Great Panther Mining Ltd (GPL) Q4 2020 Earnings Conference Call March 4, 2021 12:00 PM ET
Fiona Leydier - VP, IR
Robert Henderson - President, CEO & Director
Neil Hepworth - COO
Jim Zadra - CFO
Conference Call Participants
Heiko Ihle - H.C. Wainwright & Co.
Jacob Sekelsky - Alliance Global Partners
Matthew O'Keefe - Cantor Fitzgerald
Joseph Reagor - ROTH Capital Partners
Aaron Franklin - Investors Group
Thank you for standing by. This is the conference operator. Welcome to Great Panther Mining's 2020 Year-End Financial Results Conference Call. [Operator Instructions].
I would now like to turn the conference over to Fiona Leydier, Vice President, Investor Relations. Please go ahead.
Thank you, Operator. Good morning, everyone. I'm Fiona Leydier. Thank you for taking the time to participate in our call today.
Before we begin, please note that we will be making forward-looking statements during the presentation. You should be cautioned that actual results and future events may differ from those noted in today's presentation. The commentary also refers to various non-GAAP measures, definitions and reconciliations that are included in the company's MD&A for the period ended December 31, 2020. All dollar amounts expressed in this presentation and the associated financial statements and MD&A are in U.S. dollars, unless otherwise noted. To reference, during the call, AISC refers to all-in sustaining costs. Detailed cautionary statements can be found at the end of the presentation.
I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on our website at greatpanther.com.
On the call this morning, we have Rob Henderson, President and CEO; Neil Hepworth, Chief Operating Officer; and Jim Zadra, Chief Financial Officer.
Thank you, Fiona. And thank you, everyone, for dialing in today. 2020 was a year of substantial growth for Great Panther as our transition into a diversified intermediate gold producer continues. We've met a challenging environment brought on by the COVID-19 pandemic. Our team was able to adapt quickly and efficiently, ultimately delivering significant operational improvements and record financial results. We produced more gold equivalent ounces in 2020 than we did in 2019, and I'm pleased to report that total revenue in 2020 increased by 31% over 2019 to $261 million on production of just over 150,000 gold equivalent ounces.
Our mine operating earnings before noncash items was $124.5 million or $0.37 a share. Our adjusted EBITDA came in at $98 million and cash flow from operating activities was $67 million or $0.20 a share. Our costs came down and consolidated AISC, excluding G&A, improved by 11% when compared to 2019 at a cost of $1,228 per gold ounce. We also delivered on increases in our mineral reserves and mineral resources. At Tucano, we successfully replaced mine depletion and added another year of open pit mine life, while strengthening our level of confidence in the deposit for future mine and operational planning.
At GMC in Mexico, the updated mineral resource estimate reported in November delivered an increase of 17% in measured and indicated category, and we doubled the inferred resources there as well as higher grades. Since the acquisition of Tucano in 2019, we've been steadily building our cash position. We ended the year with $63 million in cash and cash equivalents, and our working capital was $31 million. We also saw a meaningful decrease in debt, placing the company in a strong financial position. I'm incredibly pleased to close out the year with such a robust balance sheet, a testament to the hard work being executed by our team to deliver value for our shareholders.
And so building on the success of 2020, this year, we'll see an aggressive ramp-up of our exploration efforts, with a total of $13 million and 90,000 meters planned to further define our known resources, while tapping into the huge potential we see at Tucano. Our key objectives will be to continue to extend the Tucano open pit mine life, further prove up the underground with a view to extending the high-grade zones and probably most importantly, make meaningful inroads into key targets in Tucano's expansive regional land package.
Building on our 2020 exploration success in Mexico will also be a key focus this year for us. In 2021, consolidated gold equivalent production from the Tucano, Topia and GMC mines expected to be 135,000 to 150,000 gold equivalent ounces, with the second half of 2021 expected to account for at least 55% of our annual production guidance. AISC is expected to come in between $1,350 and $1,450 per gold ounce sold. And note that the costs in the first half of the year will be higher than this guidance due to lower production levels and higher stripping in the first half.
I will now turn it over to Neil Hepworth, our Chief Operating Officer, to discuss operations in more detail.
Okay. Thank you, Rob. I will now provide an overview of 2020 results at our various producing assets. At Tucano, our wholly-owned gold producing asset in Brazil, we've managed gold production for the year, increasing by 19% to just over 125,000 ounces. Please note that the comparative data presented for 2019 is for the period from March 5, 2019 to December 31, 2019. This is the period for which Tucano owned -- sorry, for which Great Panther owned Tucano following the acquisition.
