IMPACT Silver Corp. (IPT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to IMPACT Silver Corp.'s year of Q1 2021 period ending March 31, 2021, financial and production results for first quarter. Before we begin, we would like to go over our disclosure statements, followed by CEO and President, Mr. Fred Davidson's comments on the quarterly results and then followed by a Q&A period. Certain statements in the following conference call regarding IMPACT Silver's Corp. business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about the future, which inherently involves risk, uncertainties and could cause actual results to differ materially from those contained in the forward-looking statements. I would like to now turn over the call to President and CEO of IMPACT Silver, Mr. Fred Davidson.

Thanks, Jerry. I think we're -- the news release came out on the 25th about first quarter. And I think it was quite exciting. We've seen a 57% increase in revenue year-over-year to $5.4 million for the quarter, a reflection, if you will, of our sensitivity to and our leverage to the price of silver. The cash provided by the operations for the period went to $1.3 million, up from $0.7 million in Q1 of 2020. Now we've also come up with a number that is somewhat a little different, and that's called adjusted EBITDA. And that's earnings before interest, taxes, depreciation, amortization and a one-off share-based payments, all of which are noncash, except for taxes, obviously. And that increased almost 220%, from $0.5 million in Q1 2020 to $1.6 million in 2021. Our mine operating earnings continues to also improve as we tighten up on our operations. We have discussed it before, but we've specifically looked at improving margins as opposed to necessarily just putting grades through the mill. And that's worked very well for us in the quarter. We've been able to sustain our operating cost and our cost per tonne down at the level that we've seen a number of years ago. So even in spite of inflation and the higher costs involved, strict measurement at the mine, control at the mine and that discipline has been very successful. We've seen a real rush to silver from retail investors and for obvious reasons. I mean silver is strongly regarded. There's no question. There's some concerns about other alternative investments, and people are looking at precious metals. Silver itself being an industrial metal as well as a precious metal and certainly one that's very apropos in the current environment is seen increased demand. And we're looking further opportunity where silver starts to approach a ratio of gold that was more traditional than it is today. Going forward, for the balance of the year, we're seeing continued strength in our activities, and we're committed. Now, we've got 2 rigs -- 3 rigs rather, drill rigs on site. We're now looking at the opportunity of completing over 10,000 meters of drilling in the next 12 months. Exciting acceleration of activity. And very recently, we announced the completion of the 3D study on what was probably about $1.5 million to $2 million worth of airborne data done by a predecessor and never fully studied by them. In that process, we've identified 18 new targets in the general area of the Capire mine. And those will be obviously added to our list of high priority targets. Going forward then, it's going to be a very active year, exploration wise. It's going to be a very active year as we push the Capire forward. And as we -- because of -- and I failed to add that this one, the Guadalupe Mine, which is our principal supplier right now, continues to expand. We're seeing that because it's got a track system that ends at a shaft, that shaft takes the ore to surface. And within 100 meters, it's at the mill. Our transport costs have become very low. And again, that's one of those that we look at where we've improved margins over the prior year. Jerry, over to you.

Great. Thanks for the overview, Fred. Here are some of the questions and comments we compiled for investors over the last quarter. Again, just for future reference, please feel free to send questions to [email protected], follow us on Twitter at IMPACT_silver or call us directly at (778) 887-6489.

Question one, and comment one, comes from Andy. Great quarter team on operations. Cash flow is positive. That's great. Netting out cash-based compensation, it seems like the IMPACT is going great places, although the scale could be better. Is this more or less expected to the rest of the year for 2021?

Well, 2021 is going to be a very transitional year in certain respects. Going forward, we expect to see this continued attitude towards keeping or focusing on improving margins. At the same time, principal source of improving margins is going to be what we call the Guadalupe Mine. As that development continues, we're going to be seeing more and more ore from the Guadalupe, and it will go to the mill. So the mill, we're hoping to increase throughput at the mill over this summer. And by late fall, we're hoping to exceed production levels that we had last year certainly.

