Great Panther Mining Limited
Q4 2013 Earnings Call Transcript

Published: 11 Mar 2014

[Operator:]

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Great Panther Silver Limited Year-End 2013 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 Rhonda Bennetto, Vice President, Corporate Communications. Please go ahead, Rhonda.

[Rhonda Bennetto:]

Thank you, Kim. good morning, and thank you for taking the time to join our call today. With me here this morning are Bob Archer, our President and CEO and Jim Zadra, our Chief Financial Officer. We are using a presentation today to add a visual component to our conference call. You can access slides by going to www.greatpanther.com and clicking on the main banner page on the home page. Before we begin, I’d like to mention that some of the commentary on today’s call will contain forward-looking statements. you should be cautioned that actual results and future events might differ from those noted in today’s presentation. At the end of Mr. Archer’s presentation, there will be a question-and-answer session and a replay of this call will be available a little later today. The details to access the replay are available on our website. And with that, I’ll turn the call over to Mr. Archer.

[Robert A. Archer:]

Thank you, Rhonda. Good morning and thanks for joining us. As Rhonda just noted, you can follow along with me in the slides I’m referring to, by logging into our website at www.greatpanther.com, where you will find them front and center on our home page. I will assume that everyone has read our most recent press releases, detailing disruptions at our Guanajuato operations. If you bear with me, I would like to first address our year-end operational and financial results and we will then speak to the events of recent days. Current event slides for the moment, I’m pleased to report that on a consolidated basis for the year ended 2013, we processed 23% more ore than the previous year, achieving record metal production of 2.84 million silver equivalent ounces, a 19% increase and beating our guidance by 14%, resulting in our best year ever. Silver production rose 10% to a record 1.7 million ounces and gold production increased 44% to a record 15,714 gold ounces. Guanajuato and Topia melt 27% and 11% more tonnes, respectively over the previous year, reflecting improvements and efficiencies of both processing plants as well as greater mine output. Both mines are excellent plant metallurgical performance with recoveries at Guanajuato in the fourth quarter in particular, the highest we have achieved at 91.7% for silver and 92.9% for gold. Overall metal production for 2014 is expected to increase gradually through the year as San Ignacio comes on stream. Adding San Ignacio to steady production from Guanajuato and Topia, we expect to increase overall production by approximately 10% in 2014, to between $3.1 million and $3.2 million silver equivalent ounces. Achieving this will translate to a 13% compound annual growth rate over the last few years. Our balance sheet remains very strong with a cash position of $21.8 million, working capital of $38.2 million and no debt. Taking a closer look at our individual mines for a moment, at Guanajuato a record 27% increase in tonnes milled resulted in a 22% increase in silver equivalent ounces produced for the year. The increase throughput was due to the greater number of operating hours and improved efficiencies in mining activity. Gold production increased 44% throughout the year due to increased production from the gold-rich Santa Margarita mine. Santa Margarita has been delivering consistently strong gold grades in the 5 gram range, but silver grades in these veins are lower, typically about 60 grams per tonne, which brings down the overall average for the Guanajuato mine complex. Silver grade showed consistent improvement throughout 2013. However, the average for the year, was below the average for 2012, largely because of the impact of Santa Margarita. The lower levels of the Cata and Santa Margarita mines at Guanajuato continued to excel in terms of metal production in grades. The Los Pozos and Guanajuatito zones also contributed to the increase in production to higher mine tonnes and improved grades. Guanajuato’s cash cost per silver payable ounce saw significant drop from $17.29 in Q1 to $5.34 in Q4, ending the year with an average of $10.42. San Ignacio is on schedule and we anticipate production in Q2 this year. As of year end more than 130 meters have been completed on the access ramp. Ramp development was temporarily delayed due to the presence of incompetent rock associated with the fault requiring additional rock support, but that’s been resolved. As of December 31st we had mined 1,082 tonnes of ore grading 121 grams per tonne of silver and 2.11 grams of gold. That ore was transported to the processing plant of Guanajuato. Additional exploration development has been carried out from the access ramp in order to confirm the continuation of the Intermediate vein to depth. Significant progress has been made at San Ignacio in terms of ancillary surface infrastructure. The access road to the mine portal was completed, a diesel tank station was installed on site to supply the mine