Impact Silver Corp

XTSX:IPT

Earnings Call Transcript

[Jerry C. Huang, Chief Financial Officer]

Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q3 2021 period ending September 30, 2021, Financial and Production Results Conference Call.Before we begin, we would like to go over our disclosure statement, followed by Mr. Fred Davidson's comments on the quarterly results and a Q&A period.Certain statements in the following conference call regarding IMPACT Silver's core business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about the future, which inherently involves risks, uncertainties 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.

[Frederick W. Davidson, President, CEO & Director]

Thank you, Jerry. It's been quite an eventful quarter and year-to-date for that matter. We've reported $13.7 million in revenue for the first 3 quarters of the year. That's up significantly from last year, about 24%. And the cash provided by operations improved to $2.8 million and EBITDA, that's earnings before interest, taxes, depreciation, amortization remained strong at $1.9 million. What is really interesting is we've spent a considerable amount of money in CapEx and exploration. And we still have virtually the same cash we had at the beginning of this year. And on a comparable basis, same time last year, we had $17.4 million. So we're starting to see the company and the mine generate positive cash flow. We're continuing to see it actually.And at the same time, we're able to really keep control of our costs. During that same period, we've drilled over 10,000 meters of drilling. Actually, it was almost 11,000 meters. And with that ongoing success, we're now looking at an additional 20,000 meters of drilling in the next 12 months. We own 4 of our own drill rigs, and that's allowing us to be very flexible in our drilling, and we're able to keep their costs extremely low.The other side that we see here is that the throughput, we're now starting to slowly rebuild throughput at the mill. As we explained earlier, several times actually, over the last 3 years, we actually cut production from areas or mines rather, that had a relatively low margin. Meanwhile, we focused on the higher-margin mines, and we were able to, as a result, generate a positive cash flow. And I think that was a very prudent thing as operators and managers of a mine. Now we've got the additional funds in the bank. Now we've got the positive cash flow from the operations. We're going to continue a very extensive exploration program, chasing a number of targets we have on the property including the gold and copper in Valle De Oro, which we've discussed, but really haven't spent the money or time we should have in that area. So it's going to be, going forward, I think, a very exciting period. We've already released some results that I think were very, very positive, and they're going to contribute to filling our mill and slowly raising the grade of what we are putting through the mill. Jerry?

[Jerry C. Huang, Chief Financial Officer]

Thank you, Fred, for the overview. Here are some of the questions we compiled from investors this quarter. In the future, please feel free to send questions to [email protected] or call us directly at [phone]. Question one, Fred comes from Sam. Exploration updates, Fred and team, 20,000-plus meter program. Is that all included in the $3 million expenditure accorded in the news release? Does some of that include CapEx and making sure operations continue to run smoothly in the future?

[Frederick W. Davidson, President, CEO & Director]

Yes. It's a bit of a mixed expenditure. And in fact, there is sort of a misplaced modifier in that. We've drilled over 10,000 meters to date. And yes, it does include ground work. It includes actually property taxes as well. It includes a lot of brownfields that we're focusing on primarily. And there's a couple of areas that we see is very, very exciting going forward. One is the Guadalupe Mine. And the Guadalupe Mine, first produced in 1529. So it's got some real legs. The other one is the San Ramon, which has been a producer for us since we started up in 2006. We evolved from the San Ramon, which was sort of one portion, let's call it, a stope, down into another area called San Ramon Deeps. And now we're moving into a new area, San Ramon [ subs ].Each time you do that, the grades tend to fall off. You might note the very residual of what you think is economics, and then you have to move into the new area. So we will be incurring some development costs there. And at the Guadalupe, we have incurred quite a bit of that money with development costs, driving the track drift out at the 195 Level. And that's to access this new area called Pachuqueno. And that's going to be, I think, very productive for us in the future.

[Jerry C. Huang, Chief Financial Officer]

Great. Excellent reply, Fred. Question two, results from the Guadalupe area and the new base at Pachuqueno are very exciting. It's 600 gram per tonne to over 2,000 grams per tonnes certainly wakes up the market. What does that mean, Fred, for grades and tonnage in the area? Are there much more [ base ] in the area? And are we drilling them soon?

