Great Panther Mining Limited
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing-by. Welcome to the Great Panther Silver Limited 2015 Third Quarter Financial Results Conference Call and Webcast. [Operator Instructions] I would now turn the conference over to Spiros Cacos, Director of Investor Relations. Please go ahead.

[Spiros Cacos:]

Thank you Timika. Good morning everyone and thank you for taking the time to join our call today. With me here this morning is Robert Archer, President and CEO. Unfortunately our Chief Financial Officer and Corporate Secretary, Jim Zadra, for not being in intendance on this call due to a prior commitment. 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 this morning. As we hope we'll start with a brief overview followed by the third quarter highlights from our operations. We'll then discuss our third 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 that you have. Great Panther's operations had another strong quarter with our financial results benefiting from an accelerated ramp up at our San Ignacio mine and continue to reductions in cash cost and all-in sustaining costs, all of which helped alleviate the weakness in silver and gold prices. The third quarter operations produced more than a million silver equivalent ounce, so the quarterly record for gold production while keeping costs below the current silver price. This translated to growth in revenue, gross profit and adjusted EBITDA despite the continued declines in metal prices. Despite these weakness in metal prices, our operations generated sufficient cash flow in the first nine months of the year to enable us to more than pay for our capital and development expenditures at our producing mines in addition to the acquisition and project costs associated with our new Coricancha and Guadalupe de los Reyes projects. The net result was that we were able to increase our cash and net working capital positions to $18.7 million and $34.7 million at the end of third quarter compared to the start of the year. The $3.3 net loss recorded in the quarter reflects $5.5 million of non-cash amortization which increased over prior periods of depreciation and of the entries in an increase our exploration expenditures as we commenced working on new projects. By comparison, our adjusted EBITDA for the quarter which adjust for non-cash charges was positive $2.2 million compared to $1.3 million in the third quarter of 2014. Turning now to the operational highlights from or from quarter. Consolidated metal production in the third quarter exceeded one million silver equivalent ounce for the second successive quarter, representing a 21% compared to the same period in 2014. The increase over the last year was primarily attributed to the continued ramp up in production at San Ignacio, as well as improved efficiency and great control across all of our operations. During the third quarter ore processed increased by 5% when compared to the third quarter of 2014, and by 7% when compared to the prior quarter reflecting a continued ramp up in production at San Ignacio. Compared to the same period in 2014, total gold production increased by 45% to a quarterly recorded of 6,079 ounces, mainly again as a result of the increase in production from San Ignacio self-extension zones which contain higher gold grades. Total silver production increased by 4% to approximately 587,000 ounces compared to the third quarter of 2014. Looking at the individual operations, Guanajuato Mine Complex, or the GMC which includes San Ignacio mine accounted for approximately 74% of our total production in the third quarter, processing over 77,000 tons. The San Ignacio mine contributed 52% of GMC production due to increased output from the wider and richer self-extension zones. It was the same focus that resulted in the gold production for the quarter. While the original year-end target for production of San Ignacio was 450 tons per day, the mine is currently producing at a rate of just over 500 tones and is expected to approximately 650 tones the year-end. The ore processed at the GMC in the third quarter increased by 6% when compared to the same quarter of 2014 and by 8% to the first. Metal production of approximately 800,000 silver equivalent ounce at the GMC represented a significant increase of 25% when compared to the same period in 2014 and remain with within 2% of the previously quarters record production. Underground drilling at the GMC comprised more than 5,000 meters in the third quarter for a year-to-date total of 13,300 meters and continuing to focus on definition of high grade resources. Corresponding with production increases at San Ignacio, development of and improvements to the mine facilities and infrastructure were undertaken throughout the third quarter. As the mine became increasingly integrated into the overall Guanajuato operations. Corresponding with production increases at San Ignacio, a 2,200 meter surface drill program began in October to define resources in the south extension zones and test the size of the continuation of mineralization. Grades in the third quarter were 159 grams per ton silver, and 3.51 grams per ton gold. Cash cost at the GMC decreased to $4.47 for the silver payable ounce in the third quarter from U.S. 924 in Q3 of 2014. All-in sustaining cost or AISC at the GMC also saw a significant decline to $9.87 from $14.64 in the same period last year. These decreases were the result of higher ore grades which yield more ounces per ton of ore mines in processed. And by the U.S. dollar strengthening against the Mexican peso which reduced mining costs in U.S. dollar terms. At our Topia Silver-Lead-Zinc mine in Durango, metal production increased 5% to 280,000 silver equivalent ounces when compared to the previous quarter. And by 11% over the third quarter of last year due to operational improvements that yielded better grades and recoveries. Topia's throughput during the third quarter was fairly consistent with the previous quarter and the same period in 2014 at approximately 16,600 tons excluding ton [ph]. Cash cost for Topia decreased to $11.50 in the third quarter from $15.93 in the third quarter of 2014 while AISC declines to $12.25 from 1996 over the same period last year. Again, this was primarily due to the strengthening of the U.S. dollar compared to the Mexican peso, and increasing in ore grades and recoveries. On July 9, we announced a significant