Mr. Robert Archer reports
GREAT PANTHER SILVER REPORTS FISCAL YEAR 2013 FINANCIAL RESULTS
Great Panther Silver Ltd. is releasing its financial results for the company's year ended Dec. 31, 2013. The full version of the company's financial statements, management's discussion and analysis, and annual information form can be viewed on the company's website or SEDAR. All financial information is prepared in accordance with IFRS and all dollar amounts are expressed in Canadian dollars unless otherwise indicated.
"We are pleased to show continued reduction in our costs and improvements in our operating cash-flow, adjusted EBITDA and free cash flow from the levels we saw in the first half of the year," stated Robert Archer, president and chief executive officer. "These improvements were achieved through a focus on expenditure reductions, efficiency improvements and grade control initiatives. I am especially pleased that our operations team was able to achieve these results while attaining a 19-per-cent increase in metal production in 2013, and successfully advancing the development of San Ignacio to keep on track for the commencement of production in the second quarter of this year.
"Despite our improved results in the second half of the year, the overall results for 2013 were significantly impacted by a 38-per-cent decline in the silver price, and cost and grade challenges in the first half. Silver and gold prices still remain at relatively low levels, and we will continue to look for ways to reduce costs and mitigate grade variability, with a key goal of improving free cash flow. The significant decline in metal prices was also a principal factor in $12-million of non-cash impairment charges taken in the fourth quarter."
Consolidated cash cost per silver ounce was $8.85 (U.S.) for the fourth quarter of 2013, compared with $14.58 (U.S.) in the fourth quarter of 2012. Consolidated cash cost for 2013 of $13.45 (U.S.) increased by 10 per cent over the $12.24 (U.S.) realized in 2012, however, significant reductions were achieved in the second half of 2013, as a result of cost reduction and improved grade control, such that realized cash cost came in under the revised cash cost guidance of $15 (U.S.) to $16 (U.S.) per silver ounce for 2013.
Fiscal Fourth Third Second First
year quarter quarter quarter quarter
of 2013 of 2013 of 2013 of 2013 of 2013
Consolidated cash cost
per silver ounce
(US$) 13.45 8.85 9.89 18.14 18.60
Initiatives taken to reduce operating costs included a reduction in the number of mining contractors at Guanajuato, renegotiation of mining contracts to create greater accountability for material and labour costs, improvements in mine planning and co-ordination with geology, and overall improvement of grade control.
The company also made reductions to exploration, general and administrative expenditures, and reduced capital expenditure and development programs, focusing on those with the greatest return on investment. These initiatives all contributed to improved cash flow and operating margins in the second half of 2013, compared with the first half, despite significantly lower silver and gold prices in the second half.
Gross profit before non-cash items (or income from mining operations) and cash flow from operating activities were $11.3-million and $6.0-million, respectively, in the second half of 2013, a significant improvement from $2.9-million and $2.7-million in the first half.
General and administrative expenses, and exploration and evaluation expenditures, were also significantly reduced in the second half of the year. While these levels are expected to be maintained going forward, the company may take advantage of further improvements in cash flow to increase its investment in exploration, particularly at its El Horcon project.
During the fourth quarter of 2013, the company recognized non-cash, pretax impairment charges of $12-million. This included a $6.3-million charge in respect of the company's Guanajuato mine and a $5.7-million charge in respect of its San Ignacio project. The Guanajuato impairment charge principally reflects the current lower price outlook for silver and gold, which reduce the future cash flow projections of the mine. The charge is also a function of a much higher carrying value of Guanajuato compared with Topia. The higher carrying value is due to the significant investments made by the company at Guanajuato over the last several years to expand capacity and production.
The development of the San Ignacio project is progressing as planned with production expected to start in the second quarter at about 100 tonnes per day, ramping up to about 250 tonnes per day by the end of 2014. Since receiving an environmental impact assessment (EIA) permit in October, 2013, the company has completed extensive work on site preparation, and road and ramp development. As at the end of 2013, development ore of 1,082 tonnes grading 121 g/t (grams per tonne) Ag (silver) and 2.11 g/t Au (gold) was mined from the intermediate vein in the upper levels of the mine. Structural mapping and systematic sampling of this and other veins are assisting in understanding the grade distribution and will aid in mine planning once production levels are reached.