[Frederick W. Davidson, President, CEO & Director]

Yes. It's -- actually, this is really exciting. The Guadalupe is, as I said, was mined from about 1529 onwards and on and off variously times. And before us, Peñoles was in there, and they mined 10 million ounces out of the Guadalupe as well. In the Guadalupe part of it, in the sort of eastern portion of the Guadalupe, there still remains a number of the veins that weren't mined. And remember, people's definition or criteria of ore has changed as the price of silver has changed. And quite frankly, our costs are significantly lower, I think, than some of our predecessors on an inflated basis, at least. So we are going to be in the Guadalupe. The fact that we've produced drill holes in that area that indicates there's significant grade and tonnage in that area, it's pretty exciting. Moving out to the Pachuqueno. Pachuqueno is in the same structure, but it was literally operated as a different mine in the past. And when we're talking in the past, maybe 100 years ago or what have you. Pachuqueno was not mined as extensively and was never mined to my understanding, by Peñoles. So it was mined by smaller outfits. They didn't really get into some of the veins we've identified in the drill holes. Some of the veins have been -- were mined. But there's a lot there. We're going to be focusing surface and underground drilling in this area.And what gets even more interesting as you head even further sort of north and west, you get into another area that was called Regenerador, and there was an old adit coming in from there on the other side of the mountain. And there's a series of veins running off Regenerador and some of those could be the ultimate extension from ones that we were mining at in the Guadalupe Mine. So this is a huge distance in relative terms, I guess. And for us, it means that a lot of work to be done in this area. A lot of tonnage looks like it could be coming out of this area. The grades we've seen would suggest -- as we go forward developing this area, you're going to see initially the grades are not going to be strong, because you're doing development muck. And that is you're driving an adit which might be 3 meters by 3 meters and the vein is only 2 meters wide. You're going to take a meter of waste. That lowers your average grade.But once you start stoping and that's mining up into the actual vein itself, now you can be more precise. You take less dilution. And I think as that starts to come through, we're going to see the grade appreciate, and we're going to see more tonnes come through, because mining generally generates more tonnes than development does. Unfortunately, on a vein system like this, you can't develop and mine on the same vein at the same time. So it does take time, but I would expect that we're going to see the Guadalupe Pachuqueno increase our throughput at the mill. And over gradually, we will see an increase in the grade going through the mill as well.

[Jerry C. Huang, Chief Financial Officer]

Okay. Great. That's a good overview. Fred, on that area and the new excitement developing at Pachuqueno veins. Question 3 talks about the VMS project we have down South Capire. Investors are asking, when will the go ahead decision be for the XRT? And what kind of range of CapEx would require for IMPACT?

[Frederick W. Davidson, President, CEO & Director]

Yes. Well, they're a little ahead of me, maybe. We -- there's a number of things when you do something like the Capire. What happens is XRT sorts the ore, and it does it very economically. The estimates are around $0.30 a tonne. And so what it does is it throws away the lower-grade material before it even gets to the mill, which means we can take our 200 tonne a day mill and theoretically bring in around 350, 380 tonnes to it. Ore sorting, we're down to 200 tonnes. Now we can process it.That does a couple of things. It does tend to lower your mining cost, because now we don't have to be as selective. It improves the grade actually into the mill. And it probably reduces the cost actually of milling, although the XRT costs us some money. Well, then what happens is now you redefine the definition of ore, because now your costs are lower, now things look a little better in the mine, you may expand it. And you may, in fact, pursue a couple of other targets in the area, which could add to the overall tonnage.Second thing is we're going to be there for quite a while at 200 tonnes a day. And we may be looking at -- we're doing studies right now. What happens if we incrementally increase the size of the current pilot plant and say, take it to 400 or 500 tonnes a day. What would be the cost CapEx? And what would be the operating costs? What would be the savings?And then, of course, once you've established a sort of estimate for both of those scenarios, you look at your internal rate of return in NPV. And that's -- we're doing right at the moment. For those who don't know, XRT is a system where the rock as it goes by on the conveyor is analyzed by x-ray for atomic density and the atomic density determines whether it's ore or not. So it's a fairly elaborate system, but it works and it works very well. And it's being used more and more extensively as we go forward.

[Jerry C. Huang, Chief Financial Officer]

Okay. Great. Question 4, Fred, specifically addresses the current quarter grade throughput at the Guadalupe mill, it's now lower than 150 grams per tonne silver. Is this expected to continue? Or are efforts in place to increase this?

[Frederick W. Davidson, President, CEO & Director]

Well, as we discussed earlier, in fact, that's development muck. And that's probably a good thing, whether -- it's nice to have higher grade. It's a good thing, because it means we're doing a lot of development. We're getting the mine ready so it can produce more ore, and it can access more of the higher grade material. So I suspect that we are going to see that gradually increase in throughput, both in grade and tonnage over the next 6 months or so.

[Jerry C. Huang, Chief Financial Officer]

Great. Question 5 talks about some of our peers -- peer comparables in Mexico in regards to some of the recent environmental and stricter controls coming through to some of our larger peers. What is IMPACT doing to counteract this? Or should we, as investors, be worried?