2020 saw an improvement in mining productivities over 2019, with mined material up 32% and total plant throughput up by 33%. AISC for the year came in at $1,200 per ounce, a 15% improvement over 2019, mainly due to the weakening of the Brazilian real. At Urucum Central South, the work by Knight Piésold indicated that the movement in the pit walls were related to the high phreatic surface in the west wall. The phreatic level recorded in January was modeled by Knight Piésold and indicated that mining to the ultimate pit geometry could be done under stable conditions provided phreatic levels in the west are controlled. Note that this is still work in progress and needs to be confirmed.
At Tucano, we continue with an aggressive near-mine and regional exploration program. The near-mine program is aimed at replacing open pit reserves and expanding the high-grade underground reserves. The open pit drilling is primarily aimed at expanding the resources below the oxidized ore that was mined from TAP C during beetle times. There will also be additional drilling in the Urucum East, also in Torres areas are also part of the 7 Kilometer Tucano trend.
For Urucum North Underground, there's a very focused drilling program to validate extent and dimensions of the high-grade Zone 1 below the Urucum North pit. The first 5,000 meters of holes will be in the upper zone, with the second 3,000 meters looking at the upland extension. So they're going to evaluate the merits of bringing in the decline from the south following the plunge of the high-grade zone.
Turning to our Mexican silver mines. Firstly, at Topia, production in 2020 was approximately 1.1 million silver equivalent ounces, with silver recoveries of 92% and silver grades of 352 grams a tonne. The silver equivalent grade of 670 grams a tonne, reflecting the byproducts of gold, lead and silver. AISC was $19.75 per payable ounce of silver, a 29% increase over 2019 and reflects the impact of the federally mandated COVID-19-related shutdowns in Mexico. These were for most of April and May, and plus the voluntary suspension we implemented for 5 weeks in quarter 4 as a measure to protect our workforce in the community.
All these COVID-19 disruptions in Q2 and again in Q4 operations at Topia are now back to normal. The COVID disruptions also prevented us getting permits for exploration drilling at Topia. But the 2020 drilling budgets has been added to the 2021 drilling budgets in order to make up for this delay.
At GMC, the full year production was also approximately 1.1 million silver equivalent ounces, and this was comprised of 520,000 ounces of silver and nearly 7,000 ounces of gold. Average silver grades were 125 grams a tonne, silver and gold grades were 1.66 grams per tonne gold, which translates to a silver equivalent grade of 275 grams a tonne.
At Guanajuato, AISC came in at $21.88 per payable silver ounce, reflecting the impact of federally mandated COVID-19-related shutdowns in Mexico. In November, we announced an updated mineral resource set for GMC, measured and indicated resources increased by 17%, while inferred resources more than doubled. The 2021 surface drill program of 5,000 meters in San Ignacio commenced in mid-January and should finalize in mid-June. This drilling is for further exploration of the Purisima vein, expanding the Santo Nino vein and infilling all of the existing non-areas of the Purisima vein system.
At Guanajuato, the 2021 drill program, 10,000 meters commenced on February 8, with 3 drills and we're expecting it to end in July 2021. Initial targets include Los Pozos above this 290 level between Valenciana and Carta on the 290 level and must process above the 275 level.
In Peru, at Coricancha, an exploration program of 5,200 meters is proposed that targets a high-grade and easily accessible mining areas of Escondida, Constantia and Wellington veins. The start of this program is subject to final discussions with the local visa community.
I'll now turn the call over to Great Panther's CFO, Jim Zadra, to discuss our financial results.
Thank you, Neil, and welcome, everyone. I'm pleased to report that strong gold and silver prices, together with strong execution by our operating teams, led to significant improvements in our financial results across the board. Revenue increased by $62.2 million, thanks to higher gold production and sales at Tucano and higher realized gold and silver prices, which were $17.85 and $21.28, respectively. These represent increased percent for gold and 29% for silver.
Overall, production costs decreased by $20.5 million, primarily due to the weakening of the Brazilian real and Mexican peso relative to the U.S. dollar, leading to the noted 11% reduction in consolidated AISC, excluding G&A, $12.28 per payable gold ounce for 2020. I also note that AISC reflects full impact of the COVID-19-related operating suspensions in Mexico, including the care and maintenance costs during those suspensions and higher operating costs as a result of health and safety protocols and productivity impacts at our operations.
