Monday, 12 August 2013

Great Panther Silver says cost-cutting, grade control measures to be reflected in Q3

Great Panther Silver (TSE:GPR) (NYSE MKT:GPL) shares were rising on Thursday after the company reported record metal production in the second quarter, despite lower metal prices and high unit costs impacting margins. The company also said on a conference call this morning that it expects its cost-cutting measures and its strong second quarter production to be reflected in the third quarter. 
"Great Panther's operations generated record metal production in the second quarter of 2013, but significantly lower metal prices and high unit costs severely impacted margins," said president and CEO Robert Archer, in a statement accompanying the quarterly figures released late Wednesday. 
"The high unit costs were a function of sales for the quarter that reflected production from first quarter and April at lower grades and higher site costs. Production for May and June showed improved grades and lower site costs, and we continue to work hard to further lower our costs and increase the profitability of our mines."
Indeed, the company has been undergoing a wide-ranging program focused intently on grade control at its two operating mines in Mexico and cost cuts, with non-essential budget items cut, and some capital expenses cut and deferred. The precious metals miner has also prioritized mine development on an ongoing basis. 
"We also made significant cuts to our general and administrative overheads through layoffs, salary deferrals for senior management, and significant reduction in our corporate communications and exploration budgets, limiting the latter to only our core operations," said Archer, adding that he expects these changes to translate into lower general and admin and exploration expenses in the second half of the year. 
The company has also said the review for further ways to improve grades, reduce site costs and overheads is ongoing. Efforts to improve grade control and reduce costs at the company's operations were implemented in response to the low grades yielded in the first quarter of this year, which was only compounded by the significant drop in metals prices in the second quarter, with gold prices shedding 23 per cent during the period. 
"May and June production reflected the benefits of these efforts in the form of improved grades and lower unit production costs," Great Panther said in its statement. But most of this production remained in inventory at the end of the quarter due to shipping lead times, and was therefore not reflected in the latest results, particularly in margins and cash costs per ounce. 
Net loss for the three months that ended June 30, 2013 was $5.1 million, compared to net income of $0.4 million for the same period in 2012. Revenue for the second quarter declined by 23 per cent from a year ago to $11.17 million, and was down 12 per cent from the first quarter as average realized silver prices dropped 27 per cent, offsetting higher output.  
Metal production increased 12 per cent from the first quarter and 22 per cent from a year ago, to a record 680,212 silver equivalent ounces. Silver production rose 6 per cent year-on-year, while gold production soared 70 per cent. The company reaffirmed its production guidance for the year, saying it is on track to meet its forecast of between 2.4 to 2.5 million silver equivalent ounces for fiscal 2013.
Since its grade controlling efforts began, the company has seen a marked improvement in grades at both of its mines - Guanajuato and Topia - since the first quarter, despite falling on a year-over-year basis. At its Topia mine, where two of its smaller mines were shut down to maximize efficiencies, silver grades improved by 25 per cent over the first quarter.  
Still, given the impact of the lower grades seen in most of the first half of the year, the company decided to revise its cash cost guidance to US$15-16 per silver ounce for 2013. 
Cash costs per silver ounce were US$18.14 during the second quarter, a 59 per cent increase compared to the same period in 2012, and 2 per cent lower than the US$18.60 in the first quarter, as grades and higher site costs factored in year-over-year. 
The company recorded a gross loss percentage of 34 per cent compared to a gross profit percentage of 26 per cent for the same period in 2012, with margins expected to improve throughout the remainder of the year. 
As part of its cost-cutting measures, the company reduced the number of mining contractors at Guanajuato, and renegotiated contract arrangements to better align the remaining contractors. Great Panther is looking at ways to increase the number of working faces in some of the larger mines in order to maximize plant throughput, lower unit costs and increase operating cash flow.
At its other properties, a land use permit for San Ignacio was received earlier than planned during the quarter, with the company submitting a revised environmental impact assessment -- anticipated to be approved by the end of the third quarter. Its goal is to start production from this asset next year. Meanwhile, at its El Horcon project, a 24-hole drill program wrapped up in the second quarter, with a resource report and preliminary economic study to be prepared. 
Great Panther, which had cash and equivalents of $21.3 million as at quarter-end, saw its shares rise 3.5 per cent late morning, to 88 cents.  

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