Mr. Lorne Waldman reports
SILVERCORP REPORTS FINANCIAL AND OPERATING RESULTS FOR THE FOURTH QUARTER AND FISCAL YEAR ENDED MARCH 31, 2014 AND PROVIDES OUTLOOK FOR FISCAL 2015
Silvercorp Metals Inc. has released its financial and operating results for the fourth quarter and fiscal year ended March 31, 2014, and has provided its outlook for the fiscal year ending March 31, 2015.
Fourth quarter highlights:
- Silver production of 600,000 ounces and gold production of 2,349
ounces;
- Lead production of 5.2 million pounds and zinc production of 900,000 pounds;
- Sales of $16.1-million;
- Gross margin of 43 per cent;
- Cash flow from operations of $3.1-million, or two cents per share;
- Adjusted net income of $1.1-million or one cent per share;
- Cash cost per ounce of silver, net of byproduct credits, of $2.82.
Fiscal year 2014 highlights:
- Silver production of 3.9 million ounces and gold production of 11,124
ounces;
- Lead production of 37.2 million pounds and zinc production of 8.4
million pounds;
- Sales of $108.4-million;
- Gross margin of 45 per cent;
- Cash flow from operations of $36.1-million, or 21 cents per share;
- Adjusted net income of $7.6-million or four cents per share;
- Cash cost per ounce of silver, net of byproduct credits, of $2.16.
Financials
Fourth quarter fiscal 2014 versus fourth quarter fiscal 2013
For the quarter ended March 31, 2014, net loss attributable to equityholders of the company was $4.5-million or three cents per share compared with net income of $6.4-million or four cents per share in the quarter ended March 31, 2013. Net loss in the current quarter includes a $3.3-million loss on the disposal of mineral rights and properties and a non-cash impairment charge of $2.3-million in relation to the company's investment in an associate. Excluding these items, adjusted net income for fourth quarter fiscal 2014 was $1.1-million or one cent per share. There were no adjusting items in fourth quarter fiscal 2013.
Compared with the same prior-year quarter, the decrease in net income was mainly due to: (i) lower metal production as silver, lead and zinc production was 38 per cent, 47 per cent and 54 per cent lower compared with fourth quarter fiscal 2013 and (ii) a 31-per-cent decrease in the realized price for silver, from $23.49 in fourth quarter fiscal 2013 to $16.13 in fourth quarter fiscal 2014.
In fourth quarter fiscal 2014, the company realized sales of $16.1-million, down 51 per cent compared with $33.1-million in fourth quarter fiscal 2013.
Cost of sales in fourth quarter fiscal 2014 was $9.2-million compared with $16.1-million in fourth quarter fiscal 2013 and included cash costs of $7.8-million compared with $13.5-million in fourth quarter fiscal 2013. The 43-per-cent decrease in cost of sales was due primarily to a 36-per-cent decrease in mine production.
The gross profit margin in fourth quarter fiscal 2014 was 43 per cent, compared with 52 per cent in fourth quarter fiscal 2013.
Cash flow from operations in fourth quarter fiscal 2014 was $3.1-million or two cents per share, compared with $13.6-million, or eight cents per share, in fourth quarter fiscal 2013.
Fiscal 2014 versus fiscal 2013
For the year ended March 31, 2014, net loss attributable to equityholders of the company was $41.0-million, or 24 cents per share compared with net income of $27.2-million, or 16 cents per share in fiscal 2013. Net loss in the current fiscal year includes non-cash impairment charges of $42.8-million, or 25 cents per share, net of tax, which reduced the carrying value of the BYP mine, as well as the XBG and Silvertip projects, both of which were sold during the fiscal year. Also, the company recognized a non-cash impairment charge of $2.3-million in relation to its investment in an associate and a loss of $3.5-million primarily on the disposal of the XBG project.
Adjusted net income for fiscal 2014 was $7.6-million, or four cents per share, compared with $36.9-million, or 22 cents per share in fiscal 2013. Adjusted net income or loss excludes non-recurring or unusual non-operational items, such as impairment of the company's mineral properties and investments in an associate, and acts as a supplemental financial measure that provides a more complete assessment of the company's operations for the year.
