Great Panther Mining Limited
Q3 2017 Earnings Call Transcript

Published: 31 Oct 2017

[Operator:]

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Great Panther Silver Limited’s Third Quarter 2017 Financial Results Conference Call and Webcast. 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. [Operator Instructions] I would now like to turn the call over to Spiros Cacos, Director of Investor Relations. Please go ahead, sir.

[Spiros Cacos:]

Thank you, Tony. Good morning everyone and thank you for taking the time to participate in our call today. With me here this morning are James Bannantine, President and CEO; and Jim Zadra, Chief Financial Officer. Before we begin, I would like to mention that some of the commentary in today's call contains forward-looking statements. You should be cautioned that actual results and future events may differ from those noted in today's presentation. The commentary also refers to various non-IFRS measures, definitions, and reconciliations that are included in the Company's MD&A for the quarter ended September 30, 2017. Also a reminder that all the dollar amounts expressed in this presentation are, and associated with the financial statements and MD&A are in U.S. dollars unless otherwise noted. I would like to remind everyone that this conference call is being recorded and will be available for replay after 10

[Jim Zadra:]

Thank you, Spiros and good morning everyone. Third quarter was a successful quarter for Great Panther and marked our first full quarter of ownership of our Coricancha Mine in Peru, after closing the acquisition on June 30. We launched right into the integration of the Company and its personnel and most importantly we accelerated our technical evaluations and environmental studies towards accessing feasibility, and returning Coricancha to production. Coricancha comprises of polymetallic mine, a processing plant and supporting mine infrastructure which has been on care and maintenance since 2013. Although still early days, and we have a lot of work ahead of us through that Coricancha’s potential, we are very excited as it has substantially increased our current production levels by 75%. It also gives us an important base for expansion in Peru, a very prolific mining district, sets well with our strategic plan to grow our operations in North America and particularly in Mexico and Peru. We have strong balance sheet consisting of $55 million in cash and short-term deposits and we have $64 million in net working capital and no long-term debt, which puts us in a very good position to advance Coricancha and our other growth initiatives for Great Panther. These will be a key focus for the Company in the coming year. On the operational front, our operations in Mexico delivered sound operating results in the third quarter in line with our annual guidance for both production and class. We continue to advance the Phase 2 permitting process at Topia, with the resubmission of a portion of the application, SEMARNAT and we are hopeful will have a positive response by mid-December. Looking at the operating mines in more detail, the Guanajuato Mine Complex or GMC produced about 725,000 silver equivalent ounces, which represented a slight decrease over the third quarter of the previous year. This was attributed to narrow than anticipated gains at the San Ignacio mine and lower silver grades. These factors were partly offset by improved gold grades and recoveries. And I would like to take a pause at this point, I think Jim Bannantine, our CEO has joined us. Unfortunately, he was tied up earlier and he is now on the call and I’d like to hand the call over to him, if he is available.

[James Bannantine:]

