Aurcana Corporation (OTCPK:AUNFF) Q3 2012 Earnings Call November 13, 2012 2:00 PM ET
Catalin Chiloflischi - Manager, Investor Communications
Lenic Rodriguez - President & CEO
Christos Doulis - Stonecap Securities
Good afternoon ladies and gentlemen. Welcome to Aurcana Corporation 2012 third quarter webcast and conference call for Tuesday, November 13, 2012. Please be advised that this call is being recorded. I would now like to turn the call over to Mr. Catalin Chiloflischi, Manager, Investor Communications, Aurcana Corporation who will introduce you today's speakers. Please go ahead Mr. Chiloflischi.
Welcome everyone to Aurcana third quarter conference call and thank you very much for taking the time to be with us today. Today's conference call will be presented by Mr. Lenic Rodriguez, President and CEO of Aurcana Corporation who will be providing investors with an overview of Aurcana’s third quarter financial results as well as an update on La Negra and Shafter. After CEO’s presentation today, we will open the line for questions.
For those of you who have joined us today on the webcast, we have included a number of slides to support today's discussion. While we will be making every effort to answer all questions today, I would like to encourage everyone who will not have their questions answered during today's call to contact us by telephone or email. Please note that in order to ask live questions you need to dial into the teleconference. Questions asked via webcast will be responded after the event.
As a reminder, in today's call we will be discussing forward-looking information that involves unique risks concerning the business operation and financial performance of Aurcana Corporation. Accordingly, listeners should not place undue reliance on forward-looking statements. Please refer to the webcast slides for a complete forward-looking statements disclosure and general disclaimer.
With that, I would now like to turn the floor over to Mr. Lenic Rodriguez, President and CEO of Aurcana Corporation.
Thank you, Catalin. Hello and welcome everyone to our call today. We are also joined on the call today by Mr. Salvador Huerta, our CFO who will also be available to answer any financial resource questions after my remarks. I am pleased to report today the highlights of Aurcana’s third quarter financial results followed by an update on La Negra and Shafter.
In the third quarter of 2012, Aurcana achieved record revenue of $15 million. Our year-to-date revenue was $40.6 million. This represents a 20% increase from the same quarter last year. We are satisfied with these results since over the same period one year ago the silver prices decreased about 16% yet we were able to increase our revenues by 20%.
The company was able to produce 54% more silver ounces this quarter than it did in the same period one year ago. Aurcana produced this quarter 376,687, silver ounces and 718,063 silver ounces equivalent. The year-to-date production was 1,037,210 silver ounces and 1,899,280 silver ounces equivalent. Our silver production at La Negra this quarter accounted for 52% of the revenue, 28.1% was derived from copper; 14% from zinc and 6% from lead with the year-to-date numbers maintaining similar ratios.
The average net revenue per payable equivalent silver ounces sold, net of charges for treatment, refining and smelting $25.79 this quarter, about 15% lower than one-year ago, due to a decline in silver prices. The increase in production was achieved by mining, by milling 64% more ore than the same quarter one year ago to a total of 196,843 tons ore milled in the third quarter 2012.
La Negra mill was able to process a total of 504,005 tons of ore year-to-date. Our La Negra mine was also able to achieve a very low cash cost per silver ounce, net of by-products of only $0.10 this quarter. While the year-to-date cash cost per silver ounce net of by-products was a negative $0.21. These results make La Negra one of the lowest cash cost producers.
Earning from mining operations in the third quarter of 2012 was $6.4 million, down 6% from the third quarter of 2011 due to lower metal prices. Aurcana’s year-to-date earnings were $17.4 million. Aurcana’s net income in the third quarter of 2012 was $3.4 million and year-to-date net income was $7 million.
The average grade of silver increased 7% year-to-date to an average of 80 grams per ton in 2012 compared to 75 grams per ton in 2011. The increase in production is expected to continue while we work to raise production capacity at La Negra and very soon start commercial production at Shafter mine in Texas.
With that, let me provide you with an update on La Negra and Shafter. La Negra mine, as you know on August 28, 2012; we had released a new measuring instrument 43-101 compliant resources to make for La Negra with 115 million silver ounces Measured plus Indicated and about 56.5 million ounces of Indicated Resources. La Negra has significant copper, zinc and lead reserves as well.
