Great Panther Silver Ltd. (GPL) Q2 2022 Earnings Call Transcript

Great Panther Silver Ltd. (GPL)
Q2 2022 Earnings Call
Aug 04, 2022, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to the Great Panther Mining's second quarter 2022 results conference call. As a reminder, all participants are in 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 conference over to Fiona Grant Leydier, vice president, investor relations. Please go ahead.

Fiona Grant Leydier -- Vice President, Investor Relations

Thank you, operator, and good morning, everyone. Thank you for participating 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 today. The commentary also refers to various non-GAAP measures, definitions, and reconciliations that are included in the company's MD&A for the three months ended June 30th, 2020 -- 2022.

All dollar amounts expressed in this presentation and the associated financial statements and MD&A are in U.S. dollars unless otherwise noted. For reference during the call, AISC refers to all-in sustaining costs. For today's call, please refer to the second quarter 2022 financial results news release issued yesterday and the accompanying financial statements and MD&A, which are posted on our website and have been filed on SEDAR and EDGAR.

Please note that following the announcement of the sale of our Mexican assets in accordance with IFRS 5, all results associated with the company's Mexican subsidiary, MMR, and its operations have been classified as assets held for sale. Therefore, during the call, we will be discussing results from continuing operations only, which relates to the Tucano Gold Mine. 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 Alan Hair, chair and interim CEO; Sandra Daycock, chief financial officer; and Fernando Cornejo, chief operating officer.

Questions & Answers:

Operator

Alan, I think you're muted.

Alan Hair -- Chairman and Interim Chief Executive Officer

Sorry, I was on -- put myself on mute. Thanks. Thank you, Fiona, and thank you, everyone, for dialing in today. This quarter was transformative for Great Panther Mining with the agreement reached to sell the Topia mine and the Guanajuato mine complex in Mexico.

Both silver mines, there were the assets the company was originally founded on and had provided numerous years of solid results. With the sale of these assets, so ever, the company can now focus -- focuses these sources primarily on Tucano, as this is where we see the most long-term value creation potential for the company and its stakeholders. To that end, we are seeing progress at Tucano as shown in this quarter's results. During the quarter, we saw improving levels of production from Tucano and moved a significant amount of material to position the mine for the second half of the year.

We're starting to ramp up in the TAP AB pit and expected to be back to a regular rate of production by the fourth quarter. Regarding the underground, the studies for the Urucum North underground project continue to advance, assets permitting, and we expect to complete an updated resource estimate for the underground by the fourth quarter. We hope to have most report next quarter. As with many in the industry, we are seeing inflationary headwinds impact our cost of operations significantly more than anticipated for the year.

For that reason, we have had to adjust our 2022 cost guidance, which Sandra will detail later in the call. We continue to look for ways to best manage our liquidity, taking cost-improving actions and deferring capital expenditures where possible. Revenue for the quarter was $30 million on production of 16,629 gold ounces. Inflation and necessary spending on capital programs led to cash costs of $1,575 per gold ounce sold, an ASIC excluding corporate G&A of $3,080 per ounce for gold ounce sold.

As previously stated, we expect to have high costs in the first half of 2022 due to the heavy stripping required position Tucano return to steady-state production in the second half. We expect costs to normalize and cash flow to improve as production increases throughout the second half of the year and into 2023. We ended the quarter with $21.1 million in cash and cash equivalents and borrowings of $43.4 million. Sandra will go into further detail on these financial results later in the call.

I will now pass the call over to Fernando Cornejo, COO, to discuss results from our operations.

Fernando Cornejo -- Chief Operating Officer

Thank you, Alan, and good morning, everyone. Production from Tucano during the second quarter was in line with expectations. Asset stripping continues in preparation for accessing main or lenses and therefore, their grade in the second half of 2022. When looking at the production results this quarter, compared to the last quarter, we are starting to see modest improvements in line with our plan to return to a normalized rate of production.

Gold production for this quarter was 16,629 ounces compared with 14,037 ounces in the first quarter of this year, which is an increase of 18%, and 20,609 ounces in Q2 2021, a decrease of 39%. Total mine tonnage increased by 76% compared to Q1 2022 and 36% compared to the same quarter last year. This is a result of having two mining contractors, U&M and MINAX operating in parallel throughout different pits. Tucano is in the process of moving into better operational conditions with lower stripping ratios for the year and mining higher volumes of ore for the next several months.

