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

Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q1 2023 period ending March 31, 2023, 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 on the quarter's results and the Q&A period. Certain statements in the following conference call regarding IMPACT Silver's 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 in the forward-looking statements. I would like to now turn it over to President and CEO of Impact Silver, Mr. Frederick Davidson.

Thanks, Jerry. It's been a very interesting quarter. We succeeded in a number of our objectives during the quarter, in that we reported revenues of $5.1 million, and that represented a 10% improvement over revenue in the equivalent period last year. Part of that was the pricing, obviously. But I think more than anything, it was a combination of higher production levels and the addition of gold production, as we've been suggesting, part of our deposit does have a gold portion, and we're seeing some of that adding to it, which resulted in a 7% increase in revenue per tonne, up to $127 compared to $118 in the prior year. Overall, we saw that mine operating earnings before amortization, depletion, it was $0.6 million -- most of those costs related -- were related to the impact of inflation, but even more so, foreign exchange, and that is under IFRS. We have to report the foreign exchange conversion and it impacted pretty severely on that. Now it works the other way, of course, when the peso goes the other way. But right now, the peso is fairly strong. Average grade, as I said, was about 1.6 -- or rather 162 grams. And we're going to see that sort of balance off against the addition of gold. We're getting -- recovering gold, we're getting lower grades of silver. So in fact, what happens is the actual silver we're going to produce per grade isn't going to substantially increase, but we are going to see gold on top of that, and that's going to be obviously a multiple of the silver production. So we're looking forward to that continuing over the next year and hopefully increasing our throughput of the gold production. Overall, as I said, the costs were up to $111, almost $112 a tonne compared to $90 and a 6% -- only 6% of that was the inflation in Mexico. 18% was the foreign exchange. If we see the Mexican peso soften, we'll see that ratio change fairly dramatically. During the quarter, we spent about $0.8 million on exploration and development. The intention, obviously, is to expand the current resource that we're chasing. I'm supposed to call that mineral inventory. But at this point in time, it's a gradual process because we're chasing veins, not big structures. And so we add increments as opposed to dramatic tonnage. But it's looking strong, and we still had a cash position of about $14.3 million at the end of the quarter. And that was prior to our recently announced oversubscribed nonbrokered private placement for an additional $9 million. So financially, we've had over the last sort of 4 months of a very successful period of time. And operationally, we've hit most of the targets we want to hit. Unfortunately, we can't deal with FX, that's something beyond our control. But I think our team that the mine has to be congratulated on the effort they've gone to and going ahead. So the net loss for the period was only $0.3 million. And that's fairly impressive compared to a lot of our competitors are equivalent, if you will. Now the financing was designed to achieve certain things, and I'll get into that in a minute. The mill throughput, as I said, had increased up to 38.6,000 tonnes compared to 36,000 tonnes in Q1 '22. And I think we're going to see this gradually increase depending on where we might because sometimes when we're mining the areas like gold, which has a higher value per tonne, the actual tonnage might decrease because the veins there are pretty tight. But the end result is the ultimate throughput in terms of revenue is better off, and we're going to see some of that going forward, I think. As I said, the financing was done. We're quite pleased with it. We funded exploration in the quarter. We're going to fund continuing exploration. And we're looking forward to a program with the new acquisition, Plomosas, bringing it on as another producing mine, but more interest, more importantly, like Guadalupe, it's not just a producing mine. It's the exploration potential and Plomosas has excellent exploration potential. And one of the things we have to discuss about that is that so far, we -- the area has been probably explored only for about a seventh or so of the entire strike length of what appears to be the deposit. And even where we are mining right at the moment, it's open in all 4 directions. This is an incredibly high-grade zinc mine. But as importantly, it's what they call a carbon replacement deposit, CRD, and carbon replacement deposits are polymetallics. And polymetallics also produce other items such as silver, lead, gold, copper. And right now, with the high quality of the zinc production we get here running between 12%, 13% a tonne. Literally, the accompanying silver, which is a couple of ounces a tonne or free. Going forward, we expect to see other areas in it where there will be a higher percentage of -- for the silver. And we've even had indications, as I said before, of some copper and gold, which will be sort of looking for as an early-stage target. So production and again, exploration potential. And that's what we see as an important criteria going forward with Plomosas. That's our company, production and exploration.

