Great Panther Mining Limited
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Great Panther Silver Limited 2016 First Quarter 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, Dorisa. Good morning everyone and thank you for taking the time to join our call today. With me here this morning are Robert Archer, President and CEO; and Jim Zadra, Chief Financial Officer. Before we begin, I would like to mention that some of the commentary on today's call may contain forward-looking statements. You should be cautioned that actual results and future events could differ from those noted in today's presentation. I would like to remind you that this conference call is being recorded and will be available for replay after 10

[Robert Archer:]

Thank you, Spiros. Good morning everyone. As always we’ll start this morning’s conference call with a brief overview followed by the first quarter highlights and our operations, we’ll then discuss the quarter’s financial results in more detail and conclude the call with the Q&A session where we encouraged you to ask any questions you may have. Great Panther had a strong start to the year, delivering an on target quarter of metal production was substantially lower cash cost and all-in sustaining cost from a year ago, and thus setting the course to achieve our 2016 guidance for 4 million to 4.2 million silver equivalent ounces. We produced more than $1 million silver equivalent ounces in the first quarter while reducing our consolidated cash cost by 52% to US$4.20 per payable silver ounce. In addition, we reduced our consolidated all-in sustaining cost or AISC by 36% to an impressive $9.25. Our costs were well below the average silver price in Q1 which in turn was well below the price today. Our lower costs reflect the continuation of our successful focus to reduce costs by focusing on great control operational efficiencies and improved operating plans. Our lower costs were also a function of more favorable foreign exchange rates and in the case of AISC lower levels of CapEx and development costs in the first quarter. The reductions in cash costs along with favorable foreign exchange rates also contributed to a 16% increase in our mine operating earnings before non-cash items in the first quarter of 2016 when compared to the same quarter in the previous year. While the quarter benefited from a stronger U.S. dollar, this also resulted in a large unrealized or non-cash foreign exchange loss which turned strong operating earnings to a net loss for the quarter. The unrealized foreign exchange loss is associated with Great Panther's investment in its Mexican operations, which is structured by way of a significant U.S. dollar loan to its Mexican subsidiary. This is a common and prudent intracompany investment structure, but it does result in an recognition of unrealized gains and losses as the U.S. dollar denominated loan on a subsidiaries books as mark-to-market in Mexican peso terms at the end of each quarter. With regard to financial position, we continue to maintain a strong balance sheet with $17 million in cash and cash equivalents, $35.5 million in working capital, and no long-term debt. Turning now to the operational highlights from our first quarter, the Guanajuato mine complex or GMC accounted for approximately 75% of our total production in the first quarter of 2016. Metal production from the GMC increased to approximately 756,000 silver equivalent ounces representing a 6% increase over Q1 of 2015. San Ignacio accounted for 52% of the overall metal production from the GMC, contributing over 391,000 silver equivalent ounces for the quarter, this is up 30% from Q1 of 2015 and is a testament to the successor we had in wrapping up San Ignacio. Cash cost for the GMC in the quarter decreased 91% to $0.61 from $7.16 in Q1 of 2015. This was due to an increase in gold prod and gold by-product credits derived from the increase in gold production, sales unrealized gold prices and to favorable currency factors. The significant decrease in cash cost of the GMC also contributed to a 72% reduction in AISC to $2.72 per payable ounce from $10.51 when compared to the same period last year. Lower levels of mine development and capital expenditures due to timing issues were also responsible for the reduction in AISC. We expect that these expenditures will increase in the succeeding quarters, which will bring AISC more in line with our 2016 guidance. The emphasis on expiration at all mines has consistently produced favorable targets for potential resource expansion and better definition of high grade resources. On February 22, we provided an update to the mineral resource estimate for the GMC. The measured and indicated through M&I resource estimated at more than 6 million silver equivalent ounces was virtually unchanged from the previous M&I resource, indicating that we successfully replaced what we mined in 2015. Our focus for 2016 is to increase the amount of M&I resources by year end. At our Topia Mine in Durango, metal production was slightly lower than in the first quarter of 2015, however efforts to control dilution and therefore improved head grades, combined with an improvement in recoveries resulted in a much higher level of produced ounces per ton milled. This combined with more favorable foreign exchange rates reduced cash cost per silver payable ounce at Topia to $12.32 in the first quarter of 2016, while AISC declined to $13.34 from $14.15 over the same period last year. At the Coricancha Mine in Peru, we completed a 5800 meter drill program, comprising both underground and surface drilling that had commenced in September of 2015 and concluded at the end of February. The objective of the drill program was to update the mineral resource while focusing on high grade areas that could potentially support a mine plan with robust economics at current metal prices. The evaluation of this project is ongoing and is being enhanced by engineering and environmental studies that are being used to generate an economic assessment of the project. Turning now to our first quarter consolidated financial results. Revenues for the first quarter in 2016 decreased 9% to $18.5 million compared to $20 million in the same quarter of 2015. The difference is primarily the result of the timing of concentrate shipments. Mine operating earnings before non-cash items were $7.7 million in the quarter, an increase of $1.1 million over the first quarter of 2015. The improvement is attributed to a reduction of cost of sales, more favorable foreign exchange rates and improved realize metal prices. Despite the positive mine operating earnings and strong adjusted EBITDA, we recorded a net loss in the first quarter of $4.5 million as a result of the FX loss I noted earlier, which totaled $6.1 million. In April, we announced an At-the-Market or ATM financing. Under the ATM agreement, we’re entitled to sell common shares of up to US$10 million. It’s important to recognize that this is entirely at our discussion in terms of pricing, timing and volume. This type of financing allows us to raise capital over time with minimal impact to the market, well we’ll take advantage of the current increase in volumes and share price. We intend to use the net proceeds of the offering together with our current cash resource to fund operating, development and exploration expenditures at our mining operations and projects for possible future acquisitions and for general corporate and working capital purposes. In summary, Great Panther delivered a strong quarter of metal production with substantially lower cash cost and AISC from a year ago. Given the production for the first three months exceeded 1 million silver equivalent ounces, our team has set the pace to be on target in achieving our production guidance of 4 million to 4.2 million silver equivalent ounces for 2016. As seen in this past quarter, production from San Ignacio will continues to account for the predominant portion of the production from the GMC for the remainder of the year. Cash costs are anticipated to be in the range of US$5 to US$7 and our AISC is projected to be $13 to $15 per silver payable ounce. The company will continue to focus on operational efficiencies and strong grade control, while building on a successful achievement obtained in previous quarters. We’re continuing our evaluation of the Coricancha Mine in Peru, and at the same time evaluating other acquisition opportunities in the Americas. With the upturn in metal prices and apparent change in sentiment in stock markets were optimistic that we're entering a more positive environment for the mining history. In particular, we have seen that the silver to gold ratio reverse strength, and so far this year the silver prices outperformed gold. Great Panther continues to display tremendous leverage to sliver prices are they are well positioned to take advantage of better times ahead. I’ll now open up the call for questions.

