Great Panther Mining Limited
Q4 2015 Earnings Call Transcript

Published: 4 Mar 2016

[Operator:]

Good morning, ladies and gentlemen. Thank you for standing-by. Welcome to the Great Panther Silver Limited 2015 Year-End Financial Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. [Operator Instructions] I would now like to turn the call over to Spiros Cacos, Director of Investor Relations.

[Spiros Cacos:]

Thank you, Kean. 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 of 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 the conference call is being recorded and will be available for replay after 10 o’clock in the morning Pacific Time. Replay information and the presentation slides accompanying this conference call and webcast are available on our website at www.greatpanther.com. I will now turn the call over to Robert Archer.

[Robert Archer:]

Thank you, Spiros. Good morning everyone and thanks for taking time to join us today. As usual, we’ll start this morning’s conference call with a brief overview followed by the year-end highlights from our operations. We’ll then discuss our year-end financial results in more detail and conclude the call with a Q&A session where we encourage you to ask any questions you may have. For Great Panther, 2015 was our best year ever operationally, higher grades and accelerated ramp up at our San Ignacio mine and substantial improvements in great control and operating efficiencies translated to a 30% increase in production and contributed to a 38% reduction in all-in sustaining cost per payable silver ounce to an impressive $13.76. We set multiple new annual records in silver production, gold production and overall metal production and exceeded our already upwardly revised guidance for the year. In conjunction with the foreign exchange benefits of a strong U.S. dollar, our operational achievements resulted in a strong growth in revenue, mine operating earnings and operating cash flow. In addition, our cash cost and AISC were well below the lowest in the silver price seen in 2015. We generated sufficient cash flow in 2015 to enable us to pay for the option payments and project costs associated with the Coricancha and Guadalupe de los Reyes projects. The net result is that Great Panther continue to maintain a healthy balance sheet and ended the year with $17.9 million in cash to $33.3 million in working capital and no long term debt. We effectively maintained our cash and net working capital positions over the year without raising any capital. Turning now to the operational highlights for 2015, consolidated metal production for the year exceeded 4.1 million silver equivalent ounces, representing a 30% increase compared to the previous year. The production growth is primarily attributed to the continued ramp up in production at San Ignacio as well as improved efficiencies and great control across all of our operations. The improvement in efficiencies and grade are illustrated by our achievement of the 30% increase in metal production with only a 12% increase in throughput at 375,000 tons of ore from all operations. Our silver production increased 25% to a record 2.4 million ounces and our gold production increased 32% to a record 22,000 ounces. I’d like to provide you with now some more detail on our individual operations. We’ll start with the operating results of Guanajuato Mine Complex or the GMC which includes the San Ignacio mine. The GMC accounted for approximately 75% of our total production in 2015 processing approximately 310,000 tons, a 16% increase over the prior year. Metal production of almost 3.1 million silver equivalent ounces was a record for the operation and represented a 40% increase over the prior year. San Ignacio accounted for 41% of the overall production contributing approximately 1.3 million silver equivalent ounces in 2015. In the fourth quarter, San Ignacio reached 52% of the production at the GMC and we expect this trend to continue in 2016. Average ore grades for 2015 were 192 grams silver and 2.35 grams per ton gold compared to 161 grams per ton silver and 2.03 grams per ton gold in 2014. The increase at San Ignacio was achieved through expanding production from the wider and higher grade self-extension zones. Cash cost for the GMC in 2015 decreased 48% to $5.77 primarily due to the increase in ore grades and favorable foreign exchange movements. Likewise AISC at the GMC also saw a significant decline to $9.93 from $18.05 in 2014. Underground drilling at the GMC comprised approximately 18,000 meters in 2015 and was focused on the expansion of ore zones particularly at San Ignacio and the better 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 year as the mine became increasingly integrated into the overall Guanajuato operations. On February 22, we announced an updated 43-101 mineral resource estimate for the GMC illustrating that we had successfully replaced what we mined in the previous year and upgraded most of the San Ignacio resources to higher categories. The San Ignacio mine will continue to play an important role in 2016 as production continues to ramp up to even higher rates. In addition, our team will continue to expand and further define the resource at San Ignacio while carrying out more definition and exploration drilling within the main Guanajuato mine itself. I’ll now continue with the summary of our Topia Mine in Durango. Topia’s