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spk00: Good morning, ladies and gentlemen, and welcome to the Silvercrest Report's first quarter 2023 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, May 12, 2023. I would now like to turn the conference over to Eric Fierre. CEO and Director. Please go ahead.
spk04: Thank you, Operator. Good morning, and thanks, everyone, for joining the first quarterly earnings call as a precious metal producer. Today, we'll be providing commentary on our first full quarter of production, after which we'll be happy to take questions. The slide deck we'll be referring to is available on our website at silvercrest.com. metals.com under the investor tab. Before we get started, I'd like to direct you to the forward-looking statement on slide two. All figures discussed this morning are in U.S. dollars unless otherwise stated. On the call with me today are Chris Ritchie, President, and Pierre Boudoin, Chief Operating Officer. Let's start with slide three. Q1 marked our first full quarter of commercial production. We have focused on ramping up, gaining further confidence with operations, generating free cash flow while reducing operational and financial risk. Our early ramp-up success coupled with our robust cash position has allowed us to accelerate debt prepayments, which significantly de-risked our balance sheet. The Las Chispas operation continues to perform well with the processing plant meeting or exceeding design parameters. Also, one of our biggest success stories to date is how our stockpiles have continued to create value and reduce risk. The underground mine ramp-up is progressing as per updated rates. Completion of the updated technical report some like to refer this to the updated feasibility study, remains on schedule for late Q2. This report forms the basis for future production and cost guidance. We will continue to advance our ESG initiatives including a strong focus on health and safety as well as risks and opportunities within the community in which we operate. The second year of our water stewardship plan in the local communities, which is based on the findings of our TCFD work, is progressing nicely and we remain on track to deliver our inaugural ESG report in Q2. We are also very proud to announce that we recently received a notable ESG award in Mexico. and we look forward to continuing with this momentum. I will now pass the call to Chris to discuss financial results for the quarter.
spk03: Thanks, Eric. Moving to slide four. In the quarter, we generated revenue of $58 million. Cost of sales were $22.4 million, reflecting a mine operating margin of an impressive 61%. That income in the quarter was $27.2 million or $0.18 per share. It is important to note that our results in the quarter benefited from access to our surface stockpiles, which carry a lower cost per ounce than those currently being mined, as well as from tax loss carry forwards. We expect these benefits to continue through 2023. Net free cash flow was $19.3 million for $0.13 per share. In November 2022 we restructured our debt facility which lowered our interest costs and improved the terms. At that time, we repaid $40 million from cash that was available to us based on an on time and on budget build. The prepayment of an additional $25 million was made in Q1 was supported by strong free cash flow. This is the best way to prove that the mine is operating successfully. Subsequent to quarter end, we have prepaid a further $20 million of debt based on continuing strong cash flow generation. This reduces our total debt outstanding to $5 million. We have now repaid 95% of our debt within six months of declaring commercial production, a significant accomplishment in a short period of time. We forecast that this early prepayment of debt has reduced our interest costs by approximately $6 million. We ended the quarter with $45.8 million of cash and cash equivalents and an undrawn $70 million revolving credit facility. With that, I will now pass it to Pierre to discuss operations at Las Chispas.
spk06: Thanks, Chris, and good morning, everybody. I'm now on slide six. Ramp up of underground mining rates remained similar as queued for 2022 at an average slightly above 700 tons per day. As planned, the underground mining rate is expected to continue to ramp up over the next few years. Underground capital development is tracking slightly behind plan, but we expect that it will accelerate through the remainder of 2023. Quantum and timing will be defined in the updated technical report. We've undertaken discussion with multiple underground contractors, including our concurrent contractors. These discussions are focused on ensuring we can meet our ramp-up objectives, while defining costs that are reflective of the global inflationary environment. Still on slide six, the Lush Cheese Processing Plant averaged daily throughput of 1,160 tons per day for a total of 104,000 tons processed during the quarter. The plant recovered 2.44 million ounces of silver equivalent in Q1, and we expect similar level in Q2 2023. An estimated 40% of production feed was sourced from stockpiles during the quarter. The stockpile continued to reduce risk and provide flexibility as we progress our ramp up of the underground mine. I want and need to highlight that as the percentage of processing throughput sourced from stockpiles decline, the benefit to the current cost structure will be impacted. Our corporate level AISC, which aligns with the World Gold Council definition, was $11.45 per ounce silver equivalent. These costs incorporate some of the inflationary impact and mine site change experienced over the last 2.5 years. The updated technical report will address any outstanding cost impacts. Moving now to slide seven, you will see that the updated technical report remains on track for release in late Q2 of 2023. This study will include refresh costs, updated resource and reserve, and a new life of mine plan, which will consider optimal mining, stockpile, and processing rates. I will now pass it back to Eric to conclude the presentation.
