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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen. Welcome to IMPACT Silver Corp. Q3 2023 period ending September 30, 2023, 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 business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about the future, which inherently involves risks, uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements.
I would like to now turn it over to the President and CEO of IMPACT Silver, Mr. Fred Davidson.
Thanks, Jerry. Well, it's been a really exciting 3 months and, in fact, 9 months for IMPACT as we go forward. The financial results were actually surprisingly good in light of the current market for Silver, a strong Mexican peso, which, of course, hits our cost and the inflation we're all seeing. So the end result is, it was a lot of effort. We recorded revenue of $4.8 million, and that's quite a bit higher than last year's $3.8 million for the same period. Now there's another reason for this quarter always being a little rough, it rains a lot. We're in a tropic environment down there. And the rain in the third quarter is really interferes with our trucking. The ore when it hits the mill is wet, screws up the processing. So it's one of those ones we never really expect a lot and yet, we're really pleased with what we managed to get in terms of performance.
The earnings before -- and we sort of mine earnings that is, before amortization, depreciation was positive compared to negative last year. And the net loss was $1.5 million for the quarter compared to a net loss of $1.2 million last year. But it included a lot of G&As and the integration -- with the integration of the Plomosas mine and acquisition. And I think we're going to see the results of that over the next year as Plomosas gradually expands its production.
We completed the final rehabilitation of the site, and we'll get into that in a little bit. Just at the end of the quarter, we had our first shipments out in the October. It's going to be gradually upticking in terms of throughput, but there was a fairly hefty investment there. And I think we still [ kept ] a solid cash position as a company. And despite the very challenging market, we're pleased because we're going to see that one of the things you do know in mining is there's no substitute for grade, and this Plomosas acquisition has some of the highest grade of zinc you're going to find in any comparable mine. So this is an exciting opportunity for us.
Zacualpan, again, let's say, was running into the situation with transportation with the roads being basically up to the gaps in certain places. So our actual mining was down by about 2,000 tonnes for the quarter. And the grade itself was -- in terms of silver was a little down on average, but in fact, the grade if you did an equivalent in terms of the throughput with the gold was actually up, but we'll get into that in a bit, too. So overall, it's been a very satisfactory quarter, not really a surprise. Most of our time and effort was sort of going forward with the program at Plomosas. And at the same time, doing -- continuing our regional work in terms of exploration at Zacualpan. So in a busy period, our crews have been excellent. I can't help, but commend the efforts they've made.
They've taken -- they continue to make efforts to keep Zacualpan cash positive and through a lot of work and effort in a tough market. And at the same time, the team working at Plomosas has taken basically rather pathetic situation in terms of the mill and the underground conditions and equipment, and turned it around within a record time and on a realistic budget. So overall, I'd say that the thing I'm most proud of is our team. They're an excellent team. They've done a lot to get us where we are. And I think going forward, we're going to see some real excitement both on the exploration and production side.
As I said, the G&As were higher. And anybody looking at them on a comparative basis can see that. That's primarily because of the acquisition issue we were going through. There's a lot of due diligence went on, a lot of legal advice, accounting, and quite frankly, cleaning up the records of the company we acquired down there. It was, quite frankly, it was badder shape as the mill and mine work. And it's taken a lot of time to clean it up, so going forward, I think we're going to see some drilling results because the rig has started at the Plomosas mine and we're going to see increasing production at Plomosas.
Overall, I think our cash is good. There is a question people raise about the working -- the accounts payable is quite a bit higher. And that refers to is a technical issue. There is a number of contingent liabilities in the company we acquired and those contingent liabilities are, in fact, a claim against the vendor, which shows up on the balance sheet on the asset side. And some of those contingent liabilities are things like lawsuits as they get resolved, will disappear from the trade payables and will disappear from the claim against the previous vendor.
So it's a little confusing for somebody to look at the balance sheet and the transaction to date. Hopefully, by year-end, it'll be a lot clearer and tidier, but the accountants and IFRS is just driving us around the wall trying to account for this. Otherwise, a very positive situation. No debt. Cash in the bank, good working capital and going forward in a very tough market, I think we're doing exceptionally well. Jerry?
