Great Panther Mining Limited
Q2 2018 Earnings Call Transcript

Published: 2 Aug 2018

[Operator:]

Hello, ladies and gentlemen, and thank you for standing by. Welcome to the Great Panther Silver Limited's Second 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 [technical difficultly] participate on our call today. With me here 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. [Technical difficultly] 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 June 30, [technical difficultly]. The commentary also refers to the Preliminary Economic Assessment or PEA, which is preliminary in nature and includes [indiscernible] resources that are defined by an NI- 43101. Deferred mineral [ph] resources are considered too [indiscernible] geologically economic considerations applied to them to be categorized as [technical difficultly]. There is no certainty that the PEA will be realized. The mineral resource estimates referred to in this presentation have been prepared in accordance with the requirement of the securities law in effect in Canada, which defer from the requirements of the United States securities laws and new terms that are not recognized by the United States Securities and Exchange Commission. United States investment [technical difficultly] not to assume that any part or [technical difficultly] deposits in these categories will [indiscernible] converted into reserved. All dollar amounts expressed in this presentation 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 website at greatpanther.com. I will now turn the call over to James Bannantine.

[James Bannantine:]

Thank you, Alex and welcome everyone. [Technical difficultly] slightly late start. On our call today, I'll start with the highlights of our second quarter. Provide an update on our [technical difficultly] project in Peru and then I follow review of our operational and financial results. I'll discuss our outlook for 2018 and conclude with the question-and-answer session. In terms of the highlights for the quarter, we announced a positive preliminary economic assessment for the Coricancha mine in May. Which outlined the potential for $3 million silver equivalent ounces of production? We are advancing the project with Bulk Sample Program in order to further derisk and advance the project and began [indiscernible] contractors [indiscernible] in July. [Technical difficultly] there is potentially [technical difficultly] Coricancha to [technical difficultly] in 2019. Our operations in Mexico experienced some headwinds during the quarter, but we're maintaining our annual production and cost guidance based on our performance in Q1 and expected improvements in the second half. In this regard, we've already seen improvements in this quarter. Our revenues increased relative to last year, metal production decreased and cost were higher than normal as a result of narrow [technical difficultly] and a temporary shutdown following rain [ph] at our Guanajuato mining complex. Our balance sheet strong ending the quarter with $60 million in cash, short-term deposits and $68 million in capital, we remain debt free. We continue to evaluate additional growth opportunities beyond Coricancha with a goal of adding another mine [technical difficultly] to our portfolio based in [technical difficultly]. As I mentioned [technical difficultly] we announced the positive economic [technical difficultly] Coricancha project at the end of May. The technical report is now available on SEDAR and our website and provides details of the project including key assumptions, mine plan, metal production, operating cost, capital cost and sensitivity analyses. The key highlights from the Coricancha PEA include for average annual production of 3 million silver equivalent ounce. Robust [technical difficultly] financial capital cost and upside opportunities for enhancing our economy [ph]. Following the [technical difficultly] PEA results, we decided to advance the Coricancha project with the initiation of what we're calling a Bulk Sample Program. This includes a 6,000 ton Bulk Sample from the [indiscernible] vein on two [indiscernible] stopes to verify our contemplated mining methods and key mine inputs. We aim to confirm the mining rate, grades, recoveries [indiscernible] product specifications. The Bulk Sample Program was initiated in June and is estimated to take eight months to complete. Today things are progressing well on the rehabilitation of the mine and the concentrator. Roscoe Apostle Associates, RPA will be [technical difficultly] overall technical support for the Bulk Sample Program. At the mine we've selected and mobilized our mining contractor and work has begun on development. To-date we've advanced 75 meters on our underground [technical difficultly] decline which is scheduled. [Technical difficultly] rehabilitation of surface roads and under [indiscernible] infrastructure is also underway and on schedule. At the concentrator, refurbishment is ahead of schedule and we have commenced mechanical, electrical and instrumentation testing on [technical difficultly] grinding and floatation circuits. [Technical difficultly] key personnel are in place to execute BSP, Bulk Sample Program and [technical difficultly] transition to full scale mining should we make that decision early next year. We're pleased with the progress at Coricancha thus far and we'll provide further updates as we [technical difficultly] in the Bulk Sample Program. Now I'd like to turn to our operations. Metal production from the Guanajuato Mining Complex, GMC was approximately 603 [ph] [technical difficultly] silver equivalent ounces which represented 10% increase over the previous year. This [technical difficultly] lower tons mills as a result of mining narrow veins at our Guanajuato mine, as well as, as a temporary suspension of processing at the Guanajuato Mining Complex [technical difficultly] reason is following unusually heavy rains that flooded the city of Guanajuato. The lower production ounces and higher waist [technical difficultly] ratio from the narrower vein translated to [technical difficultly] for the Guanajuato mining complex of 959 per payable silver ounce up from $5.44 during Q2, 2017. Once again we expect [technical difficultly] to the higher waste to [indiscernible] improve in the second half. And therefore, cost to return to more [indiscernible] levels. We've already [technical difficultly] improvements in the third quarter. [Technical difficultly] cost increased to $13.74 per payable silver ounce from $10.99 [ph] last year reflecting these higher costs [ph]. Turning to Topia, metal production at Topia was approximately 359,000 silver equivalent ounces which represented 7% decrease over the previous year. The comparative quarter in 2017 experienced higher [technical difficultly] than usual results of drawing down on high grade of stockpile following the completion of [technical difficultly] made in the first quarter of 2017. For the second quarter at Topia, cash cost was $4.72 down from [technical difficultly] primarily due to higher [technical difficultly] and lower EE&D and capital expenditure. All-in sustaining cost were $6.71 per payable silver ounce down from $10.78 [ph] in the same quarter last year reflecting the [technical difficultly]. I'd like to hand the call over to Jim Zadra, CFO to discuss our financial summary for the second quarter.