spk04: Thanks, Pierre. As mentioned earlier, our balance sheet de-risking has remained a key focus. We now have minor debt remaining while retaining access to our $70 million revolving facility. Exploration efforts are focused on Las Chispas, El Picacho, and other early stage regional opportunities around Las Chispas. This is part of a $5 million H-1 exploration budget. In parallel with updating the technical term focus at Las Chispas will be on reserve replacement through targeting conversion of inferred and indicated resources. In late April, the Mexican Senate passed a revised mining reform. Since initially hearing about the proposed changes, We have been working with our legal counsel and other members of the industry to review and continue discussion. The situation remains fluid and additional review of changes for more clarity and their potential impact on our concessions is ongoing. That wraps up our formal commentary for today. We will now take questions as a reminder With the upcoming release of the updated technical report slash feasibility study, there will be some information that we will be unable to comment on until this report is released. Operator, please open the line for questions.
spk00: Thank you. Ladies and gentlemen, we will now conduct a question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a one-tone prompt acknowledging your request. If you would like to cancel your request, please press star two. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. Your first question comes from the line of Stefan Suk from Stiesel. Your line is now open.
spk02: Hi, guys. Congrats on a strong quarter and the very rapid pay down of the debt. It's great to see that almost extinguished just six months after commercial production. My question was just on the unit cost side in the quarter. The impact of the stockpiles was great to see and had a major impact overall on the per ounce cost, but outside of that, I think some of the other mining and processing costs were a little bit higher than I was expecting. I know it's still early in the progress of commercial production, but are you seeing opportunities to bring those down over the coming quarters, or how should we think about those run rates? Thanks.
spk06: Yeah, thanks for your question. It's Pierre here. You know, we've seen a lot of inflationary impact in Mexico over the last nine or 10 quarters, something like 20 or 25% increase. And at the mine site, we've seen some others that are even more important. So when we're looking at that cost going forward, We have to be ready to see a slight increase in cost. Obviously, we're going to continue to work on the reduction at the mine site, but some of this inflationary pressure to some extent is there to stay.
spk02: Okay, understood. Just one more for me here. You also mentioned that the underground capital development is expected to catch up through 2023. I was just wondering if you could provide some more color on what goes into that. Is there additional equipment being mobilized, or how are you attacking that?
spk06: Yeah, well, let me say this to start. We're not overly nervous about our development on our capital development. Our rules is to be very much ahead, something like tree level for every mining area we're planning to mine. When we're saying that we're behind, it needs to be looked in this light. Overall, we're something like 800 meters behind, but 400 is on vertical development, which started in April. This is going to go extremely rapidly. The balance, once again, we're not nervous because all of this is going to be needed probably only in the first quarter of next year. So we have plenty of time to catch up and we're working with contractors to actually get back on track.
spk02: Got it. That's all for me. I'll leave the line for anyone else.
spk00: The next question comes from the line of John Sklodnik from Day Jardin. Your line is now open.
spk05: Hey, thanks for taking my question and echo Stephen's comments on the two graphs on paying down debt so fast. Very impressive. But of course, you know, I'll focus on the concerns that I had and just wondering, you With the mine grades, they seemed a little bit below expectations. Wondering if you view it in the same way. And really what I'm getting at is kind of those stockpile levels and where those are at and your comfort with those being able to sustain the mill feed going forward.
