Silvercrest Metals Inc
TSX:SIL
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Silvercrest Metals Inc
Earnings Call Analysis
Q4-2023 Analysis
Silvercrest Metals Inc
SilverCrest concluded its first full year of commercial production by surpassing the 2023 sales guidance with a sale of 10.25 million ounces, while keeping costs below the anticipated range, averaging all sustaining costs of $12.58 per ounce. Their strategic financial performance, boasting a robust 61% operating margin, enabled over $87 million in capital allocation and leaving an enviable year-end balance with no debt and $105.2 million in treasury assets.
Commitments in exploration, share buybacks, and bullion purchases amounted to $37.2 million, reflecting dedicated efforts to enhance shareholder value. The company released its inaugural ESG report and undertook significant initiatives to bolster water access in local communities, which led to recognition with several ESG awards in Mexico.
In the fourth quarter, Las Chispas shone with gold sales of 16,100 ounces and silver sales of 1.28 million ounces, contributing to a total annual sale exceeding guidance. The quarter's performance also included $61.3 million in generated revenue and a noteworthy annual free cash flow of $121.1 million.
SilverCrest's treasury assets witnessed a 29% growth in the quarter, marking an impressive 107% increase over the year, ending with $105.2 million. Notably, their bullion assets outperformed all other currencies on their balance sheet, supporting the company's strategy to offer shareholders enhanced exposure to bullion and improved returns on invested capital.
The company projects a slower pace of cash accumulation in the upcoming year due to the expiration of tax loss carry forwards and impending payments of accrued income taxes and duties from the successful financial year of 2023.
Operational efficiency at Las Chispas remained steadfast with underground mining averaging 824 tonnes per day within projected ramp-up estimates. However, investors should note that corporate all-in sustaining costs (AISC) are expected to increase to between $15 and $15.90 per ounce in 2024, largely due to changing contractors. This rise in AISC will be more pronounced in the first half of 2024 but is anticipated to decrease as the year progresses.
The change to the Dumas contractor is foreseen as a major strategic move that will enhance safety, predictability, and cost efficiency. The ramp-up of mining rates to an exit rate of 1,050 tonnes per day in the second half of 2024 is set to mark another operational milestone for SilverCrest. In alignment with the 2023 technical report, a stable sales prognosis has been set for 2024, with expected sales ranging from 9.8 million to 10.2 million ounces.
SilverCrest is planning a $12 million to $14 million exploration budget for 2024 to focus on converting inferred resources to indicated resources, aiming at reserve replacement and leveraging their existing infrastructure. These efforts are in line with the company's continual focus on sustainability and growth.
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Good morning, ladies and gentlemen, and welcome to SilverCrest Reports 2023 Annual Financial Results. [Operator Instructions] This call is being recorded on Monday, March 11, 2024.
I would now like to turn the call over to Eric Fier, CEO. Please go ahead.
Thank you, operator. Good morning and thanks everyone for joining. Today we'll be providing commentary on Q4 and full year 2023 results, after which we'll be happy to take questions. The slide deck we'll be referring to is available on the website at silvercrestmetals.com under the Investor tab. While these results took a bit longer to get filed than we planned, we are extremely proud of what we've accomplished during 2023 and thank you for your patience in making this announcement.
Before we get started, I'd like to direct you to the forward-looking statement on Slide 2. All figures discussed this morning are in U.S. dollars unless otherwise stated. All of the ounce and per ounce references discussed will be based on silver equivalent ounces sold unless otherwise specified. Our silver equivalent references are based on gold to silver ratio of 79.51:1. On the call with me today is Chris Ritchie, President; and Cliff Lafleur, Vice President, Operations.
Starting on Slide 3. 2023 was our first full year of commercial production and a successful one at that. We exceeded 2023 sales guidance with 10.25 million ounces sold and beat the lower end of cost guidance with all sustaining costs averaging $12.58 per ounce. Our strong operating margins of 61% provided flexibility to allow more than $87 million of capital to be allocated in 2023 while still ending the year with one of the best balance sheets in the silver space. In the first half of 2023, we repaid the remaining $50 million of debt, ending the year debt free with $105.2 million in treasury assets, which included $86 million in cash and $19.2 million in bullion. In total, $37.2 million was invested in exploration, share buybacks, and bullion purchases. These are all areas of business that we believe drive further value for our shareholders.
