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spk06: Good morning, everyone, and welcome to the Fortuna Silvermine's Q4 and full year 2023 financial and operational results call. At this time, all participants have been placed in a listen-only mode, and we will open the floor for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Carlos Baca, Investor Relations. Carlos, over to you.
spk02: Thank you, Jenny. Good morning, ladies and gentlemen. I would like to welcome you to Fortuna Silvermine's fourth quarter and full year 2023 Financial and Operational Results Conference call. Hosting the call today on behalf of Fortuna will be Jorge Alberto Ganosa, President, Chief Executive Officer, and Co-Founder. Luis Dario Ganosa, Chief Financial Officer, Cesar Velasco, Chief Operating Officer, Latin America, and David Whittle, Chief Operating Officer, West Africa. Today's earnings call presentation will be available on our website at fortunasilver.com. As a reminder, statements made during this call are subject to the reader advisories included in yesterday's news release and in the earnings call presentation. Financial figures contained in the presentation and discussed in today's call are presented in U.S. dollars unless otherwise stated. Before I turn over the call to Jorge, I would like to indicate that this earnings call contains forward-looking information that is based on the company's current expectations, estimates, and beliefs, and is subject to a number of risks, uncertainties, and other factors that could cause actual results to differ materially from a conclusion, forecast, or projection made in the forward-looking information. A description of these risks, uncertainties, and other factors is set out in the company's annual information form for the financial year ended December 31, 2022. The annual MDNA for the financial year ended December 31, 2022, and the interim MDNA for the third quarter 2023, which are all publicly available on the CEEDAR website. Certain material factors or assumptions were applied by the company in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information made in this call. These material factors or assumptions are also described in the company's annual information form for the financial year ended December 31, 2023. The annual MD&A for the financial year ended December 31, 2023, and the interim MD&A for the The company assumes no obligation to update such forward-looking information in the future, except as required by law. I would now like to turn the call over to Jorge Alberto Ganosa, President, Chief Executive Officer, and co-founder of Fortuna.
spk05: Thank you, Carlos. Fortuna had a strong close to 2023. In the fourth quarter, we recorded 66 million in free cash flow from ongoing operations, which is consistent with the 70 million recorded in the third quarter. We achieved a record 136,000 gold equivalent ounces in the period as well, and realized an average gold price of $1,990 per ounce. The only record sales of $265 million or consolidated ASIC for the period was $1,509 per gold equivalent ounce. We're using the strong proceeds of the business to advance payments on our corporate trades facility, paying $40 million in the third quarter, $41 million in the fourth quarter, And subsequent to year end, we paid an additional $25 million between the end of February and early March. We have a favorable debt to EBITDA ratio of under 0.3 and a total net debt of approximately $83 million. Providing enhanced flexibility to our balance sheet through debt reduction is one of our capital allocation priorities in 2024, and we expect to achieve zero net debt during this year. Another capital allocation priority is funding high-value organic growth opportunities in the portfolio and attractive acquisitions in the regions where we are already established. Our $38 million exploration program this year includes 200,000 meters of drilling with a focus on Dian Basur in Senegal and Seguela in Cote d'Ivoire. for reserve replacement, our priorities continue to focus on the San Jose and Yaramoko mines. In the short to medium term, both the Dianda Sud project in Senegal and the Segela mine in Cote d'Ivoire are our strongest drivers for growth and value. As David Whittle, our Chief Operating Officer for West Africa, will explain later, at Segela, at the end of December, We are processing ore at a rate which is 26% higher than main plate capacity and encountering positive rate reconciliation at their starter antenna pit. In the fourth quarter, we obtained 24% more gold ounces than predicted by the reserve model. And the property continues to offer tremendous discovery opportunities which we are diligently pursuing with our exploration. At Diambasut, we currently hold an 850,000 ounce gold resource, which we catalog as historical and has not been incorporated to our consolidated resource. We expect to enhance our knowledge of the mineral deposit and expand it with our ongoing 45,000 meter drill program. and being in a position by ERN to deliver a preliminary economic assessment. At both the San Jose and Yaramoco mines, we continue pursuing reserve replacement with well-funded drill problems. At San Jose, we are targeting the Yesi vein, a high-grade silver-gold discovery made in 2023. And at Yaramoco, we have achieved a lot of success expanding reserves on the fringes of the zone 55 deep ore body. We will be reporting on results from our exploration programs in West Africa and Latin America later in March. And another capital allocation consideration is our share buyback program, which was under a temporary restriction placed by the Great Facility Bank Syndicate. This restriction was lifted by us in early January, and with the financial results blackout behind us, we may now participate again in the market. And considering available liquidity, capital allocation opportunities, and the state of the company valuation in the market, we may be participating again in the market, as I said. So with that, I will now let our chief operating officers provide some further detail on our operations to the region so we can start with West Africa. David, do you want to go ahead?