[Jim Zadra:]

Thanks Jim and welcome again [technical difficultly] joined us on the call today. As noted revenues increased 9% compared to Q2, 2017 that was mainly a function of higher realized metal [technical difficultly] and lower smelting [technical difficultly]. The increase in mining cost earlier resulted in a decrease in our mine operating [technical difficultly] operations in Mexico [technical difficultly] generate [technical difficultly] mine operating earnings before non-cash items. Jim noted earlier, we expect cash cost improvement second half of 2018 as we expect less variation towards geologic model, GMC. General and administrative expenses were down to [technical difficultly] and expiration of valuation involvement expenses of EE&D increased to $2.6 million compared to $2.3 million last year. The increase in EE&D is primarily a function of Coricancha project [technical difficultly] maintenance cost which totaled $1.4 million for the quarter. The increase in the Coricancha EE&D cost were partly offset by the decrease in EE&D cost by operating [technical difficultly]. And continued expense all Coricancha cost in advance [technical difficultly]. Primarily as a result of decrease in mine operating earnings as well as the expense [technical difficultly] quarter and other EE&D cost. We recorded a net loss during the quarter $2.8 million. We also note that the net loss includes [technical difficultly] non-cash items such as amortization and unrealized foreign exchange loss and accretion on our remediation provision. In this regard, we actually store our cash in short-term deposits $60 million working capital position increased to [technical difficultly]. Operations in Mexico continue to drift generate sufficient capital to fund Coricancha and [technical difficultly]. With no debt we continue to maintain a strong balance sheet, put towards growth initiatives and enhanced shareholder value. I will now turn the call back to our President and CEO, Jim Bannantine.

[James Bannantine:]

Thank you, Jim. In summary while our quarter saw a slight decline in metal production. We remain on track to meet our production and cost guidance for 2018. Our mines are operating steadily and we expect to achieve production in 2018 of between $4 million and $4.1 million silver equivalent ounces. Cash costs are expected to stay within $5 to $6.50 with all-in sustaining costs between $12.50 and $14.50. Coricancha is an important growth catalyst for Great Panther and we're excited to share updates on the project as we advance the Bulk Sample Program. As noted, the Coricancha mine has the potential to significantly increase Great Panther's silver equivalent production and it also provides Great Panther with a base from which to expand in South America. I'm going to open the call for questions. Now I understand that the call quality is not great, so if something didn't come through clearly. Please ask me to repeat that section. Questions, operator?

[Operator:]

[Operator Instructions] we'll take our first question from Heiko Ihle, Wainwright. Please go ahead.

[Heiko Ihle:]

Can you hear me more or less, all right?

[James Bannantine:]

We hear you Heiko.

[Heiko Ihle:]

Okay. So you say in the release Guanajuato mine complex had experienced no rain [technical difficultly] then the mine has anticipated. The mine from [indiscernible] operations [technical difficultly]. I'm trying to grasp where the current vein with that you in the quarter stands, when you go [technical difficultly] mining that was seen. And also maybe just like the delta between what you are and what you expect to see given you expect things to get that [technical difficultly] remainder of the year, please?

