Fortuna Silver Mines Inc. (NYSE:FSM) This fall 2022 Earnings Convention Name March 16, 2023 12:00 PM ET
Firm Contributors
Carlos Baca – Director of Investor Relations
Jorge Ganoza – President and Chief Govt Officer
Paul Weedon – Senior Vice President, Exploration
Cesar Velasco – Chief Working Officer, Latin America
David Whittle – Chief Working Officer, West Africa
Luis Ganoza – Chief Monetary Officer
Convention Name Contributors
Adrian Day – Adrian Day Asset Administration
Operator
Greetings, and welcome to the Fortuna Silver Mines Fourth Quarter and Full 12 months 2022 Monetary and Operational Outcomes Name. [Operator Instructions]
I’ll now flip the convention over to your host, Mr. Carlos Baca, Director of Investor Relations. Please go forward.
Carlos Baca
Thanks, Ali. Good morning, girls and gents. I want to welcome you to the Fortuna Silver Mines fourth quarter and full yr 2022 monetary and operational outcomes name.
Internet hosting the decision at the moment on behalf of Fortuna can be Jorge Alberto Ganoza, President and Chief Govt Officer; Luis Dario Ganoza, Chief Monetary Officer; Cesar Velasco, Chief Working Officer, Latin America; David Whittle, Chief Working Officer, West Africa; and Paul Weedon, Senior Vice President, Exploration.
At the moment’s earnings name presentation can be accessible on our web site, fortunasilver.com. As a reminder, statements made throughout this name are topic to the reader advisories included in yesterday’s information launch and within the earnings name presentation. Monetary figures contained within the presentation and mentioned in at the moment’s name are offered in U.S. {dollars}, except in any other case said.
Earlier than I flip over the decision to Jorge, I want to point out that this earnings name incorporates forward-looking data that’s based mostly on the corporate’s present expectations, estimates and beliefs. This forward-looking data is topic to a lot of dangers, uncertainties and different components. Precise outcomes may differ materially from a conclusion, forecast or projection within the forward-looking data. Sure materials components or assumptions have been utilized in drawing a conclusion or making a forecast or projection as mirrored within the forward-looking data.
Extra details about the fabric components that would trigger precise outcomes to vary materially from the conclusion, forecast or projection within the forward-looking data and the fabric components or assumptions that have been utilized in drawing a conclusion or making a forecast or projection as mirrored within the forward-looking data is contained within the firm’s Annual Data Type and MD&A, that are publicly accessible on SEDAR. The corporate assumes no obligation to replace such forward-looking data sooner or later, besides as required by regulation.
I might now like to show the decision over to Jorge Alberto Ganoza, President, Chief Govt Officer and Co-Founding father of Fortuna.
Jorge Ganoza
Thanks, Carlos, and greetings to all. Security first, we closed the yr with a robust pattern of enchancment on key security efficiency indicators, which year-over-year proceed coming down on account of a number of initiatives carried out throughout the enterprise. Our KPI for complete recordable harm price closed the yr at 2.3, down from 3.2 in 2021 and beneath the business common of two.9. Misplaced time harm price additionally confirmed a robust enchancment ending the yr at 0.39, down from 0.53 in 2021. We recorded 5 misplaced time accidents within the yr, down from 6 in 2021. Nevertheless, all this work was tainted by a deadly accident at our Lindero Mine in January 2022. Security is a precondition for enterprise, and we stay firmly dedicated to a zero hurt work setting.
On December ’21, we made public or place assertion on the adoption of the worldwide business commonplace for tailings administration. Our dedication to generate shared worth over the long run for our stakeholders entails adapting strategically our enterprise practices and requirements, enabling us to higher deal with dangers, alternatives and heightened expectations. We think about tailings administration to be paramount to accountable mining and the adoption of GISTM permits us to refine our method to protected tailings administration in a means to make sure operational excellence. On March 14, we knowledgeable of optimistic information coming from Mexico with the court docket granting a everlasting injunction to our San Jose Mine, successfully defending the 12-year environmental influence authorization of the mine. Cesar, our Chief Working Officer for Latam, will broaden on this later within the presentation.
