An anonymous director reports
SILVERCORP REPORTS Q1 RESULTS: NET INCOME UP 73%, CASH FLOWS FROM OPERATIONS UP 52% TO US$20.2 MILLION
Silvercorp Metals Inc. has released its financial and operating results for the fiscal 2017 first quarter ended June 30, 2016. All amounts are expressed in U.S. dollars.
First quarter highlights
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Net income attributable to equity shareholders of $4.7-million, or three cents per share, compared with net earnings attributable to equity shareholders of $2.3-million, or one cent per share, in the prior-year period;
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Silver, lead and zinc sales up 20 per cent, 12 per cent and 15 per cent, respectively, from the prior-year period to 1.6 million ounces silver, 16.7 million pounds lead and 5.2 million pounds zinc;
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Sales of $35.3-million, up 9 per cent from the prior-year period despite a 3-per-cent, 13-per-cent and 17-per-cent decline in the average selling price of silver, lead and zinc from prior-year period;
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A 23-per-cent, 21-per-cent and 22-per-cent increase in the head grades of silver, lead and zinc;
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Gross margin improved to 45 per cent from 36 per cent in the prior-year period;
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Cash flows from operations of $20.2-million, up 52 per cent from the prior-year period;
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Cash production cost per tonne of $61.65, compared with $71.01 in the prior-year period;
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Cash cost per ounce of silver, net of byproduct credits, of eight cents, compared with $1.39 in the prior-year period;
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All-in sustaining cost per ounce of silver, net of byproduct credits, of $7.06, compared with $10.94 in the prior-year quarter;
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Ended the period with $73.4-million in cash and short-term investments, an increase of $11.4-million compared with $62-million as at March 31, 2016.
Financials
Net income attributable to the shareholders of the company in the first quarter of fiscal 2017 was $4.7-million, or three cents per share, compared with $2.3-million, or one cent per share in the first quarter of fiscal 2016.
In the current quarter, the company's financial results were mainly impacted by the following: (i) improved head grades yielded higher silver, lead, zinc sales of 20 per cent, 12 per cent and 15 per cent, respectively; (ii) a 4-per-cent decrease in total production costs per tonne of ore processed; offset by (iii) the decline of metals prices, as the realized selling price for silver, lead and zinc decreased by 3 per cent, 13 per cent and 17 per cent, respectively, compared with the same prior-year quarter.
Sales in the first quarter of fiscal 2017 were $35.3-million, compared with $32.2-million in the first quarter of fiscal 2016. Silver and gold sales represented $20.8-million and $900,000, respectively, while base metals represented $13.6-million of total sales in this quarter, compared with silver, gold and base metals sales of $17.9-million, $700,000 and $13.6-million, respectively, in the first quarter of fiscal 2016.
Cost of sales in the first quarter of fiscal 2017 was $19.5-million, compared with $20.8-million in the first quarter of fiscal 2016. The cost of sales included $14.6-million (first quarter of fiscal 2016 -- $16.2-million) cash costs and $5-million (first quarter of fiscal 2016 -- $4.6-million) depreciation, amortization and depletion charges. The decrease of cash cost of sales was mainly due to a 13-per-cent decrease in cash production costs per tonne of ore processed. The total per-tonne ore production cost in the first quarter of fiscal 2017 was $85.58, a decrease of 4 per cent from $88.82 in the first quarter of fiscal 2016.
Gross profit margin in the first quarter of fiscal 2017 was 45 per cent, compared with 36 per cent in the first quarter of fiscal 2016. The improvement of gross profit margin was mainly due to the decrease of per-tonne ore production costs. The Ying mining district's gross profit margin was 49 per cent, compared with a 41-per-cent gross profit margin in the same prior-year quarter, while the GC mine's profit margin was 17 per cent, compared with a 9-per-cent gross profit margin in the first quarter of fiscal 2016.
Cash flows provided by operating activities were $20.2-million, or 12 cents per share in the first quarter of fiscal 2017, compared with $13.3-million, or eight cents per share, in the first quarter of fiscal 2016. Before changes in non-cash operating working capital, cash flows provided by operating activities were $15.5-million, an increase of $6.5-million, compared with $9-million in the first quarter of fiscal 2016, as a result of the improvement in operating earnings.
