Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q2 2023 period ending June 30th, 2023 financial and production results conference call. Before we begin, we would like to go over our disclosure statements, followed by CEO and President, Mr. Fred Davidson's comments on the quarter results and a Q&A period. Certain statements in the following conference call regarding IMPACT Silver's business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about future, which inherently involves risk, uncertainty, and could cause actual results to differ materially from those in the forward-looking statements. I would like to now turn over to President and CEO of IMPACT, Mr. Fred Davidson.
Thanks, Jerry. This is really one of those quarters that we felt that the call was going to be very important in that compared to the same quarter last year, things are fairly actually are dramatically different. So let me get on with it. The company reported a revenue of $5.5 million in this quarter. That's a 57% increase over the comparative quarter in 2022. Mine operating income was up for the second quarter in a row. This is $0.9 million, compared to only $0.03. And of course, we're talking about before amortization and depletion. The overall improvement in revenue was really the thing that we need to discuss.
We've been mining, and we're selectively mining underground, and the grades of silver will vary depending on where we're developing. But what's important is we bring on Alacrán, and Alacrán, it tends to be the San Margarita vein, at least tends to be gold, and we're gonna start seeing more and more gold coming through, and that gold, needless to say, is impacting fairly dramatically on the average price per ton that we generate. In fact, our gold production on a comparative basis, 66 ounces less than the quarter in 2022. This was over 300... It was almost 320 ounces in this quarter. So you're seeing that come through on the pricing. Plus, we got a little bit of relief on the pricing of silver overall. We've got a strong balance sheet.
We've got almost 14 million in cash. We've got a solid working capital, and during the period, we completed a CAD 9 million non-brokered private placement, ended the quarter with the working capital of around CAD 13 million. We also completed the acquisition on April 3, of Plomosas, the zinc-lead-silver mine, for a total price of $6 million. And that consisted of $3 million in cash, then the balance in the form of Impact shares. And those shares are subject to certain restrictions. There'll be some post-closing adjustments made on the basis of working capital as we acquired the company that controlled the mine. There's issues in transferring titles in Mexico, but there's no issue in acquiring shares, so we acquired the company that controlled the property.
That resulted in what's going to be probably a good six months of cleanup and repair on at the site at Plomosas. And but what makes it even more impressive, and people are asking, "So we've got another production center?" Yes, we'll have another production center, but what we've acquired is over six kilometers of what they call a carbonate replacement deposit. It's located in a district that is known for some of the largest CRDs in the world, and we think that this thing, Plomosas, offers us the opportunity to, for want of another word, hit a home run with more discovery. And we're going to be contributing a lot of effort and time to A, putting the mine back into production at a suitable size.
And then secondly, and coincidentally with it, looking for the exploration potential on this property, and, I think we'll be sort of pleased with those results down the road if the current theories in terms of the deposition are correct. Let's get on to the individual mines. At Zacualpan, the average grade was 163 grams per ton. That's up over slightly over Q2 in 2022, but more importantly, it's got the, as I mentioned before, the gold production, and we expect that gold production to continue. We're going to focus on exploration and development at Zacualpan, and, at the same time, we're gonna be sort of ramping up the exploration at the Plomosas District in 2023, 2024.
And we saw those dollars being spent in Q2, et cetera, about CAD 2.8 million as we start developing both of those projects. There's other issues that we wanna discuss, but I think more importantly, get into what Plomosas truly is. It was a mine that was being operated through a, for want of another word, another company that was having trouble trying to operate it from a distance and was undercapitalized. And the end result is much of the equipment and certainly the underground mine planning was suffered from that lack of financial capability and the inability to sort of be on-site to manage. It's going to be an investment in time and money as we bring the existing mine back into production. We're rebuilding entirely, and some of that's on our website.
You can see where, in fact, the ball mill has been moved and rehabilitated. We've had to replace the secondary crusher. We've had to-- It goes on and on. And underground, we're changing the mining method. The equipment related to the mine was in pretty poor shape as well. It's either being replaced or rehabilitated, so it's gonna be a very busy time for us there. But meanwhile, we've got a drill on site. A second drill will be arriving shortly. We're going forward with it. Down in Zacoal-- at Zacatecas, the, we've got one drill operating right now. There'll be a second one operating very shortly, and in both cases, we'll have two drills going, one on surface and one underground.