spk01: Thanks, Jorge. So GALA and Yaramoko had a successful fourth quarter from both a safety and production perspective. Both mines recorded zero LTIs, and Yaramoko reached an exceptional milestone of three years LTI3 in 2023 and attained ISO 14001 and ISO 45001 certifications. In the fourth quarter, Segala produced 43,096 ounces of gold, a 37% improvement compared to the previous quarter, and delivered 78,617 ounces of gold to 2023, outperforming annual production guidance by 5%. Yaramoko's strong production performance delivered 28,235 ounces of gold, sorry, 28,235 ounces of gold, leading to 117,711 ounces of gold for the year, achieving the higher end of the revised annual production guidance. In the fourth quarter of 2020, Sagala mined 409,293 tonnes of ore. That's an average gold grade of 3.34 grams per tonne. and 2,214,681 tonnes of waste for a strip ratio of 5.4. All processed was 387,267 tonnes at 3.62 grams per tonne of gold. Mining operations focused mainly on the antenna pit to provide all feed to the processing plant at the Anthean pit haul road and other development was completed and topsoil and waste stripping commenced with 104,472 tonnes of waste stripping being achieved. Preparations for the mining of the cooler pit commenced during the quarter with grade control drilling and haul road construction being undertaken. Processing plant operations continue to ramp up beyond the main plate capacity of 154 tons an hour during the quarter, achieving an average throughput of 186 tons per hour. In December, an average throughput of 194 tons per hour was obtained, 26% higher than designed. A partial mill reline was undertaken in February, and we are now successfully further testing throughput constraints. Goal recovery for the quarter was 94.9%, slightly ahead of the 94.5% design recovery, benefiting from the higher head grade. The second lift of the tailing storage facility is currently under construction and is expected to be completed by the end of this quarter. This will assure adequate tailing storage for another two years of production at the increased throughput rates. Segala's strong performance resulted in both a cash cost of $341 and an ASIC of $737 per ounce of gold, both below guidance. At Yaramoko, Mine production in the fourth quarter of 2023 was 112,906 tonnes at an average grade of 7.33 grams per tonne gold. Mining operations were primarily sourced from the 55-zone underground mine. Development and stoping operations of the Bagassee South mine contributed 10,162 tonnes at 6.05 grams per tonne gold to the above outputs. with batch treatment of bagasse oil showing a very close correlation to the mine core. At the processing plant, 110,445 tonnes were treated at an average grade of 7.16 grams per tonne gold, with the recovery at 98.3%. The decreased processing tonnes are attributed to a planned shutdown for 11 days in December 23. The enhanced production resulted in the cash cost and ASIC at Yaramoko being below the lower end of annual guidance for the year at $817 and $1,499 per ounce of gold, respectively. Development operations and diamond drilling success enabled further strike extensions of the 55-zone ore body to the east of the expected mining boundaries as well as strike extensions and mineable displays of the QV prime ore body at the Bagassi South mine. Back to you, Jorge.
spk05: Thank you, David. Cesar, you want to provide your report, please? Yes.
