Andean Precious Metals Corp

XTSX:APM

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to Andean Precious Metals conference call to discuss the company's operating highlights and financial results for the 3 and 6 months ended June 30, 2024. [Operator Instructions] and the conference is being recorded. [Operator Instructions].

I'd now like to turn the floor over to Amanda Mallough, Director, Investor Relations. Please go ahead.

[Amanda Mallough, executive]

Thank you, operator, and good morning, everyone. Before we get started, I would like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities laws. I ask that you view our slide presentation for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our press release, MD&A and financial statements are available on both SEDAR+ and on our corporate website at andeanpm.com.

With us on today's webcast is Alberto Morales, Andean's Executive Chairman and CEO; Juan Carlos Sandoval, our Chief Financial Officer; and Alex Pascual, our new Director of Financial Planning and Analysis. Following management's formal remarks, we will open the call to questions.

And now I pass it on to Alberto.

[Alberto Morales, executive]

Thank you, Amanda, and welcome, everyone. I am pleased to share that Andean Precious Metal has delivered a robust quarter, highlighted by key operational milestones and a strong financial growth. Our strategic efforts are yielding efforts and our ongoing focus on operational excellence is driving our continued success. We have record production and revenues by achieving on a consolidated basis 2.5 million silver equivalent ounces produced, which is a 103% increase from Q2 2023. Our revenue soared to $69.8 million, marking a 357% year-over-year increase. We have successfully commissioned the FDF project. Our new fine mineral processing plant at San Bartolome was commissioned on July 23, 2024. It is now operating at 1,300 tonnes per day. We aim to ramp up to 1,500 tonnes per day by the end of Q3 2024, enhancing overall performance and sustainability.

Q2 shows a strong financial performance. Significant improvements in San Bartolome's financial metrics with a gross operating margin of $5.15 per silver equivalent ounce, up from $1.52 in Q2 2023, and a gross margin ratio of 24.45% compared to 22.95% in the period. On operational efficiency, despite the decrease in total planned throughput by 29% at San Bartolome. Our focus on processing purchased ore and increasing production at Golden Queen contributed to a robust financial results.

On health, safety and environmental stewardship, we achieved 0 lost time injuries and no reportable environmental incidents, demonstrating our commitment to safe and sustainable operations. On exploration and expansion, we continued exploration activities with a focus on Paca, Alta Vista and Golden Queen and the development of the FDF expansion are a key part of our growth strategy. Our consolidated production reached a record 2.5 million silver equivalent ounces during the quarter as we expressed, it's an increase of 103% from the same period of last year. This increase was largely due to the incremental production from Golden Queen, which added 16,986 gold equivalent ounces. We achieved a record quarterly revenue of $69.8 million, which, as expressed represents a 357% increase compared to Q2 2023. This growth was driven primarily by an additional $40 million in revenue from Golden Queen and a $14.5 million increase from San Bartolome.

We continue to invest in exploration and development with a focus on identifying new sources of oxides, mill feed and advancing potential projects. Our exploration efforts are aimed at enhancing our ore resource base and ensuring future growth at both of our assets. Market conditions for silver and coal remain volatile, driven by factors beyond our control, such as inflation, interest rates and geopolitical factors. We are closely monitoring these trends to navigate the challenges and capitalize on opportunities. Summary, our second quarter was marked by strong operational performance and financial growth. We remain committed to our strategic goals and look forward to continuing this positive trajectory.

Now turning to Slide 6. During the quarter, we made significant strides in advancing our FDF project. The completion of wall concrete, structural steel and mechanical works shows our team's dedication. As of June 30, 2024, we have incurred in approximately $5.5 million against a budget of $6.7 million. The commissioning of the fines mineral processing plant on July 23, 2024 was a pivotal milestone for us. The plant is now operating as we said, at 1,300 tonnes per day, and we are on track to ramp up to 1,500 tonnes per day by the end Q3 2024. This advancement not only optimizes the processing of the FDF deposit, but also enhances our overall operational efficiency.

