Great Panther Mining Limited
Q1 2015 Earnings Call Transcript

Published: 7 May 2015

[Operator:]

Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Great Panther Silver Limited 2015 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.

[Spiros Cacos:]

Thank you, Audrey. 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 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 10

[Robert Archer:]

Thank you, Spiros. Good morning everyone and thanks for joining us today. We'll start this morning with a brief overview followed by the first quarter highlights from our operations. We'll then discuss our first quarter financial results in more detail, provide our outlook for the balance of 2015 and conclude the call with a Q&A session where we encourage you to ask any questions you may have. Great Panther's operations had a strong start to the year, setting several records for metal production and ore processing [indiscernible] to the continued ramp up of San Ignacio mine. Consequently consolidated metal production in Q1 2015 was up significantly from Q1 2014, and 8% on the previous quarter, setting the stage for a 10% year-to-year increase as per our guidance. Earlier in the quarter, the Company provided an update to the mineral resource estimate at San Ignacio, which included the discovery of high grade silver gold mineralization located immediately to the south of the area where we commenced mining last year. This led to an increase in the overall resource space at the Guanajuato mine complex. On the financial front the first quarter of 2015 was marked by the depreciation of the Canadian dollar and the Mexican peso against the U.S. dollar, which along with increased production and metal sales contributed to increased revenues and earnings in Canadian dollars and lower costs in U.S. dollars, offsetting the continued low metal price environment. With positive cash flow in the quarter, our balance sheet remains very strong and even after initiating payments in regard to the acquisition of Cangold Limited. This acquisition is expected to close before the end of May and we continue to evaluate other M&A opportunities in Latin America. Turning now to the operational highlights from our first quarter - overall metal production for the company was more than 987,000 silver equivalent ounces in the first quarter, a robust 48% increase compared to the same period in 2014 and an 8% increase compared to the last quarter. The large increase is primarily credited to the ramp up and production at San Ignacio which commenced commercial production in June of last year as well as to a 17% quarter-over-quarter increase in metal production at Topia. Our operations processed a record amount of ore in the first quarter of 2015, representing a 37% increase compared to the same quarter last year and a 7% increase compared to the fourth quarter of 2014. Consolidated silver production set an all-time record in the first quarter. Compared to the same period in 2014 silver production increased by a robust 61% to almost 600,000 ounces, mainly as a result of higher silver grades and the overall increased throughput at both operations. Consolidated gold production increased by 28% to more than 4,700 ounces compared to the first quarter of 2014. Guanajuato mine complex or the GMC which includes the San Ignacio satellite mine accounted for approximately 72% of our total production in the first quarter, processing a little more than 82,000 tons. This is 48% more when compared to the same period last year. The primary driver of this increase was the commencement of commercial production at San Ignacio in June of last year and the continued ramp up of productions since that time. Significantly, production was initiated on the wider southern extension of the Meladito vein discovered last fall, while continuing to increase production from previously prepared stopes on the intermediate vein. San Ignacio is now producing at the rate of 370 tons per day and represents approximately 30% of metal production at the GMC. Metal production of more than 713,000 silver equivalent ounces was another record for the GMC, representing an increase of 74% when compared to the same period in 2014, and about a 5% increase over the fourth quarter of 2014. In Q1 we saw significant improvements in silver grades at Guanajuato compared to Q1 last year, however this was partially offset with slightly lower gold rates. Development at [indiscernible] concentrated on the southern extension, one of the new ore zones discovered in the fourth quarter of 2014. The Company is planning a 2,000-meter surface drill program at San Ignacio scheduled to begin in the third quarter to further define these zones. Compared to Q1 of 2014, cash cost per silver payable ounce at the GMC for the first quarter decreased from $12.13 to $7.16. The decrease was primarily a combination of the U.S. dollar strengthening against the Mexican peso as well as overall improved silver grades which increased payable silver ounces per ton. The Topia Silver-Lead-Zinc mine in Durango also achieved a quarterly production record due to operational improvements that yielded