Great Panther Mining Limited
Q4 2018 Earnings Call Transcript

Published: 1 Mar 2019

[Operator:]

Welcome to the Great Panther Silver Limited's Fiscal Year 2018 Financial Results Conference Call. As a reminder, all participants are in 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 conference over to Alex Heath, Director of Investor Relations. Please go ahead.

[Alex Heath:]

Thank you, Ariel. Good morning, everyone, and thank you for taking the time to participate on our call today. Joining me this morning 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 December 31, 2018. All dollar amounts expressed in the presentation and the associated financial statements in MD&A are in US 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 Great Panther's President and CEO, James Bannantine. Jim?

[James Bannantine:]

Thank you, Alex and good morning, everyone. On our call today, I'll start with the highlights from 2018, then follow with an overview of our operational and financial results and discuss our outlook for 2019, and followed by questions and answers. 2018 was a very significant year of strategic developments for Great Panther to set the platform for significant growth and building long-term value for our shareholders. In September, we announced a friendly agreement to acquire Beadell Resources Limited owner of 100% interest in the Tucano open pit mine in the State of Omaha Brazil. Tucano has a significant gold resource base with over 1.3 million ounces of proven and probable reserves and Beadell recently announced production guidance of 145,000 to 155,000 ounces of gold for 2019. In addition some significant life of mine optimization initiatives at Tucano are largely complete; namely a transition to a new contract minor and the completion of a plant upgrade to allow for greater capacity to process the high grade sulfides ore, which is the future of the mine. With all of our shareholders and all final court approval received, we are set to close of the acquisition next Tuesday on March 05. The existing Tucano operations, expiration, administration teams in Brazil will continue to run the operation. It has already been significant integration and coordination between the team in Brazil and our head office to set the closing we believe should be seamless. In addition Beadell Vice President of Exploration, Aoife McGrath is expected to join Great Panther and Dr. Nicole Adshead-Bell will join our Board of Directors on closing. In Peru at our Coricancha mine, we're nearing the completion of our bulk sample program and expect to be in a position to make a restart decision shortly after the bulk sample program has been processed through the concentrator next month in March. Our Mexican operations saw a 5% increase in overall silver equivalent production compared to 2017 with production at our Topia mine in Durango state, up 42% over the previous year. At our Guanajuato Mine Complex or GMC as we call it, we made up the Guanajuato and San Ignacio Mines the decision to restructure and reduce costs and mitigate lower metal prices and the variability of the mineral resources, specifically at the Guanajuato mine. We continue to maintain a strong balance sheet ending the year with $51 million in cash and short-term deposits, $62 million in net working capital and no debt. This significant liquidity is necessary in order to properly manage the working capital requirements of Tucano operation and advance the Coricancha project, should a positive production decision be made. On to Beadell, the acquisition of Beadell is a transformational transaction for Great Panther that results in the creation of a new emerging and growth oriented precious metals producer, focused on the Americas. We've now received approvals from both Great Panther and Beadell shareholders as well as final court approval. The transaction will close on March 5 in Australia. As noted, the Tucano mine has largely completed two significant optimization initiatives. They include a plant upgrade and a transition to a new Brazilian mining contractor UNM, which is a leading mining contractor in Brazil. With UNM now fully mobilized, material movement is delivering to plan. On the plant side, the Tucano plant was previously constrained to processing a maximum of 30% sulfides mixed with oxides. With the plant upgrade, we now provide the ability to process up to 80% sulfide in the blend. The plant upgrade is also expected to increase gold recoveries from the current level of approximately 88% to approximately 93%. The plant upgrade included a ball mill fully commissioned, a thickener fully commissioned, additional CIL tank capacity fully commissioned and an oxygen plant fully commissioned. However, the oxygen plant required to handle a peer type which is not producing quiet enough oxygen. So Beadell has come to the decision to install a supplemental liquid oxygen supply system, which should be completed in March. Finally the plant will be transitioning from generator power to grid power, which is currently using 9 megawatts off the grid of its 12 megawatts demand. On to Peru at our Coricancha project in Peru, we are entering the final stage of the bulk sample program or the BSP. The date we have fully advanced to decline to 160 meters with 449 meters of [indiscernible] and stoke development representing 100% of the total plan for the BSP. All key development milestones are now complete and we're now preparing the final processing of the bulk sample or that we've mined and stockpiled. This material is expected to be processed through the concentrator by the end of March. We have the key personnel in place to finalize the BSP and also to support a transition to full scale mining should we make a positive production decision upon the completion of the BSP at the end of March. On to our producing operations, at Topia and Durango state, metal production was over 1.5 million silver equivalent ounces for 2018, which represents a 42% increase over the previous year. Admittedly a large part of that increase was attributed to higher throughput, improvement in average leg raises and silver led recoveries and a higher gold and silver ratio. In Guanajuato, as previously mentioned, we implemented a restructuring plan at the Guanajuato mine complex or GMC. Beginning in Q3 of 2018, we undertook a restructuring at GMC to reduce mining from the Guanajuato mine and to increase output from the [indiscernible] mine in order to lower cost and mitigate the impact of lower metal prices. The message taken improved our cost in the fourth quarter and forms the basis for our lower cost guidance in 2019. Further restructuring measures were taken at the beginning of 2019, which included an optimization strategy under which the entire production for GMC for 2019 will be sourced from the lower cost at Ignacio mine. This will enable a focused expiration program for the Guanajuato mine aimed at growing higher margin continues resources and as part of a multi-mine strategy for us in Mexico that will also see increased output from an expansion of the Topia mine. Total metal production from the Guanajuato mine complex for 2019 was 2.6 million silver equivalent ounces, which represented a 9% decrease over the previous year. This was attributed to lower average silver and gold grades, lower silver recoveries and the previously mentioned restructuring measures on the source of production. These were partly offset by the impact of a higher gold to silver ratio going to 80 to 1 now. That's it for the highlights and the operational update. I'll now hand the call over to Jim Zadra, our Chief Financial Officer for a financial summary of 2018.

