Andean Precious Metals Corp

XTSX:APM

Earnings Call Transcript

[Patricia Moran, executive]

This webcast is being recorded. My name is Trish Moran, I'm Andean's VP of Investor Relations. Before we get started, I would ask that you view our slide presentation for cautionary language regarding forward-looking statements and the risk factors pertaining to these statements. Our MD&A, financial statements and relevant filings are available on SEDAR and on our corporate website, andeanpm.com.

With me today is Alberto Morales, Executive Chairman and CEO of Andean; Juan Carlos Sandoval, our Chief Financial Officer; and Segun Odunuga, Executive Vice President, Finance. Following management's formal remarks, we will then open the call for questions. And now over to Alberto.

[Alberto Morales, executive]

Thank you, Trish, and welcome, everyone. 2022 was a challenging year. While we met our production targets, we fell short of achieving our guidance for all-in sustainable cost per ounce. Operationally, it was a mix of positives and negatives. On the positive side, our mill at San Bartolome continued to run efficiently.

We maintain grade, and we signed a new contract for feedstock from La Bolsa, that material underpin our growth for the fourth quarter performance. However, we had some operational setbacks in 2022. Recoveries which have historically averaged more than 80%, averaged 77% for the year. The recovery issue, together with the decline in the average realized silver price, global supply chain issues and the negative impact of inflation in our cost impacted our profitability metrics last year.

That said, we preserved our balance sheet with about $90 million in liquidity, which is vital to advancing our growth aspirations. There are 3 critical steps we are taking to ensure that 2023 is a better year. Firstly, we are actively addressing the recovery issue by leveraging our technical expertise and are working with external consultants to further metallurgical testings and insights. These same consultants have been retained to optimize production in our processing plant.

Secondly, decreasing our cost, both at site and at the corporate level. This is a key priority for us. Lastly, we're in discussion with several third parties feed supplier to lock down high-grade materials to augment our resources and increase the life of mine of our San Bartolome facility. Securing new contract is very important and a priority to our growth strategy in Bolivia.

As disclosed in our MD&A, we updated our estimated mineral resources as of year-end. Based on our current mix of materials being through the mill, with about 50% of our 43-101 ore and 50% purchase materials, we have approximately 2 years of mine life remaining. On top of the [ Pallacos ] and included in the mineral resource table is the initial inferred mineral resources estimate for our dry-stack tailings facility, which we announced last November.

When combined with the current fine disposal facility, Mineral Resources, our two tailings facilities contain resources that could also extend the life of mine of San Bartolome. We are continuing to conduct metallurgical tests to assess the economic feasibility of extraction and will provide the market with an update on the results during 2023. In addition to organic growth in Bolivia, we are pursuing transformational growth acquisitions.

We are focused on identifying the right transactions, which will form the foundation to execute on our growth strategy. In terms of our acquisition criteria, we are looking for production or near production target located in the wider Americas. We're working several avenues on both organic growth side and the M&A side. We know what we want from an acquisition, and we will continue to review target until we find the right one.

Market turbulence does not look like it will end any time soon given the current geopolitical climate, the worldwide monetary policy is being followed by central banks and the unknown impact of the recent collapse of some regional banks and a major global banking institution. These factors are further compounded by the data around supply and demand of precious metals, specifically silver, showing that demand for the metal is currently outweighing supply.

It's a compelling time for those looking to invest in our industry on either an asset diversification or allocation basis. Andean is well positioned with a debt-free balance sheet and cash on hand to facilitate our transformational growth and advance our vision of becoming a multi-jurisdictional mid-tier producer. I would like now to hand the call over to Juan Carlos Sandoval, our new CFO. JC assumed the position effective December 1 and will review the financial highlights for the fourth quarter and year-end.

[Juan Sandoval, executive]

Thank you, Alberto. I am pleased to be here for my first analyst call with Andean and to provide further details on our fiscal 2022. In the fourth quarter of 2022, we produced 1.2 million ounces to end the year with a total of 5 million silver equivalent ounces. The fourth quarter was bolstered by material from La Bolsa, which provided Andean with an additional 200,000 tonnes of material at a fixed price per tonne.

La Bolsa material was the principal mill feed throughout Q4. [ What remainder ] of that material was processed in January of this year. At 5 million ounces, we achieved our guidance. However, production relatively to 2021 was down by 14%, mostly due to the recoveries issues already discussed by Alberto.

Revenue for both the fourth quarter and the full year were down 18% and 25%, respectively. The reason for the decrease is twofold, a significant decline in average realized price of silver per ounce as well as lower production impacted by recovery issues. While we do not control the silver price, we do control when we sell our ounces. As long as our liquidity remains strong, we do not have an immediate need to force the sale of our silver inventory at low prices.