In the current fiscal year, the company's financial results were mainly impacted by the following: (i) lower metal production as silver, lead and zinc production decreased 22 per cent, 31 per cent and 32 per cent, compared with the prior fiscal year, and (ii) a significantly lower net realized silver price of $16.74 per ounce in this fiscal year, which is $6.97 or 29 per cent lower compared with $23.71 per ounce in the prior fiscal year.
In fiscal 2014, the company realized sales of $108.4-million compared with $181.6-million in fiscal 2013.
Cost of sales in fiscal 2014 was $60.0-million compared with $73.1-million in fiscal 2013 and included cash costs of $47.9-million compared with $59.9-million in fiscal 2013. The decrease in cost of sales is mainly due to a 21-per-cent decrease in ore production in the current year.
In fiscal 2014, the gross profit margin was 45 per cent compared with 60 per cent in fiscal 2013.
Cash flow from operations in fiscal 2014 was $36.1-million or 21 cents per share, compared with $85.2-million, or 50 cents per share, in fiscal 2013. The company ended the fiscal year with $73.5-million in cash, cash equivalents and short-term investments.
Operations
Fourth quarter fiscal 2014 versus fourth quarter fiscal 2013
In fourth quarter fiscal 2014, on a consolidated basis, the company produced 600,000 ounces of silver, 2,349 ounces of gold, 5.2 million pounds of lead and 900,000 pounds of zinc compared with 900,000 ounces of silver, 2,333 ounces of gold, 9.8 million pounds of lead and 1.9 million pounds of zinc in fourth quarter fiscal 2013.
Ying mining district, Henan province, China
In fourth quarter fiscal 2014, the company mined 90,057 tonnes of ore at the Ying mining district compared with 153,323 tonnes in fourth quarter fiscal 2013. During the quarter, metal production totalled 600,000 ounces of silver, 461 ounces of gold, 5.2 million pounds of lead and 900,000 pounds of zinc, compared with 900,000 ounces of silver, 800 ounces of gold, 9.5 million pounds of lead and 1.6 million pounds of zinc in fourth quarter fiscal 2013. The lower mine production was related to operational difficulties experienced in January and February, which were disclosed in the company's press release of Feb. 13, 2014. In addition, heavy snowstorms in central China in early February, 2014, which delayed the miners at the Ying mining district returning to work after the Chinese New Year holiday for about two weeks, also impacted the mine production.
Head grades were 216 grams per tonne for silver, 2.7 per cent for lead and 0.6 per cent for zinc, compared with 205 g/t for silver, 2.9 per cent for lead and 0.7 per cent for zinc in the same quarter last year, benefiting from enhanced dilution control monitoring and improved operations in March, 2014.
In fourth quarter fiscal 2014, total and cash mining costs per tonne were $60.85 and $49.04, respectively, compared with $72.56 and $61.67 in fourth quarter fiscal 2013, respectively. The decrease of cash mining costs was due to cost control measures enacted in recent quarters, including: (i) using less in-stope infill diamond drilling and (ii) using more low-cost shrinkage mining method compared with the higher-cost mining method in the same prior-year period.
In fourth quarter fiscal 2014, a total of 91,272 tonnes of ore were milled compared with 158,145 tonnes in fourth quarter fiscal 2013. The cash milling cost per tonne was $15.08 in fourth quarter fiscal 2014 compared with $16.05 in fourth quarter fiscal 2013.
Total and cash costs per ounce of silver in fourth quarter fiscal 2014 for the Ying mining district were $5.86 and $2.82, respectively, compared with $5.82 and $3.65, in fourth quarter fiscal 2013, respectively.
BYP mine, Hunan province, China
In fourth quarter fiscal 2014, the company mined 20,791 tonnes of ore at the BYP mine with a gold head grade of 3.5 g/t compared with 19,334 tonnes with a gold head grade of 3.0 g/t in fourth quarter fiscal 2013. During the quarter, 1,888 ounces of gold were produced and sold at a cash cost per ounce of gold of $531 compared with 1,509 ounces of gold produced and sold at a cash cost per ounce of gold of $493 in the same period last year. In fourth quarter fiscal 2014, total and cash mining costs per tonne were $33.62 and $22.29, respectively, compared with $58.33 and $26.35 in fourth quarter fiscal 2013, respectively.
