Silvercorp Metals Inc (SVM) 2013 Q1 法說會逐字稿

Good morning. My name is Gail, and I will be your operator today. At this time, I would like to welcome everyone to Silvercorp Metals Inc. fiscal 2013 first-quarter analyst conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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. Jonathan Hackshaw, Investor Relations Director of Silvercorp Metals Inc. Sir, you may begin your conference.

Thank you, operator, and good morning, everyone. Welcome to Silvercorp's analyst conference call for the first quarter of fiscal 2013. 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; and Ms. Maria Tang, Silvercorp's Chief Financial Officer.

We will begin the call with a review of our financial operating and development highlights for the quarter. After this, we will open up the call up to questions. 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 click on the forward arrow.

Turning to slide 1 -- during today's call, forward-looking statements will be made relating to future production, development and exploration; capital expenditures; business expansion plans, and other items. Such forward-looking statements are subject to risks and uncertainties, many of which are detailed in our 2012 annual information form filed on SEDAR. There can be no assurance that such forward-looking statements will prove to be accurate. And actual results and future events can differ materially.

Turning to slide 2 -- I will now review the first-quarter financial highlights, which are expressed in US dollars. In this quarter, the Company recorded net income attributable to equity holders of the Company of $6.1 million or $0.04 per share. Adjusted net income was $8.1 million, or $0.05 per share, after excluding the withholding tax accrual of $2 million for anticipated dividends from the Company's subsidiary in China.

Adjusted net income of $17.5 million lower, compared to $25.6 million, or $0.15 per share in the first quarter of fiscal 2012; primarily due to lower sales, higher production costs, and higher general and administrative expenses.

Turning to slide 3 -- in the first quarter of fiscal 2013, cash flow from operations was $19.3 million or $0.11 per share, compared to $33.9 million or $0.19 per share in the first quarter of fiscal 2012. After paying dividends of CAD4.3 million and capital expenditures of $20.5 million, the Company ended the quarter with $142.3 million in cash and short-term investments, and no debt.

Turning to slide 4, and our first quarter operational highlights -- the Company produced, in total, 1.2 million ounces of silver; and over 2600 ounces of gold. At our flagship producer, the Ying Mining District, Silvercorp mined over 181,000 tonnes of ore during the quarter, 6% more than in the first quarter of fiscal 2012.

Metal production totaled 1.2 million ounces of silver, 800 ounces of gold, 13.7 million pounds of lead, and 3 million pounds of zinc; compared to 1.6 million houses of silver, 800 ounces of gold, 20.6 million pounds of lead, and 4.1 million pounds of zinc in the first quarter of 2012.

Grades where 227 grams-per-tonne for silver, 3.6% for lead, and 1.1% for zinc; compared to 303 grams-per-tonne for silver, 5.5% for lead, and 1.5% for zinc in the same quarter of last year. The lowered grades and the decrease in metal productions production were due to two factors; the first being a five-day interruption in production because of power interruptions, which were necessary to facilitate nearby highway construction. And, secondly, the short and distort attack last fall has caused management's time being inadvertently, but necessarily, diverted to deal with the crisis, which caused delays in implementing certain development plans at SGX mine, resulting in a gap in the mining schedule of blending ores from different zones with different grades.

We expect the lower grade situation will be improved in Q3, fiscal 2013. However, as a result of these factors, we have revised our production guidance for fiscal 2013, and now expect to produce, in total, 5.5 million ounces of silver; 8300 ounces of gold; and 85 million pounds of lead and zinc.

Total cash and mining costs per tonne in the first quarter of 2013 were $69.02 and $55.47, respectively; compared to $60.02 and $48.66, respectively, in the first quarter of 2012.

The increase in cash mining costs was due to the following -- an increase in labor costs, for both the Company's employees as well as those of its mining contractors, of approximately $5.40 per tonne; and, secondly, the impact of the US dollar depreciation versus the Chinese RMB of approximately $1.40 per tonne. However, compared to the fourth quarter of fiscal 2012, total and cash mining costs decreased by 6% and 4%, respectively.

Moving to slide 5 -- during the quarter, our consolidated cash cost per ounce of silver was $0.14; while in the first quarter of 2012, it was negative $6.12 per ounce of silver. As already mentioned, the higher cash costs that we saw for the quarter are a function of higher production costs and a decrease in by-product metal credits.

For the quarter, precious metal accounted for 71% of sales, which is consistent with the first quarter of fiscal 2012. This quarter, silver accounted for 63% of sales; gold, 8%; lead, 25%; and zinc, 4%.

Turning to slide 6 -- sales for this quarter were $45.5 million, compared to $69.7 million in the first quarter of 2012. This decrease was due to a lower realized silver price and lower metal production, as already mentioned. The realized selling price for silver was $22.97 per ounce, a decrease of 23%, compared to $29.99 per ounce for the same quarter last year.