Operations and development
In the first quarter of fiscal 2017, the company sold 1.6 million ounces of silver, 16.7 million pounds of lead and 5.2 million pounds of zinc, compared with 1.4 million ounces of silver, 14.9 million pounds of lead and 4.6 million pounds of zinc, respectively, in the first quarter of fiscal 2016. The increase of metals sold was mainly due to, on a consolidated average basis: (i) a 23-per-cent, 21-per-cent and 22-per-cent increase in the head grades of silver, lead and zinc as mining dilution reduced; (ii) a 4-per-cent, 2-per-cent and 8-per-cent increase in silver, lead and zinc recovery rates; and (iii) a 2-per-cent increase of ore production output.
The significant improvement in the head grades of silver, lead and zinc since the December quarter of 2015 can be attributed in part to an internal enterprise blog system in the management of mine production and safety information, which the company implemented from August, 2015. The enterprise blog is an Internet social media system that makes the distribution and flow of the work-related knowledge and information easy and transparent for parties at different locations. In the system, for example, each of the mining stopes, development faces or equipment is assigned a blog name. Daily results of on-site inspection for these stopes or faces by responsible engineers are required to be published on their blogs. The results are listed in the form of structured data formatted in a checklist table, containing information and supporting photos as required by the company. Related parties at different levels of the management team can access directly to the daily blog for each workplace for first-hand information. Meanwhile, the enterprise blog system will also record if a management person has accessed the blog to read or comment on the daily results under his/her responsibility.
With the enterprise blog, information collection, distribution, retrieval and monitoring have become transparent and immediate. The information and knowledge collected by front line technicians or engineers freely flow throughout layers of the management structure. The responsible management person has the pressure, incentive and tools to make prompt and more accurate decisions that can be instantly delivered to responsible parties. The benefits of the system are that team member collaboration becomes easy, KPI (key performance indicator) assessments are fair and timely, and each person is accountable for his/her work.
Ying mining district, Henan province, China
OPERATIONAL RESULTS -- YING MINING DISTRICT
Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016
June 30, March 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
Ore mined (tonne) 173,508 99,415 152,230 171,014 167,107
Ore milled (tonne) 167,747 99,203 151,035 176,936 160,277
Head grades
Silver (g/t) 308 310 287 246 250
Lead (%) 4.4 4.0 4.1 3.8 3.6
Zinc (%) 1.1 0.9 0.8 0.7 0.8
Recoveries
Silver (%) 95.7 95.0 95.4 94.8 94.7
Lead (%) 96.4 96.3 96.6 95.0 94.9
Zinc (%) 48.4 57.6 50.2 55.1 53.5
Metal sales
Silver (000s oz) 1,490 857 1,216 1,132 1,190
Gold (000s oz) 0.9 0.3 0.5 0.7 0.9
Lead (000s lb) 14,861 7,379 12,107 11,529 12,454
Zinc (000s lb) 1,820 999 1,168 1,459 1,529
Cash mining cost ($ per tonne) $ 52.33 $ 54.63 $ 55.63 $ 62.15 $ 56.65
Total mining cost ($ per tonne) $ 78.64 $ 83.24 $ 78.91 $ 86.29 $ 75.00
Cash milling cost ($ per tonne) $ 10.07 $ 13.70 $ 11.67 $ 11.55 $ 12.98
Total milling cost ($ per tonne) $ 12.25 $ 17.38 $ 14.15 $ 13.70 $ 15.40
Cash production cost ($ per tonne) $ 66.27 $ 71.90 $ 71.29 $ 77.95 $ 73.68
Cash cost per ounce of silver ($) $ 0.12 $ 2.83 $ 0.25 $ 1.88 $ 1.03
All-in sustaining cost
per ounce of silver ($) $ 5.80 $ 8.92 $ 6.62 $ 9.88 $ 9.18
In the first quarter of fiscal 2017, the total ore mined at the Ying mining district was 173,508 tonnes, an increase of 4 per cent compared with total ore production of 167,107 tonnes in the first quarter of fiscal 2016. Silver, lead and zinc head grades improved by 23 per cent, 23 per cent and 33 per cent, respectively, to 308 grams per tonne for silver, 4.4 per cent for lead and 1.1 per cent for zinc from 250 grams per tonne for silver, 3.6 per cent for lead and 0.8 per cent for zinc, respectively, in the first quarter of fiscal 2016, benefiting from continuing dilution and operation improvements.
