First Majestic Silver Corp (AG) 2017 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the First Majestic Silver Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Keith Neumeyer, President and CEO. Please go ahead.

Well, thank you, and welcome, everyone, to today's conference call on our Q2 financial results that were released yesterday after the close. In the room with me, I have Ray Polman, the company's CFO. I've also got Todd Anthony, VP of Investor Relations; Andrew Poon, VP of Finance; and Connie Lillico, Corporate Secretary. I'll pass the call to Connie just for a brief disclaimer.

Thank you, Keith. Prior to us beginning today, I'll read our disclaimer on forward-looking statements. Certain statements contained in this conference call regarding the company and its operations constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and Section 21E of the United States Securities Exchange Act of 1934 as amended. All statements that are not historical facts, including without limitation, statements regarding future estimates, plans, objectives, assumptions or expectations of future performance, constitute forward-looking statements. We caution you that such forward-looking statements involve known and unknown risks and uncertainties that could cause actual results and future events to differ materially from those anticipated in such statements. Such risks and uncertainties include fluctuations in precious metal prices; unpredictable results of exploration activities; uncertainties inherent in the estimation of mineral reserves and resources; fluctuations in the cost of goods and services; problems associated with exploration and mining operations; changes in legal, social or political conditions in the jurisdiction where the company operates; lack of appropriate funding; and other risk factors as discussed in the company's filings with the Canadian securities regulatory agency. Resources and production goals and forecasts may be based on data insufficient to support them. The company expressly disclaims any obligation to update any forward-looking statement. Back to you, Keith.

Thanks, Connie. So I'm not going to get into a huge amount of detail on the financials. I'm sure everyone on the call has read the company's news release, so I'll cover some highlights. Revenue for the quarter was USD 60.1 million. Mine operating earnings of $1.4 million. Net earnings after taxes of $1.4 million, a small loss of $0.02 per share, that's adjusted earnings. On an earnings basis, we're actually positive by $0.01. Decent operating cash flows of $18 million. Cash flow per share of $0.11. A healthy working capital, $130.9 million, with $126.9 million in the bank. The realized selling price for silver in the quarter was $17.17, that's slightly reduced from the first quarter, which was $17.55. Our cash cost for the quarter was $7.41, and our all-in sustaining costs were $14.58.

A couple of highlights for the first 6 months of the year. Obviously, the strengthening peso. The peso has gone up around 11% since the beginning of the year, with most of our revenues coming from Mexico. Obviously, we're impacted by the strengthening peso. Approximately, 80% of our costs are in pesos. And also, we did have some work stoppages in the quarter, which we've talked about publicly a couple of times already, so it shouldn't be new news to anyone. Most of those events are behind us. But as I commented in my previous statement in the news release when we announced the production numbers, I did say that there is unusual activity by the workforces in Mexico as a result of some, what I call, possibly unhappy Mexicans due to the political environment that's currently in Mexico, which is obviously unfortunate. But nevertheless, we're getting through it, and we've come to some very good resolutions with the 2 unions that we work with, and we're very, very happy that the resolutions that we actually agreed to, which should have positive impacts on our profitability going forward at 5 of our mines, which is, obviously, a very positive thing.

So I'm going to open this up now to questions. Please go ahead and queue up for questions.

(Operator Instructions) The first question comes from Heiko Ihle with Rodman & Renshaw.

So you had an $8.5 million decrease in mine operating earnings as a result of those stoppages. You mentioned that La Encantada will be back on track in the third quarter, which is great. Should we see any more cost impact or any expenditure impact from this? I assume the answer is no, but I just want to double-check, especially given that you said you're going to recuperate some of the lost tonnage over the remainder of the year, please.

Yes, at the La Encantada, during the 42-day work stoppage that was there, that was a negotiated work stoppage, and several things came out of that, which included a reduced workforce. And we rehired a part of the workforce and put them through training, and that's what the delay was. There's about a 2- to 3-week training program depending on the skill set that we put the workforce through. And then during that period of time, we actually had a contractor on site doing mining activities, so we're actually stockpiling ore during that period. So what we expect to see in Q2 and Q3 is actually increased productivity through higher grades and improved productivity due to a reduced workforce. So we're actually pretty positive with what's going to come out of La Encantada over the next couple of quarters. And then, of course, we've got the roasting system as well that's going to be turned on in Q1.

Yes. No, I think it's a great asset. I was purely curious as to the financial impact. Speaking of, in the all-in sustaining costs, where you got workers participation costs of about $0.25, you've got total cash costs of about $7.50, something like that. Given the issues that we faced in Q2, are there any longer-term impacts that we should see in all-in sustaining costs given what you have to -- given the renegotiations with the unions at the labor force?

