Silvercorp Metals - Earnings Call - Q4 2025

Transcript

Operator (participant)

Thank you for standing by. Good afternoon. My name is Ludi, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp Q4 and Full Year Fiscal 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A. If you would like to ask a question during this time, simply press a star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press a star followed by the number two. Thank you. I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead, sir.

Lon Shaver (President)

Thank you, Ludi. On behalf of Silvercorp, I'd like to welcome everyone to the call today. Today, we'll discuss our Q4 and full fiscal 2025 financial results, which were released yesterday after market close. A copy of our news release, the MB&A, and financial statements are available on our website and in SEDAR Plus. Before we jump in, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. Additionally, please review the cautionary statements in our news release, as well as the risk factors described in our most recent regulatory filings. Let's kick off with the financial results. With a performance that seems to have been misunderstood by the market a bit today, we finished fiscal 2025 with our strongest-ever Q4, which was highlighted by silver production of 1.6 million oz, up 42% from last year.

We had revenues of $75 million, which was up 76% from last year, and cash flow from operating activities of $31 million, which was up 200% from last year. This performance was driven by our flagship Ying operation, which processed ore that was stockpiled from the previous three quarters of this year during Chinese New Year, a two-week period when operations are typically paused. We also benefited through the quarter from higher throughput following the successful implementation of a mill expansion, which we completed last December, which increased production capacity from 2,500 to 4,000 tons per day. In addition, a robust commodity market led to improved realized metals prices compared to the same period last year. In particular, the realized silver price was up 34%, gold was up 33%, zinc was up 23%, and lead was up 6%. Silver remains our most significant revenue driver, contributing 59% of Q4 revenue.

Additionally, I'd like to note that gold's revenue contribution increased to 12%, up from just 4% over the first nine months of Fiscal 2025, reflecting the higher gold content in the stockpiled ore that we processed during the quarter, as well as higher gold prices. Moving down the income statement, we reported a net loss of $7.6 million for the quarter, or $0.03 per share. This was primarily driven by a non-cash $21 million charge on the fair value of derivative liabilities, which is related to the conversion rights of the convertible notes that we issued last November, as well as warrants. Adjusting for this, as well as other non-cash and one-time items, our net income for the quarter was $14.7 million, or $0.07 per share, and this would compare to $3.8 million, or $0.02 a share in the comparative quarter.

The increase in our bottom line reflects the higher metals prices, as well as higher volumes of gold, silver, lead, and zinc that we sold. Looking at the cash flow from operating activities, our mines generated $31 million this past quarter. As I mentioned earlier, this is up 200% year-over-year. Even after adjusting for changes in non-cash working capital during the quarter, our operating cash flow grew by 105% compared to Q4 2024. During the quarter, we invested $13 million in our operations, including $9 million at the Ying mine and $3 million at the El Domo project in Ecuador. Even after these investments, we were able to add cash to our balance sheet and ended Fiscal 2025 with a cash balance of $369 million, and that's up $14 million from our numbers reported in December.

This cash position does not include our investments in associates and other mining companies, which had a total market value of $71 million as of March 31st. To quickly summarize the full year results, just like the quarter, Fiscal 2025 was a record-breaking year across the board. Revenue reached $299 million, up 39% from the prior year, driven by a $61 million increase from higher metals prices and $22 million from increased sales volumes. Attributable net income for the year was $58 million, or $0.29 per share. That compared to $36 million, or $0.21 per share in the prior year. The increase was mainly driven by higher revenue and a $12 million gain on investments.

These gains were partially offset by a $20 million increase in production costs due to expanded production capacity and tunneling expenses, a $13 million mineral rights royalty related to the SGX license renewal, a $9 million non-cash loss of the fair value of derivative liabilities, and a $6 million increase in corporate admin and business development expenses. However, our adjusted earnings for the year were $75 million, or $0.37 per share, and this compared to $39 million, or $0.22 per share in the prior year. Our annual cash flow from operating activities was $139 million. This was up from $92 million in the prior year. The results reinforce why Silvercorp Metals remains a compelling investment. We are a growing and profitable silver producer that provides leverage to higher metals prices.

Capital expenditures for the year were approximately $86 million, and that was up from $64 million in the prior year, largely due to increased underground development and completion of new tailing storage facility and mill expansion projects at Ying Mine. Ongoing spending at El Domo, which was $7 million, and the Condor project at $1 million in Ecuador. Additionally, over the year, we repaid Wheaton Precious Metals $13 million that had been drawn as an early deposit for the El Domo project, paid $5 million in dividends, and repurchased close to $1 million worth of our shares under the current NCIB program. Just to quickly recap our Q4 operating results, as we reported in April, we mined over 246,000 tons and processed over 345,000 tons of ore in Q4. These numbers were up 26% and 46%, respectively, compared to the same quarter last year.

We produced on a consolidated basis approximately 1.6 million oz of silver, 3,110 oz of gold, 16 million lbs of lead, and 4 million lbs of zinc in the quarter. These were increases of 42%, 62%, and 30%, respectively, in silver, gold, and lead production, and a modest 3% decrease in zinc production. On the cost side, Q4 production costs averaged $83 per ton, down 1% from last year. This reflects a 7% decrease in unit costs at Ying Mine due to the higher volumes mined and processed, partially offset by a 23% increase at GC due to less ore produced in the quarter and more underground development completed and expensed as part of the mining costs. The consolidated cash cost per oz of silver net of byproduct credits was $2.49 in Q4, compared to $1.22 in the prior-year-quarter.