Our enterprise generated adjusted web revenue of $7.2 million or $0.02 per share within the fourth quarter, consistent with analyst consensus; and for the total yr, $42.4 million or $0.15 per share, barely forward of the analyst consensus of $0.14. Internet revenue, nevertheless, was negatively impacted by noncash impairment fees, web of taxes, including to $164 million coming from Yaramoko, Lindero and San Jose mines. Luis, our CFO, will broaden on the impairment evaluation drivers later within the presentation.
We generated free money stream from ongoing operations of $4.4 million in This fall and a wholesome $69.1 million for the yr, this after servicing sustaining CapEx and company expense. Manufacturing for the yr was properly throughout the vary supplied in our 2022 steerage. We delivered 259,000 ounces of gold and 6.9 million ounces of silver or 402,000 ounces of gold equal. Measured towards 2021, Fortuna is on an thrilling development path. We’ve got grown our gold equal manufacturing from 305,000 ounces of gold to 402,000 ounces in 2022. And this yr, we anticipate additional development to roughly 450,000 ounces in our steerage.
Regardless of persistent inflationary pressures all through 2022, all of our mines carried out throughout the AISC vary supplied in our annual steerage. The one exception was the Lindero Mine, which recorded AISC of $1,142 per ounce of gold, marginally above steerage. Foremost consumables corresponding to diesel, cyanide, cement and explosives have skilled elevated prices to various levels relying on the mine and site. For instance, at our Lindero Mine in Argentina, year-over-year, cyanide prices elevated by a median of 34% and at our Yaramoko Mine in Burkina Faso 44%. At our Caylloma Mine in Peru, year-over-year, diesel prices elevated by a median of 60% and at our Lindero Mine 34%. Whereas we have now noticed easing of inflationary pressures so far, situations stay difficult.
Annualized price increments at our mines over the previous two to 3 years vary from 6% at Caylloma to eight% at San Jose, 12% at Lindero and 17% at Yaramoko. As per World Gold Council figures as much as Q3 2022, margin compression for the business will be noticed displaying an 11% annualized improve in AISC — inflation since 2020.
In Q3 2022, 50% of world mine provide was produced at an all-in sustaining price of roughly $1,300 per ounce. Solely eight, seven quarters in the past, that determine was $1,100. Our flagship Séguéla Mine building in Cote d’Ivoire, West Africa, stays a main focus for administration. For the second half of 2023, we have now supplied manufacturing steerage for Séguéla of 60,000 to 70,000 ounces of gold at an all-in sustaining price within the vary of — starting from $880 to $1,080 per ounce. That is all-in. David will additional broaden on Séguéla afterward the presentation.
And on the exploration entrance, I might spotlight our success with the supply of development in assets at Sunbird deposit, certainly one of six deposits making the Séguéla mineral stock. On December 5, we reported a brand new Sunbird open pit useful resource estimate of 279,000 gold ounces at a median grade of two.66 grams per tonne in indicated class, plus 0.5 million ounces of gold at a median grade of three.7 grams per tonne within the inferred class.
On Monday 13, we reported recent outcomes from the Sunbird infill program. Paul Weedon our SVP Exploration is right here with us and might present an exploration replace. So Paul, do you wish to go forward, please?
Paul Weedon
Thanks, Jorge. Sunbird, the newest at Séguéla deposits and is shaping up as probably the most important. The present focus at Sunbird is on the conversion drilling to improve and broaden the 506,000 ounces of inferred by the tip of Q2 2023. We have at the moment acquired two drill rigs turning on that program. As seen within the information launch this previous Monday, outcomes so far are in line with or higher than what was beforehand modeled within the optimized shell. We have additionally prolonged mineralization of roughly one other 100 meters additional North and past the optimization shell with a number of high-grade intersections, such because the 5.6 meters of 12 grams gold from 28 meters downhole in gap SGRC1566.
As well as, deep drilling to the additional North to increase these excessive grade — sorry, to the South to increase these high-grade shoots we resume in Q3, probably establishing the foundations for a future underground growth. In our non-Séguéla division, exploration will proceed into Q3 with the lately found high-grade at Kestral, Badior and Barana prospects, which we highlighted in December 5 information launch. After which additional goal technology will proceed on Séguéla with greater than 30 identified drills remaining to be examined.
