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

Good morning. Welcome to Andean Precious Metals Conference Call to discuss the company's Financial and Operating Results for the 3 Months Ended March 31, 2024. As a reminder, this call is being recorded. Your host for today is Amanda Malo, Andean's [indiscernible] Director of Investor Relations. Ms. Malo, please go ahead.

Thank you, operator, and good morning, everyone. Before we get started, I would like to point out that during today's call, we may make forward-looking statements as defined under Canadian securities law. I ask that you view our applied presentation for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our press release, MD&A and financial statements are available both on SEDAR+ and our corporate website, andeanpm.com. With us today is Alberto Morales, Andean's Executive Chairman and CEO; Juan Carlos Sandoval, our Chief Financial Officer; and Segun Odunuga, our Executive Vice President of Finance. Following management's formal remarks, we will open the call to questions. With that, over to Alberto.

Thank you, Amanda, and welcome, everyone. This quarter is our first quarter since the acquisition of Golden Queen. Our team has taken full control of the operations and with the hire of our new COO, Marcos Holanda, we have gained a better understanding of the assets and have begun to implement strategic initiatives to optimize the operation and support future growth opportunities for the company. Despite the fire incident setback at Golden Queen and unusual weather conditions in Bolivia, our consolidated production for Q1 2024 reached 1.8 million silver equivalent ounces, displaying resilience and adaptability. Golden Queen performance exceeded our expectations with 11,490 gold equivalent ounces, while San Bartolome experienced lower production due largely to a historical rainfall season and thunder storms that affected road transportation. However, we anticipate significant production increase, revenue growth and margin improvement in the upcoming quarters, reaffirming our guidance in accordance with our 2024 year plan. Turning to Slide 6 to discuss our vision for our operation in Bolivia. As we have expressed, the country has an exceptional mineral endowment that remains underexplored. Bolivia has attracted and is continuing to attract a wide variety of mining and resource companies, and it relies heavily on the mining industry positive economic impact and capacity to generate foreign revenue. We know the country very well and believe it remains it's jurisdiction, in which we can do business and create further value towards stakeholders. Going forward, we see a strong potential for further growth for San Bartolome and in particular, on expanding our ore purchase programs. As mentioned, this was our first full quarter operating Golden Queen after the acquisition in late November. As a reminder, it offers a fully permitted open-pit heap leach operation in Tier 1 jurisdiction advancing our goal of being a mid-tier producer in the Americas. Considering the fire incident at Golden Queen, this quarter show casted better-than-expected performance in revenue with a slight increase in operating costs, which Juan Carlos will touch on later in this presentation. As mentioned before, Golden Queen performance exceeded 11,490 gold equivalent ounces. However, as mentioned, we do anticipate significant production, revenue growth and margin improvement in the coming quarters, reaffirming our guidance in accordance with our year plan. Most importantly, Golden Queen comes with the opportunity to enable our team to do what we have been doing best, which is to create value out of an undervalued assets. Earlier this quarter, we released a new technical report and updated mineral resources and reserves estimate for Golden Queen that fully met our base case expectations. We continue to focus on the opportunities ahead namely optimizing the mine plan, improving ore recovery and production and increasing cash flow and optimizing operating cost per ounce. We're also defining and prioritizing exploration targets to help realize the potential upside of Golden Queen and extend the operational life of mine with an exploration drilling program kicking off this month. Following the Goldman Queen acquisition, Andean is now a very different company than it was 12 months ago. Our acquisition of Golden Green represents a significant transformation, effectively doubling our company size across metrics such as revenue, production, reserves and workforce. As we integrate Golden Queen into our operations this quarter, our team has been focused on streamlining processes to enhance efficiencies and performance in alignment with our annual plan for 2024. We have anticipated the upcoming quarters will reflect this integration and improve production and enhance operational efficiency. We have also developed a strong platform to support our ambition of becoming a mid-tier precious metal producers in the Americas. We have years of available reserves in both of our assets as well as identified assets based on gold and silver production that is expected to drive growth in cash flow and profitability going forward. Further, our operational expertise and strong financial position enable us to identify and act on future opportunities for growth through acquisitions. In short, we are in a strong position to grow both organically and through M&A. With that, I'll hand over the reins to Juan Carlos, who will review our financials in more details.

