SilverCrest Metals (SILV) - 2024 Q1 - Quarterly Report

Management's Discussion and Analysis This section contains forward-looking statements, outlines significant business and economic uncertainties, and provides a cautionary note on mineral resource estimates - This Management's Discussion and Analysis (MD&A) contains forward-looking statements concerning the Company's anticipated results, operations, exploration, and other future matters, based on assumptions subject to significant business, economic, and competitive uncertainties[2][3] - The forward-looking statements are subject to various known and unknown risks, including fluctuating commodity prices, inflation, exploration results, regulatory risks, and geopolitical uncertainties, which could cause actual results to differ materially[4] - A cautionary note is provided to U.S. investors that the Mineral Resource and Reserve estimates comply with Canadian NI 43-101 standards, which differ from SEC requirements and may not be comparable to information disclosed by U.S. domestic companies[7] Introduction This MD&A provides an overview of SilverCrest Metals Inc.'s liquidity, capital resources, and operational and financial performance for Q1 2024 - This Management's Discussion and Analysis (MD&A) provides an overview of SilverCrest Metals Inc.'s liquidity, capital resources, and operational and financial performance for the three-month period ended March 31, 2024[10] - The report should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements for Q1 2024 and the audited consolidated financial statements for the year ended December 31, 2023[11][12] - All financial amounts are presented in United States dollars (USD) unless otherwise specified, with the silver equivalent (AgEq) ratio used being 79.51:1 (gold to silver)[13][14] Description of Business SilverCrest is a Canadian precious metals producer focused on operating the Las Chispas mine and expanding its resource estimates in the Americas - SilverCrest is a Canadian-based precious metals producer headquartered in Vancouver, BC, with its principal focus on operating the Las Chispas silver and gold mine[16] - The company's strategy includes expanding current Mineral Resource and Reserve Estimates and acquiring, discovering, and developing other high-value precious metal projects in the Americas[16] - The Company is publicly listed on the Toronto Stock Exchange (Symbol: SIL) and the NYSE-American (Symbol: SILV)[16] Highlights Q1 2024 saw strong production and revenue, with positive net earnings, despite negative operating and free cash flow due to significant tax payments Q1 2024 Key Highlights | Metric | Value | | :--- | :--- | | Production | | | Gold Recovered | 14,719 oz | | Silver Recovered | 1.4 million oz | | Silver Equivalent Recovered | 2.6 million oz | | Financials | | | Revenue | $63.6 million | | Mine Operating Earnings | $37.5 million (59% margin) | | Net Earnings | $33.9 million | | Basic EPS | $0.23 per share | | Costs | | | Cash Costs | $7.09 per oz AgEq sold | | AISC | $12.90 per oz AgEq sold | | Cash Flow & Position | | | Operating Cash Outflow | $1.1 million | | Free Cash Flow | Negative $11.4 million | | Treasury Assets (End of Q1) | $91.1 million (Cash & Bullion) | - The negative free cash flow of $11.4 million was largely due to a $26.2 million payment for 2023 taxes and duties and a $7.5 million prepayment for mining services[21] - The company achieved positive retained earnings of $21.5 million on its balance sheet, a milestone reached in only the sixth quarter since declaring commercial production[21] Environmental, Social, and Governance ("ESG") The company is committed to water stewardship and advancing renewable solar power integration at the Las Chispas mine for cost savings and emissions reduction - As part of its commitment to water stewardship, the company initiated the installation of a two-kilometre water pipeline for agricultural use in the local community during Q1 2024[19] - The company is advancing efforts to integrate renewable solar power at the Las Chispas mine, with a target to begin implementation of a solar installation in 2025, expecting cost savings and reduced GHG emissions[20] Operating Performance The company achieved increased ore mining, higher processed grades, and record recoveries in Q1 2024, with costs below annual guidance Operational and Financial Summary In Q1 2024, the company saw increased ore mining and higher processed grades for both gold and silver compared to Q1 2023, leading to higher metal recovery and sales. Revenue and mine operating earnings improved, though operating and free cash flow were negative due to significant tax payments. Cash costs per ounce decreased while All-in Sustaining Costs (AISC) increased