better silver grades and recoveries. Topia's throughput during the first quarter of 2015 was 17,225 tons. This remained relatively consistent with the same period in 2014, but increased by 9% when compared to the fourth quarter of 2014. Metal production increased 6% to a little more than 274,500 silver equivalent ounces compared to the first quarter of 2014 and increased 17% from the previous quarter. The year-over-year improvement in metal production is primarily due to the improved silver grades. With respect to the quarter-over-quarter increase, it’s noteworthy that the fourth quarter at Topia traditionally sees lower throughput due to shutdowns for maintenance in the holiday season. Cash cost per silver payable ounce for Topia decreased to $13.31 in the first quarter of 2015 from $15.32 in the first quarter of 2014, primarily due to the strengthening of the U.S. dollar compared to the Mexican peso but also to higher byproduct credits and lower smelting and refining charges. Turning now to our first quarter consolidated financial results. Despite continued declines in silver and gold prices, revenues for the first quarter increased 57% to $20.3 million, compared to the same period of 2014. The $7.4 million increase in revenue was primarily the result of the significant increase in metal production and was also helped by the appreciation of the U.S. dollar against the Canadian dollar. Gross profit before non-cash items increased by $3.4 million in the first quarter of 2015 as a result of the increased revenue combined with the reduction in unit cash costs. Net income for the quarter totaled $3.6 million compared to a net loss of $0.6 million in the same quarter of 2014. Adjusted EBITDA was $3.7 million for the first quarter of 2015 compared to adjusted EBITDA of negative $0.5 million for the same period last year. The increase in adjusted EBITDA primarily reflects the $3.4 million increase in gross profit before non-cash items when compared to Q1 of 2014. Consolidated cash cost per sliver payable ounce of $8.71 for the first quarter of 2015 decreased 35% from $13.49 in the first quarter of 2014, primarily due to the combination of improved grades and U.S. dollar strengthening against the Mexican peso. All-in sustaining cost per silver payable ounce or AISC for the first quarter of 2015 decreased to $14.47 from $24.18 in the first quarter of 2014. This reduction is primarily due to the reduction in cash cost and the increase in production which reduced capital and G&A expenses per payable ounce of silver. The lower sustaining capital expenditures in the quarter are expected to increase in subsequent quarters as we turn towards our 2015 guidance of $10 million to $12 million of equipment purchases, mine development and capitalized exploration. As we mentioned at the beginning of the call, the Company continues to have a strong balance sheet. On March 31, 2015 we had a cash position of $18.7 million, and $36.9 million in net working capital with long-term debt. In both cases, these represent increases from our balance at the start of the year. In Q1 Great Panther announced that it was acquiring Cangold Limited, and further announced on April 13 that it had entered into an arrangement agreement to acquire all of the issues and outstanding common shares of Cangold on a share exchange basis. The completion of this transaction will result in Great Panther obtaining an option to acquire the advance stage Guadalupe de los Reyes gold-silver project in Sinaloa State, Mexico. This acquisition will complement our ongoing M&A strategy as we actively seek a near term producing project in Mexico or other parts of Latin America. Cangold has announced that they will hold a Special Shareholders Meeting on May 22, 2015 to consider and approve this agreement. The terms of the agreement are described in further detail on our website and on CEDAR. In summary, Great Panther delivered record production for the first quarter with substantially lower cash cost and AISC from a year ago. We expect production at San Ignacio to continue to play a significant role in our production growth and combined with our continuing effort to improve grades and efficiencies, we anticipate delivering 3.5 million to 3.6 million silver equivalent ounces in 2015. This would represent an approximate 10% increase compared to the previous year. While we will strive to keep cost down, currency fluctuations will likely continue to impact our financials such that we are maintaining our guidance related to cash cost in the range of $11.50 to $12.50 while AISC is still projected to be $18.50 to $19.85 per ounce of payable silver. We look forward to completing the Cangold acquisition, advancing the Guadalupe de los Reyes project and are also continuing on our efforts in pursuing the acquisition of near term production opportunities. We will provide more information on our plans for advancing the project soon after the closing of the transaction in late May. I will now open up the call for questions.

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from the line of Heiko Ihle with HC Wainwright. Please proceed with your question.

