Earnings Transcript for SVM - Q4 Fiscal Year 2013

Executives: Jonathan Hackshaw - Director of Investor Relations Rui Feng - Chairman and Chief Executive Officer

Analysts: Brad Humphrey - Raymond James Ltd., Research Division

Operator: Good morning, ladies and gentlemen. Welcome to the Silvercorp Metals Fiscal 2013 Year-End Earnings Conference Call. I would now like to turn the meeting over to Mr. Jonathan Hackshaw. Please go ahead, sir.

Jonathan Hackshaw: Thank you, operator, and good morning, everyone. Welcome to our Fourth Quarter and Fiscal Year-End of 2013 Conference Call. Joining me today on the call are Dr. Rui Feng, Silvercorp's Chairman and Chief Executive Officer; and 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 in fiscal 2013. We will then open the call up for questions. Presentation slides are available as part of the webcast or on Silvercorp's website. To advance the slides, please click on the forward arrow. Before we begin, I'd like to draw your attention to the first slide and remind you that during today's call, forward-looking statements will be made relating to future production, development and exploration, capital expenditure, 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. During the quarter, the company recorded net income of $6.4 million or $0.04 per share compared to $9.7 million or $0.06 per share in the fourth quarter of fiscal 2012. Moving on to Slide 3. In fiscal 2013, the company recorded adjusted net income attributable to equity holders of $36.9 million or $0.22 per share compared to net income of $73.8 million or $0.43 per share in fiscal 2012. This decrease was due to a combination of the lower silver price, a decrease in silver production, a decrease in base metal production and a higher overall cost of production. Turning to Slide 4 and our fourth quarter operational highlights, the company produced in total 0.94 million ounces of silver and over 2,300 ounces of gold. At the Ying Mining District, the company mined 153,000 tonnes of ore during the quarter. Metal production totaled 0.93 million ounces of silver, 800 ounces of gold, 9.5 million pounds of lead and 1.0 million pounds of zinc compared to 1.1 million ounces of silver, 966 ounces of gold, 14.7 million pounds of lead, and 2.0 million pounds of zinc in the fourth quarter of fiscal 2012. Total in cash mining cost per tonne in the fourth quarter of fiscal 2013 was $72.56 and $61.67, respectively, compared to $73.52 and $57.62, respectively, in the same prior-year period. In the fourth quarter of fiscal 2013, a total of 158,000 tonnes of ore was milled compared to 136,000 tonnes in the fourth quarter of fiscal 2012. The cash milling cost per tonne was $16.05 in the fourth quarter of fiscal 2013 compared to $16.84 in the fourth quarter of fiscal 2012. Total in cash cost per ounce of silver during the quarter for the Ying Mining District were $5.82 and $3.65, respectively, compared to negative $1.84 and negative $4.22 in the fourth quarter of 2012, fiscal 2012, respectively. Moving to Slide 5. In fiscal 2013, the company produced, in total, 4.97 million ounces of silver, and over 12,000 ounces of gold compared to 5.62 million ounces of silver and over 8,000 ounces of gold in fiscal 2012. At the Ying Mining District, the company mined over 776,000 tonnes of ore during the year. Metal production totaled 4.94 million ounces of silver, 4,153 ounces of gold, 52.2 million pounds of lead and 11.2 million pounds of zinc, compared to 5.61 million ounces of silver, 3,595 ounces of gold, 72.4 million pounds of lead, and 13.5 million pounds of zinc in fiscal 2012. Total in cash mining cost per tonne in fiscal 2013 was $66.62 and $55.94, respectively, compared to $64.70 and $51.60, respectively, in fiscal 2012. In fiscal 2013, a total of 774,000 tonnes of ore was milled compared to 667,000 tonnes of ore in fiscal 2012. The cash milling cost per tonne was $13.56 in fiscal 2013 compared to $14.13 in fiscal 2012. Total in cash costs per ounce of silver in fiscal 2012, fiscal 2013 at the Ying Mining District were $2.45 and $0.48, respectively, compared to negative $3.19 and negative $5.07 in fiscal 2012, respectively. Turning to Slide 6. In the fourth quarter of fiscal 2013, cash flow from operations of $14.8 million or $0.09 per share compared to $12.6 million or $0.07 per share in the same prior-year period. Moving to Slide 7. In fiscal 2013, cash flow from operations were $85.8 million or $0.50 per share compared to $113.3 million or $0.65 per share in fiscal 2012. The decrease of operating earnings compared to the prior year was the result of lower metal production and lower metal prices. The company ended fiscal 2013 with $117.9 million in cash, cash equivalents and short-term investments and no long-term debt. Turning to Slide 8, pounds for the quarter were 33.1 million compared to 44.3 million in the fourth quarter of fiscal 2012. This decrease was due to a combination of a lower net realized silver price, lower metal production and an increase in the cost of production. The net realized selling price of silver was $23.49 -- $23.49 per ounce, a decrease of 7% compared to $25.37 per ounce in the same quarter last year. And just to be clear, the net realized silver prices after deductions for smelt and recovery charges and VAT, the realized silver price in the Shanghai Metal Exchange before these deductions was $30.51. With respect to metal prices, following the recent decline in metal prices, the company is reviewing its capital expenditure for fiscal 2014 to identify opportunities to reduce costs and optimize the allocation of capital across the company, including examining strategic options for non-core assets. Moving to Slide 9, in fiscal 2013, the company's consolidated total cash cost and cash cost per ounce of silver were $2.45 and $0.48, respectively, compared to negative $3.25 and negative $5.13 per ounce of silver, respectively, in fiscal 2012. The increase in total in cash cost was due to higher production cost and a decrease in by-product metal credits. In fiscal 2013, precious metals accounted for 72% of sales compared to 70% in fiscal 2012. Ore [ph] accounted for 65% of sales, gold 8%, lead 23%, and zinc 4%. Now turning to Slide 10. An exploration and development activity for the fiscal year at our key assets, starting with the Ying Mining District, where the company commence the implementation of the new mining strategy, which is expected to have a positive long-term effect on operations. At the SGX Mine, over 1,800 meters of the 5,200 meter ramp was completed during the year. This ramp is expected to improve production capacity at SGX starting in the second quarter of fiscal 2014. At LM Mine West, the company completed 1,700 meters of the development work for a 4,800-meter access ramp. The ramp is designed to provide access to over 6 veins, and the upper portion of the ramp has already been connected to existing tunnels at LM West, resulting in an improvement in tunnel ventilations and holding capacity. Shaft 969 at LMS West is also on schedule to become operational in fiscal 2014 and is expected to commence ore production during the third quarter of fiscal 2014. Once Shaft 969, the access ramp and all the mining levels are completed, down to the 500-meter elevation at LMS West in fiscal 2015, the combined production capacity of the 2 mines is expected to be around 300,000 tonnes of ore per year. At the TLP and HPG mines, the company also continued to advance development work in order to continue the ramping up of production and facilitate further underground drilling. The company also developed over 78,900 meters of decline in horizontal tunnels and completed over 155,000 meters of underground drilling at the Ying Mining District. Turning to our GC mine in Guangdong province in Slide 11, the company substantially completed the construction of the GC mine in fiscal 2013 and commenced trial mining and processing in March 2013. The main access ramp was completed in fiscal 2013 and has access to the V2 vein. In addition, 1,520 meters of the 4,600-meter exploration ramp was completed during fiscal 2013. Once the exploration ramp is completed, it will provide access to all known veins within a horizontal distance of 250 meters. During the course of fiscal 2014, the company will use the main ramp and the exploration ramp access points to the mining. Moreover, in fiscal 2013, approximately 550 meters of the 620-meter main shaft was completed. The shaft is expected to reach its designed elevation of minus 380 meters in the second quarter of fiscal 2014. The company also completed over 35,000 meters of diamond drilling using 5 underground drill rigs and 2 surface drill rigs. The chief form of commercial production, the company is required to pass a series of regulatory inspections to ensure compliance for safety and environmental production requirements. The company expects to pass in the inspection in the Chinese permits in the third quarter of fiscal 2014. Turning to Slide 12 and the BYP mine in fiscal 2013, the company has completed the preparation work for construction of a 265-meter deep shaft that will facilitate the mining of the #3 gold mineralization body and the #5 zinc and lead ore body. The installation of shaft equipment and construction of the head frame is currently underway. In addition, the construction of a 1,500-tonne per day tailing-backfill facility is well underway and is expected to be completed in the first quarter of fiscal 2014. That concludes our comments in the fourth quarter and fiscal 2013 results, and we would like to now open the call up to questions.