Great. Thanks for the overview, Fred. Here are some of the questions we complied from investors recently and towards this quarter. Please feel free to send any further questions to inquiries@impactsilver.com, or call us direct at 778887-6489.
Question one. Great to see revenue increase overall year-over-year despite higher cost. Will the mine earnings get back to positive anytime soon before adjustments? Fred.
As you understand, we face -- and let's talk about Zacualpan first because the impact of Plomosas will be a whole separate thing. We saw the cost go up, inflation, the Mexican peso. And at the time, the average silver price was sort of off. What we're seeing right now is a bit of a transition. The Mexican peso is coming off compared to the U.S. dollar a bit, inflation seems to have peaked. And although it's still there, it's certainly not as aggressive. And we are working at developing, if you will, some of the higher grade areas in the mine and that's a continuing process.
I think that we will, at Zacualpan be approaching the breakeven situation very quickly or very shortly. And with a bit of luck and rolling up our sleeves, I think we'll have Zacualpan profitable next year or certainly cash positive. And that's probably the real criteria in this business as you want cash coming in, not going out.
Yes.
Plomosas will be different. We can probably discuss that as a separate item in a minute.
Sounds good. Question 2. The average silver grade in Q3 was 156 grams per tonne compared to 165 in Q3. Why is the drop? Is that expected to go forward in the future? Or would that go back up to the average?
That's a little confusing for the reader and I got to admit. What it is, is where we are doing our test mining and development at Alacran, which is the new mine that we're just starting to develop, we were mining gold. And the gold is running sort of between 2 to 3 grams gold and the silver was only running at about 65 grams. So the end result is when you mix that, the silver average gram is going to fall. We don't do equivalent yet, and the reason we don't do equivalent is because the gold production is going to be very irregular over the next while as we develop back the Alacran, as we work on the metallurgy for improving recoveries for the gold, et cetera. So in fact, our grades were probably higher if you want to use equivalent than 165. Think of maybe net recovery of 1 to 2 grams of gold and on a ratio of 80:1.
You're adding 80 grams on and that would raise the overall average, not 80 grams for the total, but 80 grams [ front end ] we contributed. So 80 grams plus 60 grams puts you at 140. So it improves dramatically with the gold coming through. So yes, we'll see that probably in the fourth quarter, most of it only because of the development stage. And because this was all development that we were putting through from Alacran. And as the gold starts ending up back in the mill again, you see that grade for the gold will be around 2 to 3 grams, and we'll see that the equivalent if we go to that routeing will be actually higher than it was last year.
Okay. Got it. Question 3 refers to the cost per tonne. Costs went up quite a bit year-over-year at 23% plus. Obviously, it's largely offset with the revenue going higher at nearly 30% year-over-year. Is this trend continues to be expected? Or can we expect this to stabilize around this or possibly go lower on the cost side?
Yes, 23%, it's a big hike. As I mentioned, the thing we saw last year or this year, if you will, and a part last year, was the Mexican peso became extremely strong even compared to the U.S. dollar. And that plus inflation in Mexico, which was running well, 6%, 7%, 8%, the FX changed by about 12%, 13%. If you put the 2 together, that's where it hit the cost. We're seeing the Mexican peso fall off a bit, which is good from our perspective. And inflation is slowing down in Mexico, like it is in many other countries. So I certainly don't expect to see that sort of increases in the future.
Will there be increases? Fact of life, unfortunately. But I think with some of the pressure in where we're mining and some of the changes in our mining method, the increases will be relatively small.
Got it. The next question we have has to do with the Plomosas, the new project that just started last month. Where do you see the Plomosas project start on time? At the current grade of zinc and silver various market pricing, what does that mean overall for the investor in terms of increases in revenue and ultimately bottom line?
