule and Roja Fault targets. A third greenfield rig will be moving on to the northwest deeps target and the central deeps target, and then further out from the Cerro Los Gatos mine in the basin within the next few weeks.
Dale Andres: First up we are starting on targets within three to four kilometers of the mine operations as it will be easiest to bring anything we find here into production.
Dale Andres: We do have two rigs working now towards the southeast of the mine and the port the Glendale area.
Dale Andres: First tolls stepped along the capsules fault and they're now stepping south along the Dragon fault.
Dale Andres: Is that too late and real heartfelt target targets.
Dale Andres: A third greenfield rig will be moving on to the northwest Deeps target.
Dale Andres: In central deep target.
Dale Andres:
Dale Andres: And then and then further out from the start of Los Gatos mine in the basin within the next few weeks.
Dale Andres: We will be getting the drill rigs further out from Cerro Los Gatos and the surrounding mine later in the year with some very prospective targets in the San Luis area, about five kilometers northwest of the mine, and a number of targets in the Lintz area, about 20 kilometers to the northwest. On slide 13, and in summary, we continue to safely drive mill throughput increases together with productivity improvements and cost optimization, which is a core part of our business and operating strategy.
Dale Andres: We will be getting the drill rigs further out from Cerro Los Gatos and the surrounding mine later in the year with some very prospective targets and the San Luis area about five kilometers northwest of the mine and there are a number of targets and the Lynch area about 20 kilometers to the northwest.
Dale Andres: On slide 13 in summary, we continue to safely drive mill throughput increases together with productivity improvements and cost optimization, which is a core part of our business and operating strategy.
Dale Andres: We remain focused on developing a new life of mine plan by the third quarter of this year, which incorporates the Southeast deeps conversion drilling together with other value-enhancing initiatives, including higher throughput rates and copper. And we continue to be very excited as we start to increase our near mine and district drilling in the large and highly prospective districts, including Port Agueno and the Northwest and Central Deeps, which I discussed. And importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from the Los Gatos Joint Venture and a growing cash balance. I will now hand it back to the operator.
Dale Andres: We remain focused on developing a new life of mine plan by the third quarter of this year, which incorporates the southeast deeps conversion drilling.
Dale Andres: Together with other value enhancing initiatives, including higher throughput rates and the copper circuit.
Dale Andres: We continue to be very excited as we start to increase our near mine and district drilling in the large and highly perspective district.
Dale Andres: <unk> <unk> in the northwest and Central Deeps, which I discussed.
Dale Andres: And importantly, we continue to generate strong operating margins and cash flow with regular distributions expected from the <unk> joint venture and a growing cash balance.
Speaker Change: I will now hand, it back to the operator for questions.
Dale Andres: Yeah.
Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster, and your first question comes from the line of Cosmos Chu with CIBC.
Speaker Change: At this time I would like to remind everyone in order to.
Operator: To ask a question Brett Star then the number one on your telephone keypad.
Operator: Pause for just a moment to compile the Q&A roster.
Operator: And your first question comes from the line of Kosmos Chu with CIBC.
Cosmos Chu: Hi, thanks, Dale and Andre and team. As I read, there is certainly a lot of exploration upside here. But my question is on Southeast Deeps. I was reading up on it, and as you mentioned in your press release from early April, that silver grade decreases with higher byproduct credit when you look at Southeast Deeps versus the central zone, and the northwest zone.
Cosmos Chu: Alright, thanks, Gail and and Andre and team.
Cosmos Chu: As I read you know certainly a lot of exploration upside here.
Speaker Change: Well My question is on South East Deeps I guess.
Cosmos Chu: I was reading up on it.
Cosmos Chu: As you mentioned in your press release from early April that the silver grade decreases.
Cosmos Chu: Higher byproduct credits when you look at southeast deeps versus central the Central zone. The northwest zones. So right now your reserve grade is sitting at about 217 gram per tonne.
Cosmos Chu: So, you know, right now your reserve grade is sitting at about two hundred and seventeen grand per ton. What can we expect, to the extent that you can, you know, kind of describe it? What can we expect as we go through and with your life of mine plan that's getting updated in Q3?
Cosmos Chu: What can we expect.
Cosmos Chu: To the extent that you can you.
