Silvercrest Metals Inc
TSX:SIL
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Silvercrest Metals Inc
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Good morning, ladies and gentlemen. And welcome to the SilverCrest Reports First Quarter 2023 Results Conference Call. At this time, all lines are listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions]
This call is being recorded on Friday, May 12, 2023. I would now like to turn the conference over to Eric Fier, CEO and Director. Please go ahead.
Thank you, Operator. Good morning. And thanks, everyone, for joining the first quarterly earnings call as a precious metal producer. Today, we’ll be providing commentary on our first full quarter of production after which we’ll be happy to take questions. The slide deck will be referring to is available on our website at silvercrestmetals.com under the Investor tab.
Before we get started, I’d like to direct you to the forward-looking statements on slide two. All figures discussed this morning are in U.S. dollars unless otherwise stated. On the call with me today are Chris Ritchie, President; and Pierre Beaudoin, Chief Operating Officer.
Let’s start with slide three. Q1 marked our first full quarter of commercial production. We have focused on ramping up, gaining further confidence with operations, generating free cash flow while reducing operational and financial risk. Our early ramp-up success, coupled with our robust cash position has allowed us to accelerate debt prepayments, which significantly derisked our balance sheet.
The Las Chispas operation continues to perform well with the processing plant, meeting or exceeding design parameters. Also one of our biggest success stories to-date is how our stockpiles have continued to create value and reduce risk. The underground mine ramp-up is progressing as per updated rates.
Completion of the updated Technical Report, so I’d like to refer this to the updated feasibility study remains on schedule for late Q2. This report forms the basis for future production and cost guidance. We will continue to advance our ESG initiatives, including a strong focus on health and safety, as well as risks and opportunities within the community in which we operate.
The second year of our Water Stewardship Plan in the local communities, which is based on the findings of our TCFD work is progressing nicely and we remain on track to deliver our inaugural ESG report in Q2. We are also very proud to announce that we recently received a notable ESG award in Mexico and we look forward to continuing with this momentum.
I will now pass the call to Chris to discuss financial results for the quarter.
Thanks, Eric. Moving to slide four. In the quarter, we generated revenue of $58 million. Cost of sales were $22.4 million, reflecting a mine operating margin of an impressive 61%. Net income in the quarter was $27.2 million or $0.18 per share.
It is important to note that our results in the quarter benefited from access to our surface stockpiles, which carry a lower cost per ounce than those currently being mined, as well as from tax loss carryforwards. We expect these benefits to continue through 2023. Net free cash flow was $19.3 million or $0.13 per share.
In November 2022, we restructured our debt facility, which lowered our interest costs and improved the terms. At that time, we repaid $40 million from cash that was available to us based on an on-time and on-budget build. The prepayment of an additional $25 million was made in Q1 was supported by strong free cash flow. This is the best way to prove that the mine is operating successfully.
Subsequent to quarter end, we have prepaid a further $20 million of debt based on continuing strong cash flow generation. This reduces our total debt outstanding to $5 million. We have now repaid 95% of our debt within six months of declaring commercial production, a significant accomplishment in a short period of time.
We forecast that this early prepayment of debt has reduced our interest cost by approximately $6 million. We ended the quarter with $45.8 million of cash and cash equivalents, and an undrawn $70 million revolving credit facility.
With that, I will now pass it to Pierre to discuss operations at Las Chispas.
Thanks, Chris, and good morning, everybody. I’m now on slide six. Ramp up of underground mining rates remain similar as Q4 2022 at an average slightly above 700 tonnes per day. As planned, the underground mining rate is expected to continue to ramp up over the next few years.
Underground capital development is tracking slightly behind plan, but we expect that it will accelerate through the remainder of 2023. Quantum and timing will be defined in the updated Technical Report.
We’ve undertaken discussion with multiple underground contractors, including our current contractors. These discussions are focused on ensuring we can meet our ramp up objectives, while defining costs that are reflective of the global inflationary environment.
Still on slide six. The Las Chispa processing plant averaged daily throughput of 1,160 tonnes per day for a total of 104,000 tonnes processed during the quarter. The plant recovered 2.44 million ounces of silver equivalent in Q1 and we expect similar level in Q2 2023.
