Andean Precious Metals (TSX:APM) Q2 2026 Earnings Call

0:00 Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Andean Precious Metals Q2 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

0:26 It is now my pleasure to turn the call over to Dom Kisek, Vice President, Finance. Please go ahead. Good morning, everyone, and thank you for joining us today to discuss Andean Precious Metals' second quarter twenty twenty six financial and operating results. Joining me on the call today are Alberto Morales, Executive Chairman and Chief Executive Officer Juan Carlos Sandoval, Chief Financial Officer and Victor Flores, our SVP, Exploration, Operations and Growth.

1:03 Before we begin, I would like to remind listeners that certain statements made on today's call may constitute forward looking information within the meaning of applicable securities laws. Please refer to the cautionary language included in our press release and MD and A for additional information. I will now turn the call over to Alberto. Thank you, Tom, and good morning, everyone.

1:29 The second quarter was defined by our decision to defer the sale of a portion of our production for strategic treasury management purposes. We ended the quarter with finished inventory of approximately 732,000 ounces of silver and 2,585 ounces of gold carried on the balance sheet at cost of 7,600,000 As a result, reported revenue and earnings for the quarter do not fully reflect underlying operating performance of the business. I am pleased to report that subsequent to quarter end, we sold the entire deferred position at weighted average prices of $62.26 per silver ounce and $4,168 per gold ounce for gold proceeds of for gross proceeds of approximately $6,300,000 approximately $18,700,000 above the carrying cost of the inventory with the related revenue to be recognized in our third quarter results.

2:46 Notably, those realized prices were above the available prices during the final weeks of June 2026 per ounces of gold and silver. The strategy did exactly what it was designed to do. It gave us the flexibility to monetize our production on better terms. Operationally, the business performed well. Consolidated production of 25,388 gold equivalent ounces was approximately up 4% year over year and year to date production of 52,730 ounces is up approximately 15%, driven by another outstanding quarter at San Bartolome, where silver equivalent production increased 31%.

3:43 On a year to date basis, revenue increased approximately 70% to 230,800,000 with adjusted EBITDA of $86,600,000 and net income of $34,200,000 That is our strongest first half revenue and adjusted EBITDA on record. And despite the sales deferral, our year to date revenue, adjusted EBITDA and net income was already higher than year to date 2025. Approximately 60% of second quarter revenue was derived from silver and 40% from gold, underscoring the strength of our diversified precious metals platform and our meaningful exposure to the current silver price environment.

4:42 Average realized prices were $4,453 per gold ounce and $76.82 per silver ounce, up approximately 34124%, respectively, year over year. More importantly, we strengthened our balance sheet by increasing our total assets, our total equity, while also reducing our total liabilities, reflecting a 15% million dollars prepayment on our revolving credit facility and an improvement reduction and an important reduction in our accounts payable.

5:28 We ended the quarter with $170,800,000 in liquid assets, which includes our finished metal inventory measured at cost and $52,200,000 in cash and cash equivalents. Operationally, San Bartolome delivered another strong quarter with silver equivalent production up 31% year over year on higher ore purchase volumes, grades and throughput and cash gross operating margin of $25.56 per ounce sold. At Golden Queen, production was lower due to mine sequencing and grade timing, while year to date all in sustaining cost of $19.70 dollars per ounce remains within our 2026 guidance range.

6:27 We reiterate our full year 2026 production cost and margin guidance. And with the elevated price of diesel, we expect to continue to deliver within these ranges supported by disciplined execution and our focus on free cash flow generation. We have discussed previously our production profile remains weighted towards the second half of the year. Bolivia's transition to a flexible exchange rate regime effective June 29 is indicative of a more market focused economy. And the continued depreciation of the Boliviano against the U. S. Dollar, our reporting currency, is currently working in our favor.

7:19 We will continue to monitor the new regime closely, but don't expect any material impact on the company. During and subsequent to quarter end, we also advanced key important initiatives corporate initiatives, including the relaunch of our normal course issuer bid, under which we have repurchased approximately CAD 2,100,000 shares for roughly CAD 12,700,000 since July the election of Stephen Altman to our Board of Directors shareholders' approval of Ernst and Young as our auditor and continued progress toward our listing in the New York Stock Exchange, which we expect to happen within 2026.

8:09 We also look forward to the release of the updated technical report at Golden Queen, which we expect to announce in late September and believe it will further enhance the company's visibility and profile with the global investment community. I'll now hand it over to Juan Carlos to provide additional operational and financial highlights beginning with San Bartolome. Thank you, Alberto, and good morning, everyone. San Bartolome delivered another excellent quarter operationally. The operation produced approximately 16,820 gold equivalent ounces in Q2, representing silver equivalent production of approximately 1,430,000 ounces, an increase of 31% over the prior year period.

