Silvercorp Metals Inc.

Thank you for standing by. Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silver Corp Second Quarter Fiscal 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. Thank you. I would now like to turn the conference over to Mr. Lon Shaver, President of Silvercorp Metals. Please go ahead.

Thank you, Mina. On behalf of Silvercorp, I'd like to welcome you all for joining the call today to discuss our second quarter fiscal 2024 financial results. They were released yesterday after market. and a copy of the news release, MD&A, the financial statements for today's call are available on our website. Before we get started, I'm required to remind you that certain statements on today's call may contain forward-looking information within the meaning of applicable securities laws. Please review the cautionary statements included in our news release and presentation, as well as the risk factors described in our most recent 10-Q and Form 40-F and Annual Information Form. But with respect to the quarter, revenue in Q2 was $54 million. That was up 4% compared to the prior year quarter. And this increase was due to higher net realized selling prices for silver, gold, and lead, which increased 27%, 38%, and 2% respectively, and also due to a 110% increase in gold sales. This offset the lower silver, lead, and zinc sold. Based on production levels and realized prices this quarter, silver was 58% of revenue on a net basis, and that's up from 54% in Q2 of fiscal 2023. Q2 net earnings attributable to equity shareholders were $11.1 million, or $0.06 a share, and that compared to a net loss of $1.7 million, or $0.01 per share, in the same period last year. The main contributors to the increase in earnings were the higher realized silver, gold, and lead prices I mentioned earlier, the higher gold sales, and also we did not have an impairment of mineral rights and properties, which we incurred in the previous period. This increase, though, was offset by a 27% decrease in the realized zinc price and also a 12%, 12%, and 23% decrease in silver, lead, and zinc sold, respectively. and also a decrease of $3 million in foreign exchange gain. On an adjusted basis, with adjustments we make to remove the impacts of non-cash and unusual items, earnings for the quarter were $11.7 million, or $0.07 per share, and that compared to $6.8 million, or $0.04 a share, in the same period last year. And just a reminder for everyone, the adjusted earnings is a supplemental non-GAAP measure that we provide to investors as another metric to better measure the performance of the underlying business, its continuing profitability and growth potential. Turning to cash flow, our cash flow from operations in the quarter was $28.8 million. That was up from $14.1 million in the prior year period due to those previously mentioned factors that impacted revenue and net income. but also $1.8 million in cash taxes paid versus $4.3 million in the prior year quarter and a positive adjustment in non-cash working capital of $3.2 million compared to a prior year quarter negative adjustment of $6.8 million. Capital expenditures total approximately $15.1 million in the last quarter, down 13% from $17.4 million in the prior year period due to lower corporate exploration spending and modestly lower investments in equipment and facilities at both operations. This was partially offset by higher exploration and ramp development spending at the GC and Ying mines. During this period, we also repurchased under our normal course issuer bid just under 200,000 shares of the company for a total of approximately 600,000. We ended the quarter with 189.1 million in cash and cash equivalents in short-term investments. This is down 6% compared to the $200.1 million we reported at June 30th and was largely due to an additional $5 million investment in New Pacific as part of participation in their financing and an $18.5 million investment in Orcorp through a private placement that we completed in conjunction with the signing of the binding scheme implementation deed to acquire Orcorp. This cash position does not include our investments in Associates and other companies, which had a total market value of $124 million as of September 30th. Now, looking at production over the quarter, as we previously reported, we mined 273,465 tons of ore and milled 261,107 tons of ore. Those numbers were down 6% and 10%, respectively, compared to the same quarter last year. The decline was primarily a result from a five-week shutdown at the GC mine, as we previously reported in both an update as well as the production figures that we put out. So we produced on a consolidated basis approximately 1.6 million ounces of silver, 16.1 million pounds of lead, and 4.6 million pounds of zinc in the quarter. These figures represent decreases of 12, 11, and 23% respectively in silver, lead, and zinc production compared to Q2 of fiscal 2023. A decrease mainly reflects lower production from GC and lower head grades achieved at Ying due to mining sequencing and increased mining and milling of gold ore during the quarter. In total, 12,800 tons of gold ore Grading 1.9 grams per ton and 82 grams