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

Good day, ladies and gentlemen. Welcome to IMPACT Silver Corp.'s Quarter 2 2021 Period Ending June 30, 2021, Financial and Production Results Conference Call. Before we begin, we would like to go over our disclosure statements, followed by Mr. Fred Davidson's comments about the quarter results, questions and period -- period and, obviously, colors on the MD&A. Certain statements in the following conference call regarding IMPACT Silver Corp.'s business operations may constitute forward-looking statements. Such statements are not historical facts but are predictions about the future, which inherently involves risks, uncertainties and could cause actual results to differ materially from those in the forward-looking statements. I would like to over to President and CEO of IMPACT Silver, Mr. Fred Davidson.

Thank you, Jerry. Well, it's been a pretty interesting quarter. In spite of the fact that the share price and result of the price of silver has been all over the place, we are proceeding and proceeding with the intention of being a successful operating line. The second quarter reflected that with the $4.2 million in revenue over the second quarter, a 50% improvement over the comparable quarter in 2020. The comparable quarter was suffering, of course, from the temporary shutdown demanded by the mine -- the government for all mines operating [ because of ] COVID. Overall, mine operating earnings were up to $1.3 million from $1 million in the comparative period. The cash generated improved to $1.1 million from $200,000 in that comparative period. EBITDA increased 300%, so -- to $800,000 for the quarter. Overall, a very successful quarter. And the questions that are going to be raised in that situation is the -- how did we achieve that revenue. And we're transitional right now, which I think makes it especially impressive. We're moving from a lower-grade sector into a higher-grade sector. And when you're doing that, you're mining development ore, and that resulted in slightly higher cost of mining. Our mining cost per tonne ran to $81.51 compared to $76.77 (sic) [ $76.66 ] in the comparable period. We do -- we don't amortize those development costs. Generally, they get written off as we go. The net working capital, and they are really [ compelling ], quite frankly, is -- with cash over $22.4 million, the net working capital was $22.8 million compared to $5.7 million in the quarter 2 in 2020. We have a good, solid balance sheet. And we intend to use that and we are starting to use that in a very dramatic going forward with our current exploration program. We're conducting a series of programs on a series of targets. And we intend to -- as we complete each program, to then provide a summary of the initial results and an explanation of what they mean. Too often people publish a single result, and the end result is nobody can put it in context. The earnings, as I said, reflected growth. Year-over-year, we did $9.6 million in revenue compared to $6.2 million in 2020. And then the mine operating income was $2.7 million compared to $531,000 in 2020 to June 30, 2020. Bottom line, we suffered a small loss this -- for the 6 months. And that, if you'll recall, was courtesy of share-based payments. The company, as it does, tries to incentivize the employees with stock options. And nobody can say we like lowball them because we took [ them to ] over $0.90. So I think there's going to be a good incentive and the statement and belief of where we see the potential to start going in the future. The other thing that always hits our line were 2 things. One is deferred income tax. And of course, most people recognize that there's a difference between accounting depreciation and amortization and tax amortization. The end result is the tax ratio times that difference ends up as deferred tax expense of -- whether it's realized or not as a secondary issue. But it does impact just really substantially when you think that we showed an income before tax of $855,000 for the 6 months. And we recognized deferred taxes of $765,000. So you can understand the accountants are playing magic with us and driving us all nuts. Overall and I think the important number is operating income. And our operating income for the 6 months was $894,000, and that includes the share-based payments of $943,000 compared to a loss of $415,000 for the 6 months 2020. We've had a good quarter and where it looks like we will continue to have good quarters going forward depending, of course, on the price of silver. But the company itself is having a degree of success with this exploration. We commented, in fact, in our MD&A that one of the traditional mines we've had in San Ramon was looking like it was reaching sort of its -- end of its time in the first quarter. The current program that we've been doing indicates that it looks like it's got a lot more teeth in it, and we'll probably be mining there for years ahead. So we've had some excitement on the drilling side, which we will release when the program is finished. And ongoing, we have a number of brownfield targets which we programmed ahead. We also said we're going to drill roughly 10 million -- 10,000 ounce -- 10,000 meters, rather, this year. We're at about 8,000 meters, and I've given the instruction to the mine management to just keep on drilling. We've got 3 rigs drilling right now, and a fourth one has arrived on site, and it will be drilling as well. So we're focusing on the next 12 months probably drilling up to 20,000 meters. So we've got a very aggressive drill program, and that's a reflection of following up on success. Jerry, over to you.

