Great Panther Mining Limited
Q1 2021 Earnings Call Transcript

Published: 6 May 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to Great Panther Mining's First Quarter 2021 Results Conference Call. As a reminder all participants are in a listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. I would now like to turn the conference over to Fiona Grant Leydier, Vice President, Investor Relations. Please go ahead.

[Fiona Leydier:]

Thank you, Operator. Good morning, everyone. I'm Fiona Grant Leydier. Thank you for taking the time to participate in our call today.

[Rob Henderson:]

Thanks, Fiona. And thank you everyone for dialing in today. It is now been just over a year since the global COVID-19 pandemic began and people everywhere have been affected in one way or another. Our business has had to adapt in ways so we never imagined. But I'm very proud of how the team at Great Panther has adapted to our new health and safety protocols while continuing to successfully conducted business. That pandemic has undeniably impacted efficiencies operations and I have immense appreciation for the team delivering as they have, even amidst these adverse conditions. I'm pleased to report that operations continue safely, despite COVID-19 and we remain on track with our proposed guidance for the year. First quarter is typically in low production quarter for us due to the rain in Brazil. And our consolidated metal production in the first quarter of 2021 was 30,556 gold equivalent ounces, inclusive of 24,978 ounces of gold, and 360,000 ounces of silver. We are benefiting from a strong metals price environment for both gold and silver, which resulted in revenues of 52.6 million, an increase of 9% of the same quarter last year, and mine operating earnings of 11 million, which is an increase of 85% when compared with Q1 2020. The weak Brazilian real in relation to the U.S. dollar had a positive effect on costs that are all-in sustaining costs exceeding corporate G&A coming in at $1,557 balance and gold sold, which is a decrease of 11% over Q1 2020.

[Neil Hepworth:]

Okay. Thanks Rob. Focusing first on Tucano, gold production for the quarter was 23,996 ounces, compared with the 26,176 ounces in Q1 2020. This is a 12% decrease, but it is attributed to the lower oil production in the mine reduced process plans available in lower grades. Tucano process a higher proportion of low grade stockpile material this quarter due to the focus on stripping out the upper levels and provision of mining activities relative to the ore in the lower benches. Production was also affected by seasonal weather and a disruption to oxygen supply. During the wet season, normally from January through June, production rates are lower than during the dry season, which is normally July until December. Oxygen supply was affected as scheduled deliveries were redirected to Brazil's hospitals to meet much needed demand related to the pandemic. Shortages in the purchase oxygen supply are expected to decrease recovery rates and reduce throughputs at Tucano over the next few months.

[Shawn Turkington:]

Thank you, Neil. The strong metal price environment we are experiencing has provided great tailwinds for our financials over the last year. Q1 2021 saw revenues of 52.6 million, an increase of 9% over Q1 2020, thanks to higher realized metal prices of $1,750 for gold and $2.35 for silver, representing an increase of 11% and 66%, respectively. This in turn led to an increase of 85% in mine operating earnings to 11 million from six million in Q1 2020. Consolidated ASIC approval on sold, excluding corporate G&A, was $1,557, an 11% decrease compared with Q1 2020, mainly due to the benefit of weakening Brazilian currency and higher average realized metal prices. During the quarter, we settled the final forward exchange contracts that were entered into at the end of 2019 and early 2020 as part of our risk management strategy to reduce the exposure of our costs at Ticano due to foreign exchange fluctuation. The weakness of the BRL will experienced in Q1 2020 contributed to a net loss in that quarter of 4.5 million. For the current quarter, our net loss was 300,000, adjusted EBITDA of 12.4 million, an improvement of 94% over the same quarter in 2020. Currently, we have no forward currency contracts in place. Cash flow from operating activities before changes in noncash working capital was $7.3 million, a significant improvement from $894,000 in Q1 2020. During Q1 2021, we also paid down borrowings of $5.8 million, bringing our total borrowings to bringing our total borrowings to $27.6 million at quarter end and closed the quarter with $45.5 million in cash and cash equivalents. Thank you. That is all we have for formal remarks. I will now turn it back to the operator for the Q&A.

[Operator:]

Thank you. We will now begin the question-and-answer session. The first question comes from Heiko Ihle with H.C. Wainwright. Please go ahead.