As mentioned earlier, 2020 was a year that saw solid operational improvements. AISC for Q4 saw an even greater improvement when compared to the same period in 2019, reflecting a decrease of 23%. The strong metal price environment and favorable foreign exchange rates [indiscernible] for noncash items, which increased to $124 million -- and $124.5 million or $0.37 per share compared to $41.9 million in the prior year. After accounting for noncash depletion and amortization charges, mine operating earnings were $83.9 million and adjusted EBITDA came in at $98 million, each up substantially over 2019.
Operating earnings were $57 million after accounting for non-capitalized exploration and development expenditures, and we were breakeven on the net income line after accounting for interest charges, noncash foreign exchange translation losses and settlement costs and foreign exchange hedges, which were wound up last month, leaving us unhedged to any currencies at the current time.
Cash flow from operating activities or operating cash flow before changes in noncash working capital was $69 million or $0.20 per share and represented a substantial improvement and modest outflows in 2019. Our free cash flow was $26.9 million for the year and $9.1 million in the fourth quarter.
We ended the year on a solid financial footing with cash -- with a cash position of $63 million and net working capital of $31 million. We paid down $14 million of debt in Q4, leading to significant deleveraging and a strong net cash position going into 2021. In 2021, we will maintain a focus on building our working capital and strengthening the balance sheet in order to bolster our ability to leverage potential growth opportunities, including acquisitions, as we continue to evolve as a diversified precious metals producer focused on the Americas.
Thank you, again. It's -- that's all we have for formal remarks, and I'll now turn it back to the operator for the Q&A session.
[Operator Instructions]. The first question comes from Heiko Ihle with H.C. Wainwright.
Your outlook has you doing 55% of your guidance in the second half of the year. I mean, it looks like that's mostly due to the higher stripping in Brazil. But just to confirm, because it's not -- I didn't see it completely stated anywhere, Mexico should not have a similar production breakdown. But rather, we can just see much more of a trend line quarter-over-quarter in Mexico for the year, right?
That's correct, Heiko. Our Mexican producers are very steady. They're all underground operations. They're not subject to swings that we see in the open pits. So yes, the weak first half of the year is entirely due to our stripping requirements at Tucano, and we get into the higher-grade ore in the second half of the year.
That's what I figured...
That's what I figured. I just wanted to clarify. And then completely, completely different question. With your continued transition to becoming more of a gold company, are you seeing any changes in your investor base, in people that are ringing you up, asking questions? What are you thinking in regards to multiple adjustments for higher trading multiples? Are you seeing anything that maybe we're not privy to? Or anything that you want to like let us know?
No, I don't think so. I think we've got a healthy mix of retail investors who've always been big supporters of our strong silver position in Mexico. We have a few more institutional investors, thanks to Tucano, but the mix has stayed pretty consistent, and we're not getting any different messages to what we were getting last year. So I'm pretty happy with our investor base.
The next question comes from Jake Sekelsky with Alliance Global Partners.
At Tucano, you mentioned you're expecting to see some higher stripping costs in the first half of this year. I'm just wondering if you're able to quantify this quarter-over-quarter at all. I'm just trying to get a handle on how AISC might look on a quarterly basis throughout the year.
I don't think we've typically given that guidance. Jim, you got any flavors there? I think, generally, it's just -- the first and second quarters will be a bit low. And there will be improvements in the third and fourth. But I don't think there's going to be any significant difference between Q1 and Q2. But Jim, do you have any color on that?
Sure. Jake, I would say that the stripping costs in the first half were probably 55% to 60% of the full year.
Okay. That's helpful. And then just more of a housekeeping item in Mexico. I noticed you aren't providing AISC guidance there. I'm just wondering what the reason is for that. Is that related more to the level of investment you're expecting to make this year at a higher sustaining costs?
Jim, can you take that one?
Sure. I think it's more to do with Mexico representing 20% of our production. And really, it's Tucano's the driving force in terms of the AISC at the end of the day. And if you can see from -- you can see from the guidance that the Tucano AISC is really the equivalent of our consolidated AISC. So we're really expecting Mexico to be at the same level on a gold equivalent basis.
The next question comes from Matthew O'Keefe with Cantor Fitzgerald.
Nice year for you. Just a couple of quick questions. I may have missed it, I apologize if you addressed this already. But the work towards defining an underground potential at Tucano, how is that progressing? And when would we expect an update there?
Thanks, Matt. Good question. So we've just got back to looking at the underground. We've kind of put it on the shelf for a number of years. But the plan is to look at the ore body extension beneath the Urucum North pit. So it's a banded ironstone information. It extends well below the pit, and we should have mined out the Urucum pits in the second half of next year.