So the acquisition itself was roughly, as they say, $6 million, and what there was was an adjustment because it's an operating entity, an adjustment as to the working capital as when we first made the offer and when we ultimately closed, and that adjustment is yet to be calculated. The end result is we're faced with a balance sheet that looks a little confusing to the average reader, quite frankly, a little confusing to me, too. But what we're seeing is two things. We're seeing that we've managed to keep our cash position fairly solid, in spite of the fact we're spending a lot of money here.
And at the same time, property, plant, and equipment has increased, and the exploration and evaluation assets have increased correspondingly, in part due to the acquisition and in part due to the extensive exploration and development we're doing at both mines. Trade payables are up, as you'd expect from this sort of thing. They will be ultimately resolved over the next while. Some of those are old creditors from the Plomosas mine. And again, there's the adjustment that'll be due on the acquisition, which is related to the liquidity of the company on acquisition. So, and the only other thing there is goodwill, and goodwill is the residual on any acquisition. If it's the assets, the direct physical assets are, in fact, lower than the cash or deemed cash paid out.
Believe me, $1.6 million is pretty cheap for the 6-kilometer strike length of this deposit. So there you have it. We've had a busy year. We're gonna have an even busier year, exploration, development. We'll have two mines in production, and what makes Plomosas, I think, a particularly exciting is production. It's got to be one of the highest-grade zinc mines in the world. And the end result is it'll be relatively insensitive to the price fluctuations of these metals, and that's what we're looking for there. But as I say, don't forget that the ultimate objective is the exploration potential here of becoming a major mine as opposed to just a good mine. The loss for the year was basically one we can endure.
It's, you're going to live with this sort of thing, and most of it, in fact, because we had a positive mine operating income, most of it was related to. Well, a good portion of it was related to either the cost involved in doing the acquisition and doing the financing and other indirect costs, such as the recalculation of deferred income tax, as an expense of CAD 366,000 . Overall, the net loss was CAD 853,000 . Obviously, looking at the numbers, a positive EBITDA, but going forward, we expect this to be in terms of G&As, it'll slowly decrease over the balance of the year. Lord knows what's gonna happen under other income, because that's a fluctuation in the price of a Mexican peso and the U.S. dollar, and we're susceptible to both.
That's one of the things we have seen is the operating costs reflected this very strong Mexican peso. I think it'll be a very interesting year going forward and looking forward to questions from the shareholders.
Thanks, Fred. That was a great overview. Here are some of the questions we compiled from investors this quarter. Please feel free to send questions to inquiries@impactsilver.com or call us directly at +1-778-888-76489. Question one, good timing on the financing, Fred and team, with about CAD 14 million in cash and adding CAD 9 million from the financing a few quarters back. Why is the cash at CAD 13 million? Has it gone mostly into the new property and working capital?
Well, in part, yes. First of all, I should point out that although the financing was at 9, by the time we paid all the regulators for filing fees, the lawyers, et cetera, and the agents, it was just a little over 8. So there's CAD 1 million right off the top, and unfortunately, with being a smaller company, that's the sort of thing you have to live with. The other side is, yes, a lot of it went into basically the acquisition of Plomosas, which was $3 million, so that's about CAD 4 million. And the other side of it is, the extensive program we've gone forward on in terms of exploration at and development at both mines. So we're gonna see that. People don't want us just to sit on the cash.
They want to see us generating value for them, and we're going to.
Okay, excellent. Question two, the average silver grade in Q2, 2023, was 163 versus 159 gram per ton in Q2 of the same period, with a nice increase of revenue to $155 per ton, compared to $95 per ton in Q2 of 2022. Can we expect this to continue, or is this a one-time increase?
... Good question, Gary. It's one of those things that we're always going to see quarter by quarter fluctuations in the grade. It's the nature of doing an underground mine chasing veins. I think one of the things that really becomes important in terms of the revenue per ton, and that's why we tend to record it by revenue per ton, is the other metals that are involved at the Zacualpan Mine. We do have some lead and zinc, and primarily right now we're only producing the lead, and we get paid for it. The price of lead's been fairly strong. But more importantly, and more than anything else, the grade of the lead has actually come up a bit. But more importantly is the gold.
I mean, you know, you're talking 324 ounces of, of gold, times sort of a multiple of 80 or more to get the equivalent in silver. It made a significant contribution to the, the top line and the bottom line. Do we expect it to continue? Yes, we expect it to continue. Alacrán, although it hasn't been extensively explored, is certainly giving us production at the moment, and certainly over the next year or so, we expect to see this improve as we develop that, that mine.
