SilverCrest Metals - Q2 2024

Transcript

Operator (participant)

Please note this call may be recorded. I will be standing by should you need any assistance, and it is now my pleasure to turn the floor over to CEO and director, Mr. Eric Fier. Welcome, sir.

Eric Fier (CEO)

Thank you, operator. Good morning, and thanks everybody for joining. Today, we'll be providing commentary on Q2 2024 results, after which we'll be happy to take questions. The slide deck we'll be referring to is available on our website, 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. All of the ounce and per ounce references discussed will be based on silver equivalent ounces sold, unless otherwise indicated. Our silver equivalent references are based on a gold to silver ratio of 79.5:1. On the call with me today is Rob Doyle, recently announced interim CFO, Chris Ritchie, President, and Cliff Lafleur, Vice President of Operations. Starting on slide three. Q2 was another strong quarter for us, both operationally and financially.

Given our strong performance in the first half of the year and to the start of H2, we have announced positive revisions to our annual sales, cash costs, and all-in sustaining cost guidance. These changes were all made under the same silver equivalent assumptions as our original guidance. Silver equivalent sales of 2.6 million ounces in Q2 and 5.2 million ounces in H1 provided us with the comfort to increase our annual sales guidance to 10 to 10.3 million ounces, from our original guidance of 9.8 to 10.2 million ounces. With cash costs and all-in sustaining costs in the first half of the year coming below the bottom end of our original guidance, we have the confidence to revise our 2024 guidance for both.

We now expect cash costs to be $9.25 to $7.75, and all-in sustaining costs to be $14.90 to $15.75 to $15.75 per ounce. Our balance sheet continues to demonstrate strength and flexibility, with both cash and bullion holdings increasing notably in the quarter. On to slide four. We're now pleased to be going into H2 with continued confidence in our execution. As I mentioned, we have improved our guidance for total silver equivalent ounces sold, cash costs, and corporate all-in sustaining costs. Our exploration and sustaining capital remain unchanged. Before I pass it, the call to Rob to discuss our financial results in the quarter, I'd like to take a moment to officially welcome him to the team. We're thrilled to have Rob join as an interim CFO, bringing with him a wealth of experience. Welcome, Rob.

Rob Doyle (CFO)

Thank you, Eric, and good morning, everyone. I am delighted to be joining such a high-quality company with an incredible asset and a talented management team. I'm very much looking forward to rolling up my sleeves in my new role. Moving to slide five. In the quarter, we generated record revenue of $72.7 million and record mine operating earnings of $41.5 million. Cash flow generation in the quarter was robust, with operating cash flow of $39.6 million or $0.27 per share. We also recorded strong free cash flow of $24.3 million or $0.16 per share, which came after investing $15.3 million in sustaining capital. Net earnings in the quarter of $6.5 million or $0.04 per share were impacted by a weakened peso following the results of the Mexican general election.

It is important to note that we report earnings per share on a non-adjusted basis, which can result in some noise quarterly, particularly when we observe more notable exchange rate movements. The depreciation of the peso at the end of the quarter resulted in unrealized foreign exchange losses of $2.8 million, and largely drove the non-cash deferred tax expense of $14.3 million. This aspect of our tax is reflected in Note 18 of our financial statements, but in simple terms, reflects the change in our anticipated tax attributes over the life of the mine due to changes in the FX. If the recent volatility in the Mexican peso persists, we would expect that these non-cash mark-to-market items will continue to be a feature of future earnings, both positive and negative.

Current taxes of $11.8 million were higher than the prior period as a result of the utilization of all of our Mexican tax loss carryforwards in 2023, following strong operating performance since commercial production was achieved in Q4 2022. Our net earnings for the quarter added to the retained earnings on our balance sheet, something that we are very proud of as a young company. As students of the industry will know, retained earnings is a very rare achievement in our business. I'm now going to pass the call to Chris to speak to the treasury assets on our pristine balance sheet.

Eric Fier (CEO)

Thanks, Rob. Now on slide six. Treasury assets increased by 34% or $31.2 million to end the quarter at $122.3 million. We added 20% to our gold and silver bullion holdings and benefited from a $3.1 million mark-to-market increase as a result of strong metal prices in the quarter. As a result, bullion holdings grew to $24 million at the end of the quarter. Our bullion holding program continues to prove its merits, with further additions expected in the second half of the year. I will now hand the call to Cliff to discuss operations at Las Chispas.

Clifford Lafleur (VP of Operations)

Thanks, Chris. I'm now on slide seven. Underground mining rates increased to approximately 1,100 tonnes per day, higher than our planned exit rate at the end of the year of 1,050 tonnes per day. This increase in productivity is due to the strong collaboration of our site team with our two mining contractors heading into H2 2024. The Las Chispas plant averaged 1,216 tonnes per day, and it is expected that throughout, we'll average 1,200 tonnes per day as planned through the remainder of 2024. The plant recovered 2.7 million ounces with processed grades of 765 grams per ton, silver equivalent. The plant set yet another quarterly record with silver-equivalent recoveries of 98.4%.

We continue to use our stockpiles to optimize plant production, and this has allowed us to continue with strong process recoveries, a key driver in our consistent silver-equivalent sales in the sixth quarter since declaring commercial production. Corporate all-in sustaining costs in the quarter of $16.88 per ounce increased from quarter one, as expected, due to increased production and development, with two mining contractors on site, as well as a $1 million write-down of warehouse inventory in the quarter. Our first half all-in sustaining cost of $14.89 per ounce gave us confidence to adjust our annual guidance for 2024. I'll now pass it back to Eric to conclude the presentation.

Eric Fier (CEO)

Thanks, Cliff. On to slide eight. Looking forward to the rest of 2024, the results of the first half of the year position us, position us well to meet our improved 2024 guidance. We remain committed to work on our exploration program at Las Chispas, with drilling in the quarter focusing on converting high-potential inferred resources to indicated resource, with additional focus being put on identifying new targets regionally and at Las Chispas. Subsequent to the end of the quarter, we released our second annual ESG report. We are proud to have a very common-sense approach to sustainability. As someone who has spent, has spent the past 20 years building relationships in the communities around Las Chispas, ESG is more than data. It's finding ways to truly make a difference, and it's done through constant engagement and collaboration with local and government stakeholders.

Our local communities rely heavily on agriculture and ranching for their livelihoods and are directly impacted by water scarcities in Sonora. In the second year of our water stewardship plan, local farmers and ranchers saw a significant improvement in water access reliability. This has allowed some community members to establish second plant, second planting seasons, boosting income potential and developing agricultural resilience. As we continue to execute on this plan, we look to further expand the reach and impact of our programs. That wraps up our formal commentary for today. Operator, please open the line for questions.

Operator (participant)

Gentlemen, thank you.