The FDF deposit with its 3.3 million tonnes of proven and probable reserves, grading 58 grams per ton of silver represents a substantial resource base. The utilization of previously considered waste materials aligns with our sustainability goals, contributing to both improved silver recovery and reduce environmental impact. On Golden Queen, this was our second full quarter operating Golden Queen after the acquisition in late November of last year. As a reminder, it offers a fully permitted open pit heap leach operation in a Tier 1 jurisdiction, advancing our goal of being a mid-tier producer in the Americas. Golden Queen produced 16,986 gold equivalent ounces this quarter, reflecting a strong recovery from the December 2023 fire and improve operations post acquisition. We've strengthened our management team at Golden Queen with the addition of Sylvain Lessard as President and General Manager. His exceptional leadership scale them technical knowledge, improving capabilities is driving operational excellence and cost control aligned perfectly with our company's goals.

We continue to focus on the opportunities ahead, namely optimizing mine plan, improving ore recovery in production and increasing cash flow and optimizing operating costs per ounce. We are also defining and prioritizing exploration targets to help realize the potential upside of Golden Queen and extend the operations life of mines with a plan to present a fulsome exploration program to the market towards the end of the year.

Following the Golden Queen acquisition, Andean is now a very different company than it was just 12 months ago. This acquisition represents a significant transformation, effectively doubling our company's size across Metricool critical metrics such as revenue, reduction, reserves and workforce. As we continue to integrate Golden Queen into our operations, our team has been focused on streamlining processes to enhance efficiency and performance in alignment with our annual plan for 2024. We anticipate the second half of this year will be better reflecting this integration with improved production and enhance operational efficiencies. We have also developed a strong platform to support our ambitions of becoming a mid-tier producers in the Americas.

We have several years of available reserves as well as diversified asset base of gold and silver production that is expected to drive growth in cash flow and profitability going forward. Further, our operational expertise and strong financial position enabled us to continue to act on future opportunities for growth through acquisitions.

With that, I will hand over the rein to Juan Carlos, who will review our financials in more details.

[Juan Sandoval, executive]

Thank you, Alberto. First, I will start with San Bartolome, our operations in Bolivia. During the second quarter, we purchased 228,000 tonnes, a 36% increase compared to Q2 2023, this rise, was driven by our strategic plan to increase third-party oxide purchase materials. Silver equivalent ounces produced were down 12% when compared to Q2 2023, impacted mainly by the discontinuance of our Pallacos deposit and the late start-up of the FDF project. However, head grade improved to 155 grams per tonne up from 119 grams per tonne in Q2 2023.

Revenue surged 95% to $29.8 million driven by higher sales volumes for the quarter and improved realized silver and gold prices. We sold 1.1 million silver equivalent ounces at an average price of $27.81 per ounce compared to Q2 2023, cash gross operating margin for silver equivalent ounce sold was $5.15, up from $1.52, reflecting higher realized prices and the gross margin ratio improved to 24.45% up from 22.95%. Capital expenditures in the second quarter were $1.7 million, with $1.2 million directed towards the FDF.

Moving on to Golden Queen's operating and financial performance. Golden Queen produced 16,986 in gold equivalent ounces in Q2 2024, demonstrating solid operational performance and strong recovery from the prior incident in late December. Revenues reached $40 million for the quarter with 17,348 gold equivalent ounces sold at an average realized price of $2,305 per ounce. The total operating cash cost per ounce sold net by product was $1,350 per ounce, which is a direct result of the improved operations at Golden Queen since its acquisition in November 2023. And finally, the all-in sustaining cost an all-in cost per ounce sold net by product were $1,752 and $1,782 per ounce, respectively, underscoring our focus on maintaining cost efficiency while delivering nonproduction targets.

Moving on to our overall financial performance. For the second quarter, we saw a substantial improvement in our financial metrics. Consolidated revenue reached $69.8 million, a significant rise from the $15.3 million 2023. This revenue growth was driven by a 103% increase in silver equivalent production and higher average realized prices for silver and gold. Total cost of sales increased to $47.8 million in the second quarter, attributable to incremental cost from Golden Queen and higher costs from San Bartolome operations due to increased sales volumes.

Finance costs were $1.6 million, mainly due to the interest on the Golden Queen's mainstream priority. We realized a foreign exchange gain of $3.4 million, driven by premiums on U.S. dollar sales in Bolivia. Capital expenditures for the quarter totaled $5.2 million, of which $1.7 million was San Bartolome and $3.5 million for Golden Queen. We remain vigilant regarding the market volatility and its impact on our financial performance. Our focus continues to be on operational efficiency and strategic growth. In conclusion, Q2 2024 was marked by robust financial performance and significant operational milestones. We are well-positioned for continued success and are committed to delivering value to our shareholders.