spk03: Thank you, Jorge, and good afternoon to everyone. In 2023, our Latin American operations successfully delivered 130,310 ounces of gold, 5.9 million ounces of silver, 40.9 million pounds of lead, and 55.1 million pounds of zinc. Consolidated gold production achieved guidance, enabled mainly by Lindero producing 100 and 1,238 ounces. The consolidated silver production was 7% below guidance due to San Jose's lower tonnage extracted from the mine, as it had to deal with a 15-day stoppage at the beginning of the year, operational difficulties thereafter, and reduced grade profile as we are operating at the tail end of reserves. base metals with exceptional lead and zinc production was 28% and 15% above guidance, respectively. Starting in Argentina, Lindero's gold production for the fourth quarter was 29,591 ounces, a significant increase of 41% when compared to the previous quarter. This increase was enabled by higher gold production and the extraction of 4,600 ounces contained in fine carbon and copper precipitate. Gold production for the year totaled 101,238 ounces, achieving midpoint of annual production guidance. In the fourth quarter, a total of 2.1 million tons of ore were mined at a stripping ratio of 0.6 to 1 leading to a stripping ratio of 1.14 to one for the year, aligned with the mining plan. During the same period, a total of 1.6 million tons of ore were placed on the leach path at an average gold grade of 0.63 grams per ton, containing an estimated 31,665 ounces of gold. Lindero's annual cash cost of 920 and ASIC of 1,565 per ounce of gold were both within guidance. To note, cash cost and ASIC have been affected by adverse in-country microeconomic conditions during 2023, compounded by an increase in sustaining capital expenditures mainly related to the heat bleach expansion project. These costs were partially offset by improved copper byproduct sales totaling $7.7 million. As of the end of February 2024, the 41 million leach pad expansion project is approximately 28% progressed with completion planned by the end of 2024. Those 41 million equates roughly to $410 on the ASIC for 2024. While this investment weighs heavily on the company's ASIC for this year, it would greatly benefit Lindero by allowing the placing of reserves over the next decade. In Mexico, San Jose produced 1 million ounces of silver and 6,341 ounces of gold in the fourth quarter of 2023. with average head grades of 145 grams per ton and 0.91 grams per ton, respectively. Total production for 2023 was 4.7 million ounces of silver and 28,559 ounces of gold, 12% and 16% below annual guidance, respectively. The decrease in production, as I mentioned before, is attributed primarily to the 15-day illegal union blockade in the second quarter, the associated disruption to operations thereafter, a silver and gold head rate reconciliation to reserves at the lower end of guidance range, and the mine that offers less operational flexibility as it is working on the tail end of reserves. We continue to experience significant inflationary pressures in Mexico, beyond what we see in other countries where Fortuna operates. The 2023 cash cost of 14.40 and ASIC of 19.40 per silver equivalent ounce were above guidance. Higher costs are mainly explained by a significant appreciation of the Mexican peso, which affects approximately 50% of our total cost. in addition to higher labor, contractor material, and consumable costs, lower answers produced, and lower head grades, all of which are also carried into 2024 estimates. Based on exploration outcomes and the remaining life of reserves, the company is preparing to execute a multi-year progressive mine closure and monitoring plan in strict compliance with government regulations and adhering to high international standards. In Peru, the Cayoma mine produced 330,478 ounces of silver at an average head rate of 88 grams per ton in the fourth quarter. Silver production for 2023 totaled 1,227,060 ounces, surpassing the upper end of guidance by 10%. Lead and zinc production for the quarter was 10.8 and 14 million pounds, with head grades averaging 3.84% and 5% respectively. Cayoma delivered strong base metal production in 2023, totaling 40.9 million pounds of lead and 55.1 million pounds of zinc, surpassing guidance by 28 and 15% respectively. Enhanced production was the result of positive grade reconciliation to the reserve model in level 16 and 18 of the animals vein. Back to you, Jorge.