An estimated 40% of production feed was sourced from stockpile during the quarter. The stock pile continued to reduce risk and provide flexibility as we progress our ramp up of the underground mine. I want and need to highlight that as the percentage of processing throughput sourced from stockpiles decline, the benefit to the current cost structure will be impacted.
Our corporate level AISC, which aligns with the World Gold Council definition was $11.45 per ounce silver equivalent. These costs incorporate some of the inflationary impact and mine site change experienced over the last 2.5 years. The updated Technical Report will address any outstanding cost impacts.
Moving now to slide seven. You will see that the updated Technical Report remains on track for release in late Q2 of 2023. This study will include refresh costs, updated resource and reserve, and the new life of mine plan, which will consider optimal mining, stockpile and processing rates.
I will now pass it back to Eric to conclude the presentation.
Thanks, Pierre. As mentioned earlier, our balance sheet derisking has remained a key focus. We now have minor debt remaining, while retaining access to our $70 million revolving facility. Exploration efforts are focused on Las Chispa, El Picacho and other early-stage regional opportunities around Las Chispa. This is part of a $5 million H1 exploration budget. In parallel with updating the technical [Technical Difficulty] term focus at Las Chispa will be on reserve replacement through targeting conversion of inferred and indicated resources.
In late April, the Mexican Senate passed a revised mining reform, since you initially hearing about the proposed changes, we have been working with our legal counsel and other members of the industry to review and continue discussion. The situation remains fluid and additional review of changes for more clarity and their potential impact on our concessions is ongoing.
That wraps up our formal commentary for today. We will now take questions. As a reminder, with the upcoming release of the updated Technical Report/Feasibility Study, there will be some information that we’ll be unable to comment on until this report is released.
Operator, please open the line for questions.
Thank you. [Operator Instructions] Your first question comes from the line of Stephen Soock from Stifel. Your line is now open.
Hi, guys. Congrats on a strong quarter and the very rapid pay down of the debt. It’s great to see that almost distinguished just six months after commercial production. My question was just on the unit cost side in the quarter. The impact of the stockpiles was great to see and had a major impact overall on the per ounce cost. But outside of that, I think some of the other mining and processing costs were a little bit higher than I was expecting. I know it’s still early in the progress of commercial production, but are you seeing opportunities to bring those down over the coming quarters or how should we kind of think about those run rates? Thanks.
Yeah. Thanks for your question. It’s Pierre here. I -- we’ve seen a lot of inflationary impact in Mexico over the last nine quarter or 10 quarters, something like 20% or 25% increase. And at the mine site, we’ve seen some others that are even more important.
So when we’re looking at cost going forward, we have to be ready to see a slight increase in cost. Obviously, we’re going to continue to work on the reduction at the mine site. But some of this inflationary pressure to some extent is there to stay.
Okay. Understood. Just one more for me here. You also mentioned that the underground capital development is expected to catch up through 2023. I was just wondering if you could provide some more color on what goes into that. Is there additional equipment being mobilized or how are you attacking that?
Yeah. Well, let me say this to start is, we’re not overly nervous about our development on our capital development. Our rules is to be very much ahead something like three level for every mining area we’re planning to mine. So when we’re saying that we’re behind, it needs to be looked in this slide.
Overall, we’re something like hate underneath or behind, but 400 is on vertical development, which has started in April. So this is going to go extremely rapidly. The balance, once again, we’re not nervous, because all of this is going to be needed probably only in the first quarter of next year. So we have plenty of time to catch up and we’re working with contractors to actually get back on track.
Got it. That’s all for me. I’ll leave the line to anyone else.
Your next question comes from the line of John Sclodnick from Desjardins. Your line is now open.
Hey. Thanks for taking my question and echo Stephen’s comments and congrats on paying down debt so fast, very impressive. But, of course, I’ll focus on the concerns that I had. I’m just wondering with the mine grade, they seemed a little bit below expectations. I’m wondering if you view it in the same way and really what I’m getting at is kind of the stockpile levels and where those are at and your comfort with those be able to sustain the mill feed going forward?