Well, the impact in all-in sustaining costs is really the increase in development because development -- that most of the development does get added to the all-in sustaining costs. It's a bit of a short-term phenomenon because -- that you play catch-up because the mines have lacked investments for so long. And it's not just First Majestic, it's the entire mining sector, so -- but there's a period of time where you need to -- these investments, and that's -- but is impacting these -- the all-in sustaining costs. If you look at the numbers and compare them to our guidance in January, Santa Elena is basically flat from our earlier guidance. Del Toro and San Martin are actually lower all-in sustaining costs in -- going forward than it was in our guidance from the previous guidance, which came out in January, as I just said. So the mines are being impacted as, look, free, of course, and in that short term because that's grade-related. La Guitarra, which has that higher cost there, is completely due to development investment.

The next question comes from Matthew O'Keefe with Echelon Wealth Partners.

I just wanted to probe a little bit onto the CapEx. You mentioned that you prudently reduced CapEx a little bit for this year. I guess it's around $17.5 million lower CapEx. I'm just wondering if you could give us a bit of detail as to where that's coming from, what the impacts would be, and then if that will be made up in 2018 or that's yet to be decided.

Yes, we just started the 2018 budgeting. And then we -- I think one thing we've proven to the market is that we can be very nimble and we can move very quickly. And the whole purpose of the change is due to the lower metal prices, which are resulting in lower cash flows than we had hoped for coming into 2017. So I think it's a very prudent step, and I think shareholders should give us some credit for being able to act so quickly and make these types of decisions. Knocking $17.5 million off our capital investment in a low metal price environment as we're experiencing, I think it's a very prudent move. And we've reduced our -- just giving you some numbers, our expansionary project's from $60.9 million to $45.6 million, and that's spread over development and exploration and property, plant and equipment.

Okay. But I mean, as far as specifically, like there's no impact to Encantada's -- to the Encantada plan. Is that from the other mines or some -- it's mostly a development capital and not sustaining, right?

We classify some of the development as sustaining even though you, yes, you may think it's expansionary. But I'll pass the question onto Ray because he's itching to answer that question.

Yes, that looks fair. Most of the cutbacks were evenly distributed and were in the nature of expansionary capital. The sustaining capital is pretty much sustained, and as a result, it shouldn't impact our ability to meet our production results as well as our budget in 2018.

Okay. And Encantada, that -- like you said before, that's not going to be impacted, the plans there?

No, the plans will pretty much be on course for La Encantada. The roaster will go into place, and hopefully, we'll be producing with the assistance of the roaster beginning in Q1.

(Operator Instructions) The next question comes from Chris Thompson with Raymond James.

Yes, I just want to commend you guys just for your nimbleness. I think it's a challenging time for all of us at the moment. Just a couple of quick questions, more detail-related, I guess. We'll start off with Korea, obviously, some of the revised guidance. What's your sense for as far as tonnes milled for the remaining half of the year?

The -- I don't have the tonnage in front of me, but just hold on 1 sec, Chris. Just while they're getting up the numbers here. The San Marcos area, which is the higher-grade area -- that's oxides, is under development. And that area we're looking to bring in, in early 2018, which will help on the grades and on the oxide circuit. So that's where a lot of the focus is right now. We have...

No, just the dollars.

We have the dollars, Chris, but we don't have the meters on it -- or I mean, the throughput. But it will be flat. There's no change from H1 versus H2, maybe 500 tonnes through the oxides and about 1,000 tonnes through the sulfide circuit. But we can get back to you with the exact numbers.

All right. And then just the second and final question, just I guess, just a little bit of detail as far as Santa Elena. Just give us a sense of the mix by way of underground tonnes milled versus the spent ore from the old heap leach?

Yes, it's about 60 from the mine and 40 from the heap leach.

Okay. And grades, are we anticipating any adjustments or -- related to Q2?

Well, the grade, Santa Elena was -- went down slightly due to the vein, Alejandra vein that pinches and swells, right? So it's going through a period right now of pinching. And then that it's a very, very long structure, which is under development. So we don't know if it's going to swell again or what it's going to do. So that particular vein is extremely high-grade, and it's been really helping the Santa Elena out in 2016 and it actually ran above budget for most of 2016. In 2017, it just happens to be very close to budget. But that budget does include the lower-grade because we couldn't budget the higher-grade material because it's not known how that structure is going to act going forward.

Right. And just final, I guess, just you've got a sense of the remaining mine life, maintaining the split between spent ore and underground offered by the heap leach, I guess, the spent ore pad.

The -- well, mine life there is -- I don't think it's a real issue. I think it's about 7 or 8 years on paper. But the expiration result has been very good, if you pay attention to what's been going on. I mean, exploration at Santa Elena, I don't think that -- I think that mill will be operating for several decades to come. And I see that we're pretty well done here. A couple of more comments. We do have a share buyback program in place with the pressure on the stock as a result of the silver price dropping today fairly dramatically, and obviously, our news that came out at the same time is having a bit of an impact. So we're going to be looking at potentially getting into the market ourselves and executing some of our share buybacks.

And that's it for the call. Thank you very much for coming on today, and I'll look forward to talking to all of you in the future.

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