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GPL Great Panther Mining

Participants
Fiona Grant Leydier VP, IR
Rob Henderson President and CEO
Sandra Daycock CFO
Fernando Cornejo COO
Joseph Reagor ROTH Capital Partners
Jake Sekelsky Alliance Global Partners
Heiko Ihle H.C. Wainwright
Matthew O’Keefe Cantor Fitzgerald
Call transcript
Operator

Thank you for standing by. This is the conference operator. Welcome to Great Panther Mining Second Quarter 2021 Results Conference Call.

As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentations, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Fiona Grant Leydier, Vice President, Investor Relations. Please go ahead.

Fiona Grant Leydier

Thank you, operator. Good morning, everyone. I’m Fiona Grant Leydier. Thank you for participating in our call today.

Before we begin, please note that we will be making forward-looking statements during the presentation.

You should be cautioned that actual results and future events may differ from those noted in today’s presentation. The commentary also refers to various non-GAAP measures, definitions and reconciliations that are included in the Company’s MD&A for the three months ended June 30, 2021. All dollar amounts expressed in this presentation and the associated financial statements and MD&A are in U.S. dollars, unless otherwise noted.

For reference, during the call, AISC refers to all-in sustaining costs. Detailed cautionary statements can be found at the end of the presentation. I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on our website at greatpanther.com.

On the call this morning, we have Rob Henderson, President and CEO; Sandra Daycock, Chief Financial Officer; and Fernando Cornejo, Chief Operating Officer.

Rob Henderson

Thanks, Fiona. And thank you everyone for dialing in today. I’m very pleased to have Sandra and Fernando in the room with me today, two significant promotions within our leadership team. Sandra Daycock was promoted from Vice President, Corporate Finance and Treasury to Chief Financial Officer; and Fernando Cornejo, previously, the Vice President of Operations in Brazil, was appointed Chief Operating Officer. I’ve been at the Company for a full year now, and I’m very pleased with the team’s performance to-date. COVID-19 has certainly made things complicated, but our team has shown me how they can adapt quickly and work effectively, despite the hardships.

During the quarter, we remain fully committed to our COVID-19 protocols, and in particular, maintaining awareness about prevention practices across the organization, as well as in our surrounding communities.

As I have emphasized before, this is a year for exploration for Great Panther.

Our team has had some very nice results with the Tucano in the quarter and the high grade intersections we reported from the Urucum North deposits are very encouraging. Q2 was a challenging quarter from a production due points. But, I’m pleased to say that in July, ahead of schedule, we safely recommenced mining of ore at Tucano’s Urucum Central South open pit. In May, we had temporarily suspended mining of ore at UCS for safety reasons, due to movement detected in the west wall of the pit. This suspension led to reduced production in Q2 as well as higher costs related to the additional stripping and remediation to ensure wall stability. Production is now ramping back up and the higher grade ore that we didn’t mine in Q2 will now be mined in the upcoming quarters. In the second quarter, consolidated metal production was 27,722 gold equivalent ounces, inclusive of 22,804 ounces of gold, and 334,423 ounces of silver. The suspension of mining of ore from UCS resulted in lower revenue for the quarter than originally forecast.

However, those ounces, about 10,000 in total, will be mined in upcoming quarters and will contribute to our overall revenue for 2021 and into next year, 2022.

Although mining of ore at UCS was temporarily halted, we continued to operate with a full mining fleet on stripping activities and continued our exploration and capital programs. These are significant investments required to position Great Panther for future growth.

As a result, our costs went up and our unit costs increased. All in sustaining costs, excluding corporate G&A, were $2,021 (sic) [$2,201] per gold ounce sold compared with $1,027 in Q2 2020. These higher costs are attributed to the additional stripping at UCS, as well as processing of lower grade stockpile material, which resulted in fewer ounces produced and sold.

Our quarterly revenue was $52.1 million and mine operating earnings was $7.2 million. We ended the quarter with $35.2 million in cash and cash equivalents, and we reduced the borrowings to $26.3 million.

Given the lack of progress in securing permits to expand our tailings facility at GMC in Mexico, we have adjusted down our consolidated annual 2021 guidance to a range of 120,000 to 130,000 ounces of gold equivalent for the year. We’ve also reviewed and revised our consolidated guidance for AISC, taking into account the lower anticipated production and the high costs experienced in Q2 2021.

