Andean Precious Metals Corp. (APM) Earnings Call Transcript & Summary

Welcome to the Andean Precious Metals Fourth Quarter and Year-end 2021 Results Conference Call. [Operator Instructions] As a reminder, all participants are in listen-only mode, and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Simon Griffiths, Chief Executive Officer. Please go ahead, sir.

Thank you, Claudia. Thank you, and good morning, everyone. Welcome to today's call to discuss our fourth quarter and year-end results, which we released earlier this morning. Please note that during this call, all dollar amounts are expressed in U.S. dollars. So last year, 2021 was a transformative year for Andean. In March, we completed our listing on the ASX Venture Exchange. During the year, our total shareholder return was 72%, in 2021, exceeded all our expectations as a publicly traded company in our first year, finishing only second to Aya in the internal comparison of our peer group. We've attracted a strong book of institutional investors, and we continue to work hard building on our retail following. We're pleased to advise that we met our full year production and cost guidance, production of 5.8 million silver ounces at an all-in sustaining cost of $18.17 per ounce. Most importantly, we accomplished this safely, with 0 lost time incidents and 0 environmental incidents. Our total recordable incident frequency rate, which is the industry metric used for safety performance, was 0.28, one of the lowest in the industry. We finished the year with more than $19 million in cash and short-term investments with no debt, supported by free cash flow in 2021 of $30 million. In 2021, we had revenues of $144 million from sales of 5.8 million ounces compared with $130.7 million from sales and 6 million ounces in the previous year. The increase in revenue, mainly due to the difference in realized silver pricing. In the fourth quarter, we sold 1.3 million silver equivalent ounces at a realized price of $23.21 per ounce for revenue of $31 million. And again, for comparison in the fourth quarter of 2020, we sold 2.2 million ounces at an average realized price of $24.99 per ounce. The higher sales volume in the fourth quarter of 2020 reflect the sale of inventory produced in the prior periods. Adjusted EBITDA for the year was $34.4 million compared to $39.7 million for the same period in 2020. And this higher revenue was partially offset by a rise in direct costs from increased tonnes milled and mined. Our G&A expenses were higher for the year largely due to the costs associated would come into the capital markets -- to the public markets, management, governance, regulatory compliance costs associated. At San Bartolomé, we increased our mineral resource estimate by 100%, so effective 31st of December 2021. Andean's measured and indicated resources stood at 27.5 million ounces of silver. And we added 12,000 tonnes of tin in situ to our mineral resource. We also have a small quantity of inferred resources, just short of 4 million ounces of silver and 1.3 additional -- 1,300 additional tonnes of tin. At San Bartolomé, we're targeting completion of our PEA for the FDF expansion study. We're expecting to release that during quarter 2. We're still drilling our dry stack tailings, which is also expected to contain silver and tin, and we expect to release drill results as they become available during the coming months. While silver remains our primary focus, the incorporation of tin as a coproduct at San Bartolomé has the potential to extend our mine life and to further strengthen our cash flow profile while driving all-in sustaining costs significantly lower. In exploration, during 2021, our team focused on our San Pablo gold exploration property, which is 100% owned, where we have early indications of a porphyry target. The drilling we did last year, along with the geophysical work, which was completed in Q4, have resulted in a new drill program this year where we're targeting anomaly suggesting a large porphyry gold system. So we look forward to continuing that drilling. Those drill rigs have started, and we expect to release results in the next 1 or 2 months. Looking to this year, we're pleased to provide our investors with guidance, targeting silver equivalent production this year, 5.3 million to 5.8 million ounces at an all-in sustaining cost on a byproduct basis of $17.25 to $18.75 per silver ounce sold. Our outlook builds on our strong operational and financial performance last year. We continue to maintain a strong balance sheet that provides us with a strategic advantage for negotiating merger and acquisition transactions, and we're actively evaluating project both in Bolivia and in Latin America. Before opening the call to questions, I want to take the opportunity to thank our investors for their support during the past year. We're very excited and optimistic about the year ahead, and we look forward to making 2022 another transformative year for Andean and all its stakeholders. Thank you for your time today. I will now open the line to questions.

Our first question is from Justin Chan with Sprott.