[Jim Zadra:]

Thanks Jim and welcome everyone who have joined us today. For the year ended December 31, 2018, we reported net loss of $0.06 per share, the most significant factor in the net loss was expensing of our Coricancha project cost. These amounted to about $7.1 million in 2018 or about $0.04 per share and we're continuing to expenses cost until such time as we make a positive decision to restart the mine. As Jim noted, we expect to make a final evaluation and make a go, no-go decision after completion of the bulk sample program later this month. The other significant factors in the loss were lower metal prices for oil production and higher costs that at our Guanajuato mine complex as Jim discussed. As Jim also discussed, we took steps to restructure and reduce our cost at the GMC in the second half of the year and began to see a reduction in our unit costs in the fourth quarter. For 2018, consolidated cash costs were $8.93 per payable silver ounce and all in sustaining costs excluding corporate G&A was $11.94 per payable silver ounce. The higher unit production costs and lower production at the GMC accounted for about $3.50 per payable ounce increase in our cash costs in 2018. As noted we've already seen improvement in our cash costs over the levels in the third quarter, that accounted for most of the increase in our 2018 cash cost and our guidance for 2019 is for cash cost in the range of $5 to $6.50 and for all in sustaining costs before corporate G&A of $10 to $12. During the year, our expenditures also reflected a significant amount of corporate development expenditures in connection with the acquisition of Beadell resources and we continue to incur costs related to the acquisition as we work through the closing of the transaction. Our balance sheet remained strong with $51 million of cash and short-term deposits and net working capital of $62 million and we continue to remain debt-free. We have sufficient cash and net working capital to fund the closing and integration of Beadell and the potential restart of Coricancha with no foreseeable need for external funding. I will now turn the call back to our President and CEO, James Bannantine.

[James Bannantine:]

Thank you, Jim. In summary, I'd just like to restate that despite last year challenging metal price environment, we were able to achieve our 2018 metal production guidance. With the changes at GMC and increased throughput at Topia, we expect to achieve production to 2019 of between 3.7 and 4 million silver equivalent ounces. Cash costs are expected to be between $5 and $6.50 all in sustaining costs of $10 to $12 and AISC between $13 to $15 excuse me, $10 to $12 excluding corporate G&A and AISC $13 to $15. 1 should also note that going forward with Tucano in our portfolio, the corporate G&A effect on the Mexican cost will be much lower approximately 25% of its current level. With the closing of the acquisition of Beadell occurring next week, we expect to issue consolidating guidance with the inclusion of the Tucano gold mine with our reporting for the first quarter of 2019, which we're very excited about the future the company and the acquisition of Tucano and look forward to a bright future with the combined teams of both the previous Great Panther team and the Beadell team with the Beadell team staying in place and leadership roles in the Tucano mine. Thank you very much and I'll now open the floor up for questions.