In December, 2013, the company announced the completion of an infill drilling campaign to further define the San Ignacio resource. While this program provided valuable information to guide the underground development, the intersection of old mine workings in a few holes prevents the company from accurately estimating tonnages in these specific areas with the required confidence levels. Consequently, at this time, there is insufficient data to provide for an updated NI 43-101 resource estimate with measured and indicated resource to support the capitalization of the costs under international financial reporting standards now that the project is in the development phase. Therefore, the company recognized a non-cash pretax impairment charge of $5.7-million in respect of the San Ignacio project. The old workings will be surveyed underground and further drilling is scheduled for May to provide additional information. Based upon underground observations and development to date, management remains confident about commencing production in the second quarter of 2014.
Events subsequent to the 2013 year-end
On March 5, 2014, the company issued a statement to clarify speculative reports regarding disruptions by illegal miners that occurred at its Guanajuato mine (see news release dated March 5 on SEDAR or the company's website). While illegal mining activities have not caused meaningful disruptions in the past, some company personnel and local residents have lately been subjected to intimidation and escalating violence from illegal miners intent on gaining access to the company's mining operations and stealing ore. The company initially took a non-confrontational approach to keep the illegal miners out of the mine but more recently hired an armed security force to protect employees, contractors and assets as the illegal miners began entering the property by force and with weapons. Earlier today, the company announced that approximately 60 people gained unauthorized entry to the company's main administration building and plant facility in Guanajuato, and at this time they continue to illegally occupy the facilities. All employees and contractors are safe and accounted for, and are off site. There have been no reports of any violence. Mining, plant and administration services have been shut down until the situation is resolved. The company is working with municipal, state and federal authorities to find a peaceful and expedient resolution to this situation, however, is currently reviewing all options to regain custody of its facility, and ensure the security of its operations and people.
FOURTH QUARTER AND FISCAL YEAR 2013 FINANCIAL SUMMARY
(in thousands of dollars, except per-share and per-ounce amounts,
and ounces)
Year Year
Fourth Fourth ended ended
quarter quarter Dec. 31, Dec. 31,
of 2013 of 2012 2013 2012
Revenue $ 15,837 $ 17,789 $ 53,954 $ 61,139
Gross profit
(earnings from
mining operations) 1,523 3,318 640 19,206
Net income (loss) (7,359) (1,285) (12,729) 5,510
Adjusted EBITDA 4,101 3,800 5,163 16,893
Earnings (loss) per
share, basic $ (0.05) $ (0.01) $ (0.09) $ 0.04
Earnings (loss) per
share, diluted $ (0.05) $ (0.01) $ (0.09) $ 0.04
Silver ounces
produced 484,937 453,934 1,711,215 1,560,040
Silver equivalent
ounces produced 763,881 672,690 2,840,844 2,378,603
Silver payable ounces 508,801 446,077 1,625,135 1,472,269
Consolidated cash
cost per silver
ounce (U.S. dollars) $ 8.85 $ 14.58 $ 13.45 $ 12.24
Average realized
silver price
(U.S. dollars) $ 20.15 $ 31.94 $ 22.89 $ 30.93
Fiscal year 2013 financial and operational highlights (compared with fiscal year 2012):
- Consolidated throughput totalled 283,608 tonnes, a 23-per-cent increase;
- Record metal production of 2,840,844 silver equivalent ounces, a 19-per-cent increase;
-
Silver and gold production increased 10 per cent and 44 per cent, respectively, to
individual records of 1,711,215 and 15,714 ounces;
-
Consolidated cash cost per silver ounce increased 10 per cent to $13.45
(U.S.), compared with $12.24 (U.S.);
- Revenues totalled $54.0-million, a decrease of 12 per cent due to lower average
metal prices;
- Net loss of $12.7-million, reflecting a $12.0-million non-cash, pretax
impairment charge, compared with net income of $5.5-million in the prior
year;
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $5.2-million, compared with $16.9-million;
- Cash flow from operating activities was $8.6-million, compared with $13.1-million;
- Cash and cash equivalents was $21.8-million, compared with $20.7-million;
-
Net working capital at Dec. 31 was $38.2-million, compared with $44.5-million.