[Unidentified Analyst:]

This is (Ph) on for Heiko. You provided some drill results with Tucano on April 7 and reiterated the focus on drilling in your news release today. We previously had a focus on the Tap C pit situated between the Tap AB and the EuroCup that are the current focus of production at Tucano. Can you walk us through your focus and plans for the rest of the year in a bit more detail? And what are you seeing with cost and timing for drill results?

[Rob Henderson:]

Sure. I appreciate the question. Yes. We released the results because we were talking about pretty significant in that we have discovered mineralization on the existing seven kilometer trends that is beneath some very shallow pits. So the results were to essentially model the geologic continuity of the bay. So we have the proof of concept now. We know that these veins are - exist beneath a pit so it is very minable material. It is about three kilometers from the plant, so it is easy truckable. And the second phase of the program is essentially to do infill drilling to bring those resources onto the books so we can put them on to the mine plan. So the second phase of Tap C is essentially infill, to bring them to mineral resources. The other two prongs of our exploration program, and the biggest one is the region. We have the 90-kilometer by 30-kilometer region, which is essentially undrilled. So Nequina is proving up targets, and we hope to get diamond drills into some of them this year, and that really would be a game changer once we find a regional discovery. And what we are looking for is more open pit material that we can truck to our 10,000 tonne day mill. And then the last one is the underground the underground is very intriguing. It is 4 to 5-gram a tonne, it lies directly beneath on the northern most pit is the Oracle pit. NeuroCom Pit is scheduled to be complete next year. So we would have the opportunity to start drilling underground there. So we are doing some more drilling on the underground, you prove up exactly how much we could potentially get from an underground mine at Oracle. So the work that we are doing there is in order to prepare ourselves doing there is in order to prepare ourselves for the potential of going underground in Oracle once the pit is depleted.

[Neil Hepworth:]

Okay. I was just going to add a little bit to that as well because, I mean, we are pretty excited about these Tap C results because if you remember, I mean, we took a huge hit on our on our resources in 2019. And a lot of that resources was actually material that was removed from the TAP C resource base. Because basically because RPI didn't understand the model. And now we have got Nick Winer, who happens to be an expert in structural geology, geophysics and geochemistry. He is put together a new model and he is busy, sort of tweaking it at the moment. But it is quite exciting because it means we got a good chance of recapturing a lot of those reserves without resources from 2018, without doing a huge amount of drilling.

[Unidentified Analyst:]

And any sort of timing on when you might expect drill results in Phase two?

[Rob Henderson:]

Well, I mean, we are basically aiming to have a new MRR out before the end of the year. So we will probably be shutting off the drilling round about the end of July. I mean we are bringing in these two extra rigs. And among these basically, I mean, the pit is sort of 50 meters deep and they basically stopped at the base of the oxide. And it actually lends itself to sending in the RC rig and drilling a fairly closed pattern of holes in there, so we could and that with a pretty good idea of what we are going to be mining. So, yes. I think I think towards the end of July, we will be cutting off the drilling and sometime October, November, we should be coming up with the revised MRMR for that.

[Unidentified Analyst:]

Perfect. And then just kind of on that, you had expected the inclusion of Tap C in the next mineral reserves and resources statement for Tucano. Has any new information surfaced in the last 30 days or so that you could use to provide some new information surfaced in the last 30 days or so on the future for this area?

[Rob Henderson:]

No, no, not really because I mean we are still doing - I mean, what we started off doing was doing a series of holes along the entire strike lent. And they all came up positive showing that we have got extension of the mineralization. Now we are starting to sort of fill in a little bit on those also. It is just showing the same thing. Not so, so nothing particularly new on that at this stage. I think that once we sort of - Nick finishes off the model and that we get the RC drilling done, then acting that then, I think we might end up with another sort of press release before the MRMR.

[Unidentified Analyst:]

Perfect. Appreciate that. And one last question, guys. You stressed the workforce shortages that you experienced during the quarter at the GMC and Topia Mine. Are you seeing any meaningful issues in April and May thus far?

[Rob Henderson:]

No, not really. I mean this is part of the restructuring cost that we picked up at GMC. Unfortunately, I mean, a lot of these people that - we are having to sort of reorganize the workforce a little bit, bringing a lot of new people to make - to actually cover those shortages. So yes, so I think that is we are expecting things to get better, not worse in terms of the people shortages related to COVID.