As for the silver, it's always gonna fluctuate, and of course, it does help to have a nice, healthy price of silver at the same time, and the end result is, I think we're all facing a very, very volatile market, both in the metals, and in prices, that is, and in the U.S. dollar, Mexican peso, Canadian dollar.
Okay, great. Question three more has to do with the Forex. So nice Forex gain team of almost CAD 250,000 in finance income, north of CAD 500,000 in total. Obviously, that's great to see, but can we expect that regularly, or is it more of a wash year to year?
Generally, on the Forex, it's a wash. It does fluctuate, depending on settlements, and when we see that dramatic sort of variation in prices, it does hit the line. I wouldn't hold my breath on it being a significant item. And obviously, the financing is primarily we prudently invest our cash, and it's not gonna be high earnings. It goes into charter banks, but we are getting fairly decent returns off of it right now. I wish it was higher than inflation, and it generally is marginally higher. But, yeah, it's, that's directly related to the cash. The Forex, boy, that'll be all over the place.
Mm.
In IFRS, you'll see in the statement of changes that there's actually a negative Forex on assets. So-
Mm.
pricing, and that's the one thing I didn't mention, is the pricing of the assets on the balance sheet is impacted by Forex, and, that will fluctuate going forward.
Okay. Great. Question four in regards to the Plomosas directly, how is Plomosas going in terms of scheduling, from the previous news releases?
Yeah. It's going well, actually, considering the fact that the mill itself was, kind, to put it kindly, a bit of a disaster. And the end result is when we do things like, okay, let's do the maintenance and sort of work on the secondary crusher, we found when we opened it up, it was functionally useless. Now, you know, we knew when we took this thing over that it had significant problems. I guess we were sort of hoping that some of them were more manageable. Is it significantly different? No, but when you have to take a whole float circuit and either rebuild it or replace it, you know, there's some issues, and there's also things such as the mill, for those of you who know anything about concentration mills.
The dryers, et cetera, just weren't there. So, yeah, it's taken us probably not so much money, but time. 'Cause obviously, when you have to order equipment, there's always delays in getting it. So what we have done is fairly dramatic. It's an impressive-looking little mill right now. The Ball Mill has been totally rehabilitated, all the conveyors have been relocated and changed the angle of attack. We've rebuilt or replaced the entire Flotation Circuit. The Secondary Crusher has been replaced. We've put in new screens, we've rewired, we've done plumbing, and we're expecting to be doing this sort of start-up run in the next week or so. So that's been pretty good.
The downside is, you have to bring on a crew, and you can't just sort of start the thing and hire everybody at the same time. So, yeah, we've been incurring probably a little more costs on maintaining the crew, to sort of get them familiar with the equipment. Things like the AA unit in the lab was not very good, so we've had to replace it. And then the other side is the underground. The underground design wasn't a very good function, and we're having to rehabilitate it. And at the same time, we're spending a fair bit of time and effort making it safer. So it... These things take time. You know, very few people can rebuild a mine and a mill in sort of six months, and I think we're very close to doing that.
And we're looking forward to seeing production come out of there... probably in the last quarter of the year that we could call production. The rest will be sort of test mining, test processing. And as I say, the important thing that I see about Plomosas is the exploration potential. It's very, very unusual to have things such as zinc running at 25% zinc, and there is areas in this mine where we have 25% zinc. And if we can demonstrate size as well as just grade, I think it's gonna be more attractive to somebody a lot bigger than us.
Okay. Excellent. Question five talks about the exploration side of things, Fred. Exploration news from either Guadalupe, the Zacualpan, or Plomosas, from the team, what kind of meters, if we're doing about 20,000 each, can we expect?
No, it'll be a total, at first, for what we're doing right now is you've got to be more graduated in what you're doing. I mean, it's great to roar at it, but in the case of Plomosas, we have to rebuild the underlying data first. You need targets. So it's, it's going to gradually increase, and we're breaking it into sort of two categories. One, developing the current resource that they've been mining on, and two, conducting a field program, going forward with looking at the potential of this deposit as we run up to the northwest, which is sort of six kilometers away. And, and that includes areas that, quite frankly, we're running, at least in samples, or rock chip samples, and, you know, those can be very selective.
My geologists are really good, so they always identify the really good stuff. But it's running, you know, in terms of copper and gold. So there's real potential on this property everywhere from the lead, the silver, lead, zinc deposits in the southern part of the property. As we go north, we're starting to see some outcrops of copper and gold. It's a very rich resource environment, and it really deserves care, investment, and time to delineate what we truly have there. As for the Zacualpan, we're working on the Royal Mines that we've always worked on. There's a program going on, the Guadalupe mine.