spk05: We'll now proceed with a review for financial results list.
spk04: Yes, thank you. So for Q4 2023, we have recorded a net loss attributable to Fortuna shareholders of $92.3 million, explained by an impairment charge of $90.6 million related to the anticipated closure of the San Jose mine in late 2024. As had been previously disclosed, the updated mine plan is scheduled to exhaust mineral reserves by the end of this year compared to mid-2025 as previously planned. Adjusted net income in the period was $20.6 million or $0.07 per share compared to $6.4 million or $0.02 per share in the prior year. In the quarter, we have adjusted for several non-recurring items. All of them, except one, are non-cash charges. I will briefly describe them on a pre-tax basis. The main one is the impairment at San Jose, as I just mentioned. Under cost of sales, we have adjusted $15.4 million of write-downs, comprised of $9.5 million of materials, inventory, at various sites, and $5.9 million of low-grade stockpiles at Lindero. The materials inventory write-downs are related to a reassessment of consumption plans at San Jose in the face of the shortened life of mine for $4.4 million, with a balance corresponding to Yaramoco and Lindero. The write-down of low-grade stockpiles at the Lindero mine was triggered by anticipated higher costs to completion over the life of mine. It is worth pointing out that this write-down doesn't necessarily bring into question the economic viability of the stockpiles, as the decision to stockpile low-grade ore follows an incremental cost logic, while the accounting allocates costs based on an average cost method. Under the line item labeled write-off of mineral properties, we have adjusted for the full $5.3 million amount, which is related to greenfields exploration projects in Mexico and Argentina. Under other expenses, we have adjusted for a $6.4 million severance provision at San Jose related to the scheduled mine closure. and $1.2 million of customs penalties at Seguela related to the construction phase. So back to adjusted net income, the main drivers of the increase over Q4 2022 were the contribution of the Seguela mine, which explains the 71% higher volume of gold sold, and higher gold price of 15%, which resulted in an average of $1,990 per ounce for the quarter. Our cash cost of sales per gold equivalent ounce sold was $840 compared to $873 in the prior year. As David mentioned, cash cost at Seguela was $323 per ounce. That would be $376 per ounce if we included capital leases related to the mining contractor, which are reported as part of ASIC but excluded from cash cost per ounce. The contribution of low-cost ounces from Seguela was partially offset by higher cash costs per gold equivalent ounce at Yaramoco, Lindero, and San Jose in the quarter. For Yaramoco, this was primarily due to higher operating costs in Q4, partially offset by higher head rates. In the case of Lindero, the higher cost per ounce was mostly aligned with the expected reductions in head rates consistent with the mine plan. And for San Jose, this was mainly due to a shortfall of production in the quarter compared to the mine plan and lower head rates and the effect of the peso appreciation as noted by Cesar. Depreciation and depletion for the quarter was $71.6 million compared to $44.5 million in the prior year. The increase of $27 million is explained by the higher gold equivalent ounces sold and higher depletion per consolidated gold equivalent ounce of $67. This higher depletion on a per ounce basis is related primarily to Seguela, where total depletion and depreciation was $26 million. including $17 million corresponding to the purchase price allocation from the Roxwell acquisition. On income taxes, we have recorded $27 million of current income tax compared to $7.8 million in Q4 2022. The increase is mostly explained by Seguela, We note that tax paid in the quarter was $6.3 million, as we will be paying taxes for the first time at Ceguela in 2024. Moving on to free cash flow and liquidity, we reported $66 million of free cash flow from ongoing operations. This is after sustaining CAPEX and corporate expenses. Our total liquidity at the end of the quarter was $213 million, up $51 million from the end of September 2023, reflecting the strong free cash flow generation in the quarter. We paid down $40.5 million of debt in Q4 2023 and have made, as Jorge pointed out, subsequent payments of $25 million up to the beginning of March. Finally, at the end of 2023, our total net debt was $83 million, down from $134 million in September of 2023. Back to you, Jorge.
