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

Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q2 2023 period ending June 30, 2023, financial and production results conference call. Before we begin, we would like to go over our disclosure statements, followed by CEO and President, Mr. Fred Davidson's comments on the quarter results and a 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, uncertainty 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, Mr. Fred Davidson.

Thanks, Jerry. This is really one of those quarters that we felt that the call is going to be very important and that compared to same quarter last year, things are fairly actually are dramatically different. So let me get on with it. The company reported a revenue of $5.5 million in this quarter. That's a 57% increase over the comparative quarter in 2022. Mine operating income was the second quarter in a row, this is $0.9 million compared to only $0.03 million. And of course, we're talking about before amortization and depletion. The overall improvement in revenue was really the thing that we discussed. We've been mining and we are selectively mining underground. And the grades of silver will vary depending on where we're developing. But what's important is we bring on Alacran and Alacran tends to be the [San Margarita] [indiscernible] tends to be gold. And we're going to start seeing more and more gold coming through. And that goal, needless to say, is impacting fairly dramatically on the average price per ton that we generate. In fact our gold production on a comparative basis, 66 ounces less in the quarter 2022. This was over 300 -- it was almost 320 ounces in this quarter. So you're seeing that come through on the pricing plus you've got a little bit of relief on the pricing of silver overall. We've got a strong balance. We've got almost $14 million in cash. We've got a solid working capital. And during the period, we completed a $9 million nonbrokered private placement ended the quarter with the working capital of around $13 million. We also completed the acquisition on April 3 of Plomosas, the zinc-led silver mine for a total price of USD 6 million and that consisted of USD 3 million in cash, then the balance in the form of IMPACT shares and blue shares are subject to certain restrictions. There will be some post-closing adjustments made on the basis of working capital as we acquired the company that controlled the mine. There's issues in transferring titles in Mexico, but there's no issue in acquiring shares. So we acquired the company to control the property. That resulted in what's going to be probably good 6 months of cleanup and repair on the site Plomosa. But what makes it even more impressive when people are asking -- so we got another production center. Yes, we'll have another production center. But what we've acquired is over 6 kilometers of what they call a carbon replacement deposit, is located in a district that is known for some of the largest CRDs in the world. And we think that the same Plomosa offers us the opportunity to -- for one or another word, hit a home run with more discovery. And we're going to be contributing a lot of effort and time to putting the mine back into production at a suitable size. And then secondly and coincidentally, was it looking for the exploration potential on this property. And I think we will be sort of pleased with those results down the road if the current theories in terms of the deposition are correct. Let's get on to the individual mines. At Zacualpan, the average rate was 163 grams per tonne. That's up slightly over Q2 in 2022. But more importantly, it's got the, as I mentioned before, the gold production, and we expect that gold production to continue. We're going to focus on exploration and development at Zacualpan. And at the same time, we're going to be sort of ramping up the exploration at the Plomosas district in 2023, 2024 and we saw those dollars being spent in Q2, et cetera about $28.8 million as we start developing both of those projects. There's other issues that we want to discuss, but I think more importantly, get into what Plomosas truly is. It was in mine that was being operated through -- one of another word, another company that was having trouble trying to operate from a distance and was undercapitalized. And the end result is much of the equipment and certainly the underground mine planning was suffered from that lack of financial capability and the inability to sort of be on-site to manage. It's going to be an investment in time and money as we bring the existing mine back into production. We're rebuilding the mill entirely and some of that's on our website. You can see we're in fact -- the [ball mill] has been moved and rehabilitated. We've had to replace the secondary crusher we've had to. It goes on and on. And underground, we're changing the mining method, the equipment related to the mine was in pretty poor shape as well. It's the other being replaced or rehabilitated. So it's going to be a very busy time for us there. But meanwhile, we've got to drill on site, second drill will be arriving shortly with going forward with it. [indiscernible] we've got one drill operating right now. There will be second one operating very shortly. And in both cases, we'll have 2 mines going, one drill is going, one on surface and one underground. So the acquisition itself was roughly, as you said, USD 6 million and what there was as an adjustment because it's an operating entity. And just as to the working capital as when we first made the offer and when we've ultimately closed . And that adjustment is yet to be calculated. And the end result, we're faced with the balance sheet that looks a little confusing to the average reader. Quite frankly, little confusing to me too. But what we're seeing is 2 things. We're seeing that we managed to keep our cash position fairly solid in spite of the fact there has been a lot of money here. At the same time, property plant and equipment has increased and the exploration and evaluation assets have increased correspondingly in part due to the acquisition and in part due to the extensive exploration and development we're doing at those mines. Trade payables are up, as you would expect from this sort of thing. They will be ultimately resolved over the next while. Some of those are old creditors from the Plomasa mine. And again, there's the adjustment that will be due on the acquisition, which is related to the liquidity of the company on acquisitions. So the only other thing there is goodwill, and goodwill is the residual on any acquisition. If it's the assets, the direct physical assets are, in fact lower than the cash paid out. Believe me, $1.6 million is pretty cheap for the 6 kilometers straight length of this deposit. So here you have it. We've had a busy year. We're going to have an even busier year exploration development. We will have 2 mines in production. And what makes Plomosas, I think particularly exciting is -- it's production. It is going to be one of the highest grade zinc mines in the world. And the end result is it will be relatively insensitive to the price fluctuations of base metals and that's what we're looking for there. But as I say, don't forget that the ultimate objective is the exploration potential here of becoming a major mine as opposed to just a good mine. The loss for the year was basically one we can [endure] you're going to live with this sort of thing. And most of it in fact, because we had a positive mine operating income, most of it was related to -- well good portion of it was related to either the costs involved in doing the acquisition and doing the financing. And other indirect costs, such as the recalculation of deferred income tax as an expense of $366,000. Overall, the net loss was $853,000. Obviously, looking at the numbers, positive EBITDA. But going forward, we expect this to be in terms of G&A, it will slowly decrease over the balance of the year. Lord knows what's going to happen on the income because has a fluctuation in the price of Mexican peso and the U.S. dollar and we are suspectable to both. That's one of the things we have seen is the operating costs reflected this very strong Mexican peso. So I think it will be a very interesting year going forward and looking forward to questions from the shareholders.

