Mr. Robert Archer reports
GREAT PANTHER SILVER REPORTS SECOND QUARTER 2014 FINANCIAL RESULTS
Great Panther Silver Ltd. has released its financial results for the company's three and six months ended June 30, 2014. The full version of the company's unaudited condensed interim consolidated financial statements and management's discussion and analysis can be viewed on the company's website or SEDAR.
"Great Panther's operations processed a record amount of ore in the second quarter of 2014 as a result of starting commercial production at San Ignacio. This is a significant milestone for Great Panther as San Ignacio will make a growing contribution to the future of the Guanajuato operation," stated Robert Archer, president and chief executive officer. "Although we showed quarterly production growth and improvement in quarterly cash costs on a year-over-year basis, our financial results were negatively impacted due to the gradual resumption of normal operations at Guanajuato after the disruptions in the first quarter and continued challenges with grade control. This resulted in cash cost for the quarter that was higher than our guidance for 2014. We are working hard to rectify this and we believe that our results will improve in the second half of 2014 as we ramp up production at San Ignacio, and improve grade and cost controls at Guanajuato."
Highlights (second quarter 2014 compared with second quarter 2013 unless otherwise noted)
- Throughput totalled 80,964 tonnes, a quarterly record and 20-per-cent increase.
- Commercial production commenced at San Ignacio in June and processing at
Guanajuato included 12,880 tonnes of ore from the new satellite mine.
- Metal production of 718,794 silver-equivalent ounces increased 6 per cent and included 87,705 AgEq ounces from San Ignacio.
- Cash cost per silver payable ounce decreased 18 per cent to $14.85 (U.S.).
- All-in sustaining cost and all-in cost per silver payable ounce
decreased 24 per cent and 27 per cent, to $24.73 (U.S.) and $25.12 (U.S.), respectively.
- Revenues increased 30 per cent to $14.5-million, despite significantly lower
metal prices.
- Net loss was $4.5-million, compared with net loss of $5.1-million.
- Adjusted earnings before interest, taxes, depreciation and amortization were $200,000, compared with negative $3.3-million.
- Cash and cash equivalents were $18.0-million compared with $21.8-million
at Dec. 31, 2013.
- Net working capital decreased to $34.2-million from $38.2-million at
Dec. 31, 2013.
OPERATING AND FINANCIAL RESULTS SUMMARY
(In thousands, except ounces and per share)
Q2 Q2 Six months ended June 30,
2014 2013 2014 2013
Operating
Tonnes milled
(excluding custom
milling) 80,964 67,569 153,595 137,109
Silver-equivalent
ounces
produced 718,794 680,212 1,386,143 1,287,713
Silver ounce
production 420,001 396,730 790,669 766,354
Gold ounce
production 3,773 3,994 7,439 7,138
Silver payable
ounces 381,302 406,787 733,589 746,661
Cash cost per
silver payable
ounce (USD) $ 14.85 $ 18.14 $ 14.15 $ 18.35
AISC per silver
payable
ounce (USD) 24.73 32.61 24.41 34.53
AIC per silver
payable ounce
(USD) 25.12 34.20 26.34 35.74
Financial
Revenue 14,465 11,165 27,345 23,804
Gross profit
(loss) before
non-cash items 2,427 (227) 5,698 2,879
Gross profit
(loss) (1,529) (3,842) (1,947) (3,530)
Net income (loss) (4,492) (5,124) (5,094) (3,848)
Adjusted EBITDA 213 (3,323) (332) (2,803)
Operating cash
flows before
changes in non-
cash working
capital (322) (3,560) 291 (3,331)
Cash at end of
period 18,045 21,329 18,045 21,329
Working capital at
end of period 34,241 35,140 34,241 35,140
Average realized
silver price
(USD) 19.81 21.58 20.01 25.27
Per-share amounts
Earnings (loss)
per share -- basic (0.03) (0.04) (0.04) (0.03)
Earnings (loss)
per share --
diluted (0.03) (0.04) (0.04) (0.03)
Discussion of second quarter 2014 financial results
For the second quarter of 2014, the company earned revenues of $14.5-million compared with $11.2-million for the same period of 2013, an increase of 30 per cent. Included in the second quarter of the current year is a $900,000 positive revaluation adjustment on concentrate shipments that occurred in the prior quarter which were still subject to final settlement due mainly to higher closing silver and gold prices at the end of the second quarter of 2014 relative to those at the close of the first quarter of 2014. The second quarter of the prior year included a negative revaluation adjustment of $1.3-million. Excluding the impact of these revaluation adjustments, revenue increased by 9 per cent compared with the second quarter of the prior year. The increase is primarily the result of a 6-per-cent appreciation of the U.S. dollar against the Canadian dollar (which positively impacts Canadian-dollar-denominated metal prices), a reduction in smelting and refining charges, and a slight increase in metal sales on a silver equivalent ounce basis.