[Operator:]

[Operator Instructions] Our first question comes from Jake Sekelsky of ROTH Capital Partners.

[Jake Sekelsky:]

The Beadell guidance for 2019 outlines all in sustaining cost of $1,000 to $1,100 an ounce. Do you see any pockets of opportunity to improve on this, once you guys are in there?

[James Bannantine:]

I do Jake. Thanks for the question. First of all, that we're able to increase our throughput that will obviously lower the unit cost. I do think that with Great Panther's balance sheet and cash added to the Beadell large asset, which we talked about in the past as the basis, the synergy between two companies for the deal, I think with that the financial strength of the new company there will be greater purchasing power with the suppliers of Beadell are going to give us measurable chance to reduce our cost going forward.

[Jake Sekelsky:]

Okay. That makes sense. And just kind of dove telling off of that, there is a impact there that is relatively unexplored. Can you just kind of speak to some of the targets you expect to focus on for the remainder of this year and into next year as far as exploration goes?

[James Bannantine:]

Yeah sure Jake. So this also goes a little bit back to financial strength and capacity with the Great Panther cash and balance sheet will be able to pursue the exploration programs that have not been able to be funded at Beadell for the last couple years, the first priorities will be the near-term targets of both infill between the existing pits of tab A, B, tap C and with whom these two infill targets there as well as step out targets to the just off of the pit to the north and to the South and to the ease of the tap A, B pit. You can see those targets outlined in our corporate presentation, but we feel like those are very near in high probability, high return targets on expiration dollars that we expect to spend this year and so you should look for significant increase in the resources and reserves, what reserves and resources at Tucano going forward, that after will be led by Aoife McGrath who is the VPX for Beadell joining to be the VPX for the new Great Panther Mining.

[Jake Sekelsky:]

Okay. And should we expect to see an exploration budget with 2019 guidance after the Q1 results?

[James Bannantine:]

I think that's a good target Jake. I can't say for sure, but I think that probable.

[Jake Sekelsky:]

All right and then just lastly at Topia, looking at the 25% increase in production year-over-year, which is pretty good to see, can you just quantify the increase in throughput and maybe speak to the cost associated with the upgrades of Panther?

[James Bannantine:]

The increase in throughput at Topia as you can see in our guidance is about a 25% to 30% increase in throughput, which also is about the same increase that we have planned for the capacity expansion. That's a very high return project for us with something like one year payback. So it's a very good project.

[Operator:]

Our next question comes from Heiko Ihle of H.C. Wainwright.

[Heiko Ihle:]

So [indiscernible] I was going through the MD&A last night and the production cost that they were impacted by $1.6 million there, due to mining cost related to mining narrow veins and respectively to incremental additional waste material rather, how is this looking in Q1 thus far? Is that something we should model out for 2019 as well? And on that same topic you also mentions rate increases for your mining construct, is that something that we should also model out or has that the result?

[James Bannantine:]

I'll take a first cut at it and Jim can a follow-up if necessary. The adjustment to the narrow vein in waste and development costs at Guanajuato has already been accounted for in our restructuring plan and the costs of the going forward operation are in our guidance for 2019. So you can see we are returning back to kind of our previous cost structure by making those adjustments as specifically reducing the production down to zero for the Guanajuato mine and we're just focusing on Ignacio and expanding Topia while we explore Guanajuato. So you can pretty much take our guidance for cost remodeling.

[Heiko Ihle:]

Okay. I'll ask the question differently.

[James Bannantine:]

Which is much lower than the third quarter cost.

[Heiko Ihle:]

Okay. Fair enough. On that same token, given that you guys are shifting production from Guanajuato to San Ignacio, I noticed there was some issues with the wastewater discharge permits and so in the MD&A it stated that you had worked up and requested additional information from the authority last April and you submitted it, but you haven't gotten anything. At what point in time if ever does that become an issue?

[James Bannantine:]

We obviously, and I'll try this first and Jim can chime in if necessary. As you can see as we stated in the MD&A, we don't control the government agencies. So we can't say for sure that we'll get that permit, but all indications are that we should and it should not disrupt our operations. So it's a high factor on our wish register.

[Heiko Ihle:]

Excellent. Thank you, guys.

[James Bannantine:]

And Heiko the last part of your last question, the contractor, the contractor rates are already baked into our guidance for 2019.

[Heiko Ihle:]

So in another words, they haven't ceded on those price increases.

