Silvercorp Metals Inc (SVM) 2009 Q4 法說會逐字稿

Good morning. My name is Linda and I will be your conference operator for today. At this time, I would like to welcome everyone to the Silvercorp Metals Inc. fiscal 2010 fourth quarter year end results analyst conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. (Operator Instructions).

Thank you. It is now my pleasure to turn the floor over to your host, Mr. Lorne Waldman, Corporate Secretary of Silvercorp Metals Inc. Sir, you may begin your conference.

Thank you operator. Good morning. I'm Lorne Waldman, Corporate Secretary for Silvercorp. I'd like to welcome everyone to our fiscal 2010 fourth quarter and year end analyst conference call. Joining me today on the call are Dr. Rui Feng, Silvercorp's Chairman and Chief Executive Officer, Mr. Myles Gao, Silvercorp's President and Chief Operating Officer, Maria Tang, Silvercorp's interim Chief Financial Officer, and Shirley Joe, Silvercorp's Corporate Communications Manager. At this time, I'd like to invite you to follow along on the accompanying presentation slides which are available as part of the Webcast or on Silvercorp's website. To advance the slides, please press on the forward arrow.

Starting at slide one, during today's call, forward-looking statements will be made relating to future production, business expansion plans, and others. Such forward-looking statements are subject to many risks and uncertainties, many of which are detailed in our 2009 annual information form filed on SEDAR. There can be no assurance that such forward-looking statements will prove to be accurate as actual results and future events can differ materially.

Slide two. The fourth quarter of fiscal 2010 marked the end to a year of increasing fortunes for Silvercorp. During the three and six months ended March 31st, 2010, we recorded robust sales, income, profit margins, and cash flows, compared to the same periods last year. Due mainly to higher realized selling prices and increased production at our Ying Mining Camp in China. Thanks to new infrastructure projects under way in both developed and developing economies, along with increased investment interest in precious metals, demand has been strong for our silver and byproduct metals.

In addition, Silvercorp continues to ramp up its mining and milling operations, while keeping tight control over costs. For the fiscal 2010 year, Silvercorp produced 4.62 million-ounces of silver, at a cash cost of negative $6.22 per ounce. Extending our track record to four consecutive years of silver production growth, and maintaining our status as one of the lowest cost silver producers in our industry. And finally, Silvercorp has expanded its horizons in the latter part of the year, through the acquisition of the Silvertip project in Northern British Columbia, Canada. This project represents exciting new growth and diversification to our portfolio of projects and characterizes the type of high grade precious metal assets that Silvercorp will continue to pursue.

Moving to slide three. Now turning to our financial highlights which are expressed in US dollars. In the fourth quarter that ended March 31st, 2010, we achieved sales of $28.2 million, a 62% increase over sales of $17.4 million in the same quarter last year. Gross profit margin for the quarter was $19.3 million, representing a gross profit margin of 68%, and an improvement over a margin of 63% during the same period last year. Net income for the period was $9.8 million, or $0.06 per share, an increase of 688% over earnings of $1.2 million in the same quarter last year.

Much of these improvements were due to higher metal production and higher realized selling prices. For the quarter, realized sales prices were markedly improved from the same time last year as we saw an increase of 53% for silver, 50% for lead and 81% for zinc over prices in the same quarter last year. These realized sales prices represent what is paid to Silvercorp for the metals contained in our concentrates after the deduction of smelting charges and value-added tax. For the fiscal year, Silvercorp reported revenues of $107.2 million, an increase of 28% over the same period last year. Gross profit for the year was $79.3 million, representing a gross profit margin of 74%, compared to 57% last year. Net income for the year was $38.5 million, or $0.24 per share, compared with a net loss of $16 million last year in which we had a mineral property impairment charge of $45.7 million.

Moving to slide four. Cash provided by operating activities in the fourth quarter was $23.8 million, representing $0.14 per share and an increase of 123% over the same quarter last year. Cash flows for the fiscal year increased to $66 million, which exceeded our 2010 production guidance issued last year by 65%. Our cash and short-term investments as at March 31st, 2010, is $95 million, a 46% increase since the beginning of the year and this is even after $21.2 million in capital expenditures and $12 million in dividend payments.