Mine ore tonnage in gold grades during the second quarter, were also higher compared to the first quarter of 2022. A total of 291,160 tons of mine ore were processed this quarter versus 232,213 tons in Q1 2022, an increase of 25%, and 211,930 tons in Q2 2021, also a 37% increase. The plant feed grade for the quarter was 0.69 grams per ton compared to the 0.57 grams per ton in Q1 2022, an increase of 21%, and 0.81 grams per ton in Q2 2021, a decrease of 15%. As Alan mentioned, inflation has had a significant impact on all key consumables and services used in our business, including diesel, cyanide, and others.

In addition, due to higher-than-normal rainfall levels in Northern Brazil, particularly in the first quarter of this year, it was necessary to fast-track the expansion of the Tucano tailings facility, as well as the installation of operators to manage water levels in our tailings facilities. These two items led to an increase in capital spending and led to a higher than anticipated cost for the quarter. Cash cost per ounce sold were $1,575 compared with $1,617 in Q2 2021. And ASIC per gold ounce sold, excluding corporate G&A was $3,080 mostly due to higher stripping levels and the additional capital expenditures explained a few moments ago.

During the quarter, the resource conversion program for the Urucum North underground project was completed in an updated resource estimate is currently being developed by our team in Brazil. In parallel, the company has started trade-off studies for land development and mining methods in parallel with engineering and metallurgical project work, while planning activities are underway. The permitting process has also started with the state environmental agency, SEMA, project development including the update of mineral resources and reserves is on track to be completed by the fourth quarter of this year. Regional target definition, validation, and prioritization is currently underway in consultation with GoldSpot discoveries.

This project began in June and results are expected in early August. Portable drills are being contracted in a 2,500- to 3,500-meter drill program is expected to begin in August upon completion of the GoldSpot study. At Coricancha, we are continuing to evaluate options to optimize the project and will report new developments as they arise. I will now pass the call over to Sandra Daycock to discuss our financial results in more detail.

Thank you.

Sandra Daycock -- Chief Financial Officer

Thank you, Fernando. Revenue for the quarter was $30 million, compared with $39 million in the same quarter last year, on gold sales of 16,076 ounces, compared with 21,459 ounces in the same period last year. The average realized gold price was $1,865 per ounce versus $1,850 per ounce in Q2 2021. And our mine operating income was $0.1 million, compared with a loss of $2.6 million.

Our net loss was $12.1 million, compared with a net loss of $8.7 million in Q2 2021, and EBITDA was negative $5 million, compared with negative $0.9 million in the same quarter last year. Net cash flows from operating activities before change in noncash working capital was negative $8.3 million compared with negative $0.9 million in Q2 2021. We ended the quarter with cash and cash equivalents of $21.1 million, compared with $35.2 million for the same period in 2021 and $33.4 million at the end of Q1 2022. We made significant investments in the business in the second quarter, including $15 million in stripping, $7.1 million in capital investments, and $1.8 million in exploration.

Further, we repaid $5.5 million in debt on a net basis with borrowings totaling $43.4 million on June 30, 2022. In addition, during Q2, the company issued shares for proceeds of $3 million through the ATM facility. Finally, we received $13 million in cash proceeds from Nyrstar in relation to a settlement in Nyrstar's rights and obligations, including their start indemnity agreement in connection with the Coricancha Mine.As Alan and Fernando both mentioned previously, we have determined that Tucano cost guidance for the year must be adjusted. Cash costs have been revised from $1,200 to $1,300 an ounce sold to a range of $1,400 to $1,500 per ounce of gold outsold.

ASIC, excluding corporate G&A, has been revised from a range of $1,600 to $1,700 per gold ounce sold, to a range of $2,200 to $2,300 per gold outsold. The significant difference between ASIC and cash cost reflects investments in stripping, which will yield gold production in 2023, as well as necessary capital expenditures, Fernando mentioned earlier on the Tucano facilities. Tucano forecast reduction remains within the previously guided range of 85,000 to 100,000 ounces. The company expects to generate positive cash flows from its mining operations in 2022 prior to capital investments, debt repayment obligations, and exploration and development costs.

However, further financing will be required to improve working capital, fund planned capital investment and exploration programs for operating mines, and meet schedule set repayment obligations. We are evaluating options to secure new sources of capital to allow us to achieve our longer-term objectives. Thank you. That's all we have for formal remarks.

I will now turn the call back to the operator for the question-and-answer period.

Operator

Thank you. We'll now begin the question-and-answer session. [Operator instructions] Our first question is from Heiko Ihle with H.C. Wainwright.

Please go ahead.

