Santacruz Silver Mining Ltd. (TSX-V: SCZ) reports on its financial and operating results for the second quarter of 2021. The full version of the financial statements and accompanying management discussion and analysis can be viewed on the Company’s website at www.santacruzsilver.com or on SEDAR at www.sedar.com. All financial information is prepared in accordance with IFRS and all dollar amounts are expressed in thousands of US dollars, except per unit amounts, unless otherwise indicated.
Carlos Silva, CEO of Santacruz, stated, “The second quarter of 2021 has confirmed our positive trend towards strong cash flow generation at Zimapan where, as expected, increased production tonnage arising from the continued development of the Lomo del Toro zone has resulted not only in an increased total amount of material processed through the mill but importantly has also resulted in a higher average silver head grade.” Mr. Silva continued, “Development work at Lomo del Toro continues to yield positive results and management anticipates an increase in production from the current rate of 15,000 tonnes/month to 20,000 tonnes/month by the end of Q3 with a concurrent increase of 5,000 tonnes/month in overall production tonnage aiming to reach 70,000 tonnes/month by the end of Q4 suggesting a continued positive trend of cash flows through the rest of the year.”
Selected financial information for the three-month periods ended June 30 and March 31, 2021 and June 30, 2020 is presented below:
|Q2||Q1||Q2||Q2 2021 % Change vs|
|2021||2021||2020||Q1 2021||Q2 2020|
|Revenue – Mining Operations||13,744||11,168||5,939||23%||131%|
|Gross Profit (Loss) (1)||3,840||2,181||796||76%||382%|
|Net Income (Loss)||(3784)||6,518||(636)||-158%||497%|
|Net Income (Loss) Per Share – Basic ($/share)||(0.01)||0.02||(0.00)||-150%||-100%|
|Adjusted EBITDA (1)||1,184||1,006||88||18%||1,245%|
|Working Capital Deficiency (at period end)||(11,665)||(16,478)||(30,801)||-29%||-62%|
(1) The Company reports additional non-IFRS measures which include Gross Profit (Loss) and Adjusted EBITDA. These additional financial disclosure measures are intended to provide additional information. See the Company’s MD&A filed on SEDAR or its website for a reconciliation of these amounts to the unaudited interim financial statements for the respective periods.
Selected financial information for each of the Zimapan Mine and Rosario Project for the three-month periods ended June 30 and March 31, 2021 and June 30, 2020 is presented below:
|Q2||Q1||Q2||Q2 2021 % Change vs|
|2021||2021||2020||Q1 2021||Q2 2020|
|Revenue – Zimapan Mine||13,022||10,442||5,096||25%||156%|
|– Rosario Project||410||1,011||344||-59%||19%|
|Gross Profit (Loss) – Zimapan Mine||4,401||2,581||539||71%||717%|
|– Rosario Project||(873)||(115)||(137)||659%||537%|
With respect to the working capital deficiency of $11,665 at June 30, 2021, subsequent to period end the Company completed a shares-for-debt settlement in the amount of $3,701 with respect to vendor amounts included in current liabilities at June 30, 2021.
Selected operating results for each of the Zimapan Mine and Rosario Project for the three-month periods ended June 30 and March 31, 2021 and December 31, September 30 and June 30, 2020 are presented below:
|2021||2020||Q2 2021 % Change vs|
|Q2||Q1||Q4||Q3||Q2||Q1 2021||Q2 2020|
|Material Processed (tonnes milled) (4)|
|Silver Equivalent Produced (ounces) (1) (3) (4)|
|Silver Equivalent Sold (payable ounces) (4)|
|Cash Cost of Production per Tonne (2) (4)|
|Cash Cost per Silver Equivalent Ounce (2) (4)|
|All-in Sustaining Cash Cost per Silver Equivalent Oz (2) (4)|
|Average Realized Silver Price per Ounce (2) (4)|
(1) Silver equivalent ounces produced in 2021 have been calculated using prices of $25.00/oz., $1,925/oz., $0.85/lb, $1.05/lb and $3.00/lb. for silver, gold, lead, zinc and copper respectively applied to the metal content of the concentrates produced by the Rosario Project and the Zimapan Mine. Silver equivalent ounces produced in 2020 have been calculated using prices of $17.85/oz., $1,480/oz., $0.92/lb, $1.09/lb and $2.80/lb. for silver, gold, lead, zinc and copper respectively applied to the metal content of the concentrates produced by the Rosario Project and the Zimapan Mine.
(2) Silver equivalent sold ounces have been calculated using the realized silver prices stated in the table above, applied to the payable metal content of the concentrates sold from the Zimapan Mine and Rosario Project in 2021 and 2020.
(3) The Company reports non-IFRS measures which include Cash Cost per Silver Equivalent, All-in Sustaining Cash Cost per Silver Equivalent, Cash Cost of Production per Tonne, and Average Realized Silver Price per Ounce. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning and may differ from methods used by other companies with similar descriptions. See the Company’s MD&A filed on SEDAR or its website for a discussion of these amounts.
(4) The Company is not including production and unit cost results from the Veta Grande Project in this MD&A as operations at Veta Grande were suspended during Q1 2020 and to date have not recommenced.
Discussion of Financial Results
The Company recorded net loss $3,784 for Q2 2021 (2020 – $636) and a gross operating profit of $3,840 (2020 – $796). The gross profit increase reflects a 717% increase in gross profit at the Zimapan Mine driven by a 156% increase in revenue that arose as a result of improved metal prices and significant increases in production of silver, zinc and copper as compared to 2020. It is important to note that the Q2 2020 operations at the Zimapan Mine were suspended for approximately one month due to COVID-19 precautions while the Rosario Project operated at significantly lower staffing levels for the same reason.