Congrats on a very strong year, lots of cash generated. My first one is just -- I know the FDF -- FDSF (sic) [ FDF ] study is coming in Q2. One is just when in the quarter? Are you thinking kind of earlier or later in the quarter? And then just looking ahead to it, I have a few questions from the parameters. If you're able to share that information, if not, I understand. One is just on potential to sort it before coming into the plant. I'm wondering what the test work is showing there, whether it can preconcentrate. And then just perhaps on recoveries, what you think for silver and tin and has that changed at all? Maybe I'll start with those 2. And then third might be in terms of time line, when do you think that might come into production?

Yes. Thank you, Justin. So the resource released recently for the San Bartolomé operation requires a technical report, as you know, to follow on, 45 days from the release of the resource. So we're on target for that. So on the 25th, you'll be getting the technical report that will contain additional more up-to-date information. The mining study for the FDF is complete for this phase. The capital cost estimate is almost complete as well. The metallurgical test work is the most important element, and that's advancing quite nicely. So to answer your question, I would say early in Q2. If not, late April, first week of May, full release of the PEA. In terms of preconcentration...

Got it.

Sorry, Justin?

Sorry, I was just verifying. Got it. Late April, early May. Sorry to interrupt.

Yes. That's okay. So to your second question, preconcentration is still part of our thinking. As we all know, it will be due to the -- it will be down to the test work that determines which direction we end up going with this. The tin price is actually having a considerable influence. If the tin price and the outlook for tin continues to be very strong, then that comes into the decision, Justin. We would not want to leave any tin or any metal behind. And with such a low CapEx, it might be that we -- the economics tell us it's better to process everything. So those decisions are pending. But by the time the PEA comes out, you'll have a better picture. And then in timing, we're still expecting to be close to a decision to invest towards the end of this year, early in 2023. The backlog and the delays at the laboratories worldwide in the mining industry have also impacted us. I'd say we've been knocked maybe 1 or 2 months, but we may get that back. So I'd expect announcements throughout Q3, Q4 with updates. And in terms of production, we will be targeting production later in 2023, subject to the availability of the long-lead items.

Got you. All right. That makes a lot of sense. And then just on this year's guidance in production, wondering if -- there's 2 things. One, any seasonality that you expect? And then two, should we expect pretty similar proportions of third-party processed ore?

The answer to your second question is yes. We continue to build relationships. We continue to strengthen that side of our business. So on a depletion basis, we only deplete approximately 50%, 55% of our compliant resources. So that's an important point that we're looking to strengthen. And then as for the guidance, more of the same, Justin. It's very similar to last year.

Got you. And then any seasonal aspect? I know Cachi is coming towards the end per your statement today. Will that have any impact on kind of quarter-over-quarter or pretty stable do you think between the quarters this year?

Yes. In terms of seasonal weather-related, we've just come through the wet season. So quarter 1 will be the best indicator of any weather impact. In terms of Cachi, that property is depleting. It's a very low tonnage. It's a very low proportion of our feed into our mine plan. So the impact from Cachi will be negligible. We are looking to do some more drilling, so some more resource definition at Cachi just outside of the current pit. So there may be an opportunity to exploit more tonnes from Cachi going forward?

Got you. And then just my last one, I'll clear up the line. I realized I've hogged it for a while now. Just on deferred tax versus cash tax, should we expect any change in '22 in terms of more cash tax versus deferred? Or yes, could you just give me a sense of what you're expecting in that regard?

Yes, I'll bring Jeff in on this one, if I may, Justin.

Absolutely. Just to answer your question, yes, I would say that after the 2021 year, as you can see from our deferred tax balance, we have consumed a significant amount of our loss carryforward balance. In terms of the timing of cash taxes paid in Bolivia, those would be due sort of January 2023 for the fiscal 2022 year. So although we do not expect a significant cash tax impact through 2022, we will start to see that impact in 2023 and beyond.

Got it. So just to reiterate my understanding on that one. So in terms of 2022, you would expect similar sort of free cash flow to, I guess -- how would I phrase it, the relationship between production in AISC and free cash flow should be similar in '22 as it was in '21. And in '23, that may start to change because of tax. Is that an accurate way to summarize that?

Yes.

[Operator Instructions] There are no further questions registered at this time. I would like to turn the conference back over to Simon Griffiths for any closing remarks.

Thank you once again, Claudia, and thank you, everybody, for participating. Please feel free to reach out to the IR team at [email protected], if you have any further questions. Claudia?

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