We can see that the sizable shifts of La Negra significant as they are able to support a mine life of more than 30 years. Going forward, we expect our La Negra [results] will increase as mining operations and exploration drilling at La Negra continue to delineate additional mineralized zones. The additional mineralized zones are either between or as extensions of existing mineralized zones. Our drill crews have completed 9,399 metres of diamond drilling during 2012.
For La Negra mine in the third quarter, 77% of the ore mine was from measurement instrument 43-101 measured plus indicated resources and 43% was mined from other mineralized zones. La Negra mill processed 32% this quarter one year ago while being able to reduce a cost per milled tone 4% to $32.41.
La Negra mill current installed capacity 2,500 tonnes per day. The mine is now milling at a rate greater than 2,300 tonnes per day. In order to allow for an increase in future production, La Negra mine is now working to increase mill capacity to 3,000 tonnes per day by the end of first quarter 2013. The capital required for this expansion is expected to be under $1 million and would be supported from cash flow.
Now moving onto Shafter, as I know everybody is eager to get an update on Shafter. The Shafter mine, as you probably know the commissioning and testing phase is correctly underway and it’s bolstering our Shafter mine. I can tell you that everybody is working hard towards achieving commercial production before the end.
Today, I am pleased to report that we have very good progress on Shafter. Specifically, Shafter mine now has skilled and personnel and is continuously running training programs for the local workforce. We are focusing on our efforts to attract, recruit and train local people. As we have made it clear committed to support the local community. Technical personnel from La Negra mine have also been providing valuable mining and operational advice to Shafter.
The open pit development continued during this quarter and has been providing feed to the mill. Underground development has also continued and as a result the underground production of ore will commence late November once the secondary escape way is completed. With that starting the late November the plant is planning to operate at the production throughput of 600 tonnes per day and continue at that rate for the remainder of the year.
Going forward into early 2013, in order to expand the efforts to increase production 1,500 tons per day continued development is required. This is part of the usual ramp up phase. To maintain and increase a consistent and continuous feed thickeners have been already ordered.
The additional thickener tanks are expected to be commissioned by the start of the first quarter of 2013. This additional equipment will improve the dewatering process of the plant capacity enabling the mill feed to work towards 1,500 tonnes per day. We further improved the mill capacity; the need for additional filter presses has been established. They have been ordered and to be installed in the first quarter of 2013. Our team at Shafter is making good progress everyday and the operation is running on a 24 hour basis.
Moving on to exploration at Shafter, during the third quarter the surface core drilling program was expanded with an addition of second drill dedicated to the near mine area. The program focus continued to be the discovery of a plumbing system below the Presidio and Shafter deposits. Drilling targets were selected on the basis of wells mineralized historic intersections and or associated fault structures. 20 holes have been completed to the end of the third quarter for a total of 23,000 feet. 10 holes intersected mineralization in the Shafter and Presidio mine horizons, results for which will be incorporated into the mine model. With such a unique growth profile from both Shafter and La Negra, (inaudible) at Aurcana is strategically in a position to become an emerging senior silver producer.
We would now like to open the floor for questions. Operator?
(Operator Instructions) We have a question from a participant. Please state your name and company and please proceed with your question.
Christos Doulis - Stonecap Securities
Christos Doulis with Stonecap Securities. Lenic just congratulations on a good quarter here but just curious at La Negra I noticed that recoveries have dropped off in this quarter relative to the previous four where they were all above 80 and they came in around 74% this quarter. Could you give me an idea of what's going on there? Is this something that you guys anticipate to be ongoing or do you hope to get the recoveries back up and kind of what happened here?
Well, I don't know what kind of numbers you are looking at there. Our information is that recoveries continue at about the rate of above 85% but any additional questions that you may have you can call us later on or (inaudible) Salvador Huerta, he can clarify your numbers.
Christos Doulis - Stonecap Securities
Okay I mean, just to confirm Lenic, I'm actually looking at your PowerPoint on your website and it has 74.5% recovery for the third quarter but we will follow-up on this later I suppose.
Please do, there maybe issues from the presentation or also but I look at the results of the production everyday.
Next question operator.
Thank you. Our next question is from (inaudible) KJS Financials. Please go ahead.
Lenic, congratulations on your progress on the Shafter as well as La Negra. If one of the earlier times you had indicated there was a small amount of gold being encountered in the drilling for Shafter, what is your status on that? Are you encountering that. Do you expect that to be a part of the output?