metal production increased 8% over 2014 to more than 1 million silver equivalent ounces as a result of higher ore grades and slightly higher silver recoveries in addition to a continued focus on grade control. The increase in metal production was achieved with 65,000 tons of throughput which is down slightly from 2014 and speaks to the overall efficiencies we achieved through our operations. Mining at the end of the year was driven by nine of the 14 mines comprising Topia and production was increased at the Guanajuato [indiscernible]. This is an example of operational flexibility to be able to react to lower metal prices at our existing mines at Topia which include multiple operating areas with very engraves and cost profiles. The operating efficiencies combined with favorable foreign exchange movements enabled significant reduction in cash cost and AISC at Topia. Cash cost decreased 23% to US$12.19 and AISC declined to $13.21 from $18.65. In May of 2015, we announced the signing of a two year option agreement with Nyrstar to acquire a 100% interest in the Coricancha Mine Complex in Peru. This marked the beginning of an exciting new chapter in Great Panther’s development as we began to look at projects outside of Mexico. Coricancha represents a near term production opportunity and the two-year option allows us to evaluate the project without having to make an immediate and significant financial commitment in the current environment of depressed metal prices. By the end of December, 2,300 meters of underground drilling has been completed at Coricancha and we have continued drilling into 2016. The objective of the drill program is to update the mineral resource while focusing on high grade areas that could support a mine plan with robust economics at current metal prices. The program is ongoing and is being augmented by engineering and environmental studies. In May of 2015, we acquired Cangold Ltd and gained an option to acquire up to 100% interest in the Guadalupe de los Reyes project or GDLR in Sinaloa, Mexico. As part of the evaluation of this advanced state gold silver project, we completed a surface drill program in the third and fourth quarters. GDLR’s historical reserves estimate and preliminary economic assessment were predicated on an open pit mining scenario. However, we were targeting higher grade themes with the intension of revising the geological model and resource estimate in line with the combined underground open pit mining scenario. Our 2015 drill program did not yield the results we had anticipated and we concluded that the project did not meet the criteria for our corporate growth strategy. Consequently on February 26, we announced that we had given notice to the project owners that we were terminating the option agreement on GDLR. We will now turn to our year end consolidated financial results. Despite continued declines in silver and gold prices, revenues for 2015 increased 35% to $73.4 million compared to $54.4 million in 2014. This was primarily the result of our significant growth in metal production but was also assisted by the appreciation of the U.S. dollar against the Canadian dollar. Although we reported vastly improved mine operating earnings before non-cash items of $24 million and increases in operating cash flow and EBITDA, the company reported a net loss of $9.3 million for 2015, mainly as a result of significant non-cash expenses and an increase in project expenditures. The net loss of $9.3 million reflects $18 million of non-cash amortization charges, a $3 million write down related to the GDLR project and the $4.3 million exploration and evaluation expenditures related to our advanced exploration projects. As noted, our consolidated cash cost decreased 41% to $7.50 and all-in sustaining cost decreased to US$13.76 from US$22.07 in 2014. As mentioned at the beginning of the call, we continue to have a strong balance sheet. At year-end, we had a cash position of $17.9 million and $33.3 million in working capital and no long term debt. In summary, Great Panther delivered a strong year of metal production with substantially lower cash cost in ASIC than the previous year. Record production for the year 2015 was more than 4.1 million silver equivalent ounces representing an increase of 30% over 2014. Silver and gold also achieved individual production records of 25% and 32% respectively. Consolidated cash cost per ounce was $7.50 in 2015, a 41% decrease compared to 2014 and ASIC per silver payable ounce decreased 38% to $13.76 per ounce. Given the significant increase in production in 2015 and the continued low metal price environment, Great Panther will focus on operational efficiencies and strong grade control in 2016 and continue to build on the successful achievements in these areas attained in 2015. In addition, the significant growth in 2015 has brought production levels almost to full capacity at the GMC such that consolidated production for 2016 is anticipated to be in the range of 4 million to 4.2 million silver equivalent ounces. Although overall production at the GMC and Topia is expected to remain the same, Guanajuatito is expected to account for larger proportion of the throughput. Cash costs are anticipated to be in the range of $5 to $7 per ounce of payable silver while AISC is projected to be US$13 to US$15 per ounce of payable silver. I’ll now open up the call for questions.

