Mr. Robert Archer reports
GREAT PANTHER SILVER REPORTS SECOND QUARTER 2016 FINANCIAL RESULTS
Great Panther Silver Ltd. has released its financial results for the company's three and six months ended June 30, 2016. The full version of the company's unaudited condensed interim consolidated financial statements, and management's discussion and analysis (MD&A) can be viewed on the company's website or SEDAR. All financial information is prepared in accordance with international financial reporting standards, and all dollar amounts are expressed in Canadian dollars unless otherwise indicated.
"Great Panther's mine operating earnings before non-cash items increased 96 per cent over the second quarter of 2015 due to higher silver and gold prices, favourable foreign exchange rates, and continued strong operating performance. These factors were also reflected in significant increases in operating cash flow and adjusted [earnings before interest, taxes, depreciation and amortization], and contributed to significant growth in our cash and net working capital balances," stated Robert Archer, president and chief executive officer. "The substantial increase in our cash flow and margins were also reflective of 74-per-cent and 43-per-cent reductions in our cash cost and all-in sustaining cost compared to the second quarter of 2015. These came in at an impressive $1.72 (U.S.) and $7.19 (U.S.), respectively, for the second quarter. As such, we are taking the step to reduce our cash cost and all-in sustaining cost guidance for the year while maintaining our production guidance."
During the second quarter of 2016, the company generated $13.2-million in mine operating earnings before non-cash items and $9.9-million in operating cash flows before changes in non-cash net working capital. This reflected increases of 96 per cent and 176 per cent, respectively, over the results from the second quarter of 2015. These strong operating results are attributable to a 74-per-cent reduction in cash cost per payable silver ounce (in U.S. dollar terms), and to the benefit of higher metal prices and favourable foreign exchange rates on revenues. Notwithstanding the strong mine operating earnings, the company reported a net loss of $1.7-million for the second quarter of 2016, mainly due to unrealized (non-cash) foreign exchange losses of $6.4-million on intercompany loans and advances by the company to its Mexican subsidiaries, and a $2.2-million (non-cash) impairment charge associated with the termination of the option agreement for the Coricancha project. Adjusted EBITDA increased by 134 per cent to $9.8-million.
Cash and net working capital at June 30, 2016, increased 48 per cent and 46 per cent to $28.8-million and $49.4-million, respectively, compared with the balances at the start of the year. This was largely a function of the improvement in cash flows from operating activities and $6.6-million in proceeds from an at-the-market share offering. Subsequent to the second quarter, on July 12, 2016, the company closed an equity bought-deal offering for gross proceeds of $29.9-million (U.S.) that further improved the company's cash position and significantly improved net working capital positions. The company continues to have no debt.
Highlights of the second quarter 2016 compared with second quarter 2015, unless otherwise noted:
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Metal production decreased 5 per cent to 1,037,728 silver equivalent ounces.
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Silver production decreased 17 per cent to 536,726 silver ounces.
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Gold production increased 13 per cent to 6,010 gold ounces.
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Cash cost decreased 74 per cent to $1.72 (U.S.) per payable silver ounce.
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All-in sustaining costs decreased 43 per cent to $7.19 (U.S.) per payable silver ounce.
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Revenue increased 33 per cent to $25.6-million.
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Mine operating earnings before non-cash items increased to $13.2-million compared with $6.7-million.
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Adjusted EBITDA improved to $9.8-million from $4.2-million.
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Net loss totalled $1.7-million compared with a net loss of $4.7-million.
- Cash flow from operating activities, before changes in non-cash net working capital (NCWC), increased to $9.9-million from $3.6-million.
- Cash and cash equivalents increased to $28.8-million at June 30, 2016, from $17.9-million at Dec. 31, 2015.
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Net working capital increased to $49.4-million at June 30, 2016, from $33.3-million at Dec. 31, 2015.
