Silvercorp reports Q1 results: Net income up 134% to $10.9 million, $0.07 per share

Silvercorp Metals Inc. (“Silvercorp” or the “Company” – http://www.commodity-tv.net/… ) (TSX: SVM) (NYSE American: SVM) reported its financial and operating results for the first quarter ended June 30, 2017. All amounts are expressed in US Dollars.

FIRST QUARTER HIGHLIGHTS
• Net income attributable to equity shareholders of $10.9 million, or $0.07 per share , up 134% compared to net income attributable to equity shareholders of $4.7 million, or $0.03 per share in the prior year quarter;
• Sales of $39.7 million, up 13% compared to $35.3 million in the prior year quarter;
• Gross margin of 50% compared with 45% in the prior year quarter;
• Cash flow from operations of $16.9 million, compared to $20.2 million in the prior year quarter;
• Dividend of $1.7 million, or $0.01 per share, paid to the equity shareholders;
• Ended the quarter with $102.1 million in cash and cash equivalents and short-term investments, an increase of $5.6 million or 6% compared to $96.5 million as at March 31, 2017;
• Silver, lead, and zinc metals sold amounted to approximately 1.5 million ounces silver, 15.9 million pounds lead, and 5.0 million pounds zinc, down 8%, 5%, and 4%, respectively from the prior year quarter;
• Head grades were 304 grams per ton (“g/t”) for silver, 4.6% for lead, and 0.8% for zinc at the Ying Mining District, compared to 308 g/t for silver, 4.4% for lead and 1.1% for zinc in the prior year quarter;
• Total and cash mining costs per tonne ore of $68.12 and $50.29, respectively, compared to $68.70 and $47.24 in the prior year quarter;
• Cash cost per ounce of silver2, net of by-product credits, of negative $3.57, compared to positive $0.08 in the prior year quarter;
• All-in sustaining cost per ounce of silver2, net of by-product credits, of $4.70, compared to $7.06 in the prior year quarter; and,
• Realized a gain of $4.3 million on the disposal of the Company’s 2.5% net smelter return (“NSR”) in the Silvertip mine.

FINANCIALS
Net income attributable to equity shareholders of the Company in Q1 Fiscal 2018 was $10.9 million, or $0.07 per share, compared to $4.7 million, or $0.03 per share in Q1 Fiscal 2017.
The Company’s financial results in Q1 Fiscal 2018 were mainly impacted by the following: i) the increase of metal prices, as the realized selling price for silver, lead, and zinc increased by 5%, 35%, and 65%, compared to the prior year quarter; ii) a $4.3 million gain on disposal of Silvertip Mine’s NSR; offset by i) a $1.6 million foreign exchange loss, ii) less metals sold, and iii) a 3% increase in per tonne cash production costs.

Sales in Q1 Fiscal 2018 were $39.7 million, up 13% compared to $35.3 million in the same quarter last year. Silver and gold sales represented $20.2 million and $1.0 million, respectively, while base metals represented $18.5 million of total sales compared to silver, gold and base metals sales of $20.8 million, $0.9 million, and $13.6 million, respectively, in the prior year quarter.

Cost of sales in Q1 Fiscal 2018 was $19.7 million compared to $19.5 million in Q1 Fiscal 2017. The cost of sales included $14.1 million (Q1 Fiscal 2017 – $14.2 million) production costs, $1.1 million mineral resources tax (Q1 Fiscal 2017 – $0.4 million), and $4.5 million (Q1 Fiscal 2017 – $5.0 million) depreciation and amortization charges. The increase of mineral resources tax was mainly because the mineral resources tax was levied based on a certain percentage of sales in the current quarter while it was levied based on the tonnage of ore milled in the prior year quarter. The decrease of depreciation and amortization charges was mainly due to higher mineral reserves at the Ying Mining District as defined in the NI43-101 technical report released in February 2017, resulting in lower depreciation and amortization charges per unit of metal production.

Gross profit margin in Q1 Fiscal 2018 improved to 50%, compared to 45% in Q1 Fiscal 2017. The improvement of gross profit margin was mainly due to the increase of metal prices. Ying Mining District’s gross margin was 56% compared to a 49% gross profit margin in the prior year quarter, while GC Mine’s profit margin was 30% compared to a 17% gross profit margin in the prior year.