I will now provide an update on the recent exploration and development activity for the quarter at each of our projects. Starting with the Ying Mining District on slide 7, as already -- we released an updated National Instrument 43-101 technical report for the district, reporting a significant gain in the reserves and resources; reconfirming the value of the district to the Company as a long-life asset.

The new tailings pond for the #2 mill in the district became operational and will support production of 3200 tonnes per day for 20 years. Development work on a 5200-meter access ramp at SGX mine continued, and is 21% complete as at the end of the quarter.

This ramp is designed to follow the main S7-1 vein, and is expected to improve production capacity at SGX starting in the first quarter of fiscal year 2014. The Company also completed the development of over 11,000 meters of horizontal tunnels, 150 meters of vertical shafts, and 15,000 meters of underground drilling.

At our LM mines, a great deal of progress was made in development work at both the LM mine and LM mine West. Shaft 900 at the LM mine became operational, with tunneled development also having commenced at five mining levels. At LM mine West, the construction of Shaft 969 was completed during the quarter to the originally planned depth of 369 meters. However, due to encouraging drill results encountered at depth, the decision was taken to extend the depth of Shaft 969 a further 100 meters. The additional work is expected to be completed before the end of fiscal 2013.

In addition, the construction of a 4800-meter access ramp at LM West continued during the quarter. As at the end of the first quarter, construction of 600 meters of the ramp was complete. Once Shaft 969, the access ramp, and all the mining levels are completed down to the 500-meter elevation at LM West in 2014, the combined production capacity of the two mines is expected to yield 300,000 tonnes of ore per year. To support the expected growth in operations at the LM mine and LM West, the Company has commenced the construction of a 3,000-square-meter facility, which will include offices and a dormitory.

During the quarter, the Company also developed over 4500 meters of a decline in the horizontal tunnels, and completed 12,500 meters of underground drilling at the LM mine and LM West.

At the TLP and HPG mines, the Company also continued to advance development work in order to continue the ramping up of production, and to facilitate further underground drilling. In total, the Company invested $9.6 million in exploration and development for the quarter at the Ying Mining District.

Turning to our GC Project in Guangdong Province on slide 8, we continue to make good progress towards GC becoming our next operating mine in Silvercorp's portfolio. Development of the main access ramp is now 50% complete, and development of a 4600-meter exploration ramp has commenced.

The construction of a 1600-tonne-per-day flotation mill, capable of producing silver, lead, zinc and pyrite flotation concentrates, with an optional tin gravity concentrate, is also well underway. However, there have been two issues that have had an impact on the timing and completion for our development plans for GC. Firstly, we've been constrained by the existing power supply capacity. To resolve the power constraint issues, Silvercorp started the construction of a 7-kilometer, 110-volt kilovolt power line, and a power substation in late July, which we expect to be operational in November of 2012.

During the quarter, Silvercorp invested approximately $3.1 million in capital expenditure at the GC project. Secondly, the Guangdong Provincial Safety Production Bureau introduced a new regulation which requires a separate health and safety review of engineering designs for tailings and storage facilities, specifically. The Company has therefore suspended construction of the dry stack tailings storage facility until this review is completed, which we expect to be by the end the second quarter of fiscal 2013.

Construction of the tailings storage facility is therefore now expected to be completed by the end of the third quarter of fiscal 2013. We now expected to declare commercial production in January 2013, which is about three months later than originally planned. Otherwise, we are still very excited about adding another producing mine to our portfolio within the next couple of quarters.

Turning to slide 9, and the BYP mine, good progress was also made during the quarter, and the Company completed 250 meters of a 265-meter-deep shaft, which is expected to be fully completed in December 2012. The new shaft will facilitate the mining of the #3 gold mineralization body and the #5 zinc and lead ore body. The construction of a 1500-tonne-per-day tailing backfill facility is also well underway, and is expected to be completed in January 2013.

Turning to slide 10, at our most recent edition of the X mines, the Company completed upgrades to the existing mill at the XHP project by adding additional flotation cells in the zinc flotation circuits. The mill now has a 1000-tonne-per-day throughput rate, and is able to produce both gold-silver-lead and zinc concentrates. Commercial production of the expanded portion of the mill will commence once the Company has been granted an environmental permit.

Over 2000 meters of tunneling and over 9000 meters of diamond drilling were completed during the quarter at the XPG and XHP projects. For the next two quarters, the focus of the X mines will be on mine development, but limited development or production. In the meantime, the mill will process the existing 60,000 tonnes of silver-lead zinc or stockpiles to generate cash flows to further facilitate support exploration and mine development.