Shifting additional inferred into Burkina Faso, exploration work round Yaramoko continues to generate new anomalies. Our underground drill take a look at within the Western strike extensions of the Zone 55 mineralization has intensive mineralization roughly 100 meters additional past the present useful resource envelope and drilling is constant in these areas.
Shifting to Peru, at the moment Caylloma is because of take a look at the depth extensions of the 4-kilometer lengthy Animas Vein later in Q2, focusing on down depth projections of ore shoots 1 and three, some 200 to 400 meters beneath the earlier drilling within the earlier mine and present mine workings. Moreover, regional exploration work round Caylloma continues to focus on the prospectivity, together with the rising Antacollo space. After which lastly, in Mexico, work at San Jose continues to check the depth extensions within the Northern strike extent in addition to deliberate exploration work introduced towards Taviche [work in Oeste].
Jorge, again to you.
Jorge Ganoza
Thanks, Paul. We’ll transfer on to replace and from the Chief Working Officer. We will begin with LatAm. Cesar, please.
Cesar Velasco
Thanks, Jorge. And as you’ve already talked about, final Tuesday, Fortuna introduced that the Mexican Federal Administrative Court docket granted a good everlasting injunction to Minera Cuzcatlan, which permits the San Jose Mine to proceed working underneath the phrases of the unique 12-year environmental influence evaluation allow which the court docket reconfirmed in November of 2022. This everlasting injunction will stay in impact, permitting for continued operations on the San Jose Mine up till the court docket guidelines in response to the decision issued in January 2023 by the SEMARNAT to revoke San Jose’s EIA. Though unsure, we count on that it might be in 1.5 to 2 years.
Shifting right down to Peru regardless of social unrest and quite a few street blockades all through the nation, operations on the Caylloma Mine have been unaffected and 2023 annual manufacturing steerage is the remaining. I’ll now focus on the unique outcomes of our three working mines in Latin America. The fourth quarter of 2022 marked the fifth consecutive quarter of consolidated gold manufacturing of over 35,000 ounces. For the total yr, Latin America achieved file gold manufacturing of 153,319 ounces, a 14% improve in comparison with 2021. Consolidated silver manufacturing was 6.9 million ounces, attaining the upper finish of annual steerage. All three mines delivered manufacturing outcomes consistent with their mining plans and mineral reserves estimates.
In Argentina, the Lindero Mine delivered one other constant yr with gold manufacturing totaling 118,000 ounces. This represents a 14% improve from 2021 and is straight associated to an enchancment within the efficiency of the 3-stage crushing and stacking system. All through 2022, administration carried out quite a few high-impact optimization initiatives to higher seize efficiencies, permitting the operation to offset a few of the price will increase from inflationary pressures on key consumables.
These initiatives included bettering the effectivity of the SART plant, subsequently lowering consumption of recent make-up cyanide and sulfuric acid, and the optimization of the mine fleet’s monitoring distance, decreasing diesel consumption and bettering productiveness. Within the final quarter of 2022, a challenge to enhance the recirculation circuit of the HPGR was initiated with the purpose of decreasing granulometry and bettering gold restoration of ore positioned on the leach pad.
In Mexico, the San Jose Mine’s silver and gold manufacturing for 2022 totaled 5.8 million ounces of silver and 34,124 ounces of gold, attaining the higher finish and midpoint vary of annual steerage, respectively. Common head grades for silver and gold for the yr have been 191 grams per tonne of silver and 1.14 grams per tonne of gold, a 9% and 12% lower, respectively, when in comparison with 2021, however remaining consistent with the mine’s mining sequence and mineral reserve estimates. Final yr, mine manufacturing utilizing sublevel stopping strategies represented 35% of ore despatched to the processing plant; and for 2023, it’s anticipated to achieve 60%.