General and administrative expenses in Q1 Fiscal 2018 were $4.6 million, an increase of 4% or $0.2 million, compared to $4.4 million in Q1 Fiscal 2017.
Gain on disposal of mineral rights and properties in Q1 Fiscal 2018 was $4.3 million compared to $nil in the prior year quarter, as the Company’s 2.5% NSR in the Silvertip mine was disposed in the current quarter.
Income tax expenses in Q1 Fiscal 2018 were $4.0 million compared to $2.8 million in Q1 Fiscal 2017. The income tax expenses recorded in Q1 Fiscal 2018 included current income tax expenses of $3.2 million (Q1 Fiscal 2017 – $0.7 million) and deferred income taxes expenses of $0.8 million (Q1 Fiscal 2017 – $2.1 million).

Cash flows provided by operating activities in Q1 Fiscal 2018 were $16.9 million, a decrease of $3.2 million or 16%, compared to $20.2 million in the prior year quarter. Before changes in non-cash operating working capital, cash flows provided by operating activities in Q1 Fiscal 2018 were $14.8 million, a decrease of $0.7 million or 5%, compared to $15.5 million in the prior year quarter. The decrease in cash flow provided by operating activities is mainly due to $4.1 million income tax paid in the current quarter while net tax refunds of $0.1 million were received in the prior year quarter.

The Company also paid dividend of $1.7 million, or $0.01 per share to the equity shareholders, and ended the quarter with $102.1 million in cash and short-term investments, an increase of $5.6 million or 6%, compared to $96.5 million as at March 31, 2017.
Working capital as at June 30, 2017 was $80.7 million, an increase of $10.0 million or 14%, compared to $70.7 million working capital as at March 31, 2017. 

OPERATIONS AND DEVELOPMENT
In Q1 Fiscal 2018, the Company sold 1.5 million ounces of silver, 900 ounces of gold, 15.9 million pounds of lead, and 5.0 million pounds of zinc, compared to 1.6 million ounces of silver, 900 ounces of gold, 16.7 million pounds of lead, and 5.2 million pounds of zinc, respectively, in Q1 Fiscal 2017. The decrease of metals sold was mainly due to not all metals produced in the quarter being sold in the same quarter as the Company intentionally increased its concentrate inventory at the Ying Mining District. As at June 30, 2017, lead concentrate inventory at the Ying Mining District was 4,050 tonnes, an increase of 1,757 tonnes, compared to 2,293 tonnes of lead concentrate inventory as at March 31, 2017.

In Q1 Fiscal 2018, the consolidated total mining costs and cash mining costs were $68.12 and $50.29 per tonne, compared to $68.70 and $47.24 per tonne, respectively, in Q1 Fiscal 2017. The increase in cash mining costs were mainly due to a $0.7 million increase in mining preparation costs resulting from more underground drilling and tunnelling expensed in the current quarter.

The consolidated total production costs and cash costs per ounce of silver, net of by-product credits, were negative $0.62 and negative $3.57 in Q1 Fiscal 2018 compared to $3.11 and $0.08 respectively, in the prior year quarter. The overall decrease in cash cost per ounce of silver, net of by-product credits, is mainly due to a 35% increase in by-product credits, mainly arising from 35% and 65% increase in lead and zinc net realized selling prices. Sales from lead and zinc accounted for 46% of the total sales and amounted to $18.1 million, an increase of $4.7 million, compared to $13.5 million in the prior year quarter.

In Q1 Fiscal 2018, the consolidated all-in sustaining cost per ounce of silver, net of by-product credits, is $4.70 compared to $7.06 in Q1 Fiscal 2017, and the decrease is mainly due to the 35% increase in by-product credits.

1. Ying Mining District, Henan Province, China

In Q1 Fiscal 2018, the total ore mined at the Ying Mining District was 160,408 tonnes, a decrease of 8%, compared to 173,508 tonnes mined in the prior year quarter. The decrease was mainly due to additional downtime arising from several power down days due to power grid upgrade by State Grid Corporation of China impacting the TLP, LMW and LME mines and hoist maintenance and cable steel replacement at the SGX and HZG mines. Correspondingly, ore milled decreased by 2% to 164,959 tonnes from 167,747 tonnes in the prior year quarter. Head grades were 304 grams per ton (“g/t”) for silver, 4.6% for lead, and 0.8% for zinc, compared to 308 g/t for silver, 4.4% for lead and 1.1% for zinc in the prior year quarter.

In Q1 Fiscal 2018, the Ying Mining District sold approximately 1.3 million ounces silver, 13.8 million pounds lead, and 0.7 million pounds zinc, compared to 1.5 million ounces silver, 14.9 million pounds lead, and 1.8 million pounds of zinc in the prior year quarter. The decrease of metals sold at the Ying Mining District was mainly due to: i) a 2% decrease of ore milled; and ii) not all metals produced were sold in the same quarter as the Company intentionally increased its concentrate inventory at the Ying Mining District. As at June 30, 2017, Ying Mining District had 4,050 tonnes of lead concentrate inventory and 980 tonnes of zinc concentrate inventory, an increase of 1,759 and 500 tonnes, respectively, compared to 2,293 tonnes of lead concentrate and 480 tonnes of zinc concentrate held as at March 31, 2017.