increase in Topia's mineral resource estimate when compared to the previous mineral resource estimate that had in fact date of November 30, 2015. Improved modeling, successful in-vein development and better reconciliation between the geological model and the actual mine output resulted in an increase in estimated tonnage and contained ounces, in spite of the notable drop in the price of silver. The update resulted in an improvement of more than 41% in the measured and indicated category, and a 29% increase in the inferred category translating into a correct mine life of approximately eleven years. Last May, the company announced that I had entered into a two-year option agreement with Nyrstar to acquire 100% interest in the Coricancha Mine Complex in Peru. This marks the beginning of an exciting new chapter in Great Panther's development as the company begins to broaden its geographic diversity. Coricancha represents a near-term production opportunity and the two-year option allows us to gain comfort with the project without having to make an immediate and significant financial commitment in the current environment of low metal prices and depressed market conditions. Great Panther has now commenced underground drilling at Coricancha in order to expand the mineral resource while focusing on higher grade areas that could be economic at current metal prices. At the Guadalupe de los Reyes project or GDLR in Sinaloa, Mexico, we commenced a surface drill program in the third quarter. GDLRs historical resource estimate was predicated on an open pit mining scenario. However, the company is targeting higher grade veins with the intension of revising the geological model and resource estimate, in line with the combined underground open test mining scenario. We expect that an updated resource estimate will be completed by year-end. While the terms of both agreements are described in further detail on our website and on CEDAR, it is significant to point out that we have fully funded these projects as of year-to-date operating cash flow before it changes known networking capital generated from our operations. By structuring both agreements as options to purchase, we have maximized our upside potential while minimizing the risks. Turning now to our third quarter consolidated financial results. Despite continued declines in the silver and gold prices, revenues for the third quarter increased 31% to $16.8 million compared to the same period in 2014. This was primarily the result of the significant growth in metal production but was also helped by the appreciation of the U.S. dollar against the Canadian dollar. Gross profit before non-cash items or mine operating earnings increased by $2.8 million in the third quarter to $5.8 million compared to the third quarter of 2014. This was attributed to the $4 million increase in revenue and a significant reduction in cash cost per payroll silver ounce. Our G&A expenditures for the quarter were $1.7 million, an increase of about $250,000 compared to Q3 of 2014. This increase was mainly due to timing of expenditures which decreased G&A expenditures in the third quarter of 2014. Exploration, evaluation and development expenditures saw a significant increase to $2.1 million from $0.9 million in the comparative quarter of 2014. The increase was primarily attributed to $600,000 in expenditures related to the commencement of exploration activities at Coricancha and Guadalupe de los Reyes and development expenditures of $1 million associated with some of our operating mines, some of which were previously capitalized. Net loss for the third quarter was $3.3 million compared to a net loss of $1 million for the same period in 2014. The increase in net loss was primarily attributable to $2.1 million decrease in finance another income, most of which relates to a decrease in foreign exchange gains of $1.1 million increase in amortization and depletion of $1.3 million increase in exploration expenditures attributed to the start of exploration activities at the company's new projects. And expensing of development expenditures associated with some of our operations. And these factors were partly offset by the $2.8 million increase in gross before non-cash items or wind of in gross profit before non-cash items or mine operating earnings. Adjusted EBITDA which removes most the effects of an allied foreign exchange gains or losses and other non-cash items increased to $2.2 million compared to $1.3 million for the same period in 2014. This primarily reflects $2.8 million increases in gross profit before non-cash items that offset the noted $1.2 million increasing in exploration, evaluation and development expenditures. Consolidated cash cost of $6.50 for silver ounce for the third quarter decreased 41% from $11.02 from the third quarter of 2014, primarily due to a combination of improved grades and the strengthening of the U.S. dollar against the Mexican peso. AISC for the third quarter decreased $13.08 from $19.25 in the third quarter of 2015. This 32% reduction is primarily due to the reduction in cash costs and the increase in production which reduced capital and G&A expenditures for paid silver. As we mentioned at the beginning of the call, Great Panther continues to have a strong balance sheet. At September 30, 2015, the company had a cash position of $80.7 million and $34.7 million in net working capital with no debt. In both cases, these represent increases from our balances at the start of the year. In summary, Great Panther delivered another strong quarter of metal production with substantially lower cash costs and AISC from a year ago. Given that production for the first nine months of the year totaled almost3.2 million silver equivalent ounces, we now expect to exceed our production guidance of 3.8 million to 3.9 million silver equivalent ounces for 2015 which was actually increased in the previous quarter from 3.5 million to 3.6 million silver equivalent ounces. This will translate into a year-over-year increase in metal production of more than 20%. As seen in the third quarter, production from San Ignacio will continue to account for the predominant portion of the production from the GMC in the fourth quarter and for the foreseeable future. Most importantly though, we expect to achieve lower than guidance cash cost and AISC for 2015 with AISC staying below the present silver price. I'll now open up the call for questions.

