Silvercorp Metals Inc. (NYSE:SVM)
F3Q13 Earnings Call
February 14, 2012 11:00 am ET
Rui Feng Geology – Chairman and Chief Executive Officer
Maria Tang – Chief Financial Officer
All participants please standby your conference in ready to begin.
Good morning ladies0 and gentlemen, welcome to the Silvercorp Metals 3Q Fiscal year 2012 earnings conference call. I would like to turn the meeting over to Mr. Jonathan Hackshaw. Please go ahead Mr. Hackshaw
Thank you operator and good morning everyone. Welcome to Silvercorp investor conference call for 3Q fiscal 2013. Joining me today on the call is Rui Feng, Silvercorp’s Chairman and Chief Executive Officer, and Maria Tang, Silvercorp’s Chief Financial Officer. Before we began, I would like to draw your attention to the first slide and remind you that during today’s call forward-looking statements will be made relating to future production, development and expiration, capital expenditures, business expansion and other items. Such forward-looking statements are subjected to risks and uncertainties many of which are detailed in our 2012 annual information form filed on (inaudible). There can be no assurance that such forward-looking statements will prove to be accurate as actual results and future events (inaudible) materially. Presentation slides are available as part of this webcast or on Silvercorp’s Web site. (Inaudible) I’ll now turn the call over to Rui.
Good morning, (inaudible) good morning everyone, today Maria will be began the call with a review of our financial and operating results for the 3Q. And then turn back over to me where I will review development highlights for the quarter. And (inaudible) as well some general comment. Now I’ll turn over to Maria.
Thanks Rui. Turning to slide 2. I am going to review the 3Q financial and operational highlights. During the quarter, the Company recorded a net income of $5.2 million or $0.03 per share, which include a $9.6 million non-cash accounting charge that will write down on the investment in an associated company to its current share price. Adjusted net income was a $14.9 million, or $0.09 per share. For the quarter ended December 31, 2011 (inaudible) is the same quarter last year. The company reported net income of $20 million or $0.12 per share. And compared to net income of $9.5 million in the second quarter of fiscal 2013, which is the last quarter. The adjusted net income in the current quarter increased by $5.4 million or 56%. As a result of more matters being produced.
Moving to slide 3, for the nine months ended December 31, 2012 the company recorded net income of $20.9 million or $0.12 per share. The adjusted net income was $13.5 million or $0.18 per share compared to a $64.1 million or $0.37 per share in the same nine months period last year.
Slide 4, in the third quarter of fiscal 2013, cash flow from operations was $27.8 million or $0.16 per share compared to $31.6 million or $0.18 per share in the third quarter of fiscal 2012. After paying dividends of $4.3 million and a capital expenditure of $24.6 million. The company ended quarter with $130 million in cash and a short-term investment and no debt.
Slide five, for the nine-month period ended December 31, 2012, cash flow from operations was $71 million or $0.41 per share, compared to $100 million or $0.58 per share in the same nine months period last year.
Turning to slide six, sales for this quarter was $58.7 million compared to $61.9 million in the third quarter of 2012. The decrease in the sales was primarily due to the lower base metal production [forever]. This was partially offset by additional gold sales as a return of higher gold production at BYP Mine.
The net realized selling price for silver this quarter was $24.90 compared to $25.10 per ounce for the same quarter last year. And just to be clear, the net realized silver price is after deduction for smelter and the recovery charge and the value added tax. The average market price on the Shanghai Metal Exchange before this deduction for this quarter was $32.97.
Turning to slide seven, our third quarter operational highlight. The company produced in total 1.5 million ounces of silver and over 5,700 ounces of gold. And Ying Mining District, Silvercorps mined over 236,000 tones of ore, 36% more than the same quarter last year. Metal production totalled 1.5 million ounces of silver, 1,285 ounces of gold. 15.6 million pounds of lead and 3.2 million pounds of zinc. Well, during the same quarter last year, we produced 1.5 million ounces of silver, now 926 ounces of gold, 20.6 million pounds of lead and 3.5 million pounds of zinc.
The company achieved comparable silver production with the same quarter last year by increasing the ore production. And if we compare with metal production in Q2 fiscal 2013 which is the last quarter, silver production increased by 18% and this is because of 15% of more ore being mined and the process during the current quarter.
Greece was 2.22 grams per karat of silver, 3.2% for lead and 1.7% for zinc. Compared to 296 gram per ton for silver, 5% for lead and 1.4% for zinc in the same quarter last year. The lower headwind was a result of reduction in cut-off rate for the Ying Mining District.
Following the recommendation of the 2012 technical report, total and the tight mining cost for current this quarter was $64.47 and $54.92 respectively compared to $70.23 and $55.92 respectively in the same quarter last year. The decrease in total and current mining costs is because of the increase of ore production during the current quarter at lower upgrade allowed for more shrinkage mining at lower cost.
Slide eight, for the nine months period the company produced in total 4 million ounces of silver and over 10,000 ounces of gold. Slide nine for the quarter our consolidated total and the tax costs per ounce of silver was a $1.62 and a negative $0.72 respectively. Compared to negative $2.57 and a negative $4.64 ounce of silver respectively in the same quarter last year, the increase in total and tax cost for ounce of silver was because of higher production costs and a decrease in by-products metal credit.