In 2023, we released our inaugural ESG report and made significant process (sic) [ progress ] in our local communities to improve water access and reliability. These efforts allowed for a second planting season, which helped support the increased income for our local community partners. We were recognized for our continued efforts and contributions by receiving a number of ESG distinctions in Mexico.
I will now pass the call to Chris to discuss financial results for both the fourth quarter and the year.
Thank you, Eric. Moving to Slide 4. Las Chispas performed well throughout the fourth quarter with gold sales of 16,100 ounces and silver sales of 1.28 million ounces. Silver equivalent sales totaled 2.6 million ounces, bringing the year-to-date sales to 10.25 million ounces, exceeding the top end of our annual guidance. In the quarter we generated revenue of $61.3 million, and our cost of sales was $24.4 million.
2023 revenue was $245.1 million and cost of sales was $96.8 million for an impressive average annual operating margin of 61%. As costs tend to move with the metal price. This margin is a significant differentiator amongst our peers. Net earnings in the corner was $35.9 million, or $0.25 per share. Total net earnings for the year was $116.7 million, or $0.79 per share. Free cash flow in the quarter was $24.1 million, or $0.16 per share. Annual free cash flow totaled $121.1 million, or $0.82 a share. Sustaining capital spend in the quarter was $12 million for a total of $37.1 million spent in 2023, consistent with the 2023 technical report projections.
Now on Slide 5. Treasury assets increased by 29%, or $23.5 million in the quarter, with cash and cash equivalents growing by $16 million and our bullion position increasing by $7.5 million. During 2023, our treasury assets increased by $54.4 million, or 107%, to $105.2 million. Our bullion holdings outperformed all other currencies on our balance sheet in 2024, and we are proud to be providing increased exposure to bullion for our shareholders while fighting to make a better return on our invested capital.
To enter 2024 with this financial strength after only our first year of commercial production is a unique accomplishment that we believe is a differentiator in the industry and something that provides resilience, flexibility, and the ability to make prudent choices when allocating capital. Over the past 3 years, our stock has had a healthy relationship with the gold and silver price. We strive to increase the sensitivity our stock has to the metal price while reducing the risk for our shareholders. Our balance sheet strength and the choice to hold bullion on our balance sheet are ways we believe we are reducing risk while giving investors more exposure to their currency of choice.
It is important to note that we do expect our pace of cash build to slow in 2024 due to a number of factors. Our cash flow in 2022 and 2023 benefited from tax loss carry forwards and will slow somewhat in 2024 as we pay accrued income taxes and duties from 2023. These payments will be made in Q1 2024 when we also begin to pay regular quarterly income tax installments. In H1 2024, we will also be making payments to our new and outgoing contractors which will impact our cash flow. This includes an advance of $7.5 million for equipment purchase, which will save us $1.5 million in interest costs over the life of the contract. We have worked hard to create this financial strength, and we are happy to be in a position to make better long-term decisions that benefit our shareholders.
With that, I will now pass it on to Cliff to discuss operations at Las Chispas.
Thanks, Chris. I'm now on Slide 6. Underground mining rates in the quarter were 855 tonnes per day and averaged 824 tonnes per day in 2023. This is in line with ramp-up estimates of 800 to 900 tonnes per day. The Las Chispas plant averaged 1,136 tonnes per day in the quarter, a slight decline from quarter 3 due to unplanned downtime. In our quarter 4 production release in January, we noted that we would have more plant downtime in Q1 2024 for planned maintenance, with no anticipated impact to sales in the quarter. We're happy to announce that this work was completed in February and the plant has returned to design operating parameters earlier than predicted.
Processed gold and silver grades averaged 771 silver equivalent grams per tonne in 2023. The plant recovered 2.5 million ounces in quarter 4, totaling 10.4 million ounces in 2023. Metallurgical recoveries in Q4 remained high at approximately 98% for both metals. Corporate AISC in the quarter of $14.36 was in line with our H2 2023 guidance but increased from quarter 3. AISC increased due to higher capital spend and payments to our outgoing mining contractor. Average AISC for 2023 was $12.58, which beat the low end of the 2023 guidance range of $12.75 to $13.75.
