Great Panther Mining Ltd

TSX:GPR

Earnings Call Transcript

[Operator]

Hello, ladies and gentlemen, and thank you for standing by. Welcome to the Great Panther Silver Limited Second Quarter 2018 Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]I would like to now turn the call over to Alex Heath, Director of Investor Relations.

[Alex Heath, Director of Investor Relations]

Thank you. Hello, everyone, and thank for taking [Audio Gap] to sit on our call today. With me here today are James Bannantine, President and CEO; and Jim Zadra, Chief Financial Officer.Before we begin, I'd like to mention that some of the commentary on today's call contains forward-looking statements. You should be cautioned that actual results and future events may differ from those noted in today's presentation. The commentary also refers to various non-GAAP measures, definitions and reconciliations that are included in the company's MD&A for the quarter ended June 30, 2018.The commentary also refers to the preliminary economic assessment, PEA, which is preliminary in nature and includes inferred resources as defined by an I40311. Inferred mineral resources are considered too speculative geologically, [ as ] economic considerations applied to them can be categorized as [Audio Gap]There's no certainty that the PEA will be realized.The mineral resource estimates referred to in this presentation have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of the United States securities laws and use terms that are not recognized by the United States Securities and Exchange Commission. United States [ investors are ] cautioned not to [ intuit ] that any part or all mineral deposits in these categories will ever be converted into reserves.All dollar amounts expressed in this presentation are in U.S. dollars unless otherwise noted.I'd like to remind everyone this conference call is being recorded and will be available for replay later today. Replay [ information and the presentation ] slides accompanying this conference call and webcast will be [ available ] on our website at greatpanther.com.I'll now turn the call over to James Bannantine.

[James M. Bannantine, President, CEO & Non]

