This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Please stand by. Your conference is about to begin. Should you need operator assistance, please press star and zero.
spk00: Good day, everyone, and welcome to this Silvercrest first quarter 2024 results conference calls.
spk02: At this time, all participants are in a listen-only mode, and later you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and 1 on your touchtone phone. Please note, this call may be recorded. I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to CEO and Director of Silvercrest, Mr. Eric Fehr.
spk05: Thank you, Operator. Good morning, and thanks, everyone, for joining. Today we'll be providing commentary on our Q1 2024 results, after which we'll be happy to take questions. The slide deck we'll be referring to is available on our website at silvercrestmetals.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 US dollars unless otherwise stated. All of the ounce and per ounce references discussed will be based on silver equivalent ounces sold unless otherwise indicated. Our silver equivalent references are based on gold to silver ratio of 79.51 to 1. On the call with me today is Chris Ritchie, President, and Cliff LaFleur, Vice President, Operations. Starting on slide 3, Q1 marked a strong start to the year as we continue to exhibit our ability to deliver positive operational results and demonstrated our continued financial flexibility. Sales of 15,000 ounces of gold and 1.4 million ounces of silver for silver equivalent sales of 2.6 million ounces exceeded plan, positioning us favorably to deliver on 2024 guidance in all sustaining costs in the quarter was lower than planned, but is expected to increase in future quarters with our 2024 guidance range of 15 to $15.90 per ounce sold is reiterated. Our balance sheet remains one of the best of our silver peers and a significant strength to us. During the quarter, it has supported some large outflows related to 2023 taxes and duties as a standard course of business and the mobilization of our new mining contractor. We're also happy to report positive retained earnings of $21.5 million, a unique achievement in the mining industry and one we accomplished within only six quarters of commercial production. On the ESG front, we are excited to have initiated the process towards using renewable power at Las Chispas. We are working to implement solar power, which will help achieve strategic objectives while also supporting technology that utilizes silver. Northwest Mexico is extremely desirable location for solar power, given the prominent role that silver plays in solar power and Mexican economy. It's a logical transition. Renewable energy is not possible without mining, and we are excited to be part of the energy transition with a common sense approach. I will now pass the call to Chris to discuss our financial results for the quarter.
spk09: Thanks, Eric. Good morning, everybody. Now moving to slide four. In the quarter, we generated revenue of $63.6 million and cost of sales was $26.2 million. We are proud to have consistently delivered strong operating margins of approximately 60% since achieving commercial production, despite inflationary pressures and the volatility of the Mexican peso. One way we have accomplished this is through an active currency management program, which has hedged the majority of our 2024 peso needs above the current levels and our guidance basis of 17 to 1. Net earnings in the quarter was 33.9M dollars or 23 cents per share and operating cash flow before change and working capital was 17.6M dollars or 12 cents per share. In the quarter, we benefited from a lower effective tax rate, which we expect to normalize in 2024. As planned and previously communicated, we had some large cash outflows in the quarter. The first was a planned payment of $26.2 million for 2023 taxes and mining duties. The second was a $7.5 million prepayment to our new mining contractor. Our financial strength provided us with the flexibility to support our new contractor while also reducing the overall cost of the contract by $1.5 million over five years. Our financial flexibility continues to allow us to make choices that offer long-term benefits while still remaining well-funded today. We look forward to growing our Treasury assets again in 2024. Now on slide five. Treasury assets decreased by 13% or $14 million in the quarter, which was less than anticipated due to stronger metal prices, lower costs, and higher sales than planned. Our silver and gold bullion on our balance sheet remains a core holding and was our strongest performing currency in the quarter. Despite not adding to our bullion holdings in the quarter, the value increased by 4% to $20 million as we saw strong metal prices through the quarter. With metal prices currently trending higher than the Q1 average, we are glad to be providing greater exposure to gold and silver to our investors. As one of the only companies to hold metal on our balance sheet, we are glad to have the financial strength and flexibility to create greater exposure to our product. With this program, we strive to improve the returns we can make for shareholders and lower the impact of inflationary pressures. With that, I will now pass it on to Cliff to discuss operations at Las Chispas.
