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Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q2 2022 Financial and Production Results Conference Call. Before we begin, we would like to go over our disclosure statements, followed by Mr. Fred Davidson's comments on the quarter's results and the Q&A period. Certain statements in the following conference call regarding IMPACT Silver's core business decisions and operations may constitute forward-looking statements. Such statements are not historical facts but are predictions about the future, which inherently involve risk, uncertainty and could cause actual results to differ materially from those in the forward-looking statements. I would like to now turn it over to President and CEO of IMPACT Silver, Mr. Fred Davidson.
Thank you, Jerry. The combination of dramatically lower silver prices this quarter due to inflation induced rate hikes worldwide and our higher development expenditures at San Ramon and the Guadalupe mine resulted in a pretty tough quarter. We're tightening our operations further to improve operating margins, but we got to continue to invest in underground development which is going to hopefully increase throughput and great announces coming through the mill. The company for the quarter reported $3.5 million in revenue, down significantly from the prior year that was about $4.2 million. That was in spite of the fact that our average grade was up by 9%, but it was all related to a decline -- a significant decline in the price of silver for the quarter. We're continuing to focus though on exploration event, and we completed almost 12,000 meters of drilling in the first half. And in spite of that, we still have a cash position extremely strong at $18 million and working capital of almost $20 million. We're primarily a silver producer, and we're highly leveraged to silver prices. And we will respond, and we have responded in terms of dealing with the situation in the market today. Going forward, we expect to slowly increase tonnage and grade and tighten down on operating costs. So overall, we spent about $1.4 million in exploration and mining assets for the quarter, and that's $2.7 million. The earnings -- mine operating earnings before amortization were down to $0.03 million. That's a fairly market decline from the prior year, all related to the price of silver. The net loss then was $0.79 million compared to a $0.2 million net income in the comparable period for 2021. We continue to be a very strong balance sheet. We have no long-term debt. Throughput at the mill is 37,000 tonnes, almost identical to a comparative period last year. But silver sales were 151,000 ounces compared to 140,000 last year. That's an increase of 8%, but the revenues per tonne sold was $95.44 the drop of 20%, again, all related to the fairly dramatic or a very dramatic drop in the price of silver in the second quarter. Average mill head grades rose 9%. So we're doing all we can on that end. The direct costs were up, and there's a couple of reasons for that. Most of it was due to the extensive underground drilling and development program in the quarter to bring the new San Ramon Southeast -- the south rather into production. And to get into the area of Pachuqueno, because it's literally a form, and there's a number of names that we have to access and develop before we can actually mine them. We drilled over 20,000 -- We're going to drill over 20,000 meters this year. It was the company-owned rigs. It's a 2 surface rigs, 2 underground rigs. The initial drilling was related to what we call brownfields and that is extending areas that we're currently working in. The drilling for the second half of the year was going more orientated towards greenfields, and that is the discovery type holes. And as we go forward, we hope to be able to release further information on those as the results come in. Overall, subject to market conditions and we're looking forward to a better third and fourth quarter with estimating about a 10% to 12% increase by September and mills throughput and slightly rising grade. We're still working at the Capire and the program we're doing right now is a drill program, testing 2 deposits in the nearby to Capire, one dose has just been completed, and we'll have those results shortly. The other one is Monte Rico. Both of them are very similar to Capire, Mone Rico, especially. And if they can add tonnes to the target, it will certainly improve the net present value of Capire. And at the same time, may even encourage us to expand the overall production in our design for putting Capire back into production by next year.
Going forward, let's cross our fingers and hope that price of silver picks up a little bit. We are as well conducting a program looking for potential acquisitions near to or at production level. It's a market where we can be opportunistic, and we have a team out doing that right now.
That's about it, Jerry. Maybe we should go to the questions.
Sounds good. Thank you, Fred, for the overview on IMPACT in Q2 2022. Just a reminder to investors, please feel free to e-mail us the inquiries@impactsilver.com, or follow us on Twitter and/or Instagram under impacts_silver.
Here are some of the questions we've compiled from investors this quarter. Two sort of question one, mine operating still breakeven free team, which is good but losses on overhead and G&A noncash item dragged IPT into a loss this quarter. Is this loss expected to continue? Or are there cost mitigation factors put into place to help IMPACT survive as it has through 2021 through 2050 and subsequently 2016 through 2019?
I do think survival is the issue here. We're solid in that regard. But we are reviewing a number of areas where savings -- for savings, but most are quite frankly, incremental. We're working with a specific plan that we developed at the beginning of the year. And as we move forward from development to production, we will see some additional reduction of costs. And with that, less development not coming through the mill probably a rise in the overall grade of silver that's coming into the mill. There isn't much we can do with the noncash items. And quite frankly, some of those are the result of accounting theory that has gone crazy. It drives me nuts because it has no relationship to company's operations. But yes, we expect to see that improve. I can't forecast where silver is going to be quite frankly. I don't even want to try, but we'll do everything possible to make sure that the company keeps its margins.
Great to hear. Question 2, you've covered it briefly in your overview. But with the drilling done at 12,000 meters, will there be more results soon as the remaining program gets done in 2022?
Oh, yes. Yes, indeed. And I'm not sure if I should have to apologize for it or not. But most of our programs to date have been sort of large-scale programs. And in order to put the results, we really need to put them in context and putting out 2 drill holes if you're doing early-stage discovery, that's fine. Putting no drill holes in an area where you're hoping to be in production in the near future, it's a different issue. And we need to put it in context before we release them. Hopefully, that can be done in very short order. And some of our exploration -- early-stage exploration programs we'll be getting released in the third quarter.