[Operator:]

The next question comes from Joseph Reagor with ROTH Capital Partners.

[Joseph Reagor:]

Okay. So first thing, on capital spending, it was a bit elevated. I think Q1, I think that was part of the plan was for it to be, I think, first half elevated was the prior conversation on that. What should we expect for total CapEx rest of the year?

[Rob Henderson:]

Yes. Thanks, Joe. Yes. As noted, the first half of the year is very biased towards stripping costs at Tucano. So it is just the mining phase we are in. So yes, we have got to do a lot more capital stripping in Q1 and Q2, and then we get into higher grades lower down. Sean, I don't know if you have the details on and then we get into it is in the first half.

[Shawn Turkington:]

I don't have the full numbers, but thanks for the question. The deferred stripping costs are heavily weighted towards Q1 and tail off by the end of Q2. And those are the bulk of our capital costs during the year. So we would expect the Q2 costs will be significantly lower than Q1, and we don't expect significant deferred stripping the second half of the year.

[Joseph Reagor:]

Okay. And then, as far as the first quarter went with that, was it in line with the expectations, a little higher, a little lower?

[Rob Henderson:]

Yes, pretty much in line. Things never go in a straight line. You have some highs and some lows. And I think overall, the team did a really good job and then delivered what they intended to deliver.

[Joseph Reagor:]

Okay. One more on Tucano. You guys processed a very high percentage of the low-grade stockpiles in Q1. High percentage of the low-grade stockpiles in Q1. What should we be modeling as far as percentage of total tonnage on a quarterly basis that is coming from those low-grade stockpiles compared to fresh ore?

[Rob Henderson:]

Yes. The first two quarters, yes, we are putting stockpile through because the mining phase is associated with overburden. We do get into the higher grades. So the grades pick up considerably in the second two quarters. So consequently, the stockpile material drops down. So what we will see is we go down to pick up in Q3 and Q4 because we stopped mining the stockpiles. So yes, the Q1 and Q2, we are seeing a lot of stockpile material come through Q3 and Q4. There won't be nearly as much done, but then grades go up significantly. And it stays the same but grade goes up because we are into the better ore in the pits in Q3 and Q4.

[Joseph Reagor:]

Okay. That is fair enough. And then just one on GMC. You guys gave a little bit of color in the release and in your comments on operating costs at GMC being elevated in the quarter. I think you guys referenced lower, lower total ounces and slightly higher operating cost. But any color on what you are expecting next quarter to look like and the rest of the year to look like? Obviously, the 257 was quite elevated on a cash cost basis.

[Rob Henderson:]

Yes, it is. And as Neil said, I think GMC has probably been one of our facilities that have been most impacted by COVID, just -- that affects your labor productivity and the ability to mine safely. So we did see a number of inefficiencies at GMC in the quarter and COVID cases have dropped significantly. So we do expect things to get better going forward. So we would expect The GMC to get back on track and then they are improving as we speak. So I think GMC, we can expect much better results from in the second half of the year and particularly as silver price gets to where it is now, the ability to generate cash improves significantly at GMC.

[Shawn Turkington:]

I mean, Ron, could I just add a little bit to that? I think one of the - I mean, as I said, there is been a fair amount of sort of restructuring at GMC that cost us quite a bit of money, but it is probably worth it. One of the things that we have done is we brought the General Manager from Cory Cancer, and he is now located at Guanajuato, working at the GFC mine. And this guy is exceptionally strong manager technically and in terms of dealing with people. And he is already sort of like grasp things extremely firmly. And one of the things he is jumped into is the dilution and dilution control. So there is a huge amount of work that is going on there in terms of getting that sort of under control. So things he is think the things - he is also looking at introducing another shift to the mine in some of the places where we have got the reasonable ventilation. So I think things are going to be moving forward extremely positively in this quarter and in the next quarter going onwards. That is my contribution.

[Operator:]

And the next question comes from Matthew O'Keefe with Cantor Fitzgerald.

[Matthew O'Keefe:]

Just a couple of questions for me. First off, can you talk a little bit more about the oxygen shortage and the impact that it is going to have? I mean, basically, how badly does that impact recoveries sort of quantifiably, and how long -- what's the best estimate for getting your supply back?