In Peru, the Caylloma Mine continued to ship regular manufacturing in 2022, producing 1.1 million ounces of silver, exceeding the higher vary of annual steerage by 4%. Zinc and lead manufacturing totaled 46.2 million kilos and 34.6 million kilos, respectively, each exceeding the higher vary of annual steerage. Base metallic manufacturing benefited from greater mill throughput in the course of the yr and materials mined on the degree 16 of the Animas Vein, permitting for a big enchancment in ore grade and oxide sulfide ratios, due to this fact, boosting plant restoration.
Again to you, Jorge.
Jorge Ganoza
Thanks, Cesar. We will transfer on to David and West Africa.
David Whittle
Thanks, Jorge. Operations in West Africa continued stable efficiency within the yr 2022 with Yaramoko delivering gold manufacturing of over [106,000] ounces as a midpoint of annual steerage. Séguéla’s building is hanging properly with respect to our schedules and budgets with first gold ore projected for mid-2023. Ongoing worldwide inflationary and provide chain pressures didn’t influence budgetary expectations at Yaramoko nor the development progress at Séguéla. Latest political disturbances in Burkina Faso have had no influence on Yaramoko’s operations. Security efficiency on the Yaramoko Mine was sturdy. Sadly, LTI incidents befell within the fourth quarter. The Yaramoko underground grade management and brownfields exploration program continued with encouraging end result, extending our deliberate mining boundaries on the Western aspect of the [ore bit].
Building progress at Séguéla continues to trace on — sorry, continued on monitor and on price range. As of the tip of February, the challenge was 93% full with roughly $160 million incurred on the preliminary $173 million capital price range. The water storage dam is full and is at the moment storing ample water for commissioning and working actions. And the processing plan, structural mechanical and piping and electrical and instrumentation installations are nearing completion, with energization and commissioning exercise about to provoke.
First ore to the crusher for commissioning is anticipated in early April, adopted by first ore to the mill later within the month. In parallel with the wonderful progress on the bottom, operational readiness at scopes, are advancing properly. The mining tactical, processing and upkeep groups are being recruited with all senior administration positions at the moment stuffed. Mota-Engil, the mining contractor, continued with on-site mobilization and institution actions, along with the recruitments of key positions and tools operators.
The primary part of grade management drilling has been accomplished with greater than 12,000 meters drilled. Preliminary outcomes are bearing to align carefully with the present geological fashions. As of the tip of February, cleansing of the Antenna pit has occurred and excavation of waste is happening with over 60,000 cubic meters of waste stripped and being utilized for the development of the ROM pad. Preparations are at the moment underway for the beginning of the blasting operations to ensure that the primary ore to be accessible for the commissioning of [the same].
Again to you, Jorge.
Jorge Ganoza
Thanks, David. The group does a superb job retaining our web site up to date on the development gallery for Séguéla. So I invite you to go to the web site and the development gathering. So Luis, do you wish to give us a briefing on the financials?
Luis Ganoza
Sure. Thanks. I’ll begin addressing the impairments we have now recorded in This fall. We recorded complete impairment fees, as Jorge talked about, of $188.8 million earlier than tax and $164.5 million web of tax. At Yaramoko, we have now recorded an impairment cost of $103.5 million earlier than tax. The impairment is said to the write-off of exploration and analysis belongings of $60 million and decrease anticipated money flows on account of greater prices and decrease reserves from the elimination of [brownfield] recoveries from our reserve base.
At Lindero, we have now recorded an impairment cost of $70.2 million earlier than tax. The impairment is said to decrease anticipated money flows on account of greater prices to a big extent associated to inflationary pressures seen all through 2022 and the impact of upper low cost charges. At San Jose, we have now recorded an impairment cost of $9.1 million earlier than tax. The impairment is said to automobile prices in addition to capitalized exploration bills over the previous few years which might’t totally exchange depletion. Additionally contributing to the impairment is the truth that the partial substitute of the dilution we have now seen has been at a decrease head grade in comparison with the earlier common head grade of the reserve.