So that would be the time that we could start looking at putting a decline down into the ore body, which is just a couple of a hundred meters below the open pit. So right now, what we're doing is drilling the underground ore body, looking for extensions of that high-grade zone and pulling together a study as to where best to locate the portal and how best to mine the deposit. So we're starting drilling again, and we're starting to look at studies to support a capital decision in the second half of next year.
Okay. So we would see economic numbers on that in 2022? If I understand correctly...
That's correct. That's correct. Yes.
Okay. Okay. Good. Good. And on the exploration front, I know you provided an update just in January, you had a good exploration update and increased the budget there. What's the news flow look like for exploration? Because that's always been a big part of the great -- well, that's in the last -- since you got to [indiscernible], what interest me and is a big part of the story at Tucano was the exploration.
Sure. So last year was mainly infill drilling. We don't typically release infill drill results because they're just confirming that we know what is there already. So last year was a little bit slow on the drill results because of the infilling nature of them.
This year, we are drilling the region. So we're looking for brand-new deposits. So it's hard to predict exactly when the geologists are going to have enough information to be sure of a regional target, but I suspect we are drilling them now. So the regional news release could be any day.
The underground we are -- again, it's of the infill nature, but we are looking to extend the body. So I think we will be looking at getting some underground news releases out probably in midyear. That will confirm the extent of the ore body. And the infill drilling that we're doing on the pits, about $3 million of our budget -- of the $8 million budget next year is mainly looking at the open pit reserves, and again, they're pretty much of an infill nature. So it's not going to be a huge news release around that.
So in summary, if and when we hit the regional deposits, that will be big news. And the underground is probably going to be midyear and onwards.
The next question comes from Joseph Reagor with ROTH Capital Partners.
Rob and team, congrats on a good, strong finish to the year.
Thank you, Joe.
So first thing, kind of following on a little bit of the last caller's question. With the exploration, especially the non-infill as you go forward this year, is there like a certain threshold that you guys would need to achieve to release individual or small set drill holes instead of kind of doing quarterly updates or so?
Yes, that's a good question. I mean, typically, if we just hit one drill a hole with some interesting results, that wouldn't be considered material. But if we certainly got a handful, 3 or 4, then we would be releasing a press release. So it is -- there's no hard science about a threshold, but I think once we've got a set of numbers that we feel are material, we would release that to the market.
Okay. And if you had any regional success with your drilling, what's the time line to being able to add something to the mine life? What's the permitting climate like? Would it just be an amendment to the current mine plan? Or are there areas where you'd have to start like from square one to get it added? How do you guys think about that?
Yes. Sure. Good question. We are looking at opportunities that are in our tenements and are truckable to the mill. But maybe, Neil, you can give Joe a bit more flavor on the permitting environment in Brazil?
Yes. I think as soon as we start hitting some interesting results, even before we've actually got a sort of a proper resource defined, we'll start the permitting process to give us a little bit of a head start on it. Okay. This would be in the sort of in the areas of Mutum and Lona Amarela and in a couple of other places as well. So yes, so it will still take a couple of years, but we'll try and fast track it as much as possible by anticipating where things are starting to go right.
Okay. Fair enough. And switching gears, GMC Q4 all-in sustaining costs were quite elevated. Was there some unique capital allocation number or some specific driving force behind why it jumped so much even quarter-over-quarter?
Yes. Of all the mines, I think GMC was most affected by COVID. It's an underground mine. We had to reduce one of the shifts just because we couldn't get the level of supervision that was required for safe production. So GMC's production was quite badly hit in Q4 and as a result, the unit cost went up. So I think we're over those issues now. We're back at 3 shifts at GMC. So it was just mainly as a function of just insufficient manpower to do efficient mining.
Okay. And maybe one final thing. Any comments on what the M&A markets like either both potentially acquiring in Brazil or South America or potentially selling off the older Mexican assets? Like, has the climate changed at all since the middle of last summer?
Yes. I mean, that is an interesting question on the M&A climate. I think it's still -- COVID is definitely slowing things down a bit. But from our side, we are keen to get into the 200,000-ounce-plus producing range. And exploration is one way of doing that. The other way is mergers and acquisitions. So we are actively in discussions with other small producers in Mexico, U.S. and Brazil that would help us get above the magic 200,000 ounce level. So M&A is certainly still very much a focus for us.
The next question comes from Spencer Lemann [ph], a Private Investor.
