Great Panther eyes growth in Mexico

Great Panther Silver (GPR-T, GPL-X) aims to steadily grow output from its two revived mines in Mexico to help reach its long-term goal of producing more than 5 million silver-equivalent oz. a year.

While the company posted flat results for the second-quarter and first half of the year, it has kept its 2012 production guidance of 2.50 to 2.75 million silver-eq. oz. and has implemented several changes to aid production.

For the three and six months ended June 30, the Mexico-focused silver producer posted a growth in revenue but a huge slide in net income.

Second-quarter profit came at $354,000 down 86% from $2.5 million in the comparable period of 2011. Revenue grew 69% over the year to $14.4 million, while gross profit dropped 5% to $3.7 million.

Revenue for the first half of the year climbed 17% to $28 million, while gross profit dropped 20% to $10 million and net income shrank 47% to $5 million over the same period last year.  

The company’s CEO Robert Archer said on a conference call that the company’s gross profit during the quarter was impacted by lower silver prices and higher smelting and refining charges. Average silver price was US$28.06 per oz. compared to US$36.21 a year ago. 

“On top of that, we realized higher than normal amortization and depreciation charges due to the substantial investments we recently made in our mines and in plant upgrades and equipment purchases,” he said.

Archer added that revenue growth was on target and came mostly from concentrate shipments that were in transit at the end of the first quarter and were recorded in the June quarter.

On a silver equivalent basis, metal production totaled 555,721 oz. in the quarter and 1.1 million oz. in the first six months, slightly lower than the output recorded in the corresponding periods of 2011.

The junior explains drought conditions throughout Central Mexico impacted production at its Topia silver-lead-zinc mine in Durango State.

While the drought ended in June, Archer says for most of the period the company cut back its plant throughput and stockpile of ore.

Despite the lower processing rate, Topia reached a record silver production of 148,439 oz. during the quarter. It generated 196,658 silver-eq. oz., accounting for 35% of the company’s total output.

The company’s CEO says throughput is back to more than 200 tonnes per day and that it’s “catching up on the stockpiled ore from the first half of the year.”

The remaining production came from the silver-gold Guanajuato mine complex in Guanajuato, Mexico. The complex consists of several deposits along a 4.2-km strike length. Mining from the four zones, Cata, Los Pozos, Santa Margartia and Guanajuatito account for the bulk of the mine’s output.

During the quarter, Guanajuato generated 226,284 silver oz. or 359,063 silver-eq. oz.

Overall gold production improved by 22% from a year ago owing to steady production from the Santa Margarita vein at Guanajuato, notes Archer. He adds the plant at the mine achieved record recoveries of 91.1% for silver and 92.3% for gold due to the addition of a regrind mill.

Consolidated cash costs per silver oz. net of by-product credits was US$11.42, a 11% drop from a year ago, but 26% higher than the first quarter’s US$9.05.

The company says the cost fluctuations largely resulted from variability in grades and by-products prices.

Great Panther expects 2012 metal production of 2.50 to 2.75 million silver-eq. oz., but forecasts to be in the lower end of the range. Cash costs are anticipated at $9.50-$10.50 per oz.

To help reach its guidance, the junior has the Guanajuato mine complex operating seven days a week instead of six days. It intends to increase production from the high-grade Cata veins, and further improve recoveries at the plant. 

Great Panther aims to grow its annual production to over 5 million silver-eq. oz. by building up its operations and resource base, and through future acquisitions, which Archer says the company is currently working on.

Analyst Heiko Ihle of Euro Pacific Capital told The Northern Miner in an email that he doesn’t see the company reaching 5 million oz. of annual production anytime soon unless it makes a “meaningful acquisition.”

“They are looking at producing mines and exploratory assets, and I think something will be consummated by the end of the year, especially given their relatively large net cash position (almost $30 million) and the fact that the firm currently has no debt.”

Meanwhile, the junior is developing the San Ignacio silver-gold project as a satellite of the Guanajuato mine. Developed ore from the deposit, which sits 20 km from the complex, will be processed at Guanajuato’s Cata plant.

For that reason, San Ignacio’s resources, except for its inferred ounces, have been added to Guanajuato’s resource estimate.

On a silver equivalent basis, Guanajuato has 5.65 million oz. in measured and indicated, and 2.5 million oz. in inferred. San Ignacio hosts an additional 6.89 million oz. in inferred. The inferred resources were reported separately because different parameters were used in their estimation, the company says.  

Topia hosts 7.45 million oz. in measured and indicated, plus another 11.9 million oz. in inferred.

In total, the company has 13.1 million silver-eq. oz. in measured and indicated, and 21.3 million silver-eq. oz. in inferred.

On the exploration front, Great Panther plans to drill roughly 47,000 metres during the year, of which more than half will be completed at Guanajuato, while the rest will be at San Ignacio, Topia, and the Santa Rosa exploration project near Guanajuato.

Great Panther ended June with $28.7 million in cash, down from $40.3 million in the previous quarter, largely due to the timing of payments on concentrate shipments during the period.

Its shares recently closed at $1.60 within a 52-week range of $1.53-$3.53. 

Ihle has a buy recommendation on the stock and a price target of $2.10 a share.