SilverCrest Metals - Q4 2023

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to SilverCrest Reports' 2023 annual financial results. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Monday, March 11th, 2024. I would now like to turn the call over to Eric Fier, CEO. Please go ahead.

Eric Fier (Director and CEO)

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 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 specified. Our silver equivalent references are based on gold-to-silver ratio of 79.51 to 1.

On the call with me today is Chris Ritchie, president, and Clifford 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 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 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.

Chris Ritchie (President)

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 among our peers. Net earnings in the quarter 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 five. 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 three 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 tons per day and averaged 824 tons per day in 2023. This is in line with ramp-up estimates of 800-900 tons per day. The Las Chispas plant averaged 1,136 tons per day in the quarter, a slight decline from quarter three due to unplanned downtime. In our quarter four 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 ton in 2023. The plant recovered 2.5 million ounces in quarter four, 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 three. 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 $1,275-$1,375. As announced on January 23rd, 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 de-risking decision, strategically aligning ourselves on 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 tons per day. I will now pass it back to Eric to conclude the presentation.

Eric Fier (Director and CEO)

Thanks, Cliff. Moving on to slide seven. Our confidence in our 2023 technical report is confirmed by our 2024 guidance. In 2024, we have guided for a stable sales profile of 9.8-10.2 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-$44 million benefited from recent improvements in the mine plan, which increased efficiency and decreased forecasted spend.

A $12-$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 (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Ladies and gentlemen, as a reminder, if you have any questions, please press star one now. First question comes from Elaine Chartrand, an investor. Please go ahead.

Speaker 4

Yes, good morning. I wanted to know if SilverCrest is now, looking at investing or acquiring other mining silver companies?

Eric Fier (Director and CEO)

Yeah, this is Eric. We are working on M&A, 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.

Speaker 4

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?

Chris Ritchie (President)

Hi there. It's Chris here. The rate in Mexico is about 35%, including duties. The tax rate itself doesn't change with the metal price.

Speaker 4

Thank you.

Operator (participant)

Thank you. Next question comes from Travis Anderson at Gilder Gagnon Howe. Please go ahead.

Travis Anderson (Managing Partner)

Good morning, gentlemen. 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, you know, platforms by either one that might affect you significantly.

Eric Fier (Director and CEO)

Yeah, 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.

Travis Anderson (Managing Partner)

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? What, how do you account for that?

Chris Ritchie (President)

Hey, Travis. It's Chris. We carry the bullion at the market price. So, I mean, 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, you know, for everybody to note, you know, we also do a covered call 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.

Travis Anderson (Managing Partner)

Okay. Great. Thanks.

Operator (participant)

Thank you. There are no further questions at this time. Your apologies. Another question coming in from Paul Stanley, an investor. Please go ahead.

Speaker 5

Yes. I've been a long-time 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?

Chris Ritchie (President)

Hi, 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. So 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 aggressive.

Speaker 5

Okay. Okay. Okay. Thank you very much.

Chris Ritchie (President)

You too.

Operator (participant)

Thank you. At this time, no further questions. You may proceed.

Eric Fier (Director and CEO)

Thank you, everyone, for attending the SilverCrest Metals Q4 and full year 2023 results call. Have a great day.

Operator (participant)

Ladies and gentlemen, this concludes your conference for today. We thank you for participating, and we ask that you please disconnect your lines.