[Operator:]

[Operator Instructions] You have a question from the line of James [ph].

[Unidentified Analyst:]

Hey guys, congrats on the quarter. So the overall cost decrease this year been impressive as always. I know that you guys have just mentioned we may see a slight uptick in all-in sustaining cost in the fourth quarter due to some capital spending? Can you just provide a little color on that specific items you expect to contribute to this and if this should be meaningful?

[Robert Archer:]

Yes, sure. That's mostly just mind development, really in terms of CapEx. As we continue to ramp up at San Ignacio, there are few items as well, I mean when lots of mine [ph] excuse me, the majority of that will be mine development. As well as the drilling expenditures that we're undertaking, at both the current cancer line and Guadalupe de los Reyes.

[Unidentified Analyst:]

And then looking at the goal production, it's not 45% year over year, I mean that's something we can expect going forward. I'm sorry, the line broke up little bit technical thought and could you repeat that? And then looking at the gold production it's up 45% year-over-year. Is that something that we can expect going forward?

[Robert Archer:]

Not on a percentage basis. As we get - if we can use for these. Then percentage wise, that will start to level off. But I think in terms of total gold production, if we can mean maintain these grades from San Ignacio and as the increase - production from San Ignacio continues. We can sustain these levels, certainly going forward.

[Unidentified Analyst:]

And I guess going off with that - with the new target 650 tons per day from San Ignacio at the end of this year. Do you see that increasing at all and 2016 - we're saying not so becoming an even greater of the production profile. So where do you see it file on it?

[Robert Archer:]

Just by the time we are actually projecting that to continue to increase a little bit, difficult to quantify exactly at this point but maybe going up to about 750 or somewhere in that range.

[Unidentified Analyst:]

Perfect, perfect. Okay, thank you very much guys.

[Robert Archer:]

Before you go, I should just clarify something that I said a moment ago. Just with regards to the drilling at current council and Guadalupe de los Reyes, those are non-sustaining costs. So those wouldn't be included in AISC which I guess was actually your question. There will be obviously, additional cost that we current in fourth quarter but they are non-sustaining.

[Unidentified Analyst:]

Thank you that makes sense, perfect. Thanks you guys.

[Robert Archer:]

Okay, thanks.

[Operator:]

Your next question is from the line of Bhakti Pavani.

[Bhakti Pavani:]

Good morning, guys. Congrats on the quarter. Just a follow-up question to Jake. Regarding San Ignacio, the production is expected to increase at San Ignacio to 650 tons per day. I'm just kind of curious how about the other mines at GMC, looks like the production from the beginning of the year has been coming slightly down and tons per day. So is that sort of the trend we should expect going forward in the fourth quarter and 2016?

[Robert Archer:]

Yes, I think that's a fair comment. I mean for one thing with the wider zones at San Ignacio and the better grades, than the cost are cheaper or lower rather. And it just makes more sense to focus on those areas during this time of lower metal prices. It also gives us a little bit more time to focus on the underground drilling at the main Guanajuato mines. And to continue to focus on increasing the resources in those particular areas.