[Operator:]

Thank you. [Operator Instructions] Your first question is from the line of Heiko Ihle.

[Heiko Ihle:]

Hey, guys. Congratulations.

[Robert Archer:]

Good morning, Heiko. Thank you.

[Heiko Ihle:]

Hey, good morning, Bob. So you put out guidance of 4 million to 4.2 million silver equivalent ounces, can you break this down between gold and silver? And just given the current large gold production you’re seeing we own 6,000 ounces in Q3, close to that in Q4, how much of it is due to the gold or silver ratio please.

[Robert Archer:]

Maybe it’s a better question for Jim to answer. Jim, can you talk about this?

[Jim Zadra:]

Heiko, it’s a hard question to answer because it’s really going to depend on – it’s affected by changes in grades that we will encounter and variations in our mine plan. We know that Guanajuatito has a higher gold content, so we expect the gold production to increase in 2016. But it’s hard for us to give you a firm number on that. You can expect it to increase the extent the increase really depends on how much we mine from Guanajuatito and the variations in grade, as we sort of advance the mining operations.

[Heiko Ihle:]

Fair enough.

[Robert Archer:]

Yes.

[Heiko Ihle:]

So cash costs for the production decreased to $8.14. How much of that is related to the Canadian dollar and Peso exchange rates, and well it’s gone through that. Congratulations on the 2016 cash cost guidance, I think that’s very impressive.

[Jim Zadra:]

Well, thank you, Heiko. If you’re looking at the cash costs in Canadian dollar terms, the FX impact is not that significant. It's mainly the operational efficiencies, because the Canadian dollar – the peso didn't appreciate all that much against the Canadian dollar. If you're looking at the cash costs in U.S. dollar terms, the FX rate had a very significant impact. I would say probably 60% of the reduction in cash costs in U.S. dollar terms is coming from the FX, and the balance is coming from operational efficiencies, lower costs, better grade control, and just overall higher grades.

[Heiko Ihle:]

Gotcha. And last question for you, can you just sort of give us a G&A expense outlook for the year, please?

[Jim Zadra:]

Before non-cash items, the non-cash can really swing it, because it's – there’s a stock-based comp, which can vary quite significantly. But before non-cash items, I would say, $6 million to $6.5 million.

[Heiko Ihle:]

Perfect, excellent. Thank you, guys, and congratulations on a good year.

[Robert Archer:]

Thanks, Heiko.

[Jim Zadra:]

Thank you, Heiko.

[Operator:]

Thank you. [Operator Instructions] Your next question is from the line of Bhakti Pavani.

[Bhakti Pavani:]

Good morning, guys. Great performance in 2015.

[Robert Archer:]

Thanks, Bhakti.

[Bhakti Pavani:]

My question is regarding the guidance on the cash cost and all-in sustaining costs. I’m just kind of wondering, it’s a very impressive guidance. But could you maybe provide some additional color on where do you see further reduction in cost, given that you guys are going to be excluding the same levels in 2015?

[Jim Zadra:]

Bhakti, it’s Jim. The exploration costs don't factor into the cash cost or all-in sustaining costs, because the exploration costs are outside of our – if we’re talking about our projects, it’s outside of our mining operations. The – in terms of the guidance, we exited – if you look at the Mexican peso to the U.S. dollar for 2015, it average close to 2016. And when we exited – and when we started 2016, the peso was as low as 2018, pesos to U.S. dollar. So the lower guidance for 2016 is in part due to the expectation that the peso will remain weak. And that’s really one of the big factors. The other factor is that, we expect we can sort of maintain the same and hopefully improve on the same operational efficiencies that we gained in 2015.

[Bhakti Pavani:]

Okay. Yes, that’s what I’m just trying to know if – it’s because of the exchange rate or because of other factors? Thank you so much, Jim.

[Jim Zadra:]

Okay.

[Bhakti Pavani:]

With regards to the production, looks like you already had started production in 2015, and for 2016, the guidance is almost in the same range. I’m kind of wondering, is there room to, increase that production a bit more in the coming year, or in 2017, or do you think $4 million is kind of the peak you guys have reached?