Thank you, Alberto. Good morning. Moving on to Slide 10, Golden Queen operational and financial highlights. So already mentioned by Alberto, Golden Queen exceeded our expectations by producing 11,490 gold equivalent ounces. This increase was driven by higher ore tonne mined and stack ore on the leach pad that are yielding better-than-expected production. Our total operating cash cost per gold equivalent ounce produced stood at 2,140, primarily impacted by elevated fuel and [ narrow coal ] consumable prices. On the other hand, operating cash cost per ounce sold totaled $1,627, which reflects the adjustment of production not sold. All-in sustaining cost per ounce sold amounted to $1,936, reflecting heightened total operating cash cost per ounce sold, size corporate admin, corporate G&A allocation and sustaining capital expenditures. In summary, this [indiscernible] operational quarter under Andean's management, showcase robust production achievements and revenue expansion, accompanied by minor increase in operating expenses. Nonetheless, we remain confident in our ability to meet our previously announced guidance. Turning on to Slide 11, San Bartolome operational and financial highlights. In Q1 2024, we made a strategic shift in our purchasing strategy, resulting in a 102% increase in tonnage purchased compared to Q1 2023. This shift focused on acquiring oxide material, which led to a decrease in average head grade of 179 grams per tonne due to the composition of materials purchased. Our total planned throughput experienced an important reduction compared to Q1 2023. This decline can be attributed to heavy rainfalls and thunderstorms around the Potosi area, which adversely affected our operation during the quarter and delays in third-party material deliveries. Beginning January 1, 2024, we adopted new metrics to measure our performance, including cash gross operating margin per equivalent ounces sold and gross margin ratio. These metrics better reflect our transition to exclusively processing activities during Q4 2023. Total cash operating cost per silver equivalent ounce sold, which consists of total cost of sales allocated corporate administrative cost and site and general administrative costs during Q1 2024 were $20.1 million or $24.38 per silver equivalent ounce sold compared to $23.4 million or $23.37 per silver equivalent ounce sold in Q1 2023. This resulted in the cash gross operating margin per silver equivalent down sold of negative $0.72 for Q1 2024, compared to negative $0.33 in Q1 2023. The increase was largely impacted by lower silver equivalent ounces sold and higher cost of material purchase due to the increase in the volume purchased during Q1 2024 compared to Q1 2023. The other second metric, gross margin ratio for the Q1 2024, which is calculated by subtracting the cost of sales, excluding depreciation, depletion and amortization as reported in the income statement from the net revenue from sales of silver equivalent ounces divided by net revenue from sales was 6.47% in Q1 2024 compared to 7.9% in Q1 2023. The 18% decrease in gross margin ratio was due to lower volumes of silver equivalent ounces sold and an increase in average cost of sales per ounce sold in Q1 2024 of $22.13 compared to $21.21 in Q1 2023. The increase in average cost of sales per ounce sold of $0.92 was due to the increase in materials of ore purchasing -- in materials ore purchasing costs. In terms of capital expenditure, sustaining capital decreased $2.3 million in Q1 2024, while nonsustaining capital expenditures amounted to $2 million. The majority of this expenditure was associated with the development of the FDF project in Bolivia. Moving on to Slide 12, financial performance. We achieved a milestone with a record production of 1.8 million silver equivalent ounces and quarterly revenues of sales, reaching $43.1 million, reflecting an increase of 82% and 87%, respectively, from Q1 2023. This surge was fueled by incremental revenue from Golden Queen, partly mitigated the decrease from San Bartolome operations. Total cost of sales saw an uptick of $37.3 million, largely attributed to incremental costs from Golden Queen. Our general and administrative expenses rose to $4.5 million including incremental costs from Golden Queen and other strategic growth initiatives. Finance cost was $1.7 million, primarily linked to the interest payment on Golden Queen's debt. We realized other income of $2.3 million arising from a foreign exchange gain of $1.7 million, primarily due to premiums realized on the selling of the U.S. dollars to Bolivianos and interest income from short-term investments. Total income tax recovery increased $2.6 million, driven by tax loss and deferred tax timing difference benefits realized for Bolivia and Golden Queen. To conclude, Q1 2024 show our first full quarter of combined operations. While we faced challenges during Q1 2024, we reiterate our guidance based on positive trends up to date in accordance with our 2024 year plan. Moving on to our capital structure on Slide 13. As of March 31, 2024, we had liquid assets of nearly $73 million of cash and cash equivalents, a negative net debt and $108 million of working capital. Our mandate is and will continue to be on maintaining our balance sheet, our strong balance sheet to support our future growth. Turning now to our 2024 guidance on Page 14. As mentioned, we are reaffirming our full year consolidated guidance that was provided to the market -- to the market back in March. With that, I conclude my remarks, and back to you, Alberto.

Thank you, Juan Carlos. Looking ahead to the remainder of the year, we have many key catalysts, milestones and opportunities on the horizon. At San Bartolome, we will be working towards signing additional agreements to [ closest ] high-margin third-party work and on commissioning the FDF silver recovery project before the end of this second quarter. At Golden Queen, we will continue to leverage our expertise and experience to stay focused on the implementation of the identified strategies to optimize operation, production and efficiencies. And finally, we will continue to focus on growth and M&A prospects. Our Board and management team are firm believers in the Andean story. And finally, during this quarter, we repurchased 5.3 million common shares for $2.8 million through the normal course issuer bid programs. This now concludes our formal remarks, and I would like to open the line for questions. Operator?

[Operator Instructions] There are no questions from the phone lines at the moment.

We received a couple of questions yesterday after the news release went out that we would like to address on the call. So the first 1 being, on March 29, [ $0.9 ] million was still available for the NCIB. 6 weeks later, the budget will have run out. Does Andean have plans to start a new NCIB this year?

With respect to that question, I would like to clarify that we still have a little more than 1 million shares pending to be purchased on the current program and we intend to continue purchasing that amount of shares. Once the full allotment of shares that has been authorized by the TSX has been exhausted, and we will be reassessing if we were to ask for a new NCIB program.

Next question is -- is SRK already done with their recommendations for Golden Queen? Will they start with the new mine plan this month?

Yes. Thank you, Amanda. So yes, what we could say at this point we are still working with SRK and we're making progress, and I think announcements will be made in due course.

Great. And finally, has the bad weather in Bolivia delayed the start of the FDF project and when is the first production estimated?

Yes, there were certain delays. But like Alberto mentioned, we are very close from commissioning the FDF, which should be ready during this second quarter. Thank you.

This concludes the question-and-answer session. I would like to hand the conference back over to Alberto Morales for any closing remarks.

Thank you, operator. Well, I just wanted to thank everyone for joining us and we'll certainly be, as we expressed, looking forward for next quarter's financials. And certainly, we'll be making announcements as we make progress in due course with respect to these questions that we have been addressing. So thank you very much, everyone, for attending.

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