Heiko Ihle -- H.C. Wainwright and Company -- Analyst

Hi there. Thanks for taking my questions. Hope everyone is doing well. Going through your release, there was a sentence in there that you expect to return to normalized rate of production in the second half.

Can you maybe just provide a bit of a month-to-month overview? I mean, we're now in August. I assume -- July is obviously done, and you put this out after July was over. Can you maybe just give a little bit of color of how July went given that there is no reg issues given that there's a public setting here?

Alan Hair -- Chairman and Interim Chief Executive Officer

Hi, Heiko. I think it's fair to say by the fact that we've kept our guidance unchanged. I think you can work out, but we also mentioned that two-thirds of our production will come in the – the second half of the year. So, we're seeing a progressive ramp up through Q3 and then I would characterize Q4 as kind of a steady state.

Hopefully, that helps.

Heiko Ihle -- H.C. Wainwright and Company -- Analyst

That's fair. OK. Just moving on a little bit, Alan, you started talking this call we're talking a little bit about inflation. I mean, it's a topic that's on everyone's mind just open up a newspaper, but just moving on from all of that.

Are you having trouble getting any specific components at site? I mean, it seems like random little spare parts or like random odds and ends are hard to show up. It seems like the important things tend to show up even though the higher costs. But is there anything that you're not getting to site that you need? Is there any bottlenecks that are starting to develop -- or is it just as long as you pay up everything comes? And just maybe building on all of that, are you seeing anything get worse in that regard?

Alan Hair -- Chairman and Interim Chief Executive Officer

There were certain issues around some parts associated with the mining contractor mobilizing. I think that was just also part of the mobilization process, things like bucket teeth and things like that, but I think we're on top of those now. There have been some delays in measly mobilizing because of some equipment supply delays, but delivery dates are set, it's not really that much of a slippage maybe about a month. I don't know if Fernando can add any additional color.

Fernando Cornejo -- Chief Operating Officer

Yeah. I mean, the delays we have seen with the contractor in terms of parts in the stock components are just part of the mobilization process. But in terms of key consumables in Tucano, we haven't experienced any delays. Tucano is a consolidated mine operation has many years that has been operating in the supply chain is quite well structured.

So, yeah, no issues from a production perspective, specifically on delivery of those supplies.

Heiko Ihle -- H.C. Wainwright and Company -- Analyst

That's encouraging to hear. I appreciate everyone's time. I'll get back to queue. Thank you.

Operator

The next question is from Jake Sekelsky with Alliance Global Partners. Please go ahead.

Jake Sekelsky -- Alliance Global Partners -- Analyst

Hey, guys. Thanks for taking my questions. So, Sandra touched on this a bit, but I'm just trying to get a handle on where costs might settle in once steady state is reached later this year. I mean, do you think longer-term ASIC of $1,200 an ounce or so, sort of like what we saw in 2020 is achievable? I'm just trying to get a sense of what the thinking is there.

Alan Hair -- Chairman and Interim Chief Executive Officer

Well, you can see the ranges that we've guided to. So, that should give you a feel for what our expectations are for the balance of the year. A big component of the cost increase has been fueled, it increased very significantly in Brazil. And I mean, I don't know if you saw today that the Victory oil price below $90.

So, obviously, it's come off quite significantly from its recent high. We're hoping that we might, in some areas, see some mitigation of some of these significant cost increases that we've had to bear this year. But it's obviously, very hard to tell. I mean, the world is a very uncertain place right now.

So, it's really hard to look that far into the future, and we just projected for the balance of this year and the revised guidance.

Jake Sekelsky -- Alliance Global Partners -- Analyst

Fair enough. OK. And then just on Urucum North underground. I know originally, you guys had plans to potentially start development work there later this year.

Is that still the plan, or has that been deferred to the first half of 2023?

Alan Hair -- Chairman and Interim Chief Executive Officer

The first thing that we have to really get an understanding on is what the permit taken timeline should be. We think the permitting should be relatively simple given it's within existing operations, but we haven't had that confirmed. So, the exact timing may have been moved our hands in any case. That being said, obviously, we're still doing the engineering and the optimization work.

So, that's underway. And we obviously also had to apply some capital this year to address the churns. And what a balance city likely had reported a number of companies we've done unusually high rainfall at the early part of this year and have had to alter our capital plans accordingly, especially we think that the way the world is going is higher rainfall may actually be the new normal. So, I think we'll just have to see how the permitting progresses and where we stand from our ability to fund the project before we commit the dollars.

So, certainly, wouldn't anticipate commencing construction this year, but hopefully, it would be something that we'd be able to move forward next year.