Yes, hi Jim and hi everyone. Sorry for couple of minutes delay. Just restating what Jim stated, we had a good quarter and I think that we're well placed for the future. I'll pick up where Jim left off on Guanajuato. Guanajuato produced 725,000 silver equivalent ounces, which is a slight decrease over the previous year. This is attributed to the narrow veins that Jim mentioned. On the cash costs Guanajuato was $3.75 per payable silver ounce below our consolidated guidance of $5 to $6. These increased over the cash cost of the third quarter of 2016, which as you remember benefited from a very weak Mexican peso last year. All-in sustaining costs increased to $7.90 per payable silver ounce reflecting a little bit of the higher cash cost in the peso. On Topia, total production was 356,000 silver equivalent ounces, which reflected a significant 79% increase over the third quarter of 2016 when Topia was headed towards the scheduled maintenance shutdown. Cash cost at Topia were $10.01 an ounce and decreased over the third quarter of 2016 and also as a result of the higher production levels and increased by-product credits from an increase in gold production as well as higher prices for lead and zinc. Despite the decreased Topia’s cash cost was impacted by a couple of non-recurring charges, a reduction in stockpile inventory at a one-off land use payment. Our consolidated all-in sustaining costs increased to $13.75 from $11.97 last year but declined from $14.93 per ounce in the second quarter of this year. As we completed the project to refurbish the Topia plant and to add the dry tailings processing and handling facility there. All-in sustaining costs have continued to drop since the same period last year. As we noted previously in Jim’s highlight introduction we completed another submission to SEMARNAT Secretary of Natural Resources and the Environment. In Mexico, in respect to the permit for the Phase 2 tailings storage facility, we expect a response to this submission in mid-December and we're optimistic that this will be a positive response. We do caution that there's not an assurance on this permitting question. All tailings are currently being deposited at Topia at the Phase I tailings storage area and we are continuing our monitoring assessment of the remaining capacity while we believe we’ll obtain the permit Phase II before we needed and run our capacity in Phase I, we think we are not sure on that and we can’t say with complete certainty. We are working diligently to ensure the permit is received on a timely basis. At the end of Q2, going back to the highlights. At the end of Q2 and many of you recall that we finalized our agreement on the Coricancha purchase from Nyrstar and acquired a 100% interest in that mine. Early in the quarter, we released our initial drill results from Coricancha, which indicated potential to extend known zones of high grade mineralization. Our team is very pleased with the continuity of high gold and silver grades with other significant exploration upside. We are working on an updated mineral resource estimate which we expect to have ready this quarter. Additionally, our teams are conducting various engineering and optimization studies to lower our production costs as well as mine development in preparation for underground drilling environmental studies. All these are being conducted to support a decision to restart the mine, until then we're diligently managing our costs at Coricancha. Thank you for the time. At the moment, I'll turn the call back over to Jim Zadra, to give a color on our financial results for the third quarter.

[Jim Zadra:]

Thanks, Jim. Our revenue was $18.3 million for the third quarter of 2017, an increase 17% over the third quarter of last year. The increase reflected higher metal production and sales and was somewhat offset by lower realized metal prices. Our mine operating earnings before non-cash items was $6.2 million for the quarter decline of about 50% compared to the same quarter in 2016. Despite the increase in revenue line, our operating margins were lower due to lower realized metal prices and a less favorable Mexican peso exchange rate, which increased our costs in U.S. dollar terms. In addition, we encountered lower silver grades as mentioned at GMC. And a higher proportion of production from the higher cost Topia Mine was also a factor. We reported net loss for the quarter of $0.7 million compared to net income of $2.1 million for the comparable quarter in 2016. The net loss for the quarter was a result of a lower mine operating earnings and the addition of the Coricancha care and maintenance costs and evaluation cost which totaled about $1.5 million for the quarter. In addition, we incurred a $0.9 million non-recurring G&A charge in Q3. Regarding Coricancha, we are going to continue to expand start Coricancha related costs until such time as we have a positive decision to go forward with the restart of the mine and we’ve established an adequate level of confidence in the technical feasibility and commercial liability. Our consolidated cash costs for Q3 2017 were $5.82 per payable silver ounce, which fell within our guidance range of the year of $5 to $6, which was an increase from $3.30 in the comparable quarter 2016, mainly due to the effects of the stronger Mexican peso and a higher proportion of production from the higher cost Topia Mine as mentioned earlier. Consolidated all-in sustaining cost per silver payable ounce for the quarter was $13.75 below our guidance range of $14 to $16 for the year, the higher than the third quarter of 2016 due to increase in cash costs and the non-recurring G&A charge, which amounted to approximately $1.51 per payable ounce. Additionally, I’d like to remind everyone that our higher guidance range for the year reflects the project completed at Topia in the first and second quarter to refurbished plant at dry tailings processing and handling facility. The project accounted – the project will account for about $1 in all-in sustaining cost per silver payable ounce for the year. We continue to meet our guidance for production cash cost in AISC for the year. As Jim Bannantine noted, we continue to maintain a strong balance sheet with $55 million in cash and short-term deposits and $64 million in net working capital. I’ll turn the call back to our President and CEO, Jim Bannantine.

