Fortuna reports consolidated financial results for the third quarter 2014
Jorge A. Ganoza, President and CEO, commented, “We have reported record revenue with strong operating and net margins and a growing year-over-year cash balance in spite of the challenging metal price environment. For the first nine months of the year, the consolidated all-in sustaining cash cost per ounce of silver was $15.12, 12% below annual guidance. We continue to find opportunities to increase productivity and cost reductions that will materialize over the coming quarters.” Mr. Ganoza continued, “At San Jose, trade-off and feasibility studies are being completed to expand the San Jose Mine to 3,000 tonnes per day by mid-2016; allowing for a targeted annual consolidated production rate of approximately 9 million ounces of silver and 50,000 ounces of gold.”
Third Quarter Consolidated Financial Highlights:
- Record sales of $46.4 million, 54% increase over Q3 2013
- Net income of $7.8 million or earnings per share of $0.06; compared to a loss of $0.3 million in Q3 2013
- Cash flow from operations before changes in non-cash working capital of $17.8 million, 135% increase over Q3 2013
- Cash position, including short term investments, as at September 30, 2014 was $72.3 million, 20% increase over Q2 2014
- Silver and gold production of 1.8 million ounces and 9,751 ounces, 63% and 116% increase over Q3 2013
- San Jose Mine AISCC* was $9.12, Caylloma Mine AISCC was $13.31; 47% and 23% decrease over Q3 2013
- Consolidated AISCC was $11.85 for the third quarter 2014 and $15.12 for the nine months ended September 30, 2014; 39% and 34% decrease over the same period
(*) AISCC = all-in sustaining cash cost per ounce of silver; all-in sustaining cash cost is net of by-product credits for gold, lead and zinc
Third Quarter Consolidated Financial Results
Net income was $7.8 million (Q3 2013: loss $0.3 million) and basic earnings per share were $0.06 (Q3 2013: $nil). The increase, compared to the same period last year was mainly the result of higher silver sold of 74%, and significantly higher margins at the San Jose Mine despite a 10% decrease of the realized silver price on our provisional sales to $19.14 per ounce of silver. In addition, net income was positively affected by mark-to-market effects on share-based compensation resulting in a recovery of $0.8 million compared to a charge of $1.3 million in the comparative period.
Mine operating earnings increased 105% over the third quarter 2013, while gross margins (mine operating earnings over sales) increased from 27% to 36%. The impact of lower metal prices on gross margins was offset to a large extent by significantly lower unit cash costs at the San Jose Mine, down 15%, as well as by higher head grades and metal recoveries for silver and gold.
Cash flow from operations, before changes in working capital, increased 135% to $17.8 million (Q3 2013: $7.6 million).
Basic earnings per share were $0.06 (Q3 2013: $nil). Operating cash flow per share, before changes in working capital items, increased to $0.14 (Q3 2013: $0.06); refer to non-GAAP financial measures.
Liquidity available today to the company is approximately $112.3 million which is composed of $72.3 million in cash and short term investments, and an undrawn $40.0 million revolving credit facility.
The company’s 2015 budgeting process is in its final stages and management has begun implementing measures to further improve operational efficiencies and mine plans. As of the beginning of the fourth quarter, management has moved to make 20% and 7% reductions in the corporate and Peruvian subsidiary head counts, respectively, amounting to net annual savings of approximately $1.5 million. The company continues to work diligently to keep identifying areas where savings can be realized without hindering our ability to keep sustaining organic growth.
Third Quarter Operating Results
Silver and gold production for the third quarter 2014 and for the nine months ended September 30, 2014 increased over the same periods in 2013, 63% and 116%, and 57% and 86%, respectively. These increases are explained largely by the commissioning of the San Jose plant expansion from 1,150 to 1,800 tpd in September 2013 and to 2,000 tpd in April 2014. The company should exceed its 2014 annual silver and gold production guidance by 9% and 8% respectively.
All-in sustaining cash cost per payable ounce of silver for the third quarter 2014, net of by-product credits, decreased to $11.85 (Q3 2013: $19.31) as a result of lower sustaining capital and brownfields exploration expenditures and higher payable ounces of silver; refer to non-GAAP financial measures.
All-in sustaining cash cost per payable ounce of silver for the nine months ended September 30, 2014, net of by-product credits, decreased to $15.12 (nine months ended September 30, 2013: $22.74) as a result of lower brownfields exploration expenditures and higher payable ounces of silver operations; refer to non-GAAP financial measures.
San Jose Mine, Mexico
Silver and gold productions for the third quarter 2014 were 1,215,100 ounces and 9,352 ounces; 127% and 136% increase over third quarter 2013, respectively. The increases are the result of higher throughput, 73% over the third quarter of 2013, and of higher head grade for silver and gold, 30% and 34% increase.
Production for the nine months ended September 30, 2014 was 3,313,546 ounces of silver and 24,935 ounces of gold, 106% and 98% increase over the same period in 2013, respectively. San Jose is on track to exceed annual production guidance of 4.0 million ounces of silver and 30.4 thousand ounces of gold.
Cash cost per tonne of processed ore for the third quarter 2014 was $61.54/t or 15% below the cost in the third quarter 2013 due mainly to higher throughput and lower mining and milling costs. Cash cost per tonne is below the annual guidance of $67.10/t driven by a favorable exchange rate and productivity gains achieved at the wider stockwork zone at level 1200 of the mine. All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $9.12 in the third quarter 2014 and $12.93 for the nine months ended September 30, 2014 (refer to non-GAAP financial measures), 10% below annual guidance of $14.43.
The San Jose Mine was successfully expanded to 2,000 tpd in April 2014 (see Fortuna news release dated April 14, 2014). Trade-off and feasibility studies for a potential expansion to 3,000 tpd are in their final stage.
Caylloma Mine, Peru
Silver production for the quarter was 588,727 ounces, 4% above third quarter 2013 due to higher metallurgical recovery and slightly higher head grade. Zinc production increased 11% as a result of higher head grade and higher metallurgical recoveries. Lead production decreased 11% due to reduced head grade. Caylloma is on track to meet its annual production guidance of 2 million ounces of silver.
Cash cost per tonne at Caylloma for the third quarter 2014 was $91.05 per tonne of processed ore, an increase of 5% from the third quarter 2013 and 3% above annual guidance. All-in sustaining cash cost per payable ounce of silver, net of by-product credits, was $13.31 and $13.96 for the nine months ended September 30, 2014, the quarter is 22% below annual guidance of $17.01; refer to non-GAAP financial measures. Management expects cash cost to be in line with annual guidance with the execution of capital expenditures in the fourth quarter.
The financial statements and MD&A are available on SEDAR and have also been posted on the company’s website at http://www.fortunasilver.com/s/financial_reports.asp.