[Heiko Ihle:]

Not too bad although. Hey Bob, given the Cangold acquisition and your earlier comment that you are looking for more M&A in Latin America, which is fairly branched out, is it fair to say that your focus is changed to be just a little bit more interested in the gold asset rather than near term silver asset which is where I sort of expected you guys acquire or is that just one acquisition of possibly many?

[Robert Archer:]

I guess what's happened as I’m sure you were Heiko is that I think investors and shareholders in general have become slightly less concerned about commodities and more concerned about the bottom line. And so when we look at projects, although our focus continues to be on silver, we have always liked this project obviously and we think it could be a profitable one even at today's prices, based on the preliminary work that we have done. And we have just decided that it would be a good addition to the pipeline. It's a ways out. We will be announcing plans after the acquisition closes as to how to advance the project, but it's some years away from production. So it really – it just becomes kind of a complementary add on to the pipeline, while we’re still we're still looking for production opportunities that are a little bit closer to fruition.

[Heiko Ihle:]

Fair, fair. Also you mentioned earlier San Ignacio is currently at 370 tons per day, I got that right, correct?

[Robert Archer:]

Yeah, roughly yeah.

[Heiko Ihle:]

Okay, it's just a little bit ahead of my estimate for this time of 2015 initiated on last year. Can you walk me through your expectations for the remainder of the year and how you expect grades, productions or recoveries to shape up quarter-by-quarter?

[Robert Archer:]

Well we’re looking at sort of gradual increasing through the balance of the year, both in terms of tons and grades from San Ignacio. We've really only just started to get into the new zone in a bigger way. There still has been some mining from the previous areas and -- but I was down there a couple of weeks ago myself and going into these stopes that are 10 to 15 meters wide decent grades certainly very encouraging. And so we do see that increasing gradually through the course of the year, although we don’t -- I can’t give you any specific numbers at the moment.

[Heiko Ihle:]

Fair enough. But would it fair to say that it's going to get better quarter-by-quarter? It's not going to be like a lump sum increase the

[Robert Archer:]

Yes, I think that would be a fair comment.

[Operator:]

Our next question comes from the line of Bhakti Pavani with Euro Pacific Capital. Please proceed with your question.

[Bhakti Pavani:]

Just kind of curious to know for the quarter one, the production tons improved significantly. Is that sort of the run rate we should be looking or we should be expecting going forward throughout the remainder of the quarters?

[Robert Archer:]

In terms of tonnage, we might actually see a slight decrease. We have been making some changes recently to improve grade and part of that is, we’ll also have a corresponding decrease in tons as well. So the tonnage may increase a bit at San Ignacio but maybe not so much at Guanajuato. Topia should be fairly steady state. So I think if anything, it will probably be fairly consistent overall, may be a slight decrease at Guanajuato.

[Bhakti Pavani:]

Okay. Going to the cash cost and all-in sustaining cost, I know that the exchange rate kind of played in favor and which held to, was one of the factors in decreasing the cash cost and all-in sustaining cost. Kind of curious to know what kind of exchange rate are you guys estimating in your model going forward, because your guidance for the year is slightly above to what you have achieved in the first quarter. So kind of curious.

[Jim Zadra:]

It's Jim Zadra, the CFO. We typically don't disclose our model assumptions, but I can say it's certainly more conservative if you will than where the exchange rate is at today. So obviously we want to plan in a manner that it's not overly optimistic with respect to exchange rates and metal prices. One of the other things that I would point out with respect to the all-in sustaining cost, and Bob alluded to this earlier is that Q1 was -- in addition to the currency impact Q1 had kind of a lower level of capital expenditures than we would expect to see in the subsequent quarters. So you can expect a bit of an increase. The currency impact aside, you can expect a bit of an increase in the all-in sustaining cost as we go through the year as our CapEx programs ramp up.

[Bhakti Pavani:]

Okay, fair enough. Just going back to the recoveries for the Topia mine, the gold recoveries have certainly improved over the past eight quarters. Just kind of curious would that be the similar recovery rate we should be expecting for the remainder of the year.

[Robert Archer:]

Yes, probably. We have made some operational improvements at the plant. And those improvements have led to better recoveries pretty much across the board. So the gold grade itself is relatively low at Topia, and that's why the recoveries tend to be lower than for the other metals, but I think the recoveries that we're seeing now hopefully should be sustainable for the balance of the year.

