Silvercorp Metals Inc
TSX:SVM
Earnings Call Analysis
Q3-2024 Analysis
Silvercorp Metals Inc
The company successfully maintained steady revenues, reporting $58.5 million for the third quarter, matching the previous year's figure. Despite the decreased volumes of silver (8%) and lead (16%) sold, this was mitigated by higher volumes of gold (22%) and zinc (3%) coupled with price increases of gold (11%), silver (17%), and lead (2%). This was offset, however, by a 15% drop in realized zinc prices.
Net earnings for equity shareholders slightly dipped to $10.5 million or $0.06 per share from the previous year's $11.9 million or $0.07 per share. The decrease is attributed to factors affecting revenue, coupled with a $5 million increase in share of loss in associates but was partially offset by better investment mark-to-market performance and 4% improvements in unit production costs. On an adjusted, non-cash and unusual items excluded basis, earnings were stable at $11.5 million, also equating to $0.06 per share due to rounding.
The company exhibited strong cash flow from operations ($23.6 million), a significant increase from $11.8 million in the same quarter last year. Capital investments were up 26% ($19.6 million), largely driven by increased development and exploration activities. The company concluded the quarter with $198.2 million in cash and equivalents and short-term investments, which is a 5% increase from the preceding quarter. Not included in this amount are investments in associates and other firms valued at $140 million.
On the production front, ore mined and milled saw increments of 17% and 3%, respectively. However, silver and lead production dropped by 9% and 16%, respectively, on account of lower head grades owing to mining sequencing. Gold production climbed by 22% thanks to increased mining and milling of gold ore. The company anticipates Q4 production increases across the board, with silver (up to 17%), gold (30%), lead (20%), and zinc (40%). Despite this, cash costs per ounce of silver increased due to a plunge in silver sold and diminished byproduct credits, despite currency depreciation working in its favor. All-in-sustaining costs saw a rise to $11.33 per ounce of silver compared to the previous $9.28, influenced by similar factors but tempered by a marginal reduction in sustaining capital expenditures.
The company is transitioning to shrinkage stoping for increased mechanization, a process that will require strategically addressing higher dilution concerns. In response, three XRT ore sorters are being planned, with the first in trial operation. Expanding Ying's processing is on the agenda with plans for a new 1,500 tonne per day production line, targeted for completion next fiscal year. This would bolster Ying's output to 4,000 tonnes per day. Moreover, $9.9 million has been allocated to constructing a new tailings storage facility at Ying, which is progressing as per schedule. Mid-year will see updated mineral resource and reserve estimates for Ying and GC, potentially shaping investment outlooks.
The satellite project Kuanping, located north of Ying, has achieved significant milestones with environmental and resource assessments approved by provincial authorities. A few crucial approvals remain prior to development commencement. The company expects to furnish additional information on Kuanping when they become available.
Silvercorp has taken a pivotal step in corporate strategy with the acquisition of OreCorp shares on December 26, 2023. The all-share offer, recommended by the OreCorp Board, seeks to provide Silvercorp shareholders with 0.0967 of its common shares and AUD 0.19 cash for each OreCorp share. Receiving a vital merger clearance from the Tanzanian Fair Competition Commission has cleared the offer's major regulatory hurdle. Shareholder acceptance is open until February 23, with prospects of extending it to facilitate the deal completion.
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Thank you for standing by. Good afternoon. My name is Lesser, and I will be your operator for today. At this time, I would like to welcome everyone to Silvercorp's Third Quarter Fiscal 2024 Financial Results Conference Call.
[Operator Instructions]
I would now like to turn the conference over to Lon Shaver, President of Silvercorp Metals. Please go ahead.
Thank you, operator. On behalf of Silvercorp, I'd like to welcome all of you to this call to discuss our third quarter fiscal 2024 financial results. They were released yesterday after market. Copy of the news release, the MD&A and the financial statements for today's call are available on our website and on SEDAR+.
Before we get started, I'm required to remind you that certain statements on today's call will contain forward-looking information as it relates to 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 turning to the quarterly financial results. With respect to the quarter, we delivered a strong Q3, good financial results, which were underpinned by revenue of $58.5 million, in line with the prior year quarter. And this number did reflect a number of changes in different parameters.