For the quarter, (inaudible) accounted for 75% of sales compared to 69% in the same quarter last year. In current quarter silver accounted for 64% of sales, gold for 11%, lead for 21% and zinc for 4%. Slide 10, for the nine month period our consolidated cash costs for ounce of a silver was negative $0.26 while the same whereas the same period last year was negative $5.25. Price of metals accounted for 72% of sales, of which silver accounted for 64% and gold 8%. Lead and zinc accounted for 23% and 4% of total sales respectively.
Before I hand the call over to Rui, I’d like to remind you that company’s management discussion and analysis, financial statements and the notes to the financial statements are available on SEDAR and are also available on the company’s website.
And now, I’d like to hand the call back to Rui.
Thank you, Maria. As announced, I’ll provide an update on recent development activities at three of our main project and also outline our projection for our fiscal 2014.
Now turning to slide 11, I think SLZ, our main producing asset in the Ying Mining District, there are two main [transition involved] companies. The first one, a reduction of cut-off grade for the Ying Mining District following the recommendation by that 2012 Technical Report, and as a result, we were switched from more re-suing mining method to feature more shrinkage method. And as a result of that, the reduction of cut-off grade, the company began to gradually reduce the use of re-suing mining method and increase the use of the shrinkage mining method and now that it’s change to reduce to head grade because if you pull, we don’t produce a great amount of metal a year and now we have to produce almost 90,000 ounces a year.
But there are lot of the blank, planning on the ores on given districts. The returning volume has – it now has a high efficiency and shouldn’t be the matter through to the long term will be more beneficial. Let’s make one main transition and we’ve been doing this almost three months now and over next couple of quarter or two, we will gradually reduce the mining down to less than 10%.
Next slide, please. So moving to slide 12, because of these more shrinkage in the mining method and in the low column grade, there are a lot of ore body, we used to be able to identify with our video identification, that never came out because there are a lot of silver in addition which we don’t have much lead, zinc, so far linear. And so the one thing that I care a lot for, you feel green. And those are the changes in our drilling strategies.
Starting in the second half of 2012, we set our focus on start our drilling at the depths below the current mining levels that we’ve been doing for the last several years. Starting, I think July last year, SVM began to test the lateral extensions and the internal drilling of the major production vein at or above the current mining levels.
This certainly has successfully and defined additional high grade mineralization for these production veins and also discovery of new veins at or above the current mining level where the mines doesn’t exist, such as where recently the newest lease on LM West and HZG and we are in the process of summarize other year results for other mines, with all the short-term tread. And because of these success, in 2013 our team will continue to work on these strategy upgrading at the shallow depth to keep that advantage of exiting underground mind development. And so the figure advantage is (inaudible) as we go down to at a mine. So looking forward with the success of this strategy we would see reduction in our mining cost.
So now turning to slide 13, turning to our Guangdong, province, we are going to achieve a lot over like – last year we started building the mine in actually in March 2012. Now we have new project place. So (inaudible) I believe mill is completely – mine development as such the major production wins through the May and April year end, on the (inaudible) elevation. And also we are now back into more residual mining metrics which is our main vein, you start show it truly could be more than 30 meter. And 2012 you feel pretty as successfully declined the number of a light heavy silver veins structure.
Because I said we are different from other – meaning that development in North American mining companies are regionally the drilling tighten in the GC project with wide space of 100 meter, 100 meter spacing. At the time we have always started to build the GC project we access. We’ll spend time and money to pre-feasibility study of North American style. It work on $70 million at the time so we were also access cost – have the cost to build the mine, we will also be $70 million. And now (inaudible) with all infill drilling, we see lot of mighty weather on that we previously seeing with wider space drilling, and we also say it is 476 million of the 618 million main shafts.
Next slide please, so with all these completions, this year we’ll be (inaudible) with trial mining production and the trial processing at the mill, right of the Chinese New Year. With this operation, we’re going to the fine tune the mill and mining method. I was – we formally to be clear in commercial production. Our SVM is required deposit series of regulatory inspections to complied with safety and the environmental protection requirements, described in the previously submitted reports to regulators, such as Mine Design and its related Safety Measures and Facilities Report, and also Environmental Assessment Study Report, Soil Conservation Report, and Tailings Storage Facility Safety Measures Report. So, we try to finish most of this production by March and finish like for the modestly requirement that will be water sunk and underground pump station, and now the power supply system, which will take some time to complete it. And, we expect this project is starting by June 2013.
Next slide please, so now move to BYP project, BYP project is a gold project. We continue with the information out of Stope, which will be putting drills in operation this year. And there we facilitate mining of the number 3 gold mineralization body, and the 5 zinc and lead ore body. And, we also – almost finish the construction by 1500 ton a day backfill facility. We backfill all the tailings to the mine area to (inaudible) and also we’re going to expand the 500 ton a day to 1,000 ton a day. And with that all this 600 vendor will be financed in the cash we generated upon these operations.