Total and cash mining costs per tonne at the Ying Mining District in Q1 Fiscal 2018 were $76.67 and $54.78 per tonne, respectively, compared to $78.64 and $52.33 per tonne in the prior year. The increase in cash mining costs was mainly due to a $0.3 million increase in mining preparation costs resulting from more underground drilling and tunnelling expensed in the current quarter. Total and cash milling costs per tonne at the Ying Mining District in Q1 Fiscal 2018 were $10.10 and $8.07, a decrease of 18% and 20%, respectively, compared to $12.25 and $10.07 in Q1 Fiscal 2017. The decrease in cash milling costs was mainly due to the exclusion of mineral resources tax from milling costs.

Correspondingly, cash production cost per tonne of ore processed in Q1 Fiscal 2018 at the Ying Mining District was $66.93, an 1% increase compared to $66.27 in the prior year due to the increase in per tonne cash mining offset by the decrease in per tonne milling costs as discussed above.

Cash cost per ounce of silver, net of by-product credits, in Q1 Fiscal 2018 at the Ying Mining District, was negative $2.97 compared to $0.12 in the prior year quarter. The improvement was mainly due to a $2.2 million or 20% increase in by-product credits offset by the 1% increase in the per tonne cash production costs as discussed above.

All in sustaining costs per ounce of silver, net of by-product credits, in Q1 Fiscal 2018 at the Ying Mining District was $3.66 compared to $5.80 in the prior year quarter. The improvement was mainly due to lower cash cost per ounce of silver as discussed above.
In Q1 Fiscal 2018, approximately 31,064 m or $0.7 million of underground diamond drilling (Fiscal Q1 2017 – 16,498 m or $0.4 million) and 5,337 m or $1.4 million of preparation tunnelling (Fiscal Q1 2017 – 4,836 m or $1.4 million) were completed and expensed as mining preparation costs at the Ying Mining District. In addition, approximately 18,890 m or $5.2 million of horizontal tunnel, raises and declines (Q1 Fiscal 2017 – 16,685 m or $4.9 million) were completed and capitalized.
 
2. GC Mine, Guangdong Province, China

In Q1 Fiscal 2018, the total ore mined at the GC Mine was 64,865 tonnes, comparable to 64,349 tonnes of mined in Q1 Fiscal 2017. Ore milled increased by 4% to 65,944 tonnes from 63,587 tonnes in the prior year quarter. Head grades were 98 g/t for silver, 1.6% for lead, and 2.7% for zinc compared to 99 g/t for silver, 1.5% for lead, and 2.9% for zinc in the prior year quarter.

In Q1 Fiscal 2018, GC Mine sold 189 thousand ounces of silver, 2.1 million pounds of lead, 4.2 million pounds of zinc compared to 149 thousand ounces of silver, 1.9 million pounds of lead, and 3.4 million pounds of zinc sold in the prior year.
Total and cash mining costs per tonne at the GC Mine in Q1 Fiscal 2018 were $46.99 and $39.20 per tonne, compared to $41.91 and $33.50 per tonne in Q1 Fiscal 2017. The increase in cash mining costs was mainly due to a 31% or $0.4 million increase in mining preparation costs resulting from more underground drilling and tunnelling expensed in the current quarter.

Total and cash milling costs per tonne at the GC Mine in Q1 Fiscal 2018 were $19.85 and $16.73, compared to $18.81 and $15.60, respectively, in Q1 Fiscal 2017. The slight increase in milling costs was mainly due to additional efforts in improving the milling recovery rates resulting in additional labor costs and material consumption.

The cash production costs per tonne of ore processed in Q1 Fiscal 2018 at the GC Mine increased to $55.93 from $49.10 in the prior year quarter.
Cash costs per ounce of silver, net of by-product credits, at the GC Mine, was negative $7.80 compared to negative $0.28 in the prior year quarter. The decrease was mainly due to $2.8 million or 91% increase in by-product credits as a 40% and 66% increase in net realized lead and zinc selling prices and more lead and zinc metals sold at the GC Mine.

All in sustaining costs per ounce of silver, net of by-product credits, in Q1 Fiscal 2018 at the GC Mine was negative $2.48 compared to $4.76 in the prior year quarter as a 40% and 66% increase in net realized lead and zinc selling prices and more lead and zinc metals sold.

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