With respect to pricing, we had increases of 11%, 17% and 2% in gold, silver and lead, respectively and a decrease of 15% in the realized zinc price.
Switching to volume. We had increases of 22% and 3% in gold and zinc sold, respectively, but offset by decreases of 8% and 16% in silver and lead sold. Based on production levels and realized prices this quarter, silver was 59% of revenue on a net realized basis. This is up from 54% in Q3 of fiscal 2023 and almost hit our record in recent years of 60% of revenue. Third quarter net earnings attributable to equity shareholders were $10.5 million or $0.06 per share as compared to $11.9 million or $0.07 for the same period last year.
The main contributors to the slight decrease were the aforementioned factors impacting revenue, an increase of $5 million in the share of loss in associates, an improvement of $4.4 million in mark-to-market -- on investments that we hold and a 4% improvement in unit production costs.
On an adjusted basis, with adjustments made to remove the impacts of noncash and unusual items, earnings for the quarter were $11.5 million or also $0.06 per share due to rounding. This compared to $11.8 million or $0.07 per share in the same period last year.
And just a reminder, this adjusted earnings figure is a supplemental non-GAAP measure to provide investors with another metric to better measure the performance of the underlying business, it's continuing profitability and growth potential.
Our cash flow from operating activities in the quarter was $23.6 million, down very slightly from $25.7 million in the prior year quarter due to the factors mentioned just before, affecting revenue net income, but also $3.2 million increase in cash taxes paid. And also the number in last year's quarter also reflected a positive adjustment of $1.7 million from noncash working capital that did not apply this year.
Capital expenditures totaled approximately $19.6 million in this quarter. That was up 26% from $15.6 million in the prior year period due to increased tunnel and ramp development and exploration activities at both operations as well as modestly higher investments in equipment and facilities at Ying.
We ended the quarter with $198.2 million in cash and cash equivalents and short-term investments. That's up 5% compared to the $189 million that we reported as of September 30. And just a reminder, this cash position does not include our investments in associates and other companies, which had a total market value of approximately $140 million on December 31.
As we previously reported, in terms of production in the quarter, we mined 345,273 tonnes of ore and milled 312,500 tonnes of ore. Those numbers are up 17% and 3%, respectively, compared to the same quarter last year. The increase in mine tonnage reflects the stockpiling of just over 60,000 tonnes of ore at Ying, which will be processed in the current quarter during the Chinese New Year holiday, which is on right now.
We produced on a consolidated basis, approximately 1.7 million ounces of silver, 1,300 ounces of gold, 16.8 million pounds of lead and 7.4 million pounds of zinc in the quarter. These figures, as mentioned, represented decreases of 9% and 16%, respectively, in silver and lead production compared to last year's Q3. The decrease mainly reflects lower head grades at Ying and GC due to mining sequencing. And also, we did, as mentioned, have increased ore stockpiling at Ying.
It also reflect increased gold ore mining and milling at Ying during the quarter, which contributed to a 22% increase in gold production compared to the prior year quarter. Year-to-date, we've produced 5.1 million ounces of silver, 5,400 ounces of gold, 51 million pounds of lead and 19 million pounds of zinc. In this current Q4, we expect to produce approximately 1.1 million to 1.3 million ounces of silver, between 1,200 and 1,300 ounces of gold, between 11.5 million -- approximately 11.5 million pounds of lead and 4.5 million to 5 million pounds of zinc. Those would be increases of up to 17%, 30%, 20% and 40% for silver, gold, lead and zinc, respectively compared to the Q4 period of last year.
The cash costs corporately per ounce of silver, net of byproduct credits was negative $0.96 in the third quarter compared to a negative $1.15 in the prior year quarter with this increase mainly due to less silver sold, resulting in higher unit production costs before byproduct credits and a decrease of $2.5 million in byproduct credits, but this was offset by a 4% depreciation in the Chinese RMB against the U.S. dollar over the same prior year period.