You may see us opportunistically withhold metal sales to obtain better pricing. Our company, like the entire mining industry felt the impact of inflation on consumables. Cyanide distilling reagents required in our production process were up as much as 50% year-over-year, and this impacted our costs. That said, our operations continued to generate positive gross profits. The next slide shows our per ounce cost metrics, which also suffered due to the negative impact of high inflation compounded by a 14% reduction in silver equivalent ounces sold.

G&A in the fourth quarter was $4.9 million, bringing the total for 2022 to $14.9 million, excluding corporate development cost of $1.8 million. We believe that we should be able to trend down the $8 million in the coming year to around $6 million due to a decrease in noncash share-based compensation costs and general savings at the corporate level from moving the majority of our corporate functions to Mexico.

Our focus is on achieving operational efficiencies and prudent cost reductions in 2023. Moving on to the next slide. Despite the difficulties already mentioned, adjusted EBITDA for 2022 was positive at $3.5 million. While economic conditions remain volatile, it's important to note that we have preserved our best-in-class balance sheet. As of December 31, we have more than $90 million in liquidity, including $80.7 million in cash, $5.3 million in marketable investments and $4.1 million in VAT certificates.

Importantly, we have no debt or other liabilities related to financial instruments often associated with junior miners. Our working capital continues to improve, increasing to $94 million from $86 million over the last 12 months. But simply, we have a solid foundation for growth. Given our strategic goals for the year, including growth, production, optimization and closing an acquisition, we have decided to temporarily defer our [ graduation ] from the TSXV to the TSX.

Moving the timeline on this initiative will give us time to complete the work required on our internal controls and the implementation of our ERP system. And now over to Segun, our Executive VP of Finance, to update you on our NCIB program and discuss guidance for the upcoming year.

[Segun Odunuga, executive]

Thank you very much, JC. I'm happy to have joined the company. Last fall, we launched a share buyback program to deliver value to our shareholders through volatile markets. We are fortunate that our strong balance sheet and liquidity allows [indiscernible] to both buyback our stock at prices and currently pursue transformation at growth opportunities.

As of the end of last week, we have purchased a total of 706,000 shares at an average price of CAD 0.86. We will continue to monitor or consider the buyback programs as long as the share price does not reflect the true value of our underlying business. With respect to our guidance for 2023, our potential guidance for the year ahead is expected to come in around the same as last year, in the range to 4.8 million to 5.2 million ounces of silver equivalent. All-in sustaining costs are expected to improve to between $19.50 and $20.30 per ounce basis -- per ounce sold. In 2023, we intend to invest $9 million in capital expenditures, including over $5 million to address the tailings recovery project earlier mentioned by JC and Alberto.

Overall, we are well positioned for the year ahead and are implementing the changes necessary to improve our operational and financial results. This concludes our formal remarks. I will now turn it over to Trish.

[Patricia Moran, executive]

Thank you, Segun. [Operator Instructions] If we are not able to answer you here, I will get back to you after the webcast. We have our first questions from Jon Egilo. Jon, can you hear us?

[Jonathan Egilo, analyst]

Yes. Guys, can you hear me?

[Patricia Moran, executive]

Yes, we can.

[Jonathan Egilo, analyst]

I'm wondering if you could just explain what exactly the CapEx is being used for at the FDF and then DSF, should this be kind of interpreted as the beginning of a thin-circuit build? Or just kind of what is it?

[Alberto Morales, executive]

Thank you very much, Jon. What we plan to do for next year with respect to the tailing dam facilities based on what we are projecting, we [ increased ] our feasibility on the silver recovery and also spending some additional CapEx on buying some agreements that will help us to move the project forward. Without disclosing too much information, we are working towards on silver recovery instead of working on the [indiscernible] facilities. We just want to be more strategic -- strategically focused on that project.

[Jonathan Egilo, analyst]

Okay. And when do you think we could actually get a decision to go forward with this or not? Is that coming this year?

[Alberto Morales, executive]

We are looking at probably in the second half of this year when the Board will give us the final approval to move the project forward. We are doing all the preliminary work between now and second half of this year.

[Jonathan Egilo, analyst]

Okay. Excellent. The next question would be what do you guys model? Or what are you expecting for silver recoveries to drive 2023 guidance figures?

[Alberto Morales, executive]

Based on what we are seeing right now, as we disclosed in our MD&A that we have done some metallurgical testing. We also engaged technical consulting firm to help us optimize our production and also help us with the metallurgical testing. So far, the result that we have seen has been very positive, and they are trending on a very high level compared to what we are seeing in the past. So we are -- I would say we have some level of confidence that the -- what we already put out as guidance, we -- our [ Andean ] projection for 2023 will come out the way we are projecting.

[Jonathan Egilo, analyst]

Okay. So in terms of an actual recovery number, I guess, what are the goalposts? You are better than 2022, but not as good as 2021 for recoveries?

[Alberto Morales, executive]

I would say something -- without disposing too much information here, I would say that we are something similar or slightly above what we have in 2022.