Turning now to our operational highlights on slide five. Silvercorp mined 81,034 tonnes of ore during the quarter, an increase of 34% over the same period last year. With our operations closed for 25 days for the Chinese New Year, ore production was lower in the fourth quarter compared to the first three quarters of the year. A total of 1.08 million-ounces of silver was produced for the quarter, increasing total silver production by 10% for the year, to a record 4.62 million-ounces of silver. Additionally, 62.4 million pounds of lead and 14.7 million pounds of zinc were produced during the year. Consolidated cash costs per ounce of silver for the fourth quarter improved to negative $5.64 from negative $2.06 in the same period last year, an increase driven by higher realized sales prices for our byproduct credit. For the full year, the consolidated cash cost per ounce of silver was negative $6.22, compared to negative $2.77 in the prior year period.

Turning to slide six. For fiscal 2010, a total of 406,754 tonnes were mined, which was less than 1% below the 2010 production guidance of 410,000 tonnes released by the Company in May 2009. Overall, however, ore production at the Ying Mine was 20% higher than projected, and the HPG Mine was slightly ahead of the guidance. Most significantly, silver production from the Ying Mine reached a record of 4.16 million-ounces, which was 14% higher than the 2010 guidance. Total Company production was impacted by a delay in production and mine development at the TL P and LM Mines. On a positive note, both of these mines have reached projected production levels of 140,500 tonnes this April.

Moving to slide seven. In terms of Silvercorp's outlook going forward, the Company remains confident in its production guidance for fiscal 2011, at the Ying Mining Camp, of approximately 500,000 tonnes of ore at grades of 360 grams per tonne silver, 8% lead and 1.2% zinc, to yield 5.3 million-ounces of silver, 83.7 million pounds of lead and 10.3 million pounds of zinc. Most of this growth will come from increased production at the TLP, HPG, and LM Mines.

Using average metal prices during the fourth quarter, the stated production figures, we expect to generate revenues of $140 million, and cash flows from mine operations of between $95 million and $100 million for fiscal 2011. This will more than cover capital expenditures budgeted for the Ying Mining Camp for the year of $13 million. Slide eight. At our GC project in the Guangdong Province of China, the Company is engaged in environmental permitting and is continuing the process of compiling a feasibility study which includes detailed mine and mill design, capital expenditures projections at the project for the current fiscal year will depend on the timing of receipt of the environmental permit.

Slide nine. At the Silvertip project in Northern BC, Canada, we're aiming to replicate the success of our Ying Mining Camp by pursuing small scale production as early as possible. Within the next 12 months, the Company intends to complete the necessary studies required for the submission of a BC small mine permit that allows for an operation with an annual capacity of 75,000 tonnes. With this permit, the Company will be able to commence early production by focusing on higher grade ore pockets, grading over 1,000 grams per tonne of silver equivalent. The expected cash flows from the small mine operations will then help finance further exploration to expand both the resource and future mine operations. The first step in achieving this goal is to obtain the necessary permits to dewater the existing 2.4-kilometers of underground tunnels. We expect this to take approximately six months.

Meanwhile, the Company will undertake surface drill programs to define mineralized zones that were intercepted in past drill programs, but not incorporated into the 2010 resource estimate. Further resource growth potential may be achieved through drill testing of several geophysical and geochemical anomalies located within 5-kilometers of the existing resource area. The total capital expenditures budgeted for these programs will be between $4 million to $5 million for calendar 2010.

Moving to slide 10. Finally, Silvercorp continues to pursue future growth opportunities through the evaluation of projects for potential acquisition, both within and outside of China. With our cash and short-term investments now sitting at $95 million, and no long-term debt, we remain focused on growing the Company and creating shareholder value. Slide 11. To conclude, it has been yet another profitable year for Silvercorp as we saw our silver production grow for the fourth year in a row, and extended our track record as an industry-leading, low cost producer. And as always, we will continue to use our position of financial strength to advance our key development and exploration projects, and to continue to make strategic acquisitions with a focus on asset quality and value, all the while rewarding shareholders through the payment of dividends, and as a reminder, another CAD0.02 quarterly dividend was just announced this morning. Thank you for listening to the highlights of Silvercorp's unaudited fiscal 2010 fourth quarter and year-end, and I would now ask the operator to open the lines for your questions.

Thank you. (Operator Instructions). And one moment for your first question. Go to the line of Haytham Hodaly from Salman Partners. Please go ahead.

Good morning, everybody.

Good morning.

Just start with a question on Silvertip. What has been to your understanding typical time to obtain a BC small mine permit from the time you actually filed or applied for that permit?

Okay. There's been a number of companies that have been successful recently in obtaining the small mine permit, companies like Merit Mining obtained one, Yellow Jacket, and Roca have all obtained them. Some of it's been as short as an 18 month period. So we're confident that we'll be able to do that. We're also fortunate that there's already a lot of environmental work has been done in the past, that will be helpful as well.

