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Great Panther Silver Ltd. (NYSEMKT:GPL)

Q2 2014 Results Earnings Conference Call

August 07, 2014 10:00 AM ET

Executives

Mariana Fregonese - Director of Corporate Communications and Sustainability

Robert Archer - President and CEO

Analysts

Operator

Good morning ladies and gentlemen. This year for standing by. Welcome to the Great Panther Silver Limited Second Quarter 2014 Financial Results Conference Call and Webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

I would now like to turn the call over to Mariana Fregonese, Director of Corporate Communications and Sustainability.

Mariana Fregonese

Good morning everyone and thank you for taking the time to join our call today. With me here this morning are Robert Archer, President and CEO; and Jim Zadra, Chief Financial Officer.

Before we begin, I’d like to mention that some of the commentary in today’s call will contain forward-looking statements. You should be caution that actual results and future events could differ from those noted in today’s presentation. I would like to remind you that this conference call is being recorded and will be available for replay after 9:00 A.M. Pacific Time. Replay information and the presentation slides accompanying webcast and conference call are available on website at www.greatpanther.com.

I will now turn the call over to Robert Archer President CEO

Robert Archer

Thank you Mariana. Good morning everyone and Thanks for joining us today. We'll start this morning by reviewing our second quarter operating highlights and our individual operations. I'll then provide you with an update on this quarter's financial results and provide an outlook for the second half of the year and 2014 overall. Once I have run through these slides, I'll open the call for questions.

Great Panther's operations processed a record amount of ore in the second quarter of 2014 mainly as a result of starting commercial production at San Ignacio in June. This represents a 20% increase in tonnes milled compared to the same quarter last year and an 11% increase compared to the first quarter of 2014.

Accordingly, overall metal production for the second quarter saw an increase of 6% compared to the same quarter last year and an increase of 8% from the previous quarter to more than 718,000 silver equivalent ounces. As we mentioned I our operations release earlier in July, we anticipate that production growth will continue especially as we ramp up production at San Ignacio.

As most of you already know, San Ignacio is a satellite mine only 22 kilometers by road from our processing plan at Guanajuato Mine Complex. The commissioning of San Ignacio in June was a significant milestone for Great Panther as this with new discovery in late 2010 that was brought into production in less than four years. There is a testament for the long life of this historical district and we'll make a growing contribution to the future of Guanajuato operation. Increased production coming from this mine is expected to lower our unit fixed costs such as flat G&A and we are confident that we will see this influence in the second half of the year.

I would also like to remind you that our processing plant in Guanajuato has plenty of capacity to process the additional ore that will come from San Ignacio and there were no further capital expenditures required to accommodate this growth.

I'd like to provide you now with some more detail on our individual operations. Guanajuato continue to account for approximately two-thirds of our total production in Q2, processing a little over 63,500 tonnes which is 20% more when compared to the same period last year and 15% over the first quarter of this year. This includes production from San Ignacio that as I mentioned earlier started commercial production in June.

Metal production of 470,589 silver equivalent ounces remained relative unchanged from the same period last year. However, we saw 15% increase over the first quarter of 2014 due to the ramping up of production at San Ignacio coupled with steadily improving grades and increased mining at Guanajuato’s Cata zone. Cata was the area most affected by illegal miners in Q1 as it contains some of the highest silver grades in Guanajuato mine complex.

I am pleased to report that the illegal mining has been significantly reduced and Cata is now making a strong contribution to the operations once again. Like the rest of our industry, we recently started reporting the non-IFRS performance measures, all-in sustaining cost per silver payable ounce or AISC, and all in cost per silver payable ounce or AIC, both reported in U.S. dollars. As these are not standardized terms, they may not be directly comparable to similarly titled measure used by other companies and our peers.

I would encourage you to refer to the non-IFRS measures section of our MD&A for an explanation of these measures. Guanajuato’s cash cost per silver payable ounce for the second quarter declined 17% to $14.29 when compared to the same quarter in 2013. The decrease was primarily due to higher byproduct credits from increased goal sales and decreases in smelting and refining charges per silver payable ounce. However, cash cost increase from $12.06 from in the first quarter due to quarter-over-quarter lower grades and lower gold byproduct credits. All-in sustaining cost per silver payable ounce for the second quarter of 2014 for Guanajuato decreased 27% to $25.73 compared to the second quarter of 2013, as a result of the decrease in cash cost I just mentioned and decreases in sustaining capital expenditures.