[Jonathan Egilo, analyst]

Okay. And is there any plans for spending on San Pablo or any of the exploration this year? And I guess if not, then what's kind of the longer-term strategy on these projects?

[Alberto Morales, executive]

Right now, we cease spending on San Pablo in order for us to focus on the strategic opportunities that we are pursuing. So we are not trying to spend any additional money on San Pablo right now, but we want to divert the capital to something very important to us.

[Patricia Moran, executive]

All right. We have a question online and that is, what is the main contributor to our all-in sustaining costs and how can it be reduced?

[Alberto Morales, executive]

Thank you very much for that question. With respect to our all-in sustaining cost, in order to augment the issues that we have with respect to our recovery, we move to the -- we move away from a production plan in terms of mining. Our mining cost was very high at Pallacos deposit based on the materials that we are mining in that particular deposit and also through our purchasing of materials from the cooperatives, which is the -- our [ quality suppliers ] of the materials that we purchase, the cost was a little bit high at that aspect. But we already identified additional deposit that we are going to mine and also the materials that we are purchasing at the fixed cost base on the new contract that we have right now. That will bring down our all-in sustaining costs for the 2023.

[Patricia Moran, executive]

All right. We have one more question. Could you elaborate on M&A? What happened since last November? Do you have any active open files? Doesn't look promising. And are you looking in the U.S. of A.?

[Alberto Morales, executive]

Thank you, Trish, and thank you for that question. I will address it. Yes, we do have open files. We have reviewed, I would say, more than 20 or 25 potential targets. But right now, we're down to what we consider to be the most promising one. We're looking as to how can our balance sheet be more accretive to our shareholders with respect to the potential transactions that we're at.

Current market conditions, especially, have shifted in towards a window of opportunity for us that we believe, in which a strong and liquid balance sheet could be accretive in some instances. While I cannot go into a further level of details, I would say that, yes, we do have now reduced this to a handful of opportunities. For the time being, those ones that we are looking at are primarily based in the wider Americas as opposed to the United States. We were in the past looking to assets located in the United States, but we are feeling that the ones we're looking at and the open files that we currently have -- look more promising in the wider Americas.

[Patricia Moran, executive]

All right. Our next question is, in other investments, there is an amount of -- with a fair value of $1.5 million based on fair value of $1 per unit, could you tell us what kind of investments these are?

[Alberto Morales, executive]

Thank you very much, Trish, once again. One of our -- the continual objective is to preserve our liquidity and capital, at the same time generate some -- if possible, some returns on those investment. As we disclosed in the MD&A and financial statement, we have marketable security relating to Santa Cruz. We saw some -- we took advantage of the increase in the share price of Santa Cruz, and we saw certain number of shares, and we invested this money in money market that is generating us some decent returns. So that's what we classify as the other investment.

[Patricia Moran, executive]

All right. We have one last question. And that is, how busy are you with procuring material purchase opportunities in Bolivia? And do you expect to have new agreements signed in 2023?

[Alberto Morales, executive]

I want to emphasize on this side that increasing the life of mine of our San Bartolome facility, it's a priority to us. And yes, we are very active on this front. We have a team of people actually scouting possibilities in Bolivia. And we're coming across interesting opportunities that we're hoping to capitalize in the short term, meaning in the -- within the next quarter or two. That will significantly increase our life of mine. We're hoping that we would have the ability to come forward with these opportunities. But it is still yet to be -- to review the deposits and as well as engage in negotiations with the relevant parties.

[Patricia Moran, executive]

We have one last question on M&A and that is, what is the size or range of the target you were looking at?

[Juan Sandoval, executive]

Thank you, Trish. For obvious reasons, we cannot disclose much of that. But what we can say is that as Alberto mentioned, we have selected a handful of good opportunities. What we're looking for is assets with production or near-term production that will be most accretive to our shareholders.

[Patricia Moran, executive]

All right. That's all the questions for us today. Alberto, over to you.

[Alberto Morales, executive]

Well, thank you, Trish, Segun and JC, and thank you to everyone for listening today. Before closing the call, I would like to address our recent share price volatility. We are seeing the impact of ETF rebalancing, which we believe is not reflective of our underlying business. I would like to reiterate that we are confident in the steps we're taking to improve performance. As the major shareholders of this company, I have to admit that I am not happy about last year's result, but I am also confident about our prospects to increase the life of mine of our San Bartolome facility and the prospects of our M&A efforts that are currently underway.

We are preparing for continued volatility in the year ahead, and we're actively working to strengthen our business.

Additionally, we are excited about the possibilities for this upcoming year. With our debt-free balance sheet, our company has a strong foundation to support what we have defined as our 2-pronged growth strategy, meaning organic and M&A growth within Bolivia and acquisition growth in the wider Americas. As always, if you have any additional questions after the call, please do not hesitate to reach out to us. Once again, thank you all very much for joining.

[Patricia Moran, executive]

That ends today's call. Thank you.