Great Panther Mining Limited
Q3 2014 Earnings Call Transcript

Published: 9 Nov 2014

[Operator:]

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Great Panther Silver Limited Third Quarter 2014 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 Mariana Fregonese, Director of Corporate Communications and Sustainability.

[Mariana Fregonese:]

Thank you, Albert. 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 in today’s call will 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 9

[Robert Archer:]

Thank you, Mariana. Good morning everyone and thanks for joining us today. We’ll start this morning with a brief overview followed by third quarter highlights and our operations. We’ll then discuss in more detail the Q3 financial results and conclude today’s call with Q&A where we’ll be happy to answer any questions you may have. Great Panther achieved record production in the third quarter of 2014 with the first full quarter of production at the new San Ignacio mine. After a challenging first half of the year, operations got back on track particularly at Guanajuato and we are now seeing the first results of the control since strategies implemented in the second and third quarter. At Guanajuato, we saw an improvement in silver grades as we regained access to the higher grade zones at the Cata mine. Lower gold grades in Santa Margarita vein were partially offset by gold production from San Ignacio. At Topia, the silver grade was lower compared to the same quarter in 2013 but higher compared to the second quarter of 2014 due mainly to natural grade variability at the 10 mines. Consequently, consolidated cash cost improved compared to the first half of 2014. However, financial results for the third quarter were significantly impacted by a sharp drop in silver and gold prices. From the comparative period in 2013, silver and gold prices declined to 21% and 9% respectively. Despite the significant decline in metal prices, Great Panther continue to generate good operating cash flow in the third quarter and was nearly breakeven on a free cash flow basis. The company continues to maintain a healthy balance sheet with a strong working capital position and no long-term debt which makes the company very resilient to metal price volatility. Our main focus continues to be on cost efficiencies and grade control to ensure our operations can withstand these turbulent markets. Turning now to the operational highlights from our third quarter, overall metal production was a record 890,641 silver equivalent ounces a 13% increase compared to 2013 and a robust 24% increase compared to the previous quarter. This was primarily due to the ramp-up at San Ignacio that commenced commercial production in June as well as higher silver grades at Guanajuato. Great Panther’s operations processed a record amount of ore in the third quarter of 2014 representing a 16% increase compared to the same quarter last year and a 10% increase compared to the second quarter of 2014. This was the first full quarter of production at San Ignacio and we are confident that this mine will continue to make growing contribution to the future of the Guanajuato operation. Consolidated silver production set another all time record in the third quarter. Compared to the same period in 2013, silver ounces produced increased a robust 23% and 35% compared to the previous quarter. This again is mainly a result of higher silver grades of the Cata mine and the contribution of San Ignacio. We did see a decrease of 11% in gold ounces produced compared to the same quarter last year primarily as a result of lower grades at the gold-rich Santa Margarita zone. However, this was more than offset by the increase in silver production. I would like to provide you now with some more detail on our individual operations. We’ll start with the operating results of the Guanajuato Mine Complex or the GMC which now includes San Ignacio production. The GMC accounted for approximately two-thirds of our total production in Q3 processing a little over 72,000 tons which is 19% more when compared to the same period last year and a 13% increase over the second quarter of this year. Metal production of more than 636,000 silver equivalent ounces was another record for the Guanajuato operation representing a 13% and 35% increase compared to the same period in 2013 and the second quarter of 2014 respectively. Similarly, silver ounce production from the GMC reached an all-time high. Year-over-year, silver ounces production increased a significant 35% to almost 392,000 ounces. As we mentioned before this is the result of the additional production from San Ignacio as well as steadily improving silver grades due to increased mining at Guanajuato’s Cata zone. As many of you already know that Cata mine contains some of the highest silver grades in the Guanajuato mine complex deep to and to define the extension of the Cata zone is ongoing in the current quarter. In Q3, mine development at the GMC was focused on the Cata and Santa Margarita zones and San Ignacio. Total development was lower than the second quarter of 2014 as the focus was on increasing production from stopes with existing infrastructure in place. And exploration drilling station was completed at the 540 level at Cata to further define the resource as part of an extension drilling program. Additionally, a new exploration ramp was initiated from the 475 meter level at Santa Margarita direct s us the upper part of a new zone called San Cayetano. We expect to complete an updated mineral resource estimate for the Guanajuato mine complex by the end of the first quarter of 2015. For the Guanajuato operation, cash cost per silver payable ounce for the third quarter of 2014 increased $9.13 from $3.92 from the third quarter of 2013 reflecting our sensitivity to lower byproduct credits as a result of the decrease in gold production and gold prices as we mentioned before. However, cash cost decreased to $9.13 from US$14.29 in the second quarter of 2014 due to 34% increase in average silver grades. I’ll now continue with our new San Ignacio mine. During the third quarter, San Ignacio contributed 14,160 tons of mill feed which yielded 104,000 silver equivalent ounces 16% of the overall production from the Guanajuato mine complex. San Ignacio is currently operating at approximately 200 tons per day and we plan to increase this tonnage to about 250 tons per day by the end of the year. We recently had some excellent news at San Ignacio from phase six surface drill program that commenced in early October. We were pleased to report last week the results of the first six drill holes which were highlighted by a 7.45 meter or 5.26 meter true width intersection of 1,133 grams per ton silver and 6.86 grams per ton gold in one of the six holes. This zone contained 0.5 meter section of mineralization that assayed 11,951 grams per ton silver and 48.2 grams