Okay. Excellent. In terms of Capire, you mentioned in the update earlier. This is question 3. Despite lower cost, thanks to XRT and new technology, this Capire makes sense right now at the $18, $19 range silver?
Yes. That's certainly a valid question. Capire is -- and we've always said there's one at certain prices is somewhat marginal. The Capire's numbers though are fairly resilient, primarily in this case, because of strong zinc prices, which we see today. Certainly, the margins are much tighter. And -- but we are, as I also mentioned, drilling on 2 nearby targets that could potentially add additional tonnage and improve margins that come with size.
With Capire, our criteria is the value per tonnage and that's why I talk about the zinc. Zinc is very strong, and it represents a significant value in the overall tonnage that comes from Capire. It doesn't all come from silver in Capire's case.
Okay. Great to hear. Just a reminder, I believe the BMS resource contributes about half the value to zinc. So not nearly as high as the traditional Guadalupe mill. That impact has been used to. Question 4 speaks about the grade increase, which is a positive note this quarter. Guadalupe noted increased production concentration at the head grade to 259 grams per tonne by 9% quarter-over-quarter. Is this expected to go higher as the company moves to higher grade zones such as the recently discovered Pachuqueno area and Guadalupe?
A valid question. Although we do expect the grade to improve over the next sort of 5 months, the principal thing we work from is the margin, and that is we may take material that's actually a lower grade but the mining cost is dramatically lower. And the difference between the 2 is actually higher than maybe one of the higher-grade areas. We expect to see improvement in the value materials to the middle of the fourth quarter. But because we're mining in a narrow you pretty well have to take what you get immediately ahead of you and it does vary significantly meter by meter. But development as a percentage of what we're doing will probably decline then is that development declines, production increases. And again, we take less dilution because we're taking less development mark into the mill.
Okay. Question 5, just refers to the option payments that -- or property payments at the JV partner, Pantera Silver has paid this quarter impact. So it was nice to see, obviously, some passive income coming in to help support corporate balance sheet. Are there plans? And what's the climate right now for more joint ventures in Mexico?
Well, it's -- on a selective basis, we look at these opportunities. We certainly don't want to pass up a good project into weekend. And of course, what the targets represented immediate possibilities for feed to our own mill, we really don't have an interest. Pantera is a pretty good professional group. And so we're actually happy to have them as partners we see them going forward on this project in the near future. Overall, if they are an example of what we can find in terms of future partners, I'd be delighted.
Great to hear. Question 6. Direct cost has gone up 16% year-over-year. Obviously, inflation is an issue worldwide. Is this trend continuing to expect it go up? And specifically, is it primarily due to fuel, labor and what else?
That's a valid question. General inflation in Mexico is well over 6%, and I think the cost to a degree reflect some of that. But costs also reflect the extensive development work as we expand San Ramon South, new stope and as well as the Pachuqueno's form of Of course, including in the quarterly was a -- we negotiate each year with our union and included in the quarterly costs were a retroactive adjustment to wages negotiated with them. So we ended up with some costs, if you will, indirectly from the first quarter into the second quarter. That was all part of the annual review we do with them. They are obviously very attuned and very sensitive to inflation themselves. And although I think they're being responsible, it's still something we have to live with in the whole process.
Question 7, are you mentioned briefly, there's a plan to increase production. So the investors asking previously, in Q1, you mentioned there would be a plan to restart or revisit full capacity operation as the Guadalupe when see that starting to come up within the next 12 months?
Yes. That's why we're doing a lot of the development we're doing. There's no question about it. We need to open up areas before we can mine them and it's a constrained by people in time. And I say in these narrow veins, it's very difficult to open up a substantial tonnage at any one time. The current plans are to have throughput at Guadalupe increase sort of quarter-by-quarter somewhere between 8% and 12% a quarter. And we're looking by late fall another increase of about 12% in tonnage. I know again, if, in fact, we can find ore that perhaps is smaller tonnage but higher margin, we'll go after that first. We're definitely aiming at making sure that we have at least profitable mining operation, which carries everything else, including the G&As and the exploration that we're doing. We also need to review what we're mining as current silver prices caused us to focus on and this is what I was talking about in areas where maybe we would have been looking at $24 on silver. Now we have to sort of redirect some of our effort into different areas, and that slowed us a little down in the sort of third quarter in terms of development.
Okay. Lastly, just to wrap up. The investor was asking about the M&A outlook in the market. There's been a few notable deals and divestiture from the mid-caps. Obviously, the pricing has come down quite a bit in regardless to the risk of sentiment in the market. I mean with this reasonably stronger balance sheet that impact has always had, this weaker market should be a positive for deal making. Is that not correct?
Yes. I think it is. We've got -- had a group out actually looking at projects for the last year, and we're actively reviewing a number of opportunities for advanced mineral projects, both in and outside of Mexico. And certainly, when we're in a position to discuss them, we will. But the focus is to be advanced properties as opposed to earlier stage exploration type properties. And the obvious reason is certainly, you can get a real kick in your marketplace if you drill a single hole and it comes up with good grades. It's a whole different animal to actually go to the point of taking something into production. And that's where we see our specialty is exploring, advancing a project rather and taking it to production, where others don't dare to go, if you will.
Okay. That's all the questions we have for this quarter. Thank you for everyone joining us and reviewing Q2 2022 IMPACT Silver's production and financial results. If you have any further questions, please feel free to e-mail us at inquiries@impactsilver.com or call us directly at 778-887-6489. This has been a privation for IMPACT Silver's Q2 2022. We look forward to speaking with everyone in Q3.