[Operator:]

[Operator Instructions] Your first question is from the line of Heiko Ihle with HCW.

[Heiko Ihle:]

Good morning. Congrats on the quarter.

[Robert Archer:]

Thanks Heiko. Good morning.

[Heiko Ihle:]

The income regulations are much nice to silver price environment in last quarter when we spoke.

[Robert Archer:]

And we’ve been working hard on that.

[Heiko Ihle:]

Glad to hear. Glad to hear. Given the 100,000 ounce impact from the step of the exposes and you're expecting to make upward it through the remainder of the year. Is there an implicit rate that the guidance and should we – just in our internal model here, should we utilize the new figure so far run rate? I mean it’s only 100,000 ounce, if you think about it, it’s over three quarters, right, but that puts you 133,000 ounces annualize and I mean that $18 silver is actually pretty meaningful number.

[Robert Archer:]

Sorry, Heiko. What was actually the question?

[Heiko Ihle:]

Sorry. The question is, given that you're saying 100,000 ounces that you missed out on during quarter, [indiscernible] is that an implicit way of saying what we expect keeping run rate going in 2017 and beyond? I mean, you're essentially saying, you're now expecting to produce slightly more silver than you were three months ago, because you missed out on some production, but you’re making up or no problem.

[Robert Archer:]

Sure. Yeah, I understood. Yeah. I suppose that’s a fair comment. We’ve already made up part of the shortfall and we are just budgeting through our mine plan to gradually recover that through the balance of the year. But given that we’re fairly close to or at capacity at the GMC in terms of the processing plant, a lot of it just comes down to grade and efficiencies making sure that there is no shortfalls or anything in the production. So, yeah, I guess, in the model, I guess, perhaps at a slightly higher run rate at the end of the year.