9:07 Silver production was approximately 1,320,000 ounces, up approximately 28 year over year. Performance benefited from higher ore purchase volumes, up approximately 32% at an average purchase grade of 170 grams per ton, together with higher throughput of approximately 4,400 tons per day and improved head grades. Cash gross operating margin increased to $25.56 per silver equivalent ounce sold compared to $15.79 in the prior year period as substantially higher realized silver prices outpaced the increase in per ounce operating costs.

9:59 Gross margin ratio was 33% for the quarter compared to 46% in the prior year period, reflecting higher ore purchase costs that are linked to the spot price of silver and the appreciation of the Boliviano versus the U. S. Dollar. This partially offset by higher realized prices.

10:22 In a rising silver price environment, our purchase costs adjust with the market, but the operation continues to capture meaningful absolute margin on every ounce produced. Silver sales totaled approximately 451,000 ounces during the quarter, representing approximately 35% of quarterly silver production, and no gold ounces were sold at Sunbard during the quarter. We continue to focus on strengthening long term ore supply relationships, optimizing logistics and improving operational efficiencies. Now moving on to Golden Queen. At Golden Queen, production for the quarter was approximately 8,568 gold equivalent ounces, of which approximately 7,800 ounces of gold lower than the prior year period,

11:24 primarily due to mine sequencing and grade timing with average stack rates of 0.51 grams per ton compared to 0.73 grams per ton a year ago.

11:38 Revenue was approximately $32,000,000 as higher realized gold prices were offset by lower ounces sold, reflecting both lower production and the deferral of gold sales. Operating cash costs were $17.79 dollars per ounce sold, while all in sustaining cost was $2,159 per ounce sold for the quarter, primarily reflecting lower ounces sold, partially offset by lower sustaining capital expenditures for timing reasons.

12:16 Importantly, year to date all in sustaining cost of $19.70 dollars per ounce is below the prior year period and remains within our full year guidance range of 1850 to two thousand one hundred and fifty dollars per ounce.

12:36 As we move through the second half, we expect sustaining and growth capital to increase in line with guidance as we advance the leach pad expansion, mobile fleet investments and operational optimization projects. On exploration, we completed our Phase one drill program of approximately 10,000 meters in June, and exploration activity stepped up meaningfully during the quarter. We are assessing a second phase for 2026, including geophysics, mapping, sampling and additional drilling. As previously discussed, the results of the updated technical report for Golden Queen will be announced in late September, with a new technical report scheduled to be released in Q4.

13:31 Now moving on to the financial results. Our second quarter financial results were shaped by the strategic sales deferral that Alberto already described. Revenue for the quarter was $67,600,000 compared to $73,700,000 in Q2 twenty twenty five, a decrease of approximately 8% resulting from the deferral of silver and gold sales.

14:01 Gross operating income was $23,600,000 compared to $29,400,000 in the prior year period, and adjusted EBITDA was $15,700,000 compared to $28,900,000 We recorded a net loss of $14,000,000 or $09 per share for the quarter. In addition to the deferral, the net loss reflects a mark to market decrease in the fair value of our marketable securities and a foreign exchange loss related primarily to the Bolivian Bolivian.

14:41 On a year to date basis, revenue increased approximately 70% to $230,800,000 Gross operating income increased to $99,100,000 from 52,400,000 Adjusted EBITDA increased to $86,600,000 from $50,800,000 and net income was $34,200,000 or $0.22 per diluted share. Despite the sales deferral, our year to date adjusted EBITDA was already higher than year to date 2025. Free cash flow was an outflow of $55,500,000 for the quarter and $60,000,000 year to date.

15:31 This is not a reflection of operating performance. It represents the investment in noncash working capital from the buildup of finished silver and gold inventory, together with a $15,000,000 paydown of our revolving credit facility. With the sale of the deferred inventory subsequent to quarter end, that recovery is already underway and will be reflected in our third quarter results.

16:03 I'll now pass it on to Lums for some further highlights on our financial results for this quarter. Thanks, JC. Turning to the balance sheet. We ended the quarter with just under $171,000,000 in liquid assets. Effective this quarter, we revised the composition of liquid assets to include metal and third party refineries and dory inventory, measure of cost, which captures the finished inventory subject to the deferral. This consisted of approximately $52,000,000 in cash and cash equivalents, approximately $65,000,000 in short and long term marketable securities and approximately CAD54 million in finished metal inventory at cost. As a reminder, at June 30, the deferred inventory was carried within liquid assets at a cost of CAD37.6 million. So the quarter end measure does not reflect the value realized on the subsequent sale, where proceeds were approximately CAD 18,700,000 above the carrying cost.