Fiscal 2014 versus fiscal 2013
In fiscal 2014, on a consolidated basis, the company produced 3.9 million ounces of silver, 11,124 ounces of gold, 37.2 million pounds of lead and 8.4 million pounds of zinc, compared with 5.0 million ounces of silver, 12,457 ounces of gold, 53.9 million pounds of lead and 12.4 million pounds of zinc in fiscal 2013.
Ying mining district, Henan province, China
In fiscal 2014, the total ore mined at the Ying mining district was 625,266 tonnes compared with 776,846 tonnes in fiscal 2013.
Head grades at the Ying mining district were 207 g/t for silver, 2.8 per cent for lead and 0.8 per cent for zinc in fiscal 2014 compared with 220 g/t for silver, 3.3 per cent for lead and 1.0 per cent for zinc in fiscal 2013.
In fiscal 2014, the Ying mining district produced 3.9 million ounces of silver, 3,527 ounces of gold, 36.6 million pounds of lead and 7.6 million pounds of zinc compared with 4.9 million ounces of silver, 4,153 ounces of gold, 52.2 million pounds of lead and 11.2 million pounds of zinc in fiscal 2013.
In fiscal 2014, total and cash mining costs per tonne were $61.33 and $50.73, respectively, compared with $66.62 and $55.94, respectively, in fiscal 2013. The overall decrease in cash mining costs per tonne was due to less in-stope infill drilling and more low-cost shrinkage mining method used.
In fiscal 2014, total ore milled was 634,493 tonnes, a decrease of 18 per cent compared with 774,534 tonnes in fiscal 2013. Cash milling costs were $14.14 compared with $13.56 in fiscal 2013. The increase is mainly due to the allocation of the fixed costs to a reduced tonnage of ore milled, compared with the prior year.
Including byproduct credits, in fiscal 2014, total cost and cash cost per ounce of silver were $4.68 and $2.16, respectively, compared with $2.45 and $0.48, respectively, in fiscal 2013. The main reason for the higher cash cost per ounce of silver was the decline in the relative value of byproduct credits per tonne of ore mined.
As previously discussed in the news release on Sept. 12, 2013, the company reviewed its operations at the Ying mining district and found that the dilutive practice of mining contractors was contributing to the head grade decline. As a result of this finding, one contractor was dismissed, and the company took remedial action by modifying the method of calculating the amount of ore mined for compensating the miners. The change in compensation method caused uncertainty to the contractors and resulted in miner shortages, which significantly impacted production during the year as the company took decisive action to curb the dilutive mining practices. In addition, the change in mining strategy in the prior year, favouring more shrinkage mining stopes, yielded mixed results as dilution control was found to be inadequate in certain mines and negatively impacted head grades. These efforts have made the second half of fiscal 2014 the most challenging operating period in the company's history; however, benefits are now being recognized in terms of improved head grades, lower production costs, reduced employee counts and overhead reduction over the last 2-1/2 months.
BYP mine, Hunan province, China
In fiscal 2014, the total ore mined was 88,210 tonnes compared with 109,093 tonnes in fiscal 2013. The company produced and sold 7,416 ounces of gold in fiscal 2014 compared with 8,068 ounces of gold in fiscal 2013. The cash cost per ounce of gold was $488 in fiscal 2014 compared with $455 in fiscal 2013. Gold head grade for fiscal 2014 was 3.4 g/t compared with 3.1 g/t in fiscal 2013.
Development and exploration
Ying mining district, Henan province, China
During the year, the company completed approximately 63,000 metres of horizontal tunnels, raises and declines.
At the end of fiscal 2014, the ramp at SGX mine reached its optimized depth of a 260-metre elevation. The connection from the ramp to the 350-metre, 300-metre and 260-metre elevations was also completed. In addition, the ramp at the LM West mine reached a 710-metre elevation. This ramp will be developed to a 650-metre elevation and will be used for mining between 650-metre and 800-metre elevations.
To preserve cash during the current lower-commodity-price environment, the company suspended the construction of office buildings and dormitories at SGX, HPG and LM West mines, and a transformer substation at LM West to better allocate resources during the current market.