[James Bannantine:]

Thank you, Jim. So in summary, Great Panther did deliver another good quarter with production steady in Mexico and set a new guidance for the year despite lower metal prices. With our mines operating at plant capacity we expect to achieve our guidance of $4.1 million silver equivalent ounces for the year and to achieve our guidance on cost as Jim noted. We are optimistic about completing the Topia Phase 2 permitting before the end of the year. As I noted earlier, we're fully engaged in advancing the Coricancha mine and we are optimistic about prospects of restarting that mine. This would be a significant increase in our production, in addition to adding a base of operations for further expansion in Peru. We are also pushing forward with the pursuit of other acquisitions to advance our growth strategy. We feel like our strong balance sheet, liquidity of our shares and a very strong management team enhanced by recent addition puts us in a very strong position to pursue this growth strategy. I’m personally very excited about the path forward at Great Panther. I'm grateful to Bob Archer and the Board for the chance to help lead and contribute to our growth. I'd like to now open the floor to questions. Thank you, sir. [Operator Instructions] We’ll go first to Jake Sekelsky at ROTH Capital Partners.

[Jake Sekelsky:]

Hey, good morning guys. Just a few quick things, on the $1.2 million in increased EE&D for the quarter, Jim I think you answered this – but is that something we should expect going forward while Coricancha is still in care and maintenance or was that a result of closing the transaction?

[James Bannantine:]

Jim, you want to address that?

[Jim Zadra:]

Yes, thanks Jim. Jake, those are purely costs related to the care and maintenance and evaluation. And we don’t expect the cost to exceed, so the total cost was about $1.5 million for the quarter, we don’t expect the costs to exceed that going forward and we are going through a process of reviewing budgets and so forth. And our objective is to minimize the carry cost on Coricancha and focus kind of our investment in the evaluation and until we get a positive decision or a positive assessment on the path forward, we are going to try our best to minimize those costs.

[Jake Sekelsky:]

Got it, so there’s still will be – those cost will still be there but you are just maybe a little bit smaller going forward?

[James Bannantine:]

That’s what we are working to achieve, yes.

[Jake Sekelsky:]

Got it. And then just in that vein, can you just walk me through the current thinking at Coricancha still, should we expect an updated economic study following the resource estimate, is that still the plan?

[James Bannantine:]

Yes, in the first quarter, Jake.

[Jake Sekelsky:]

Perfect, perfect and then lastly, can you just give me some color on what you guys are seeing or looking at on the M&A front? I mean, are you guys looking at development stage, producing assets, all the above?

[James Bannantine:]

We're looking at late stage projects in the Americas. So obviously our team all speaks Spanish and/or Portuguese, so we're focused on the Americas and we're focused on things that we can operate in the near future; either already operating projects or projects that are ready for construction.

[Jake Sekelsky:]

Perfect. All right, I’ll hop back in the queue. Congrats on the quarter, guys.

[James Bannantine:]

Thank you.

[Operator:]

We’ll go next to Heiko Ihle with HCW.

[Heiko Ihle:]

Very good morning, guys. Good quarter.

[James Bannantine:]

Thank you.

[Jim Zadra:]

Thank you, Heiko.

[Heiko Ihle:]

Jake just asked my first question. Well done, Jake. So I’m just going to build on that. How are you lowering recurring cost at Coricancha? I mean, I assume that the site, the staffing levels, the claims season that stuff is already fairly minimized given that the seller was pretty cash-strapped. How exactly – can you grind anything else out of this?

[James Bannantine:]

So the critical path that Coricancha is a combination of mine development, resource definition and updating the environmental permits. And from that those three that and a trio of major activities, we’re calculating backwards planning along the critical path to be ready for operations at a minimum cost when that time comes and only spending as we have to spend to stay on the critical path. That allows us to, for instance, not higher, a large safety staff to develop the mine, until we need to develop the mine for instance or not doing drilling beyond the resources we need to restart the mine until we’re potentially into operations.

[Heiko Ihle:]

All right. Fair enough. You’re predicting $5 to $6 in cash cost from 2013 to 2016 all-in sustaining in your guidance here, where a third way through Q4 Mexican peso with MXN19.2 – sorry, at MXN19.2 we started the quarter and call it MXN18.5, MXN18.3. What Mexican peso exchange rate are you using for the remainder of the year?

[James Bannantine:]

Jim?

[Jim Zadra:]

Heiko, the real answer is that that guidance was set earlier in the year and we haven't adjusted it. I think you've made a good point in our expectation is that the peso stays where it’s at today, we can – we will do much better relative to the guidance than we would otherwise. We definitely expect Q4 notwithstanding the foreign exchange situation, we definitely expect Q4 to be better just because we don't see some of the cost coming through that we did see in Q3.

[Heiko Ihle:]

Right.