spk05: Thank you, Operator. We can open the room for Q&A.
spk06: Perfect. Thank you very much. We are now opening the floor for questions. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please hold a moment whilst we poll for questions. Thank you. Our first question is coming from Don DeMarco of National Bank Financial. Don, your line is live.
spk00: Thank you, operator. And good morning, Jorge and team. First question, a couple questions on Seguella. First off, looking at your guidance, I mean, what drove Seguella ASIC guidance higher in 24? Because we see that Q4, you're still running at 737 an ounce, but then the midpoint next year is 1170.
spk05: Yes, as you can see, Don, in the second half of the year, our average strip ratio has been around 5.4, and that is set to increase in accordance to our plan to around 8 to 9. The life of mine strip ratio of Seguela is around 13. We have initiatives to optimize that with underground trade-off studies that are ongoing right now, but that's what's currently in the plan. So in the second half of the year, in the first two quarters of production, we have benefited from low strip ratios and a shorter haulage distance. Moving onward into 2024, our strip ratios will increase in accordance to plan, and our haulage distances will increase as well. So, yeah, that's basically where the explanation is.
spk00: Okay, thank you. Also, we've seen three quarters in a row now where recoveries have increased. Q4 was 95%. Should we flatline 95% from here on, or do you expect it to increase further?
spk05: David, do you want to tackle that question?
spk01: Yeah, I can respond to that. Obviously, the first couple of quarters, we were mining predominantly the antenna stage one ore, which was probably higher grade than the life of mine grade. So we're expecting still to retain around that 94.5% to 95% in terms of the life of mine recovery.
spk00: Okay, good to know. Shifting over to San Jose, you're spending $5 million on drilling this year at San Jose at Yessie. What do you need to find here to be able to keep the mine open? Or is that even an option?
spk05: No, it's certainly an opportunity that we value. So we currently have three drill rigs advancing on Yesi. I have to say that it took us a while to understand the geology and the geometry of this structure. It has a... an orientation, a strike orientation that is different to what we're used to seeing and that is made it difficult at the beginning, but we find it as an exciting feature of this new vein. But now we have a well-defined plane that we are hitting hard with drilling. Before it was a bit drilled to understand, and now we're drilling for volume. So I would expect that by mid-year, we have a better grasp on how meaningful this discovery is. As I always say, here we had at Yesi an exciting discovery. Now we need to see it through into an exciting resource. We are currently working for that second component of this. And as I said, we're hitting it hard. All of our drilling, the $5 million is funding drilling that are concentrated in this area. And we don't know the limits of it yet. And the expectation is that we can define volumes and resources, tonnages, start getting a grasp on that by mid-year. So that will dictate, that outcome will dictate or view on how to treat the mine plan moving forward. As it sits today, we're exhausting reserves by the year end. We have other resources in the mine, and the team is currently working on optimization opportunities and on the Victoria resource, for example, to see if we can extract some more. and waiting at the same time for outcomes of the Yes event exploration. Also, I think we'll have a better idea of how the potential winding down of mining will look closer to mid-year. But parallel to all of this, we are advancing, updating our plans, and keeping flexible.
spk00: Okay, sounds great. We'll look forward to an update on YESI around mid-year then. Thank you, Jorge. That's all for me.
spk06: Thank you very much. Just a reminder, if anyone does have any remaining questions, please press star 1 on your phone keypad now to join the queue. That's star 1 on your phone keypad. Okay, we don't appear to have any further questions in the queue at the moment. I will now hand back over to Jorge for any closing comments.
spk05: No, I just want to stress that our business continues to show strength from the perspective of free cash flow generation. It has been a good end of the year and we look to an exciting 2024. So with that, Carlos, you want to?
spk02: Thank you very much, Jorge. I would like to thank everyone for listening to today's earnings call. Have a great day.
spk06: Thank you very much. That does conclude the conference call for today. You may disconnect your phone lines at this time and have a wonderful rest of the day. Thank you for your participation.
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