Silvercorp Metals Inc. (SVM) Q4 2023 Earnings Report, Transcript and Summary

Thank you for standing by. Good morning. My name is Jenny, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silver Corp's Fourth Quarter and Full Year Fiscal 2023 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, Vice President, for opening remarks. Please go ahead, sir.

That's great. Thank you, Jenny. On behalf of Silvercorp, I'd like to welcome everyone for joining the call this morning or afternoon, wherever you may be to discuss our fourth quarter and full year 2023 financial results, which were released yesterday after market close. A copy of the news release, the MD&A and the financial statements for today's call are available on our website. Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent 10-Q and Form 40-F and AIF. So to kick-off and recap the quarter with respect to Q4, despite the regular impact of the Chinese New Year slowdown, our mines operated at roughly in line with expectations, as reflected in our previously released production numbers. Revenue for the quarter in Q4 was $34.1 million. That was down 18% compared to the prior year quarter. And this included a decrease of $4.6 million due to lower silver, lead and zinc sold as compared to last year's quarter, also a decrease of $3.6 million due to lower realized selling prices for all these metals. Based on production levels and the realized prices we obtained in the quarter, silver was 57% of revenues on a net basis compared to 55% in Q4 of last year. Our fourth quarter net income attributable to equity shareholders was $0.2 million or nil per share, as compared to a net income of $4 million or $0.02 per share for the same period last year. The main contributor to the decrease was the factors I mentioned before, which affected revenue, as well we had a mark-to-market loss of $1.1 million on equity investments and a $1.9 million impairment charge against a short-term investment in certain bonds. On an adjusted basis, with adjustments made to remove the impacts of non-cash and unusual items such as impairment charges, share-based comp, foreign exchange changes, the share and loss of our associates, operating results, gains and losses on investments and one-time items. Our earnings for the quarter were $5 million or $0.03 per share compared to $9.7 million or $0.05 per share for the same period last year. And just a reminder, we're providing this adjusted earnings as a supplemental non-GAAP measure to give investors another metric to better measure the performance of our underlying business, its profitability and growth potential. Our cash flow from operating activities in the quarter was $5.7 million, that compared to $11.4 million in the prior year quarter. Decrease was mainly due to these other factors I mentioned before, affecting revenue and net income and a $5.8 million adjustment in non-cash working capital. Before changes in non-cash working capital, our cash flow in the quarter was $11.6 million compared to $14 million in Q4 of last year. Capital expenditures totaled approximately $9.5 million in the quarter, down slightly from $10 million in Q4 of fiscal 2022. And we ended the quarter with $203.3 million in cash and cash equivalents and short-term investments, down from $212.9 million at the end of last fiscal year. And that was mainly due to a negative $8.7 million translation impact arising from the appreciation of the U.S. dollar against the Canadian dollar and Chinese RMB. This cash position does not include our investments in associates and other companies, which had a total market value of $141.9 million on March 31, of which, just note, New Pacific was $120 million of that. To quickly recap the full year financial results. Revenue for the fiscal year was $208.1 million. This was down 4% compared to the prior year, reflecting a few factors, one of which is a $16.6 million decrease due to lower realized selling prices of silver, lead and zinc. And secondly, a $3.6 million decrease due to lower zinc sales. However, this was offset by a $9.7 million increase from higher silver, gold and lead sold year-over-year. Net income to equity shareholders was $20.6 million or $0.12 per share, that compared to $30.6 million or $0.17 in fiscal 2022. Decrease primarily reflects the aforementioned factors affecting revenue and as well during the year. Early in the year, we took a $20.2 million impairment charge against the Las Yesca Project. Our adjusted earnings for the year were $37 million or $0.21 per share compared to $52.4 million or $0.30 per share last year. Cash flow from operating activities for the year was $85.6 million, down from $107.4 million in the prior year due to those previously mentioned factors that impacted revenue and net income and as well a $2 million adjustment in non-cash working capital. Before changes in non-cash working capital, cash flow for this fiscal year was $87.7 million compared to $101 million in fiscal 2022. Capital expenditures in the year were approximately $58 million for fiscal 2023. That was up slightly from the $54 million in the same prior period, mainly due to increases in exploration and development tunneling as well as certain equipment and facilities upgrades at both operations. Quarterly production recap. In terms of quarterly production, we previously reported, we mined 182,000 tonnes of ore and milled 179,000 tonnes. That was up 1% and down 2%, respectively, compared to the same quarter last year. Produced in the quarter, 1.1 million ounces of silver, 1,000 ounces of gold, 10.9 million pounds of lead and 3.6 million pounds of zinc. Those were decreases of 3%, 9% and 13%, respectively, in silver, lead and zinc production due to some lower head grades. But a 100% increase in gold production over the same quarter of last year. The cash cost per ounce of silver net of by-product credits was $0.92 in the fourth quarter. This compared to negative $0.54 in the prior year quarter. And we experienced a $2.6 million decrease in expense production costs, but this was more than offset by a $4.2 million decrease in by-product credits impacting that cash cost number. On an all-in sustained basis, our cash -- sorry, our cost to produce an ounce of silver net of by-product credits in the quarter was $13.85. This compared to $12.60 in Q4 of fiscal 2022, and the increase primarily reflects the same factors that impacted consolidated cash costs as well as a 3% lower silver production number in the quarter. Looking at the full year results, mined and milled, 1.1 million tonnes of ore in the fiscal year, both of those were up 7% compared to fiscal 2022. And our production of 6.6 million ounces of silver, 4,400 ounces of gold, 68.1 million pounds of lead and 23.5 million pounds of zinc represented increases in production