Cosmos Chu: You know kind of describe it what can we expect as we.
Cosmos Chu: Come through with.
Cosmos Chu: With your life of mine plan, that's getting updated in Q2.
Speaker Change: Yes, thanks for the question Hi.
Speaker Change: Dale Cosmos.
Cosmos Chu: Yeah.
Speaker Change: I'll ask Tony to provide some color on that but I will say, we're right in the process.
Cosmos Chu:
Cosmos Chu: During the resource modeling work and incorporating those drill results in the southeast Deeps and so I don't think there's a lot we can say on a specific.
Cosmos Chu: Great great great target, but Tony do you want to comment further please.
Dale Andres: Yeah, I hate Cosmos. Unfortunately, I'm probably in it.
Speaker Change: Yes, Hi Cosmos.
Dale Andres: <unk> probably got it okay.
Speaker Change: So the question I'll, probably just echo what I'll say is like I mean.
Dale Andres: Like we've really just kicked it off like we can.
Dale Andres: I mean until we've actually done the work.
Dale Andres: There is a lot of things that go into that in terms of where we end up on stope design, where we like how much dilution gets added that theres a whole bunch of stuff.
Dale Andres: Really just sort of recommend you have a look at those.
Dale Andres: Im sure you have the exploration press releases that we put out I mean, what you can see from that and we report those effectively sort of similar to what we what we use for the reserve work. So what youll see from that is that as high up higher base metals. It has a lot of good sync led in particular.
Dale Andres: Alpha in those lots of silver is lower and so I mean.
Speaker Change: All I can do Richard glad juice, so to have a look at those but we cant sort of commit to final numbers until we've actually done a little work.
Cosmos Chu: Of course, and maybe ask a different way, Tony and Dale, you know, I see that your resource grade right now is a hundred grand per ton. Could you remind us a lot of where that resource came from?
Dale Andres: Of course, maybe asked a different way Tony at Dale you know I see that your resource grade right. Now is 100 Gram per ton could you remind us there's a lot of that resource from southeast groups.
Dale Andres: Yes, a lot of the, um, that, that
Speaker Change: Yes, a lot of the debt.
Dale Andres: Okay.
Dale Andres: So that's what you should try to convert.
Dale Andres: So that's what you try to think of it.
Dale Andres: Yeah, and Tony, you can expand on this, but I'd say we're trying to convert, I think it's just over four, I think it's four and a half or 4.6 million tonnes, if I recall correctly. Tony can correct me. of inferred resource in the Southeast East. And we're trying to convert the highest grade portions of that, obviously. But as Tony mentioned, the silver grades are expected to be lower than the reserve grades based on the results that we have. But base metals are holding in very nicely, and copper is a key differentiator for that zone.
Speaker Change: Yeah, and Tony you can expand on this but I'd say, where we're trying to convert I think its just over four <unk> I think it's 4445 for $4 6 million tons, if I, if I recall correctly, Tony can correct me.
Dale Andres: Of inferred resource in the southeast States.
Dale Andres: And we're trying to convert the highest the highest grade portions of that obviously and but as Tony mentioned.
Dale Andres: Silver grades are expected to be lower than the reserve grades based on.
Dale Andres: Based on the results that we have but base metals are holding in very very nicely on the copper is a key differentiator for that so on as well.
Speaker Change: Mhm, and Dale and Tony when we talked about the Senate passed in the past when you talked about.
Cosmos Chu: And Dale and Tony, when we talked about this in the past, in the past, when you talked about the updated life of mine plans last year and this year as well, there was always a due track in terms of targeting both, you know, number one, the replacement of mine life and also, number two, sort of maintaining, hopefully, a reserve grade. Is that still kind of like the target, you know, in the background in terms of what you try to do with each and every one of these lives?
Cosmos Chu: Updated life of mine plans last year industrial as well so there's always a dual track in terms of targeting both.
Cosmos Chu: Number one the replacement of mine life, and also a number to sort of to maintain.
Cosmos Chu: Hopefully reserve grade is that still kind of like the target.
Cosmos Chu: And the background in terms of.
Cosmos Chu: What you were trying to do with each and every one of these.
Cosmos Chu: Life of mine plans.