Okay. Question two, Frank. When will mine production return back to the capacity at 535 from the current 400 tonnes per day?

I guess I should probably expand on the first question at the same time that this production that we're doing at the Guadalupe is obviously going to be very significant because it is a high-margin product. The balance of what we're looking for this year, and some of it might be for accounting purposes written down, some of it might be capitalized, is a very aggressive exploration program of about 10,000 meters. Half of that is going to be dedicated to looking at some of the higher-grade immediate veins and deposits. When I say media veins and deposits, those immediately available to the Guadalupe Mine site. The other half is going to be greenfields. And we've got a vast field of targets that we can go after. It's actually -- it's available on our -- on the website, that demonstrate that even between 2 major mines that were existed from the sort of 1,500, in between, there's a number of operating or have been operating mines that all beg for drill hole. So we're going to be very busy puppies when it comes to exploration this year.

Okay. So you covered that briefly, the 10,000 meter program, Fred. So question three points to that. Is there an expected time frame for when some of these results and targets will be released for IMPACT?

Yes, that's a very valid question. What we did because of the issues of dealing with contractors and especially with a demand for contractors right at the moment and price is charged is we were able to secure a couple drill rigs to bring on to the property and those ones we bought. Unfortunately, we had to have imported through Mexico. And with COVID and everything else, there were delays in getting those rigs up and running. They're running now, and we're hoping to generate information this quarter on a number of the targets we're chasing. A couple that we're looking at right now would be Veta Negra, which in itself is an open pit, but it appears to be more substantial than that. And to the South and to depth, there's an old working there that indicated grade. So we're going to be chasing that when we're publishing results on that. We're going to be working on another -- a number of other targets, and we'll be publishing them as the results come in.

Great. Question four, Fred, in regards to the grade at the Guadalupe. So you mentioned briefly, in some of the switching over into the ore feed on the -- some of the selection between the 4 ore sites. Grade seems to have dropped in Q1 following last quarter's grade around the low 160-gram per tonne versus some of the higher 180, 190 we've seen in previous quarter. Is this kind of the expected normal?

Not necessarily. I'd say there's 2 things that are driving our decisions, is not necessarily grade, but rather margin. And there's -- it's great to have 200 grams a tonne, but if it costs you the equivalent of 210 grams, to mind it, it's not very attractive. The other side is a lot of our feed is coming from the Guadalupe. And when we say the Guadalupe Mine, this is a massive mine that's been mined since 1527. So there's huge number of veins. There's a huge number of workings. We've recently acquired the property directly adjacent to it, and our workings are extending into there. And we expect to see some very good grade material coming out of that area. But it takes development, and we'd probably expect to see that later in the Summer. But the critical one right here is margin. We want to see the margins keep up. And going forward, we expect that to be rising slowly through balance of the year.

Okay. Great. Fred, next question, specifically regards to the Capire VMS area on the southern portion of the IMPACT portfolio of land with higher silver prices and a very strong cash balance, very akin to when Capire was really last in discussion in 2011 and '12. Fred and team, will IMPACT be looking to deal with Capire directly this year? What's the update on the DMS approaches to cut costs and grades? Is that even necessary at this point?