of 8%, 29% and 6% respectively, in silver, gold and lead, mainly due to higher mining and milling rates and a decrease of 12% in zinc production over the last year, mainly due to lower head grades in the ore. On a year basis, the cash cost per ounce of silver net of by-product credits was negative $0.42 compared to negative $1.29 in fiscal 2022. The increase is mainly due to a $2.1 million decrease in by-product credits and a $3.2 million increase in expense production costs. And on an all-in sustaining basis, the cost to produce an ounce of silver net of by-product credits in fiscal 2023 was $9.73 as compared to $8.77 last year. Increase reflects the same factors that impacted the consolidated cash cost per ounce as well as a $7.7 million increase in certain sustaining capital expenditures, but offset by a $2.7 million decrease in admin expenses and mineral resources tax. Now looking ahead to this current fiscal year, fiscal 2024. We're reiterating our production and cost guidance that we announced on February 9. We expect to produce between 6.8 million and 7.2 million ounces of silver; 4,400 to 5,500 ounces of gold; between 70.5 million and 73.8 million pounds of lead; and 27.7 million to 29.7 million pounds of zinc. Midpoints of these numbers reflect increases of approximately 3% to 8% in silver; 0% to 25% increase in gold; 4% to 8% increase in lead; and 18% to 26% in zinc compared to our actual fiscal 2023 results. In terms of cost guidance for the year, we're anticipating on a consolidated basis between $78.2 to $80.5 per tonne on a cash cost basis, which is 4% to 7% below our actual performance in fiscal 2023. And on an all-in sustaining basis, we're looking ahead to between $136.4 to $142.4 per tonne which is roughly in line to 4% below actual fiscal 2023 performance. Now turning to growth projects. Looking ahead, we completed a total of 8,485 meters of drilling in this last fiscal year at the Kuanping Project. Recall this is a satellite property located in north of Ying that we acquired in November of 2021. In December of 2022, we received the Kuanping mining license from the Department of Natural Resources, which covers an approximate 7 square kilometer land package and is good until March of 2029. Looking ahead, we're planning to carry out certain studies this year to complete the environmental assessment, water and soil protection assessments and preliminary safety facilities and mine design reports to get some remaining ancillary permits. Further updates on the mine construction plan and cost estimates will be provided upon completion of these reports. In fiscal 2023, we spent a total of $4.8 million on the construction of the new tailing storage facility and a new 3,000 tonne per day flotation mill at Ying. This was, if you look back at guidance significantly below what we had anticipated for the year, a total of 3,233 meters or 64% of the drainage tunnels have been completed. The site preparation for the new mill was also completed. And also, we can confirm we've received all government approvals to construct both projects. In addition, over the last year, we spent $2 million on various upgrades, including certain environmental protection facilities at Ying as part of our continued commitment to building green mines. And we spent $1 million on the construction of an XRT Ore Sorting System at the GC Mine, which is currently in trial production. We're looking to implement a similar program at Ying. Overall CapEx in fiscal 2024 is budgeted at $64.7 million. with roughly $21.8 million of that going towards Ying's equipment and facilities, construction of the tailing storage facilities, the addition of a paste backfill plant, and as I mentioned, an XRT Ore Sorting System at Ying to optimize the mine plan and improve ore processing head grades. You'll note that on May 15, we announced a non-binding term sheet for the acquisition of Celsius Resources. The final structure of the proposed transaction will be governed by the terms of the definitive agreement, which we are in the process of negotiating and finalizing. And after we've entered into this agreement, which we anticipate within 1 month of the term sheet, we'll be driving ahead with the rest of the documentation to complete this transaction. Celsius' flagship project is the MCB copper-gold project located on the main island of Luzon in the Philippines. Mineralization in the project area was first discovered in the early 1930s, but modern exploration was limited until Freeport entered in 2006. Over the next 7 years, Freeport conducted systematic exploration work that included approximately 25,000 meters of drilling and 46 diamond drill holes. This work was largely underpinned the initial MCB JORC compliant Mineral Resource Estimate that Celsius tabled in 2021. Additional drilling between 2021 and 2022 by Celsius led to an updated JORC compliant Mineral Resource Estimate which was announced in December 2022, which include measured and indicated resources of 296 million tonnes, grading 0.46% copper and 0.12 grams per tonne gold and an inferred resource of 42 million tonnes grading 0.52% copper and 0.11 grams per tonne gold. Celsius had also released a scoping study on the MCB project in December of 2021, based entirely on a high-grade subset of that initial resource -- the indicated component of the initial resource that had been published in January 2021. That study that they completed outlined a potential 2.28 million tonne per year underground operation, mining and milling, approximately 49 million tonnes of ore at 0.85% copper and 0.41 gram per tonne gold over a 25-year life, with a standard flotation process of producing a clean copper gold concentrate. And delivering, on average, 16,000 tonnes of copper and 19,000 ounces of gold per year over that life of mine at a C1 cash cost of $129 million -- sorry, $1.29 per pound of copper net of gold credits. However, the study also encompassed a first 10-year profile, where the annual output was 22,000 tonnes of copper and 27,000 ounces of gold over that 10-year period at a cost of $0.73 per pound of copper net of gold credits. The study estimated initial capital cost of USD 253 million and generated a post-tax NPV to an 8% discount rate of $464 million, assuming a $4 copper price and $16.95 per ounce of gold. We believe the acquisition of the MCB project give Silvercorp exposure to a high-grade copper-gold project well suited to our extensive underground mining experience and a promising jurisdiction and with substantial local relationships and support that has been developed by the Celsius team. We look forward to providing investors with updates on the proposed Celsius transaction and the MCB project over the coming months. And with that, I would be happy to open the call for questions.