[James Bannantine:]

It's not just prices, it's rates. So the contractor gets paid for delivering tons -- per ton to the plan. When there's more waste, the rate per ton is higher and that's kind of implicit, it's not just the contractor displays, it's how much waste it's moving and what you get to charges for a ton of ore plan.

[Operator:]

[Operator Instructions] Our next question comes from Bhakti Pavani of Alliance Global Partners.

[Bhakti Pavani:]

Wanted to touch base on Coricancha. You mentioned you have results coming up by the end of next month. Once you have the results out and let's say you have a positive production decision, what kind of the timeline should we expect to see when you're ready to bake through the ground at Coricancha? And what sort of expenses are you budgeting for this year?

[James Bannantine:]

So maybe I'll answer the last part first and the second part, the first part second if you don't mind. The last part you can see from our PEA and the previous publications on Coricancha that the CapEx, the restart CapEx is around $10 million. The timing of that restart we expect it actually to be a function of the sequence of our new company which includes Tucano the mine in Brazil going forward. You can also see that from the Tucano guidance, that the Tucano production and his cash flow back in weighted in the year. So we expect to be judicious about our use of cash to get through the first half of the year with Tucano, which is a negative cash flow here while we do some stripping and go through a little great sequence in the mine, get through that and get into the richer part of the Tucano mining operational operation and cash flow generation and then sequence the Coricancha project in the second half of year if we take the positive restart decision. So we're still a small company. We're a bigger company going forward, but in the grand scheme of things we're still a small company which kind of dictates from a cash perspective, one project at a time.

[Bhakti Pavani:]

So assuming that the development decision or the expected CapEx start spending in the second half, will the mine be continuing to play maintenance and care under the first half, would that be fair to assume?

[James Bannantine:]

Yes, yes, Bhakti. But remember the expenses for Coricancha for 2018 were more than here at maintenance expenses. They were the bulk sample program expenses which we expensed a 100% of. We've got the ore that we're going to produce from the bulk sample program that's actually going to generate revenue this year when we processes it and if we go back to care and maintenance, it won't include the higher expense ratio, the bulk sample program. That will just be a low level while we wait for the restart.

[Bhakti Pavani:]

Got it. Moving to Beadell, there has been several planned improvements made at the project. Just kind of wondering, what's your initial take on the production, given there is an improvement in gold recovery? Do you expect to see the production guidance provided by Beadell changing, increasing or maybe decreasing going forward? What's your take?

[James Bannantine:]

So we're just actually closing as we said next Tuesday on March 5. We will review in more Beadell's budget for 2019 and their guidance and consolidate that all into Great Panther guidance whenever we publish the first quarter results in the beginning of May. So if you can just hang tight on that and give us a few weeks on that, I think you'll have a better picture, but at this point in time, I don't have any bias positive or negative on whether we would, if we needed to adjusted that up or down. So don't think you should, I think you should just take what you're given from them right now for your modeling purposes.

[Bhakti Pavani:]

Got it. And last one for the housekeeping, what sort of the smelting charges should we be modeling for 2019? Is it going to be familiar to 2018?

[James Bannantine:]

I'd say the market for treatment and refining charges from a producer like us perspective is deteriorated in 2019. We had a great year in 2018. The market was very much in our favor. We expect those the treatment charges and refining charges to go back to more of a normal level in 2019, which is going to be an increase from 2018. Those charges are in our guidance Bhakti, the new charges. Jim, did I catch that right.

[Jim Zadra:]

Yes.

[Operator:]

This concludes the question-and-answer session. I'd like to turn the conference back over to James Bannantine for any closing remarks.

[James Bannantine:]

Thanks Ariel. And just in closing, I'd like to say as you can probably tell that we're very excited about our acquisition of Beadell and we welcome the Tucano mine and team to our portfolio, to our team. Really excited about the team members that we're inheriting. They’ve done a great job in optimizing the Tucano mine, to the point that which we're taking it over. So we're really getting something that's running quite well now with the change in the contractor and the plant upgrade. I'm also encouraged with the progress of our bulk sample program, the Coricancha and I believe that with our team, we're well positioned to grow the company and to add shareholder value for all of our shareholders. Obviously Coricancha will come in next year, but you really are looking at an intermediate growth company, which is transformational for Great Panther. Thank you for your participation today and on behalf of everyone here at Great Panther, I look forward to sharing our progress with you next quarter on or about 1 May. That's it Ariel.

[Operator:]

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