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

Welcome to Andean Precious Metals Conference Call for the Third Quarter Ended September 30, 2022. As a reminder, this call is being recorded. Your host for today is Trish Moran, VP of Investor Relations. Ms. Moran, please go ahead.

Thank you, and good day, everyone. Before we get started, I would ask that you view our MD&A for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A, financial statements and relevant filings are available on SEDAR and on our corporate website, andeanpm.com. With us on today's call is Simon Griffiths, Andean's President and CEO; Jeff Chan, our Chief Financial Officer; and Alberto Morales, our Executive Chairman. Following management's formal remarks, we will then open the call to questions. And now over to Simon.

Thank you, Trish, and good morning, everyone. Thank you for joining. Throughout the first 9 months of the year, Andean has maintained its strong and, importantly, debt-free balance sheet, with its cash and marketable securities of USD 89 million. This is despite a challenging period, which has seen inflation and a significant impact of our cyanide prices, a decline in the average realized silver price of 20% year-over-year, and we've also experienced some operational challenges with our metallurgical recoveries. However, we continue to be prudent with our cash, and we are implementing cost reductions where possible. The mill at San Bartolomé processes varying sources of ore with variable growth and mineral properties, all blending into a single mill feed. The different composition of the ore has recently been causing us a fluctuating net recoveries. Although Andean's own 43-101 Pallacos ore has the highest recoveries, which has been mined less this year. This has been impacting the aggregate grade over the 3- and 9-month periods. To increase recoveries going forward, we're improving ore control procedures at source, and we're seeking to secure new suppliers like La Bolsa. So as mentioned in this morning's press release, we have signed an agreement with the local cooperatives adding La Bolsa to our portfolio. La Bolsa contains oxide material that would feed San Bartolomé during Q4 this year. Moving on to tin and our expansion study. Our interest has now expanded beyond the fines disposal of stockpile, and we are now also considering the dry stack. We have drilled the dry stack facility and expect to announce resources early next week. In parallel with the resource announcement, we have conducted metallurgical test work, which has already commenced with SGS in Lakefield. Once complete in the new year, this will allow the company to determine whether to proceed [ to a PDA ]. Andean is active in seeking opportunities for growth for the company, pursuing and evaluating possible transactions on the strong foundation of our balance sheet. We have active funds on the cash-generating assets in Latin and North America. And with the current commodity price, we see this clearly as advanced market. As announced last week, we are reorganizing Andean, and I will be stepping down as President and CEO. I will remain working with the Board in an advisory capacity to ensure a smooth executive transition. The industrial uses of silver and energy transition and solar power as well as the metals traditional position as a store [indiscernible], bodes well for silver and Andean in the coming years. Andean is in a unique position in our peer group. I look forward to watching the company as Andean continues its exciting growth trajectory. With that, I will now hand over to Jeff, who will review this quarter's financial highlights. Jeff?

Thank you, Simon. And before I get started, as a reminder, our financials are in U.S. dollars unless otherwise noted. I'd like to begin by highlighting our silver recoveries, which continued to impact our results this quarter. While our silver recoveries improved compared to our second quarter, increasing from 75% to 77% in Q3, our average quarterly recovery remains below our target. Early results in October continue to show improvement compared to Q3 as we continue our metallurgical investigations to improve recoveries above 80%. In the third quarter of 2022, we produced 1.2 million silver equivalent ounces, down from 1.5 million ounces in Q3 of last year. Year-to-date, we have produced 3.8 million silver equivalent ounces against our adjusted full year target of 5.0 million to 5.3 million ounces. Processing throughput of 0.4 million tonnes at San Bartolomé remains consistent with Q3 of last year and the average silver head grade per tonne was generally consistent, realizing 115 grams this quarter compared to 114 grams per tonne in the prior year. During Q3, as Simon mentioned, we negotiated a production contract for additional oxide ore for La Bolsa area adjacent to our San Bartolomé operations. This provides Andean with an additional 200,000 tonnes of material from the La Bolsa area at a fixed price per tonne. Production began in early October. And as Simon, again, clarified, this will be the principal mill feed source throughout Q4. We also continue to actively evaluate additional opportunities to expand our ore sourcing in other parts of Bolivia. We reported revenues of $23.6 million this quarter compared to $36.7 million in the third quarter of last year. This year-over-year decrease from 2021 was driven by a 20% decline in our average realized price of silver, which was $19.23 in Q3 2022 compared to $24.13 in 2021. This quarter, our cost of sales was $23.1 million, which was down from $24.6 million in Q3 of 2021. G&A costs, or general and administrative costs, were $3.5 million compared to $3.3 million in the prior year quarter. This increase was primarily driven by higher corporate development costs incurred in Q3 of $0.7 million but offset by lower sustaining administration costs in the third quarter. As the company completes its corporate transition to Monterrey, along with our continued focus on operational efficiencies, improved cost reductions, Andean expects to see lower unit costs in Q4 and into 2023. Our all-in sustaining cost per silver ounce sold were $21.72 for the quarter, and $20.66 year-to-date. We have revised our full year all-in sustaining cost guidance for 2022 to $18.75 up to $20 to reflect the impact recoveries has had on our production during 2022. This quarter, we also reported adjusted EBITDA of negative $3.1 million and a net loss of $2.8 million. These metrics are again down versus the prior year quarter due to the lower production, along with the 20% decline in average realized silver prices as commented on. While economic conditions remain volatile, it is important to note that we continue to preserve our best-in-class balance sheet. As of September 30, we have $84.7 million in cash and cash equivalents and $4.4 million in marketable securities. Our working capital has also improved over the year, increasing from $85.7 million to $91.4 million. Andean continues to have the resources and needs to pursue its growth strategy despite the sharp declines in the silver price and the continued volatile environment. And now over to Alberto.