As announced on January 23, contract negotiations with underground mining contractors took place throughout 2023 and were finalized subsequent to year end. The selected contractor, Dumas, has begun mobilization at Las Chispas and this is going to continue through Q3 2024. We view the change of contractor as a major derisking decision, strategically aligning ourselves in a partnership focused on safety, predictability, and costs. I was just at site, and I'm pleased to report that the transition is going well, and we're excited for Dumas to be fully mobilized to begin ramping up mining rates in H2 2024 with a targeted exit rate of 1,050 tonnes per day.
I will now pass it back to Eric to conclude the presentation.
Thanks, Cliff. Moving on to Slide 7. Our confidence in our 2023 technical report is confirmed by our 2024 guidance. In 2024, we have guided for a stable sales profile of 9.8 million ounces to 10.2 million ounces. We expect sales to be relatively consistent quarterly. Corporate all-in sustaining cost is expected to be between $15 and $15.90 per ounce, which aligns with our 2023 technical report estimate, despite continued industry cost pressures. Corporate all-in sustaining cost in H1 2024 is expected to be higher than Q4 2023, in part due to contractor change and will reduce in the second half of 2024. Our expected sustaining capital spend of $40 million to $44 million benefited from recent improvements in the mine plan, which increased efficiency and decreased forecasted spend. A $12 million to $14 million exploration budget in 2024 will focus on reserve replacement, leveraging existing infrastructure by aiming to convert inferred resources in the first half of the year to indicated resources and then moving on to new target generation in the second half. After a few years of supporting the transition to production, our exploration team is looking forward to strategically approaching exploration with a focus on outlining sustainable resources and reserve growth.
That wraps up our formal commentary for today. Operator, please open the line for questions.
[Operator Instructions] First question comes from [ Alaine Chartrand ], an investor. Please go ahead.
I wanted to know if SilverCrest is now looking at investing or acquiring other mining silver companies.
Yes, this is Eric. We are working on an M&A program, so there is a Board mandate to look at other producers in our space, preferably silver producers. We'll see how that goes for this year.
Okay. I have another question. What is the income tax rate in Mexico, and does the rate go up if the silver price goes over $30?
It's Chris here. The rate in Mexico is about 35%, including duties. The tax rate itself doesn't change with the metal price.
Next question comes from Travis Anderson at Gilder Gagnon Howe.
Quick question just on the Mexican election coming up. I haven't been following it that closely, but I just was wondering if there are any changes expected from either party. I know it looks like the AMLO's chosen person is likely to succeed, but I was wondering if you know of any specific plans or platforms by either one that might affect you significantly.
Yes. The leading party right now is AMLO, the Morena party. So lots of rhetoric, as you know, Travis, that goes around in Mexico and a lot of that doesn't come to fruition. So we'll just sit back and wait and see. The AMLO party will probably be taking the same agenda as Obrador, maybe with some twists, but it's really too early to say.
And another quick question. The bullion you're carrying on your balance sheet, is that carried at cost or at market price at the time you mined it or refined it? How do you account for that?
Travis, it's Chris. We carry the bullion at the market price. So we added our bullion, I think, the average price was around $18.5 million, and since then we've seen an appreciation. As discussed, the bullion itself was our best performing currency on the balance sheet for 2023. And obviously this year it's off to a good start. So for everybody to know, we also do covered calls on that to generate revenue. But when we see the volatility pick up, we've also taken some feedback from investors to push out the exercise price on those options in order to give the investors more exposure to the metal.
There are no further questions at this time. Apologies. Another question coming in from [ Paul Stanley ], an investor.
Yes, I've been a longtime investor in SilverCrest. Can you tell me approximately how many shares were repurchased in calendar year 2023? And I assume that you're planning to repurchase additional shares in 2024. Is that correct?
[ Paul ], it's Chris. In 2023, we purchased approximately 1.5 million shares, and the Canadian price was in the neighborhood of CAD 6.50. We do have a budget for an NCIB this year. The main way in which we use it is more to be opportunistic. We are in a cyclical business, and if there are moments of weakness, those are the main areas where we want to be aggresive.
At this time, no further questions. You may proceed.
Thank you, everyone, for attending the SilverCrest Metals Q4 and full year 2023 results call. Have a great day.
Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.