Well, we’re as -- we were happy with our results in Q4 on the grade side. Still happy in Q1 on the grade side as well. We’re managing our grade with our stockpile. And what we keep an eye on, obviously, on this stockpile is how fast we’re depleting it. In the updated Technical Report will be able to shed some light on this for everybody.
But at this point, we’re very happy with our strategy. We think we manage the risk of the ramp-up very well. And quite honestly, that’s what we plan to continue to do. We have still a good level of stockpiles. As I said, it’s going to be updated in the technical report. But at this point, for foreseeable future, our focus is really on the ramp-up of the mine and the management of the stockpile.
Okay. Yeah. Fair enough. And very impressive ramp up, and obviously, the plant is operating phenomenally well. One more question for me and I think I probably know the answer, but any chance you can shed light on what you’re expecting for sustaining CapEx maybe just next quarter, if not the rest of the year?
Yeah. Well, that’s a good question. Next quarter we expect the capital to go slightly higher. But I cannot say for the rest of the year, because it’s going to be contained in the Technical Report. As I said, we’re catching up now on our vertical development. That’s going to hit Q2 far more than Q1.
Okay. Appreciate that color and that’s it for me on questions and congrats guys on a very impressive ramp up here.
[Operator Instructions] Your next question comes from the line of Phil Ker from PI Financial. You line is now open.
Yeah. Thanks, Operator. How is everyone doing today?
Great. Thank you.
Great, Phil. Thank you.
Thank you.
Yeah. Thanks for hosting the call. Could you just give us a sense of what veins are currently being mined and then maybe touch on how many faces you’re working at within those veins?
Yeah. Well, a lot of what we’re doing is in the Babicanora Area. So the core of our production is coming from Bon [ph] -- Babi Vein and then from Babi Norte and Babi Vista. Yeah, the number of phase is, I’d have to come back to you on this question.
But at this point, we’re quite happy with where we are, given the fact that our target was to be at 700 tonnes a day. We have enough phase in front of us to do that. And as I said earlier, our development is not an issue. We have, in all the areas where we’re mining, we have something like three levels ahead.
Yeah. Okay. Fair enough. I guess what I was trying to get at with the number of phases to achieve a little over 700 tonnes a day. I was just curious as to maybe what the targeted number of phases would be once you are able to meet that nameplate mill capacity rate?
Going to increase with time. But at this point, as I said, we’re pretty comfortable with where we are. We’re turning over the stopes at a rate that we’re satisfied with. Our focus at the beginning has been ore loss in dilution. We are in good shape at this point and we’re looking forward to the Technical Report, so we can inform people, investors, technical analysts on how we’re going to ramp up the mine going forward.
Okay. Appreciate that. Another one here, just touching back on the capital development. What factors limited that development rate? Was it personnel, equipment availability or what other outside factors?
For the vertical, it’s just -- it was just a matter of timing. I think we were a little aggressive on our expectation to get the contract started and so on. But most of this is related to ventilation, as you would know and we’re also in a good shape on that side.
For the lateral development, we decided to slow down. It was a decision that we took from a safety perspective to make sure that all our crossings were up to standard. So we slowed down our contractor. Actually, SilverCrest decided from a safety perspective to slow down its contractor and force them to actually apply the standard that we agreed upon within our contracts.
Okay. Understood. And then maybe just one last question here and just back to the stockpile, and you said, you were able to manage that stockpile and affect the grade to the mill. Is this a factor of knowing the source of that stockpile, whether it’s from the historic dumps or previous development or from underground?
Yeah. That’s -- we’re operating the stockpile with, what we call internal blend finger, which is maybe a funny way to explain that we are blending at just on the crushing pad and we fixed the grade with the operation and we plan from different sources, high-grade, medium-grade, low-grade, underground, historic or marginal and this has served us extremely well. It has stabilized the grade feeding the plant, which is very helpful to essentially control the cost in the plant and control the recovery.
Very good. Okay. A fantastic stuff here. Keep it going. I appreciate the time.
Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research. Your line is now open.
Congratulations on paying off the debt in about six months. You’re setting an industry record.