We expect our annual AISC to range from $1,700 to $1,800 per gold ounce sold.

So, what this means is that second half of the year, we expect to produce about 60,000 to 70,000 ounces of gold equivalent at an all-in sustaining cost of $1,550 to $1,675 per gold equivalent ounces sold. In June, we published our 2020 sustainability report, “Mining for Good”. This report highlights our progress in the areas of health and safety, environmental responsibility, and community engagements and development. I’m pleased to say that in 2020, we adopted an official diversity policy, and we achieved 24% of leadership positions now held by women. We had zero environmental incidents and improved our lost time injury frequency rate by 57%. Safety is a key area of focus for us, and we continue working across the organization on new initiatives this year to further strengthen our safety practices. I’m very proud of how the team has delivered on our sustainability mandate, and encourage everyone to read the report, which is available on our website at greatpanther.com. I’ll now pass it over to Fernando Cornejo, to discuss results from operations.

Fernando Cornejo

Thank you, Rob, and good morning, everyone.

Focusing first on Tucano. Gold production for the quarter was 20,696 ounces, compared with 35,421 ounces in Q2 2020, a 42% decrease related to lower ore production due to temporary suspension of mining in Urucum Central South, which resulted in the processing of lower grade material from stockpiles and ore from the Urucum North pit, with lower recovery rates.

The second half of 2021 is expected to account for 60% of production guidance, which for Tucano is expected to be between 100,000 and 105,000 ounces of gold in the year. All-in sustaining costs for the quarter was $2,214 per gold ounce sold, compared with $982 in Q2 2020, due to lower gold production, higher operating cost, to traditional reclaiming of stockpiles and higher stripping costs at UCS. A total of 1.4 million tons of waste material was removed in Q2, and a further 1.2 million tons is expected to be moved in Q3.

Moving forward, groundwater monitoring and water management will be key to continue operations in Urucum Central South. The installation of the cylinders in groundwater monitoring stations will be completed over the next two months.

We are evaluating the installation of vertical drains to maintain a higher degree of control over phreatic levels in the west wall, especially when mining a pit.

As Rob mentioned earlier, exploration efforts at Tucano have been producing some very promising results. To-date, over 17,281 meters of drilling has been completed for the near modern and regional programs. The exploration team will continue with the drilling program over the next two quarters to achieve the 60,400 near annual target. At Tap C, drilling continues to intersect mineralization down to 70 meters below the current pit. The drilling, along with the reevaluation of historical data, has led to an improved understanding of the controls of mineralization in a new geological model that will be integrated into the next mineral resource statement for Tucano, later in the year. At Urucum North, a series of deep holes were drilled to test the deeper portions and down plunge extension of the Urucum North high grade zone. Results from this drilling program demonstrate the potential for additional near gold production. And we are expediting studies to support a production decision next year.

In addition, drilling intersected high grade mineralization near surface, which will lead to further extend the Urucum North open pit. To-date, the regional soil sampling has been completed along 438 kilometers of the budgeted and 500 kilometers and the geochemistry results are currently under evaluation. Drilling is scheduled for the second half of the year, but there’s regional targets, once this evaluation is complete. The main areas of focus will be targets within 20-kilometer radius of the mine, which includes Mutum and Lona Amarela. At Guanajuato Mine Complex in Mexico, a total of 284,883 silver equivalent ounces were produced with silver recoveries of 87.4% at an average silver grade of 118 grams per ton. Gold recoveries were 87.6% and the average gold rate was 1.58 gram per ton. Production increased 111% when compared with Q2 2020. This variance is associated with thesuspension of activities in the second quarter of 2020 due to COVID-19. All-in sustaining costs in Q2 2021 was $39.3 per payable ounce of silver, compared to the $27.3 in Q3 2020, mostly due to higher mine development costs, with lower than expected ounce production.

In terms of permitting, we continue to await approval from CONAGUA for the expansion of the tailings dam storage at BMC.

However, as per our news release on July 14th, we have identified technical alternatives to extend the tailings capacity under the existing permits, until December 2021.