Well, it's actually quite an exciting thing. As I sort of prefaced it, there's no substitute for grade and Plomosas has got some of the highest grade zinc basically in the world. We also have lead there. We also have silver there. And Plomosas itself is only one mine in a district that's about 6 kilometers long. And in that district, we're seeing certain changes occurring where we're seeing higher grades in some of the other metals and in fact up in the very northern end, we've seen outcrops that are copper and gold. So what makes Plomosas really exciting is it's got the potential to be a fairly significant zinc producer. It has the potential of producing other materials such as copper and gold. And that 200 tonnes a day, it should be a fairly significant contributor to the top line and the bottom line of the company.
Now we're spending a lot of money on exploration there. There's a reason. Right now, there was a historical resource that was sort of between 800,000 and 900,000 tonnes. Any of the work we've been doing there has been outside of that. And quite frankly, we're finding a lot of material that we could put through the mill very readily at very good grades. And from our perspective, the drilling is going to try and establish the potential size of this thing. Is it a 200-tonne a day operation?
Is it a 400-tonne a day operation or is it even larger? We don't know, but certainly, we're drilling and we're working in an area that's got the potential to develop size and this is a real question of what size? And how much of it is going to be just zinc or was it going to be the copper gold or what have you? This thing is very close to some of these, in terms of, the carbon replacement deposit. And quite frankly, there's a lot of excitement we've got. So I'm looking forward for a lot of news coming out from Plomosas as we gradually ramp up production, and it's going to be gradual. We've got to take the -- rehabilitate a lot of what we've done underground.
And we actually listed it off in case anybody was wondering. I mean, we've literally rebuilt the whole mill. We've reestablished the underground. We replaced or rebuilt a significant number of the underground equipment. We put in new electrics. We actually had to move the whole ball mill and it was built on fractured foundation. So a lot of what went into it, we're going to get some up on the website just to show how dramatic it is. And I think in the future, that I think will provide a lot of excitement and a lot of interest at Plomosas. And meanwhile, in our 18th year at Zacualpan, we're still producing silver, we're now getting into some gold. So we've done a lot of stories to tell to people and lot of interest for them in the future.
Okay. Excellent. Now on to question 5. More on the greenfield side, shifting gears a bit. Are there exploration news coming? It's been a while since we've seen some exploration results coming out from IMPACT, either at the Guadalupe, Zacualpan area or Plomosas, any news on these, Fred?
Yes. The exploration cycle at Zacualpan, for instance, is a little different. We had some releases in the beginning of the year. And then what we do was we put it to people back out in the field to sort of bring the next season of drilling or at least prepare for the next season of drilling. And that nowadays means you've got to go up, you've got to get permits to drill. You've got to pursue the department of the environment. We have to drill on some of the farmers land, so we have to go negotiate. So this we've been doing in the last half of the year, along with what we do before we actually start drilling on a particular target, where we do trenching to ensure that we've got a good understanding of the ground and the veins that we're going to be drilling. And all of that has been happening.
It's not very exciting from a market point of view, but it's critical from being an operator and explorer. So Zacualpan, just in that stage, I would expect very early next year. We've got about 3 programs that we're going to be going ahead with. The other side of the drilling at Zacualpan has been underground on the current operating mines. And I think we'll probably be doing the release of some of those. We have to be a little careful because a lot of that we do is not reportable under 43-101. But certainly, where we can identify structurally something new and exciting, we'll get that out.
Plomosas is a different animal. As I said, we are going down -- and for instance, the current resource stopped at Level 7. We're now down to Level 9 sampling, and we're seeing significant improvement in grades even though the grades were quite good at Level 7. We're also drilling another target in the immediate vicinity. And we'll have some of those results coming out, hopefully, fairly shortly. So we had a little problem getting the underground drilling going just because I mentioned that the -- we had to redo the electric on the whole property with, say, a mess. And the other thing was we had to replace some of the pumps in the mine because they were in bad shape.
So we really couldn't get an underground drill in there working until we had the electrics and the underground cleaned up and the pumps working. So we'll get the underground drilling going fairly shortly. And then we have been drilling on the surface now fairly aggressively over the last couple of months. It takes a little time to get it assayed and sampled and -- through ALS or somebody like that. But we'll have results coming out fairly shortly on the Plomosas. I think for the next couple of years, you're going to see a lot of information coming on Plomosas.