OPERATING AND FINANCIAL RESULTS SUMMARY
($000s, unless otherwise noted)
Q2 2016 Q2 2015 Six months ended June 30,
2016 2015
Operating
Tonnes milled (excluding custom milling) 99,905 87,476 188,588 186,728
Silver equivalent ounces (Ag eq oz) produced (1) 1,037,728 1,088,355 2,047,556 2,076,241
Silver ounce production 536,726 648,810 1,076,198 1,245,921
Gold ounce production 6,010 5,322 11,609 10,025
Payable silver ounces 601,449 607,898 1,079,547 1,230,238
Ag eq oz sold 1,148,467 1,022,727 1,994,779 2,030,734
Cost per tonne milled (USD) (2) $ 86 $ 109 $ 90 $ 105
Cash cost (USD) (2) 1.72 6.63 2.81 7.68
AISC (USD) (2) 7.19 12.54 8.10 13.52
Financial
Revenue 25,576 19,183 44,030 39,434
Mine operating earnings before non-cash items (2) 13,165 6,713 20,911 13,366
Mine operating earnings 11,526 1,668 17,673 2,193
Net (loss) income (1,738) (4,722) (6,199) (1,132)
Adjusted EBITDA (2) 9,847 4,205 13,580 7,792
Operating cash flows before changes in
non-cash net working capital 9,852 3,567 13,852 8,397
Cash and cash equivalents at end of period 28,835 19,432 28,835 19,432
Net working capital at end of period 49,421 33,942 49,421 33,942
Average realized silver price (USD) (3) 17.82 15.47 17.10 16.24
Per-share amounts
Earnings (loss) per share -- basic and diluted (0.01) (0.03) (0.04) (0.01)
(1) Silver equivalent ounces are referred to throughout this document. For 2016, Aq eq ounces are
calculated using a 70:1 Ag:Au ratio and ratios of 1:0.0504 and 1:0.0504 for the price/ounce of
silver to lead and zinc price/pound, respectively, and applied to the relevant metal content of
the concentrates produced, expected to be produced or sold from operations. Comparatively, in
2015 Aq eq ounces were calculated using a 65:1 Ag:Au ratio, and ratios of 1:0.050 and 1:0.056 for the
price/ounce of silver to lead and zinc price/pound, respectively, and applied to the relevant
metal content of the concentrates produced, expected to be produced or sold from operations.
(2) The company has included the non-international financial reporting standards performance measures
cost per tonne milled, cash cost, AISC, mine operating earnings before non-cash items, cost of sales
before non-cash items and adjusted EBITDA throughout this document. Refer to the non-IFRS measures
section of this MD&A for an explanation of these measures and reconciliation to the company's
reported financial results in accordance with IFRS. As these are not standardized measures, they
may not be directly comparable with similarly titled measures used by others.
(3) Average realized silver price is prior to smelting and refining charges.
Review of financial results
During the second quarter of 2016, revenue increased by $6.4-million or 33 per cent relative to the second quarter of 2015. This was primarily attributable to the increase in precious-metal prices, which had an estimated impact of $2.8-million, and to the 12-per-cent increase in metal sales volumes due to timing of shipments, which had an estimated impact of $2.2-million. In addition, the stronger U.S. dollar relative to the Canadian dollar in the second quarter of 2016 had an estimated positive $1.5-million impact on the revenues reported in Canadian dollar. These positive factors were partly offset by the $200,000 higher smelting and refining charges resulting from the higher sales volumes relative to the second quarter of 2015.
Mine operating earnings before non-cash items for the second quarter of 2016 were $13.2-million, an increase of $6.5-million compared with the second quarter of 2015. This was predominantly the result of higher precious-metal prices as the realized silver price increased from $15.47 (U.S.) to $17.82 (U.S.). In addition, the company benefited from favourable foreign exchange rates. The stronger U.S. dollar relative to the Canadian dollar during the second quarter of 2016 had the effect of increasing revenue in Canadian-dollar terms. Conversely, the Canadian dollar strengthened 13 per cent against the Mexican peso, which had the impact of reducing Mexican-peso production costs in Canadian-dollar terms. These factors were augmented by the impact of the higher metal sales volumes, as the company increased the volume of customer shipments.
Exploration, evaluation and development (EE&D) increased by $900,000 for the second quarter of 2016 compared with the same period in 2015, primarily as a result of exploration and evaluation programs related to the Coricancha project, which commenced after the company entered into an option agreement to acquire the mine and related processing facilities during the second quarter of 2015. In addition, the company recorded $400,000 in EE&D expenses associated with the Guanajuato mine during the second quarter of 2016, whereas such costs were still being capitalized to mineral properties during the second quarter of 2015.
The impairment charge recognized in the second quarter of 2016 relates to the termination of the Coricancha option agreement during the quarter.
Finance and other expense increased significantly due to a $6.3-million net foreign exchange loss recognized in the second quarter of 2016, compared with a $3.8-million foreign exchange loss recorded during the same period in 2015. The net foreign exchange loss for the second quarter of 2016 includes a $6.4-million non-cash unrealized loss related to intercompany balances made up of a $38.8-million (U.S.) loan from the company to one of its Mexican subsidiaries, as well as $40.9-million of Canadian-dollar and U.S.-dollar balances payable by the company's Mexican subsidiaries to the company. In addition, a fair value loss of $400,000 was recorded on the outstanding foreign currency forward contracts as at June 30, 2016, which was partly offset by realized foreign exchange gains of $300,000.