We continue to proactively engage with CONAGUA to help expedite the permitting process and will provide an update to the market, once a resolution has been found. Topia, total production was 312,259 silver equivalent ounces, an increase of 114%, mainly due to higher throughput, higher grades, and higher recoveries for all mills. Contributing to this variance was also the government mandated shutdown in Mexico during Q2 2022 due to COVID-19. Average grades were 432 grams per ton silver, and 1.07 grams per ton gold, along with byproducts of lead and zinc. Mineral recoveries were 93.5% for silver and 60.3% for gold. All-in sustaining costs per payable loans was $21.7 versus the $22.3 in Q2 2020, mainly due to a higher number of payables silver ounces which decreased the all-in sustaining cost on a per payable silver ounce basis. At Coricancha, a community agreement was received in May and a 5,000 meter drill program started in July. I will now turn the call over to Sandra to discuss our financial results. Thank you.

Sandra Daycock

Thank you, Fernando and good morning. Q2 2021 was the difficult quarter. Revenues in Q2 2021 were $52.1 million, a decrease of 22% over Q2 2020, due to lower metal sales volumes offset partially by higher realized metal prices of $1,818 for gold and $27.45 for silver. Mine operating earnings before non-cash items decreased from $35.8 million to $7.2 million. Consolidated ASIC per gold ounce sold excluding corporate G&A was $2,201, compared to $1,027 in Q2 2020, primarily due to higher costs at Tucano related to the UCS pushback activities.

As Rob already said, we continued to run a full mining fleet and invest in stripping and remediation activities during the quarter. Paired with the reduced ounces of production, this resulted in higher costs. This investment, however, is expected to contribute to the Company’s future growth and we expect mining to be back to normal in the coming quarters. Net loss was $10.1 million compared with net income of $8.6 million in Q2 2020. Adjusted EBITDA was negative $0.5 million compared to $30.2 million, and cash flow from operating activities before changes in non-cash working capital was negative $0.9 million, compared with $24.1 million in Q2 2020. This decrease is due mainly to higher cash costs attributable to the pushback activities at UCS and lower gold ounces sold, partly offset by higher realized gold and silver prices. We ended the quarter with cash and cash equivalents of $35.2 million, net working capital of $9.8 million and $25.5 million of current borrowings. We’ve made significant progress in recent quarters in negotiating potential new credit facilities.

We expect to finalize these arrangements in the third quarter, which would bolster our working capital position. And thank you. That’s all we have for formal remarks. I’ll turn it back now to the operator for question-and-answers.

Operator

Thank you.

We will begin the question-and-answer session. [Operator Instructions] Our first question comes from Joseph Reagor of ROTH Capital Partners. Please go ahead.

Joseph Reagor

So, I guess, first thing is GMC. Can you give us any additional color on what’s causing the delays? Is it just COVID related issues, or is there more to it than that for the permitting? And then also, can you give us any concept of a handicap of what your expectations are at this point, like odds of getting to the finish line by the end of the year?

Rob Henderson

Yes.

I think, we’re not the only ones experiencing this issue with permits.

We’re engaged with CONAGUA, but we have not had a formal response from them yet.

So, it is a frustrating process in Mexico right now regarding mining permits. We -- as a noted, we do have capacity to the end of the year. But, we do have to make capital decisions. We need to invest into development at GMC. And as we get more uncertainty around our ability to secure those permits, we’re questioning whether we can actually run to the end of the year.

So, the engagement with CONAGUA is still going on. But, the response has been disappointing to date.

So, that’s why we decided to adjust our guidance downwards, based on our lower expectation of getting those permits in time to make the necessary capital decisions.

Joseph Reagor

Okay, fair enough. And then, on a capital spend basis, I realize there’s a little uncertainty at GMC, but the first half of the year has been $27 million, $28 million, something like that that you guys have spent on CapEx. What does the second half of the year look like? And maybe what are the largest components of it?

Rob Henderson

Sure.

The first half of the year was a stripping intensive half. And we knew that going into the year, we had to spend more than budget in Q2, but certainly CapEx in the second half of the year is going to be a lot lower. Sandra, you can give any color on that?

Sandra Daycock

Yes.

So, the CapEx, there is three components. The CapEx, stripping and capital and also expiration, and we have invested heavily in the first half in exploration. But, we do expect to increase that somewhat in the second half, now that we have better access to drill rigs. And the capital expenditure for the second half is more weighted to the second half on certain projects, cost saving projects initiatives and primarily in Tucano. The stripping will reduce significantly as we’ve already guided in the second half as we reach the higher grade ore-body in UCS.