Again, a good question. We're definitely aggressively pursuing Capire right now. First of all, as time has gone by, we're looking at the CapEx and OpEx as inflation has certainly -- hit certain aspects of it. The second part is this airborne that we've done targeted a number of targets in the area, which could be very significant in terms of adding total tonnage. I mean the Capire right now at 200 tonnes a day, you'd be there for 30 years processing the material. If, in fact, these other deposits, even one of them is making significant tonnage, we'll probably have a major CapEx and be replacing the 200 tonne a day with a much, much larger mill and obviously much larger throughput. The other thing we're doing is a thing called XRT. You mentioned DMS, dense media separation. We've already tested that. It's a higher cost, high CapEx operation. And what it does is it sorts the ore. DMS sorts the ore by running basically the feed over top of a dense liquid, and the heavier material goes to the bottom of the liquid, the lighter material, we call it gangue, if you will. The waste rock is then floated off. We found that, that's probably a little expensive, although it works very well. And we're now working on one that's probably a little newer technology called XRT, and it uses x-rays to into -- as the ore goes by to get atomic density. And that [indiscernible] on what is ore and what is an ore. It's very new, probably only in the last 10 years, hasn't been used extensively. Initial bench scale tests say it should work in our case. And we've actually sent off a bulk sample to be having tested. If XRT works, it provides some dramatic results anecdotally from at least one situation we know of. It can reduce the cost per ounce, down almost by 30%. What we're looking for is to get a margin, a bigger margin here because we have silver, we have lead, we have zinc and in passing some copper and gold. And when you mine and when you process, you're trying to produce product, and not all of it ends up in your concentrate. Some of it's lost as you suppress to certain material in order to recover other material. We want is maximum capacity to say we can do that selectively, we can endure a down price if -- price going down and say, one of those materials like, say, zinc and still have sufficient margin to be comfortable in our operations. So XRT is very important in that selection. It's very important in reducing the cost. And what's also interesting is because you're throwing off 60%, 70% of the material, it's actually improving your throughput. So rather than 200 tonnes a day, you're starting to produce a process material up at 600 tonnes a day. So it is exciting as well. So we're looking for size. We're looking for improving margins. And at the same time, yes, we are profitable and we're doing the CapEx and OpEx on it right now to say, do we do it as a stand-alone? Do we do stage 1, which is XRT? Or subject to some spectacular results, can we get them? The whole new product, which is a much larger mine, much larger in size and scope, drilling in that particularly and some of those other targets will be done in this fall.

Okay. Great. Last question we have for the quarter, Fred, refers to more strategic M&A ideas on IMPACT's large land package. Obviously, there was a deal done, fairly small, earlier last quarter with Pantera Silver in an effort to diversify country geopolitical risk in South America. Obviously, IMPACT has been in South America for a decade plus. It seems like it's a great global citizen in operations there. But would IMPACT consider other avenues? And now that there's obviously cash on hand and ability to raise money in the market, would IMPACT look at diversifying the holdings further somewhere else?

Actually, we do think that -- we've got 2 teams, 1 working in Mexico and 1 working in Peru, which, of course, is the second largest silver producer in the world, and they have precious metals as well and other metals. So both were working on it. Mexico is a little harder because I think very much the ones that are attractive to us are also attractive to others, and it's a very competitive bidding situation. Peru was attractive. Unfortunately, they're just going through a presidential election right now. And we're sort of on hold there to ensure that the presidential candidates, the one that is sort of anti-mining, isn't elected. If that happens, i.e., if he disappears, I think it's an area that we could look at expanding. And certainly, we've actually looked at other ones, including United States and Canada for opportunities. Every one of these -- we've probably gone through about 20 of them as desk audits, coupled with actual visits. COVID, of course, is slowing us down. But yes, we see it's necessary that we have to do something. We're doing it internally with our own projects and properties. And we are looking at the opportunity of doing it externally with opportunities that come across our desk.

Okay. Great. That's all the questions we had for this quarter, Fred. Thanks for everyone for tuning in to IMPACT Silver's financials and production results call for Q1 2021. We look forward to hosting everyone again in the next 2, 2.5 months in August for Q2 2021 results. If you have any questions or would look to submit any questions for the next call, feel free to send us an e-mail. We're very easy to access, [email protected]; call us directly at (778) 887-6489 or follow us on various social media platforms, either LinkedIn or Twitter, IMPACT_silver. Again, we thank you, everyone, for investing and trusting in IMPACT Silver. We believe silver is going higher. 2021 is a very interesting year, lot of catalysts and iron in the fire, as Fred mentioned. We look forward to speaking with you all for the next call. Thank you.