The increase in net loss arose from a $3.1 million increase in operating expenses and $2.3 million increase in interest and other finance expenses net of interest earned and other finance income. The increase to operating expenses includes an increased share-based compensation expense arising from an option grant in Q2 2021 and increased professional fees and administrative fees arising from costs associated with the Zimapan Mine acquisition and non-recurring fees associated with value-added tax filings in Mexico, The increase in net interest and other finance expenses arose largely from an increase in foreign exchange loss of $1.1 million, a one-time debt restructuring fee of $0.6 million and unrealized loss on marketable securities of $0.5 million.
Discussion of Operational Results and Costs
On April 21, 2020, in response to the global COVID-19 pandemic, the Company temporarily suspended its mine, mill and exploration activities at the Zimapan Mine in Zimapan, Hidalgo, Mexico. The suspension of operations was strictly proactive as no cases of COVID-19 had been documented at the Zimapan mine.
On May 19, 2020, the Mexican government authorized the resumption of non-essential activities in municipalities that present low or no known cases of transmission of the SARS-CoV-2 virus, subject to criteria defined by the Secretariat of Health. The municipality of Zimapan, Hidalgo State, Mexico was classified as a low risk municipality.
As a consequence of the impact of the suspension of operations at Zimapan and reduced operations at the Rosario Project occurring during Q2 2020 in connection with COVID-19 protocols as referenced above, management has determined that a comparison of the Q2 2021 operations to Q2 2020 operations is not useful to investors and other parties and as such is not providing comments relating to such a comparison.
As compared to Q1 2021, the Q2 2021 silver equivalent production increased 19% increase in silver equivalent production reflects improved zinc and copper head grades and improved metal recoveries for silver, zinc and copper realized during Q2 2021.
Operations during both Q1 and Q2 2021 reflect reduced milling availability for varying reasons. During Q1 2021 operations were negatively affected due to an unstable power supply from Mexico’s Comision Federal de Electricidad that caused damage to the electric motors for the ball mills at the milling facility materially reducing operations for eight days. During Q2 2021 operations were negatively impacted by the challenges with the dewatering circuit. This was remedied in early Q3 as a result of replacing the original drum filters with a filter press. The impact of this change in equipment has been immediate as production for July 2021 improved to over 60,000 tonnes of material processed at the milling facility with estimated silver equivalent production in excess of 305,000 ounces as calculated using the 2021 price deck disclosed above. Preliminary operating results for August 2021 indicate a continuation of this positive trend.
As compared to Q1 2021, the cash cost of production per tonne of mineralized material processed increased by 10% to $53.92 in Q2 2021. This result reflects a 9% increase in the cash cost of production and a 1% decrease in the tonnes of mineralized material processed during Q2 2021. The increase in the cash cost of production reflects expenditures incurred in accelerated mine development at the Monte mine as well as the Lomo Del Toro zone.
As compared to Q1 2021, the cash cost of production per silver equivalent ounce sold in Q2 2021 decreased by 8%. This resulted from a 10% increase in the cash cost of sales of silver equivalent ounces while the silver equivalent payable ounces produced increased by 19%. The increase in silver equivalent production reflects improved zinc and copper head grades and improved metal recoveries for silver, zinc and copper realized during Q2 2021.
As compared to Q1 2021, the AISC in Q2 2021 increased by 2%. This resulted from a 21% increase in the cash cost of sales of silver equivalent ounces while the silver equivalent payable ounces sold increased by 19%. This change occurred largely for the same reasons as referenced above in the discussion regarding cash cost of silver equivalent ounces sold.
Production at the Zimapan Mine is not supported by a feasibility study on mineral reserves demonstrating economic and technical viability or any other independent economic study under NI 43-101. Accordingly, there is increased uncertainty and economic and technical risks of failure associated with production operations at the Zimapan Mine. Production and economic variables may vary considerably due to the absence of a complete and detailed site analysis in accordance with NI 43-101.
As compared to Q1 2021, the Q2 2021 silver equivalent production decreased by 32%. This decrease occurred in part as the result of a 15% decrease in mineralized material processed at the milling facility and in part from processing lower grade material. Management is considering its options with respect to continuing with operations at the Rosario Project.
As compared to Q1 2021, the Q2 2021 the cash cost per tonne increased by 21%. This change reflects an 3% increase in cash cost of production and an 15% decrease in tonnes milled on a quarter over quarter basis. The reduced tonnes mined and milled reflects efforts to try and improve mining dilution.
As compared to Q1 2021, the Q2 2021 cash cost per silver equivalent ounce sold increased 152%. This change in unit costs reflects a 61% decrease in silver equivalent payable ounces sold combined with a 2% decrease in cash cost of sales. The decrease in silver equivalent payable ounces sold reflects the reduced tonnes milled together with lower head grades that continued to arise from higher than planned mining dilution.
As compared to Q1 2021, the Q2 2021 AISC increased 92%. The cash cost of sales decreased 25% while the amount of silver equivalent payable ounces sold decreased by 61%. These negative changes occurred for the same reasons as described above with respect to cash cost per silver equivalent ounce.
The decision to commence production at the Rosario Mine and Membrillo Prospect were not based on a feasibility study with mineral reserves demonstrating economic and technical viability. Accordingly, there is increased uncertainty and economic and technical risks of failure associated with this decision. Production and economic variables may vary considerably due to the absence of a complete and detailed site analysis according to and in accordance with NI 43-101.
About Santacruz Silver Mining Ltd.
Santacruz is a Mexican focused silver company with two producing silver projects (Zimapan and Rosario) and two exploration properties, the La Pechuga property and Santa Gorgonia prospect. The Company is managed by a technical team of professionals with proven track records in developing, operating and discovering silver mines in Mexico. Our corporate objective is to become a mid-tier silver producer.
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