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

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andean Precious Metals Q2 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Dom Kizek, Vice President, Finance. Please go ahead.

Good morning, everyone, and thank you for joining us today to discuss Andean Precious Metals Second Quarter 2026 Financial and Operating Results. Joining me on the call today are Alberto Morelos, Executive Chairman and Chief Executive Officer; Juan Carlos Sandoval, Chief Financial Officer; and Victor Flores, our SVP, Exploration; operations and growth. Before we begin, I would like to remind listeners that certain statements made on today's call may constitute forward-looking information within the meaning of applicable securities laws. Please refer to the cautionary language included in our press release and MD&A for additional information. I will turn -- I will now turn the call over to Alberto.

Thank you, Dom, and good morning, everyone. The second quarter was defined by our decision to defer the sale of a portion of our production for strategic treasury management purposes. We ended the quarter with finished inventory of approximately 732,000 ounces of silver and 2,585 ounces of gold carried on the balance sheet at cost of $37.6 million. As a result, reported revenue and earnings for the quarter do not fully reflect underlying operating performance of the business. I am pleased to report that we sold the entire deferred position at weighted average prices of 62.26 per silver ounce and 4,168 per gold ounce for proceeds for gross proceeds of approximately $56.3 million approximately $18.7 million above the carrying cost of the inventory with the related revenue to be recognized in our third quarter results. Notably, those realized prices were above the available prices during the final weeks of June 2026 per ounces of gold and silver. The strategy did exactly what it was designed to do. It gave us the flexibility to monetize our production on better terms. Operationally, the business performed well. Consolidated production of 25,388 gold equivalent ounces was approximately up 4% year-over-year and year-to-date production of 52,730 ounces is up approximately 15%, driven by another outstanding quarter at San Bartolome where silver equivalent production increased 31%. On a year-to-date basis, revenue increased approximately 70% to $230.8 million with adjusted EBITDA of $86.6 million and net income of $34.2 million. That is our strongest first half revenue and adjusted EBITDA on record. And despite the sales deferral, our year-to-date revenue, adjusted EBITDA and net income was already higher than year-to-date 2025. Approximately 60% of second quarter revenue was derived from silver and 40% from gold underscoring the strength of our diversified precious metals platform and our meaningful exposure to the current silver price environment. Average realized prices were 4,453 per gold ounce and 76.82 per silver ounce, up approximately and 124%, respectively, year-over-year. More importantly, we strengthened our balance sheet by increasing our total assets our total equity, while also reducing our total liabilities, reflecting a 15% million prepayment on our revolving credit facility and an improvement -- an important reduction in our accounts payable. We ended the quarter with $17.8 million in liquidator, which includes our finished metal inventory measured at cost and $52.2 million in cash and cash equivalents. Operationally, San Bartolome delivered another strong quarter with silver equivalent production up 31% year-over-year on higher ore purchase volumes, grades and and cash gross operating margin of $25.56 per ounce sold. At Golden Queen, production was lower due to mine sequencing and grade timing. While year-to-date all-in sustaining costs of 1,970 per ounce remains within our 2026 guidance range. We reiterate our full year 2026 production cost and margin guidance and with the elevated price of diesel, we expect to continue to deliver within this range supported by disciplined execution and our focus on free cash flow generated. We have discussed previously, our production profile remains weighted towards the second half of the year. Bolivia's transition to a flexible exchange rate regime effective June 29 is indicative of a more market-focused economy, and the continued depreciation of the Bolivian against the U.S. dollar, our reporting currency is currently working in our favor. We will continue to monitor the new regime closely but don't expect any material impact on the company. During and subsequent to quarter end, we also advanced important initiatives, corporate initiatives, including the relaunch of our normal course issuer bid, under which we have repurchased approximately 2.1 million shares for roughly CAD 12.7 million since July. The election of Stephen Altmann to our Board of Directors, shareholders' approval of Ernst & Young as our auditor and continued progress toward our listing in the New York Stock Exchange, which we expect to happen within 2026. We also look forward to the release of the updated technical report at Golden Queen, which we expect to announce in late September and believe it will further enhance the company's visibility and profile with the global investment community. I'll now hand it over to Juan Carlos to provide additional operational and financial highlights beginning with San Bartolome.