Thank you, Alex, and welcome, everyone [Audio Gap] for our slightly late start. On our call today, I'll start with the highlights of our second quarter, provide an update on our [Audio Gap]project in Peru, and then I'll follow [ up with a ] review of our operational and financial results. I'll discuss our outlook for 2018 and conclude with a question-and-answer session.In terms of the highlights from the first quarter. We announced a positive preliminary economic assessment for the Coricancha Mine in May, which outlined the potential for 3 million silver equivalent ounces of production. We are advancing the project with a bulk sample program in order to further de-risk and advance the project and began mobilizing contractors [Audio Gap] in July. With the [ plan ] [Audio Gap] in place, there is potential for Coricancha to [ reach ]production in 2019.Our operations in Mexico experienced some headwinds during the quarter. But we're maintaining our annual production and cost guidance based on our performance in Q1 and expected improvements in the second half. In this regard, we've already seen improvements in the third quarter this quarter.While revenues increased relative to last year, metal production decreased, and cost was higher than normal as a result of narrower vein widths and a temporary shutdown following heavy rain [Audio Gap]at our Guanajuato Mining Complex.Our balance sheet [Audio Gap] strong, ending the quarter with $60 million in cash [Audio Gap] short-term deposits, and $68 million in[Audio Gap] capital. We remain debt free.We continue to evaluate additional growth opportunities beyond Coricancha, with a goal of adding another mine or advance [Audio Gap]to our portfolio based in the Americas.As I mentioned earlier, we announced a positive economic assessment [Audio Gap] Coricancha project at the end of May. The technical report is now available on SEDAR and our website and provides details of the project, including key assumptions, mine plan, metal production, operating costs, capital costs and sensitivity analyses. The key highlights from the Coricancha PEA include potential for average annual production of 3 million silver equivalent ounces, robust [ economics], low initial capital costs and upside opportunities for enhancing our [ economic ] [Audio Gap].Following the PEA results, we decided to advance the Coricancha project with the initiation of what we're calling a bulk sample program. This includes a 6,000-ton bulk sample from the Constancia vein on 2 trial scopes to verify our contemplated mining methods and key mine inputs. We aim to confirm the mining rate [Audio Gap] grades, recoveries [Audio Gap] product specifications. The bulk sample program was initiated in June and is estimated to take 8 months to complete.Today, things are progressing well on the rehabilitation of the mine and the concentrator. Roscoe Postle Associates, RPA, will be [Audio Gap] overall technical support for the bulk sample program.At the mine, we've selected and mobilized our mining contractor, and work has begun on development. To date, we've advanced 75 meters on our underground [Audio Gap] line, which is ahead of schedule. The upgrade and rehabilitation of surface roads and underground mining infrastructure is also underway and on schedule.At the concentrator, refurbishment is ahead of schedule, and we have commenced mechanical, electrical and instrumentation testing on the crushing, grinding and floatation circuits. Finally, key personnel are in place to execute the BSP, bulk sample program, and also support transition to full-scale mining should we make that decision early next year. We're pleased with the progress of Coricancha thus far and will provide further updates as we progress on the bulk sample program.Now like to turn to our operations. Metal production from the Guanajuato Mine Complex, GMC, was approximately [Audio Gap] silver equivalent ounces, which represented a 10% [ decrease ] over the previous year. This [Audio Gap] to lower tons milled as a result of mining narrow veins at our Guanajuato Mine, as well as a temporary suspension of processing at the Guanajuato Mining Complex [Audio Gap]reasons, following unusually heavy rains that flooded the city of [ Guanajuato ]. The lower production ounces and higher waste to oil ratio [Audio Gap] from the narrower vein translated to[Audio Gap] for the Guanajuato Mining Complex of $9.59 per payable silver ounce, up from $5.44 during Q2 2017. Once again, we[Audio Gap] situation with respect to the higher waste to oil [Audio Gap] improve in the second half and, therefore, costs to return to more normal levels.We have already seen improvements in the third quarter. All-in sustaining costs increased to [ $13.74 ] per payable silver ounce, from [Audio Gap] last year, reflecting these higher [Audio Gap] costs.Turning to Topia. Metal production at Topia was approximately 359,000 silver equivalent ounces, which represented a 7% decrease over the previous year. The comparative quarter in 2017 experienced higher[Audio Gap] than usual as a result of drawing down on high-grade portions of [Audio Gap] stockpile following the completion of a plant refurbishment [Audio Gap] in the first quarter of 2017. For the second quarter at Topia, cash cost was $4.72, down from [Audio Gap] primarily due to higher [Audio Gap] credits and lower EE&D and capital expenses. All-in sustaining cost was $6.71 per payable silver ounce, down from [Audio Gap] in the same quarter last year, reflecting the [Audio Gap] costs.I'd now like to hand the call over to Jim Zadra, CFO, to discuss our financial summary for the second quarter.

[Jim A. Zadra, CFO & Corporate Secretary]

Thanks, Jim. And welcome again to all who have joined us on the call today.As noted, revenues increased [Audio Gap] compared to Q2 of 2017. That was mainly a function of higher realized metal [Audio Gap] and lower smelting and refining charges. The increase in mining costs [Audio Gap] earlier resulted in a decrease in our mine operating earnings. But our operations in Mexico still generated [Audio Gap] million of mine operating earnings for noncash items. As Jim noted earlier, we expect cash costs to improve in the second half of 2018, as we expect less variation to our geologic model of GMC.General and administrative expenses were down [Audio Gap] and exploration evaluation development expenses, or EE&D, increased to $2.6 million, compared to $2.3 million last year. The increase in EE&D is primarily a function of the Coricancha project [ higher ] maintenance costs, which totaled $1.4 million for the quarter. The increase in the Coricancha EE&D costs were partly offset by a decrease in the EE&D costs at our operating mines. And [ we ] continue to expense all Coricancha costs in advance of [Audio Gap].Earnings results [Audio Gap] mine operating earnings as well as the expensing of Coricancha and other EE&D costs. We recorded a net loss during the quarter of $2.8 million. We also note that the net loss includes [Audio Gap] noncash items, such as amortization, an unrealized foreign exchange loss and accretion on our mediation provision. In this regard, we actually saw our cash and short-term deposits [ increase ] to $60 million and our net working capital position increased [Audio Gap] million, as our operations in Mexico continued to generate sufficient cash flow to fund Coricancha and our head office costs.With no debt, we continue to maintain a strong balance sheet to put towards growth initiatives and enhance shareholder value.I will now turn the call back to our President and CEO, James Bannantine.