[Frederick W. Davidson, President, CEO & Director]

It's -- I think there's more to some of the events that have occurred than just a pure environmental issues and stricter controls. And it's an area we'd -- obviously we don't want to get involved in if we can possibly avoid it. We have an excellent relationship with all of the stakeholders at this point in time. We have a good solid union. We treat them well. We've never had a strike or labor dispute going on. We, in fact, even helped create a cooperative that did the trucking, so that they could negotiate as one. We've had a history of contributing to support the local community. And as a matter of fact, part of our routine is we will provide materials for local communities to provide the labor. Working together, it becomes their asset, and they feel they've improved on it.I think environmentally, we're first rate. One of the reasons we use tailings and we don't further process the material is the tailings we have are benign. The water is potable, probably. But at the same time, on a pH level, it's superior to the nearby river. So it's one of those that we're very careful. And we recycle that water in any event. We cycle about 80% of it, the 20% evaporates. It's not as it gets discharged. So we're very careful about that. We're also doing right now a test for using solar power. Now you can't run a mill with solar power, but you can run some of the out buildings like the lab, the office buildings, et cetera. And we just have implemented that. We're replacing virtually every light bulb in the place with LEDs. We're trying to be good citizens and at the same time, demonstrate to the community we're good citizens.Finally, the other thing we've done as a standard for safety for our own people, we've got our own mine rescue team. We're a very small mine for having our own mine rescue team. We're proud of it. They're very effective. We have an ambulance on site, which we also use for the community. And we maintain very strict protocols for the COVID-19. So I think, in fact, if anything, we're leading the show for a lot of mines in how to behave with the local community in other countries.

[Jerry C. Huang, Chief Financial Officer]

Okay. Great. Question 6. It sounds like there's a lot more drilling at IMPACT with the internal drill and fleet. What more can investors expect in the short term beyond the Guadalupe and Pachuqueno vein? What new projects are you targeting?

[Frederick W. Davidson, President, CEO & Director]

Okay. Well, there's 1 more brownfield and that's, of course, San Ramon. We're going to be finishing off drilling that as we go forward. That's going to be a source of ore for 2022. At the same time, we have Veta Negra, which is the small open pit. We have -- the ore, its veins that come to surface and become brecciated, if you will. At depth, we're going to pursue it from underground. And that one, we're going to be drilling actually in the immediate future.We're also doing an extensive prospecting program, and we're finding that there's a number of the veins as we head to the west, northwest in this property, which are gold bearing. And that obviously is very interesting to us, and it's going to be a focus on a follow-up drilling after that.We have 2 or 3 other immediate targets. They're almost brownfield in character. We'll see what happens with them. One is actually even older than the Guadalupe and subject to permitting in that, we'll be attacking it in the very near future. As I say, it was literally older than the Guadalupe and could provide some really exciting information. In '19, '20, they were direct shipping ore that was running between 20 and 60 kilos of silver. So it's one that would be very interesting to put a couple of holes in and we're going to do 5,000 meters on it.

[Jerry C. Huang, Chief Financial Officer]

Great. Just to put that in perspective, that's 20,000 to 60,000 gram per tonne, which is quite phenomenal, Fred. Last question to just wrap up this quarter. ESG, and that's environmental, social, governance, which you covered briefly environmental on earlier, has been in the spotlight a lot lately. What has and what will IMPACT Silver be doing to show it's a good corporate citizen for the community in Mexico?

[Frederick W. Davidson, President, CEO & Director]

We're going to continue doing what we do. I think we've set a very, very high standard for most other companies to match us. We've reviewed all of our policies such as environmental, social, community, et cetera, with the community to make sure that they understand, appreciate and in agreement with it. So I say we do things like if we disturb a tree, we'll replant 10 and nurture it to full use.We're also an underground mine. So the vast majority of our work is conducted underground. We don't disturb a lot of the surface work. The ones that obviously will are Capire and built into that is going to be a very structured plan on reclamation at the end of it.At our own tailings, we have 2 tailings ponds, which are probably going to reach their limit in the near future. We're going to be developing a third tailings pond as we go forward. And we're already working on reclamation plans that's going to involve not just the Ministry of the Environment, but also the local community to make sure that whatever we do there, enhances their lifestyle, if you will, and give some comfort that what we've done is what need to be done for the long term.

[Jerry C. Huang, Chief Financial Officer]

Okay. Great. Excellent. That's all we have for this quarter. Thank you for tuning in for Q3 2021 IMPACT Silver's corporate presentation on financial results and quarterly updates. If you have any further questions, please feel free to give us a call at 604 -- sorry, [phone] or send us an e-mail at [email protected]. IMPACT Silver is listed on the TSX Venture under IPT. On the U.S. Exchange OTC under ISVLF. Thank you again, and we look forward to speaking with you next quarter.