Gross profit before non-cash items increased to $2.4-million in the second quarter of 2014 compared with a loss of $200,000 in the second quarter of 2013, primarily as a result of the 30-per-cent increase in revenues, but was partially offset by the 6-per-cent increase in cost of sales before non-cash items.
Amortization and depletion of mineral properties, plant and equipment relating to cost of sales increased from $3.5-million in the second quarter 2013 to $3.9-million in the second quarter 2014. This was due to a reduction of the measured and indicated (M&I) resource at Guanajuato, based on the updated National Instrument 43-101 resource report issued in December, 2013, and the marginal increase in sales on a silver-equivalent-ounce basis. The reduction of the resource estimate has the effect of shortening the amortization period and therefore increasing the amortization expense per unit produced and sold.
Gross loss decreased to $1.5-million in the second quarter of 2014 compared with a gross loss of $3.8-million in the second quarter of 2013, primarily due to the increase in revenues of $3.3-million. The impact of the increase in revenue was partially offset by an increase in cost of sales by $1.0-million as a result of factors discussed above.
General and administrative (G&A) expenses were $1.9-million for the second quarter of 2014 compared with $2.5-million for the same period in 2013. The decrease reflects the impact of cost reductions initiated late in the second quarter of 2013 and severance costs incurred in the second quarter of 2013.
Exploration and evaluation (E&E) expenses were $500,000 for the second quarter of 2014 compared with $1.0-million for the same period in 2013. The decrease is primarily due to a $400,000 reduction in consulting and contractor fees related to the surface drill program at El Horcon in 2013, partially offset by of $100,000 expenditures related to San Ignacio development in 2014. San Ignacio development expenditures were expensed as they did not meet the criteria for capitalization under international financial reporting standards. The company made the decision to begin development based on internal economic assessments and production of development ore began in the first quarter of 2014.
Finance and other expense was $2.8-million for the second quarter of 2014, compared with $100,000 of income for the same period in 2013. The increase in expense is primarily attributed to a $2.7-million increase in foreign exchange losses resulting from the weakening of the Mexican peso and U.S. dollar compared with the Canadian dollar. Foreign exchange gains and losses arise from the translation of foreign-denominated transactions and balances relative to the functional currency of the company's subsidiaries and the company's reporting currency. The company has significant Canadian and U.S. dollar loans receivable from one of its Mexican subsidiaries and fluctuations in the Mexican peso create significant unrealized foreign exchange gains and losses on the loans owing to the Canadian parent. These unrealized gains and losses are recognized in the consolidated net income of the company.
The company recorded an income tax recovery of $2.2-million for the second quarter of 2014 compared with $2.1-million in the second quarter of 2013, an increase of 4 per cent. The income tax recovery comprised a $200,000 recovery of special mining duties due to the year-to-date losses incurred, $200,000 in current income tax expense and a $2.2-million deferred tax recovery. The net recovery realized during the second quarter of 2014 relates to pretax losses by the company's operations in Mexico recognized in the period. The Mexican subsidiary is able to deduct mine development costs immediately; however, the deduction of these items for tax purposes creates a deferred tax liability as the costs are capitalized for accounting purposes. The company has net operating tax losses in Canada and has not recognized the benefit of any of these losses in the financial statements of the company.
The net loss for the second quarter of 2014 was $4.5-million compared with net loss of $5.1-million in the comparative quarter of 2013. The decrease in net loss is attributable to the $2.3-million increase in gross profit, the $600,000 reduction in G&A expenses and the $400,000 reduction in E&E expenses. These were partially offset by the $2.7-million increase in foreign exchange losses.
Adjusted EBITDA was $200,000 for the second quarter of 2014, compared with adjusted EBITDA of negative $3.3-million for the same period in 2013. The increase in EBITDA primarily reflects the $2.3-million improvement in gross profit as well as lower G&A and E&E expenses.
Cash cost and all-in costs
Cash cost per silver payable ounce of $14.85 (U.S.) for the second quarter of 2014 decreased from $18.14 (U.S.) in the second quarter of 2013, as declines in cash cost were realized at both Guanajuato and Topia. The improvement in cash cost is attributable to higher byproduct credits from increased gold sales at Guanajuato and a decrease in smelting and refining charges. Byproduct credits are based on sales during the period (rather than production) and, as such, the amount of the credit may not directly correlate to the production reported for the period.
All-in sustaining cost per silver payable ounce (AISC) for the second quarter of 2014 decreased to $24.73 (U.S.) from $32.61 (U.S.) in the second quarter of 2013. The reduction is the result of the decrease in cash cost, sustaining capital expenditures, and a significant reduction in exploration and evaluation costs, compared with the second quarter of 2013.
All-in cost per silver payable ounce (AIC) for the second quarter of 2014 decreased to $25.12 (U.S.) from $34.20 (U.S.) in the second quarter of 2013, as a result of the same factors which reduced AISC.