On account of the impairment, for This fall 2022, we recorded a web lack of $160.4 million. After adjusting for the impairment and a write-down of ore stockpiles on the Lindero mine of $3.8 million, adjusted web revenue was $7.2 million in comparison with $29.1 million in This fall 2021. The discount in adjusted web revenue was primarily as a consequence of decrease gross sales quantity, decrease silver costs and better prices year-over-year throughout our operations. The decrease volumes have been largely consistent with our mine plan. EBITDA for the quarter was $55.8 million, a $33 million discount over This fall 2021, as defined earlier than due primarily to decrease gross sales of $34 million.
Free money stream from ongoing operations, that’s after CapEx at our working mines and company bills was $4.4 million in comparison with $46.8 million in This fall 2021. The drop in free money stream is in line with the discount in EBITDA and better CapEx execution quarter-over-quarter of $5 million.
For the total yr, we have now recorded a web lack of $135.9 million in comparison with a web achieve of $59.4 million in 2021. The loss is defined by the impairment fees as beforehand mentioned. After adjusting for impairment fees and different nonrecurring objects, adjusted web revenue for the yr was $42.6 million in comparison with $100.6 million in 2021. The lower of $60 million in adjusted web revenue was a results of decrease EBITDA of $31 million, greater depreciation and depletion of $50 million and decrease taxes of $25 million.
Outdoors of the impairment fees, the primary objects of adjustment to our adjusted web revenue within the yr have been $8 million of ore stockpile stock write-downs and $5.3 million write-offs of mineral properties.
Our free money stream from operations for the total yr 2022 was $69.2 million, down $17 million from the $86 million recorded in 2021. The discount in free money stream was in line with decrease EBITDA of $35 million greater CapEx of $25 million partially offset by decrease taxes paid and adjustments in working capital.
In 2022, we transformed 28% of EBITDA into free money stream in comparison with 31% in 2021. On our steadiness sheet and liquidity place, in This fall, we elevated our company facility by $50 million to $250 million, which on the finish of the yr places us in a complete liquidity place of $150 million comprised of $80 million in money and money equivalents and $70 million undrawn underneath the credit score facility. Our complete monetary debt excellent as of the tip of the yr was $226 million and $146 million web of money. This is a rise of $60 million and $87 million over year-end 2021, respectively.
In the course of the yr, we spent $251 million on additions to mineral properties, plant and tools after our money stream assertion, which was principally comprised of $108 million within the Séguéla challenge building, $9.3 million of Séguéla brownfield exploration, $8.1 million of greenfield exploration and $112 million of capital expenditures, together with brownfields at our working mines. There’s a $30 million steadiness associated to capitalized curiosity, capitalized administration charges and advances to contractors.
As of year-end, we have now incurred $147 million out of the $173.5 million building price range at Séguéla. The quantity remaining to the identical, together with challenge accounts payables as of December 31 was $38 million. And eventually, between Q2 and Q3, we repurchased a complete of two.2 million shares underneath our share repurchase program at a median share worth of $2.68 per share.
Again to you, Jorge.
Jorge Ganoza
Thanks, Luis. Carlos, to you.
Carlos Baca
Thanks, Jorge. We’d now wish to open the decision to any questions that you could have.
Query-and-Reply Session
Operator
[Operator Instructions] We’ve got a query from Adrian Day with Adrian Day Asset Administration.
Adrian Day
I simply wished to ask, you had talked about whenever you have been discussing impairments, you talked about that San Jose beneath head grades. Are you able to sort of quantify that?
Jorge Ganoza
Luis, do you wish to broaden on that?
Luis Ganoza
Sure. I imply the extension of lifetime of mine at San Jose, has principally to do with Victoria Vein, which does carry a decrease head grade with respect to common grade of the reserve. That’s in our reserve assertion. I am not in a position to offer you actual head grades out of the Victoria Vein out on the pinnacle proper now, there isn’t, however I am undecided if I — Paul or Cesar, if you wish to bounce in there.
Adrian Day
May you characterize these as significant or marginal or…?
Jorge Ganoza
Go forward.