[James M. Bannantine, President, CEO & Non]

Thank you, Jim.In summary, while the quarter saw a slight decline in metal production, we remain on track to meet our production and cost guidance for 2018. Our mines are operating steadily, and we expect to achieve production in 2018 of between 4 million and 4.1 million silver equivalent ounces. Cash costs are expected to stay [Audio Gap]of $5 to $6.50, with all-in sustaining costs between $12.50 and $14.50.Coricancha is an important growth catalyst for Great Panther, and we're excited to share updates on the project as we advance the bulk sample program. As noted, the Coricancha mine has the potential to significantly increase Great Panther's silver equivalent production and also provides Great Panther with a base from which to expand [ revenue ] in South America.I'm going to open the call for questions now. I understand that the call quality is not great. So if something didn't come through clearly, please ask me to repeat that section.Questions? Operator?

[Operator]

[Operator Instructions] We will now take our first question from Heiko Ihle, Wainwright.

[Heiko Felix Ihle]

So you say in the release that the Guanajuato Mine Complex have experienced narrower vein widths than your model had anticipated. The mine has pretty much been in operation [ forever ], and I'm trying to grasp where the current vein width that you have during the quarter stands when you [Audio Gap] store goal mining that was seen. And also, maybe just like the delta between what you saw and what you expect to see, given that you expect things to get [ better for ] the remainder of the year, please?

[James M. Bannantine, President, CEO & Non]

So as you can imagine, the narrow-vein mines, and the nature of Guanajuato and the nature of narrow-vein mines in general is a [Audio Gap] swelling of the vein and curving. There's turns in the vein, there's pinching and swelling. We do definition[Audio Gap] ahead of our production to try to define where that pinch is, where the swell is, how the vein is turning. In this quarter, this recent quarter, we had a little bit of a surprise on the pinching of the vein. In other words, there was more waste to the order of magnitude [Audio Gap] like a 50% variance. So [ flat to ] [indiscernible] impact on costs --

[Heiko Felix Ihle]

I'm sorry, [indiscernible] variance? Is what you said, it was a 50% variance? It keeps breaking up. Is that what you said?

[James M. Bannantine, President, CEO & Non]

Yes, that's 50%. That's correct. And that's on the Guanajuato Mine alone, which Guanajuato represents about 20% of our production. So we can see that, you can see that in our weighted average costs across all of our mines. We have expectations that that deviation is going away in the second half [Audio Gap] to be back to close to normal, as we state in our [ earnings ] cycle.

[Heiko Felix Ihle]

And you got that 6,000 ton bulk sample program at Coricancha. What percentage of the cost [indiscernible] do you think you're going to get back through the sale of the metal that's contained therein?

[James M. Bannantine, President, CEO & Non]

That'll be a pretty significant chunk of that project. We're not taking that into account in our current guidance. We're planning on expensing the entire bulk sample program with the sales of the concentrate the first part of next year and into next year's guidance.

[Heiko Felix Ihle]

Can we just [Audio Gap] tons times x number [Audio Gap]it's -- yes, as you said, it's a fairly substantial [Audio Gap] that it now sounds like it's going to just come out of the [ habits ].

[James M. Bannantine, President, CEO & Non]

You're correct. It's going to -- you can look at the resource model and look at the grades and the 6,000 tons and get a good estimate on what kind of revenue that might bring in.

[Heiko Felix Ihle]

So that's sort of how I was modeling, keep doing it like that.

[Operator]

We will now take our next question from Jake Sekelsky, Roth Capital Partners.

