Great Panther Mining Limited
Q1 2018 Earnings Call Transcript

Published: 3 May 2018

[Operator:]

Hello, ladies and gentlemen, and thank you for standing by. Welcome to the Great Panther Silver Limited’s First Quarter 2018 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 Alex Heath, Director of Investor Relations.

[Alex Heath:]

Thank you. Hello everyone, and thank you for taking the time to participate in our call today. Joining me today are James Bannantine, President and CEO and Jim Zadra, Chief Financial Officer. Before we begin, I’d like to mention that some of the commentary on 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-GAAP measures, definitions and reconciliations that are included in the Company’s MD&A for the year ended March 31, 2018. Also all amounts expressed in this presentation and the associated 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 later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on our Web site at greatpanther.com. I will now turn the call over to James Bannantine.

[James Bannantine:]

Thank you, Alex and welcome everyone. On our call today, I’ll start with a snapshot of our first quarter highlights. Then we’ll follow up with an overview of our operational financial results, discuss our outlook for 2018, and finally conclude with questions and answers. Our highlights for the quarter are as follows; I believe we made great progress on our economic and technical studies in respect to the restart of our Coricancha project in Peru; and we plan to publish technical report for that project sometime before the end of this quarter or second quarter. To recap, Coricancha is a [pass] producing mine with the potential of adding approximately 3 million silver equivalent ounces per year of production -- to our production profile based on its historic production. This would represent obviously almost 75% increase in our current annual production, so it’s a very exciting growth opportunity for us. In Mexico, our operations performed in line with our annual guidance during the quarter, which saw improvements in new measures. Silver equivalent ounces were up 41% and revenues were up 38% over the same quarter last year. We also saw our all-in sustaining cost decline by 37% compared to last year. Many of you will recall that Topia’s milling operations were suspended in the first quarter of 2017 to facilitate plant upgrades and the addition of a new tailing handling facility. And this was the key factor in the improved results with Topia running at full speed this quarter this year. Our balance sheet remains strong, ended the quarter with $60.9 million in cash and short-term deposits and $67.1 million in net working capital. As usual, we remain debt free. Given our capital position and our team in place, we’re well positioned to pursue additional growth opportunities in addition to Coricancha. In this regard, we remain focused on adding another mine or advanced stage project in the Americas. Since announcing the NI 43-101 complaint resource in December, we have done a lot of work in advancing our technical evaluations in support of restart at Coricancha. As many of you recall, Coricancha has a fully permitted plant, which means that the CapEx associated with the restart is expected to be relatively modest. Most of the work expected will be development or rehabilitation of the mine, and is expected to have a fairly reasonable and quick time line. As I noted earlier, based on past production results, Coricancha has the potential to increase Great Panther’s silver equivalent production by 75% or 3 million silver equivalent ounces. It will also provide us with an important base of operations in Peru, which is viewed as the leading mining jurisdiction in the Americas. On the operational front, our mines performed in line with our guidance for 2018. We expanded our silver equivalent ounce production by 41% compared to the first quarter of last year when Topia plant was suspended for plant upgrades. We remain significantly leveraged to precious metals with 44% of our current production in revenue terms from silver, 44% from gold and 12% from lead and zinc. Our percentage in gold production has increased as our more gold rich San Ignacio Mine contributed a higher proportion of tonnage at the Guanajuato mining complex. Financial highlights for the first quarter of 2018 included a 38% increase in revenue. We were breakeven on the net income and the EPS lines as a result of our approach of expensing all Coricancha project and care and maintenance cost prior to a formal decision to restart. We’re also expensing all development drilling at Guanajuato mining complex. Consolidated cash cost per payable silver ounce was $5.39, up from $3.54 in the first quarter of 2017, but within our 2018 guidance of $5 to $6.50. All-in sustaining cost per payable silver ounce in Q1 decreased to $12.33 compared to $19.55 last year, and was slightly better than our 2018 guidance of $12.50 to $14.50. Last year's figure did include the cost of the plant upgrade at Topia despite the suspension of its production. Our cash position and net working capital increased to $60.9 million to $67.1 million respectively, and we continue to have no debt on our balance sheet. This represents more than enough capital to bring Coricancha into production, and provides us capital to pursue other growth opportunities within the Americas. Turning now to our operations. Metal production from the Guanajuato Mine Complex or GMC was approximately 695,000 silver equivalent ounces, which represented a 4% decrease over the previous year. This was attributed to lower tons milled and lower silver grades, partly offset by improved gold grades. Cash cost for the Guanajuato Mine Complex was $4.28 per payable silver ounce, up from $2.48 during Q1 of 2017. The increase was mainly attributable to a higher mining cost per tonne and the strengthening of the Mexican Peso. All-in sustaining cost increased to $9.01 per payable silver ounce from $7.59 last year, reflecting the higher cash cost and increased exploration and development expenditures. At Topia, metal production was approximately 336,000 silver equivalent ounces, including approximately 186,000 ounces of silver. As I noted, Topia’s million operations were suspended during the entirety of Q1 2017 to accommodate plant upgrades of a dry tailing handling facility. Production is now reflecting normal operating parameters for Topia, which is performing in line with our expectations for 2018 guidance and beyond. For the first quarter, Topia cash cost was $7.48 while all-in and sustaining cost was $8.27 per payable silver ounce. I’d now like to hand the call over to Jim Zadra to discuss our financial summary for the first quarter.