year-over-year Q1 2024 vs Q1 2023 Operational Performance | Metric | Unit | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | :--- | | Ore mined | tonnes | 85,737 | 63,600 | | Ore milled | tonnes | 93,373 | 104,400 | | Au Average grade | gpt | 4.97 | 4.06 | | Ag Average grade | gpt | 479 | 419 | | Au Recovered | oz | 14,719 | 13,300 | | Ag Recovered | million oz | 1.41 | 1.29 | | AgEq Recovered | million oz | 2.58 | 2.35 | Q1 2024 vs Q1 2023 Financial Performance | Metric | Unit | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | :--- | | Revenue | $ millions | 63.6 | 58.0 | | Mine operating earnings | $ millions | 37.5 | 35.6 | | Earnings for the period | $ millions | 33.9 | 27.2 | | Operating cash flow | $ millions | (1.1) | 26.6 | | Free cash flow | $ millions | (11.4) | 19.0 | | Cash costs | $/oz AgEq | 7.09 | 7.36 | | AISC | $/oz AgEq | 12.90 | 10.90 | Underground Underground mining rates increased by 10% from the previous quarter, averaging 942 tonnes per day (tpd), with plans to exceed 1,050 tpd by year-end. The transition to a new mining contractor is progressing well, and 4.2 km of underground development was completed in line with expectations - Mining rates averaged 942 tpd in Q1 2024, a 10% increase from Q4 2023, with a target to exit 2024 at over 1,050 tpd[26] - The mobilization of the new underground mining contractor is on pace and expected to continue through Q3 2024[27] - The company completed 4.2 km of horizontal and vertical underground development during the quarter, with rates and costs meeting expectations[27] Processing Plant The processing plant achieved record silver equivalent grades and recoveries in Q1 2024, which strategically offset lower throughput caused by planned maintenance. Average daily throughput was 1,026 tpd but is expected to increase to an average of 1,200 tpd for the rest of the year - Average processed grades reached a record 874 gpt AgEq (4.97 gpt Au and 479 gpt Ag), strategically planned to offset downtime[29] - Average process recoveries also set a record at 98.3% AgEq (98.6% Au and 98.0% Ag), benefiting from consistent high-grade feed[30] - Average daily mill throughput was 1,026 tpd due to planned maintenance, but is expected to average 1,200 tpd for the remainder of 2024[28][29] Sustaining Capital Sustaining capital for Q1 2024 totaled $10.2 million, primarily for underground development. Expenditures were lower than planned due to timing delays, but the full-year guidance of $40.0 to $44.0 million remains unchanged and is not expected to impact production - Sustaining capital in Q1 2024 was $10.2 million, mainly for underground development and infrastructure[31] - Spending was lower than planned due to timing, with full-year 2024 guidance reiterated at $40.0 to $44.0 million[31] Costs In Q1 2024, both cash costs and AISC were below the annual guidance ranges due to higher grades and lower maintenance costs. The company expects these costs to increase over the remainder of the year to align with the full-year guidance Q1 2024 Costs vs. Full Year Guidance | Cost Metric | Q1 2024 Actual | 2024 Guidance Range | | :--- | :--- | :--- | | Cash Costs (per oz AgEq sold) | $7.09 | $9.50 - $10.00 | | AISC (per oz AgEq sold) | $12.90 | $15.00 - $15.90 | - Costs were lower than expected primarily due to lower processed volume, higher grades, lower maintenance costs, and timing of sustaining capital[32][33] Exploration The company completed an infill and expansion drilling program targeting the conversion of approximately 10 million oz AgEq of Inferred resources to Indicated. The results confirmed mineral continuity and identified opportunities for further expansion. The 2024 exploration program will shift focus to earlier-stage regional targets with a budget of $12.0 to $14.0 million - A drilling program of 161 holes (34,384 metres) was completed to test high-priority Inferred resources for potential conversion to Indicated resources[34] - Drill results generally verified the grades and thicknesses of the targeted resources and identified expansion potential in the BAN Splay 3 and BAS veins[35] - The 2024 exploration budget is $12.0 to $14.0 million, which will include work on regional targets like Picacho to identify potential satellite deposits[44][45] Financial Performance Q1 2024 saw increased net earnings driven by higher revenue and other income, despite rising cost of sales and G&A expenses Net earnings Net earnings for Q1 2024 were $33.9 million, an increase from $27.2 million in Q1 2023. The growth was primarily driven by higher revenue and other income, which more than offset increased cost of sales and G&A expenses. The effective tax rate for the quarter was a relatively low 5% Net Earnings Comparison (in thousands USD) | Description | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Earnings | $33,864 | $27,165 | - The increase in net earnings was driven by a $5.7 million increase in revenue and a $1.4 million increase in other income, partially offset by a $3.8 million increase in cost of sales[47] Revenue Revenue increased to $63.6 million in Q1 2024 from $58.0 million in Q1 2023. This was a result of both higher quantities of metals sold and higher average realized prices for both gold and silver Realized Metal Prices and Quantities Sold | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Realized Prices ($/oz) | | | | Gold | $2,062 | $1,879 | | Silver | $23.37 | $23.00 | | Quantities Sold (oz) | | | | Gold | 15,000 | 14,200 | | Silver | 1,400,000 | 1,361,000 | Cost of sales Cost of sales rose to $26.2 million in Q1 2024 from $22.4 million in Q1 2023. The $3.8 million increase was largely due to higher depreciation resulting from sustaining capital invested in mine development during 2023 and Q1 2024 - The increase in cost of sales was primarily driven by higher depreciation from ongoing mine development capital investments[50] Other income The company recorded other income of $1.4 million in Q1 2024, compared to none in Q1 2023. This income was primarily from a $0.8 million gain on bullion holdings due to rising metal prices and a $0.5 million gain on currency derivative positions - Other income of $1.4 million in Q1 2024 was mainly composed of $0.8 million in gains on bullion and $0.5 million in gains on derivative currency positions[51] Interest and finance expense Interest and finance expense decreased significantly to $0.3 million in Q1 2024 from $1.4 million in Q1 2023. The reduction is attributed to the company having no outstanding debt in the current quarter, whereas it incurred interest on a $50 million Term Facility in the prior-year period - The decrease in interest expense was due to the absence of outstanding debt in Q1 2024, compared to interest incurred on a Term Facility in Q1 2023[53] General and administrative ("G&A") expenses G&A expenses increased by $1.2 million to $4.7 million in Q1 2024 compared to Q1 2023. The rise was largely due to increased professional fees and share-based compensation, which is influenced by the company's share price performance - G&A expenses rose from $3.5 million in Q1 2023 to $4.7 million in Q1 2024, mainly due to higher professional fees and share-based compensation[54] Statement of Cash Flows In Q1 2024, cash used in operations was $1.1 million, a significant decrease from the $26.6 million generated in Q1 2023, primarily due to a $26.2 million income tax payment. Investing activities used $14.6 million for property and equipment, while financing activities generated $0.6 million from stock option exercises - Operating Activities: Cash used was $1.1 million, a $27.7 million decrease from Q1 2023, mainly driven by a $26.2 million income tax payment[55] - Investing Activities: Used $14.6 million, mostly for mineral property, plant, and equipment additions[56] - Financing Activities: Generated $0.6 million from the exercise of stock options, compared to a $24.9 million use in Q1 2023 which included a $25.0 million debt repayment[57] Liquidity and Capital Position The company maintains sufficient financial resources, including an undrawn revolving facility, with a strong working capital position despite a decrease in treasury assets Liquidity and Capital Measures (in thousands USD) | Measure | Mar 31, 2024 | Dec 31, 2023 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $71,085 | $85,964 | $(14,879) | | Bullion | $20,039 | $19,191 | $848 | | Treasury assets | $91,124 | $105,155 | $(14,031) | | Working capital | $148,278 | $126,760 | $21,518 | - Management believes the company has sufficient financial resources, including an undrawn $70 million revolving facility, to cover its business needs for more than 12 months[59] - Working capital increased by $21.5 million during the quarter, mainly due to a decrease in tax liabilities following the income tax payment[63] Outstanding Shares and Options (as of May 14, 2024) | Security | Outstanding | | :--- | :--- | | Common Shares | 147,260,572 | | Options | 4,334,500 | | Total (Fully Diluted) | 151,595,072 | Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures such as average realized prices, capital expenditures, free cash flow, working capital, operating cash flow before working capital, treasury assets, cash costs, and AISC Average realized gold and silver price This measure is calculated by dividing gross revenue from gold or silver sales by the respective ounces sold. It helps in understanding the actual metal prices realized by the company. In Q1 2024, the average realized price was $2,062/oz for