Dale Andres: Yeah, I'd say we're trying to do this this time around, maybe three things. One, and I mentioned it in the script was to increase, continue to increase throughput rates, and we are driving towards That's 3500 tons per day. We'll have to see as we go through the mine planning work whether we can sustain that and how we incorporate those higher throughput rates into our new life and mine plan, but that's clearly a target for us.
Cosmos Chu: Yeah.
Speaker Change: We're trying to do this time round it would be three things one one and I mentioned it in the in the script was to increase continue to increase throughput rates and we are driving towards.
Dale Andres: So that 3500 tons per day, we will have to see as we go through the mine planning work, whether we can sustain that.
Dale Andres: And how we incorporate those higher throughput rates into a new life of mine plan.
Dale Andres: But but but that's clearly a target for us.
Dale Andres: We do plan to extend the mine life, and just as we do higher throughput rates, we are taking and able to continue to lower, you know, able to take lower grades, and we're continuing to lower our unit cost, and that's just operating efficiencies, operating, you know, well above 3000 tons per day. And just as a reminder, our previous life of mine averaged 2,950 tons per day. And we do plan to extend the mine life, including those higher throughput rates.
Dale Andres: We do plan to extend the mine life and just as we do higher throughput rates and we are taking and able to continue to lower taking April to take lower grades and then we're continuing to lower our unit cost.
Dale Andres: That's just operating efficiencies operating.
Dale Andres: Ah well above 3000 tonnes per day.
Dale Andres: And just as a reminder, our previous life of mine average 20 950 tons per day, and we do plan to extend the extend the mine life, including those higher throughput rates and then.
Dale Andres: And then, As I said, we'll make a decision on the copper circuit. And that's, again, a margin enhancement that we're looking to bake into the new life of mine plan as well. But we're just currently going through all of that work.
Dale Andres: I said, we'll make a decision on the copper circuit and that's again.
Dale Andres: And had spent that were looking to to bake into some new life of mine plan as well, but we're just we're just currently going through all of that work.
Cosmos Chu: Great, thank you. And maybe as a follow-up and on a broader scale as well, you know, Dale, as you mentioned, a great looking balance sheet these days, we're getting cash sweeps from the joint venture and $85 million in cash, no debt. And you're only spending about $18 million on exploration. So what's next as you continue to grow the company? Is everything really organic internally, or are you looking externally as well? Can you maybe talk about the growth plans with, you know, the new exploration team now, a new VP Exploration, and you're potentially increasing the Exploration budget, so again, internally and externally how you're going to continue to grow the company, and can we see the Exploration budget?
Speaker Change: Great. Thank you and maybe as a follow up a broader scale as well.
Cosmos Chu: Dale as you mentioned Oh, great looking balance sheet. These days they were getting.
Cosmos Chu: Cash sweep from the joint venture and $85 million in cash.
Cosmos Chu: <unk> jet.
Cosmos Chu: And you're only spending about $18 million in exploration. So what's what's next as you continue to grow the company is everything really organic internal or you're looking externally as well can you maybe talk about the growth plans with the new exploration team now in place.
Cosmos Chu: Our new VP exploration, and you're increasing potentially increasing exploration.
Cosmos Chu: Exploration budgets again internal external how you're going to continue to grow the company and Oh can we see exploration budget Inc.
Dale Andres: Yeah, thanks for highlighting that Cosmos, including the cash, the cash balance. You know, we're sitting on over $85 million, as you pointed out. And if you take our share of the joint venture cash, which was $20 million at the end of April, you know, the combination of that is over $100 million. Just to be clear, $85 million and all the distributions are made from the joint venture after our exploration expenditures.
Cosmos Chu: Yes.
Cosmos Chu: Thanks for highlighting that cosmos, including the cash the cash balance we're sitting on over 85.
Dale Andres: And as you pointed out and and if you take our share of the joint venture cash, which was $20 million at the end of the.
Dale Andres: At the end of April.
Dale Andres: The combination of that is over $100 million.
Dale Andres: Just to be clear that that 85 million and in all of the distributions.
Dale Andres: And we do have plans for $18 million this year, and that is a ramp up from what we did last year. There is only so much we can do from an exploration perspective to execute that. And maybe, Tony, you can comment or provide some additional color. Right now, we're working towards that $18 million budget, about half of that on resource conversion and extension and half more on what I would call pure, greenfields exploration, even though some of that is near mine.
