Good day, ladies and gentlemen. Welcome to IMPACT Silver Corp.'s Q2 2024 ending June 30th, 2024, financial and production results conference call. Before we begin, we would like to go over our disclosure statement, followed by Mr. Fred Davidson's comments on the quarter results and the Q&A period. Certain statements in the following conference call regarding IMPACT Silver's core business operations may constitute forward-looking statements. Such statements are not historical facts, but are predictions about future, which involves risks, uncertainties, and could cause actual results to differ materially from those in the forward-looking statements. I would like to now turn it over to President and CEO of IMPACT Silver, Mr. Fred Davidson.
Thanks, Jerry. This has really been quite an exciting quarter for us. It's very definitely transitional. First of all, let me sort of summarize it and then we can get into more detail on it. Revenue is obviously up significantly, $7.7 million from $5.5 million in a comparable period last year. We had mining loss, but it was down to $0.22 million, ignoring the amortization and depletion, which is a fairly dramatic improvement over the prior quarter as well. Although the comparable year was $0.9 million in 2023. The net loss was $2.6 million, but that has to be taken in context. One of which is the deferred income taxes and foreign exchange expense was almost $0.6 million on itself.
More than that, because the mine at Plomosas is not up to the economic level of production, it was only running at 100 tons for the quarter. The costs or losses that we develop as we develop the mine, make those expenditures that are necessary to get it up to the 200 tons a day, have to be expensed rather than capitalized under the new accounting system. A little frustrating, but overall it was a very positive quarter for where we're going in terms of a transition. During the quarter we raised net $8.1 million or $8.6 million. That was used in good stead. It refurbished the cash on hand. It also allowed us to be very aggressive on our drilling.
To date, we drilled for the first six months at both mines over a total of over 20,000 meters of drilling. It's a serious dedication to exploring the potential of these two rather exciting, if you will, mining ranges or little districts. That's gonna continue aggressively because the reason we're here is not just to produce, but to also develop something that has the real potential to get everybody's attention. The production at the mine at Zacualpan was a little lighter, only a few hundred tons lighter. What we found there is that we're working on the shaft. It hasn't been worked on for about 40 years, and we've had to rebuild some of the steel in there. That slows down.
We have to close down for half of one day during the week, and that'll continue for the next few months. At the same time, we're gonna be drawing more ore from other mines where we don't need the shaft. Looking forward to the second half of the year, we expect to see the production maintained or increased, and also we're going to be seeing more gold coming back into the system as the mine Alacrán is brought back into operation. You may recall last year, towards the end of the year, we're not happy with the recoveries we're getting from the gold production. We hated to put too much of it out in the tailings, so we stopped mining at Alacrán. We did some extremely good metallurgical work, and we're restarting with much higher recovery.
We're gonna start seeing more gold coming through in the second half of the year at Zacualpan. Overall, we saw an uptick in the cost per ton, and that was somewhat of a unique situation for the quarter. We were in union negotiations starting in the first quarter, and when they were concluded in the second quarter, there was a retroactive payment to the union leaders or to the union itself for severance in certain cases, for a bonus in certain other cases, and an overall increase. That retroactive aspect of it bumped up the wages for the period. The other side we're seeing here too is that the Mexican peso has been extremely strong compared to the Canadian dollar. On translation down we're getting hurt or hit on the nose by that.
We're seeing some FX impact in what we're doing. Overall, Zacualpan is coming along. It's looking fairly solid. Going forward, we've got a drill program on a couple of very interesting targets, including the possible extension to some of our bigger mines. At the same time we're developing one called the Kena, which is a new discovery underground, and it's very high grade at least, compared to some of the other mines. It represents a unique opportunity to both increase throughput and to increase the average grade going through the mill. Plomosas is a different issue. It's been a bit of a bear.