[Robert Archer:]

Bhakti, it’s Bob Archer. As I mentioned the – at Guanajuato, we’re almost tight capacity at the plant. And as we continued to ramp-up San Ignacio and drill the zone out further to the south, we’ll get a better appreciation for the longevity of that zone, and hopefully, we’ll be able to increase the resources and therefore the mine life. Increasing production at San Ignacio also takes some of the pressure off of the main Guanajuato Mines and will allow us to do some more deep drilling there. And our intent is to build up the resource at the main Guanajuato Mines as well. So there’s – from a technical standpoint, there’s an opportunity to increase the plant capacity at Guanajuato and then we have the area, the space to do it. But obviously, we would need to build up the resource base at main Guanajuato mine, San Ignacio before really looking at that seriously and before being able to justify an expansion. So that’s your question. It’s possible that it could be increased down the road. But we’re just going to hold the line on that for this year until we’ve sufficiently built up the resource base.

[Bhakti Pavani:]

Okay. With regards to the exploration, I believe on the – about 6,000 meters, as I mentioned in the press release is going to be towards the Guanajuato mine. I was just wondering you guys put out the mineral resource update a couple of weeks ago. And there’s a El Horcon deposit, do you intend to explore that this year at all?

[Robert Archer:]

No, there’s no budget for drilling at El Horcon for this year. We’re just furthering the permitting process.

[Bhakti Pavani:]

Okay. With regards to Guadalupe project, you acquired Cangold, so now that you have terminating the agreement with Vista Gold. What happens to Cangold?

[Robert Archer:]

Well, from a corporate perspective nothing. We acquired the companies – the company still exists. We saw the other projects that were actually owned by Cangold, one in Sonora Mexico and one in Canada. But there just earlier stage and non – certainly non-core assets, and there’s no immediate plan to do anything with either of those.

[Bhakti Pavani:]

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

[Robert Archer:]

Thanks, Bhakti.

[Jim Zadra:]

Thank you, Bhakti.

[Operator:]

Thank you. Your next question is from the line Leonard Norman [ph].

[Unidentified Analyst:]

Bob, one is your – it’s good to see all the positive information coming out of Great Panther. But I do have one question based on having traveled in Mexico a great deal. One of the problem that’s – one of the problems that gets huge publicity is the problem of criminal activity within Mexico, the drug lords, the drug crews, and also some polices corruption. Have you had any instances of that at any of the Great Panther properties? And are you having to take any unusual protection measures?

[Robert Archer:]

Good morning, Lenord [ph], good to have you on the line. We haven’t experienced any issues with cartel-related security at either operations, we’ve been quite fortunate in that regard. And some shareholders or listeners might remember a couple of years ago, we had some issues with illegal miners at Guanajuato. But that’s really more of a local issue, it’s not related to the cartels at all. And we did do it that by bumping up the security at that particular site. But that's been held in check and we haven't had any problems in that regard really for almost 2 years now.

[Unidentified Analyst:]

Okay. That’s very good to hear, because I know along the northern border of Mexico with the U.S., it seems to be much more of a concern. And by the way I’ve got to tell you when I visited your project, I thought Guanajuato area was one of the most spectacular I had ever seen. And so you’ve got a beautiful or a good mine in a beautiful location?

[Robert Archer:]

Thanks, Leonard. We still have to agree with you in that regard.

[Unidentified Analyst:]

Okay.

[Operator:]

Mr. Archer, at this time there are no further questions.

[Robert Archer:]

Thank you, operator. In closing then, I’d like to once again thank our employees, contractors, and stakeholders for delivering an exceptional year, both operationally and financially under challenging circumstances. In the slow metal price environment, Great Panther has demonstrated operational resilience and with the strong balance sheet has capitalized on an organic and external growth opportunities. We’re excited about the near- to mid-term possibilities afforded by the Coricancha Mine, and we continue to seek out accretive growth opportunities. Thanks for your participation today, and I look forward to sharing our progress with you again next quarter.

[Operator:]

Thank you. That concludes Great Panther’s 2015 fiscal results conference call and webcast.