[James Bannantine:]

As you can imagine, the narrow vein mines and the nature of Guanajuato and the nature of narrow vein mines in general is twirling of the vein and curving. There's turns in the vein, there's pinching and swelling. We do definition ahead of our production to try to define where that pinch is, where the swell, the vein is turning. In this quarter little bit of on the pinching of the vein in other words there was more waste [technical difficultly] the order of magnitude like a 50% variance. So quite an impact [technical difficultly].

[Heiko Ihle:]

I'm sorry, 50% variance, is what you said it was 50% variance, it keeps breaking up, is that what you said?

[James Bannantine:]

Yes, that's 50%.

[Heiko Ihle:]

Okay.

[James Bannantine:]

That's correct, that's on the Guanajuato mine alone. Which Guanajuato represents about 20% of our production. So you can see that in our weighted average cost across all of our mines. We have [technical difficultly] that deviation is going away in the second half we'll back to close to normal, as we state in our release cycle.

[Heiko Ihle:]

Got it. [Technical difficultly] Bulk Sample Program [technical difficultly] what percentage of the cost [technical difficultly] through the sale of [technical difficultly] that's contained there.

[James Bannantine:]

That'll be a pretty significant chunk of that project. We're not taking that into account in our current guidance, we're planning on expensing the entire Bulk Sample Program with sales of the concentrate the first part of [technical difficultly] and into next year's guidance.

[Heiko Ihle:]

Can we just taking [technical difficultly] funds ex numbers [technical difficultly] it says as a fairly substantial [technical difficultly] it now sounds like just come other than that.

[James Bannantine:]

Correct. It's going to - you can look at our resource model and look at the grades and the 6,000 tons and get a good estimate on what kind of revenue that might bring in.

[Heiko Ihle:]

Sure enough. So that's sort of how is modeling keep doing it like that. Thank you.

[Operator:]

We will now take our next question from Jake Sekelsky, ROTH Capital Partners. Please go ahead.

[Jake Sekelsky:]

Can you hear me?

[James Bannantine:]

Hi, Jake.

[Jake Sekelsky:]

Just looking at care and maintenance expenses at Coricancha which looked they're just shy of $500,000 a month. Is that a level we should expect to remain consistent until the former production decision is made?

[James Bannantine:]

Say again please, Jake?

[Jake Sekelsky:]

Looking at the care and maintenance expenses at Coricancha that looked like they're just shy of $500,000 a month. Is that a level we should expect to remain consistent until the former production's decision is made?

[James Bannantine:]

Yes, that's about right. We also have the Bulk Sample cost in there as well.

[Jake Sekelsky:]

Got it, okay and then staying at Coricancha. It looks like you guys are hoping to have that complete by the early part of 2019. Does that timeline for the completion of the sampling program push back anything as far as when you expect to restart to occur?

[James Bannantine:]

No we should be [technical difficultly] the Bulk Sample beginning of next year, the first quarter or so and take our decision in time.

[Jake Sekelsky:]

Okay so that was already included in and you guys spoken about previously.

[James Bannantine:]

Yes, right.

[Jake Sekelsky:]

Okay. Good.

[James Bannantine:]

Pretty consistent with our [indiscernible] calendar has been all along.

[Jake Sekelsky:]

Perfect. Okay and just lastly, at Guanajuato can you just give us some color shutdown due to the rain season. I mean can it impact your production during the quarter and how long the shutdown?

[James Bannantine:]

It was the better part of the week.

[Jake Sekelsky:]

Okay and are you able to quantify the impact on production or no?

[James Bannantine:]

It's - I don't know - I don't remember exactly how many days it were four or five days and you could take a pretty much a linear approximation that over the days of the quarter.

[Jake Sekelsky:]

Great. Thanks that's all from me.

[Operator:]

We will now take our next question from Mark Reichman, Noble Capital Markets. Please go ahead sir.

[Mark Reichman:]

Some of my questions have been answered, but I just wanted to, just for my understanding is - with regard to the narrow veins. I'm assuming that had more of an impact on cost than say revenue, the reason I just wanted to kind of flush this out as with the second quarter production release, there was the impact of the rainfall on processing. And then there was the issue of harder ores from San Ignacio, which was really where the majority of [technical difficultly] it was coming from, which reduced the process [technical difficultly] and I believe there were [technical difficultly] grades at Guanajuato and lower gold grades [technical difficultly] due to the variability and the mineral. So there wasn't a lot of mention about the narrow vein issue and so I was just wondering, did the narrow veins, did that - was that have any role in the lower production or is it just the pinching that on the production that you had Guanajuato, really boost I [technical difficultly] but overall didn't really impact the [technical difficultly]. And then just as a follow-up to Jake's question. It sounds like you don't really have the quantification. I mean what was the kind of the lost revenue as a result of the storms impact on the processing.