equipment and the construction of the electrical substation is complete. The waste dump was completed and a mechanical services workshop is under construction. Also, water and compressed air lines to supply the mine equipment was established. As I mentioned a moment ago, production is expected to begin in the latter part of the second quarter at about 100 tonnes per day, ramping up to about 250 tonnes per day by the end of 2014. Ore process to Topia was up 11% year-over-year; resulting in a 14% increase in silver equivalent ounces and a 14% increase in both silver and gold. Mine exploitation continues to face challenges in terms of ore vein consistency and locally incompetent host rock, continued emphasis will be placed on great control and we’ll focus primarily on the reduction of dilution that is inherently associated with the mining of these narrow veins. In addition, we will make sure that each mine within the Topia district is profitable, and if it’s not, it can be closed without any impact on the others. This gives us a lot of flexibility at Topia. We closed three mines in 2013 with the possibility of future closures in 2014. Men and equipment have been deployed to other more profitable mines, so such that overall production has not been affected and we can continue to improve efficiencies. Cash cost per silver payable ounce for Topia decreased by 13% year-over-year from $21.42 to $18.65. Our El Horcon project has the potential to be a satellite to our Guanajuato mine, just like San Ignacio, leveraging the excess capacity at our Cata processing plant. We’re encouraged by the tenure and continuity of the mineralization at El Horcon. As the veins are open in all directions, the next phase of drilling will test the strike and that is expense for the mineralization. Baseline studies for an expanded exploration and development permit are underway, once the application for the permit has been filed, it’s anticipated that it could be six to nine months for approval. In 2013, we experienced an increase in consolidated cash cost for silver payable ounce from $12.24 in 2012 to $13.45 due mainly to higher cash costs in the first half of the year at Guanajuato. In the first four months of the year, we went through a phase for river mining lower grade ores and processing more tonnage, resulting in higher overall cash cost in the first half. When metal prices collapsed in April, we took immediate steps to terminate the mining of lower grade areas of the mine, as well as improve our sampling procedures and decrease dilution within active areas. Consequently, we saw our grades improved significant in May and June and continues through the second half. At the same time, late in the second quarter, we implemented various cost reduction initiatives and we’re able to reduce the consolidated cash cost for several payable ounce from $18.60 in Q1 and to $8.85 in the fourth quarter, ending the year with an average of $13.45 and beating our estimated guidance of between US$15 and US$16. Our wide ranging cost reduction initiatives included a reduction in the number of mining contractors at Guanajuato, renegotiation of mining contracts to create greater accountability from material and labor costs, improvements in mine planning and coordination with geology and overall improvement of grade control. We also made reductions through explorations in our general and administrative expenditures and reduced capital expenditure in development programs, focusing on those with the greatest return on investment. In 2014, we will continue to focus on improving operational efficiencies, while growing production with the goal of realizing positive cash flow. However, there continues to be a high degree of natural grade variability at both of our mines, so grade control is critical for both production and cost control. Despite our successful efforts to improve efficiencies, reduced our cash cost and other expenditures in the second half of 2013, our financial results were significantly impacted by the severe decline in silver and gold prices during the year and a $12 million non-cash impairment charge. For 2013 revenue earned was $54 million, compared to $61.1 million for 2012, a decrease of 12%. The decrease is primarily due to significantly lower average silver and gold prices in 2013, which offset a 19% increase in production and a corresponding 18% increase in silver equivalent ounces sold. The average realized silver price for 2013 was 26% lower than 2012. The net loss for the year was $12.7 million compared to net income of $5.5 million for 2012. This reflects a decrease in gross profit of $18.6 million and a $12 million non-cash pre-tax impairment charge. These factors were partly offset by a $3.5 million income tax recovery. A decrease in general and administrative expenses of $2.2 million and an increase in finance and other income of $2.5 million. The non-cash pre-tax $12 million impairment charge consists of $6.3 million in respect to our Guanajuato mine and $5.7 million charge in respect to our San Ignacio Project. The charge for Guanajuato reflects the current lower price outlook for silver and gold, which reduces the future cash flow projections of the mine. The charge is also a function of much