[Jim Zadra:]

Thank Jim. And welcome to all who joined us on the call today. As noted, revenues increased 38% to $17 million compared to Q1 of 2017, as a function of the higher metal production. It’s more than offset lower silver prices, [indiscernible] reduced our revenues. Production costs increased to $11.8 million. The increase is mainly a direct function of the higher metal production and sales. But we also experienced higher mining cost on a per unit basis due to the mining of narrower veins at the GMC, and from higher cost production from the Topia mine. And finally, there was also the impact of a stronger Mexican Peso. As a result, mine operating earnings were down, but our operations in Mexico still generated a healthy $5.2 million of mine operating earnings before non-cash items. G&A expenses were up a modest 3% and exploration, evaluation and development expenses or EE&D increased to $3.3 million compared to $2 million in Q1 of last year. The increase in the EE&D is primarily a function of the core cash project cost. As mentioned, we continue to expense all Coricancha cost in advance of a production decision. Primarily as a result of expensing Coricancha and other EE&D costs, we were breakeven in terms of net income and earnings per share. Despite the breakeven net income, our cash and net working capital positions improved to $60.9 million and $67.1 million as our operations in Mexico generated sufficient cash flow to fund the advancement of Coricancha and our head office cost. With no debt, we continue to maintain a strong balance sheet to put towards growth initiatives to enhance shareholder value. I will now turn the call back to our President and CEO, Jim Bannantine. Jim?

[Alex Heath:]

Well, it appears we may have lost Jim on the call, who was dialing in from a different location. I’ll conclude. This was a steady quarter…

[James Bannantine:]

I would just like to summarize that this quarter was a steady quarter for us and puts us on pace with our production and cash cost guidance for 2018. Our mines are operating efficiently and we expect to achieve production in 2018 of between $4 million to $4.1 million of silver equivalent ounces. Cash costs are expected to be between $5 to $6.50, with an all-in sustaining cost per payable silver ounce between $12.50 and $14.50. Coricancha is an important growth catalyst for Great Panther, and we are excited about the upcoming release of the results of the technical and economic study later this quarter. As noted, Coricancha mine has the potential to significantly increase Great Panther’s silver equivalent production based on historical production. It also provides Great Panther with a base from which to expand within Peru and South America. Beyond Coricancha, we’re also focused in evaluating further acquisition opportunities to enhance shareholder value. With over $60 million in cash and no debt, our focus in 2018 will be on leveraging on our strong team to evaluate near term production and development projects for potential M&A transactions. Priority targets will be silver and precious metal dominant projects that are either in production or at advanced stage of development, in mining friendly jurisdictions within the Americas. And the scale is what makes a meaningful impact to our production and resource profile, and are accretive on key per share financial metric. So with that, I’d like to open the call for any questions.

[Operator:]

Thank you [Operator Instructions]. We’ll take our first question from Mark Reichman with Noble Capital Markets.

[Mark Reichman:]

…first silver equivalent ounce were at the low end of the Company’s full year guidance, while all-in sustaining costs were actually modestly below the low end of guidance. So how do you see those numbers trending throughout the year? And were those numbers for the first quarter, were those in line I mean -- where you have expecting that?

[James Bannantine:]

Mark, we are pretty much right on guidance. We had little bit of sustaining CapEx that was delayed from the first quarter into little bit later in the year. So we expect to be on guidance for the rest of the year.

[Mark Reichman:]

And then I think the exploration, evaluation and development expense related to Coricancha were expected to be between $4 million to $5 million, as I recall, for '18. And I was just curious as whether those are still good numbers, and how much of that was spent in the first quarter?

[James Bannantine:]

They are still good guidance Mark and the first quarter was pro-rata to the year. Stay tuned for the study that will come out this quarter. But hopefully, the study would be -- could involve some project-based expenses but that would be beyond care and maintenance.

[Mark Reichman:]

And then just last question for me. When you look at silver equivalent ounces produced versus sold, and you look at the percentage, the delta between this quarter and last quarter. Is this just a timing difference between provisional and final sales, or is it related inventory considerations? In other words, silver equivalent ounces production -- I think was -- I guess sold was down 6.4% relative to the fourth quarter, but produced was only down like 3.2%. So I’m just curious as whether that’s just a timing consideration or whether the inventory considerations play into that, the service number…

[James Bannantine:]

Yes, production is the key number, Mark. The sales are a bit lumpy depending on timing of shipments.