Thank you, Jeff, and thank you, everyone, for listening today. While this quarter was a challenging one, it does not impact our focus on generating free cash flow, our plans for capital allocation and our determination to be a multi-jurisdictional mid-tier producer. Our goal is to expand our footprint whether it'd be in the precious metals market like gold and silver or in other key metals like copper and tin. We have one of the strongest balance sheets across our peer groups, as mentioned by my colleagues. Our single operation in Bolivia has generated tens of millions of dollars in cash over the last 4 years. The result, as has already been mentioned, we have nearly $90 million in cash and marketable securities with no debt, no streams and no warrants. We have a strong platform and it's no secret that we have our sights set on growing both organically within Bolivia and beyond through mergers and acquisitions. Organically, the key priority is to grow our oxide processing plant in Bolivia. To that extent, we're seeking new mining rights from the Bolivian government and continuing to secure for new local third-party suppliers. In addition, we are looking for assets to buy, assets that are either producing cash flow now or not in the too distant future. This is in order to maximize our shareholders' value. We plan to improve our liquidity through acquisitions, our shares liquidity. Given our understanding for the culture, it makes sense for us to look into initiatives in order -- in other Latin American jurisdictions. The most obvious of this is my home country in Mexico. Next to Peru, Mexico is the largest silver producer in the world. And as announced last week, it is where we will be consolidating our main corporate functions. On that note, we would like to thank our team in Toronto for their contributions with a special call-out to Simon and Jeff. This is their last conference call for Andean. We want to thank Simon and Jeff specially for their contributions to the company and for staying on to consult during the transition period. We wish you both well. Before we go into the Q&A part of this call, I would like to step back and make a couple of industry observations. With the volatility on the market, I am often asked where do I think the industry is going and the prospects for the future. Unfortunately, no one has a crystal ball. Here's what I do know. Regardless of the industry, when times are tough, opportunities always arise. And those who have cash and liquidity during volatile times can buy great assets for good value. This is Warren Buffet's one-on-one. Andean has both cash and liquidity. So far from running for cover to wait out the storm, we are strengthening our existing business and lowering our cost to ensure that we can generate positive cash flow despite the volatility of commodity prices. Because one thing is for sure, volatility now in the industry is not going away anytime soon. Companies that are nimble and opportunistic will profit from these uncertainty. Our balance sheet puts us in an enviable position of being able to capitalize on opportunity. When others are pulling back from pursuing growth due to lack of liquidity, we are moving forward. Many of you are anxious for us to take the next step. We do are excited to execute on this mandate. Though make no mistake, we are not going to do an acquisition for the sake of doing it or to simply check the box. This has to be the right move and this may take time. As a majority shareholder, I have more than skin in the game. Please rest assured that we will always make decisions taking into account the benefit of all of our shareholders over the long term. With that, let's open this call for questions.

[Operator Instructions] We have no questions registered at this time. This concludes today's conference call. Please disconnect your lines at this time, and we thank you for your participation.