[Heiko Ihle:]

That’s a huge positive. Okay, fair enough. [Indiscernible] just a slightly different question, Coricancha, can you [indiscernible] for the remainder of the year, I saw the $1.5 million in EE&D expenses, but is that only for Coricancha?

[Robert Archer:]

Well, a good chunk of that was for Coricancha, because we did drop the Guanajuato project early in the year. So the majority of the expiration certainly was on the drilling program at Coricancha. So I think where we do have the anniversary coming up the option payments mid May on the 18th. So we’re going to evaluation process right now and just continuing to evaluate the results and looking at how best to proceeds with this project by given that we’re so close to that date. I can't really say too much at this point.

[Heiko Ihle:]

Got you. And then lastly, it’s more of a common – question, congrats on lowering your G&A by 13% in a [indiscernible] silver price environment I wish more people did that.

[Robert Archer:]

Thanks Heiko, we’re doing everything we can.

[Heiko Ihle:]

Thanks guys.

[Operator:]

Your next question is from Bhakti Pavani of Euro.

[Bhakti Pavani:]

Good morning guys.

[Robert Archer:]

Good morning Bhakti.

[Bhakti Pavani:]

Just a quick question on the grades, in your comments you did mentioned that San Ignacio would be taking a higher chunk of the production at GMC which has higher gold grade. Looking at the gold grades in Q1 which were about 2.58 grams per ton gold, is there a room for further increase in that grade or do you think that grade is pretty consistent and should be throughout the rest of the year?

[Robert Archer:]

We’re expecting to be relatively consistent overall, but it is variable, I mean we’ve already change the mine plan a little bit at San Ignacio and reminding a little bit more from the northern zones that do have slightly lower grades than some of the southern extension, and some of that is just timing issues related to mine development, you know that sort of thing. And we’re also finding that we’re getting more tons from some of the filler recoveries at Guanajuato, and depending on where those are coming from, the grades can be quite variable. So we’ve already adjusted the mine plan a little bit for this year and that will probably be a bit of an ongoing process through the balance of the year. So, I guess it is difficult to – to the firm answer to the question it’s slightly be somewhat variable, but I would just stick with the current numbers that we have now.

[Bhakti Pavani:]

Okay. With regards to the mine development cost, considering the ASIC was pretty low in the first quarter and as per the comments is expected to increase. How kind of we should model to spend on the EE&D cost for the remainder of the quarters for 2016?

[Jim Zadra:]

Hi Bhakti, it’s Jim. I think we published our guidance and I think if you go with for the development costs for the operating mines, I think if you go with a lower end, the range of the guidance that should be pretty safe and that won’t mean that the numbers will come up in Q2 to Q4. But if you model based on the lower end of the range for the full year guidance, I think you should be pretty safe. In terms of the CapEx for the operating mines, we gave a guidance range of $3.5 million to $5 million for the year and there was about 400,000 in spend in Q1. We certainly see that getting up towards the guidance range, and I would say the midpoint of that $3.5 million to $5 million would be pretty good place to go with for gauging what will be for the remainder of the year.

[Bhakti Pavani:]

Okay. Thank you very much. Just can I asked question on – I know you guys are still in the evaluation process for Coricancha, but this time I'm curious of would you be comfortable sharing of what kind of the preliminary analysis of results that you will found? And do you think you guys would be extending for getting into the next two years of that agreement?

[Robert Archer:]

That’s something that we can’t actually comment on right now, Bhakti, we can’t make a comment on the cause of that nature, that hasn’t been publicly disclosed. So finalizing our first year’s evaluation and reviewing that ourselves right now, so unfortunately I can't comment on that.

[Bhakti Pavani:]

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

[Operator:]

The next question comes from the line of Emily Waters.

[Emily Waters:]

Hello.

[Robert Archer:]

Yes. Hi, Miss Waters, how are you?

[Emily Waters:]

I have a question. I wondered if you – the management is reflected on why the company is distracting so many short sellers and manipulators.

[Robert Archer:]

Well, to the question, the company stock is very liquid, and from what I've been told it's quite – the day traders like the stock for that reasons, and perhaps that and itself tends to invite people like that, and unfortunately there is really very little that can be done because these people as long as they disclose their ownership, than they can effectively say whatever they like about the company even when its lately untrue. So it is unfortunates that we see this sharp rises and then sharp drops, it does create lot of volatility. We try to mitigate as much as we possibly can, but really when it comes to market trading, this is not a whole lot that the company can do.