spk06: Well, we were happy with our results in Q4 on the grade side. Still happy in Q1 on the grade side as well. We're managing our grade with our stockpile, and what we keep an eye on, obviously, on this stockpile is how fast we're depleting it. In the updated technical report, we'll be able to shed some light on this for everybody, but at this point, we're very happy with our strategy. We think we managed the risk of the ramp-up very well, and Quite honestly, that's what we plan to continue to do. We have still a good level of stockpiles. As I said, it's going to be updated in the technical report. But at this point, you know, for foreseeable future, our focus is really on the ramp-up of the mine and the management of the stockpile.
spk05: Okay, yeah, fair enough, and very impressive ramp-up, and obviously the plant is operating phenomenally well. One more question for me, and I think I probably know the answer, but any chance you can shed light on what you're expecting for sustaining CapEx, maybe just next quarter, if not the rest of the year?
spk06: Well, that's a good question. Next quarter, we expect the capital to go slightly higher, but I cannot say for the rest of the year because it's going to be contained in the technical report. As I said, we're catching up now on our vertical development. This is going to hit Q2 far more than Q1.
spk05: Okay. Appreciate that, Collin. And that's it for me on questions. And congrats, guys, on a very impressive ramp up here.
spk00: As a reminder, if you have a question, please press star 1 on your telephone keypad. Your next question comes from the line of Phil Kerr from Pi Financial. Your line is now open.
spk07: Yeah, thanks, operator. How's everyone doing today?
spk03: Good, thank you.
spk07: Yeah, thanks for hosting the call. Could you just give us a sense of what veins are currently being mined and then maybe touch on how many faces you're working at within those veins?
spk06: Yeah, well, you know, a lot of what we're doing is in the Bobby Canora area. The core of our production is coming from BOM, Bobby Main, and then from Bobby Norte and Bobby Vista. The number of phase is, I'd have to come back to you on this question, but at this point, we're uh we're quite happy with where we are given the fact that you know our target was to be at 700 tons a day we have enough face in front of us to do that and as i said earlier our development is not an issue we have in all the areas where we're mining we have something like three levels ahead yeah okay sure enough uh i guess what i was trying to get at with the number of faces
spk07: To achieve a little over 700 tons a day, I was just curious as to maybe what the targeted number of faces would be once you are able to meet that nameplate milk capacity rate.
spk06: It's going to increase with time, but at this point, as I said, we're pretty comfortable with where we are. We're turning over the stoves at the rate that we're satisfied with. Our focus at the beginning has been ore loss and dilution. We're in good shape at this point, and we're looking forward to the technical reports so we can inform people, investors, technical analysts, on how we're going to ramp up the mine going forward.
spk07: Okay, appreciate that. Another one here, just touching back on the capital development, What factors limited that development rate? Was it personnel, equipment availability, or what other outside factors?
spk06: For the vertical, it was just a matter of timing. I think we were a little aggressive on our expectation to get the contract started and so on, but most of this is related to ventilation, as you would know. And we're also on a good shape on that side. For the lateral development, we decided to slow down. It was a decision that we took from a safety perspective to make sure that all our crossings were up to standard. So we slowed down our contractor. Actually, Silvercrest decided from a safety perspective to slow down its contractor and force them to actually apply the standard that we agreed upon within our contracts.
spk07: Okay, understood. And then maybe just one last question here and just back to the stockpile. You said you were able to manage that stockpile and affect the grade to the mill. Is this a factor of knowing the source of that stockpile, whether it's from the historic dumps or previous development or from underground?
spk06: Yeah, we're operating the stockpile with what we call interlea blendfinger, which is maybe a funny way to explain that we're blending just on the crushing pad. And we fix the grade with the operation, and we blend from different source, high-grade, medium-grade, low-grade, underground, historic, or marginal. And this has served us extremely well. It has stabilized the grade feeding the plant, which is very helpful to essentially control the cost in the plant and control the recovery.
spk07: Very good. Okay. Fantastic stuff here. Keep it going. Appreciate the time.
spk00: Your next question comes from the line of John Tomazos from John Tomazos Very Independent Research. Your line is now open.
spk01: Congratulations on paying off the debt in about six months. You're setting an industry record.