Lorne, please history of three to six months of the application you will get a small mine permit.

After it's been submitted.

So three to six months. So you're saying you submit within 12 so that's where the 18 months comes in, roughly.

Right.

Okay. Perfect. And then I guess with regards to GC, what is the permitting taking so long there? What's the process that's the holdup there, I guess?

The reason for taking longer than like we would be expecting, actually if we count on the time, we actually still within one year of our submission application for permit. The reason for kind of delay was last year several incidents happened in China on the heavy metal leakage into the river, so I think as we point out in our last quarter that Chinese government has a national-wide, heavy metal solution, right. And they're trying to come up with some kind of new regulation. So all these things of delay us a little bit. And secondly, Guangdong Province is a province which mining is not a really big deal for the province so people tend to be more -- I think people in the Guangdong Province, they tend to be more as mining as other province. I think we in the kind of process get the approval down and have a changeover, because the Guangdong Province is a lot of water, rainfall every year, so they don't like any damp, and we have a dry stack and and they want to give us a chance, say okay, maybe this will be example for the future mining in the province. I think we should get a permit soon.

Okay. Fair enough. Maybe just one more question, just on the new mill. Has that been up and running and how has that been doing?

It's up and running right now. It's doing 1,000 tonnes a day right now.

How long are you able to operate that for based on the feed that you have?

How long we'd be operating. We'd been operating over three months.

Sorry. Is it operating on a full-time basis? Are you able to keep it fed the whole time.

I think we operate at full-time. But the older mill, the first mill we had, 1,000 a day one, we only operate that part-time.

Okay. So the new mill's operating full-time, the old mill's operating part-time then?

Yes.

Okay. Perfect. Thank you.

Thank you. Our next question comes from the line of [Amtel Mohammed] from Raymond James. Please go ahead.

I just wanted to confirm what the fixed smelter charges were for silver, gold, lead and zinc and also what the VAT tax is, just to confirm those numbers.

The value added tax is 17% in China right now, and for example, during the quarter the silver price , all the metals, except the gold, right, so for example, during the quarter -- the silver price was US dollars $18.1 per ounce and the lead is US dollars $1.06 per pound and zinc is $1.73 per pound. So typically we will get like for silver we get 38% and lead, 77% and zinc is 64%.

But these are -- they're fixed rates that the smelter takes on. Do you know what those fixed numbers are?

Yes, our smelter charge would be very straightforward and it basically the fixed -- for example, in the lead silver concentrate, they take like $2,000, in China, lead prices last quarter was $15,889 a tonne. They took out 2500 RMB per tonne for lead.

Okay. And for silver?

And then for silver, like take like silver price was 3.5, R&D cost, a grand, so that take like. That kind of takes that price.

Okay. Thanks.

Thank you. (Operator Instructions). Now we'll go to the line of Brian Quast from CIBC. Please go ahead.

Hey, most of my questions have been -- just real quick. I want to get a bit more detail on the Ying Mining Camp. The ore source from TLP, HPG and LM, what the run rate looks like, how often or on what percentage of time basis the old mill is going to be running. Could you give us a little bit more color on that, that would be great.

So basically the whole year we've been producing half a million tonnes, of ore, all the mines. So for the new mill we would operate at. And so all the mill we're treating at 110,000 tonne of ore. Which still has about 300,000 tonne capacity left. Okay. So that's gives you an idea. Old mill we're operating. New mill we're operating full-time.

You anticipate being able to keep your tonnage run rate running for those other three mines besides the Ying Mine throughout the year. You obviously had a ramp-up period here.

I think there's going to be ramping up more for like TLP. And for TLP Mine we project to produce about 160,000 tonne of ore and for Ying Mine we're going to produce about a 300,000 tonne, same as last year.

All right. Thanks a lot. That's it for me.

Yes, thanks.

And our next question comes from the line of Chris Lichtenheldt from UBS. Please go ahead.

Hi. Good morning, everyone. Just first I'll just follow on a little bit on the Ying Mining Camp first. At TL, the 160,000 tonnes you're hoping to get in 20 -- like this year?

Yes.

And so relative to the most recent, like the fourth quarter here, looks like it was still a fair way to go. Could you just describe the work that's still ahead of you in order to get to that sort of 40,000 tonnes a quarter relative to I guess 10,000 or so that was mined this quarter, if I'm not mistaken.