[Operator:]

And we’ll take our next question from Jake Sekelsky with ROTH Capital Partners.

[Jake Sekelsky:]

It looks like costs were a bit higher this quarter at the GMC, and it sounds like that they had to do with just single mine sequencing. Can you guys speak to that little bit? I mean, have you suspected to moderate over the next three quarters as you move on to mine plan?

[James Bannantine:]

Jake, costs are up a bit. They are up a bit in Guanajuato -- it’s actually down a bit in Topia, but up a bit in Guanajuato, given the nature of the ore body and the width of the vein and ore to waste ratio that we’re encountering. So it’s a little -- we've been handling a little more waste and that’s the source of the cost increase.

[Jim Zadra:]

You can also -- you also will notice what's happening to the Mexican Peso. The Mexican Peso was around 18 for the whole first quarter average. So that’s down from where it was last year.

[Jake Sekelsky:]

And just secondly, if you could walk me through the next steps at Coricancha once the updated study is out due to just the timeline that you guys have in your head and as far as the production discussion goes there?

[James Bannantine:]

So we will publish the study and like we said this quarter, not too long from now. That study, as we’ve talked about before, will involve engineering, will involve some preliminary activities leading to production activities, on the mines. So it will be a -- as we’ve also said before, we’d expect to start activity this year with the main ramp up being next year.

[Jake Sekelsky:]

Great, and that’s it from me. And I’ll hop back into queue. Thanks guys.

[James Bannantine:]

Jim, anything else that I overlooked on the cost question?

[Jim Zadra:]

No, I think you’ve covered it, Jim.

[Operator:]

And we’ll take our next question from Heiko Ihle .C. Wainwright

[Heiko Ihle:]

Let me just congratulate you guys on increasing your all-in sustaining cost here for silver equivalent ounce by 15% from Q1 ’17 by 4% from Q4. I thought that was quite impressive. Basing on the first question you guys were asked with the all-in sustaining cost, when you’ve only spent $0.3 million out of the $2.5 million to $3.5 million guidance for the year. Can you just walk us through the quarter-by-quarter spent that you’re seeing? Is it Q2, Q3 having given the long haul of a season or when should we expect to see -- I mean I have little bit of higher number in my model, that’s the only reason why I’m asking.

[James Bannantine:]

I don’t really think it’s -- with all due respect, Heiko, I don’t think it’s material. We are very conservative and pretty much expensed most everything, including our development cost and put most of our CapEx and the sustaining CapEx. So the timing of that is a little bit -- it’s not linear quarter-to-quarter, but the CapEx for the year should be on our guidance, that $2.5 million to $3 million. And you should see a catch up in this from the low number in the first quarter in the next couple of quarters.

[Heiko Ihle:]

I wasn’t trying to be difficult, I was just trying to see when you would see it rather than if it’s…

[James Bannantine:]

It will definitely be during the course of this year. And I think like I said, I would think the way that that would be in the next couple of quarters, we should be back on a linear path by the third quarter.

[Heiko Ihle:]

You’ve added about $8 million through cash equivalence during the quarter. I mean you went from $36.8 million to $44.6 million. And you have the short-term costs decline by about $4 million, and you decreased the trade receivables by about $4 million. I mean in short you just have a much bigger cash balance. Are you doing this for Coricancha, or am I just reading way too much into this with the supplier sustained or build as the year started and those types of things?

[James Bannantine:]

Jim you want to take that one?

[Jim Zadra:]

Heiko, in terms of the cash and the short-term deposits, it’s really just what the mix happens to be at the end of the quarter. And the short-term deposits are all greater than 90 days. So if we happen to have more of cash in those short-term deposits, they get classified there versus the cash balance. So we tend to look in terms of cash. We tend to look at both balances together. And when you look at it on that basis as I think you’ve noted that the net cash has increased. The receivables too, as Jim mentioned earlier, the sales tend to be lumpy and that’s also a factor with the receivables. So we could have situations where there is large receivable that comes in prior to the end of the quarter that could shift that balance quite significantly. I don’t think there is anything there specifically related to Coricancha that’s affecting those balances, because the spend on Coricancha is pretty even and it’s been pretty measured to-date. So I hope that addresses your question.

[James Bannantine:]

I just would add a little more color to your question, Heiko as well just to not lose the forest for the trees. We are, with our existing operations, cash flow positive and we’re applying that cash, right now mainly to the development of Coricancha. But our strategy and our corporate profile and stories is a profitable cash flow positive existing operations with a big growth project organic to the company and then looking for another project on top of that.