[Operator Instructions] Your first question is from Joseph Reagor from ROTH MKM.

So first thing, on GC, the cost guidance suggests most of the drop from last year will occur there. Is there anything in particular driving the lower cost per tonne at GC?

Well, I think it's been a renewed focus. Obviously, GC was not a great performer for much of this past fiscal year. Just a variety of reasons, nothing -- so nothing is a constant in mining. And so you had some issues that arose. And in particular, obviously, you saw that we had a production curtailment because of some additional capital investment that had to be done at GC. The law of small numbers in this case really threw things off. So I think this is more of a return to a more normal steady state.

Okay. Fair enough. And then last year, in general, a lot of the production came in a little below, but expectation, but zinc was well below. Like what's your confidence level that you guys have resolved whatever caused that issue?

I think the confidence level is good. I think it is useful to go back and look at the 43-101 that was published in September. There were a number of sort of changes in approaches to really looking at and addressing sort of what the zinc numbers were and sort of what type of zinc mineralization is kind of included in those numbers. So I do think that sort of the bad news on that zinc front is behind us and the targets that we put out for this coming year are achievable.

Right. Fair enough.

I think the thing I would add is that you're dealing with fiscal 2023 zinc at Ying 0.7% what we're calling for in 2024 0.8%. So we're not dealing with big numbers are incredibly aggressive forecast. I think it's just -- and some of that is obviously get factored in with rounding, but I do think we've addressed those issues.

Okay. Well, congrats on a good year despite the challenges.

Thanks, Joe. Appreciate the support.

Your next question is from Felix Shafigullin from Eight Capital.

So my question, I guess, is sort of builds on the previous questions. But your reiterated guidance, higher production, lower costs, could you just sort of provide, I guess, kind of like a rough road map of how you're planning to achieve that guidance because it's -- it seems kind of very lofty compared to your -- to the year that just ended?