Fourth quarter 2013 financial and operational highlights (compared with fourth wuarter 2012):
- Consolidated throughput was 69,601 tonnes, an increase of 3 per cent;
- Metal production was 763,881 silver equivalent ounces, a 14-per-cent increase;
- Silver production was 484,937 ounces, a quarterly record and an
increase of 7 per cent;
- Gold production was 3,881 ounces, an increase of 37 per cent;
- Revenues totalled $15.8-million, compared with $17.8-million, a decrease of
11 per cent;
-
Net loss was $7.4-million, reflecting a $12.0-million non-cash, pretax
impairment charge, compared with a net loss of $1.3-million;
- Adjusted EBITDA was $4.1-million, compared with $3.8-million;
- Cash flow from operating activities was $300,000, compared with $4.5-million.
Fiscal year 2013 financial discussion
Revenues totalled $54.0-million for the year ended Dec. 31, 2013, a decrease of 12 per cent. The decrease is primarily due to significantly lower average silver and gold prices in 2013, as compared with 2012, which offset a 19-per-cent increase in production and a corresponding 18-per-cent increase in silver equivalent ounces sold. The average realized silver price for 2013 was $22.89, which was 26 per cent lower than the $30.93 average in 2012.
Gross profit before non-cash items was $14.1-million (26 per cent of revenue) for 2013, compared with $28.3-million (46-per-cent of revenue) in 2012. The decrease in gross profit before non-cash items is explained by lower average realized metal prices and higher unit production costs in the first half of the year, mainly at Guanajuato.
Gross profit for the year ended Dec. 31, 2013, was $600,000, compared with $19.2-million for the year ended Dec. 31, 2012. The decrease in gross profit is due to lower revenue and higher unit cost of sales before non-cash items, and higher amortization and depletion expenses.
Amortization and depletion of mineral properties, plant and equipment relating to cost of sales for the year ended Dec. 31, 2013, was $13.0-million, compared with $8.7-million for the year ended Dec. 31, 2012. The increase in amortization expense is the result of an 18-per-cent increase in silver equivalent ounces sold during the year, and an increase in the amortization base due to the significant investment in mine development and capital expenditures in 2012. A decrease in the life of mine by one year for each of Guanajuato and Topia from 2012 also contributed to an increase in the amount of amortization expense taken in 2013.
Consolidated cash cost per silver ounce was $13.45 (U.S.) for the year ended Dec. 31, 2013, a 10-per-cent increase compared with $12.24 (U.S.) for the year ended Dec. 31, 2012. The increase is mainly attributed to higher cash cost at Guanajuato during the first half of the year as a result of cost and grade challenges.
General and administrative expenses for the year ended Dec. 31, 2013, totalled $7.8-million as compared with $10.1-million for the year ended Dec. 31, 2012. The items accounting for the decrease include a $700,000 decrease in share-based payments expense as a result of the adoption of graded vesting of share options in 2013, and cost reduction initiatives which include a decrease in salaries and wages of $400,000, a $300,000 reduction in travel expenses and a $200,000 reduction in corporate communication expenses.
Exploration and evaluation expenses for the year ended Dec. 31, 2013, remained unchanged at $2.4-million for 2013, compared with the prior year. The company took steps to reduce exploration and evaluation expenditures in the second half of 2013, including suspension of exploration programs and reductions in personnel. As a result, exploration and evaluation expenditures were $800,000 in the second half of 2013, compared with $1.6-million in the first half.
As noted above, the company recorded non-cash, pretax impairment charges in respect of its Guanajuato mine and San Ignacio project (impairment of mineral properties, plant and equipment) totalling $12.0-million for the year ended Dec. 31, 2013. No such charges were recorded in the prior year.
Finance and other income was $5.4-million for the year ended Dec. 31, 2013, as compared with $3.0-million for the year ended Dec. 31, 2012. The increase is primarily attributable to favourable fluctuations in foreign exchange rates during 2013, primarily the Mexican peso compared with the Canadian dollar. In 2013, the company recorded a foreign exchange gain of $4.7-million, compared with $2.8-million in 2012.
Net loss for the year ended Dec. 31, 2013, was $12.7-million, compared with net income of $5.5-million for the year ended Dec. 31, 2012. The net loss reflects a decrease in gross profit of $18.6-million and the $12.0-million non-cash pretax impairment charge. These factors were partly offset by a $3.5-million income tax recovery, a decrease in general and administrative expenses of $2.2-million, and an increase in finance and other income of $2.5-million.
Adjusted EBITDA was $5.2-million for the year ended Dec. 31, 2013, compared with $16.9-million for the year ended Dec. 31, 2012. The decrease in adjusted EBITDA primarily reflects a decrease in gross profit. This was partly offset by lower general and administrative expenditures and higher finance and other income.