I think the key thing was like we were behind in development and there are a lot of the tonne we were hoping we would get mining going, but a lot of place we couldn't go there because of safety reasons because the tunnel we were trying to use were old tunnels and turned out to be we could not use and I think it was during last year we spent a lot of time to develop these new tunnels and also we are developing underground decline, new declines. I think that these were eventually come to like have a big impact soon on the production.

Okay. So it will be like a ramp throughout the next 12 months, like first quarter should look a lot better or sort of similar?

I think the first quarter should be like maybe first quarter, 30,000 pounds, 50,000 pounds, something like that.

Okay.

First quarter maybe 35,000 pounds, second quarter maybe 38,000 pounds or 50,000 pounds. And then we will maintain around a 58, 60,000 pounds.

Okay. I see. That's helpful. Thank you. Just at Ying, I notice the grade sort of dropped again in the fourth quarter relative to the 480 that I think you sort of hoped to hit and that's -- yes, can you just describe what happened there?

Basically I look at the whole year, 15 grams, 3% below the projection. So I think this coming quarter it may coming back again to around 480 grams. For some reason I don't know why it's one quarter high, one quarter low. Usually have one higher quarter, one lower quarter, and --

Okay. So nothing unusual, just lower grade?

Nothing unusual. I think also relating like maybe there's some operating reason too, maybe during Chinese New Year period, people may be less focused.

Okay. Thanks. And then just lastly on GC, I know you talked about it. Just want to understand, have you submitted a second proposal for a dry stack?

We did supply -- submit that I think around toward the end of the quarter, April, most recent version, studies, and basically we found the impact, I think we got some technical review of this idea and I think now there has been technical review committee already. I think now where we qualify have committee to review technical. I think we are recommended already by technical committee so we are waiting for final approval.

Okay. So they're still just focused on your specific plan and probably working through that, seemed to be okay with it, but do you have any reason to believe they have any larger, broader concerns with mining in general and even if they accept your plan --

I think two years ago they give out the permit.

Okay.

Three years ago they gave out lead, zinc, silver mine permit of our mine. Like maybe wait for our mine.

Okay.

So it's not like a ban on mining in the province. Towards mining. In Guangdong Province, if you want to open a manufacturing operation, review was done in city level where mining operation you need provincial level review. So we want to open a manufacturing, chemical plant, all we have to do is get city Environmental Protection Bureau approval, which is much more. Where city tend to be more -- less.

Right. I see, same sense of urgency, I guess. Okay, that helps me out. Thanks a lot.

Next we'll go to the line of Haytham Hodaly from Salman Partners. Please go ahead.

Just to follow up, I guess you quoted earlier silver you get 78% of the price, lead, 77, zinc, 64. That's based on Shanghai price; correct?

Based on London price.

That number was based on London pricing?

Yes.

Weren't you previously -- didn't you previously prenegotiate margins based on the Shanghai price, not LME?

Yes, like we convert into.

Oh, I see you convert LME pricing. What was the silver, lead and zinc pricing you were quoting?

For London metal exchange?

Yes, so based on the 78% silver, you were basing that on what type of a pricing relative to the Shanghai exchange?

London price was 16.892.

16.892, okay.

101 for lead and 104 for zinc.

Perfect. Thank you.

Thank you. (Operator Instructions). Now we'll go to the line of Brad Humphrey from Raymond James, please go ahead.

Hi, guys. Just a couple quick questions. So the grade overall for next year you think it's going to be around 360. What about for the Ying Mine alone? Will it get back up to the 480 or -- ?

Yes, so Ying Mine alone will be around 480. 476. Silver, 9% lead and 3% zinc.

Perfect. And GC, let's say you get the permits a month from today. How much CapEx would you expect to spend in the next -- the following six months or 12 months after that?

I think it will be $10 million.

That's in the following 12 months?

Yes.

Okay.

And the Chinese New Year this year, is that -- for some reason it seems like a longer shutdown period than previous years. Is there a reason for that or is it just -- ?

I think the weather was bad.

Cold weather.

Yes.

Oh, okay. So depending on the weather, it can be longer or shorter.

Yes, like a lot of the snow, too, it's okay, it's tough, right. I think it's also a little bit power problems too.

Oh, okay. All right. That's it for me. Thanks a lot, guys.

At this time we have no further questions. Please continue.

To wrap up, I'd like to thank you again for joining us in today's conference call. And we remain very excited about Silvercorp's future growth prospects. We look forward to reporting to you again in August. Thank you very much.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.