[Operator:]

And we’ll take our next question from Bhakti Pavani with Euro Pacific Capital.

[Bhakti Pavani:]

I have question related to Coricancha. I know you guys are expecting to put out a technical study in Q2. But internally, do you have a projected timeline as to you know when you would like to bring Coricancha online?

[James Bannantine:]

In principal, Bhakti, next year, it’s the same answer to the previous question. We’d start preparing things this year and ramp it up next year.

[Bhakti Pavani:]

And with regards to -- once you have the technical study out. Do you guys intend to conduct further exploration program or updating the resource estimate before bringing it online?

[James Bannantine:]

Could you say again, Bhakti?

[Bhakti Pavani:]

I said do you guys intend to conduct any additional exploration program at Coricancha before bringing it online or updating the resource estimate?

[James Bannantine:]

The nature of the project there and the nature of the mine is we’re going to be much more efficient with additional explorations from inside the mine. So it’s going to be much more efficient for us to develop it, get in there. And then once we’ve got the development open again and the mine is opened up and restarted, drill from there. So I think the drilling would be in parallel with the restart as opposed to before restart.

[Bhakti Pavani:]

The MD&A stated about the legacy tailings that the Company has changed the reimbursement plan. Could you maybe provide some additional color with regards to that?

[James Bannantine:]

The company has changed the…

[Bhakti Pavani:]

The scheduling of the re-commission work with regards to legacy tailings at Coricancha…

[James Bannantine:]

So we are in -- in Coricancha, we’re working with the proving government on a couple things. One is what's called the modified closure plan, which was put in place by near Nyrstar, and we're continuing -- the previous owner, and we’re continuing with the work on that, which involves both the relocation of the legacy and tailings facilities, as well as the re-handling of the old waste. So those permitting updates from old plant to the new plant are work-in-progress and are improving. We will advance those in parallel with our decision on the restart.

[Bhakti Pavani:]

I am just curious the expense with regard to reclamation is still the obligation of Nyrstar, correct?

[James Bannantine:]

That’s correct, and we are in fact being fully reimbursed for that.

[Bhakti Pavani:]

With regards to increasing production, at this point, once the Coricancha mine comes online, hopefully next year, the production will grow. But at the existing mine, GMC and Topia, do you anticipate or do you expect any production growth from those mines over the next year?

[James Bannantine:]

No, you remember -- the Guanajuato resource update that we published at the end of January, showed a nice increase in our resources there. We expect to keep mining at roughly the same rate, but we now have a longer license with the new resources statement that we did there. So I would Guanajuato’s annual production rate should be more or less the same. I do believe, and you can see Topia is now running well growing a bit. I think there could be some growth opportunity in Topia.

[Bhakti Pavani:]

But you don’t intend to increase production capacity at either of the mines. Correct?

[James Bannantine:]

No, in terms of changing the plants, no. We’ve got little bit of access capacity at the plant at both of those mines. It’s more driven by how much the mine can make given the narrow being each of the mine since we’re -- the constraint as to mine to each place not the plant.

[Operator:]

[Operator Instructions] And we’ll take our next question from Mark Reichman with Noble Capital Markets.

[Mark Reichman:]

Just looking out even beyond Coricancha to some of your exploration projects, I thought El Horcon was interesting just because it could share some of the infrastructure at Guanajuato. And I was just wondering if you could maybe provide an update and how you’re thinking about that project?

[James Bannantine:]

El Horcon is not a near-term production candidate for us. It’s got potential but we’re analyzing that. We’re actually doing some trade off analysis on that. If you look at El Horcon’s grades and mineralogy, it would involve some modification to the plant circuit at Guanajuato. So we’ve got to do technical analysis of that before we would include that as a near term potential producer.

[Mark Reichman:]

Is that something that you could like sell at some point or JV, or is it just so far…

[James Bannantine:]

Yes…

[Mark Reichman:]

And then secondly on the -- I think there was some additional corporate development expense this quarter. And I was just wondering was that related to targeting third party acquisitions, or was that related to some of the projects that you have ongoing?

[James Bannantine:]

Mark, like we say, we’re looking for projects and that involves as a cost of that.

[Operator:]

At this time, there are no more phone questions.

[James Bannantine:]

Okay, thank you operator. And in closing then, I’d like to say that I am pleased with the performance of our mines and encouraged with the advancement at Coricancha this quarter. I believe with the team that we have in place and our capital position, both cash and balance sheet, we’re well positioned to grow our company. I’d like to thank you for your participation in our call today. And on behalf of everyone here at Great Panther, I look forward to sharing our progress with you in the next quarter. And please stay tuned for the Coricancha technical study later this quarter.

[Operator:]

Thank you, Mr. Bannantine. That concludes Great Panther's first quarter 2018 financial results conference call and webcast. Good bye.