In the first quarter of fiscal 2017, Ying sold 1.5 million ounces of silver, 900 ounces of gold, 14.9 million pounds of lead and 1.8 million pounds of zinc, compared with 1.2 million ounces of silver, 900 ounces of gold, 12.5 million pounds of lead and 1.5 million pounds of zinc in the first quarter of fiscal 2016. The increase in metals sold is mainly due to the improved head grades achieved and higher ore production in the quarter. As at June 30, 2016, Ying held 3,669 tonnes of silver-lead concentrate inventories, an increase of 464 tonnes, compared with the 3,205 tonnes of silver-lead concentrate inventories held as at March 31, 2016. The estimated metals contained in ending silver-lead concentrate were approximately 400,000 ounces of silver and 3.8 million pounds of lead.
Total and cash mining costs per tonne were $78.64 and $52.33, respectively, compared with $75 and $56.65, respectively, in the first quarter of fiscal 2016. The decrease in cash mining costs was mainly due to: (i) a 4-per-cent saving on labour costs; (ii) a 7-per-cent decrease in mining preparation tunnelling and drilling expenditures; and (iii) an increase in ore mined resulting in lower per-tonne costs.
In the first quarter of fiscal 2017, total ore milled at Ying was 167,747 tonnes, an increase of 5 per cent, compared with 160,277 tonnes in the first quarter of fiscal 2016. Cash milling costs were $10.07, compared with $12.98 in the first quarter of fiscal 2016, and the decrease was mainly due to: (i) a 6-per-cent saving on labour costs; (ii) a 6-per-cent reduction on utility costs; and (iii) a 37-per-cent decrease in raw material and maintenance costs.
Cash production cost per tonne of ore processed at Ying was $66.27, a decrease of 10 per cent, compared with $73.68 in the first quarter of fiscal 2016, as a result of the decrease in both per-tonne cash mining and milling cost.
Cash cost per ounce of silver, net of byproduct credits, at Ying, was 12 cents, compared with $1.03 in the first quarter of fiscal 2016. The decrease was mainly due to 10-per-cent increase in byproduction credits and a 25-per-cent increase in silver sold.
All-in sustaining costs, net of byproduct credits, at Ying in the first quarter of fiscal 2017 were $5.80 per ounce of silver, compared with $9.18 in the first quarter of fiscal 2016, and the decrease was mainly due to a lower cash production cost per ounce of silver, net of byproduct credits, as discussed above, and approximately a $1.1-million decrease in sustaining capital expenditures.
In the first quarter of fiscal 2017, approximately 16,498 metres of underground diamond drilling (first quarter of fiscal 2016 -- 16,366 metres) and 4,836 metres of preparation tunnelling (first quarter of fiscal 2016 -- 5,996 metres) were completed and expensed as mining preparation costs at Ying. In addition, approximately 16,685 metres of horizontal tunnel, raise and declines (first quarter of fiscal 2016 -- 17,455 metres) were completed and capitalized.
Total capitalized exploration and development expenditures in the first quarter of fiscal 2017 for Ying were $4.9-million, compared with $6.1-million in the first quarter of fiscal 2016. The company also paid $1.3-million to renew the mining permit for the TLP and LM mine and incurred approximately $500,000 in capital expenditures to construct a transportation tunnel and road in the current quarter. Total expenditures incurred to date to construct the transportation tunnel and road are approximately $6.6-million, and the tunnel and road have been substantially completed.