The all-in sustaining cost per ounce of silver net of byproduct credits was $11.33 compared to $9.28 in Q3 of fiscal 2023 with the increase primarily reflecting the same factors impacting the cash cost that I just mentioned, offset by a decrease of $0.5 million in all-in sustaining capital expenditures compared to the prior year period.
So let's turn to our growth projects. To enhance operational efficiencies at Ying, we have previously disclosed our plan to transition certain mining areas from cut-and-fill resuing to shrinkage stoping, which will allow for increased mechanization. We have started to take delivery of 20 new LHDs. So those are the scoop shovels for underground mining, which will be employed in that fashion. And some of our expenditures in this period are related to improving access to these new areas and to shorten travel times to other mining areas.
To address the anticipated higher dilution from the shrinkage mining method, we are planning to install 3 XRT ore sorters, with the first having been installed at the #2 mill at Ying, and it's currently in trial operation. As we've previously disclosed, Silvercorp is exploring alternative strategies to expand Ying's processing capacity. Our current plan is to add a new 1,500 tonne per day production line at the #2 mill to increase the production capacity at Ying to 4,000 tonnes per day. This expansion is expected to be completed in the upcoming fiscal year.
In addition, we spent a total of $9.9 million on the construction of the new tailings storage facility at Ying to date and construction is on track for completion later this year. We'll provide additional details on these items in our fiscal 2025 guidance, which will be released along with our fiscal 2024 production results in April.
Additionally, we plan to release updated mineral resources and reserve estimates and mine plans for both Ying and GC by the middle of this year. The updated technical reports will incorporate all technical work programs, including drilling completed up to the end of 2023 and should provide more details on what to expect from both operations near and longer term.
As it relates to Kuanping, the satellite project located North of Ying, the company has completed environmental, water and soil assessments. These reports have been approved by the relevant provincial authorities, an updated mineral resource estimate report prepared in accordance with Chinese standards has also been reviewed and approved by the province.
Furthermore, a report incorporating the mineral resource development and utilization plan, reclamation plan, an environmental rehabilitation plan, has been reviewed and approved by an external expert panel. A few outstanding approvals are still required before development can begin, and we will provide additional details on Kuanping when they are available.
Turning to OreCorp. With respect to our OreCorp acquisition on December 26, 2023, Silvercorp and OreCorp entered into a bid implementation deed whereby we've agreed to acquire by means of an off-market takeover offer all of the OreCorp shares not already owned by Silvercorp for consideration comprising 0.0967 common shares of Silvercorp and AUD 0.19 in cash for OreCorp shares. This was the same consideration that we had in the scheme that OreCorp shareholders would have voted on in early December.
The OreCorp Board is again unanimously recommending that OreCorp shareholders accept the offer. The takeover offer document was dispatched to OreCorp shareholders in mid-January. And on February 1, we received a merger clearance certificate from the Tanzanian Fair Competition Commission, providing unconditional merger control approval for the transaction. This approval represents the sole Tanzanian regulatory requirement needed to complete the transaction. Our offer is open for acceptance by OreCorp shareholders until February 23, unless extended and we look forward to providing the market with updates on the transaction over the coming weeks.
And with that, operator, I'd like to open the call for questions.
[Operator Instructions]
Your first question comes from Lucas Pamatat from Canaccord Genuity.
I was curious about -- just curious about the bid process so far. I mean you're halfway through the bid period for OreCorp. How has the uptake been so far? Can you comment on that at all?
Yes. We've been gaining momentum. Obviously, the Board with their recommendation also led to them going through and tendering. And as it currently stands, and this is publicly reported filings, we're currently at 20.1%, which includes the shares that we already owned prior to commencing.
Great. And then what strategies are there, if you don't get to that 50%, just now there being 2 weeks left. If you guys intend to obviously extend it or what other opportunities do you have on the table?
Well, there's a number of considerations, as you said, 2 weeks to go. A lot can happen in 2 weeks. And with a positive response in our share price, like we're experiencing today, certainly changed the dynamic. We like the fact that we've got the only open and actionable offer on the table, and it's got full board support from OreCorp.