We're running about 6-8 months behind in our development there, only because of the conditions underground, et cetera, which made it very difficult to increase production without solving these problems. It's a bit of a whack-a-mole. You solve one problem and another one pops up. We did do a significant increase in production in tonnage. The first quarter, we mined about 3,600 tons there. Second quarter, we mined 9,200 tons. The third quarter, we're seeing, we'll see an uptick on that again. Fourth quarter, we're hoping to reach design capacity of about 200 tons a day. That makes a heck of a difference, needless to say. The other side is the average grade. It's as good or better than we anticipated.
Up to the end of the second quarter, our average zinc grade was running 14%, lead was 8.7%, and silver was 43.7%. That's among the highest of the zinc mines that are kicking around. Good production, good tonnage. We're increasing the tonnage throughput. Our costs are probably going to fall more as we get more efficient and as you increase your tonnage, certain costs are fixed. We're looking to improve the overall cost of that operation. Meanwhile, revenues should be increasing fairly substantially going forward for the balance of the year. It is, it's a really transitional period. In fact, our operating costs between first quarter and second quarter were actually lowered by $0.2 million. We're running it scrupulously, running it tight.
Going forward, we're going to continue to be aggressive in terms of our exploration. We have two very exciting exploration districts that are only partially explored, and as is the case in Plomosas, literally only 10% of the six-kilometer strike length of this deposit has been looked at. I shouldn't call it officially a deposit, but the mineralization it extends over a six kilometer distance. At the same time, at the Zacualpan, we still have a dozen or so excellent mineral targets to drill. We still have to deal with the copper-gold district that appears to be underlying the silver-lead-zinc district. As we go, we're going to see this depending on the price of silver, of course, increased throughput.
The idea would be if the price of silver goes up, we bring in our more marginal mines and increase our throughput. As the price of silver draws down, we tend to pull back and only deal with those that have got a decent margin. You'll see that fluctuation on an ongoing basis year-over-year. Both of the mines are well equipped. The crews are well and truly experienced. Going forward, we're seeing a fairly exciting exploration plus production coming towards the end of this year. Overall, our target is the end of the year where we hope to, as I say, be at economic levels for both mines and perhaps putting a little bit in the bank, meanwhile, conducting a very aggressive exploration program across the board.
We continue to have excellent working capital, and at the same time, we still have no long-term debt. We're running a very prudent balance sheet. I think going forward, we're going to see some improvement both in the market for the silver, but also in zinc. As recent surveys have indicated that both are critical minerals. Silver, everybody knows what it is and why. It is certainly with solar paneling, et cetera, very attractive. Very few people recognize that zinc is a strategic metal. In it, or with it, we look at something like a wind farm, and virtually every tower that goes up requires a couple of tons of zinc.
The other one, probably even more dramatic and more importantly, the zinc oxide batteries are excellent source and much safer than a lithium battery in terms of storage facilities. There is a demand for both. We see that ultimately, as Plomosas, for instance, is up and running, the zinc blende sales will literally subsidize the silver, which is running about an ounce and a half per ton. We'll subsidize it. We'll be literally producing the silver for free. We anticipate that year-over-year, the silver production will be at least next year, about 100,000 ounces additional to our silver production at Guadalupe, which is gonna ramp us up even more in terms of our overall silver production. Jerry.
Excellent, Fred. Thank you for the overview. Here are some of the questions that we compiled from investors this quarter and in recent days. Please feel free in the future to send questions to inquiries@impactsilver.com or call us directly at +1-778-887-6489. Question 1, for our team. Great to see the revenue increase finally, 40% plus at Plomosas and overall revenue jump to $13 million for the two quarters. What's the realistic run rate of the new mill on top of the Guadalupe?
On top of the Guadalupe or is this the Plomosas?
I guess, the Plomosas adding on to the--
Thanks, Jerry. Sorry. We're looking at right now. The quarter was only at 100 tons a day, and that was about $1.5-$2 million in revenue. We're looking at getting up to 200 tons a day, but it'll probably be more like $2.5 million a quarter. So on the year- to- year, it should be about $10 million, depending on price, et cetera. An additional $10 million to our traditional sort of $15 million that we're getting from the silver sales.
