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Thursday, 14 February 2013
Silvercorp Metals Q3 adjusted profit meets Street, forecasts increased ore production next year
**updated with CEO comments from conference call this morning**
Despite a slight year-over-year drop in silver production,Silvercorp Metals (TSE:SVM) (NYSE:SVM) saw an increase in silver output in its third quarter on a sequential basis, and reported adjusted earnings in line with analyst views, forecasting increased production for its next fiscal year.
"We have a strong balance sheet, including over $130 million in net cash and no debt, a strong and growing team of mining and exploration professionals, and most importantly a portfolio of cash generating, quality assets which we are focused on maximizing value from," said director, chairman and CEO Rui Feng in a Thursday morning conference call.
"Ultimately, we believe true value will be delivered to our shareholders by continuing to devote our energies to the business of mining, mine development and exploration."
The China-focused company, which posted its quarterly results late Wednesday, said that for the period ended December 31, silver production came in at 1.52 million ounces and gold production was 5,676 ounces – compared to 1.55 million ounces of silver and 2,879 ounces of gold a year earlier.
Net income was $5.2 million or three cents per share, down from $20 million or 12 cents per share in the year-ago period.
Silvercorp said that its most recent third quarter results included a $9.6 million non-cash accounting charge to write down its investment in an associate company to reflect its current share price.
Adjusted net income was $14.9 million or nine cents per share, in line with analysts’ estimates according to Thomson Reuters.
When compared to net income of $9.5 million in the second quarter, the company noted that adjusted net income increased by 56 per cent, as a result of increased metal production and sales, and a higher realized silver price.
Compared to production in the second quarter of fiscal 2013, the company produced 233,000 ounces more silver in the latest period, which was attributable to a 15% increase in ore mined and processed.
Sales of $58.7 million were down from $61.9 million in the year-ago period, mostly due to lower base metal production, which was partially offset by additional gold revenues, the company said.
Cash flow from operations was $27.8 million or 16 cents per share, compared to $31.6 million or 18 cents per share in the same quarter of 2012.
Silvercorp said that cost of sales rose to $21.2 million from $18.3 million, and included cash costs of $17.1 million compared to $14.5 million in the year-ago quarter.
The increase was due to a 31-per-cent rise in ore production, it said, offset by a reduction in overall production cost, which included mining, shipping and milling costs, from $84.90 per tonne to $83.11 per tonne.
Its cash cost per ounce of silver in the latest period was negative $0.17 for its operations in the Ying mining district of China.
In addition to silver and gold production, the company said it produced 16.4 million pounds of lead and 4.0 million pounds of zinc in the third quarter, compared to 21.0 million pounds of lead and 3.5 million pounds of zinc a year ago.
In the Ying mining district, metal production totalled 1.51 million ounces of silver, 1,285 ounces of gold, 15.6 million pounds of lead and 3.2 million pounds of zinc.
Third quarter total and cash mining costs per tonne were $64.47 and $54.92, compared to $70.23 and $55.92 a year ago, on a rise in tonnes of ore produced and a lower cut-off grade that allowed for the increase in shrinkage mining.
We are making a lot of money at the Ying Mining District and its resources are growing year over year with our extensive drilling campaign," said Feng.
"We started to mine there seven years ago with a six year mine life.
"Today we are still mining and have more than 10 years mine life with expanded production."
Silvercorp said it continued to make progress with the development of its GC project, in Guangdong Province, China, where it will begin trial production after the Chinese New Year Holiday, which ends before the end of this month.
The construction of the dry stack tailings storage facility and the related safety and environmental protection facilities is expected to be completed by the end of March.
To achieve formal commercial production, Silvercorp said it is required to pass a series of regulatory inspections to ensure it has complied with safety and environmental protection requirements. The company expects to complete certain environmental requirements and inspections by the second quarter of fiscal 2014.
The cost of building the GC mine and mill is expected to be within the original budget of roughly US$70 million, it added.
"The GC mine is fully paid, permitted and built, and will go to production in the coming fiscal year," Feng noted.
"Its first year cash flow will be more than enough to self-finance its remaining capital costs for improvement and expansion.
"Drilling at GC has constantly given upside surprises and resources are expected to grow there too."
Looking ahead to its fiscal 2014, or the year ending in March 2014, the company said it expects to increase ore production to 1.5 million tonnes, producing 6.7 million ounces of silver, 20,800 ounces of gold, 104.7 million pounds of lead and zinc, 300,000 pounds of tin and 20.5 million pounds of sulphur.
In the Ying mining district, 2014 production is expected to come in at 5.9 million ounces of silver, 4,700 ounces of gold, and 80.3 million pounds of lead and zinc. The cash and total production costs are expected to be roughly $65 and $80 per tonne of ore, respectively.
Total capital expenditures for 2014 are estimated at $86.9 million.
The silver‐producing Canadian mining company has multiple mines in China.
Last week, it said it uncovered five new high grade silver zones and extended the already known zones at its HZG mine in the Ying mining district. It also recently reported results from underground diamond drilling last year at its LM Mine West in the same region, with more drilling planned for 2013.