Great. Thanks, Fred, for the overview on Q2 2021 results for IMPACT Silver. Obviously, the numbers continue to grow and improve year-over-year beyond the COVID shock reaction of Q1, Q2 of last year. We've -- over the quarter of the -- for IMPACT, we continue to receive Q&A from investors and stakeholders of IPT and ISVLF. Please feel for to send questions to inquiries@impactsilver.com or call us directly at (778) 887-6489. Question one is -- comes from [ Joe ]. Good quarter year-over-year, Fred and team, as expected. What are we looking at in terms of production growth and how soon? The COVID drop obviously has been dealt with. When can investors expect some growth on the production and revenue side?

That's a valid question. It's a complex question actually because of primary source of ore is going to be -- at least for the next 6 months to 9 months, it's going to be the Guadalupe Mine. And part of the Guadalupe Mine is a new area called Pachuqueno. We're just moving into that area right now. And the only constraint on it will be the traditional one you run into when you've got a vein-type structure development versus production. Development interrupts production, and production interrupts development. We're expecting to be, sort of over the next month or 2, adding probably in the area of 20 tonnes a day through production and to see that gradually increase again in the fourth quarter. So overall, we hope that we're targeting at least to get them to the 500 tonnes a day certainly by year-end and hopefully more.

Okay. Good to hear. Question two, exploration results have been growth. It was great. When are we going to see some more results on the 10,000, possibly more program?

Another good question. As we said before, we -- there's always a misinterpretation by the readers when we release an individual result because you can have a very good drill hole, you can then test the extent of the stope and get a poor drill hole. We're going to be doing it in a phased basis, and that is we're doing a program with Veta Negra. When that first phase is complete, we will summarize and we'll publish the results. We're doing the same thing at San Ramon right now. When the first phase is complete, we'll summarize the results. And I think it's more important for the reader that they understand the implications of a drill hole, put in context rather than just a single drill hole that either get excited or gets to a title. So going forward, we should have them, probably a first set by the end of this month. The only thing we're running into is delays at the lab, and everybody is experiencing that. Everybody is just dumping their samples into the laboratories, and we just have to wait in line until the results get published.

Okay. Excellent. Question three, Fred. Capire update, you mentioned there are some expansion potential. Obviously, Capire is one of the more brownfield targets that IMPACT has had over the years and even produced from. What's the update on the XRT? And what kind of CapEx size are we looking at?

Yes. XR -- well, let's look at Capire as a multipronged program here. It is -- at the moment, as we found out when we did the test mining, it's a complex ore body. And the mining itself is really expensive if we do it on a selective basis. The end result is we've gone ahead, we tried DMS. The numbers there didn't work, dense media separation. And so we went to XRT, and the lab-scale tests appear to indicate that it works fairly well. We're assuming that if it does work for the DMS, it will work for the XRT, and we could see savings in the area of up to 20%, 30% in terms of the cost per tonne of processing it. Now XRT adds a front end to the mill. And we don't know the exact cost on that because it's a function of size and the studies that are being done right now. The other side, and this is designed to sort of help increase throughput, and this increase in throughput will obviously reduce cost per tonne. With the resource that we have there now, if we mined it only 200 tonnes a day, which is the pilot plan, we'd be there for 30 years plus. Nobody wants us to be there for 30 years. So the objective is to increase the throughput with -- on a volume basis. Part of that is going to be helped by the XRT because it will select what is ore and what isn't ore before it goes to the mill. Part of it is the size of the mill. And we're going to have an option of whether we do it at 200 tonnes a day, whether we do it 500 tonnes a day or whether we do it 1,000 tonnes a day. 500 tonnes a day is an easy expansion and relatively quick. We know the infrastructure can sustain it at 500 tonnes a day. 1,000 tonnes a day, it starts to really push it. And when I say even 500 tonnes a day, of course, there was other things involved there like permitting for water use, et cetera, et cetera. But 1,000 tonnes a day really starts to push it. That becomes a fairly complex operation. We will probably remove the current mill and replace it in its entirety. So that's something that wouldn't happen for 3 or 4 years out, where going to 500 tonnes a day can probably happen in the next 1.5 years, 2 years maximum. The XRT could happen -- or if we go ahead with XRT, it could happen in the next year. So you've got 3 separate scenarios. And there is, of course, a fourth. So if the price of silver goes nuts, we can just restart as a conventional mill right now. The cost, if we started a conventional mill right now, it will be about $1 million to get it back up and operating as a 200 tonne a day plan. The cost for doing XRT incurred 200 tonnes a day, so the starting guess would be in the area of $2.5 million. Upsizing the mill, another couple of million dollars. So it gets -- this is the order of magnitude. Easily financed -- any of those options are recently financed with our current working capital.