Okay, excellent. Question 2. While the revenue has gone up, cost has gone up as well, to $3.8 million, $6.5 million for the two quarters on production costs. This is according to note 11. Why is that? Wages has also gone up quite a bit from $3 million to $6 million in the same six months, 2024. Are a lot of these one-time start-up costs?
Well, some of them are start-up costs. As I mentioned, and other issues such as the settlement that we had to do with the union. The other side is, Plomosas right now is running sort of as an equivalent to what Zacualpan is, but about 50% of that isn't actually producing ore. It's doing underground development, rehabilitation of the site. You're right, it's very much the start-up cost. The rate won't increase. In fact, I don't think we're gonna see a substantial increase in cost at all as we go from 100 tons a day to 200 tons a day. That's where the real leverage is.
Once we get back past this stage of dealing with the various gophers as they pop out of a hole, and we have to whack them, whack-a-mole rather. We're seeing that the increase in production, for instance, for the quarter, wasn't a result of an increase in the operating cost. There was no increase in the operating cost. We're gonna see that leverage coming as we get up to more efficient levels for Plomosas. For Zacualpan, as I say, it was the union agreement. We're gonna obviously pay the increase in union fees and everything else that we do anyhow, but that one-off settlement impacted the second quarter.
Okay, sounds good. Question 3. It sounds like the investment has gone well on the exploration side and mining asset during the quarter, according to the MD&A. Similar to the last question, is that more or less it for the Plomosas?
We're drilling a lot at Plomosas because of the real potential there. We drilled over 28,000 meters of drilling between Plomosas and Zacualpan in the first half of the year. That makes us a pretty big and active exploration company in our own right. You know, we're there for production, yes, but we're also there for that, if you will, home run by getting a discovery that's something bigger than what we have right now. I think people would be a little upset if we didn't do exploration because sustaining exploration is one thing, and the other thing is discovery exploration, and we're definitely focused on that. There will be CapEx as well, and the CapEx is designed to keep or even reduce our operating costs at the mine, at both mines, for that matter.
Remember, I did mention that we're redoing the shaft down at Guadalupe mine. That'll be finished probably over this quarter. Meanwhile, at Plomosas, there are certain efficiencies and this whack-a-mole problem of issues coming up that the previous operators have left unattended to and have to be dealt with. Yeah, I'd say that there's gonna be CapEx. It's going down, obviously, as we get more and more things resolved. At the same time, there will be aggressive drilling, and the intention is there is to hit the big one.
Okay, excellent. Question 4 specifically addresses the gold and lead production this quarter. Why do the numbers drop so much this quarter for Neri? Down 34% on lead, 70% on gold.
Yeah. Well, the gold is, it's probably the one that everybody's more interested in, but let me sort of get into that. What it was, we were mining at Alacran last year, and it was a good gold producer. The problem we were running into was the recoveries were low, and the end result is we were sacrificing a significant amount of the gold to the tailings pond. We stopped that in the fall. What we did was we did some extensive metallurgical studies and had to change the facility slightly. We've just recently restarted the Alacran, and the idea is that of the gold that we mine, we want a lot more of it to actually get into our hands as opposed to get into the tailings pond. We're seeing that right now.
We're seeing an uptick in recoveries. I think that's critical. Nobody is really upset when we produce gold. They're a lot more upset when we don't produce gold or lose it. That's what we've done, and I think the gold is working quite well for us or will be working quite well for us for the balance of the year. The other side is the lead, and we're higher up in the system at the moment where we're mining, and I think we've talked about it before. The system is composed of high-grade silver near surface. As you go to depth, the grade of the lead and zinc picks up, and the silver grades fall off. When you get down to 300 meters, you're primarily mining base metals with some silver.
What we're doing right now and where we're mining right now simply doesn't have a lot of lead, i.e., there's more silver in it. That's gonna fluctuate as we go forward. The new structure or area that we'll be mining in Kena looks like it could be fairly attractive in that it's got definitely higher grade silver, and it does not have as much lead, but I won't apologize for that one when we're getting the higher grade silver. It's really where we are in each individual mine and lead will fluctuate. We aim primarily for the silver and gold and whatever we get in the lead is a bonus.