17:03 On debt, we repaid CAD 15,000,000 on the revolving credit facility during the quarter, bringing the balance to just under $15,000,000 with $25,000,000 of undrawn capacity. Total debt, including equipment financing, was approximately $30,000,000 and we were in compliance with all covenants at quarter end. Total assets increased to $453,300,000 Total equity increased to $301,300,000 from $263,000,000 at year end, continued strengthening even in the quarter with a reported net loss. Subsequent to quarter end, we deployed approximately million to repurchase approximately 2,100,000 shares under our NCIB.

17:49 Overall, we remain focused on disciplined capital allocation, operational execution and maintaining financial flexibility. With that, I'll turn the call back to Alberto for closing remarks. Thank you, Tom. Q2 was an unusual quarter. Rather than selling our full production into the market, we chose to hold a meaningful portion, which was later sold after quarter end for approximately 56,300,000 representing approximately MXN 18,700,000 above the carrying cost and at prices above those available at quarter end. Looking to the second half, we are well positioned with a strong liquidity and meaningful exposure to both gold and silver, a production profile weighted to the second half of the year and multiple catalysts ahead, including our expected New York Stock Exchange listing and the updated Golden Queen technical report.

18:56 As always, I would like to thank all of our stakeholders, including our employees, contractor, local community and shareholders for their continued support. With that, I will now open the line for questions. Our first question comes from the line of Allison Carson with Desjardins. Thank you. Please go ahead. Thank you, operator. Good morning and thanks for taking my questions today. My first question is just on the NCIB. Seeing as you've already repurchased 2,100,000 shares, would you consider expanding this program in the Hi, Allison.

19:49 And for purpose of your question, while we announced that for this tranche, we got authorization to purchase up to 4,000,000 shares. So it will be dependent upon market condition, but certainly our authorization and the request that we did is for up to $4,000,000 and we only have executed half of it. Okay, great. So we'll just keep watching to see if you get through the next $2,000,000 pretty quickly here. And then my other question is just on Golden Queen. I was wondering if you could just sort of highlight some of the key areas that we'll see changes in the upcoming tech report. And if all the remaining work to complete it is tracking well for completion for a press release at the end of September.

20:44 Victor? Yes. Thank you. Good morning, Allison. Thanks for your question. Yes, we are tracking towards the September 30 deadline for press releasing the technical report. Believe me, there's a lot of work going on in the background, not only with the Golden Queen team, but with our third party contractor to get this done. Key things that you'll see are the results of the drilling that's been done over the past few years all the way through the end of twenty twenty five. And that is going to result in an increase in the mine life. I think we've already shared with the market that we would expect to see production continue through approximately 2035.

21:40 So I think that's really the key thing that the market needs to see that there's an extension of the mine life of Golden Queen. And you'll see that in the technical report when we publish the press release and then the full document in mid November. That's great. Looking forward to seeing that update come out. Well, that's it for me. Thanks for taking my questions today. You. Your next question comes from Riley Benson with Atrium Research. Please go ahead. Hi guys. Thanks for taking my question. Just sticking on Golden Queen, to achieve guidance this year, what does production look like between Q3 and Q4? Ben, as we've said, what we can say right now is that we believe we're sticking to our guidance.

22:36 As you know, we saw a little lower production during Q2. But what we can say and how we're seeing things for Q3 and Q4 is that we will we are reinforcing the guidance that we presented late last year. Okay. Thanks. And then in terms of the higher sustaining and growth CapEx that's expected for H2, any color on that weighting between Q3 and Q4? Same thing, Men. Yes, as you can see, it has been lower than expected, but it's really a timing thing.

23:21 As we mentioned during this call, the leach pad expansion, the fleet replacement and so on. Most of those expenses are happening during this third and fourth quarter. So we expect to be within the CapEx guidance by the end of the year as well. Okay. Makes sense. And then maybe one final one for me. In terms of the strategic sales deferral, is this something you'd be looking to do going forward? Thank you, Ben, for the question. Well, as you remember, the spot prices and market condition at the end of or literally within the month of June were their were the lowest portions that there were been. And certainly, we took the decisions considering that we have a significant amount of cash in our treasury, we took the decision to hold on and because we believe prices were going to recuperate during Q3, which this is what happened.

24:41 And so we are we basically took the decision to defer the sale based on the fact that we could continue supporting our operations with a significant amount of cash and look for with the passage of a few weeks, we will be trying to monetize on better market condition, which is exactly what happened. Now whether we will do it in the future, I can say yes or no. We will have to monitor market conditions as they begin to appear going forward. But believe me, the decision is always it's always based on taking looking for what's best for the company.

25:32 Okay. Makes sense. Thanks for taking my questions, guys. Congrats on a strong first half. And our next question comes from the line of Sean Statham. Please go ahead. Sean, your line is open. If your line is muted, please unmute. With no further questions in queue, thank you for joining us today. This does conclude today's conference call. You may now disconnect.