gold and $23.37/oz for silver Q1 Average Realized Prices | Metal | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gold (per oz) | $2,062 | $1,879 | | Silver (per oz) | $23.37 | $23.00 | Capital expenditures Capital expenditures are classified as either sustaining (to support current production) or non-sustaining (for new projects or to increase production/mine life). In Q1 2024, sustaining capital was $10.2 million and non-sustaining capital was $4.6 million Capital Expenditures Reconciliation (in thousands USD) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total capital expenditures | $14,815 | $7,973 | | Less: Non-sustaining capital | $(4,586) | $(320) | | Sustaining capital expenditures | $10,229 | $7,653 | Free cash flow Free cash flow is defined as net cash from operating activities less sustaining capital expenditures. It indicates the company's ability to generate cash after investments to maintain operations. For Q1 2024, free cash flow was negative $11.4 million, compared to positive $19.0 million in Q1 2023 Free Cash Flow Reconciliation (in thousands USD) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating cash flow | $(1,121) | $26,617 | | Less: sustaining capital expenditures | $(10,229) | $(7,653) | | Free cash flow | $(11,350) | $18,964 | Working capital Working capital, calculated as current assets minus current liabilities, is used as a measure of operational efficiency and short-term financial health. As of March 31, 2024, working capital was $148.3 million - Working capital is defined as current assets less current liabilities and is used to measure short-term financial health[72] Operating cash flow before change in working capital This measure is calculated by adding back the change in working capital to operating cash flow. It is used to assess the ability to generate cash from core operations. For Q1 2024, this measure was $17.6 million Operating Cash Flow Reconciliation (in thousands USD) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating cash flow | $(1,121) | $26,617 | | Less: change in working capital | $18,735 | $8,544 | | Operating cash flow before change in working capital | $17,614 | $35,161 | Treasury assets Treasury assets are calculated as cash and cash equivalents plus bullion. This measure represents the company's most liquid assets. As of March 31, 2024, treasury assets totaled $91.1 million Treasury Assets (in thousands USD) | Category | Mar 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $71,085 | $85,964 | | Bullion | $20,039 | $19,191 | | Treasury assets | $91,124 | $105,155 | Cash costs and AISC Cash costs include production costs and royalties, while All-in Sustaining Costs (AISC) add G&A, reclamation, and sustaining capital. These measures are used to monitor operational performance. In Q1 2024, cash costs were $7.09/oz AgEq and AISC were $12.90/oz AgEq Cash Costs and AISC Reconciliation (in thousands USD) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Production costs | $18,203 | $18,038 | | Government royalties | $190 | $294 | | Total cash costs | $18,393 | $18,332 | | General and administrative expenses | $4,695 | $3,533 | | Reclamation accretion expense | $136 | $107 | | Sustaining capital expenditures | $10,229 | $5,181 | | Total AISC | $33,453 | $27,153 | | Cash costs (per AgEq sold) | $7.09 | $7.36 | | AISC (per AgEq sold) | $12.90 | $10.90 | Review of Quarterly Results Quarterly results demonstrate a significant ramp-up in financial performance since Q2 2022, with consistent revenue and earnings growth - The quarterly results show a significant ramp-up in financial performance since the commissioning of the Las Chispas plant in Q2 2022, with revenue recognition beginning in Q3 2022, and revenue and earnings showing strong growth and relative stability over the last several quarters[80] Selected Quarterly Results (in thousands USD, except per share data) | Quarter | Revenue | Mine operating earnings | Earnings for the period | EPS - basic | | :--- | :--- | :--- | :--- | :--- | | Q1, 2024 | $63,646 | $37,477 | $33,864 | $0.23 | | Q4, 2023 | $61,320 | $36,947 | $35,917 | $0.24 | | Q3, 2023 | $63,828 | $37,460 | $29,936 | $0.20 | | Q2, 2023 | $61,999 | $38,293 | $23,702 | $0.16 | | Q1, 2023 | $57,983 | $35,606 | $27,165 | $0.18 | Related Party Transactions Related party transactions primarily involve subsidiaries and key management personnel, with intercompany transactions eliminated upon consolidation - The Company's related parties consist of its subsidiaries and key management personnel, with all transactions with subsidiaries eliminated upon consolidation[84] Risks and Uncertainties The company faces various financial, operational, tax, health crisis, macroeconomic, and bullion-related risks that