Silvercorp Metals Inc.

My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the SilverCorp First Quarter Fiscal 2026 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 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. Thank you. And I would now like to turn the conference over to Mr. Ron Schubert, President of Silver Corp. Thank you. Please go ahead.

Thank you, Ina. On behalf of Silver Corp., I'd like to welcome everyone to this call to discuss our first quarter of fiscal 2026 financial results, which were released yesterday after the close. A copy of the news release, the MD&A, and the financial statements are available on our website and on CR+. Before we jump into the call, please note that certain statements on today's call will contain forward-looking information within the meaning of applicable securities laws. Also, please review the cautionary statements in our news release, as well as the risk factors described in our most regulatory filings. So let's kick off with financial results. We delivered a solid Q1, which was highlighted by revenues of $81 million, up 13% from last year. Additionally, cash flow from operating activities set a new quarterly record at $48 million, which was up 21% from last year. This performance was driven by a 5% and 95% increase in silver and gold sold during the quarter, respectively, and that was combined with a 12% and 45% rise in the selling prices of silver and gold compared to Q1 of last year. Silver remains our most significant revenue driver, contributing significantly 66% of Q1 revenue, followed by lead at 18% and gold at 7%. Moving down the income statement, we reported a net income of $18.1 million per quarter, or $0.08 per share. This is down from $21.9 million, or $0.12 per share, in Q1 of fiscal 2025. But in this year's quarter, we had a non-cash $5 million accounting charge on the fair value of derivative liabilities. which is related to the conversion rights of our convertible notes issued last November, as well as warrants. Removing non-cash and one-time items or adjusted net income for the quarter was $21 million, or $0.10 per share, compared to $20.6 million, or $0.11 per share, in the comparative quarter. And I'd like to point out that all per share figures are lower due to an additional 38.8 million shares that were issued for the acquisition of Adventus Mining, which closed in July of 2024. Looking at cash flow, I mentioned the record cash flow from operating activities earlier, but during the quarter, we invested over $18 million at our operations in China and $7.6 million in Ecuador to advance the Adomo construction and the Condor exploration plant. Even after these investments, we were able to generate $22.5 million in free cash flow. We ended the quarter with a strong cash position of $377 million, which is up $8 million from March. This cash position does not include our investments in Associates and other companies, which had a total market value of $72 million as of June 30th. And note, we also had a stream financing commitment of $175 million available from Wheaton Precious Metals for the Aldomo construction. Now, to recap our operating results, as we reported in July, we produced in Q1 approximately 1.8 million ounces of silver, just over 2,000 ounces of gold, 16 million pounds of lead, and 5 million pounds of zinc. And that represents increases of 6%, 79%, and 1%, respectively, in silver, gold, and lead production, and a 19% decrease in zinc production. On the cost side, Q1 production costs averaged $83 per ton at year, which is down 8% from last year due to higher volumes of ore mined and milled. Consolidated cash costs per ounce of silver net of byproduct credits was $1.11 in Q1 compared to a negative $1.67 in the prior year quarter. The increase in the cash costs was driven by a $6 million increase in production costs that arose from a 16% increase in the ore process, while silver production grew by only 6% due to lower-grade experience at Yang. It was also impacted by a $1.5 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025, but the cash cost was partially offset by a $1 million increase in byproduct credits. The all-insustaining cost per ounce net of byproducts were at $13.49 per ounce. That's up 37% from the prior year quarter due to a $1 million increase in G&A expenses and the previously mentioned factors that impacted cash costs. On a more somber note, as we reported in our news release yesterday, we had an accident at the HZG Mine in the Union Mining District. This was a fatality of a newly hired worker. From our perspective, this incident never should have happened, and we send our sincere condolences to the family of the deceased worker. The accident occurred earlier in Q1, but only came to our attention in July after a government investigation was launched following a whistleblower report. The investigation has been performed, some recommendations made, and some changes implemented at the mines during this period. But during this period, certain mining areas have been closed. We've been awaiting regulatory sign-off to zoom production in those closed areas, but this has taken a little longer. It is possible the government has been preoccupied by some other tragic industrial accidents that have occurred recently and have captured the attention of the public as well as the regulators. So to be conservative, we have disclosed a potential production shortfall of up to 20% to 25% for the current quarter. However, in recent days, we've begun to receive clearance to reopen certain of these closed areas. We have been and remain committed to safety at our operations and will act on any findings or recommendations to strengthen safety protocols. In this case, the contractor contravened several rules by taking someone on an unsanctioned visit to an unapproved area that had not been properly cleared as safe to access, and then also, importantly, failing to properly report the incident, both to us and to the regulators. Turning to our growth projects, again, we invested $8 million in Q1 for ramp and tunnel development to enhance underground access and materials handling to eventually pave out shafts in favor of a trackless system. This is a program we've discussed before and remains in progress. An additional $7 million was spent on exploration tunneling and $1 million on capitalized drilling as we continue to explore this district. At Kuan Ping, the satellite project north of Yang, mine construction got underway with $481 million of grant development and exploration tunneling completed in the quarter. Turning to Ecuador, mine construction is progressing steadily at the Aldomo project with over 370,000 cubic meters of materials moved to date. I recall in June of last year, a group of individuals filed a lawsuit in Bolivar province, where the project was located, seeking to void the environmental license for the mine. The case was dismissed by the local court in July of last year, and the dismissal was upheld on appeal at the provincial level in November. The group then filed an extraordinary protection action with Ecuador's constitutional courts, which was rejected in February of this year. A subsequent motion for clarification of this ruling was also unanimously dismissed by the Constitutional Court last month. Turning to Condor, the gold project, we drilled just over 2,000 meters in the quarter and released an updated mineral resource estimate in Q1. The latest model outlined a higher-grade underground resource to camp and was cleaved deposits. This work will feed into a PEA, which we're targeting for completion by year-end, which will focus on an underground gold operation, and then we'll move forward from there. And with that, I'd like to open the call for questions, operator.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star 4.1 on your telephone keyboard. You will hear a prompt that you have been raised. And if you wish to cancel your request, please press star four, beta two. If you're using a speakerphone, please lift your handset before pressing any keys.