spk04: Thank you.
spk01: Excuse me, I haven't been meticulous. I've just sort of, I own your stock, but I've just sort of not worried about it very much and not gotten too much into the details. In the 419 gram produced milled grade in the first quarter, how would that disaggregate between the fresh mined ore and the stockpiled ore?
spk06: Yeah, okay, so out of this, I would say that 60% of this material came essentially directly from the mine. And 40% of the material was coming from stockpile that was there before the start of the quarter.
spk01: I understood that from your press release. What I'm asking, Pierre, I'm trying to figure out if you're mining the reserve grade of 461 grams or not, and I'm assuming that the stockpile might be development muck or a lower grade. What is the grade of the new mined ore versus the grade of the stockpiled ore that you're milling?
spk06: Well, this is a very good question and it's going to be part of what we update everybody on the technical report. What you're leading to is what is the reconciliation of the grade we see against what against the previous reserve and it's totally our intent to update everybody on this in the technical report. So that would be a question that unfortunately I cannot answer directly on this call.
spk01: So I'm looking at your reserves and resources, Pierre. The proven and probable is 461. And the mill grade for the quarter is 419. So can we draw the conclusion that you're mining less than the reserve grade and you haven't gotten to the sweetest stope yet?
spk06: No, I would not draw that conclusion from these numbers.
spk01: Because the mine grade may be less because of the stockpiles blended with the new ore.
spk06: As I said, I would refrain from drawing that conclusion.
spk01: Let me try a different question. Your resources are 4.2 5 million tons and your reserves are 3.35. The difference is about 690,000 tons or 700,000 tons. When you dilute the resource to make a reserve, how much new rock is brought into it? Is the difference between resources and reserves the 700,000 ton difference or or is it a bigger number because you add tons when you dilute the resource to make a reserve?
spk06: You will forgive me on this one. I'm not sure I understand your question.
spk01: Okay, so you have a vein. When you dilute it, do you assume that there's a half a meter of nil value on either side of the vein?
spk06: Yeah, that's what we call the loss there in the technical report. That's the overbreak, and that's part of our overall dilution.
spk01: So when you're looking at... So because of the overbreak, the resource becomes bigger than 4.05 million tons when you convert to reserves. And I'm trying to figure out how much bigger is the non-reserve value than 700,000 tons because of the overbreak.
spk06: Okay, well, let's go back a bit. The resource that we have was done at, I think at the time of 150 gram a tonne. When we take that resource, which is not economic on its own, we need to do all the design, we need to do the development plan, we need to recalculate the cost. And so every time we do that, what is actually a reserve is, you know, it's reducing the resource. What's happening also at the same time is as we reduce the number of ounces in the resource, the grade actually increased because the cutoff of the reserve is increasing. The reserve itself, okay, is inclusive of the dilution material on both sides of the vein. You know, you refer to... I understand that.
spk01: That's why I'm asking the question.
spk06: Okay, so, okay, I think I answered this question then.
spk01: Eric, when you have the debt paid off and you spend $5 million exploring at the mine in the Picacho project, you still have a little money left over. Do you think you're going to retain the money to build the next mine? Or what do you think you're going to do with, uh, you're going to have some walking around money by year end.
spk04: Yeah. Um, hi John. How are you doing? We're, we're looking at our strategies right now for our treasury. Uh, we'll do a board meeting in July after the tech report is out and then determine the best course. I mean, you know, generally we want to grow. So you got to go explore or you got to go acquire. So we're working on M&A scenarios right now. We're also looking at, and if you noted, we're looking at the possibility of holding bullion. We are holding a little bit of bullion right now. That's in the bucket list. And there's several things that we can do with that money. But really, it's going to be around getting the technical report out, taking a look at the real cash flows that we would project. And I work with a three-year roadmap and then see the amount that we're actually going to be creating for free cash flow. And it'll be correctly distributed according to the strategy that we come up with with the board in July.
spk00: There are no further questions at this time. Eric Fier, please continue.
spk04: I'd like to thank everybody for attending the Silvercrest Q1 2023 results call, and have a great day.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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