And finally, turning to slide 11, at Silvertip we filed an updated NI 43-101 technical report this quarter, reporting an indicated resource of 25 million ounces of silver. The Company is currently working at completing and submitting the small mining permit application, which will allow for production of up to 75,000 tonnes per year.

To summarize, while the Company faced some challenges this quarter, a great deal of exploration and development work was completed. And it is the continuous development of our assets which will help us to extract further value in the years to come. Keeping in mind the current positive growth that the mining industry is experiencing, it is important to remember that Silvercorp has built a portfolio of assets with a long-life, mineable reserve for less than $300 million.

It is our experience in, and ability to buy, small assets with resource potential, and develop them at a lower cost, that has been, and will continue to be, our strategic advantage. As we move forward, we believe that the Company will continue to be successful because of this strategy.

That concludes our comments on our first quarter of fiscal 2013. And I would now like to open the call up to questions.

(Operator Instructions). Alex Syrnyk, BMO Capital Markets.

Yes, good morning, guys. I just have a question regarding the cost side. The comments were mentioned that, quarter over quarter, costs improve. Are you seeing a stabilization in some of that labor cost inflation that had been experienced over the past year or so?

Okay, this is Rui to answer your question. I think this is a little stablilization, in terms of labor cost escalation increase.

And then to add on to what Ray just said is, the increase in capacity because the benefit was the Social Security. And before, we don't have the requirements to give everybody systems and Social Securities. Starting this year, we basically gave everybody the full Social Security. That's one of the reasons why the cost increased, which hasn't been done already.

Okay, great. Thanks. And then in terms of the grades -- at SG, or the Ying Mining District, a lot of that grade or -- [maybe you] are saying that grade issue was predominantly at SGX. And then, as well, would you be able to comment on that grades at BYP? Because I've noticed that they have kind of come down as well. Given the outlook for them for this year, it seems to have come down.

I think BYP, upgrade would be -- we used to have a guidance of 3 grams?

3 grams. Right now is around a 2.5 --

2.5, 2.6 -- 2.6 grams. I think 2.5, 2.6 grams (inaudible).

Okay, so during the quarter, they were lower. They were at 2.2 or something, so they've come up with that?

Yes.

Yes.

Okay. Okay, that's all for me. Thanks.

(Operator Instructions). [Kirit Sanderhaut], Commodity Fund.

Good morning. I just have a few questions. I was wondering, why do you deduct the VAT charges from your silver sales? And I was also wondering --

What was that?

You report the realized silver price -- you subtract the VAT charges from that. I was wondering why you do that? I'm not sure -- I haven't seen that before.

So, basically, we exclude VAT from our recorded sales, or rather -- this is --

Okay, let me answer the question. When we do our sales, we sign contracts. And contract prices are based on Shanghai Silver Exchange, price which -- including VAT. So the VAT is a wash, and so (inaudible) the VAT is net cycle. You do the sales to kind of the VAT and deduct our VAT prices, and then that difference where you have to pay 100% in (inaudible). So basically VAT is awash. The reason we deduct that is because when you quote the price in Shanghai Silver exchange, the price includes a VAT.

That answer your question?

Brad Humphrey, Raymond James.

Hi, guys. Just a couple quick questions. I know you're not going to be giving us in the SGX on its own anymore. But just out of curiosity, could you tell us what the grade was at SGX in the quarter?

This quarter? Last quarter?

The past quarter.

I think it includes around 295 or 300 grams.

Okay. And so, we expect it to improve over the rest of the year. Is that going to be gradual? Or should we expect the same kind of grade for Ying in the second quarter as we saw the first quarter?

Yes, I think the grade -- the second quarter will be, probably, kind of the same as the first quarter. And then the third quarter were -- started [to come], right?

Okay, and then it will average out to something around 250?

Yes. And, hopefully, after that, the grade will follow the schedule in the in those 43-101 report.

Right.

Which, for the whole history, would be around a 295, 300 gram ahead of grade.

Perfect. Any idea about the timing of that Silvertip small mines permit?

The time is tough, because the committee engineer took a long time to finish that report, or submission. So we almost finished the publication, right?

Right. But it hasn't been submitted?

I think we have, still, maybe a --

Oh, okay.

Because, again, the government Chinese regulations; before, the format it quite simple. And I think, early this year they said, no, you need to (inaudible) was a 95% of design, engineering design. And, therefore, we have to redo a lot of new design. Because at the time, last year, the market was not like that.

Right. Okay, that's it for me. Thanks a lot, guys.

We have no further questions at this time.

Okay, thank you, Operator. To wrap up, I'd like to thank you again for joining us for today's conference call. We look forward to reporting to you again, when we release our results for the second quarter of fiscal 2013 in November. So, thank you very much, and wishing you all a very enjoyable long weekend in Canada.

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