[Jim Zadra:]

So I think we're pretty confident on where we're going to end up on the cash costs and all-in sustaining costs for the end of the year.

[Heiko Ihle:]

I assume to –

[James Bannantine:]

And you can see the evidence of that –

[Heiko Ihle:]

Go ahead.

[James Bannantine:]

I was going to say, you can see the evidence of that if you blackout the non-recurring items in the third quarter.

[Heiko Ihle:]

The obvious follow-up question I assume is not going to get answered, but if we stay at MXN19.2 what would that do to the guidance for Q4?

[James Bannantine:]

Now that's kind of – I was giving you the backdoor answer to that, just strikeout the non-recurring in the third quarter and then you can calculate that.

[Heiko Ihle:]

Fair enough. Okay. The last one and it was a tricky question, it’s not meant to be tricky it's just given your best guess as to how long you can use the Phase 1 tailings storage at Topia. And if you were to run out of capacity how much in advance would you need to know that just to slow down production, shut down production, whatever the case may be?

[Jim Zadra:]

We're pretty confident that we've got the capacity in Phase 1 to not affect the operations. We’ve got multiple months left and we think the permitting will take quite a bit less than that. And so we’re not in multiple months finding – yes

[Heiko Ihle:]

Multiple months. Excellent. Very good. Thank you guys so much, and keep up the good work.

[Jim Zadra:]

Thank you, Heiko.

[Operator:]

We’ll go next to Rob Chang with Cantor Fitzgerald.

[Rob Chang:]

Good morning, guys. Congratulations on a good quarter. Most of my questions are already asked, so I’ll just go with the one I have left. With respect to the cost it was noted that they’re certainly higher because of Guanajuato having a lower grades. Are you expecting that just going forward you have any sense that you can pass along to us on how that’s going to work?

[James Bannantine:]

We're actually in the middle of our budget preparation for 2018 right now, Rob. Obviously there's multiple grades at Guanajuato distributed between Guanajuato itself and San Ignacio, and then silver and gold. So we are diversified a little bit between the two mines and diversified between the two metals. Overall, we expect the kind of steady state that overall mining complex is pretty steady state within a pretty narrowband year-to-year. So I wouldn't expect a material difference.

[Rob Chang:]

So just revert back to the meaning of the steady state? Okay. Great. Thank you.

[James Bannantine:]

Thanks, Rob.

[Operator:]

[Operator Instructions] Next to Bhakti Pavani with Euro Pacific Capital.

[Bhakti Pavani:]

Good morning, guys. Just a few questions, since most of the questions have been asked. With regards to the tonnage at Guanajuato; for the third quarter it was slightly less than what you guys stated in Q1 and Q2. Is that sort of the running go-to rate for Q4 or do you think it’s going to go back up on the Q1, Q2 levels?

[James Bannantine:]

We're going to be within our guidance I don't think it's going to be material to – definitely won’t be material to our guidance. So between Topia and Guanajuato we will be within guidance and maybe a little – you see we have a little more from Topia and little less in Guanajuato on the third quarter, that could go in the same direction or switch back towards the more way to Guanajuato in the fourth quarter, but within our range.

[Bhakti Pavani:]

Okay. I know Heiko kind of touched on the capacity of the tailings facility. Just wanted to, just kind of curious, the grades at Topia with regards to gold have really gone up, and you have been processing a lot more tons in Q2 and Q3. So I’m assuming is that kind of the stockpiled ore or are your guys are actively mining in the mine?

[James Bannantine:]

No, it’s activity mining. The stockpile was a little bit of a overweight in the second quarter, but we're – which mostly run a mine with a little bit of stockpile added in.

[Bhakti Pavani:]

So with regards to the next year, is that sort of the rate that we should be modeling in at Topia given the current situation?

[James Bannantine:]

Yes.

[Bhakti Pavani:]

Okay. That’s it from my side. Thank you very much.

[James Bannantine:]

Thank you very much.

[Operator:]

And we’re standing by with no further questions signaled at this time.

[James Bannantine:]

Thank you, operator. In closing, I’d like to just restate how excited I am about the future of Great Panther, really happy about joining. And thank all of you for participating in this call. We look forward to an update on our next call. Thank you.

[Operator:]

Thank you. Mr. Bannantine. This concludes Great Panther's third quarter 2017 financial results conference call and webcast. Good bye.