Silvercorp (TSX:SVM) - Building Two Mines at Once Targeting 2027 Start-Up

0:00Hi, I'm Lon Shavre, president of SilverCorp Metals. We're a long-standing silver producer with profitable minds in China, but now a very exciting growth story in that we're building currently two minds and two other jurisdictions, and which really has the potential to change our company going forward. So excited to be back with you Matt to talk about that today. Good to be here. Good to be here with you. We're done with coronavirus brains. Great conference down here. Well, actually I say that. To be honest, I expected more M&A to be coming out of this conference. No news yet. That's the thing. What are you getting out of the next door? Well, obviously, despite some of the recent volatility in the markets, the tone is still incredibly positive for the sector. And some of these pullbacks that we've seen this week, including for the gold price, people are viewing it as a reentry point to get into the sector if they weren't exposed. And I think most people are of the view that this mining cycle is still in the early-to-mid stages.

1:01Yeah, and we would tend to agree. Right. Okay. I interesting to see where it goes next year for sure. The two polls, I think it's fast things, but here it's talking about you. I think the one thing I noted, as I can do in the research for this conversation, is how dramatically the product of the coming has changed. You worry China production story. People weren't quite sure what to make of that. Even though you're throwing out a lot of ounces and a lot of cash. So maybe start with things that ying, I mean, obviously there's a kind of safety, any updates. What are we calling that? Yeah, well, what happened was there was a horrific, tragic accident in another region in China. And this was in a coal mine. Yeah. But many people were killed. The post-accident investigation determined that not only were the mine management, but also the primary negligent in terms of ignoring safety regulations and the regulations related to the mine. It was discovered that certain other regulators and politicians in that county were also complicit in what was going on.

2:07So that led to a bit of a sort of a shock within the country and the government. Very sensitive to these kinds of accidents and wanting to impose sort of new regulations, or at least do a review as to what our company is doing and what can we do to ensure this doesn't happen again. And so some directives were established from sort of the top. And then these were distributed down to be executed at the provincial level. Right. And so what we did on the news of this disaster and this is enhanced scrutiny and review was we shut our minds to proactively to go and implement our own internal review of our systems. And since that point in time, we've determined a few things that we've needed to do. And we've recommenced operations at Yang. And we're in the midst of adding some of the safety systems that are now being required as a result of this review.

3:11I mean, I think from our standpoint, some of the new measures are more appropriate for coal. And coal mines have very different risk parameters than hard rock mines. But at this point, it's better to be safe than sorry, get these systems in place and will be an even safer and more secure company going forward. Yeah. And I guess people will be looking to, you know, how that's affected production. And I'm obviously only going, you know, in terms of bouncing braces approach this, will our fans, your guidance, or expected guidance going forward? Well, I think with the fact that our minds were shot from a period in June and there was not much production in July, Yang got back up and running to about sort of 60% of targeted throughput in August. But we're ending September now at sort of 90 or close to 100%. So there will be an impact exactly what that is.

4:11We'll be determined by how much we can make up and through the balance of the year. But it's sort of our view is it's a one time event. But the mineralization didn't go anywhere. And as I said, these systems that we're putting in place will just further enhance the sort of sustainability of our minds going forward. Right. And obviously measuring in ounces is one thing, measuring in dollars is another. In terms of how it affects the bottom line, do you think it'll be the last of an impact because of gold price? Well, there's certainly gold price fundamentals that are in our favor. And then if you think of some of the other metals byproduct metals, zinc prices have done phenomenally. And zinc treatment and refining charges have been very favorable for miners. And if you think why did this happen? Well, there's a whole bunch of lead zinc production in China that was taken out. And there was running lead and zinc smelters in China that were short on concentrate.