[James Bannantine:]

The first order, [technical difficultly] I would say was the narrow vein on both cost and production.

[Mark Reichman:]

Okay.

[James Bannantine:]

It wasn't a plant issue, it was a mine issue. How many tons of ore we get out of Guanajuato? And so the [technical difficultly] rest of it is noise.

[Mark Reichman:]

Got you. Okay. It was the function of the production and the [technical difficultly] narrow.

[James Bannantine:]

The dominant factor.

[Mark Reichman:]

Right. And then the second question would be, there was the.

[James Bannantine:]

There is a fixed cost element to our production so obviously if we put less tons of ore through [technical difficultly]. The unit cost are going to go up somewhat but not [technical difficultly].

[Mark Reichman:]

Right, no understood. And then just I guess the second question on the contractor cost just a very minor bump. But I was just curious, I would be interested in your thoughts on, with the change and the presence in Mexico and some of the rhetoric that he's had with respect to workers right etc. what color kind of can you provide in terms of how you're thinking about your budget going forward, discussions you've had within these on where cost [technical difficultly] might be headed as a result of the change in the administration or whether it's a non-issue.

[James Bannantine:]

To be honest with you, Mark at this point. It's not a major variable in our planning. Obviously it hasn't taken [technical difficultly] but we're cautiously optimistic. You can see the world at large has cost some [technical difficultly] by the [technical difficultly] getting. So we don't have any [technical difficultly] we're obviously [technical difficultly] keeping our eyes on, but we don't have any strong biased towards changing our productivity or changing our cost in Guanajuato.

[Mark Reichman:]

Okay, thank you very much. Appreciate that.

[Operator:]

We'll take our next question, [technical difficultly] please go ahead [technical difficultly].

[Unidentified Analyst:]

Just a quick question on Coricancha. In addition to the Bulk Sampling Program you guys seemed to be doing a lot of work on the [indiscernible] and rehabilitation of the mine. So with regards to CapEx spend how should we consider a model going forward, especially for second half.

[James Bannantine:]

The Bulk Sample Program will add some to what we call our exploration and development expense at Coricancha in the second half. We expect to sell the concentrate from that and the first part of next year, but it's not going to be a material impact to our results. It doesn't really change our guidance materially.

[Unidentified Analyst:]

But when it turns to.

[James Bannantine:]

Bhakti, I'm going let Jim add to that.

[Jim Zadra:]

Bhakti, we give guidance on exploration valuation development [technical difficultly] mines and we hadn't given guidance on Coricancha, but the Bulk Sample Programs both 2.5.

[James Bannantine:]

To the nearest million dollars $2 million in the second half.

[Unidentified Analyst:]

Okay. Also you guys when it comes to CapEx budget for this year, when I look at the first half the range was about $2.5 million to $3.5 million but you guys are only spending $800,000 of it. So do you guys plan to spend the remaining of that in second half or is that going to be extending into the 2019?

[Jim Zadra:]

We'll see more CapEx in the second half, Bhakti. The first half was fairly wide. But I expect will be in the at the very low end of the range or we might even be lower.

[James Bannantine:]

I expect just to be a little bit under budget on CapEx, be more than the first half.

[Unidentified Analyst:]

Got it and lastly with regards to the Bulk Sampling Program, should we expect to hear the news flow from the outcome of the program.

[James Bannantine:]

Yes we're going to keep the world informed of our project progress on the Bulk Sample Program like you saw in our press release of this morning. We'll do that periodically, how the mine is progressing against plant, how the plant is progressing against plant, how the infrastructure refurbishment is progressing against plant? You can look forward to steady updates on that.

[Unidentified Analyst:]

Okay, that's it from my side. Thank you very much.

[James Bannantine:]

Thank you.

[Operator:]

Mr. Bannantine, it appears that we do not have any further questions at this time.

[James Bannantine:]

Okay, thank you John. I guess in closing I'd like to say that I'm pleased to have released our positive PEA for Coricancha project and look forward to providing further updates [technical difficultly] project as we go forward frequently. I believe that with our team and capital position, we're well positioned to grow Great Panther. Thank you very much for your participation today and behalf of everyone here at Great Panther. I look forward to sharing our progress with you next quarter. If you didn't hear anything or anything didn't come through clearly, please email Alex Heath and we can clarify any of the [technical difficultly] in the call today. Sorry for the call quality. Have a great day.

[Operator:]

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