Thanks, Frederick. That was a great overview. Here are some of the questions we compile from investors this quarter. Please feel free to send questions to inquiries at www.impactsilver.com or call us directly at +1 778887-6489. Question one, good timing on the financing [Fred and team] with about $14 million in cash and adding $9 million for the financing a few quarters back. Why is the cash at 13%? Has it gone mostly into the new property and working capital?

Well, part, yes. First of all, I should point out although the financing was at $9 million by the time we pay all the regulators for filing fees, the lawyers, et cetera, and the agent, it was just a little over 8%. So I think $1 million right off the top. And unfortunately, has been a smaller company, that's the sort of thing you have to live with. The other side is, yes, a lot of it went into basically the acquisition of Plomosa, which was USD 3 million. So that's about CAD 4 million and the other side of it is the extensive program we've gone forward on terms of exploration and development at both mines. So we're going to see that. People don't want us just to sit on the cash. They want to see us generating value for them. And we're going to.

Question two, the average dollar grade in Q2 2023 was 163 versus 159 grams per tonne in Q2 of the same period with a nice increase in revenue to $155 per ton compared to $95 per ton in Q2 of 2022. Can we expect this to continue? Or is this is a one time increase.

It's one of those things that we're always going to see quarter-by-quarter fluctuations in the grade. It's the nature of doing an underground mine chasing veins. I think one of the things that really becomes important in terms of the revenue per ton, and that's why we tend to record it by revenue per ton. It is the other metals that are involved at the Zacualpan mine. We do have some lead and zinc and primarily right now, we're only producing the lead and we get paid for it. The price of lead has been fairly strong. . But more importantly and more than anything else, the grade of the lead come up a bit. But more importantly, is the gold. I mean you're talking 324 ounces of gold, times sort of a multiple of 80 or more to get the equivalent in silver, it made a significant contribution to the top line and the bottom line. Do we expect it to continue, Yes. We expect to Alacran, although it hasn't been extensively explored, is certainly giving us production at the moment and served over the next year or so. We expect to see this improve as we develop that mine. That's for the silver, it is always going to fluctuate. And of course it does help have a nice healthy price of silver at the same time. And the end result is, I think we're all facing a very volatile market, both in the metals and prices that is and in the U.S. dollar, Mexican peso, Canadian dollar.