Good to hear. Question 6. Back to Plomosas again, as you mentioned it. Fred, are there an additional near-term catalysts at Plomosas other than I suppose -- we suppose seeing production results to be incorporated in the next few quarters of revenue in terms of media, investor tours, et cetera, to help the investors understand the size and potential, now that you're in production operation?
Yes, that's a very good question. We are going to be attending London that's a -- one that's happening in the next, I think, it's 2 weeks from now. We'll also be going over to Switzerland talking to some institutional investors. But the biggest thing is to try and explain. I think most of the ones we know are familiar with Zacualpan and we bring them up to speed on that. The one is to really explain the dynamics associated with Plomosas and we've got some videos. I think we'll probably get that out. We're going to build our website more with it actually shows the mine, the mill.
And I'd love to do it before and after because I don't want to reflect on other people. But when we took this place over, it was in even worse shape than we thought it was. The cone crusher looks fine from outside. As soon as you opened it up, you realize it was junk and we had to replace it. Moving a 30-tonne ball mill is no easy task either, to get it streamed away. And literally half the [ float ] circuit and virtually all the pumps had to be replaced. So it's been a major achievement. It doesn't sound very exciting. But the end result is it's effectively a brand new mill. The underground equipment same condition, we had replaced them a bit.
Some of it we rebuilt. And then the mine itself, it hadn't received the proper attention it should have, and both for safety and for production purposes, we had changed the mining method. So all of these things are going on. It's a little difficult to sort of explain that to people, the significance. But hopefully, we can put it a bit on our website. And we're looking at probably in the new year in conjunction with the government, we'll probably be doing a formal opening. And of course, we'll invite some individuals down to attend. I think we will probably find it's going to be well attended. And we'll start doing mine tours of that as well. So we'll be able to take some of the people that know Zacualpan well and take them on a mine tour of Plomosas, when we're comfortable that it's safe and presentable, and that will probably happen in the new year.
Excellent. Just to wrap up, last question, question 7. Really more about the markets and, obviously, share price and general silver markets for small caps. The team -- a great job on, obviously, running the operations and getting the project started. Market is challenging for a small cap and risk assets right now. The IMPACT shares on TSX and US despite the new listing seeing multiyear lows, even though silver and gold are near recent highs, not too far off, at least at $24 an ounce, gold nearly $2,000. What in your management team's opinion is going to take us higher from where we are right now?
Well, it is very valid question. But I think, in fact, if you look at virtually every silver producer, we're probably right in line with them in terms of what's happened to the marketplace. We are highly leveraged to the price of silver. And if silver moves up, we generally move up fairly in long step with it or even more aggressively. The problem is we want to make sure that we can offer the marketplace the potential for a -- potentially a whole month, and that's always been at Zacualpan with our work there. Plomosas offers that second thing for the marketplace. It's got that potential to be a home run. Right now, it just needs some care and attention. But I think rapidly, as we go forward over the next year, both of those companies, both of those mines rather will start attracting some attention. Yes, we'd all like silver to be higher and $2 to $3 is nice. We have seen what's happened when the prices over -- pops over $30, the price of -- the stock goes up very dramatically. Gold, we'll see what happens. If we become a more significant gold producer with things like Alacran, et cetera, then I think we'll also get that lift on, if you will. And zinc is not exactly gold or silver, but zinc right now, it's got inventories that are approaching zero, and that means there's going to be a shortfall. It's a critical metal according to United States, so we've got the opportunity for any one of those 3 to give us a significant lift.
Excellent, Fred. That's all for the questions today from the investors. And of course, if you have anything to inquire on future conference calls, send us a quick e-mail at inquiries@impactsilver.com, or call us directly at (778) 887-6489.
That's been a wrap up to the Q3 2023 financial and production results for IMPACT Silver Corp. This is Jerry Huang, CFO and IR for IMPACT Silver, and we just had a presentation on an overview for the quarter with President and CEO, Mr. Fred Davidson. We look forward to the next quarterly call with everyone, and have a great day.