Guadalupe, you may recall, is almost 500 years old, and we're getting some very good grades there, and we're gonna continue that development going forward. To the east of it, there's San Ramon Mine, and we've mined out two stopes on it now, the San Ramon and San Ramon Deeps. We're now into the San Ramon South, and it seems to be a little harder to define. Closer to the surface, we're already in there and mining. The portion that's at depth, we've got some really good drill holes, and we've yet to sort of get in there yet because we're gonna have to drill that property, and those are deep holes, but the grades are considerable, so they're worth it. So it'll be...
Those will take some time, but we'll ultimately get, like, get to it. We've drilled a couple of other projects. We haven't released all of it yet. For instance, we've been drilling at the Capire, called the Aurora Dos deposit, and we'll be sort of providing some information on that. Renovación, another one, we just put in a few exploratory holes. We've yet to figure out what they mean, so that'll probably be coming out. So there's a series of programs going on at any one time, and like we always do, when we can get something that is intelligible as opposed to an individual hole, we'll certainly produce that information. But, yeah, we always like the Zacualpan deposit. We like the Zacualpan district. It's always exciting. It's silver.
It's now getting some gold in it. That's pretty good. As for the Plomosas one, very, very high-grade zinc, lead, silver. I like both of our deposits and the potential.
Excellent. Next question, 6. Fred and team, nice to see the increase in asset value, going from $68 million- $89 million. Not a bad price bump for a $3 million acquisition in cash and shares, or $6 million in total. Despite weaker market, it looks like it was a very well-priced deal. Is this substantial increase in net working capital and asset a good way to be looking at this despite softer markets?
I think what people have to think of is why. And it was available because the company that had it couldn't maintain it, and hadn't been able to really develop the exploration potential it's got. The end result is, yeah, I think it was an exceptionally good purchase price. It does mean we have to spend some money, and you know, I think people get very naive when we do these acquisitions. "Okay, that's it." No, it takes time to transition, and in this case, it was taking, it's taking a time to actually convince people that, yes, there's money to be done. Let's do this professionally and not plug holes in dikes. And the crew we have, I'm very, really quite pleased with them.
I think we'll be pleased with what we can do with this property. And yeah, part of the increase, by the way, was the FX increase that we see revaluing assets up and down with the price of metal, with the price of Mexican peso, U.S. dollar, and the Canadian dollar, and that will always make it a little more difficult to fully analyze.
Okay, great. Lastly, with the investment marketing back in swing, hopefully, last quarter of the year, the stock price is just a hair below the CAD 0.27 per unit financing from April, May. Are there some strategies and awareness campaigns coming out from IMPACT?
Well, we're dedicated to educating the marketplace, and I think the issue with the marketplace is they don't fully appreciate the, or understand, if you will, the acquisition. And that is because they don't appreciate the acquisition, and we probably haven't really provided them the information yet, at this point in time, about the significance of the acquisition. And at the same time, we're facing a marketplace, which is sort of looking sideways at commodities, and our objective then is to use... And that's how we actually acquired this as inexpensively as it was, because the price was weak on commodities. We think that in the longer term, we have an asset, and those people who think beyond thirty days might agree with us.
It's hard to convince somebody who's hanging around for a 30-day uptick that what we've done is gonna make them a fortune. I think that what we have done is going to make the true believers in commodities very comfortable in the end result. So our job, educate the market, educate the market, educate the market.
Okay, excellent. And just to add on the institutional meeting side, you know, IMPACT will be at Beaver Creek, Denver Gold, and some of the mining shows coming up in East Coast. We'll have one of our reps out there as well. So definitely do reach out if you're a fund or a high net worth investor from the institutional side or on the market or even on previous placement. Please reach out to us at inquiries@impactsilver.com, and we can schedule a one-on-one meeting with management at these conferences and shows. This has been a good wrap-up for Q2 2023. Fred, thank you for everyone's time in following us, and our continued growth to a multimillion ounce producer.
Certain statements in the following previous conference call about our business operations constitute forward-looking statements and are not historical facts, but are predictions about the future, which involves risk, uncertainties, and could cause the results to differ materially. If you have any further questions, please email us or call us directly at +1-778-888-7649, or follow us on Twitter at IMPACT_Silver. This has been Q2 conference call, and we look forward to speaking with you soon.