Question three, more has to do with the ForEx. Nice ForEx [game] team of almost $0.25 million in finance income north of $500,000 total. Obviously, that's great to see, but can we expect that regularly? Or is it more of a wash year-to-year?

Generally, on the ForEx is the wash. It does fluctuate depending on settlements. When we see that dramatic sort of variation in prices, it does hit the line. I wouldn't hold my breath on it being a significant item. And obviously, the financing is primarily we prudently invest our cash. And it's not going to be high earnings. It goes into Charter Banks, but we are getting fairly decent returns off of it right now. I wish it was higher than inflation, then it generally is marginally higher. But yes, that's directly related to the cash. The ForEx, boy, that will be all over the place. And in IFRS, you'll see in the statement of changes that there's actually a negative for excellent assets. So pricing and that's the one thing I didn't mention is the pricing of the assets on the balance sheet is impacted by ForEx, and that will fluctuate going forward.

Question for with regards to the Plomosas directly. How is Plomosas going in terms of scheduling from the previous new releases?

Yes. It's going well, actually. Considering the fact that the mill itself was cut to put a kindly a bit of a disaster. The end result is what we do think, okay, let's do the maintenance and sort of work on the secondary crusher, we found when we opened it up, it was functionally useless. Now we knew when we took the thing over that it had significant problems. I guess we were sort of hoping that some of them were more manageable. Is it significantly different? No. But when you have to take a whole [indiscernible] circuit and either rebuild it or replace it, there's some issues. And there's also things such as the mill for those of you know about concentration and mills. The dryers, et cetera, just weren't there. So yes, it's taken us probably not so much money, but time because, obviously, when you have to order equipment, there's always still [indiscernible] in getting it. So what we have done is fairly dramatic. It's an impressive, looking little mill right now. There's a ball mill, been totally rehabilitated, all the conveyors have been relocated and changed the angle of attack. We've rebuilt or replaced the entire [flotation] circuit. The secondary crusher has been replaced. We put in new screens. We rewired. We've done plumbing, and we're expecting to be doing the sort of start-up run in the next week or so. So that's been pretty good. The downside is you have to bring on the crew, I mean you can't just sort of start the thing and hire everybody at the same time. So yes, we've been incurring probably a little more cost on maintaining the crew to sort of get them familiar with the equipment. So things like the [AA unit] in the lab was not very good, so we've had to replace it. And then the other side is the underground. The underground design wasn't a very good function, and we're having to rehabilitate it. And at the same time, we're spending a fair bit of time and effort making it safer. So these things take time. Very few people can rebuild a mill in sort of 6 months, and I think we're very close to doing that. And we're looking forward to seeing production come out of there, probably in the last quarter of the year that we can call production, the rest will be sort of test mining, test processing. And as I say, the important thing that I see about Plamosas, is the exploration potential. It's very, very unusual to have things such as zinc running at 25% zinc and there is areas in this mine where we have 25% zinc. And if we can demonstrate size as well as just grade, I think it's going to be more attractive to somebody a lot bigger than us.

Question five, about the exploration size and strength. Exploration news from either Guadalupe, Zacualpan, or Plomosas, Fred and team what kind of meters we're doing about 20,000 each can we expect?