Thank you, Alberto, and good morning, everyone. San Bartolome delivered another excellent quarter operationally. The operation produced approximately 16,820 gold equivalent ounces in Q2 and representing silver equivalent production of approximately 1.43 million ounces, an increase of 31% over the prior year period. Silver production was approximately 1.32 million ounces, up approximately 28% year-over-year. Performance benefited from higher ore purchase volumes up approximately 32% at an average purchase grade of 170 grams per tonne, together with higher throughput of approximately 4,400 tonnes per day. and improved head grades. Cash gross operating margin increased to $25.56 per silver equivalent ounce sold compared to $0.579 in the prior year period, a substantially higher realized silver prices outpaced the increase in per ounce operating costs. Gross margin ratio was 33% for the quarter compared to 46% in the prior year period, reflecting higher or purchase costs that are linked to the spot price of silver and the appreciation of the Bolivia versus the U.S. dollar. This is partially offset by higher realized prices. In a rising silver price environment, our purchase costs adjust with the market, but the operation continues to capture meaningful absolute margin on every ounce produced. Silver sales totaled approximately 451,000 ounces during the quarter, representing approximately 35% of quarterly silver production and no gold ounces were sold at some bar during the quarter. We continue to focus on strengthening long-term ore supply relationships, optimizing logistics, and improving operational efficiencies. Now moving on to Golden Queen. At Golden Queen, production for the quarter was approximately $8,568 gold equivalent ounces, of which approximately 7,800 ounces of gold lower than the prior year period, primarily due to mine sequencing and great timing with average stack rates of 0.51 grams per tonne compared to 0.73 grams per tonne a year ago. Revenue was approximately $32 million as higher realized gold prices were offset by lower ounces sold, reflecting both lower production and the deferral of cold sales. Operating cash costs were $1,779 per ounce sold, while all-in sustaining cost was $2,159 per ounce sold for the quarter, primarily reflecting lower ounces sold, partially offset by lower sustained capital expenditures for timing reasons. Importantly, year-to-date all-in sustaining cost of 1,970 per ounce is below the prior year period and remains within our full year guidance range of $1,850 to $2,150 per ounce. As we move through the second half, we expect sustaining and growth capital to increase in line with guidance as we advance the leach pad expansion, mobile fleet investments and operational optimization projects. On exploration, we completed our Phase I drill program of approximately 10,000 meters in June, and exploration activity stepped up meaningfully during the quarter. We are assessing a second phase for 2026, including geophysics, mapping, sampling and additional drilling. As previously discussed, the results of the updated technical report for Golden Queen will be announced in late September with a new technical report scheduled to be released in Q4. Now moving on to the financial results. Our second quarter financial results were shaped by the strategic sales deferral that Alberto already described. Revenue for the quarter was $67.6 million compared to $73.7 million in Q2 2025, a decrease of approximately 8% and resulting from the deferral of silver and gold sales. Gross operating income was $23.6 million compared to $29.4 million in the prior year period and adjusted EBITDA was $15.7 million compared to $28.9 million. We recorded a net loss of $14 million or $0.09 per share for the quarter. In addition to the deferral, the net loss reflects a mark-to-market decrease in the fair value of our marketable securities and a foreign exchange loss related primarily to the Bolivia and Bolivian. On a year-to-date basis, revenue increased approximately 70% to $230.8 million. Gross operating income increased to $99.1 million from $52.4 million. Adjusted EBITDA increased to $86.6 million from $50.8 million and net income was $34.2 million or $0.22 per diluted share. Despite the sales deferral, our year-to-date adjusted EBITDA was already higher than year-to-date 2025. Free cash flow was an outflow of $55.5 million for the quarter and $16 million year-to-date. This is not a reflection of operating performance. It represents the investment in noncash working capital from the buildup of finished silver and gold inventory, together with a $50 million paydown of our revolving credit facility. With the sale of the deferred inventory subsequent to quarter end, that recovery is already underway and will be reflected in our third quarter results. I'll now pass it on to Dom for some further highlights on our financial results for this quarter.

Thanks, J.C. Turning to the balance sheet. We ended the quarter with just under $171 million in liquid assets. Effective this quarter, we revised the composition of liquid assets to include metal and third-party refineries and/or inventory measure of cost, which captures the finished inventory subject to the deferral. This consisted of approximately $52 million in cash and cash equivalents, approximately $55 million in short and long-term marketable securities and approximately $54 million in finished metal inventory cost. As a reminder, at June 30, the deferred inventory was carried within liquid assets at a cost of $37.6 million. So the quarter end measure does not reflect the value realized on the subsequent sale, where proceeds were approximately $18.7 million above the carrying costs. On debt, we repaid $15 million on the revolving credit facility during the quarter, bringing the balance to just under $15 million with $25 million of undrawn capacity. Total debt, including equipment financing, was approximately $30 million, and we were in compliance with all covenants of Cadet. Total assets increased to $453.3 million total equity increased to $301.3 million from $263 million at year-end, continued strengthening even in the quarter with a reported net loss. Subsequent to quarter end, we deployed approximately CAD 12.7 million to repurchase approximately 2.1 million shares under our NCIB. Overall, we remain focused on disciplined capital allocation, operational execution and maintaining financial flexibility. With that, I'll turn the call back to Alberto for closing remarks.

Thank you, Dom. Q2 was an unusual quarter rather than selling our full production into the market, we chose to hold a meaningful portion, which was later sold after quarter end for approximately 56.3 million representing approximately $18.7 million above the carrying costs and at prices above those available at quarter end. Looking to the second half, we are well positioned with a strong liquidity and meaningful exposure to both gold and silver, a production profile weighted to the second half of the year and multiple catalysts ahead including our expected New Year Stock Exchange listing and the updated Golden lean technical report. As always, I would like to thank all of our stakeholders, including our employees, contractors, local community and shareholders for their continued support. With that, I will now open the line for questions.

[Operator Instructions] Our first question comes from the line of Allison Carson with Desjardins.

My first question is just on the NCIB. See you've already repurchased 2.1 million shares. Would you consider expanding this program [indiscernible].

Alison. And for purpose of your question, while we announced that for this first tranche, we got authorization to purchase up to 4 million shares. So it will be dependent upon market conditions. But certainly, our authorization and the request that we did is for up to $4 million, and we only have executed half of it.

Okay. Great. So we'll just keep watching to see if you get through the next 2 million pretty quickly here. And then my other question is just on Golden Queen. I was wondering if you could just sort of highlight some of the key areas that will see changes in the upcoming tech report. And if all the remaining work to complete it is tracking well for completion for a press release at the end of September.