[Jacob G. Sekelsky, Director & Research Analyst]

Just looking at [indiscernible] expenses at Coricancha, which look like they're just shy of $0.5 million a month, is that a level we should expect to remain consistent until a formal production decision is made?

[James M. Bannantine, President, CEO & Non]

Say again, please, Jake.

[Jacob G. Sekelsky, Director & Research Analyst]

Looking at the care and maintenance expenses at Coricancha that look like they're just shy of $0.5 million a month, is that a level we should expect to remain constant until a formal production decision is made?

[James M. Bannantine, President, CEO & Non]

Yes, that's about right. We also have the bulk sample costs in there as well.

[Jacob G. Sekelsky, Director & Research Analyst]

And staying a Coricancha, it looks like you guys are hoping to have that complete by the early part of 2019. Does that time line for the completion of the sampling program push back anything as far as when you expect to restart [indiscernible]?

[James M. Bannantine, President, CEO & Non]

No. We should [Audio Gap] the bulk sample beginning of next year, the first quarter or so, and take our decision at that time.

[Jacob G. Sekelsky, Director & Research Analyst]

So that was already included in [indiscernible] you guys had spoken about [ recently ].

[James M. Bannantine, President, CEO & Non]

Right. Think it's pretty consistent with all our calendar has been all along.

[Jacob G. Sekelsky, Director & Research Analyst]

And just lastly, at Guanajuato, can you just give us some color on [ temporary ] shutdown due to the rainy season? Can you [ quantify ] impact to production during the quarter, and how long the shutdown actually [Audio Gap]?

[James M. Bannantine, President, CEO & Non]

It was the better part of a week.

[Jacob G. Sekelsky, Director & Research Analyst]

And are you able to quantify the impact on production? Or no?

[James M. Bannantine, President, CEO & Non]

I don't remember exactly how many days it was, 4 or 5 days. And you can take pretty much a linear approximation of that over the days of the quarter.

[Operator]

We will now take our next question from Mark Reichman, NOBLE Capital Markets.

[Mark La France Reichman, Senior Natural Resource Analyst]

Some of my questions have been answered, but I just wanted to follow up, just so my understanding is right. With regard to the narrow [ veins ], I'm assuming that that had more of an impact on cost than, say, revenue. The reason I just wanted to kind of flesh this out is, with the second quarter production release, there was the impact of the rainfall on processing, and then there was the issue of the harder ores from San Ignacio, which was really where the majority of the production was coming from, which reduced the [ processing ] capacity. And then, I believe that there were [Audio Gap] silver grades at Guanajuato and lower gold grades [ at ] Ignacio due to the variability in the mineral [ regions ]. So there wasn't a lot of mention about the narrow vein issue. And so I was just wondering, I mean, did the narrow veins, did that have any role in the lower production? Or is it just this pinching [Audio Gap] on the production that you've had from Guanajuato really significantly [ boosted costs ] but overall didn't really impact the [Audio Gap]? And then, just as a follow-up to Jake's question -- and it sounds like you don't really have the quantification -- I mean, what was kind of the lost revenue as a result of the storm's impact on the processing?

[James M. Bannantine, President, CEO & Non]

Yes. The first-order variable, Mark, I would say, was the narrow vein on both cost and production. It wasn't a plant issue, it was a mine issue [Audio Gap] how many tons of ore we get out Guanajuato. And so the rest of it is noise.

[Mark La France Reichman, Senior Natural Resource Analyst]

So it really was a function of the production and the cost of the narrow [indiscernible] --

[James M. Bannantine, President, CEO & Non]

The dominant [ factor ].

[Mark La France Reichman, Senior Natural Resource Analyst]

And then, I guess the second question would be -- I mean, there was the --

[James M. Bannantine, President, CEO & Non]

Sorry, Mark, there is a fixed cost element to our production formula. So obviously, if we put less tons of ore through [Audio Gap] the unit costs are going to go up somewhat but not [Audio Gap].

