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

Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q1 2024 period ending March 31, 2024 Financial Production Results Conference Call. Before we begin, we would like to go at our disclosure statements covered by Mr. Fred Davidson's comments on the quarter's results, followed by a Q&A period. 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 risk uncertainties that could cause actual results to differ materially from those in the forward-looking statements. I would like to now turn it over to the President and CEO of IMPACT Silver, Mr. Fred Davidson.

Thanks, Jerry. This quarter was certainly interesting to say the least. It was a combination of events, and I think it's a great opportunity to be able to go into more detail on the conference as we go ahead. The company reported $5.3 million in revenues in the quarter, which $4.3 million of that was from the traditional Guadalupe mining center, with $1 million from the start-up operations at the Plomosas mine. There was a net loss of the period of $3.1 million, primarily from the Plomosas operation. And as we've discussed before, this is a result of being in a start-up where traditionally, that would have been capitalized under IFRS rules, unfortunately, it has to be expensed. So we had to live with it. But in the meantime, part of those expenses, $2.8 million of them from Plomosas was upgrading the facility and improving the run rate through the mill and the underground mine. So it was a very productive quarter, although not looking very attractive. The other thing we incurred as well, we're rising slightly in the administrative costs, that reflected more the year-end costs and ended up in the first quarter. Obviously, we were doing some marketing with the year-end at the same time. And -- but it was pretty well in line other than those 2, and the accounting costs, which are related to the rent audit was the comparative quarter in 2023. I think more importantly, we want to compare not necessarily '20 to '23, but rather the quarter to the preceding quarter because that's where we're actually going to see the real change in what we're doing. We added Plomosas, obviously, later in last year, and they wouldn't have been in those comparative quarters. And secondly, we weren't producing absolutely anything at Plomosas at that time. So the 2 are not really comparable. Let me go forward during the event. We spend a lot of time and money doing 2 things, and that is, at the Guadalupe mine, revenues and production was down and primarily because we are rehabilitating the underground track system and the shaft, which brings the ore to surface. And that impacted it. We're going to see April was also a little slow, but we're starting to see a fairly dramatic increase in production at that mine site in May. So the second quarter is certainly going to look more attractive in terms of overall production. We also have gone back into the Alacran mine in May, and we're going to see more gold starting to come through and the recoveries of the gold are going to be significantly higher than they were last year as a result of the change in metallurgical treatments. So that part of it for Zacualpan has been attractive. It's worked out well and pretty well in accordance with guidance that we are looking for going forward. Plomosas was a different animal and probably to explain that, Plomosas as we say, is in the start-up phase. We did have limited production in the first quarter, and that limited production was in the sort of 70 tonnes a day, 60 tonnes a day. That is already over 100 tonnes a day as we gradually improve throughput, expand the mining underground and deal with a myriad of minor disasters that the predecessors left on the project. It's coming to the way we want it to go, and I think we're going to see that going forward that it's going to improve again in this quarter. And our ultimate objective is to, by the end of this year, meet the 200 tonnes a day, which is sort of the current mine or rather mill capability. What helps in both cases, of course, is that the silver price has risen since the first quarter fairly dramatically. And interestingly enough, zinc has probably risen even more as a percentage than the silver. So both of our products are being well received in the terms of the overall market. And our productivity and our production is gradually growing. The capital expenditures we're making at Zacualpan are pretty well through. We're going to see those pretty well finished, and this is something you just have to do every couple of years as you upgrade. And of course, we're getting to see some interesting results from underground, in our exploration as well. So we're going to see that coming through as we continue our exploration program in Zacualpan, which has been quite aggressive. At Plomosas, probably even more aggressive. We had one surface rig working for the whole quarter. And we added an underground rig that was somewhat delayed in the first quarter, primarily because we had a problem with an underground water pump and the area that it was going to be doing its principal drilling from was temporarily flooded. That's now back out. We've got that rig underground now, and we're going to see a fairly aggressive, both rigs working on surface and underground at Plomosas. Numerous targets to drill on, and I think, as you've seen from the first couple of news releases on the drilling, some very good grades coming out of the Plomosas mine. And ultimately, as we further refine and define the resource, we then move our rigs on to the mill at earlier-stage exploration. Only 600 meters of this whole district has been developed and only partially developed, and there is a total distance of about 6 kilometers in terms of the structure that we're going to be following up. So Plomosas is going to be a very busy year for us going forward. Other than that, I think we've had a pretty solid quarter, not the one I wanted, but certainly, it's indicating that we're going to be where we want to be, and that is full-scale production from both mines by the year-end. The other thing we've done and we've recently announced, as I'm sure you're aware, is that we're doing a financing and the objective of that financing, quite frankly, is to accelerate the exploration on both properties with some CapEx and some working capital requirements. As we say, we've got 2 very significant targets, 2 significant properties rather, begging for exploration. And let's accept it, exploration is where the real value lies with a lot of people's attitude and the targets are excellent. So we hope to be generating regular reports on our exploration going forward. I think that's about it for this sort of brief summary. The rest is obviously in the financial statements and the news release. Jerry?