GC mine, Guangdong province, China
OPERATIONAL RESULTS -- GC MINE
Q1 2017 Q4 2016 Q3 2016 Q2 2016 Q1 2016
June 30, March 31, Dec. 31, Sept. 30, June 30,
2016 2016 2015 2015 2015
Ore mined (tonne) 64,349 50,014 71,288 69,546 66,727
Ore milled (tonne) 63,587 50,124 71,593 68,465 66,679
Head grades
Silver (g/t) 99 92 97 94 93
Lead (%) 1.5 2.0 1.9 1.6 1.7
Zinc (%) 2.9 2.7 2.6 2.4 2.5
Recoveries
Silver (%) 76.8 79.1 80.2 77.0 79.3
Lead (%) 86.9 84.9 88.3 89.5 89.7
Zinc (%) 85.8 82.6 81.2 82.7 85.1
Metal sales
Silver (000s oz) 149 118 210 128 181
Gold (000s oz) 1,860 1,970 3,021 1,632 2,420
Lead (000s lb) 3,407 2,576 3,525 3,172 3,029
Zinc (000s lb) 33.50 26.24 38.22 36.49 48.74
Cash mining cost ($ per tonne) $ 41.91 $ 34.76 $ 46.52 $ 44.68 $ 56.83
Total mining cost ($ per tonne) $ 15.60 $ 16.99 $ 15.16 $ 15.81 $ 15.52
Cash milling cost ($ per tonne) $ 18.81 $ 20.67 $ 17.30 $ 18.05 $ 17.83
Total milling cost ($ per tonne) $ 49.10 $ 43.23 $ 53.38 $ 52.30 $ 64.26
Cash production cost ($ per tonne)
Cash cost per ounce of silver ($) $ (0.28) $ (2.24) $ 4.62 $ (1.69) $ 3.80
All-in sustaining cost
per ounce of silver ($) $ 4.76 $ 1.19 $ 9.80 $ 13.73 $ 9.13In the first quarter of fiscal 2017, the company mined 64,349 tonnes of ore at the GC mine, compared with 66,727 tonnes in the first quarter of fiscal 2016. Head grades were 99 grams per tonne for silver, 1.5 per cent for lead and 2.9 per cent for zinc, compared with 93 grams per tonne for silver, 1.7 per cent for lead and 2.5 per cent for zinc in the first quarter of fiscal 2016. The total mining cost and cash mining cost were $41.91 and $33.50, respectively, compared with $56.83 and $48.74 in the first quarter of fiscal 2016. The decrease of cash mining costs was mainly because approximately 33 per cent of ore was byproduct ore from exploration tunnelling or extracted from previously mined stopes for which direct mining costs were paid in prior periods and the only cost involved was to ship the ore to the mill.
Total ore milled at the GC mine in the first quarter of fiscal 2017 was 63,587 tonnes compared with 66,679 tonnes in the first quarter of fiscal 2016. The cash milling cost per tonne was $15.60, which is comparable with $15.52 in the first quarter of fiscal 2016.
In the first quarter of fiscal 2017, the GC mine sold 100,000 ounces of silver, 1.9 million pounds of lead and 3.4 million pounds of zinc, compared with 200,000 ounces of silver, 2.4 million pounds of lead and three million pounds of zinc. Less silver and metal sold was mainly due to less ore milled and lower silver and lead recovery rates in the current quarter.
In the first quarter of fiscal 2017, approximately 3,309 metres of underground diamond drilling (first quarter of fiscal 2016 -- 7,416 metres) and 3,486 metres of preparation tunnelling (first quarter of fiscal 2016 -- 4,645 metres) were completed and expensed as mining preparation costs at the GC mine. In addition, approximately 582 metres of horizontal tunnel, raise and declines (first quarter of fiscal 2016 -- 155 metres) were completed and capitalized.
Total capitalized exploration and development expenditures in the first quarter of fiscal 2017 for the GC mine were $200,000, compared with $200,000 in the first quarter of fiscal 2016.
Alex Zhang, PGeo, vice-president, exploration, is the qualified person for Silvercorp under National Instrument 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 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.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME
(in thousands of U.S. dollars, except for per-share figures)
Three months ended June 30,
2016 2015
Sales $ 35,271 $ 32,220
Cost of sales 19,527 20,764
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Gross profit 15,744 11,456
General and administrative 4,385 5,344
Government fees and other taxes 1,695 1,349
Foreign exchange loss 123 587
Loss on disposal of plant and equipment 264 7
Share of (gain) loss in associate (17) 78
Impairment of plant and equipment and
mineral rights and properties 181 -
Other (income) expense (40) 10
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Income from operations 9,153 4,081
Finance income 431 277
Finance costs (264) (332)
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Income before income taxes 9,320 4,026
Income tax expense 2,800 255
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Net income $ 6,520 $ 3,771
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Attributable to
Equityholders of the company $ 4,674 $ 2,296
Non-controlling interests 1,846 1,475
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$ 6,520 $ 3,771
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Earnings per share attributable to
the equityholders of the company
Basic earnings per share $ 0.03 $ 0.01
Diluted earnings per share $ 0.03 $ 0.01
We seek Safe Harbor.
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