Great. Thank you for the overview, Fred, for Q1 2023. Here are some of the questions we compiled from investors this quarter. Please feel free to in the future to send questions to inquiries@impactsilver.com or call us directly at +1 (778) 887-6489.

Question 1, great quarter, guys. Nice to see the increase from 400 to 430 tonnes per day at Guadalupe. Can investors expect similar increase level back to full capacity of 500 plus for the remaining quarters in 2023?

We're not sure we'll get to full capacity, primarily because we're focusing in certain areas such as the gold, which the veins are fairly tight, but very high grade. So tonnage itself may not be the only criteria involved here. Our attitude is we want to maximize the value per tonne and the overall value that we produce. So we're going to focus on those. So again, the tonnage again may not rise to our ultimate tonnage, but that's only because we're mining more gold. So I want to apologize to anybody at that point.

Okay. Question 2, grade increased to 162 gram per tonne. This quarter, as you alluded to earlier, we, as investors, expecting a higher grade across the board despite roughly the same level of tonnage.

That's again, a valid question. And actually, I think I alluded to it. The issue we've got, and when we report grade of silver, it's the silver grade only. It's not an equivalent. And when we're producing from an areas that have some gold, we find that the grades tend to be a little lower because they're sort of -- it's a [ layer cake of deposit ], where we'll see gold occurring at depth compared to the silver, lead, zinc. So when we're down in mining at what would be a gold vein, we're getting less silver. So the grade overall may not increase, but the equivalent unless this -- I hesitate to use that word silver equivalent -- we can live with that. What we are getting hit with is, for some reason, the Mexican peso and maybe this is the onshoring process that's been advertised so extensively is basically changing the FX, the foreign exchange, especially with the Canadian dollar. So what we really saw was the impact of that foreign exchange on the balance sheet of the company and hence, the income of the company. I mean you can look at our comprehensive income for the period, and it was actually significantly positive. And that's a reflection of the impact of FX, primarily.

Okay. Question 4, timeline on Plomosas. This has been asked in the previous quarter. After the acquisition, just to keep a note, how is the acquisition closing been going? What kind of timeline can investors expect on exploration news and development news from this new asset? And lastly, when will restart of cash flow and production be?

Fair question. The acquisition has closed, obviously. There are some issues with the underlying quality of the information, i.e., the accounting, et cetera, that the predecessor group maintained. And it's basically a rule of our sleeves and clean it up process, and that's taking quite a bit of time. On the operating side, -- many of the things we anticipate and we anticipated, I think we've had a number of surprises, let's put it that way. I think we're pretty well where we expect to be. The number of things we're doing, rebuilding a portion of the mill. We've moved the ball mill because it was on broken foundations. We're moving the electrics down where you're working on the tailings pond. I can go on, there was over 21 major projects going on at the moment. I think we're going to be pretty well on time, and that is we figured somewhere around 60 to 90 days for the first phase of getting things back to where they should start. And basically, we're looking out 7 months or so to where production will start to surpass what they were doing in the past. And we're sort of focusing that by the end of the year, we should be doing sort of at least 50% to 70% more than what the predecessor company was doing daily. And by next year, we're hoping to be up into the 200-plus tonnes a day with a little bit of luck and timing. The one thing that may slow us down is we are changing the mining method. They were using what they call room-and-pillar, and what happens with room-and-pillars, you're using major support to hold the roof up, and you're leaving a lot of valuable ore sitting in those pillars, which you can never get. And we're going to change our mining method in certain areas where we get 100% recovery and not 75% recovery. So that process may slow us down in the feed, but ultimately lead to higher recoveries and actually lower cost per tonne.