One moment, please, for your first question. Thank you. And your first question comes from a line of Joseph Rieger from Roth Capital.

Please go ahead.

Hey Lon, thanks for taking the questions.

I guess first thing on the incident at Ying, obviously unfortunate, but I guess first, is Silvercorp continuing to work with the contractor who made this error? Have you guys made any changes on that level? And then if there is a production shortfall, do we expect a relatively sized increasing cash costs for the quarter?

Well, to answer the first question is that contract is obviously a company, and so we're using that company at a number of locations in the mine. We're going to continue to do that, but that individual is gone, and being dismissed is sort of the least of their worries as this matter really is sort of now in the hands of authorities. So I think that addresses the first point. As the second, it's a little early to say. You know, I think we've been cautious and conservative with our potential impact on the quarter, but obviously we've got lots of working areas. We're going to adjust my plans and strategies, you know, not just for this quarter, but for the balance of the year, and we'll provide an update when we have more information.

Okay. Maybe a different question then on that. Do you have a rough idea what percentage of your overall operating costs are fixed at yin versus variable?

Good question, Joe. It's been a while since we've run that analysis. And, of course, we have made a number of you know some changes uh since that time uh so i was waiting to have to go back and have a look at sort of where things stand now and uh and and rerun that uh analysis okay okay fair enough uh but then we can kind of maybe um

The second question is on Kuben Yang. Once that mine is in operation, will it be consolidated under Ying or treated as a separate mining location?

I mean, it is a separate mining operation. It is owned, you know, through the Ying sort of operating structure. And obviously, you know, as I've indicated, you know, initial plans are putting that, you know, in the ores through the Ying Mill. So, to be honest, I don't think it really makes much of a difference. It'll just be really another contributor to, you know, the overall corporate production.