Operator: [Operator Instructions] The first question is from Brad Humphrey with Raymond James.

Brad Humphrey - Raymond James Ltd., Research Division: Just really quickly, on the GCC, started coal mining and processing in March, can you give us any sense of how that's going, idea of how recoveries are coming? Any other issues with the commissioning?

Rui Feng: Okay. Yes, we started test-running the mill and so there are a lot of problems with the mill, so we just fixed those problems right now. And in terms of recovery, we have achieved a recently good recovery for lead and zinc, but now our silver recovery is stable because we have used the recycled water. So which -- if we use the freshwater, the recovery is pretty good, but when we use the recycled water, we run into instability right after the recovery. So within early this year, we have to sign a new metallurgic study test with [indiscernible] metallurgical lab in China, it's based in Beijing. So we shipped them 2 tonnes of material back in March, so they are working on that and hopefully, it should be resolved -- we should see a stable recovery soon. And also, we do some test mining and thermal mining in the development order that we're producing those things because the other ores come from development ores so the grade is [indiscernible] and pile is not -- the grade varies. So that's also add a little bit of challenge for the recovery test -- for the test of new mill, right? So that's what is the kind of situation.

Operator: [Operator Instructions] There are no further questions registered at this time. I'd now like to turn the meeting back over to Mr. Hackshaw.

Jonathan Hackshaw: Thank you, operator. And to wrap up, I'd like to thank you again for joining us for today's conference call. And we look forward to reporting to you again when we release our results for the first quarter of fiscal 2014. Thank you and have a good day.

Operator: Thank you. The conference call has now ended. Please disconnect your lines at this time. Thank you for your participation.