higher carrying value of Guanajuato compared to Topia due to the significant investments we have made over the last years to expand capacity in production. We also recognized a non-cash $5.7 million impairment charge in respect to the San Ignacio Project as there is insufficient data at this time to provide for an updated NI 43-101 resource estimate to support the capitalization of the costs under IFRS. Despite this production is still expected to start in the second quarter as mentioned earlier. Adjusted EBITDA was $5.2 million for the year compared to $16.9 million for 2012. The decrease primarily reflects the decrease in gross profit. This was partly offset by lower general and administrative expenditures and higher finance in other income. Gross profit earned was $0.6 million or 1% of revenue compared to $19.2 million or 31% of revenue for 2012. The decrease is a lower – is a result of lower revenue due to the decrease in metal prices and higher unit cost sales before non-cash items in the first half of the year and higher amortization and depletion expenses. Our objectives for 2014 provide the foundation that will allow us to reach our goals of approximately 10% growth for this year. with steady production from Guanajuato and Topia and additional production from San Ignacio, we anticipate producing between 3.1 million and 3.2 million ounces – silver equivalent ounces this year. Our focus on improving grade control and operating efficiencies in addition to further reducing our operating costs and overheads were possible. So it allowed us to achieve a consolidated cash cost per silver payable ounce of between $11 and $12. We will continue our efforts pursuing and analyzing acquisition targets within Mexico and Peru, still being our preferred jurisdictions. I would like to thank all of our employees and contractors once again, for their efforts that resulted in our exiting 2013 stronger, healthier and a good shape heading into 2014, like it will be another challenging year for silver prices. Regarding the most recent developments at Guanajuato, I’d like to start by saying that our first priority is the safety of our employees, contractors and assets. Yesterday, we issued a release stating that about 60 people have gained unauthorized entry into our main administration building and plant facility at Guanajuato and that we have shut down operations until the situation was resolved. Firstly, I’d like to confirm that all employees remain safe. We also reported that local authorities have been contacted, but no actions have been taken. We are making every effort to get the authorities at all levels involved and encourage a peaceful, expedient resolution to this issue. There have been some false allegations circulating in the Mexican media that we have responded to, and include the following points. The purchase of our mine was absolutely legal and approved in the agreement of purchase and sale made in 2005, which was accepted and registered in the Public Registry of Property and Commerce in Guanajuato and the Public Registry of Mining. Great Panther holds full legal total to all assets. Considering the above and given that the legal ownership of the mines cannot be disputed. We urge the authorities to express the locality of the sale transaction, completed by representatives of the corporate event as a – as soon as possible to dispel on this representation. So the current members of the corporate event in order to peacefully resolve the illegal possession of our operations. The first invitation to meet with management of Great Panther was only received on Sunday in the form of a demand from the corporate event members and only after they completed this illegal occupation, intimidating and threatening our employees. We have not received any prior requests to meet. Certainly, we are ready for this approach. Great time for company employees, 846 Mexican citizens in Guanajuato, including 180 employees and 666 contractors and only two people are foreign. We are reviewing all options to regain custody of our facilities and ensure the security of our people and their assets. We will continue to work with municipal, state and federal authorities to find a peaceful and appropriate resolution to this situation. Thank you. Operator, I would like to open the call for questions at this time.

[Operator:]

Thank you, Mr. Archer. (Operator Instructions) Mr. Archer, there are no questions at this time, I will now turn the call back to you for closing remarks.

[Robert A. Archer:]

Thank you, operator. Just in closing, I would like to say that we are strongly committed to excel in our efforts as a responsible mining company. This is a company-wide commitment that’s at the core of every business decision we make. Every one of us from senior management through the work crews at each of our operations strives to conduct our business to ensure lasting social progress and economic growth for our communities and all stakeholders. I would like to thank our shareholders for their patience and loyalty. Thank you and good morning.

[Operator:]

Thank you, Mr. Archer. That concludes the Great Panther’s year-end 2013 results conference call and webcast. We ask that you please disconnect your lines.