[Mark La France Reichman, Senior Natural Resource Analyst]

Understood. And then just, I guess, a second question on the contractor costs, just a very minor bump -- but I was just curious, I would be interested in your thoughts on -- with the change in the presidency [ in ] Mexico and some of the rhetoric that he's had with respect to worker rights, et cetera, what color kind of can you provide in terms of how you're thinking about your budget going forward or discussions you've had with [Audio Gap] on where costs might be headed as a result of the change in the administration or whether it's a nonissue?

[James M. Bannantine, President, CEO & Non]

To be honest with you, Mark, at this point, it's not a major variable in our planning. It obviously hasn't taken [Audio Gap] yet. But we're cautiously optimistic. You can see the world at large is cautiously optimistic by the peso getting stronger. So we don't have any -- we're obviously vigilant and keeping our eyes open, but we don't have any strong bias towards changing our productivity or changing our costs in Guanajuato.

[Operator]

We will now take our next question. Please go ahead, [ caller ].

[Bhakti Pavani, Senior Research Analyst]

Just a quick question on Great Panther -- in addition to the bulk sampling program, you guys seem to be doing a lot of work on the refurbishment and rehabilitation of the mines. So with regards to CapEx spend, how should we consider our model going forward, especially for second half?

[James M. Bannantine, President, CEO & Non]

The bulk sample program will add some to what we call our exploration and development expense at Coricancha in the second half. We expect to sell the concentrate from that in the first part of next year, but it's not going to be a material impact to our results. Doesn't really change our guidance materially.

[Bhakti Pavani, Senior Research Analyst]

But [indiscernible] --

[James M. Bannantine, President, CEO & Non]

Bhakti, I'm going to let Jim add to that.

[Jim A. Zadra, CFO & Corporate Secretary]

It's Jim. Bhakti, we give guidance on exploration and evaluation development [Audio Gap] mines. And we hadn't given guidance on Coricancha. But the bulk sample program is about $2.5 million to $3 million.

[James M. Bannantine, President, CEO & Non]

To the nearest million dollars, $2 million. In the second half.

[Bhakti Pavani, Senior Research Analyst]

Also, you guys, when it comes to the CapEx budget for this year, when I look at the first half, the range was about $2.5 million to $3.5 million, but you guys have only spent $800,000 of it. So do you guys plan to spend the remaining of that in second half? Or is that going to be extending into the 2019?

[Jim A. Zadra, CFO & Corporate Secretary]

We'll see more CapEx in the second half, Bhakti. The first half is fairly light. But I expect we'll be at the very low end of the range, or we might even be lower.

[James M. Bannantine, President, CEO & Non]

Yes. I expect us to be a little bit under budget on CapEx, be more than the first half.

[Bhakti Pavani, Senior Research Analyst]

And lastly, with regards to the bulk sampling program, should we expect to hear the [ news flow ] from the outcome of the program?

[James M. Bannantine, President, CEO & Non]

Yes, we're going to keep the world informed of our project progress on the bulk sample program, just like you saw in our press release this morning. We'll do that periodically -- how the mine is progressing against plan, how the plant is progressing against plan, how the infrastructure refurbishment is progressing against plan. You can look forward to steady updates on that.

[Operator]

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

[James M. Bannantine, President, CEO & Non]

Thank you, John.I guess in closing, I'd like to say that I'm pleased to have released a positive PEA for the Coricancha project and look forward to providing further updates [ on the ] project, as we go forward, frequently. I believe that with our team and capital position, we're well positioned to grow Great Panther.Thank you very much for your participation today. And on behalf of everyone here at Great Panther, I look forward to sharing our progress with you next quarter.If you didn't hear anything, or anything didn't come through clearly, please email Alex Heath, and we can clarify any of the [Audio Gap] in the call today. Sorry for the call quality.Have a great day.

[Operator]

Thank you, Mr. Bannantine.That concludes Great Panther's Second Quarter 2018 Financial Results Conference call.