Fourth quarter 2013 financial discussion
Revenues were $15.8-million for the fourth quarter of 2013, compared to $17.8-million for the fourth quarter of 2012, a decrease of 11 per cent as a result of significantly lower average metal prices which offset the increase in unit metal sales. The average realized silver price was $20.15 (U.S.) for the fourth quarter of 2013, compared with $31.94 (U.S.) in the fourth quarter of 2012, a 37-per-cent decrease.
Gross profit for the fourth quarter of 2013 was $1.5-million, compared with $3.3-million for the fourth quarter of 2012. Despite an increase in unit sales, the company saw a decrease in gross profit as a result of lower metal prices, and increased unit amortization and depletion expense.
Consolidated cash cost per silver ounce of $8.85 (U.S.) for the fourth quarter of 2013 decreased from $14.58 (U.S.) in the fourth quarter of 2012, as a result of cost reductions at both mines, improved silver grades and higher byproduct credits from increased gold production at Guanajuato.
General and administrative expenses in the fourth quarter of 2013 were $1.5-million, compared with $1.9-million for the fourth quarter of 2012. The decrease reflects general and administrative reductions that were part of the company's overall cost reduction program initiated late in the second quarter of 2013.
Exploration and evaluation expenses were $300,000 for the fourth quarter of 2013, compared with $700,000 for the same period in 2012. The decrease was due to the curtailment of exploration activities outside of the company's operating mines, staff reductions and a redeployment of exploration staff to operations.
As noted above, the company recorded non-cash impairment charges in respect of its Guanajuato mine and San Ignacio project (impairment of mineral properties, plant and equipment) totalling $12.0-million in the fourth quarter of 2013. No such charges were recorded in the fourth quarter of 2012.
Finance and other income was $4.1-million for the fourth quarter of 2013, compared with $300,000 for the same period in 2012. The increase is primarily attributable to a foreign exchange gain of $4.0-million, compared with $600,000 recognized in the comparative period. This was the result of a comparably higher appreciation of the Mexican peso and U.S. dollar against the Canadian dollar in the last quarter of 2013.
Net loss for the three months ended Dec. 31, 2013, was $7.4-million, compared with $1.3-million for the same period in 2012. The increase in net loss is primarily attributable a $12.0-million non-cash pretax impairment charge recorded in the fourth quarter of 2013. These factors were partly offset by an increase in foreign exchange gains and a tax recovery of $3.5-million.
Adjusted EBITDA for the fourth quarter of 2013 was $4.1-million, compared with $3.8-million for the fourth quarter of 2012.
Cash and working capital at Dec. 31, 2013
At Dec. 31, 2013, the company had cash and cash equivalents of $21.8-million, compared with $20.7-million at Dec. 31, 2012.
Net working capital at Dec. 31, 2013, remained strong despite a decrease to $38.2-million, from $44.5-million at Dec. 31, 2012. The decrease was primarily the result of operating losses in the first half of the year, and working capital used in capital investment and development activities.
Outlook
In 2014, the company will continue to focus on improving operational efficiencies while continuing to grow production and generate positive cash flow.
The company expects to increase metal production by approximately 10 per cent in 2014, to 3.1 million to 3.2 million silver equivalent ounces. Consolidated cash cost per silver payable ounce is expected to be in the range of $11 (U.S.) to $12 (U.S.). The company expects consolidated all-in sustaining cost (AISC) per silver payable ounce to be between $17.50 (U.S.) and $19.50 (U.S.), and consolidated all-in cost (AIC) to be between $20 (U.S.) and $21 (U.S.) per silver payable ounce in 2014.
2014 production and cash cost guidance 2013 actual 2014 guidance range
Total silver equivalent ounces 2,840,844 3.1 million to 3.2 million
Consolidated cash costs per silver
payable ounce (U.S. dollars) $13.45 $11 to $12
Consolidated all-in sustaining costs per
silver payable ounce (U.S. dollars) NA $17.50 to $19.50
Consolidated all-in costs per silver
payable ounce (U.S. dollars) NA $20 to $21
The first quarter of 2014 will see lower metal production and higher cash cost than realized in the fourth quarter of 2013, as planned production at Guanajuato will be from lower-grade zones. In addition, disruptions from illegal mining activities, and the recent unauthorized and illegal occupation of the company's facilities in Guanajuato, and resulting shutdown of operations, are expected to have an impact (see preceding news release dated March 10, 2014, on SEDAR or the company's website). The company is working with authorities to resolve the situation and restore normal operations.