5:11So back up and running, I think we're seeing some very favorable terms for our production. And that should help soften the blow. But I've got to be cautious about what kind of guidance I give here in this at this point. And how are you managing the kind of FX component to this? That's an exchange. Well, I mean, it's, you know, when you say that, I mean, obviously we're seeing a little bit of strength in them. What is your position? You produce gold, but you sell locally, right? Yeah, we sell everything. We produce lead and zinc concentrates and some gold concentrates and some gold dores as a result of some of the new zones that we found. And yeah, and all of this is being sold domestically in China for R&B. Right. So anyone looking through and watching currencies will have seen the R&B has strengthened the U.S. dollar. Some would argue that, well, I think a lot of currencies have strengthened against the dollar in the last, or certainly, yeah, for obvious reasons. Okay, well, that's all good news.

6:12So this is a setup. I'm going to go through the project because there's a prime reason to this at the end. Okay. So let's just, let me jump down to El Domo. Obviously, you can set a target for, which was within the next year, right? Yes. Where are we today? And what have you got yet to deliver into that? So, obviously, last year, we were already in the construction phase in El Domo. We've made some great advancements. And we're now looking at really the final push that we're looking at to hit that July 2027 commissioning target. We still think we can hit that. Yeah, but we are somewhat exposed to what the weather gives us. And that has been a bit of a challenging factor, which we've worked through. It's probably used up some of our slack in the schedule because of a very rainy season, at the beginning of 2025, which was then surpassed by an even rainier wet season at the beginning of this year.

7:16But we've been able to still see our way to getting to that July 27 target. And that's, to a large degree, a result of the contracts that we've signed with the contractors that we're working with in-country that are able to deploy big groups in terms of equipment, teams, people to get that work done. The mill equipment is on a ship right now, as we speak, coming across the ocean, the land, we'll get that up to sight. And we've lined up the contractor. We're just going to put that together in terms of the plant. And like I said, we're still targeting a July completion at this point. And what are the learnings from that kind of seasonality? We've experienced this with some companies that you were hit in Chile, July or September. We're kind of shocking for them having been hit earlier in the year as well. How do you change your, your camp design? How do you change your mine design? All those things which can impact on products over the year?

8:17I think if you're, you know, if you're in an area like El Domo where there is at certain points of the year, you know, rainy seasons and a lot of runoff, you just got to put a lot of thought up front into those water diversion channels. Don't underbuild them. Don't go light on them. Yeah. Make sure you put in a bunch of generators on the ground. Well, and I mean, it's also just making sure that where there's culverts, roads, you're putting concrete so things don't wash away and you're not rebuilding the road. Yeah, you know, several times. Yeah, yeah, yeah, every, every couple of months on a big rain storm. Yeah, really. So, so I think that's been a bit of the learning and planning, but you know, the other elements, I think the big takeaway is for all the other challenges in building a mine, you know, now miners are going to have to face adverse weather conditions. And the market better get used to the fact that there could be in the future because of these, you know, extreme weather events disruptions in construction or in the operations.

9:21And we've seen that for existing mines that are having to deal with extreme weather events and losing production because of that. And I'm going to prove that people need to this story. Remind them what the potential, what you're aiming to deliver and what the mine would give up in terms of answers and terms of the, well, some of the numbers around that. Yeah, I mean, I think what, what, what, you know, what we look at it is, is it adds a mix to us and what it does is it brings some copper and it adds to our gold revenues largely. So we look at it and based off of similar numbers, if our, our mines in China or sort of a run rate of, you know, 550, Aldomos adding roughly 200 million in terms of revenue to the mix. And a bit less than half of that is copper. So, so we're adding meaningfully to our revenue base on what is a mine that, you know, has it been, well, our CapEx number on it is 284.

10:24So, so I think we're getting a pretty spicy high grade small tonnage mine. Yeah, that we're going to build with our partners. Yeah. And, and it's a good beach head into the country for us. And it's the focus of, obviously, on that bill is because that's a deadline. You know, no one wants to do the mess. I'm sure you don't either, but in terms of the expansion around Aldomo, you think any work on that yet or not? Not yet. Not yet. There's other, there's been other indications that we could find more. But right now we're 100% focused on execution of the mine. And the execution of building the, the plain vanilla as per the feasibility study mine. Right. And the money coming out of you kind of feed into that. It was not necessary. How are you dealing with? Well, I'm just the compass. I mean, we've had cash on hand. Corporate head office. And then also out of the 284 we have Wheaton as a partner. And they're contributing 175 million. So far we've taken half of that into tranches. So there's two more tranches to come from Wheaton when we've hit certain percentage completion milestones.