Thank you for that overview, Fred. Here are some of the questions we complied from investors for this quarter. Please feel free to send questions to [email protected], or call us directly at 778887-6489. Question one for Fred and team. Congrats on the jump on the revenue to $5.3 million. What price of silver does that capture, Fred, since it wasn't until May of this year that silver topped over $30 an ounce. Does that mean Q2 should theoretically be even better with both silver and zinc up higher?

Absolutely. And what we're seeing is -- and it's a little difficult to calculate what the value is because in some of the shipments going out into silver, they're priced at an earlier time but recorded at a later time as a final settlement. So the pricing varies fairly dramatically, as you can understand, in this period of time. But we're talking about $22, $24 silver in the first quarter, and let's face it, on the second quarter, with the pricing, it looks extraordinarily good. We're seeing the production come up, and we're seeing the gold production as well start to come through in late April and May. So I'm looking to a very positive situation there. Will it be better? Of course, it will be better both in terms of millings, grades and pricing.

Okay. Excellent. Question 2 speaks about the Guadalupe mining area with -- sorry, the Plomosas mining area. So with the $1 million from the start-up operation, which was acquired in April, restarted by October, what is the expected run rate for the Plomosas area? Is it -- are investors safe to take the $1 million per quarter and multiply by 4?

I think you're being kind to Plomosas -- or under kind, not kind to Plomosas rather, that $1 million was based on a little over 3,000 tonnes for the quarter. As I say, it was a start-up period. We're now averaging right now a little over 100 tonnes a day. So we're going to probably be doing what we did in the first quarter, every month going forward. So yes, we anticipate at this point in time, we're going to be looking to go like in the $10 million to $12 million for the year.

Excellent. Question 3, that sounds like a ton of work given the MD&A at Plomosas last quarter to get it to between 150 tonnes per day to 200 tonnes by 2024, including the mine site work, infrastructure and various above-ground investments. Fred and team, is the company going through most of this work by Q2 of this year? Or are we expecting more CapEx?

We're expecting more CapEx. And interestingly enough, that's an appropriate pun when you say a ton of work. There are things that, first of all, we had to do basically to put it back into production. And that's basically broken into threefold. Underground development, the underground development that we're doing was -- previously was poor, it wouldn't be the kind disgrace. It needed a total revamp in mine work underground for safety issues, ground stability issues for the fact that we wanted to change the mining method in certain cases where they did what we call room and pillar, that was leading pillars in up to 20%, 25% of a particular ore body in pillars. When you're talking between 10% and 20% zinc, that's an incredible waste. We're doing a cut and fill process where we go out and then backfill -- after we've mined, we backfilled with waste, that allows us to recover 100%. But doing that, you have to develop off the zone, not on the zone like they were doing. So underground, a lot of work. The other issue we run into is their mobile equipment was kindly described as pathetic. It's taken us a lot of work to identify those pieces, which we can fix economically, those which we have to replace. And then the other side is infrastructure. The electrical system was set up. It was farcical. We are, as you know, in the process of bringing in a solar array and a battery system, we've redone the wiring internally within the group. So we've got proper power underground and on surface. The balance of things such as the AA, it didn't work properly. AA is atomic absorption for those who are not aware of it. So there's one thing after another we've had to address, both equipment, infrastructure and underground. And I think we've got the critical things out of the way. There's just -- some of these things just take time to bring to fruition. Case in point, we'll make a substantial saving, once the solar array is to be up and running, on fuel costs. Underground, we'll make a substantial saving in that we'll recover 100% of the ore body, not 75% once we start using the current method. And the other side is we're replacing equipment, and that included what we say, the one extreme we had with the power failing on a couple of levels that we were going to go into. And again, these things just have to be done, fixed and operating. We're going to be spending more money but more money we're spending when we begin to do things like reducing larger power costs, improving our recoveries. That's continuously in those mines, and the fact that we're bringing this almost like starting a brand new mine here, we're bringing it into fruition. And I think it will be a fully attractive operation when we hit that to $150, $200 a tonne, basically [ branching up ] the mill.

Okay. Excellent. Question 4, can investors expect more greenfield explorations from Plomosas and Guadalupe in the next coming quarters? Those results early in the year in January for the 10% zinc at Plomosas and then, of course, the high-grade 200, 300 gram per tonne intersects that Kena zone were very encouraging. When can we see more?