could impact its performance Financial Instrument Risk The company is exposed to various financial risks, including credit risk from cash holdings, liquidity risk managed through cash flow monitoring, currency risk from operating in Canada and Mexico, interest rate risk on cash balances, and price risk on precious metals - Credit Risk: Managed by diversifying cash holdings across highly rated financial institutions like BMO and BNS[87][88] - Liquidity Risk: Managed through ongoing monitoring of cash flows and access to an undrawn $70 million Revolving Credit Facility[89] - Currency Risk: Mitigated by using option contracts to limit exposure to the Mexican peso, with open contracts having a notional value of $34 million as of March 31, 2024[90][91][93] Mineral Project Risk The company faces risks inherent in operating a precious metals mine, where commercial viability depends on factors like mining costs, deposit characteristics, metal prices, and government regulations. Operational threats include flooding, permit issues, and community relations - The commercial viability of mining operations is subject to numerous factors including costs, deposit size and grade, metal price cycles, and regulatory issues[96] Income Tax and VAT Risk The company is subject to tax assessments in multiple jurisdictions, which involves estimates and interpretations of complex tax rules. Changes in tax laws or challenges by tax authorities could have a material adverse effect on the company's financial condition - Tax provisions require estimates and interpretations of tax rules, and filing positions are subject to review and potential challenge by taxation authorities[97] - New or changing tax laws in Canada, México, or other operating jurisdictions could result in increased taxes, interest, and penalties[98] Health Crises Risk Global health crises, such as the COVID-19 pandemic, pose a risk to the company's operations and financial results. Potential impacts include economic downturns affecting commodity prices, labor shortages, supply chain disruptions, and regulatory challenges - Emerging infectious diseases can lead to widespread economic downturns, affecting commodity prices, credit availability, and market liquidity[99] - Government restrictions or inadequate responses to health crises may disrupt mining operations, leading to labor and supply chain issues[99] Macroeconomic Risk The company is exposed to macroeconomic risks from global financial market volatility, which can impact commodity prices, foreign exchange rates, and access to financing. Increased market turmoil could adversely affect the company's operations and stock price - Volatility in global financial markets, stemming from geopolitical conflicts and other factors, impacts the mining sector through fluctuations in equity, commodity, and currency markets[102] Bullion Risk The company holds physical gold and silver bullion to counteract inflation on its cash reserves. However, these holdings are subject to price volatility, and there is no guarantee they will be an effective hedge, potentially leading to mark-to-market losses - Bullion holdings are recorded at fair value, and fluctuations in precious metal prices may lead to mark-to-market losses, impacting net earnings[103] Material Accounting Policies, Standards and Judgements The company adopted accounting policy changes for cash flow classification and IAS 1 amendments, while assessing the future impact of IFRS 18 - The company retrospectively applied an accounting policy change to include cash flows from interest paid and received within operating activities in the consolidated statements of cash flows[104] - Amendments to IAS 1 regarding the classification of liabilities as current or non-current were adopted effective January 1, 2024, but did not have a material impact on the Company[105][106] - The new standard IFRS 18, which impacts the presentation of the income statement, will be effective from January 1, 2027, and the company is currently assessing its impact[107] Disclosure and Internal Control Procedures Management is responsible for effective internal control over financial reporting and disclosure, with no material changes noted in Q1 2024 - Management is responsible for establishing and maintaining effective internal control over financial reporting and disclosure controls and procedures[109] - There were no changes in the Company's internal control over financial reporting during Q1 2024 that have materially affected, or are reasonably likely to materially affect, these controls[112] - Due to inherent limitations, internal controls may not prevent or detect all misstatements, and their effectiveness is subject to risks like changes in conditions or compliance levels[111]