This reflects a $14 million increase in production costs offset by a $12 million increase in byproduct credits. The all-in sustaining production costs decreased by 8% year-over-year to $132 per ton in Q4, and on a per oz net of byproduct basis, the all-in sustaining cost was $14.31 per oz, which is pretty much in line with the prior-year-quarter. For the full year, we mined and milled 1.3 million tons of ore, which is up 20% and 19% year-over-year, respectively. Metal production totaled 6.9 million oz of silver, 7,495 oz of gold, 62 million lbs of lead, and 23 million lbs of zinc. Silver and gold output rose 12% and 3%, respectively, while lead and zinc declined slightly by 2.3%.

For the year, production costs averaged $81 per ton, up 3% from last year, and $1 above the high end of our guidance range of $77-$80. This, in part, reflects a 5% increase in unit mining costs at Ying due to our higher mining, tunneling, and grade control drilling, partially offset by a 9% decrease in milling costs. The consolidated cash cost per oz of silver net of byproduct credits was -$0.54 compared to -$0.38 last year, with the improvement driven by a $21 million increase in byproduct credits, but offset by a $20 million rise in production costs. The all-in sustaining production costs averaged $142 per ton, up 1% year-over-year, but below our guidance of $144-$152.

On a per oz net of byproducts basis, all-in sustaining cost was $1,212, up from $1,138 in Fiscal 2024, reflecting modest increases in G&A, sustaining capital, plus government payments totaling $13 million. Looking ahead to our Fiscal 2026 guidance, which we announced in April, we expect to produce between 7.4-7.6 million oz of silver, 9,100-10,400 oz of gold, between 65-67 million lbs of lead, and between 29-30 million lbs of zinc. These reflect potential increases of 9% in silver, 39% in gold, 6% in lead, and 43% in zinc, if you are looking at the upper end of the guidance compared to Fiscal 2025. In terms of production cost guidance, we are anticipating between $81-$82 per ton in Fiscal 2026, which is consistent with Fiscal 2025.

On an all-in sustaining basis, we're anticipating a cost between $155-$158 per ton, modestly higher than last year's figure of $142, as we are going to be increasing some spending at Ying Mine, as mentioned. This is a good segue to discuss some of our growth projects. At Ying Mine, we budgeted $25 million in Fiscal 2026 for ramp and tunnel development to enhance underground access and materials handling, where we're looking to replace shafts with a trackless system. An additional $25 million is allocated to exploration tunneling and $6 million to capitalized drilling as we continue to explore this district, which is prospective not only for silver, lead, and zinc, but also for its emerging gold potential. At Quanping, our satellite project north of Ying Mine, all required permits and licenses for mine construction are in place, and site preparation is underway.

We budgeted $4 million for construction activities in fiscal 2026. Turning to Ecuador, we recently announced the construction plan and schedule for the El Domo project, with first production targeted by the end of 2026. The capital cost is estimated at $241 million. Since acquiring the projects last July, we've optimized the site layout, infrastructure designs, and open pit production plan to reduce haulage and support construction of the tailing storage facility. We've engaged a group called Jinpeng to lead detailed engineering for the process plant and oversee equipment selection, signed a power line agreement with Cenel, the state power company, and initiated permitting for backup diesel generation. We finalized the project's materials balance, which supported our shift to a unit cost approach to contract bidding, ensuring we pay only per ton of material moved.

Based on this approach, we awarded the first civil works contract to CRCC 14, which is now on site working on access roads and preparing temporary camp construction. Bidding for the open pit mining contract is underway, with pit stripping expected to begin in August. Construction of the main plant and auxiliary facilities is scheduled to start in September, followed by major equipment installation in May of 2026. Construction and installation are projected to be completed by November of 2026, and plant commissioning is planned for December of 2026. At the Condor Gold Project, we recently published an updated mineral resource estimate, which outlined a higher-grade underground resource at the camp and Los Cuillos deposits. Based on this, we plan to complete a PDA for an underground gold operation later this year.

A 3,500 m surface drill campaign is set to begin this month to test some priority targets at both deposits. In parallel, we are advancing permits and community agreements to support the development of exploration tunnels into the high-grade zones, which would then help us make decisions about a potential feasibility study following the PDA. We would like to thank our Ecuadorian team, our in-country partner, Salazar Resources, and our stakeholders for their continued support and hard work in advancing these projects. As always, as we expand our presence in Ecuador, we remain committed to working closely with the government, local communities, and partners to develop these assets responsibly and sustainably, creating long-term value for all stakeholders. With that, Operator, I would like to open the call for questions.

Operator (participant)

Thank you, sir. Ladies and gentlemen, we will now begin the Q&A.

If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star two. If you're using a speakerphone, please keep the handset up before pressing any keys. Once again, that would be star one to ask a question. One moment, please, for your first question. Once again, if you would like to ask a question, simply press star one on your telephone keypad. I'm showing no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks.

Lon Shaver (President)

Okay, that's great. Maybe it's a busy morning today. I thank everyone for their attendance. As always, if anyone does come up with any questions, we remain available to answer them. Please reach out by phone or email.

Thanks very much, everyone, and have a great day.

Operator (participant)

Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a wonderful day.