Total exploration and development expenditures for the Ying mining district were $30.4-million compared with $33.3-million in fiscal 2013.
GC mine, Guangdong province, China
The required surface environmental protection facilities, together with water and soil conservation engineering work, have been completed and have undergone test operations. During the year, all the work required for the issuance of the final safety production permit has been completed with the final inspection expected at the end of June, 2014. The company has received a temporary safety production permit in the meantime, which allows for trial mining and stope preparation work. The company will continue to conduct trial mining, mill processing and additional stope preparation work until the final safety production permit is received.
As the company has completed the mine development phase and ramps up its trial mine production, and as part of the company's focus on cost control and efficiency, the company has replaced the previous mining contractor with a new one in March, 2014, at lower unit costs for mining and development. A new mine management team was also put in place at the time. Since then, mining at the GC mine has commenced, and production rates have gradually increased.
Through the test milling of stope ore from mine production, the mill has been improved to enhance the recovery for silver, lead and zinc to the level of metallurgic studies, but the recovery rate for tin is still not satisfactory, and action is being taken to address this issue.
The tailing dewatering facility for dry stacking has also been improved with modifications to equipment achieving desired results. The construction of the tailing dry stacking dam and reservoir facility has been completed and has passed government inspection.
During fiscal 2014, approximately 12,500 m of tunnels, including 2,000 m of development tunnels, 6,500 m of exploration tunnels and 4,000 m of mining preparation tunnels, were completed.
In fiscal 2014, $15.9-million (fiscal 2013: $15.8-million) of exploration and development expenditures were incurred at the GC mine.
BYP mine, Hunan province, China
In fiscal 2014, the construction of the head frame was mostly completed, with the installation of the hoist system still in progress. Once complete, the newly completed 265-metre shaft will facilitate mining of the No. 3 gold mineralization body, and depending on commodity prices, the No. 5 zinc and lead orebody. In addition, the construction of a 1,500-tonne-per-day tailings-backfill facility is complete and operational. Exploration and development expenditures at the BYP mine were $1.5-million in the current fiscal year compared with $5.7-million in the prior year.
Outlook
Production guidance -- fiscal 2015 silver production to increase by 22 per cent to 4.7 million ounces in comparison with fiscal 2014 actual production
In fiscal 2014, the company enacted a series of improvements covering all aspects of operations, including mine planning and strategy, contractor compensation contracts, dilution control, and a performance-based (linked to tonnage and grade) compensation package for mine management. Following the end of the Chinese New Year holiday in February, benefits of the improvements began to be recognized. Production in March and April was generally in line with management's production expectations for fiscal 2015.
In fiscal 2015, the company expects to continue to operate in a lower commodity price environment, but expects to benefit from the operational adjustments implemented during fiscal 2014. The company expects to produce approximately one million tonnes of ore, yielding 4.7 million ounces of silver, 11,700 ounces of gold, and 76.7 million pounds of lead and zinc, in fiscal 2015.
At the Ying mining district, production is expected to be 650,000 tonnes of ore with grades of 215 g/t silver, 0.2 g/t gold, 3.5 per cent lead and 0.9 per cent zinc, with expected metal production of 4.1 million ounces of silver, 2,800 ounces of gold, and 54.5 million pounds of lead and zinc. The cash and total production costs are expected to be approximately $66 and $82 per tonne of ore, respectively. Silver production from the Ying mining district will be 6 per cent higher compared with fiscal 2014 production.
The GC mine, in Guangdong province, commenced trial mining in March, 2014. Production is expected to gradually ramp up to 800 tonnes per day in the second quarter of fiscal 2015. In fiscal 2015, the company expects to produce 245,000 tonnes of ore with grades of 127 g/t silver, 1.3 per cent lead and 2.7 per cent zinc, with expected metal production of 600,000 ounces of silver and 18.5 million pounds of lead and zinc. The cash and total production costs are expected to be approximately $45 and $70 per tonne of ore, respectively.
The BYP mine in Hunan province is expected to produce 120,000 tonnes of ore, yielding approximately 8,900 ounces of gold. The cash and production costs are expected to be approximately $35 and $55 per tonne of ore, respectively.