spk03: Thanks, Chris. I'm now on slide six. Underground mining rates increased 90 tons per day from the previous quarter to 942 tons per day, benefiting from strong collaboration between the two contractors currently at the site. Overall, the mobilization of the new contractor is largely on pace and will continue to progress through Q3 2024. We remain on track to achieve our 2024 ramp up plans. The Los Chispas plant averaged 1026 tons per day in the quarter, a slight decrease from previous quarters due to planned downtime for maintenance that was completed ahead of schedule. The processing plant returned to planned availability rates in March. We are extremely proud that the plant recovered 2.6 million ounces with record process grades of 874 grams per ton and record silver equivalent recoveries of 98.3%. Achieving record grades and recoveries can be attributed to the operational flexibility we have created. The strong operating performance of our plant and access to sizable stockpiles for blending consistent feed are significant operational advantages. Corporate ASIC in the quarter of $12.90 per ounce was lower than expected due to lower cash costs and lower sustaining capital spend than budgeted. The delay in sustaining capital spending is not expected to impact annual production and spend is expected to increase through the remainder of the year. I'll now pass it back to Eric to conclude the presentation.
spk05: Thanks, Cliff. Now on to Slide 7. Looking forward to the rest of 2024, the results of the quarter put us on track to meet 2024 guidance of 9.8 to 10.2 million ounces sold, with an all-in sustaining cost within $15 to $15.90 per ounce sold. The underground mine ramp-up will continue to progress with a target to exit the year at 1,050 tons per day. We have been focused on infill and expansion drilling for some time now at Las Chispas, and this continued in the quarter. Drilling has targeted inferred resources outlined as high priority for conversion that are located within proximity to existing and planned underground development. Approximately 10 million ounces were initially targeted with this drilling, with more detailed results provided in the MD&A. Results have confirmed mineral continuity in targets in the Bobby Canora area and identified opportunities for further expansion of mineralization in the Bobby Canora Norte Splane III vein and the Bobby Sewer vein. These results are being compiled and assessed for potential conversion to indicated resources. A shift in early stage exploration will be prioritized in H2 2024, including both early stage targeting at Las Chispas and continued regional work. Regional exploration is looking for nearby deposits that could eventually be trucked to Las Chispas for processing and will now focus on a number of priority targets that were assessed over the past 18 months. With higher metal prices in Q2 to date and larger one-time payments behind us, we expect our balance sheet to strengthen throughout 2024. We will also continue to execute on our capital allocation program, which includes strategic currency management and our bullion holding program. That wraps up our formal commentary for today. Operator, please open the lines for questions.
spk02: Gentlemen, thank you. And to our phone audience joining, if you would like to ask a question, please press the star and 1 on your telephone keypad. Pressing star and 1 will place your line into a queue, and we'll take your questions one at a time. Once again, ladies and gentlemen, that is star and 1 on your telephone keypads. If you would like to ask a question at this time, and we'll pause for just a moment to allow everyone a chance to signal.
spk01: We'll take our first question today from John Sklotnik at Desjardins.
spk07: Yeah, thanks, guys. And, yeah, congrats on a great quarter and on getting to positive retained earnings. Of course, you don't see that too often in the industry. Just curious on the other income line of the financials and whether that might be related to the option strategy with the bullion holdings.
spk00: Yeah.
spk09: The other income for the bullion holdings? Yeah, part of it is related to the bullion holdings, John, and other derivatives.
spk07: Okay, interesting. Yeah, that was just out of curiosity. I know it's oddly specific question. And I guess on that, you know, the cash build is impressive and the bullion holding strategy has been effective. Of course, as an analyst, I'm going to have to ask, so how do you expect to deploy that cash balance? Whether you think you'll use your share price and if you're looking in this environment at M&A?
spk09: I think first and foremost, having a strong cash balance is a rarity. So using that flexibly and opportunistically is something we did previously when the share price was weak. Having an NCIB in place or being able to hold on to metal at low prices is or to look at M&A and other potential targets. Those are all things that we are really happy to have the flexibility to do. For now, exploration is still something we're closely monitoring and spending a lot of time and effort trying to advance. I think first and foremost is we want to provide the benefits of flexibility to the shareholders. For M&A and that target, that's obviously something on the list of things to spend time on. So, yeah, having that flexibility is also something unique that we think other people would benefit from that flexibility. So one of the things on the list to do, John.
spk07: Okay, I appreciate that. And I guess on the potential acquisitions, would you guys look within Mexico? Like if you'll say you've got a bit of a competitive advantage there, or are you looking to diversify outside?