Dale Andres: From the joint venture is is after our exploration expenditures and we do have planned Street 18 million. This year and that is a ramp up from from what we did last year.
Dale Andres: There is only so much we can do from an exploration perspective.
Dale Andres: Acute that and maybe Tony you can comment or provide some additional color right now we're working towards that $18 million.
Tony: About half of that on resource conversion and extension in house more on what I would call pure <unk>.
Tony: <unk> field exploration, even though some of that is near mine.
Dale Andres: If we come across something really interesting, trust me, Cosmos; we will put the dollars and those to work on that. But, it's important to make sure that we're, you know, we have a plethora of targets, and we need to make sure that we're properly prioritizing those, doing the, you know, the work to make sure we're attacking the best areas first. And there's still lots of work to do.
Tony: If we tag into something really interesting trick Trust me Cosmos, we will put the dollars and goes to work on that but but.
Dale Andres: But it's important to make sure that we're.
Dale Andres: We have a plethora of targets.
Dale Andres: And we need to make sure that we're properly prioritizing those doing doing the.
Dale Andres: The work to make sure we're attacking the first areas first and there's still lots of work to do we've done a lot of foundational work over the last 18 to 24 months, we're in a position to start drilling and we are drilling.
Dale Andres: We've done a lot of foundational work over the last 18 to 24 months. We're in a position to start drilling, and we are drilling. But yeah, we do need to be a bit careful about just ramping up. It's such a big property. We're going to be here for many years. Tony, I don't know if you want to expand on that.
Dale Andres: But yeah, just the way, we do need to be a bit careful about just ramping up its such a big property. We're gonna be here for many years, Tony I don't know if you want to expand on that.
Dale Andres: Yeah.
Tony: I mean, I think you captured it there pretty well, Dale. Realistically, we want to make sure that we're doing good exploration and that we're... We're sort of modifying the program based on the results that we get. We don't want to just go out and draw up a massive program and not be following it properly. So we are going to do it sensibly and do it within the sort of capacity that we have to actually make sure that we're doing the right work. So I think, I mean, we are ramping it up, but I think that this is a level where we can make sure that we're doing good, sensible exploration.
Tony: I think you captured it pretty well dialed realistically look we we want to make sure the way doing good exploration and where.
Tony: We are sort of modifying the program on the results that we get we don't want to just go out and drill a massive program and not be following it properly. So we are going to we are going to do it sensibly and do it within the sort of capacity that we have.
Tony: Two actually.
Tony: Make sure that we're doing the right work. So I think we are ramping it up but I think that this is a this is a level where we can make sure that we're doing good things for exploration.
Dale Andres: And then maybe just to pick up on the other part of your question, Cosmos, and we will look at, you know, opportunistically, other opportunities. We're not going to comment on anything specifically, but we are looking to grow the company. We don't need to do anything beyond our current district, but we will look at things opportunistically as well. We have a great balance sheet, as you pointed out.
Speaker Change: And then maybe I'll just pick up the other part of your question Cosmos.
Dale Andres: We will look at.
Dale Andres: Opportunistically or the other.
Dale Andres: So we're not going to comment about anything specifically, but we're looking to grow the company, we don't need to do anything.
Dale Andres: And our current district, but we will look at things Opportunistically as well, we have a great balance sheet as you pointed out.
Cosmos Chu: Great. Thanks, Dale, Tony, and Andre. Those are the questions I have.
Speaker Change: Great. Thanks, Tony got Andre Theres, a lot of questions on thank you.
Operator: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. There are no further questions at this time. Mr. Andres, I turn the call back over to you.
Speaker Change: Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
Operator: There are no further questions at this time, Mr. <unk> I turn the call back over to you.
Dale Andres: Thank you, operator, and thanks to everyone participating in the call. We look forward to updating you as the year progresses. Thanks again.
Andres: Thank you operator, and thanks to everyone participating in the call. We look forward to updating you as the year progresses. Thanks again.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: This concludes today's conference call you may now disconnect.
Operator: Yeah.
Operator: Okay.
Operator: Yeah.
Operator: Yeah.
Operator: Yeah.
Operator: Okay.
Operator: Okay.
Operator: Yeah.