Okay. Okay. And then, one big picture question. So, you know, like, traditionally, Sutter Corp. traded at dip times with peer groups. It seems like Recently, that gap has widened. That's one of your fears for your significant premiums now. Have you guys any thoughts on what you can do to help close that gap, or is it just a matter of letting things play out to where your production grows over the coming years with the addition of Super Yang and El Domo and potentially things beyond that?

Well, I think it's important to recognize a big portion of our AAU will be tied up in our cash position. And so that's one question of how the market views that. But El Domo and potentially Condor are evidence of the strategy that's unfolding, which is to build a bigger and more diversified mining company. And our view is you know, that and some other potential targets that we have been and are looking at right now, you know, would just further accelerate that shift.

Okay. Fair enough. I'll turn it over. Thanks. Okay. Thank you.

Thank you. And your next question comes from the line of Talton Barreto from Times Court Bank. Please go ahead.

Thanks, Robert. Good morning, guys. Lon, why don't you give us sort of a more wholesome update in terms of what's going on at El Domo these days from a construction perspective, and also how much of a concern these anti-mining groups are right now.

Thanks. Construction has been moving ahead since the beginning of the year. Arguably, after what was a drought year last year, Ecuador experienced a very intense and prolonged rainy season. Not the best time to be building a mine, but we were able to start bringing our initial contractor to start site preparation and have been making good progress on that. Our plans and our budgets are expecting pretty meaningful ramp-ups in tons of moves. starting this month in August. Things like the temporary camp have been – the components of that have been showing up on site, and we've been putting together those buildings. A number of items related to sort of long lead time orders have been put ahead with respect to mill components and things. So I'd say we're ramping up, and the balance of this year, we expect to see things move ahead more dramatically. As for the second part, the anti-mining groups have been, I'd say, an annoyance and an inconvenience, but have not overly impacted our ability to get stuff done at the project, and having things like the camps installed and running on the site will, you know, will further improve, you know, our progress because of less, you know, less movement of, you know, people in and out of the site every day. So we've made good progress and everything is looking good at this point for seeing that construction ramp up and accelerate here through the end of the year and obviously onwards into 2026.

Okay, great.

And when do you plan on drawing down on the stream proceeds?

We're anticipating either towards the end of this current quarter or early next quarter. We'd be able to put in for an initial draw from Weedon.

Got it. Thanks. Okay, just maybe one last one on Yang, if I may.

Can I take the Q1 silver production number? I just multiplied by four. it stressed about just below the bottom end of your guidance, and now you've had this issue in Q2, and then, you know, you always have service office quarter at Chinese New Year. Are you still comfortable in guidance?

Yeah, it's a little early to address that question. Obviously, we're going to have to, you know, revamp and revisit some of the mine plans, you know, both for this quarter and the rest of the year. But I think we've got to let this quarter and see what... what has been the, you know, the true impact on production of this quarter before we would make any adjustment to guidance, if any. You know, you've obviously been following, you know, following the company and understand, you know, the seasonality and that Q4, other than last year, given that we have, you know, an enhanced milling capacity, you know, Q4 is typically the softest quarter. But, you know, we were able to change that last year And we'll have to look at what plans can be and what contributions from, you know, other sources like Quanping, you know, might be able to make up some of the difference.

Okay. Thanks a lot, Vaughn. I'll jump out in case. Okay. Thanks, Vaughn. Thank you. Once again, should you have a question, please press star 4 by the 1 on your telephone to pass it. There are no further questions at this time.

I will now hand the call back to Mr. Longsheba for any closing remarks.

Okay. Well, I'm not sure if any of you guys had follow-up questions. But in any case, I want to thank you, operator, and thank everyone for joining us today. If there are follow-up questions, obviously, please feel free to call or email us. And as always, we'd be happy to respond. I look forward to hearing from you and look forward to catching up with everyone on our next quarterly update. Have a great day.

Thank you.