Moving on to our capital structure on Slide 11. As of June 30, 2024, we had liquid assets of $87 million of cash and cash equivalents, a negative net debt and $121 million of working capital. Our mandate is and will continue to be on maintaining our balance sheet to support future growth.

Now I'll turn it back over to Alberto for any closing remarks.

[Alberto Morales, executive]

Thank you, Juan Carlos. To summarize, Andean Precious Metal has demonstrated strong operational and financial performance in the second quarter. Our advancements in the FDF project, record production and revenue growth underscores our commitment to creating value and achieving our strategic objectives. At San Bartolome, we will be working towards signing additional agreements to process high-margin third-party award and stabilizing production from the FDA projects. At Golden Queen, we will continue to leverage our expertise and experienced to stay focused on the implementation of the identified strategies to optimize operations, reductions and efficiency. We appreciate your continued support and look forward to updating you on our progress in the coming quarters.

With that, I will now open the call for questions. Operator, please go ahead.

[Operator]

[Operator Instructions] Our first question today comes from Justin Chan from SCP Research Finance (sic) SCP Resource Finance.

[Justin Chan, analyst]

Congratulations on the positive cash flow. I think that's a huge catalyst. And just to complement the new disclosure, I really like it. There's a lot of useful income, so it made it a lot easier this morning. My first question is just on San Bartolome. And I guess, as you look at the current quarter and the next quarter, your ore purchase volumes ticked up in Q2. Do you think they can increase a little bit further? And likewise, just on the FDF, I guess, what are you expecting for Q3 and Q4 volumes maybe averaging through the quarter?

[Alberto Morales, executive]

Justin, this is Alberto. Well, thank you for your questions. So let me first address the purchases. The answer to that is, yes, we're actively pursuing to increase our third-party work purchases. And we have certain projects on the pipeline that we're hoping to materialize, that will increase our tonnage, available tonnage for processing. So we're heavily involved, I would say, and aggressively pursuing that avenue. Now in connection with the FDF, yes, indeed, it took us about 4 to 6 weeks longer to get it commissioned, but we're finally fully commissioned working on it. And during these initial stages where we're starting to produce roughly about 1,300 tonnes per day.

We are starting with the upper part of the FDF. That upper part of the FDF, it's really the ending part of the Pallacos deposit, the low-grade Pallacos deposits. So the grade is going to start to increase as we go deeply into the FDF. So we're looking, if you wanted to use the analogy on a micro mining final the FDF by starting to achieve as soon as possible, deeper zones where we can get higher grade and get to the 50 grams per tonne average grade per tonne, there will be a ramp up for that.

But to be summarizing your question, we're hoping to average roughly approximately, I would say, 30,000 ounces produced from the FDF on a monthly basis on total beginning August. So that's roughly what we're estimating. And certainly, by the time we exhaust the upper part and continue to go into the deeper portion, we are expecting that, that could be increased, but perhaps at the beginning -- starting beginning of next year.

[Justin Chan, analyst]

Okay. That's quite helpful. So maybe to read between the lines, the -- you'll probably just in terms of full year guidance, it's back half weighted. So that will probably more come from ore purchasing than the FDF at least for the next 2 quarters.

[Alberto Morales, executive]

Yes.

[Justin Chan, analyst]

Okay. That's really helpful on that side of things. Also, I guess, back half weighted in your CapEx guidance. I saw you reiterated it today, but you're -- I guess, halfway through the year, your CapEx is below that run rate, let's say. I guess, how much potential is there for you to come in below your full year guidance and CapEx do you think in the second half? Are you pretty confident that you'll hit that kind of $24 million number?

[Juan Sandoval, executive]

Yes. Thank you, Justin. It's JC. I would say we are in line with what was presented. As you know, we have been at around $20 million. How they have been spent for the first half. So I would -- yes, I would say we are well in line. I think we will be spending or we will be reaching that amount towards the end of the year.

[Justin Chan, analyst]

Okay. Okay. That's -- those two are quite helpful. I mean overall, maybe just 1 last 1 on, I guess, working capital. Are you expecting any kind of movements in the second half? I noticed you -- for example, your receivables are a little bit lower than, let's say, they are traditionally. Is that just -- is that -- is there anything specifically behind that? Or would you expect kind of those numbers to normalize and/or just any other movements in working capital that I should be aware of modeling in the second half?