[Operator:]

Our next question comes from the line of Chris [indiscernible] with PI Financial. Please proceed with your question.

[Unidentified Analyst:]

Some of my stuff has already been addressed here, relating into AISC going up in the balance of the year, because it's certainly sounds like given what you deliver today, you’ve got a, spending lot more capital, have a lot higher AISC in the next three quarters to get you there. So I'm a little surprised you guys haven’t revised down your guidance. But as you say, you do have a bit of a capital spend coming. Why don’t you talk a little bit about San Ignacio and just in terms of mining method and grade there? So I'm looking at your slide 9, metal production and ore process, and using kind of 80% recovery and 10% dilution. It looked to me like you're running around 370-gram material equivalent through the mill there. And so let me just do my quick math here, 3.4 grams times 65 plus 160. So I guess that's right on. You're right into the heart of the system. That's looks to me like San Ignacio has hit its stride at kind of 360-gram equivalent material. Does that seem right to you?

[Robert Archer:]

I think I could -- just to say I'm cautiously optimistic that that will improve from there. It's still -- Q1 grades were still shy of what we were expecting from the new southern zone in terms of what we’ve delineate with the drilling. And so I think we could see some improvements in grades going forward.

[Unidentified Analyst:]

Okay, what's your primary mining methods right now at San Ignacio.

[Robert Archer:]

Well it's still cut and fill, mainly because we're -- we just got into the new zone and we're evaluating things like ground conditions, boundaries of the zones and widths and so on and so forth, and we are considering the possibility of going to long haul. But in order to do that we need some additional mine development on a lower level, and we're just a little bit behind on the mine development at the moment. So until we get to, properly ahead of ourselves, we'll continue with the cut and sell, but if we can switch over to long haul, at least in part, then that should help to reduce the mining cost as well.

[Unidentified Analyst:]

Absolutely, speaking of that, I heard you mention earlier some significant width at San Ignacio. Did I hear you say 15 meters, was that right?

[Robert Archer:]

In spots yes. It does sort of widen out in places and yes, it’s a very nice looking zone.

[Unidentified Analyst:]

Is there anywhere where you think it might be wide enough or long enough that you could look at something like sublevel caving or is that just because of the pinch and swell not likely.

[Robert Archer:]

Yes, I think it's unlikely. We don’t want to be changing mining methods every 50 meters. So it does tend to pinch and swell, and you know may recall, the San Ignacio does not have -- doesn't have a huge depth extent that we know of so far. So it goes basically from surface down to about 150 meters. So it's more strike extent than depth. So I think we'll continue to use that cut and fill and potentially long haul.

[Jim Zadra:]

It’s Jim Zadra here. I just wanted to point out that your estimate of the silver equivalent grade at 370 I think might be a little on the high side, and just wanted to make sure sort of you don’t have false expectations going forward. We do as Bob said expect it to improve from Q1, but I think our numbers show it to be more in the 300 to 320 range on silver equivalent basis.

[Unidentified Analyst:]

I mean I was talking in-situ kind of using 80% recovery and 10% dilution based on the metal production in Q1 and the tons moved?

[Jim Zadra:]

Okay, okay, yeah that's fair.

[Unidentified Analyst:]

Like so, but, so 360 in-situ, what kind of dilution you are experiencing? 10%? A little more? A little less?

[Jim Zadra:]

Well it has been a little bit more, but that's one of the things that we’re working on with our mining contractors to try and get that down. So I think optimally 10% to 20% would be where we’d like to end up.

[Operator:]

(Operator Instructions)

[Robert Archer:]

Thank you operator. In closing I would like to thank our employees, our contractors and our stakeholders for delivering a strong quarter to start the year. In this low metal price environment, Great Panther has demonstrated operational resilience and with a strong balance sheet has an ability to capitalize on organic and external growth opportunities. Thank you for your participation today, and I look forward to sharing our progress with you again next quarter.

[Operator:]

Thank you Mr. Archer. This concludes today's Great Panther's first quarter 2015 results conference call and webcast. Good bye.