Jake Sekelsky -- Alliance Global Partners -- Analyst

Makes sense. That's all for me. Thanks again.

Alan Hair -- Chairman and Interim Chief Executive Officer

Thank you.

Operator

The next question is from Joseph Reagor with ROTH Capital Partners. Please go ahead.

Joseph Reagor -- ROTH Capital Partners -- Analyst

Hey, guys. Thanks for taking the questions. Obviously, the stuff I want to touch on has already been asked. But any update on the fine related to the fish kill that you guys announced, I guess, is it late 2021 or early 2022?

Alan Hair -- Chairman and Interim Chief Executive Officer

No, there's been no update on that.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. And then I guess all the settlement around -- on accountability. Is this an indication that you guys might be looking to sell that asset as well?

Alan Hair -- Chairman and Interim Chief Executive Officer

Well, certainly assessing -- and, as we've said, assessing all our options, including potential to restart operations there. But certainly, everything is on the table right now in terms of what we do with Coricancha. As we've said previously, our capital allocation priorities are on Tucano.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. Fair enough. And then if you don't sell Coricancha and you just complete the current asset sale based on your guys' revised cost estimates, do you feel comfortable you can cover your debt with the return to positive cash flow from Tucano?

Alan Hair -- Chairman and Interim Chief Executive Officer

Yes. I mean, as I say, we should be back to steady state -- to steady-state operation by Q4. And our current mine plan shows healthy 2023. So, we should be in good shape on that basis.

We just had to overcome the real pivot in the main plan with the [Inaudible] issues that Urucum Central South, but we're now coming out of the other side of that, and I think we're very close to, as you said, returning to steady state production.

Joseph Reagor -- ROTH Capital Partners -- Analyst

OK. All right. Thanks. I'll turn it over.

Operator

The next question is from Elise Mochizuki with Akamai Capital. Please go ahead.

Unknown speaker -- Akamai Capital -- Analyst

Hello, can you hear me?

Alan Hair -- Chairman and Interim Chief Executive Officer

Yes.

Unknown speaker -- Akamai Capital -- Analyst

Hi. Thanks for taking my question. Last week in the United States, that court trial for those precious metal traders who accused of manipulating gold and silver price that is due to a close. What message do you think that mining companies might want to tell potential and current investors?

Alan Hair -- Chairman and Interim Chief Executive Officer

Sorry, could you repeat that?

Unknown speaker -- Akamai Capital -- Analyst

Yes. So, last week, there was that court trial for those precious metal traders that were accused of manipulating gold and silver prices, what message do you think that mining companies might want to tell potential and current investors?

Alan Hair -- Chairman and Interim Chief Executive Officer

I have to confess not familiar with what you're referencing. And really --

Unknown speaker -- Akamai Capital -- Analyst

Moving on to my next question. It's a macro question about the junior mining industry. It's an interesting time for investors thinking of entering or returning to mining stocks where some investors see buying opportunity at reasonable stock prices. When you are speaking with investors, how are you addressing the risk of inflation, recession, and these other economic terms?

Alan Hair -- Chairman and Interim Chief Executive Officer

Well, I think -- we, as a company, are no different from other mining companies and other industries, I think, as I said earlier, we're trying to navigate our way through uncertain times. And by doing that, we have to say, being careful with our capital allocation. We are looking to where we can reduce costs and improve efficiencies, all the typical things that any company tries to do through a downturn, especially mining companies that are subject to the metal price cycle impact. So, I don't think we're doing anything that we wouldn't be doing in other similar situations that the company has faced in its history.

Operator

This concludes the time allocated for Q&A session today. I'd like to turn the conference back over to Alan Hair, for any closing remarks.

Alan Hair -- Chairman and Interim Chief Executive Officer

Thank you, operator. This quarter was another challenging one, but we are starting to see improvements and continue to progress in the plan to turn things around Tucano. We expect to see improving results next quarter and beyond, and we look forward to sharing our progress with you. Thank you for your time today.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Fiona Grant Leydier -- Vice President, Investor Relations

Alan Hair -- Chairman and Interim Chief Executive Officer

Fernando Cornejo -- Chief Operating Officer

Sandra Daycock -- Chief Financial Officer

Heiko Ihle -- H.C. Wainwright and Company -- Analyst

Jake Sekelsky -- Alliance Global Partners -- Analyst

Joseph Reagor -- ROTH Capital Partners -- Analyst

Unknown speaker -- Akamai Capital -- Analyst

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