per ton silver were processed in Q2 to produce a gravity gold concentrate leading to the pouring of the company's first gold dore and contributing to a recordly quarterly gold output of 2.5 thousand ounces of gold. Year-to-date, we've produced 3.4 million ounces of silver, 4,000 ounces of gold, 34 million pounds of lead, and 11 million pounds of zinc. The cash cost per ounce of silver net of byproduct credits was negative $1 in the second quarter compared to a positive 77 cents in the prior year quarter. The improvement is mainly due to decreases in per ton production costs, contributing to a decrease of $4.1 million in expense production costs. Unit production cost improvement also reflected a 6% depreciation of the Chinese RMB against the U.S. dollar over the same prior year period. The all-in-sustaining cost per ounce of silver net of byproduct credits was $11.50. This compared to $8.25 in Q2 of fiscal 2023. And the increase primarily reflects a $5.4 million increase in sustaining capital expenditures and a $7 million increase in G&A expenses and government fees and other taxes over the same prior year period. Turning to our growth projects, we spent $1.7 million on the construction of the new tailing storage facility at Ying during the quarter. As of September 30th, total expenditures incurred on the tailing storage facility were $8.9 million. and construction is on track for completion in 2024. At the Kuan Ping project, a satellite property located to the north of Ying, the company has completed environmental water and soil assessments. These reports have been approved by the relevant provincial authorities and an updated mineral resource estimate report to be prepared in accordance with Chinese standards is currently under review by the province. The company is also in the process of preparing a comprehensive report that includes the Mineral Resources Development and Utilization Plan, Reclamation Plan, and Environmental Rehabilitation Plan. We'll provide additional details when they're available. Looking ahead at Ying, we are considering opportunities to increase operational efficiencies through enhanced mechanization of our mines in the Ying Mining District. Underground stoping activities will increasingly pivot to more shrinkage mining with LHD loading This will help to reduce the labor-intensive mucking associated with the cut-and-fill-over-suing-stoping method, which is being used predominantly. This shift is expected to increase mine output, improve labor efficiency, and reduce unit operating costs in the future. And as part of this initiative, the company has ordered 20 scoop trams, or LHDs for Ying, with the first unit delivered to site in late October. A mobile XRT ore sorting system is being installed at the number 2 mill, to address the higher anticipated dilution associated with shrinkage mining. This is one of three XRT ore sorters planned at Ying to upgrade ore from the various mines throughout the district. This type of sorting system has already been implemented at the GC mine with reported improvements in head grades. Silvercorp is considering alternate strategies to expand Ying's mineral processing capacity. Instead of the original plan to build a new 3,000 ton per day mill and then decommission the existing number one mill, We are currently considering the option of adding 1,500 tons per day of capacity to the number two mill, which would increase the processing capacity at the Ying Mining District to 4,000 tons per day. The company will provide additional details when available, but as expected, this expansion could be operational sooner and at a lower cost, both in terms of absolute dollars to implement and on a dollars per ton per day increase in capacity. With respect to our Orcorp acquisition on August 6th, 2023, the company and Orcorp announced the signing of a definitive agreement whereby we will acquire Orcorp pursuant to an Australian scheme of arrangement, subject to the satisfaction of various conditions. Since the announcement, the company and Orcorp have been working together to seek the necessary regulatory approvals, including an application lodged to the Tanzanian Fair Competition Commission for which approval was granted effective November 3rd. The scheme booklet, which includes an independent expert's report saying the transaction is fair and reasonable to Orcorp shareholders, has been completed and provided to Orcorp shareholders to assist them in the considerations as to whether to vote in favor of the scheme at the scheme meeting. The scheme meeting is currently scheduled to take place at 10 a.m. Australia time on Friday, the 8th of December. We look forward to providing the market with further updates on the transaction over the coming weeks. With that, I'd like to turn the call open over to the questions operator.

Thank you, sir. Ladies and gentlemen, we will now conduct a question and answer session. If you would like to ask a question, press star then the number one on your telephone keypad. If you would like to withdraw your question, press star two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Joseph Rieger from Roth MKM. Please go ahead. Hey, Lon.