Thank you.
Excuse me, I haven’t been meticulous I’ve just sort of -- I own your stock, but I’m just sort of not worried about it very much and not gotten too much into the details. In the 419-gram produced mill grade in the first quarter, how would that disaggregate between the fresh mind or in the stockpiled ore?
Yeah. Okay. So out of this, I would say that, 60% of this material came essentially directly from the mine and 40% of the material was coming from stockpile that was there before the start of the quarter.
I understood that from your press release. When I’m asking, Pierre, I’m trying to figure out if you’re mining the reserve grade of 61 grams or not and I’m assuming that the stockpile might be development muck or a lower grade. What is the grade of the new mine ore versus the grade of the stockpiled ore that you’re milling?
Well, this is a very good question and it’s going to be part of what we update everybody on the Technical Report. What you’re leading to is, what is the reconciliation of the grade we see against what -- against the previous reserve and it’s totally our intent to update everybody on this in the Technical Report. So that would be a question that, unfortunately, I cannot answer directly on this call.
So I’m looking at your reserves and resources, Pierre. The proven and probable is 461 and the mill grade for the quarter is 419. So can we draw the conclusion that you’re mining less than the reserve grade and you haven’t gotten to the sweetest stope yet.
No. I would not draw that conclusion from these numbers.
Because the mine grade may be less because of the stockpiles blended with the new ore.
As I said, I would refrain from drawing that conclusion.
Let me try a different question. Your resources are 4.5 million tonnes and your reserves are $3.35 million tonnes. The difference is about 690,000 tonnes or 700,000 tonnes. When you dilute the resource to make a reserve, how much new rock is brought into it? Is the difference between resources and reserves the 700,000 tonne difference or is it a bigger number because you add tonnes when you dilute the resource to make a reserve?
You will forgive me on this one. I’m not sure I understand your question.
Okay. So you have a vein. When you dilute it, do you assume that there’s a 0.5 meter of mill value on either side of the vein?
Yeah. That’s -- yeah, that’s what we call the loss there in the Technical Report. We’ll -- that’s the over break and that’s part of our overall dilution. So when you’re looking at...
So because of the over break, the resource becomes bigger than 4.05 million tonnes when you convert to reserves. And I’m trying to figure out how much bigger is the non-reserve value than 700,000 tonnes because of the over break?
Okay. Well, let’s go back a bit, okay? The resource that we have was done at, I think, at the time, I have 150-gram a tonne, okay? When we take that resource, which is not economic on its own. We need to do all the design, we need to the development plan, we need to recalculate the cost and so every time we do that, what is actually a reserve is -- it’s reducing the resource.
What’s happening also at the same time is, as we reduce the number of ounces in the resource, the grade actually increased, because the cutoff of the reserve is increasing. The reserve itself, okay, is inclusive of the dilution material on both sides of the vein. You referred to...
I understand. That’s why I’m asking the question.
Okay. So, okay. I think, I answered this question then.
Eric, when you have the debt paid off and you spend $5 million exploring at the mine and the Picacho project, you still have a little money left over. Do you think you’re going to retain the money to build the next mine or what do you think you’re going to do with -- you’re going to have some walking around money by year-end?
Yeah. Hi, John. How are you doing?
Good.
We’re looking at our strategies right now for our treasury. We’ll do a Board meeting in July after the Tech Report is out and then determine the best course. I mean, generally, we want to grow. So you got to go explore or you got to go acquire.
So we’re working on M&A scenarios right now. We’re also looking at -- and if you noted, we’re looking at the possibility of holding bullion. We are holding a little bit of bullion right now. That’s in the bucket list and there’s several things that we can do with that money.
But really, it’s going to be around getting the Technical Report out, taking a look at the real cash flows that we would project and I work with a three-year roadmap and then see the amount that we’re actually going to be creating for free cash flow and it will be correctly distributed according to the strategy that we come up with, with the Board in July.
Okay.
There are no further questions at this time. Eric Fier. Please continue.
I’d like to thanks every [Technical Difficulty] attending the SilverCrest Q1 2023 results call and have a great day.
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.