Well, I think there's been obviously a lot of drilling and a lot of work that's gone into the mine planning off of that drilling. So I would say that from identification of resources and reserves, we have a better visibility and a better scheduling program, looking at where that ore is coming from. So I think that's going to help address the great question. Obviously, we're looking at certain things like ore sorting and some of this is a bit of a trade-off question because there are certain areas in the mine where you can make a call to go with resuing mining method, more surgical, more labor-intensive, higher cost where you can minimize dilution. On the other hand, shrinkage cheaper overall mining, more dilution, lower grade, but then can you bring the grade up and still be delivering to the mill, the ore up the grades that you're targeting. So I think that is really some of the optimization and some of the planning that's going into this mine plan. On the flip side, from a cost standpoint, there's a lot of factors that go into that. It's always noisy when we have this exchange rate changes, how it impacts the selling prices in the market when you've got silver moving, the U.S. dollar moving. On the one hand, a strengthening U.S. dollar is going to be a factor leading to lower costs on a reported basis. On the other hand, we then see the noise in the income statement when the U.S. dollar strengthens and that has an impact on conversion of other currencies in our cash and other asset balance. So I think to kind of get into all of the details, there will be a number of factors, sort of probably too much for this call. But it's a -- our projections are based on what we're seeing for the year in terms of cost performance. And as I said, that enhanced mine plan.

Okay. And just a quick follow-up question. Last quarter, when you announced that the new mill at the Ying mine will be delayed by, I guess, about a year, I recall that it was -- the issue was kind of around permitting. So have you cleared that hurdle successfully at this point?

Yes. Yes. As noted and then I disclosed in my comments, we've got all the permits to proceed with the mill.

[Operator Instructions] The next one is from Justin Stevens from PI Financial.

Lon, just a few questions on my side. As far as the ore sorting tech, are you looking to trial at GC before you try it at Ying? Or are you potentially looking at targeting that for both mines simultaneously?

Yes. I mean it's simultaneously, I guess, is probably the best word, obviously, GCs got it first. We're not waiting for the final results on the sorting program at GC to go ahead at Ying. So we will be doing that.

Got it. And as far as the Ying application, are you looking at sort of running potentially a mine-by-mine like doing it at the portal or more sort of a, call it, the mill doing it on the whole feed, I guess, on a campaign basis?

Great question. So it's more mine-by-mine, but as you recall, the location of LMW, LME and TLP are somewhat close, and we've been working on a lot of underground access and ramps and tunnels to be able to sort of integrate the flow between those mines. So if I recall correctly, I think it's at the LMW mine that we're putting it at and...

Got it. There is that, sort of, transfer structure anyways, probably a logical spot to do that. But then, you'd shift the concentrated -- you track the concentrates up to the actual mill?

Yes.

Got it. Yes. That's probably the way to do it. I guess the thinking there is that like you were sort of saying, obviously, resuing is -- can be great, but it's obviously a pretty high cost and if you can move to a more mechanized method, the trade-offs at least on stuff that would probably be marginal, probably till pretty aggressively if you can reject a lot of that on economic material.

Yes. Yes. I think to the other of this question and to the previous one to sort of elaborate, this isn't talking about an abrupt change, but fine-tuning at the margin where you look at certain veins and certain stopes that you might have mined on a resuing basis now based on economics and the overall picture and doing all the math, you realize, yes, actually, this one now is probably better on an overall basis to run with shrinkage. And so then you realize with that comes some certain compromises in terms of greater dilution from the stope. And so can we implement an Ore Sorting Program to, on a cost-effective basis, bring the truck ore grade back up to where our targets are. But it's not meant to be an abrupt sort of hard pivot here in terms of how we're doing things. It's just looking at things with an improved stope-by-stope, area-by-area, mine planning focus.

Perfect. And I mean XRT should react pretty well with the material you're looking at here. So hopefully, it tends that well. Last one, I think, for me, given the [ north vein ] plan has been pushed out, are you sort of looking at targeting some of those shallow dip high-grade gold structures that you're getting now? Or are you maybe pushing those out to when that mill would be operational given the enhanced ability to recover gold with the new mill?

No, we've been working on that. And arguably, it's taken longer than anticipated because just given the orientation of those structures, they are requiring definitely a different mining approach to them. And we have added -- we've added to the flow sheet the ability to do gravity concentration. So for some of those particularly higher grade areas in the gold, we're -- we've been trial mining that -- so that will, based on the forecast, and you can see that in the projections in terms of production guidance in terms of gold ore for the year. That is still our target for this year, and it's independent of the mill.

Got it. So it is sort of working its way into the mine plan, just like you say, probably took a little bit longer, just given the different orientation, the different mining approach that you have to take for those versus the rest of the veins?

Exactly.

There are no further questions at this time, sir. This concludes the question-and-answer session. I would now like to turn the conference back to Lon Shaver for any closing remarks.

That's great. Thank you, Jenny, and thanks, everyone, for tuning in today. That's all the time we have for this call. But as always, if anyone has any additional questions, please don't hesitate to call or reach out to us by e-mail. Happy to sit down and answer those questions in greater detail. So again, thank you, everyone, and have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.