Turning to Slide 14, so you see that in the 14, just still go to site increase the ore production to 1.5 million tons and also we’re producing 6.7 million ounces of silver and 20.8 – 3,800 ounces of gold and almost a 100 million – that is zinc and the 300,000 (inaudible) and end of sulphur. And people may not understand sulphur, – in the future we’re going to lay out a bunch within the curve in the sales accountancy, we will be able to reduce the pipe or the sulphur. I think you might have seen, production started increasing to 90,000 tons of ore was a great outflow comparable to (inaudible) of silver and 0.3 gram of gold and 3%, 4% lead and 1.3% for the zinc which is excessively produced our pool.
5.9 million ounce of Silver, 4,700 ounce of gold and then 80 pounds of lead and zinc. The cash in total providing cost are expressed through the – about $65 and $80 per ton, which is clearly comparable. The GC mine and global province entered initial trial production in May, 2013. So in fiscal 2014, we will start to produce about 300,000 tons ore with gold of 100 grams, silver and (inaudible) lighting at 0.1% zinc and the 6% copper.
We still have to finalize these numbers as we carry our (inaudible) drilling at our main producing ring. From this we try to produce about 720 ounce of silver, 80 million pounds of lead and zinc, 300,000 pounds of tin and 24.5 million pounds of sulphur. The total cash and the production costs are expected to be $45.70 per ton of ore respectively.
So moving to sldie 17; so these are various kind of contract table we disclosed this on the mine, and also different items of mine development at XBG and the facility in plant equipment.
Total will be $86.9 million, our mine one kind of investment over the $51.9 million, which include mine development shaft in Iran of $94.5 million, we have to buy some land and it’s include a training of $7.8 million, and office and the dormitories of $10 million, then we are going to build a back fill facility at the GC project, and these for the future expansion as a $2 million, and we also have to buy some equipment for our shaft in Iran, of $12.86 million, so the sustaining capital of $235 million which including horizontal tunnels, raises and declines of $24.9 million and exploration and drilling of $10 million.
So these projects estimated based on our contracting hand also based on by qualified engineer firm and also prior experience.
Now we’ll move slide 18, I would like to make some general comments. I am very proud of the fourth quarter what we have achieved over last three years. Now we have experienced a lot of outcome tax based on false information and rumor, I was tired, but I am kind of tired fighting with this guy, now we’re going to the long business.
Over the last year, operating provision, I believe we have passed through the bottom already and we have a better understanding of our (inaudible) Ying Mining District. And we have a strong balance sheet, including over $130 million in net cash and no debt. We have a strong and growing team of mining and exploration professionals, and most importantly a portfolio of cash generating, quality assets, which we are focused.
We are making a lot of money at the Ying Mining District and its resources are growing year-over-year with our extensive drilling campaign. We started to mine there seven years ago at the time only six year mine life. Today we are still mining and we have more than 10 year mine life with expanded production.
And The GC mine is fully paid, permitted and built, and there maybe little delays, but will go to production in the coming fiscal year. (inaudible) like all other Canadian companies did. Its first year cash flow will be more than enough to self-finance its remaining capital costs for improvement and expansion. And our drilling at GC has constantly given upside surprise and resources are (inaudible). Our BYP project is self-sustaining with its expansion from 500 t/d to 1,000 t/d in 2013.
We have no reason to worry as a company. We do not have to raise capital to grow our business in today’s market environment and we are profitable and paying a quarterly dividend. I am very proud that Silvercorp as a young company has paid nearly $115 million to its shareholders since 2007 in the form of dividends and share buyback. This is a record that we, as a company, are very proud of.
Last but most important, over the last two years, with transition of our one mine operator to multiple mine operators. And for that we have also built a very capable team of operators. In our Beijing office, we have office space of 12,000 square feet, which holds over 40 professionals including mining engineers, geologists, accountants, managers and other professional staff to oversee our operations in China.
China has been a great jurisdiction to operate. There are also still great opportunities for mining and exploration opportunities. The demand for our products is great. There are plenty suppliers of capital goods and construction crews; because of this, we were able to build the GC mine, a 1,600 tonne per day operation for $70 million. We say $70 million to the (inaudible) Northern Canada build a same kind of size operation work $600 million, so we always have $70 million. And also we have never had any problems repatriating money out of China.
So in conclusion, ultimately, we believe with our true value will be delivered to our shareholders by continuing to devote our energies to the business of mining, mine development and exploration.
Now with that, I would like to open the call for questions. I’ll turn to you Jon. Jonathan?
Operator, we’d like to now open the call up for questions please.
Thank you, Mr. Hackshaw. (Operator Instructions) There are no questions registered on the telephone lines at this time, I’d now like to turn the meeting back (Operator Instructions). There are no questions registered at this time, I’d like to turn the meeting back over to Mr. Hackshaw.
Thank you operator, to wrap up, I’d like to thank again for joining us for today’s conference call. We look forward to speaking with you again when we report our results for the fourth quarter and year-end of fiscal 2013 later on this year. Thank you and good bye.
Thank you, the conference call has now ended. Please disconnect your lines at this time, thank you for your participation.
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