11:26Right. Of getting the mine done. That's done as far as the kind of capital is. Is it? Yes. Right. Okay. And pay back on that. When's this thing actually start choosing that? I mean, it all depends on metal prices that you use. But in recent numbers, it was sort of a two to three year payback. Okay. So entirely reasonable. And that's actually at prices lower than current spot prices. Sure. What I don't know what did you use 300 400? What would he? We were 3350 think on gold. And a $5 copper. Okay. Complete. In consensus. And then we're going to sort of to kick a stone, which people kind of think, well, that's good. Tough because oil people know from oil. But mining terms. Is there other many miners in country? Yeah. There are other mines in Kyrgyzstan. Yeah. Obviously, they're a very notable one that got a lot of press when when Centera got into a bit of a into a tussle with the government. But there's been other mines since then. Number owned by Chinese groups, some Turkish groups are operating mines as well. How are you selling it?

12:34I think we've found deal with the government to be very positive, very supportive. Yeah. I recently visited the site with the two board members that are representatives of Kyrgyzaltin, the state gold company. And they were very pleased to see the progress. I think what people don't realize is we closed that acquisition in January. We started working to get access to that site because it is in the mountains. And it wasn't being it was on sort of a Karen maintenance. So it was snowed in from the winter. So we cleared the roads got access to the site in May. And since May we've made what I think is really great progress in setting up for the first stage, which is production from an open pit heap leech operation. We've got heap leech pad areas, crushing plant level, ponds being set up for the the pregnant solution areas for the ADR plant setup.

13:36We have got our same contractor that's doing our work in Ecuador is currently stripping the pit building access roads to the mining area, just completed to camp. And we're targeting to have the first or on heap leech pads later next year. So it's short life of mine currently currently currently. Yeah, I think that's where you did. What you picked this thing up for? Well, how do you find it, leaving is most people wouldn't venture there? Well, it was it was a project that had been advanced by a developer based in London, a company that some people have and some people have actually seen and visited the project when it was owned by Churat. Gold home. And they did I think $180 million worth of expenditures, not all of it necessarily good value, but not that you're benefiting from. Well, we're benefiting from a lot in terms of drilling and some very extensive studies that we're using and as well as getting the permit that we're using to drive ahead so quickly to build this first first phase mine.

14:40But they as a developer capitalized with a note thinking they could refinance it. They didn't. The lenders foreclosed on them, delisted it from aim and then started a process to look to monetize it. And we feel it was an asset that was not necessarily well marketed and misunderstood. And what we really like about it is from an entry standpoint, we're spending effectively $150 million to get 70% and controlling interest of a resource of six million ounces of gold. And of that, the first stage is permitted ready to go and we're budgeting the open pit heap leech will cost $160 to build. And then we'll be able to generate cash flow from that that we can then deploy to build the second project, which has the potential to be much bigger and much longer life. Yeah, I remember speaking to them by 2019, 2020, I'm a little.

15:40Yeah, how do I dance about it? It's just about a method. Let's say there's some good assets that I put it was just the financing overlaid which I think is difficult. It comes to your model here of the phase one and phase two approach. Get this thing moving, put the infrastructure in, get some cash flowing and then build up the phase two, done over stretch. Tell us about the phase two opportunity because I referenced life of mine, so we know this in options. Well, and I think on the phase one, as it's currently outlined, it's sort of a four year. We think based on some other targets and some other zones that have been drilled and where we have internal resource calculations, we think that that four years could be extended by two or maybe even a double. You still kind of not get the credit it deserves. People have that magic number of 10 year, right? They could just say, but that's a pretty good start before you get into phase two. Yeah, we're in phase two as it was previously scoped and we'll see whether it could end up being bigger than this.