Cash and working capital at June 30, 2014
At June 30, 2014, the company had cash and cash equivalents of $18.0-million compared with $21.8-million at Dec. 31, 2013. Cash decreased by $3.7-million from the end of 2013 primarily due to $4.2-million of expenditures on capital equipment, mine development and capitalized exploration activities, and a $400,000 increase in non-cash working capital items. These factors were partially offset by $300,000 of cash generated from operating activities (before non-cash working capital changes), $400,000 in proceeds from the exercise of options and $100,000 related to favourable foreign currency translation on U.S. dollar and Mexican peso cash deposits.
At June 30, 2014, the company had working capital of $34.2-million compared with net working capital of $38.2-million at Dec. 31, 2013. Working capital decreased by $3.9-million primarily due to the decrease in cash.
Outlook
The second quarter reflected the impact of resuming normal operations at Guanajuato after the illegal occupation in March and continued grade challenges at the mine, some of which were associated with preparation necessary to return the higher-grade zones to normal operation. The company expects operations to improve at Guanajuato and production at San Ignacio to continue to ramp up as new stopes are brought into production. While every effort will be made to make up for the lower-than-expected production in the first two quarters, the company feels that it is prudent to slightly lower the production guidance for the year to three million to 3.1 million silver-equivalent ounces. Based on this guidance, the company will still show production growth on a year-over-year basis.
2014 PRODUCTION AND CASH COST GUIDANCE
YTD
June 30, 2013 2014 2014
2014 actual guidance range revised guidance
Total silver-
equivalent 3,100,000- 3,000,000-
ounces 1,386,143 2,840,844 3,200,000 3,100,000
Cash cost per
silver payable
ounce (USD) $ 14.15 $ 13.45 $11.00-$12.00 $12.00-$13.00
AIC (USD) $ 26.34 $ 27.44 $20.00-$21.00 $22.00-$24.00
AISC (USD) $ 24.41 $ 26.26 $17.50-$19.50 $21.00-$23.00
Although the company expects cash cost to decline in the second half of the year, cash cost guidance is being increased slightly to $12.00 (U.S.) to $13.00 (U.S.) per silver payable ounce as the expected decrease in cash cost in the second half is not anticipated to completely make up for the higher-than-expected cash cost in the first half of 2014. Accordingly, guidance for AISC and AIC is also being adjusted as shown in the table.
The company expects to be at the lower end of its previous guidance of $10-million to $13-million for capital expenditures. Capital expenditures during the second half of 2014 will focus on continued mine development and diamond drilling at both Guanajuato and Topia, rehabilitation of the Cata shaft at Guanajuato, and the acquisition of new mining and plant equipment to drive efficiencies and reduce production costs in the future.
The company's drilling plans for 2014 remain unchanged at approximately 16,500 metres of exploration drilling to further define resources, look for vein extensions and test new targets. Planned drilling for the year consists of 11,000 metres at Guanajuato, 3,500 metres at San Ignacio and 2,000 metres at Topia. Year to date, 6,960 metres of exploration drilling has been completed, comprising 5,923 metres at Guanajuato and 1,037 metres at Topia. There has been no exploration to date in 2014 at San Ignacio.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share)
For the three months For the six months
ended June 30, ended June 30,
2014 2013 2014 2013
Revenue $ 14,465 $ 11,165 $ 27,345 $ 23,804
Cost of sales
Production costs 12,038 11,392 21,647 20,925
Amortization and depletion 3,911 3,458 7,545 6,173
Share-based payments 45 157 100 236
15,994 15,007 29,292 27,334
Gross (loss) (1,529) (3,842) (1,947) (3,530)
General and administrative
expenses
Administrative expenses 1,739 2,238 3,292 4,209
Amortization and depletion 77 89 160 126
Share-based payments 38 168 99 194
1,854 2,495 3,551 4,529
Exploration and evaluation
expenses
Exploration and
evaluation, and
development expenses 518 953 2,119 1,595
Share-based payments 17 - 32 -
(Loss) before the undernoted (3,918) (7,290) (7,649) (9,654)
Finance and other income
(expense)
Interest income 64 104 146 190
Finance costs (38) (14) (76) (22)
Foreign exchange gain
(loss) (2,837) (135) 937 4,159
Other income (expense) 43 95 (618) 122
(2,768) 50 389 4,449
(Loss) before income taxes (6,686) (7,240) (7,260) (5,205)
Income tax expense
Current expense 13 241 180 480
Deferred expense
(recovery) (2,207) (2,357) (2,346) (1,837)
(2,194) (2,116) (2,166) (1,357)
Net (loss) for the period (4,492) (5,124) (5,094) (3,848)
Other comprehensive (loss),
net of tax
Foreign currency
translation 464 (460) 32 144
Change in fair value of
available-for-
sale financial assets (net
of tax) 2 (18) 6 (74)
466 (478) 38 70
Total comprehensive (loss) for
the period (4,026) (5,602) (5,056) (3,778)
Earnings per share
Basic (0.03) (0.04) (0.03) (0.04)
Diluted (0.03) (0.04) (0.03) (0.04)
We seek Safe Harbor.
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