Lastly on the exploration side for Guanajuato, for the second part of the year, we are planning to drill more than 5,000 meters that we’ll focus on upgrading the mineral resource estimates at the Valenciana, Cata, San Cayetano, Guanajuato and Los Pozos zones.

We’ll continue now with some details on our new San Ignacio mine. During the second quarter, San Ignacio contributed 12,880 tons of mill feed which yielded 87,705 silver equivalent ounces. We hve been processing development ore from San Ignacio with the Cata plant throughout the first half of the year.

As the silver gold mineralization is close to surface, we access the mine via ramp. During development exploration cross-cuts near surface revealed good mineralization above the resource plots that was subsequently mined.

Stope development and production commenced once the ramp reached to 2,300 meter level, approximately 40 meters vertically below the portal. The mine is currently operating at a run rate of approximately 200 tons per day and is expected to increase to 250 tons per day in the fourth quarter of 2014 as new stopes are brought into production.

Surface infrastructure is complete and the company has engaged local people and employment programs in community development as much as possible.

Our phase six surface drill program of 3,500 meters is planned for San Ignacio for the third quarter of 2014 and the permitting. This program includes infill drilling, deeper in the system and property wide targeting. The mineral resource will be updated upon completion in the surface drill program.

Over now to our Topia mine in Durango. Consistent production results from Topia in Q2 were sadly overshadowed by a fatality due to a rockfall in June. While investigations have been conducted and the 1522 mine reopened, the company has implemented a revised safety program incorporating a number of recommendations to increase worker awareness and training.

For the second quarter of 2014. more than 17,000 tons were from Topia. This represented an increase of 18% when compared to the same period in 2013 and remained relatively consistent with the first quarter of 2014. Our Topia mine continues to account for approximately one-third of our total production. In the second quarter of 2014 metal production increased 16% to a little over 248,200 silver equivalent ounces compared to the second quarter of 2013 and decreased 4% from the first quarter of 2014. The year-over-year improvement in metal production primarily due to the increased processing which more than offset the declines in silver and gold rates, however the latter were responsible for the slight decrease in metal production compared to the first quarter of 2014.

Cash costs for silver payable ounce for Topia decreased 20% to $15.76 in the second quarter of 2014 compared to the same quarter last year due to higher by-product credits and lower smelting and refining charges. All-in sustaining for the second quarter of 2014 decreased 17% to US$23.13 per silver payable ounce due mainly to the year-over-year decrease in cash cost.

Turning now to our financial results, although we showed quarterly production growth and improvements in quarterly cash costs on a year-over-year basis our financial results were adversely impacted due to the recovery of the operations at Guanajuato from the disruptions in the first quarter and challenges with great control.

Nonetheless, revenues increased 30% to $14.5 million despite significantly lower metal prices. The increase in revenue is attributed to the increase in metal production and related increase in unit metal sales. The appreciation of the U.S. power to the Canadian dollar and the reduction is refining charges.

In addition, revenue for the second quarter of 2014 reflected a $0.9 million positive from revaluation estimate on concentrate shipments from the first quarter were still subject to final settlement due to higher closing metal prices at the end of the second quarter.

Note, that these revaluation estimates can be negative or positive in any given quarter due to fluctuations in metal prices. By comparison, we had a negative revaluation estimate of $1.3 million in the second quarter of last year.

Gross profit before non-cash items increased $2.4 million in this quarter compared to a loss of $0.2 million in the second quarter of 2013 due to higher revenue and lower cash costs. The net loss for the second quarter of 2014 was $4.5 million compared to a net loss of $5.1 million in the second quarter of 2013. The decrease in net loss is attributable to $2.3 million increase in gross profit and $0.6 million reduction in G&A expenses and a $0.4 million reduction in exploration and development expenses. However, these were partially offset by the $2.7 million increase in foreign exchange losses.

Adjusted EBITDA was $0.2 million for the second quarter of 2014 compared to the adjusted EBITDA negative $3.3 million for the same period in 2013. The increase in EBITDA primarily reflects the $2.3 million improvement in gross profit as well as lower G&A and exploration and evaluation expenses.

It's important to mention that even though the exploration and evaluation costs have been considerably reduced over the last year. We continue working to find a balance that allows us to keep growing organically and by identify potential acquisitions.