Yes. One of the other fellows mentioned this question about the gold versus silver mix. And I'm just wondering if you could elaborate a little bit more on that. With silver price holding at so much better than gold and maybe even the future with being a commercial or do you have some flexibility as far as your exploration and as far as your focus on your mine -- Mexican mines and all that, where you can ramp up that part where you can become more of a silver company due to the price? Bottom line, can silver wag the dog?
I believe it can. Certainly, our Mexican assets are exactly the same as the ones we had 3 years ago when Bob was running the company. So our Mexican assets do well when silver price is high. And Turkey last year had some pretty spectacular results there. Our exploration, as you know, the underground narrow vein, high-grade operations, you can only drill them from underground. But certainly at GMC, we had a lot of success last year. So we added over 10 million ounces, which is really good for 3 or 4 years of production at GMC. The mining rate is limited because, again, it's underground. So the only way we could increase silver production was by increased tonnage. So we're working on that. But from an exploration point of view, I think we saw significant success at GMC last year.
We're now turning our attention to Topia, which didn't get as much love as we would have liked last year due to the COVID-related permit delays. But we do like Topia a lot. It's much higher grade than GMC. So we are focusing on drilling at Topia and working at how we can increase our tonnage to our mills there. But bottom line, silver is contributing to our margins. We like silver, and we're spending the necessary money on exploration in Mexico.
[Operator Instructions]. The next question comes from Aaron Franklin with Investors Group.
I've got a couple of questions. Are we going to get a decision on the Peru mine on how you guys are going to go forward with the mine in Peru, either as a joint venture or reopening or some type of time?
Yes. What -- as Neil outlined, we do have a drill program for Coricancha. So we're hoping to get in there -- yes. Yes. So we are planning to drill Coricancha to get those results out midyear. So that will help you make the decision.
We're also dealing with the regulators in Peru. And Peru has been in a pretty tough year in terms of the political climate. So we are seeing changes in the ministries there. So getting a decision on the legacy tailings there is also going to help us make a decision. So we're probably going to be better placed in the second half of the year to make a call on a restart there.
Okay. Starting with the -- with the amount of cash that you guys are holding, would it not make sense to look at some type of purchase program to your shares, just because it seems it's a little bit undervalued in comparison to here and the rest of the gold market?
Yes. That is a good question, and we do look at capital allocation quite carefully. But I think there's still hesitation that COVID is not over. There is talk of a third wave. So we like the cash buffer we've got. But I don't think we're quite in a position with confidence in, certainly COVID-related, in order to deploy our cash in any other way right now. So we're just focusing on exploration as the best way to add value.
Okay. And last question is the tailing dam in Mexico. I think it's what Topia? Or no, it's GMC, that you're having some permitting issues. I didn't know if I missed -- were you guys able to -- the Mexican authority, to you guys, with your options?
Not yet. So we're still -- there are COVID-related delays to that as well. Neil, maybe you can give Aaron a bit more color on the status in Mexico?
Yes. We're still waiting for Conagra [ph] to get back to us. We keep on thinking that it's fairly imminent. But yes, it hasn't happened yet. That's for the Cata TSF at GMC. The Topia TSF, we had problems last year in terms of stability issues, which we seem to have basically resolved now. So Topia, we're in a pretty good -- we're in pretty good standing with our tailings capacity.
Okay. Would you guys be able to -- here's a question. Topia and GMC, would you be able to divert your ore to the other facility if there was an issue?
No. It's just too far, basically. Sorry. I was going to say, but now, other alternatives in the area for toll milling. So it's -- if we did have changes, capacity issues.
This concludes the question-and-answer session. I would like to turn the conference back over to Rob for any closing remarks.
Thank you, operator. So 2020 was a banner year for Great Panther. And having joined the company as CEO in April 2020, I've been in the seat for 8 months, and I'm incredibly pleased to see how the team has stayed focused on achieving safe and profitable growth during a challenging year given the COVID-19 pandemic. This will be a year that none of us will forget.
And as we turn our attention to this year, I'm excited for what's ahead, as this is a year for exploration, during which we plan to unlock a great potential, which we see in our assets, particularly at Tucano. We have a land package there in a world-class Greenstone district, approximately 90 kilometers by 30 kilometers, that really has yet to see a drill bit outside our 7-kilometer mine tenement. And I share our geologist's excitement.
So thank you for your participation today. And on behalf of everyone here in Great Panther, I look forward to sharing our progress with you in the next quarter.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.