Overall metal production for 2014 is expected to increase gradually through the year as the San Ignacio mine and mill feed comes on stream. The project is expected to commence production in the second quarter at a rate of about 100 tonnes per day, ramping up to approximately 250 tonnes per day by year-end, and will complement the steady stream of production from the main Guanajuato mine complex and the Topia mine.
The company will continue to pursue cost reductions and focus on grade control in 2014, however, it is cautioned that the Guanajuato and Topia mines have complex geology which makes them prone to grade variability. The measures taken to mitigate grade variability to date cannot serve to completely eliminate this factor.
The company plans approximately 16,500 metres of exploration drilling in 2014, to further define resources, look for vein extensions and test new targets. Planned drilling consists of 11,000 metres at Guanajuato, 3,500 metres at San Ignacio and 2,000 metres at Topia.
At this time, plans for El Horcon are limited to applying for the necessary government permits to allow further exploration and development. This project has the potential to be another satellite mine to the company's Guanajuato mine, leveraging excess capacity at its Cata processing plant.
In 2013, the Mexican government introduced a tax reform package which includes a special mining royalty of 7.5 per cent, payable on the net profits derived from the sale of minerals, an extraordinary mining duty of 0.5 per cent payable on the gross income derived from the sale of gold and silver, and an increase in the corporate tax rate from 28 per cent to 30 per cent. These measures take effect in 2014, and will represent a meaningful increase in the cash taxes paid by the company and the industry over all. Some mining companies operating in Mexico have undertaken legal challenges to these reforms. Great Panther has not done so at this time.
Webcast and conference call to discuss fiscal year 2013 financial results
The company will hold a live webcast and conference call to discuss the financial results on March 11, 2014, at 7 a.m. Pacific Daylight Time (10 a.m. Eastern Daylight Time). Hosting the call will be Robert Archer, president and chief executive officer, and Jim Zadra, chief financial officer and corporate secretary.
Shareholders, analysts, investors and the media are invited to join the live webcast and conference call by logging in or dialing in just prior to the start time.
Live webcast: At the company's website
United States and Canada toll-free: 1-800-738-1032
International toll-free: 1-212-231-2911
No passcode is necessary.
Great Panther's archived webcast can be accessed by visiting the investors section of the company's website.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(expressed in thousands of Canadian dollars, except per-share data)
For the year ended
Dec. 31,
2013 2012
Revenue $ 53,954 $ 61,139
Cost of sales
Production costs 39,822 32,864
Amortization and depletion 13,047 8,684
Share-based payments 445 385
--------- ---------
53,314 41,933
--------- ---------
Gross profit 640 19,206
General and administrative expenses
Administrative expenses 7,156 8,808
Amortization and depletion 300 206
Share-based payments 380 1,071
--------- ---------
7,836 10,085
--------- ---------
Exploration and evaluation expenses
Exploration and evaluation expenses 2,306 2,309
Share-based payments 86 73
--------- ---------
2,392 2,382
--------- ---------
Impairment of mineral properties, plant and
equipment 12,042 -
--------- ---------
Income (loss) before the undernoted (21,630) 6,739
--------- ---------
Finance and other income (expense)
Interest income 335 442
Finance costs (53) (34)
Foreign exchange gain 4,648 2,828
Other income (expense) 493 (265)
--------- ---------
5,423 2,971
--------- ---------
Income (loss) before income taxes (16,207) 9,710
Income tax expense (recovery)
Current 183 592
Deferred (3,661) 3,608
--------- ---------
(3,478) 4,200
--------- ---------
Net income (loss) for the year $ (12,729) $ 5,510
--------- ---------
Other comprehensive income (loss), net of tax
Items that are or may be reclassified
subsequently to net income (loss)
Foreign currency translation 296 1
Change in fair value of available-for-sale
financial assets (net of tax) (71) (8)
--------- ---------
225 (7)
--------- ---------
Total comprehensive income (loss) for the
year $(12,504) $ 5,503
========= =========
Earnings (loss) per share
Basic $ (0.09) $ 0.04
Diluted $ (0.09) $ 0.04
We seek Safe Harbor.
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