Well, we did encounter within the drilling. It was in our radars and yes it was significant actually the gold that we encountered is some (inaudible) bars, so it was worth more than the silver encountered in the bars. However, we are drilling there and we've not get the report from all the core drilling and we don’t really where this gold is coming from although there are indications, historical indications submitted by mines where small amounts were historically mined but at this point in time, we don’t have any important information on gold production from Shafter.
Thank you. (Operator Instructions) Our next question is from [Cath Neil] from Stonecap Securities. Please go ahead.
Lenic if you can just confirm what the remaining CapEx at Shafter is in order to get that the planned 1500 tons per day throughput?
Yes, the potential CapEx required to get to those 1500 tons per day probably is going to be about $0.5 million, and that just includes some of the [fixation] that we are doing to the plant to increase that capacity to 1500 tons per day, but it’s really minimum equipment. I wish it was only just the cost of that equipment, but it's the time that’s going to take us to put in to operation which probably we are shooting for early 2013 or in the first quarter of 2013? That’s not an issue.
Just a quick follow up if I can. This 600 short ton of throughput you talked about, is that what it's running out now or what you hope to run out when the secondary escape way is commissioned?
That’s it. That is what is rolling out right now. The escape way should be commissioned in a question of days and then we will be able to start mining from underground at much higher rate. But in the mean time we are just (inaudible) from the open pit, which by the way was not even in the feasibility study.
Our next question is from Christos Doulis from Stonecap Securities. Please go ahead.
Christos Doulis - Stonecap Securities
Hi just on that kit and Shafter. So you guys have been pulling at about 600 tons per day to kind of fine tune the mill at this point but that’s all been from the pit only because of the secondary escape way we haven’t been able to pull at all from underground is that correct?
That is correct, we are just [railing] from the open pit to rate, to (inaudible) production is about a 1,000 tons per day and once the escape way and (inaudible) things been finalized, we will be able to start mining from underground that should happen in a few days from now.
Christos Doulis - Stonecap Securities
In terms of ramping up that production from underground; the secondary escape way obviously is a critical thing but curious have you guys been executing on the development underground in order to have enough phases to ramp up throughput production very quickly or not?
We have fulfilling our targets on the ground. We are in the process of opening six bases on the ground. So we are preparing our needs, but it will take some time to ramp up the production from underground, so we will mix and match and blend both the open pit which we didn’t want to waste and the underground as well.
Our next question is from (inaudible), a private investor. Please go ahead.
Lenic could you clarify the status of the water issue and the concerns mostly around the Shafter community about the mining operations and the impact on the local water table, that type of thing. And if I could (inaudible) me, could up update or provide an update on the TSX listing for the company. Thank you.
Well I think all this advertising or news that has been publicized locally regarding what are the issues is been over gone. We have all our permits to do whatever we need to do with the water, but not only that so I don't believe we have a water issue, we have a neighbor issue. That situation is that this neighbor has a contract that has attracted (inaudible) a long ago that stated that this mine was ever developed, he had a right to buy all the acreage at a cost of $10 per acre. So that’s what really stings during this situation, it’s a personnel interest of this individual but of course we are the major benefactors to the community of Shafter.
I mean, we are providing water to a community of Shafter at low cost to the community. We are trying to revise the time, last time I was there even the church opened and more than 50 people were attending church. So it’s starting to get revised, we are opening also the store that we locked up coffee shop, dresses for our people, we will have so many piece and our intention is to revive (inaudible) we did with Shafter. So really there is no major water issues that’s my opinion. As far as the (inaudible) filing is concerned that’s something that's on the work and probably that’s something that will happen sometime next year.
(Operator Instructions) our next question is from a participant. Please take your name and your company and please proceed with your question. Participant your line is now open, if you are using a speaker phone please lift up your handset.
I was curious about the financing aspect of how you guys have planned on expanding production at La Negra and Shafter, is that going to be purely by cash flow or you plan on doing any financing, and second question as far as the Shafter mine goes is there any plan to do any hedging at that mine?
Except for the last question we have no plans of doing any hedging on any of the mines. And regarding financing well we will be producing cash flows next year with our two main (inaudible) by $100 million. I have stated our CapEx requirement of about [$3 million] for Shafter, same situation for La Negra. So I don't foresee that we need to do any financing to increase production for both mines.
Thank you. There are no further questions registered at this time.
Well, I mean we had set aside 20 minutes for questions. But if there are no further questions, we would encourage investors to getting back with us via email or telephone for any questions that they may have and with that operator we may conclude the call.
Thank you. The conference call has now ended. Please disconnect your lines at this time and we thank you for your participation.
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