Luis Ganoza
I used to be simply going to say that we’re not going to get an actual quantity on the pinnacle grade. However what I can say on my finish is that the projected lifetime of mine, the remaining lifetime of mine at San Jose remains to be based mostly on these decrease head grades with respect to our historic manufacturing remains to be contributing important margins and free money stream, not on the similar price actually as earlier than. However I imply, as an example, in our present mine plan, you would — based mostly on our manufacturing steerage for the yr, you possibly can admire decrease head grade, decrease manufacturing with respect to 2022. And in 2022, decrease with respect to 2021, however nonetheless, this — within the present worth setting, we’re nonetheless projecting wholesome free money stream out of San Jose within the vary of $25 million to $30 million. That, I feel, further colour I may present on what these decrease head grades suggest for San Jose shifting ahead at this stage.
Adrian Day
Okay. Okay. I admire that. And one different query, if I could, additionally on the impairments. At Lindero, you talked about the impairment was principally as a consequence of greater prices. I imply, none of us is aware of what is going on to occur to prices going ahead. However assuming the prices keep the place they’re, does this have an effect on — will this have an effect on both your manufacturing, your annual manufacturing or perhaps even your final manufacturing from the mine, when it comes to quantity?
Luis Ganoza
No. I imply the steerage we have now supplied already for the yr, for 2023 already incorporates our view as to inflation developments within the new yr, proper? So there may be low new data right here with respect to what’s already been shared as a part of our steerage for 2023, both on manufacturing or on prices.
Adrian Day
Okay. Sorry, I did not categorical myself clearly. Do the — will the upper prices make any of the — or uneconomic that you simply have been anticipating to be financial? I feel our reserves — I feel we will replace our reserve stock as we publish yearly within the coming weeks. However we don’t count on any important deviation to what you’ve been seeing within the reserve. For those who have a look at our manufacturing for 2022, San Jose delivered 5.7 million, 5.8 million ounces of silver for the total yr and 34,000 ounces of gold. For those who have a look at our steerage for 2023, San Jose is delivering once more between 34,000, 37,000 ounces of gold and 5.3 million to five.8 million ounces of silver.
For those who have a look at the reserve common grade, the Victoria Vein comes later within the lifetime of a mine, within the remaining lifetime of mine. So the grade within the reserve, it is the place we supplied a median and within the later years, is we have now the decrease portion of grade that make that common, proper? So that you see a little bit of a lower in grade and a lower in manufacturing. For 2023, we’re nonetheless seeing comparable figures consistent with what we have now in reserves.
However actually, from the impairment perspective, we have been investing closely in exploration for a lot of years on the tune of $9 million to $10 million a yr. And that exploration funding has not been in a position to offset the depletion of the mine. We have been solely marginally profitable with the exploration so far and that has weighted on the impairment and in addition the fee inflation that we see on the asset degree has additionally weighted on that, proper? So it is a combination of issues there, Adrian.
Operator
We’ve got had a query are available in from Dave Kranzler. “What do you count on typically to be the annual sustaining CapEx at Séguéla as soon as it’s totally ramped up?”
Jorge Ganoza
David, do you wish to sort out that one?
David Whittle
Sure, actually for the price range that we have — steerage we put ahead for this yr, we have now at all times sustaining prices there in Séguéla between [10,080] and $1,080 per ounce. Clearly, as the primary yr of commissioning with 71,000 ounces, we’re clearly anticipating the profile to develop past there. And with the exploration work that Paul is doing, we’d count on the mine plans to be fairly dynamic over the subsequent yr as properly and positively present us some development expectations. So when it comes to lifetime of the mine in the intervening time, we’d nonetheless expect to be beneath that $1,000 an oz all in sustaining space.
Luis Ganoza
Perhaps simply to enrich on David’s reply. When it comes to an absolute greenback determine, CapEx at Séguéla for the lifetime of mine, proper, in line with the numbers implied in AISC simply supplied by David must be within the $16 million to $20 million vary.
Operator
[Operator Instructions] Okay. We’ve got no additional questions in queue. So I’ll hand it again to Mr. Carlos Baca.
Carlos Baca
Thanks, Ali. If there are not any additional questions, I want to thank everybody for listening to at the moment’s earnings name. Have a superb day.
Operator
Thanks, girls and gents. This does conclude at the moment’s name. Chances are you’ll disconnect your strains presently, and have an exquisite day. We thanks in your participation.