A number of shareholders have indicated they're going to be following the Board's recommendation, and we're in touch and in regular dialogue with a number of the key shareholders and understand sort of what their intentions are with respect to tendering and timing leading up to that expiry.
Your next question comes from Joseph Reagor from ROTH MKM.
On this -- the commentary you guys made about the shrink stoping resulting in higher-than-anticipated like impact on grade, what -- can you quantify it? Like what was the percentage of dilution you're expecting?
It's not that that's necessarily playing in right now. This is sort of a gradual process. And it's not like we're flipping a switch and saying that we're going from shrinkage -- sorry, from cut-and-fill 100% to shrinkage. It's going to be sort of a stope-by-stope, area-by-area decision and it's going to be happening over time. So it's not as though this has been factoring in to the results to date that much.
Okay. I must have misunderstood. But what is the expected difference though, if you're on any given stope for dilution if you use shrinkage instead of long haul?
Well, yes, and it's not long haul, it's cut-and-fill.
Sorry, cut-and-fill.
And I have to check my memory and go back to what was published in the previous technical report because it is in there as it relates to how it's operated in the past. If I recall, it's sort of going from a 5 to 10 for cut-and-fill to sort of 15 to 20 for shrinkage. But forgive me, I'll have to go back and pull the exact numbers from the technical report.
So it is an uptick, but the trade-off is that from a labor intensity standpoint, and productivity, there are gains to be made on the cost side in terms of unit cost for delivering that. And then as mentioned, where you might have that higher dilution from shrinkage. We look to address that with the XRT sorters that are going at Ying.
Okay. And then as far as the growth at Ying, the 1,500 tonne per day new processing line and the timing of that, when do you guys -- you said next fiscal year. But is there more precise timing, Q4, Q3 that we should expect? And then what do you think the total time to ramp up the additional capacity might look like?
Well, it's expected that the full increase could be completed over the course of the next fiscal year. In terms of the timing for sort of each additional tonne, we don't have that in a plan to provide currently? But we'll have more details in the next couple of months and as well with the reporting for the guidance for fiscal 2025.
But I think what I would add is just that from a -- looking back at what we were contemplating before and just recall that we're looking at building an entirely new mill at a $30 million cost, this increase will be significantly less in terms of cost. And on a net basis, we're going to get to 5,000 tonnes per day here based on this increase, keeping mill #1 running and adding this capacity, we would be running at 4,000 tonnes at a much less cost for that increase.
Your next question comes from Felix Shafigullin from Eight Capital.
Congratulations on a good quarter. So one thing that really jumped out on me in yesterday's release is how much mining and milling costs dropped to GC sort of quarter-over-quarter. Could you just provide a comment on that? Like how does that drop in just 1 quarter achieved.
Well, if you're referring back to Q2, I mean, obviously, GC has had some hiccups this year and hasn't been running either at full capacity or optimally. And so when you've got that sort of law of small numbers here in place, any kind of changes in that throughput rates have a big impact when you look at the fixed cost allocation. So now that we're back up running at a more normal and sustainable level, we're seeing the kind of cost that we would look to realize.
Got you. I understand. And regarding the tailings storage facility. So I think there's been about $15 million spent in it so far. And how much -- what's the total budget allocated to construction on this thing?
Well, that's a really good question. We previously reported $38 million as the number. And as of today, we are into it to the tune of about $9.9 million. It's a little premature, but some of the early indications are that we will come in -- I don't want to get hung out here, but I would say meaningfully below that $38 million number. That'd be a positive surprise.
All right. Looking forward to it. Congrats on a good quarter again.
This concludes the question-and-answer session. I would now like to turn the conference over to Lon Shaver for any closing remarks.
Well, that's great. Thank you, operator, and thanks, everyone, for joining us today. We'll wrap up the call here. Please if anyone has any additional questions like always feel free to call or e-mail us. Happy to take your questions and respond in due course. Look forward to updating you in a few months on our fiscal 2024 results. Have a great day.
This concludes today's conference. You may now disconnect your lines. Thank you for participating, and have a wonderful day.