Consolidated cash cost for several payable ounce our cash costs for the second quarter of 2014 was US$14.85 representing a decrease of 18% in the second quarter of 2013. The improvement in cash costs year-over-year is due to higher bi-product credits from increased gold sales at Guanajuato and a decrease in smelting and refining charges due to more competitive smelter price.

However, cash cost for the second quarter saw an increase compared to the US$13.40 in the first quarter of 2014. This was a result of increasing cash costs at Guanajuato primarily due to a decline bi-product credits from gold sales as a consequence of lower gold rates from Santa Margarita.

Although, our cash cost decreased 18% year-over-year, it was higher than planned and higher than our guidance for 2014 mainly due to lower than planned grades at Guanajuato. This was a result of a combination of natural grade variability and the return to normal mining cycles following the disruptions of Guanajuato in the first quarter.

Nonetheless, we saw steady month-over-month improvement in both grade and overall production throughout the Q2 and we are working hard to maintain this. We are placing more emphasis on geological controls and conducting more detailed drilling. Consequently, we believe that are results will improve in the second half of 2014 as we ramp up production at San Ignacio and improved grading cost controls of Guanajuato.

For the second quarter of 2014, all in sustaining costs per silver of payable ounce decreased 24% to US$24.73 compared to the second quarter of 2013. The reduction is the result of the decrease in cash cost, sustaining capital expenditures and the significant reduction in exploration and evaluation costs year-over-year. As with our cash cost, our AISC is higher than our guidance and we are working diligently to reduce this.

At June 30, 2014, the company had cash and cash equivalents of $18 million. Cash decreased by $3.7 million from the end of 2013, primarily due to capital expenditures which exceeded the cash operation -- or cash provided by operations. However, we continue to have a healthy $34.2 million in working capital and no debt.

We also anticipate being at the lower end of our guidance of $10 million to $13 million for capital expenditures for 2014. Capital expenditures for the second half of 2014 will focus on continued mine development and diamond drilling at both Guanajuato and Topia, rehabilitation of the Cata shaft at Guanajuato and the acquisition of new mining and plant equipment to drive efficiencies and reduce production costs.

As a summary, the second quarter reflected the gradual resumption of normal operations at Guanajuato after the incursion of illegal miners in Q1, the illegal occupation in March and continued grade challenges at the mine, some of which were associated with preparation necessary to return the higher grade zones to a normal mining cycle. Operations have improved at Guanajuato and production at San Ignacio will continue to ramp up as new stopes are brought into production.

While very effort will be made to make up for the lower than expected production in the first two quarters, we feel that it is prudent to slightly lower the production guidance for the year by 100,000 silver equivalent ounces or approximately 3% to 3.0 million to 3.1 million silver equivalent ounces. Based upon this adjusted guidance, we will still show product growth of 6% to 9% on a year-over-year basis.

Additionally, while we anticipate our consolidate cash cost to decline in the second half of the year. It is not projected to completely make up for the higher than expected cash cost in the first half of 2014. As such cash cost guidance is being increased to US$12 to US$13 per silver payable ounce from US$11 to US$12. Accordingly guidance for AISC and AIC is also being adjusted to US$21 to US$23 and US$22 and US$24 respectively.

And with that operator, I would now like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And there are no questions at this time.

Robert Archer

Thank you operator. In closing, we recognized that we had a challenging first half of the year. Some of the factors affecting our operations were out of control, but some of them still are and we will continue working on improving our efficiencies. Fortunately those factors like the disruptions at our Guanajuato mine complex are now under control and we have fully resumed our operations while maintaining the safety of our employees and contractors as our main priority.

I'm particularly grateful for the support and resilience of our employees, our contractors and our stakeholders as we resume normal operations in second quarter.

Historically, our production in the second half of the year is better than the first half. We fully expect operational results to marketly improve for the remainder of 2014. And we anticipate cost to decline mainly because of the increase in production in San Ignacio and then overall improvements in grades. We’ve recognized the production growth is important but it cannot be at the expense of cost and cash flow, particularly in these times of all metal prices it is important to find that balance that will allow us to deliver the best results for our shareholders.

We thank you for your participation today and we look forward to sharing our progress with you again in fall.

Operator

Thank you, Mr. Archer. That concludes Great Panther second quarter 2014 results conference call and webcast. Good bye.

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