16:41We're estimating between 200 to 230,000 ounces a year for 18 years. So this is a big, base load, gold asset that will dramatically change our revenues and cash flow profile. So here's the whole point of the conversation. When I listen to the sort of the geosationality risking, and when I look at the kind of profile, the ounce profile that you're building out here, and I'll see whether the team had done it before. You know, you did it in China, people weren't getting credit for it. The ultimate was the first attempt at flying something, but it was the first one you got over the line. The reaction to the market to that was how would you describe the reaction to the market and that first move? I think it was a little bit of at last, right? They've got one. When that's sort of generalization on the market, when the market looked through, they said, okay, this is an asset that makes sense that they can execute on this, get this built, and that it'll create a platform, a beachhead, both in Ecuador.

17:55We have another project that we're looking to advance in Ecuador as well, but then also building a team now with input from our colleagues in China, Vancouver, people we've added from in different countries in Latin America, we're now building a construction and execution team that we can then deploy in other projects. Right, getting some kind of cookie cutter approach to these opportunities, but also I think reputationally it's quite interesting, people would go, the color projects, we'll count our demo and a producing category soon, wish. But also with Kyrgyzstan, the opportunity that if you can execute on that, they can move that through the phases quickly as well. That puts you and your team in a different light in terms of financing, should you need it, but possibly with the institutions, ask people who are mind builders, operators, and generations of cash. That's an interesting dilemma from three years ago. Yes, absolutely.

18:55Is it really going to be a big deal? I mean, it's exciting, it's also nerve-wracking. There's not many companies that are building two mines right now at the same time. I think we've done great strides to backfill and build the teams to be able to accomplish it. We've still got a lot of work to do, but it's definitely an exciting position to be in, where we're now able to speak to that business plan and executing on that strategy that we've talked about for many years. So, we've got both the bottom line, what's the opportunities and cash, and then you get the cheers, what you're doing, how you go about it. Yeah, well, I think it's nice to have options. You've got to get to the next stage and evaluate what's the next path, what's the next way you can add value and improve the company. So, we've got a few things to do here. We're still thinking and we're still looking at what are the things later on. We're still active in the review phase, looking at other projects, other opportunities.

19:55And I think as we get closer to being a multi-gear-stictional company and with a pipeline, it actually affords us some greater flexibility to take on. We've always been in a position and open to adding production, because that would be immediate asset-review geographic diversification, but not looking at earlier stage projects, because it's sort of from a market standpoint, okay, who cares? That's 6, 8, 10 years out. But if we start to now demonstrate an actionable growth portfolio, we can then start to look at and take on some earlier stage projects that we can nurture in-house and bring forward. I think the other aspect to this is the jurisdiction and which he operates. You don't fear to go where others perhaps do, you fear to tread. I know it's probably not the option, but it may give you a bigger scope and access to some of the projects perhaps. There is less competition on.

21:02Yes, I think that's, I think that in some ways is a necessity, because we're not in a position. If you think of the price tag to buy 6 million ounces of gold, permitted sort of in a ready-to-go situation, show me a place where you can get that for 150 million. You have to be thinking out of the box and looking into some other jurisdictions where others aren't as active, but we're not doing it without doing the homework and without assessing the risk and also looking at a way that we can manage the risk, the capital at risk as we go forward in the future. That's why we've designed these programs or looked at projects that potentially have a stage development component to them. I think that's more and more understood in the marketplace. It used to be case of how big can this thing be out of the gate and there's price tag that comes with that. I think that kind of stasha model, we yourself self-financing, I've got a labeling as earn to build, earn while you build, is a great, great model to our side of concern.

22:12Lauren, I've really seen you keep going through your thing. I'm lovingly glow up in the country, as far as the company is concerned, it's I think getting noticed. There's been a lot of changes over the last year and it's these kind of moments that cause you to think about that and realize them. Take some satisfaction in what we've accomplished, but also keep our eyes on the runway ahead that we have to work on.