Total capital expenditures for fiscal 2015 are estimated to be $39.6-million. Capital investment is budgeted at $16.9-million, including mine development of shafts and ramps of $6.6-million; land, buildings and equipment of $6.4-million; and $3.9-million in payments for the GC mine's construction completed last year. Sustaining capital totalling $19.4-million includes development of tunnels, raises and declines. The budget estimate is based on contracts in hand, designs by qualified engineering firms and the company's prior experiences.
At the Ying mining district, the capital expenditure budget is $24.5-million and includes $5.0-million to complete the construction of two ramps at LM and SGX and several vertical shafts at Ying, to provide access to the respective mines at depth. Also, $13.9-million is budgeted for the construction of 33,100 m of horizontal tunnels, declines and raises for mining and development, and $1.9-million is budgeted for a 45,900-metre surface and underground drilling program. The surface facilities budget of $3.7-million includes the completion of the construction of dormitory and office buildings.
At the GC mine, the capital expenditures for fiscal 2015 are expected to be $13.0-million, which includes $3.9-million for payments related to construction completed in the prior years, $1.5-million for shaft installation, $4.4-million for the development of 9,150 m of horizontal tunnels and raises, $800,000 for exploration to support a 19,700-metre surface and underground drilling program, and $2.4-million for obtaining land use rights, building construction and equipment procurement.
In addition, the company budgets $1.7-million and $400,000 in capital expenditures for the BYP mine and the XHP mine, respectively.
Changes in senior management
Shaoyang Shen, who has been based in China for the last seven years, has resigned from his position as chief operations officer, to spend more time with his family in Canada. The company has accepted Mr. Shen's resignation, thanks him for his contributions and wishes him continued success. Mr. Shen's responsibilities will be allocated between the general managers of each of the respective mines.
Myles Gao, PGeo, president and chief executive officer, is the qualified person for Silvercorp under NI 43-101 and has reviewed and given consent to the technical information contained in this news release.
This earnings release should be read in conjunction with the company's management's discussion and analysis, financial statements, and notes to financial statements for the corresponding period, which have been posted on SEDAR and are also available on the company's website. All figures are in U.S. dollars unless otherwise stated.
CONSOLIDATED STATEMENTS OF INCOME
(expressed in thousands of U.S. dollars, except for per-share figures)
Three months ended March
31, Years ended March 31,
2014 2013 2014 2013
Sales $ 16,135 $ 33,147 $ 108,400 $ 181,622
Cost of sales 9,190 16,060 59,996 73,089
Gross profit 6,945 17,087 48,404 108,533
General and administrative 3,531 6,252 24,424 25,734
General exploration and
property investigation 285 711 2,751 3,909
Other taxes 322 483 1,897 2,985
Foreign exchange gain (421) (1,050) (3,171) (1,382)
Loss on disposal of plant
and equipment 10 64 154 149
Loss (gain) on disposal of
mineral rights and
properties 4,295 (644) 4,476 (644)
Share of loss (gain) in
associate (66) (34) 87 197
Impairment on associate 2,304 -- 2,304 9,640
Impairment of mineral
rights and properties -- -- 66,573 --
Loss (gain) on investments (19) 980 589 1,651
Other income (20) (153) (137) (535)
Income (loss) from
operations (3,276) 10,478 (51,543) 66,829
Finance income 232 1,666 3,185 4,507
Finance costs (33) (23) (132) (92)
Income (loss) before income
taxes (3,077) 12,121 (48,490) 71,244
Income tax expense
(recovery) 1,600 3,730 (134) 29,201
Net income (loss) $ (4,677) $ 8,391 $ (48,356) $ 42,043
Attributable to
Equityholders of the
company $ (4,541) $ 6,361 $ (41,017) $ 27,211
Non-controlling interests (136) 2,030 (7,339) 14,832
Total $ (4,677) $ 8,391 $ (48,356) $ 42,043
Earnings (loss) per share
attributable to the equity-
holders of the company
Basic earnings (loss) per
share $ (0.03) $ 0.04 $ (0.24) $ 0.16
Diluted earnings (loss) per
share $ (0.03) $ 0.04 $ (0.24) $ 0.16
We seek Safe Harbor.
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