We're going to be seeing it very regularly. Both drills, both sites were drilling aggressively. We -- obviously, there's time when you take a drill down to move it, you refresh it. But we're planning to really invest in growth program in both mine for this year. And I think the shareholders will be rewarded with a little bit of patience at this period in time.

Excellent. Question 5 has to do with some of the overall macro picture of Mexican mining regulation and environment, Fred. Mining concession times, facilitation of permit cancellation and open pit mining concerns in Mexico is obviously a very common topic for investors that is seasoned in South America, are IMPACT Silver's operations affected?

Yes, you said it correctly. It's South America. It's not just Mexico that we're seeing these concerns. Most of our concessions are grandfathered and that is we had them -- sufficient -- they've existed sufficiently long that things like the concession times are not critical to us. Permits, less than this cancellations of them than just bureaucratic hold ups. And again, you'd almost think you're in British Columbia, when you see that. It's just one of the things you have to live with. The bureaucracy is building everywhere. And we're seeing that even in what we do as a public company in Canada. I mean, right now, you're going to get a whine from me, but we're filing things like the -- what we call the slavery -- the antislavery legislation, ESG legislation, transfers for the company's legislation. That's in Canada, and Mexico has the same, so we file again. We have to learn to live with it. And I think we've developed that capability now that, with our Mexican team, those aren't serious. The last one you mentioned was open pits. I think somebody raised that at one stage. And the fact is we don't have an open pit other than Veta Negra, and it's more of a quarry situation than rather an open pit. And the end result is it's not being considered as a problem in such a case as we're talking about now. So altogether, I would say we're somewhat unique in that is we don't do open pits per se. Our permitting has taken time but has not stopped anything. And the concession times as far as we know it, are not challenged under the new legislation.

Okay. Excellent. Question 6 has to do with some of the legal issues and disclosures on the vendor and the acquisition. Fred and team, there's a balance sheet of -- at due on the acquisition for $3.55 million. Can you explain that further than what Note 4 entails? And what's the timing on this for investors?

I guess I'd have to say how much time do we have. What it is, is under the agreement, there was a -- our agreement that if the company's liquidity, and that is working capital rather, declined, then the vendor would owes the amount of what the decline was. If the working capital increased from this initial date actually June 2022 to April '23, then we would owe the vendor. As it is, no matter how conservatively you did the calculation, certainly, the vendor owns this money, and it's a significant amount of money. Some of which can be eliminated because there's certain -- it's subject to certain litigation that they left outstanding. And if it's resolved, then it's not a problem for either of us. But if it's not, then we have a claim against them. Needless to say, they're resistant to it, and we've actually gone to rather than doing something at court or what have you, we've gone to arbitration, have an educated -- a senior legal person take a look at this and try and solve it. So we don't get up into a rock throwing contest. The only contest in terms of rock throwing is the tonnage that they sort of left in the ground or didn't leave in the ground. And quite frankly, it was a little frustrating because the company, we had to acquire the company in order to keep the permits, as in bad shape as was the operation. So it's just taking us more time, but it will get solved.

Excellent. Last question. What's IMPACT's 2024 run rate with Plomosas and Guadalupe upsized capacity expected, especially with silver crossing $30, Fred?

Yes. Well, needless to say, let's start with Plomosas. We are going to increase the run rate. That's the objective from day 1. The intermediate target, I'd like to think this year is going to be 200 tonnes a day. And quite frankly, if the exploration is extremely positive, we'll be looking at CapEx to expand it. The silver at Guadalupe is one that because your underground mining, it's -- you can't just turn a switch and put it on. What we have done is, for instance, those drill holes that we released on Kena they are accessible and -- but they're not accessible in a month. It takes about 3 months to develop the area safely, provide air into the area, provide services into the area. So definitely, we're going to be doing our darndest to increase the throughput, but it's a bit like -- it's going to take a good quarter, at least, to start moving that into even near production. And by any sort of 4 or 5, 6 months, that production will be starting to hit the mill. So there's always a lag. It's not as if we can just turn the switch, but we are going to be pushing. We are going to be seeing more of that go through the mill, and that hopefully will include more of the gold as well, which is not doing too badly graded at the moment either.

Okay. Excellent. That's all the questions we have for today. We thank you for tuning in for Q1 2024 with IMPACT Silver. We look forward to obviously hosting you for Q2 2024, which will be probably mid or late August. When you have a chance, please visit our website, www.impactsilver.com, or follow us on various social media. If you have any questions, feel free to send us an e-mail from the website or slide me an e-mail at [email protected]. IMPACT Silver trades on TSXV under IPT and on the U.S., ISVLF. We look forward to hosting you for the future calls.