Joseph Reagor

Okay. And is there any -- even a wide range you guys could put around it on a dollar number basis?

Sandra Daycock

I think, we’re reviewing our CapEx.

So, I think would be premature to put a dollar range at this point.

Operator

Our next question comes from Jake Sekelsky of Alliance Global Partners. Please go ahead.

Jake Sekelsky

Just looking at Tucano from a grade perspective for the second half, do you think some of that higher grade materials going to make into the mine plan on the latter part of the third quarter, or do you think that’s more of a fourth quarter type event?

Fernando Cornejo

Yes. Hi, Jake, Fernando Cornejo here. Yes, absolutely, the higher grade material for Urucum Central South is starting to be mined as of now. And the grades are expected to increase over the next two quarters, starting now in August.

Jake Sekelsky

And then, on the underground scenario at Tucano, I know we’ve seen some drill results there. When do you think that more comprehensive update will come out, will it be around the time of the resource update towards year-end?

Rob Henderson

What we intend to do their, Jake, [Technical Difficulty] drilling through the year end, and these studies will probably be complete in the first half of next year to enable us a decision to put down an access portal in the second half of the year.

So, in summary, we’re going to carry on drilling to the end of the year, the study is going to be complete in the first half of next year. And the expectation is that we would start going underground in the second half of next year.

Jake Sekelsky

Okay, perfect. And then, lastly, back to Mexico, just sort of building on one of Joe’s questions. Any color on the remaining capacity there? And, how quickly do you think you can move forward with some of the other areas that you’ve identified, if that’s the route that you chose?

Rob Henderson

Yes.

We’re doing a bunch of studies on what we can do as alternative tailings storage options, including in a dry stack. The problem with that is we will need permits to do dry stack as well. And we’re back into a log jam of one to two years to get the permits for an alternate tailings solution.

So, we continue to push for our lifts on the existing facility, which would give us another five years. And in parallel, we’re looking at alternative options for a dry stack, but that will require a new permit.

And so, we may have to hit a pause button at GMC in order to get those new tailings permits for an alternative facility.

Operator

Our next question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.

Heiko Ihle

Good afternoon. I’m in Europe, it’s 6 p.m. here. But related to the improvements in the UCS wall stability, an you state that you have already removed and it is approximately 1.4 million tons of waste material from the upper west wall of UCS pit with a further 1.2 million tons planned be removed in Q3. I was mentally trying to see how much 2.6 million tons really is and then frankly failed. And I do understand numbers.

So, building on that, can you provide some color of approximately what you pay to move each ton? And also, looking ahead, are there efficiencies where costs go down by doing it more or more vice versa, does it get more expensive to hold stuff as you go to hold it up more?

Sandra Daycock

It’s Sandra. We don’t generally guide on our cost structure for competitive reasons. But, it’s typical industry.

Rob Henderson

Yes.

So, it’s not so much a cost issue that we’re facing, it’s access to the pit, and delay in getting those ounces. Yes, it’s not a lot of tonnage. We can move that tonnage in a month, really.

So, it’s not the volume that’s the issue. It’s getting access to the ore at the bottom of the pit, which has hindered us.

So, now that we are back in there, we’ve still got some final smoothing to do on that wall.

So, that’s the balance of work that we expect to happen in this quarter. But, the main focus is that we’re back in the pit and mining efficiently again.

So, we do have access to those higher grade zones of ore, which we were prevented accessing in Q2 for safety reasons.

Heiko Ihle

Fair.

Second question, and I’m asking this because a topic came up on another call earlier today. What are you seeing with treatment charges in Mexico? Are you seeing any meaningful improvements? And I have a feeling, want to get the -- we can’t talk about this for competitive reasons. But, can you quantify what you’re seeing as well?

Rob Henderson

You’re talking about our smelter returns or you’re talking about the mill efficiencies?

Heiko Ihle

No, the smelters?

Sandra Daycock

Yes. I mean, that’s pretty sensitive information.

So, we do -- we contract our charges on an annual basis and put them up to tender each year.

So, I’ll defer comment on that.

Operator

Our next question comes from Matthew O’Keefe of Cantor Fitzgerald. Please go ahead.