[Juan Sandoval, executive]

Yes. Not really, Justin. Our accounts receivable and our accounts payable. They have those differences of closing months, closing months. But I would say preferred business are more inclusive for the rest of the year, they're pretty stable. I don't see any big differences from what we have right now. As you can see, we have a strong working capital and strong balance. So I would say it would pretty much safe to keep that same trend.

[Justin Chan, analyst]

Okay. And then -- sorry, anyone else on the line. I just have 1 last one. On -- now that you're starting to generate positive cash flow and earnings, I guess on tax timing, is it best to model it as your underlying earnings are incurred? Or I guess, are there any subtleties there that we should be aware of?

[Juan Sandoval, executive]

No. I mean everything is sold and we get paid within 30 days, and that's I would say no, no difference of where we spend.

[Justin Chan, analyst]

Okay. So just model kind of cash tax and along with underlying earnings.

[Juan Sandoval, executive]

Correct.

[Justin Chan, analyst]

Okay. Great. I really appreciate the color and the call and congratulations.

[Operator]

[Operator Instructions] Our next question comes from John Sclodnick from Desjardins.

[John Sclodnick, analyst]

Congrats on the good quarter and great to see that free cash flow generation. I guess a little bit further on those third-party ore sources. Just wondering if you're seeing fixed cost purchase opportunities or fixed margin?

[Juan Sandoval, executive]

I would say we're looking at both, John. Good to talk to you. We're pursuing, as Alberto already mentioned, trying to get new long-term contracts on their fixed prices. And we're also looking at more spot prices, more spot purchases as well. So yes, that's what we have right now, John.

[John Sclodnick, analyst]

Okay. So it should be a blend. Okay, great. And then, I guess, a little more on capital allocation. I mean, yes, you guys are generating free cash flow. FDF construction is largely behind you. NCIB is complete just beyond, I guess, acquisitions, which it sounds like you're still actively looking at. Just curious how you're thinking about that or just happy to continue to build the treasury and add to those marketable securities.

[Alberto Morales, executive]

Yes. Well, yes, John, to be specific on that, we have always told the market that we're actively looking for opportunities as they come across to us, and we're open to deploy our war chest our cash flow strength. We have a very strong cash flow position. We're still under leverage, we can still look even this cash flow generation with titles Andean to even look at another acquisition that we hope will be transformational depending on what's available in the market but I can just say that we're actively looking.

[John Sclodnick, analyst]

Fair enough. Yes. No, I know it's always a tough question on a conference call. And I guess, just turning to Soledad Mountain. Just curious what you're seeing on the exploration front and if there's any kind of oxide targets that you're excited about? .

[Juan Sandoval, executive]

Yes. We will be -- it's definitely something we're working on. Our intention is probably before the end of the year, we present a more comprehensive exploration plan. We have been working on that. So yes, before the end of the year, the intention is to present a plan that will extend the life of mine.

[John Sclodnick, analyst]

Okay. Excellent. Well, that's it for me for questions. Exciting to see you guys generate that free cash flow. And yes, thanks a lot for that color.

[Operator]

Ladies and gentlemen, I'm showing no additional questions, we will conclude today's question-and-answer session. I'd like to turn the conference call back over to Alberto Morales for closing remarks.

[Alberto Morales, executive]

Operator, our colleague Amanda has received one question from our investors. So if you don't mind before we close the call, I'll let her raise the question openly.

[Amanda Mallough, executive]

Yes, the question is just if the company has any plans to renew the NCIB program.

[Alberto Morales, executive]

To that, what I would say is that we have exhausted the numbers of available shares to be repurchased back under our current NCIB program. And we're certainly in order to consider the renewal of this, we would need to get advice from counsel, as I believe the regulatory environment requires for some waiting period on it, which -- so for now, I cannot go 1 way or another one, we'll basically need to get advice from counsel as to the waiting period that this might represent. And if there is any -- no more further questions, and basically, I would like to thank you all for joining us today and for your continued support. As we have expressed, we remain committed to driving our business forward and to look forward to sharing our progress in the coming quarters ahead. Thanks again, and have a great day.

[Operator]

This brings to a close of today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.