gold, the highest assays ever received from the San Ignacio property. This hole is approximately 130 meters south of the current resource block and underscores the strike potential of this area. This is an exceptional start to the drill program as many of the intercepts in these holes are of grades and widths better than those reported within the mineral resource estimate for the intermediate vein where we’re mining now. These new results will be used for follow-up underground drilling and development in 2015. The mineral resource will be updated upon completion of the surface drill program as part of 43-101 update for the Guanajuato mine complex next year. I’ll now continue with the Topia mine in Durango. Regrettably, we reported the occurrence of a fatal accident in Topia last Saturday, the fact that this is the second fatality at Topia this year emphasis the need for additional education on safety risks. While the authorities conduct their investigations, we are also in the process of overhauling our safety protocols at Topia as this is clearly not acceptable. Turning to production, Topia’s throughput for the third quarter of 2014 was almost 17,000 tons. This remained relatively consistent with the same period in 2013 and the second quarter of 2014. In the third quarter of 2014, metal production increased 12% to a little over 254,000 silver equivalent ounces compared to the third quarter of 2013 and an increase of 2% from the second quarter of 2014. The year-over-year improvement in metal production is primarily due to the increased ore grades. Cash cost per silver payable ounce for Topia decreased to $15.82 in the third quarter of 2014 from $17.95 in the third quarter of 2013 due to higher byproduct credits and lower smelting and refining charges. Turning now to our Q3 consolidated financial results. Revenues of $12.8 million in Q3 decreased 11% compared to the same period last year reflective of the significantly lower metal prices despite the 15% increase in sales volume on a silver equivalent ounce basis. The decrease in revenue due to the decline in metal prices was partially offset by a favorable movement in the Canadian to US dollar exchange rate and a 13% reduction in smelting and refining charges which are netted against revenues. Gross profit before non-cash items decreased to $2.9 million in this quarter primarily as a result of 11% decrease in revenues. The net loss for the third quarter of 2014 was $1 million compared to a net loss of $1.5 million in the same quarter of 2013 Adjusted EBITDA was positive $1.3 million for the third quarter of 2014 compared to $3.9 million for the same period in 2013. The decrease in adjusted EBITDA primarily reflects the $2.6 million decline in gross profit before non-cash items which is mainly driven by lower metal prices. Consolidated cash cost per silver payable ounce our cash cost of US$10.91 for the third quarter of 2014 increased from $9.89 in the third quarter of 2013. Well Topia saw an 11% reduction – well Topia saw 12% reduction in cash cost, this was offset by 133% increase in cash cost at the GMC primarily due to lower byproduct credits as a result of the decrease in gold production and gold prices. All-in sustaining cost per silver payable ounce or AISC for the third quarter of 2014 decreased to US19.95 from US24.01 in the third quarter of 2013. This reduction is primarily due to the favorable impact of the 25% increase in silver payable ounces compared with the third quarter of 2013 which reduced sustaining capital expenditures and general and administrative expenses on a per payable silver ounce basis. As we mentioned at the beginning of the call, we continue to have a strong balance sheet. At September 30, 2014 we’re at a cash position of $20.4 million and $35.3 million in working capital and no long-term debt. With regards to capital expenditures for 2014, we anticipate being at the lower end of our guidance of $10 million to $13 million. Capital expenditures during the final quarter of 2014 will focus on continued mine development and diamond drilling at both the GMC and Topia rehabilitation of the Cata shaft at Guanajuato and the acquisition of new mining and plant equipment to drive efficiencies and reduce production costs. As a summary, Great Panther’s production for the nine months ended September 30, 2014 was 2,276,784 silver equivalent ounces representing an increase of 10% over the same period last year. With only two months left in the year, we’re on track to meet our guidance of 3 million to 3.1 million silver equivalent ounces in 2014. Cash cost for the third quarter of 2014 was US$10.91 per silver payable ounce which was a substantial decrease from the first half of 2014. This is primarily the result of grade improvement at Guanajuato which is expected to be maintained in the fourth quarter. We expect to meet our cash cost guidance of $12 to $13 per silver payable ounce. We’re also maintaining our guidance for all-in sustaining cost and all-in cost for 2014. AISC was $19.95 per silver payable ounce in the third quarter of 2014 which represents a significant reduction in AISC from the first half of the year. We expect AISC in the fourth quarter to again be meaningfully lower than in the first half of 2014. In light of the more recent decline in precious metal prices, we’re conducting full reviews of all of our operations at both the Guanajuato mine complex and the Topia mine consists of multiple mining areas, each area is being reviewed as to costs and grade. As you’ve seen in our recent high-grade drilling results from San Ignacio, many of our operations have the potential for much higher grades. As such, we have the flexibility to temporarily focus on these areas without jeopardizing the viability of the operations as a whole. Our cost per ounce is extremely sensitive to grade, so this is of paramount importance to us in the current market. And with that operator, I’d like to open the call for questions.

[Operator:]

Thank you, Mr. Archer. (Operator Instructions) And Mr. Archer, it appears we have no questions at this time.

[Robert Archer:]

Thank you, operator. In closing then, we acknowledge that these are difficult times for the mining industry, but I want to emphasize that Great Panther has a lot of flexibility in streamlining our operations to react to metal price volatility. Just as importantly, our strong balance sheet provides a buffer for us to weather this downturn. We’re getting excellent results at our San Ignacio mine and I’m confident that we will be able to expand this operation in the near future. I would like to thank our employees, our contractors and our stakeholders for their efforts and continued support as we work together to provide a better future for Great Panther Silver.

[Operator:]

Thank you, Mr. Archer. That concludes Great Panther’s third quarter 2014 results conference call and webcast. Good bye.