The net loss of $1.7-million for the second quarter of 2016 reflects the impact of predominantly unrealized foreign exchange loss and the non-cash impairment charge recorded during the period related to the termination of the option agreement associated with the Coricancha project. Net loss decreased compared with a net loss of $4.7-million for the same period in 2015. The decrease is primarily attributable to a $9.9-million increase in mine operating earnings. This factor was partly offset by a $2.4-million increase in net foreign exchange loss, a $900,000 increase in EE&D expenditures, a $1.3-million increase in income tax expense and the $2.2-million impairment charge recorded against the Coricancha project.
Adjusted EBITDA of $9.8-million for the second quarter of 2016 increased compared with $4.2-million in the same period of 2015. The increase in adjusted EBITDA is primarily due to the $6.5-million increase in mine operating earnings before non-cash items. This was partly offset by a $900,000 increase in EE&D expenses (net of changes in non-cash share-based compensation and changes in estimate of reclamation provisions).
Cash cost and all-in sustaining cost
Cash cost was $1.72 (U.S.) for the second quarter of 2016, a 74-per-cent decrease compared with the second quarter of 2015. The decrease in cash cost was predominantly the result of higher gold byproduct credits per payable silver ounce as a result of an increase in gold production and an increase in average realized gold prices. In addition, the strengthening of the U.S. dollar compared with the Mexican peso reduced cash operating costs in U.S.-dollar terms.
AISC for the second quarter of 2016 was $7.19 (U.S.), a 43-per-cent decrease compared with the second quarter of 2015, primarily due to the reduction in cash cost described above. A reduction in mine development expenditures also contributed to the decrease in AISC, due to changes in the timing of capital expenditure and development plans. The company expects an increase in sustaining capital expenditures and sustaining EE&D expenses in subsequent quarters, which is expected to increase AISC from the levels reported in the second quarter of 2016.
Please refer to the company's management's discussion and analysis for further discussion of cash cost and AISC, and for a reconciliation to the company's financial results as reported under IFRS.
Outlook
The company is reducing its cash cost and AISC guidance for the year ending Dec. 31, 2016, as shown in the attached table. The improvement in the outlook for cash cost and AISC reflects the fact that both cash cost and AISC for the first half of 2016 have been well below the company's original guidance for the year, and the company's outlook for these measures remains positive for the second half of the year. However, the company does expect AISC for the second half of 2016 to increase meaningfully over the very low levels in the first half as capital and development expenditures will be more significant in the second half.
In addition, the company is increasing its planned drilling activities and expenditures for the second half of the year given the improvement in precious-metal prices seen in the first half of the year, and the resulting increase in mine operating earnings and cash flow. This change is also highlighted in the attached table.
The company's previously announced guidance for capital expenditures and EE&D expenses for the year ending Dec. 31, 2016, remains unchanged. Despite the increase in planned drilling metres for 2016, these expenditures are expected to be offset by lower-than-planned development costs.
CAPEX AND EE&D EXPENSE GUIDANCE
(in millions of dollars)
H1 2016 actual FY 2016 guidance FY 2015 actual
Capital expenditures -- buildings, plant and equipment $1.5 $3.5 $3.2
Capitalized development costs -- operating mines $0.2 $0.5 $3.2
EE&D -- operating mines $1.7 $7.0 $4.6
Exploration and evaluation expense -- Coricancha $1.7 $1.0 $2.7
The timing of the capital expenditures and EE&D is weighted to the second half of the year. In particular, there are significant planned capital expenditures associated with the expansion of the Topia tailings dam. At this time, the company believes it can complete the design and construction by late 2016 or early 2017. However, the timeline is tight, and may be affected by a number of risks and uncertainties. This presents the possibility that planned capital expenditures may not be incurred in 2016, which would further reduce AISC guidance for 2016.
The timing of the permitting and construction of the Topia tailings dam expansion and related reviews of the existing tailings facility also presents a risk that the company may not meet its production guidance for 2016. However, the company believes that this risk is manageable at this stage, as Topia is the smaller of the company's operations accounting for less than 25 per cent of overall production, and the company believes it can manage the transition to the new tailings facility without an impact to its 2016 production guidance.
Webcast and conference call to discuss second-quarter 2016 financial results
Great Panther will hold a live webcast and conference call to discuss the financial results on Aug. 4, 2016, at 11 a.m. EST (8 a.m. PST). Hosting the call will be Mr. Archer, president and CEO, and Jim Zadra, chief financial officer and corporate secretary.
Shareholders, analysts, investors and media are invited to join the live webcast and conference call by logging in or dialling in just prior to the start time.
Live webcast and registration: see company's website
U.S. and Canada toll-free: 1-866-832-4290
International toll: 1-919-825-3215
Passcode/conference ID: 54783660
A replay of the webcast will be available on the investors section of the company's website approximately one hour after the conference call.
We seek Safe Harbor.
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