Matthew O’Keefe

Just some follow-up here on Tucano and a quick question on GMC.

So, on Tucano, the UCS pit, you’ll be getting into there now, you get a high grade. Is that it for UCS this year, or how many -- how much more time do we have? How much more will UCS be contributing to the overall mine plan, and where else are you getting ore from to feed the mill?

Fernando Cornejo

Yes, good morning. UCS, as per the current mine plan, will extend into 2022, perhaps for one additional quarter. And that will be part of the sequence for next year as well.

Matthew O’Keefe

Okay.

So, we won’t be seeing a recurring issue with…?

Fernando Cornejo

That’s correct. I mean, the overall strategy behind installing distometers and water monitoring holes and having drains is to prevent water accumulation or increasing on the phreatic levels during the rainy season.

So, that will give us some assurance that once we go into the rainy season, which starts normally by December, we will have some control over that phreatic level and continue mining at pit safely.

Matthew O’Keefe

And then, going back to Mexico here, with GMC, I know, you’re -- so it sounds like things aren’t going as well as planned there.

You’ll be -- if you do shut down, what will your care and maintenance costs be roughly? And are you looking at -- was there some discussion about toll milling options, are there any options on that as well?

Rob Henderson

Yes. Obviously, we haven’t come to a decision yet.

We’re just probability weighting things. We’ve got to make those decisions this quarter. But yes, toll milling is an option. There they are two other operators in the region with mill capacity.

So that may be an option.

So, a decision on care and maintenance has not been made yet. But, there are some alternatives that we are actively looking at.

Matthew O’Keefe

No, I understand that you haven’t made that decision, but you must be kind of -- I mean, it sounds like we’re going in that direction.

So, is there -- cost wouldn’t be that severe to put you on care and maintenance. And I mean, if it’s just a matter of timing on this permit, it might be what, another year or something?

Rob Henderson

Yes, exactly.

So, an option is for us to head on mining and do toll milling in nearby mills.

So, that is actively under consideration.

Matthew O’Keefe

Do you have a preferred option?

Rob Henderson

Not yet...

Matthew O’Keefe

Okay, all right.

Rob Henderson

We don’t have certainty on the permit.

So, that’s making things a little bit complicated.

Matthew O’Keefe

Yes.

You don’t even have -- you said, you didn’t have a response.

So, that’s a bit troubling too.

Rob Henderson

If we had a response today, it would make things a lot clearer. But, we’re dealing with levels of grayness and uncertainty.

Operator

Our next question comes from Troy George, [ph] a private investor.

Unidentified Analyst

I had a couple of questions.

First, do you foresee profitability in 2021 at the end of the year?

Rob Henderson

So, we do expect to produce 60,000 to 70,000 ounces of gold in the second half of the year at an all-in sustaining cost of $1,550 to $1,675.

So, the short answer is yes.

Unidentified Analyst

And then, the new discovery at Tucano, is that going to extend the mine life you believe?

Rob Henderson

Absolutely. It will extend mine life. But the most important thing is the grades.

We’re looking at much higher grades in the underground. And even in fact in the Urucum North near surface, work in the second half of the year is looking at how we would capture those higher grades into the mine plan, which would increase production.

Unidentified Analyst

Great, fantastic. And then, I had a comment. I also follow mines, and they had problems for over a year getting approval from Mexican government, because of COVID. I don’t know, you might want to give them a call and see how they finally got through.

Okay. Thanks.

Rob Henderson

Thank you.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Rob Henderson for any closing remarks.

Rob Henderson

Thank you, operator. The investments we’ve made, not only in Tucano to ensure the stability of the pit wall at UCS, but also into significant mine development and exploration at all of our operations, I believe will contribute significantly to the future growth of the Company.

As exploration is the key to unlocking the value of a land package in Brazil, we expect to have a steady stream of news informing you of our exploration results in the coming months. Along with the strength of our new leadership team, Great Panther is well-positioned for growth, both organically and through accretive acquisition opportunities that will further grow our production profile.

So, on behalf of everyone here at Great Panther, I look forward to sharing our progress with you in the next quarter. And thank you for your time today.

Operator

This concludes today’s conference call.

You may disconnect your lines. Thank you for participating and have a pleasant day.