[Rob Henderson:]

Yes, I think what we have seen in the results, that recoveries are impacted by about 2% to 3%. We do have a supply of oxygen, but it is not the good stuff. The good stuff was diverted to hospitals to help with the COVID case. The good news is that we do have oxygen back at site again, it came on last week. So that indicates two things. One, the hospitals are not urgently needing oxygen anymore. So that is really good for the communities. And two, we do have oxygen back again, there are plants that we expect recoveries, to get back up again, to where they should be lean in 91%, 92% range. So of course, oxygen could disappear again, if hospitals need it. But right now, things are stable, and we have oxygen supply back.

[Matthew O'Keefe:]

So that 88.6% recovery that was reflected, this quarter was reflective of the oxygen shortage.

[Rob Henderson:]

Correct.

[Matthew O'Keefe:]

Okay, and then as far as we are always struggling a little bit with the grade profile as you kind of quarter to quarter. I guess it was 1.9% C grade, I'm sorry 1.9 gram per ton C grade this quarter, or first quarter is similar for the second quarter, do we see a little raise there and then higher in Q3, Q4? Like, is it ramping up or is it a step up?

[Rob Henderson:]

Yes, it is really, it is a story of Hobbes. And of course, the first half of the year, the second quarter is going to be similar, maybe a little bit better than the first quarter, but they are big increases in Q3 and Q4. That is when we are going to need to hydrate.

[Matthew O'Keefe:]

Okay. Similar to what we saw in sort of the second and third quarter of 2020?

[Rob Henderson:]

Yes, I don't have the numbers on hand, but certainly the budget was 55% of our production comes from the second half of the year and then 45% is comes from the first half. You can use that math.

[Matthew O'Keefe:]

Okay, so we are still holding our guidance through yourself, holding to the original guidance for the year.

[Rob Henderson:]

That is correct.

[Matthew O'Keefe:]

That was just for me, I mean all eyes on Tucano and really looking forward to the ongoing exploration, some exploration success.

[Rob Henderson:]

Thanks Matt.

[Operator:]

The next question comes from (Ph), a Private Investor.

[Unidentified Analyst:]

I came in a little bit late, I might have missed, if you commented on the GMC tailings. And in that situation, did you talk about that yet?

[Rob Henderson:]

You are going to address that question.

[Unidentified Company Representative:]

The situation at the moment is that, we have got sort of two embankment raises in the process of being permitted. Let's lift 18 and 19 and what's happened is the environmental people have handed it over to the water authorities Conagra to basically to give a ruling on it. They are looking after the big dams now. So we are still waiting for Conagra to get back, we should have actually already had the results about a month ago, we should have had it. But unfortunately, they changed the director at Conagra. So that is the basis a little bit. So in the meantime, we have done some modifications to the way that we put the material in there, the way we deposit. And we have done this to gain ourselves some capacity up until the first week in July. So we hoping that this will be resolved with the new director should have certain licenses and better themselves by now being able to sort of make some decisions and things. And we obviously pressurizing him all the time to do that. So we are hoping that that is going to come about. Now we have a couple of prime days, but I'm not sure whether they sell fully just disclosed yet. Rob, can I talk about totally? Yes. So we have been approached by one operator. Within reasonable trucking dismissal from Guanajuato water, that could take at least all of our production from the Guanajuato Mine. So we have that sort of plan. And now there is other people around as well, that couldn't possibly take some of the people around us. So the plan A is that we sit tight, and keep on pressurizing Conagra for that permit. And the plan B is that we don't tell them really. Now, we have already done a whole bunch of sums looking at what sort of rights we need to do this and it doesn't look that bad, finally enough to term. Anyway, that is the situation present.

[Operator:]

This concludes a question-and-answer session. I would like to turn the conference back over to Robert Henderson for any closing remarks

[Rob Henderson:]

Thank you, operator. And thanks everyone for their time today. Just to emphasize that our consolidated production guidance remains unchanged in 135,000 to 250,000 gold equivalent ounces. We do expect the second half of 2021 to account for over 55% of this production and are basically within the guided range as we move into the better sectors at Tucano. I'm pleased to report that we ended the quarter with a healthy balance sheet. Our mines are performing as expected and exploration is delivering results that will contribute to the future Tucano. So, on behalf of everyone here at Great Panther. I look forward to sharing a progress with you in the next quarter and thank you for your time today.

[Operator:]

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.