[Bhakti Pavani:]

Okay, that's helpful. The other question was regarding the mine development expense at San Ignacio. This quarter saw quite a bit of bump, is that the similar kind of - if I have to quantify it, is that the similar kind of money that you expect to spend in the fourth quarter as well on the mine development cost of San Ignacio?

[Robert Archer:]

Yes, it would probably be fairly similar, maybe allocated a little bit differently. We had some infrastructure improvements and such in the third quarter, those are sort of one-time expenses but once each of those gets completed. But as we ramp up production there, we have to beef up the infrastructure to some degree that will be ongoing. But from that point on, really it's mostly just mine development.

[Bhakti Pavani:]

The drilling expenses that got a contract GDLR project, is that going to be in the similar kind of money that you will spend this quarter? Is it going to be similar in the fourth quarter as well or do you see a bump up?

[Robert Archer:]

It will be a little bit more. We only just started drilling at Coricancha actually in first week of October, mid-October. So there really wasn't very much in the way of expenditures that Coricancha in the third quarter. Guadalupe, that started in September but we won't wrap that up until this month. So most of those drilling expenses will fall into the fourth quarter. So in terms of your question in both cases they will be higher in fourth quarter as they were in the third.

[Bhakti Pavani:]

Do you mind providing more color as to how much more could that be?

[Robert Archer:]

I don't have that number at the top of my head but I can certainly get that to you after the call.

[Bhakti Pavani:]

Okay, perfect. One more question on the grade for San Ignacio, the gold grades have been consistently going up compared to the first quarter to the third quarter, is that sort of the range - do you think it has peaked out or do you think there is further room for the gold grades to go up at San Ignacio?

[Robert Archer:]

I wouldn't project them going higher. I think we've been quite fortunate in what we've been finding to date. As we continue to refine the resource and get better understanding of metal distribution within the mine, given that it's still quite new to us, having just started that area this year. So I think somewhere around the range that we have now is probably, fairly safe going forward.

[Bhakti Pavani:]

Okay. Just a follow-up to what you just mentioned, you said you started drilling in the area this year. How long would it take for you guys to finish drilling in that area? I mean I'm trying to get a better understanding for 2016 and going forward for the grade?

[Robert Archer:]

For San Ignacio? We just started that program just a week or two ago. So - but that's a relatively small program, I think it's about 2,200 meters that we have scheduled for San Ignacio for this year. So that will be finished probably by the end of this month. There are thereabouts and then we'll update the resource at that point. We're actually just working on budgets now for 2016, so we haven't actually set a drilling budget for 2016 just yet.

[Bhakti Pavani:]

Okay, perfect. Thank you guys again, congrats on the quarter.

[Robert Archer:]

Thanks, Bhakti.

[Operator:]

Mr. Archer, it appears that we do not have any further questions at this time.

[Robert Archer:]

Operator, we did actually have one question that was emailed into us. I'd like to just address online when we have the opportunity. The question was from Marty [ph], and he was asking if Great Panther would consider storing certain amount of physical silver on a monthly basis, holding that back from sales. This is a question that we actually get fairly often, so it's worth addressing here because we're really not in a position to do that because we do produce concentrates and not physical silver or doer bars. And consequently we have contracts with buyers of that concentrate being either smelters or metal traders. So we're contractually obligated to deliver that concentrates to the buyers on a regular basis. And so we can't really - if we started to hold back production arbitrarily then we essentially - it's breach of contract. And also run into storage issues for the concentrate. So it's really not something that we're in a position to consider. So thanks to Marty for the question. Okay, no further questions operator?

[Operator:]

There are no further questions.

[Robert Archer:]

So thanks operator. In closing then I'd just like to thank our employees, our contractors, our stakeholders for delivering another strong quarter for Great Panther, both operationally and financially. In this low metal price environment, Great Panther has demonstrated operational resilience and with a strong balance sheet it's has capitalized on organic and external growth opportunities. We're excited about the near to mid-term possibilities afforded by the Coricancha mine and the GDLR project as we advance these assets towards a production decision. Thanks for your participation today. And I look forward to sharing our progress with you again next quarter.

[Operator:]

Thank you, Mr. Archer. This concludes the Great Panther Silver's 2015 third quarter financial results conference call and webcast. We ask that you please disconnect your lines at this time.