No. I don't think we total up at first for what we're doing right now is you've got to be more graduated in what you do it. I mean it's great to [indiscernible] But in the case of Plamosa, we have to rebuild the underlying data first, you need target. So it's going to gradually increase, and we're breaking it into sort of 2 categories: one, developing the current resource that they've been mining on; and two, conducting a field program going forward with looking at the potential of this deposit as we run up to the northwest, which is sort of 6 kilometers away. And that includes areas that quite frankly, we're running at least in samples or rock chip samples, those can be very selective because my geologists are really good. So they always identify really good stuff. But [indiscernible] running in terms of copper and gold. So there's real potential in this property everywhere from the lead, the silver, lead, zinc deposits in the southern part of the property as we go north, we're starting to see some outcrops of copper and gold. It's a very rich resource environment and it really deserves care, investment and time to delineate what you truly have there. As for Zacualpan, we're working on the prime lines that we've always worked on. There's a program going on the Guadalupe. In Guadalupe, you may recall is almost 500 years old. And we're getting some very good grades there and we're going to continue that development going forward. And to the east of it, there is San Ramon mine. And -- we've mined out 2 stopes on it now. San Ramon and San Ramon Deeps. We're now into the San Ramon south. And it seems to be little harder to define and [indiscernible] the surface, we're already in there in mining. The important question is at depth, we've got some really good drill holes, and we yet to sort of get in there yet because we're going to have to drill that property, and those are deep holes, but the grades are considerable, so they're worth it. So there will be -- those will take some time, but we'll ultimately get to it. We've drilled a couple of other projects. We haven't released all of it yet. For instance, we've been drilling at the Capire, called the Aurora [indiscernible] deposit, and we'll be sort of providing some information on that. [indiscernible] , another one we just got few exploratory holes. We've got to configure out what they mean. So that will probably be coming out. So there is a series of programs going on at any one time. And like we always do. And when we can get something that is intelligible as opposed to an individual hole. We'll certainly produce that information, but yes, we always like as this is a Zacualpan deposit. We like the Zacualpan district. It's always exciting. It's silver. It's now getting some gold in it. That's pretty good. And that's for the Plomosas one, very, very high-grade zinc, lead, silver. So I like both our deposits and the potential.

Question 6. Fred and team, nice to see the increase in asset value going from $68 million to $89 million, not a bad price bump for a $3 million acquisition in cash and shares over $6 million in total. Despite weaker market, it looks like it was a very priced deal. It's a substantial increase in net working capital and asset a good way to be looking at this despite softer markets.

I think what people have to think of it, is why. And it was available because the companies that had it couldn't maintain it and hadn't been able to really develop the exploration potential [indiscernible]. The end result is yes, I think it was an exceptionally good purchase price. It does mean we have to spend some money. And I think people get very naive when you do these acquisitions. Okay, that's it. No, it takes time to transition. And in this case, it was taking time to actually convince people that, yes, there's money to be done, let's do this professionally and not plug holes and [tacks]. And the crew we have, I'm very really quite pleased with them. I think we'll be pleased with what we can do with this property. And yes, part of the increase, by the way, was the FX increase that we see, revaluing assets up and down with the price of Mexican peso, U.S. dollar and the Canadian dollar and that will always make a little more difficult to fully analyze.

Lastly, with the investment marketing back in swing hopefully, last quarter of the year, the stock price is just a tear below the $0.27 per unit financing from April, May? Are there some strategies and awareness campaigns coming off for IMPACT?

Well, we're dedicated to educating the marketplace. And I think the issue with the marketplace, just they don't fully appreciate or understand if you will, the acquisition and that is because they don't appreciate the acquisition. And we probably haven't really provided them the information yet at this point in time about the significance of the acquisition. And at the same time, we're facing a marketplace which is sort of looking sideways like commodities and our objective then is to use and that's how we actually acquired this as inexpensively as it was because the price was weak on commodities. We think that in the longer term, we have an asset. And those people who sit beyond 30 days might agree with us. It's hard to convince somebody who's hanging around for a 30-day uptick that what we've done is it's going to make them a fortune. I think what we have done is going to make the true believers in commodities very comfortable in the end result. So our job educate the market, educate the market, educate the market.

Excellent. Just to add on the institutional meeting side, IMPACT will be at Beaver Creek. Denver Gold, and some of the mining shows coming up in East Coast. We'll have one of our reps out there as well. So definitely do reach out if you're a fund or a high net worth investor from the institutional side or on the market or even previous placement. Please reach out to us at [email protected] and we can schedule a one-on-one meeting with management at these conferences and shows. This has been a good wrap-up for Q2 2023, Fred. Thank you for everyone's time in following us and our continued growth to a multimillion ounce producer. Certain statements in the following previous conference call about our business operations constitute forward-looking statements and are not historical facts, but are predictions about the future, which involves risks, uncertainties and could cause results to differ materially. If you have any further questions, please e-mail us or calls directly at +1 (778) 887-6489 or follows us on Twitter at Impact_ Silver. This has been Q2 conference call, and we look forward speaking with you soon.