[Emily Waters:]

Yeah, because they really distracts from the recent investors who really liked your company, our day trader is well. And so, I am rally aware of a lot of – this nonsense it goes on. It just seems that you’ve really been targeted and I am like, have you made anything, kind of what’s going on here because it really seems like you've been targeted and its unfortunate?

[Robert Archer:]

Yeah, certainly it is – and I understand the impact that has on the average investor. You said we made enemies, when you look at the other side of it, you could say that we’ve made friends as well, because the company has a very, very sharp rise in share price last week where the share price is going up about 10% a day. I mean realistically something like that is really not sustainable and this is very often nothing fundamentally behind it. We do tend to trade with silver price, but a sharp rise like that is often – it’s coming from some people who are pushing up the price and doing the office for the short sellers. And then this people that are professional short sellers are watching for patterns like that where a stock has a sharp rise and then they anticipate that is going to correct. And that's when they choose their timing carefully, they take their share position and then they publish whatever made up fabricated negative news they can without contacting the company of course. And then published a sell recommendation which drives the share price down and then they make money on their share position. So, it’s a game unfortunately that that goes both ways, and just something that's out there and we just have to deal with.

[Emily Waters:]

Thanks. I appreciate your time today.

[Robert Archer:]

Thanks for listening.

[Operator:]

Your next question is from the line of Elliot Koenig with Oppenheimer.

[Elliot Koenig:]

Hi, guys. A strong quarter, I really appreciated one simple question here. The 9% decrease in revenue during the first quarter due to reduction in metal sales volume, I imagine that’s actually probably a net positive because so you'll be able to sell that silver and gold concentrate at presumably higher prices this quarter?

[Robert Archer:]

Sure. I’ll let Jim answer the question.

[Jim Zadra:]

Hi. Yeah, that is potential, although it really tons down of timing of shipments in terms when the revenue is recognized. We could have a big shipment at the end of the quarter and it may fall at either side of the quarter, and yet the pricing terms won’t change. So, yes, there will be some impact from better metal prices in Q2, but it may not be as much as you’re thinking, just because if it is a big shipment at the end of the quarter that's just falling outside of the quarter, the pricing mechanisms don’t really change.

[Elliot Koenig:]

Thank you.

[Jim Zadra:]

You're welcome.

[Operator:]

And we have no further audio questions at this time.

[Spiros Cacos:]

Operator, there is one other chat, we did it out.

[Operator:]

Yes.

[Spiros Cacos:]

So, question is from Mark Juper, since what – for Great Panther, what particular efforts Great Panther will increase production of silver during the balance of 2016?

[Robert Archer:]

Well, our guidance for the year is actually fairly consistent, so we’re not really anticipating a large increase for the balance of the year. We intend to do around about 1 million ounces or just over 1 million ounces each quarter, so the overall production should be fairly consistent with last year. Going beyond the existing operations, we are continuing to look at potential acquisitions, as I have mentioned we’re still evaluating the Coricancha Mine in Peru although, if we were to move ahead with the project that wouldn't be back in production this year anyways, the next year at the earliest. We are being fairly aggressive on the acquisition front and that something that we’re looking for the longer term to increase production. And part of the reason that production is projected to be relatively flat this year, is the fact that we grew 30% over last year or rather 2015 over 2014. And that was such a rapid ramp up in production, that sort of rate is not sustainable year-over-year. So this is a good year effectively to serve regroup a little bit and just make sure that we can maintain at the current rate, and just focus on increasing efficiencies and lowering our costs which so far we’ve been very successful in doing.

[Spiros Cacos:]

That’s all the questions from the chat section.

[Operator:]

[Operator Instructions] And Mr. Archer, it appears to be not having any questions at this time.

[Robert Archer:]

Thank you operator. In closing, I'd once again like to thank our employees, contractors and stakeholders for delivering a strong quarter to start off 2016 under challenging circumstances. I’d also like to thank our shareholders and analysts for their continued support through a difficult market in 2015. It's nice to see that support rewarded by the recent strong upward movement in our share price, which is reflective in part of our strong operating performance. We continue to focus on strong execution and hope that a more positive market environment will continue to reward our shareholders. Thank you for your participation today, and I look forward to sharing our progress with you again next quarter.

[Operator:]

Thank you, Mr. Archer. That concludes Great Panther’s first quarter 2016 financial results conference call and webcast. You may disconnect at this time.