spk09: I mean, quality assets and minimizing risks as we look for growth is a priority. Obviously in Mexico, the difference between some of the permitting challenges for open pit and underground, so I think obviously we would want assets that have that lower risk profile associated with them. But again, if there are quality assets in other areas, we are open-minded.
spk07: Okay. And last one for me, just on that renewables project, I'm just wondering if you'd give some details on the cost of the project, expected OpEx benefits once that's online, and whether you might have a project NPV.
spk09: Sure. So first and foremost, what we have done is we've signed a contract with a third-party provider of solar. The facility that we're contracted or working on getting that contract with is already up and running. It's fully built. The capacity is there. We'd still be using the same grid as we're currently using. So there's no disruption or changes for us to do. So again, it's kind of a no-risk change in source of power. What we do require is permitting. So right now we're working on that permitting and hope to have that in place so we can implement this in 2025. The benefits to us are quite nice. The contract we have in place would save us approximately $1.5 million per year and would give us that fixed price for three years. So in Mexico for the last pretty long period of time, energy prices have gone up about 7% per year. So again, not only do we get the cost savings, we get the locked-in price. So that's quite nice. And then the added benefit is we would reduce our greenhouse gas emissions by approximately 70%, again, while using solar panels using above 90,000 ounces of silver.
spk07: Awesome. That's a great project there. Appreciate that. And all the questions for me. Congrats, guys.
spk02: Thanks, John. Dan Ellsworth with World Micro. You have our next question.
spk08: Yeah, just a quick clarification with respect to the share buyback versus allocating capital in the treasury of, you know, kind of gold, silver, and those holdings. Is it safe to assume that the priority is really to kind of maximize the treasury holdings of gold, silver over potential share buybacks at this point in time?
spk09: Morning, Dan. Hope you're well. Chris here. The priority, first and foremost, is to have that flexibility. And given the cash outflows we had in Q1, the main point was to see how that all settled out. The framework that we have in place around the bullion holding is to make sure that we're debt-free, we have enough cash to support operations and maintain all flexibility required to make sure that we can do all the right things for the operation. But that said, if we're able to increase those treasury holdings, our ability to hold bullion as a percentage of those treasury holdings certainly can grow with the cash flows in total. So yeah, we definitely believe in the product. We definitely believe in it as a core holding on the balance sheet, and we definitely want to give more exposure to our shareholders.
spk08: Sounds good. Appreciate it, and congratulations on the great quarter, guys.
spk02: Thanks, Dan. Our next question today comes from Steven Suk at Stiefel.
spk06: Yeah, thanks. Congrats on another strong quarter here. Again, took part of my question here, but just kind of to follow on, maybe just how you think about the bullion strategy and the amount held. I understand this quarter you wanted to manage the large tax bill and the payment to the new contractor, et cetera. But I guess how do you, you previously mentioned keeping 12 months worth of CapEx in bullion. You know, is this still the strategy or is it more of a percentage of the total treasury holdings? And maybe just as a part two, you know, is there a scenario in which you trim some of that bullion holding? Yeah, that's kind of just some call around there would be great. Thanks.
spk09: Yeah, great. I mean, first and foremost, as we said, we want to give our investors more exposure to gold and silver. It is a currency of choice for people. And we believe an ounce that we hold above the ground is worth more than an ounce in the ground. and gets all of the leverage associated with price increases. That said, to your point about, you know, there is volatility in gold and silver. It does move up and down. And as we relate, you know, how much to be holding and when to be buying and selling, it is related to the cost to produce an ounce. So when prices are low, you know, we want to have the ability to be, you know, price makers instead of price takers. And when prices are high, we would hedge our bullion just like we would hedge any other currency.
spk06: Okay, yeah, it makes sense. No, I appreciate that. That's it for me. I'll open the line for anyone else.
spk02: And once more to our phone audience today, that is Star and One. If you would like to ask a question, we'll go next to Robert McCleary, private shareholder.
spk04: Good morning. My question has been answered. Keep up the good work. Thank you.
spk02: Thanks, Robert. Thanks, Robert. And to our audience, if you find that your question has been answered prior, you may remove yourself from the queue simply by pressing the pound key. Once again, ladies and gentlemen, that is star and one, and we'll pause for a moment to give everyone a chance to signal.
spk01: And we have no signals from our audience.
spk02: I'll turn it back to our management group for any additional or closing remarks.
spk05: everybody for attending the silver crest metals q1 2024 results call and have a great day this does conclude today's teleconference and we thank you all for your participation you may now disconnect
Disclaimer