Okay, great. Question 5 addresses the top line and margins percent, but the 17%+ increase to direct cost per ton to over $153 this quarter versus $130 last year at the same time really offset that optimism even with higher silver prices. Can we expect this trend to continue or has inflation starts to come off a bit?
Well, as I mentioned before, that direct cost included a fairly large union settlement in the second quarter, and we're seeing the issues of the Mexican peso, quite frankly. Fortunately, our revenue tends to go up with it and when the revenue goes up, there's still that margin in between the two. You'll see that the costs were 153, but the revenue was 168. We were getting a spread in there, not as much as I'd like to see, $15 a ton. But in the prior year, it was $25 a ton. Most of that is probably the union settlement with the issues of FX in the quarter.
Okay. Got it. At current prices for the two main commodities, we would think that at $29-$30 silver or at $2,700 a ton zinc, we can do okay. What do we need these prices to be at?
You know, I think those prices aren't bad prices to aim for. It's obviously a function of grade at any one time. Going forward that, we're focusing on something a little less than that in terms of silver and a little less than that in terms of zinc, in terms of where we wanna be at a breakeven plus. If we got $30 with our current grades, and if we got $2,700 per ton for zinc, we'd be quite happy at this point in time. Is it going to be a home run? No, of course not. If silver goes to like it has in the past, up to 35 or something, all that goes right to the bottom line. Our objective is what do we have to live with now?
What grades do we need? When we mine, we reflect on that. That is, we try not to mine something that at say $28 doesn't generate positive cash flow. So cash flow is our focus and if we're into a structure which needs $32, we obviously just don't mine it. We put it aside, we leave it, and that's the virtue of having four mines supplying plus an open pit supplying the Guadalupe mine, for instance, or a mill. We've certainly done this before where the margin that you're operating on is negative, we defer it. We'll go back in there when the margin improves. We've done that several times over the life of the mine.
Okay. Got it. Question 7, big picture, Fred. What's the expectation for 2024, 2025 looks like with Plomosas at full capacity?
Well, ambition says that, let's look at 2025 because we're just building up to the full capacity in 2024. We've actually tested the mill. It can run at even higher capacity, about 250 tons a day. We're not sure how much of that's sustainable, but it did run very successfully there. It's again, a matter of developing underground to feed the mill. We're comfortable that by the fourth quarter, we're gonna be capable of feeding 200 tons a day to the mill. We still have to make development expenditures because again, the predecessors didn't do any development, so there might have even been a resource available or I guess we officially have to call it a potential mineral feed or mine feed available. It hadn't been developed.
To develop it, you have to spend some serious money and time to go underneath, expose it, and just get it ready for mining. That's gonna be the big constraint. How fast can we access that and develop it while at the same time mining for production as well. That we run into in any smaller mine. When you're producing, you tend to interfere with your development. When you're developing, you tend to interfere with your production. It's a bit of a cycle and at this point in time, we're looking at sort of the 200 ton a day as our target, but with the intention of if our development is quick enough to be able to get these out even higher during 2025.
Okay. Got it. I believe you mentioned earlier that we were doing about $1.5 million-$2 million a quarter. We're anticipating maybe getting that to maybe closer to adding $10 million a year, roughly, Fred?
Yeah. We're looking at $10 million plus a year. Obviously, it's a function of pricing, but that's sort of the minimal target we're aiming for.
Great. Okay. Last question we have here, again, just comes back to Capire. With silver essentially at $30 an ounce and zinc at pretty reasonable levels, what's the plan now for Capire?
Yeah. That's one that's a little more complex and always has been. When we first mined Capire, we found that the ore had no continuity whatsoever, and that it was so faulted and twisted you could mine a ton of ore directly beside another ton that was no ore, that wasn't mineralized at all. That resulted in very high cost of mining, because you'd have to drill it, then mine it, and you're drilling literally meter by meter. That was expensive. As you know, we've done a fairly extensive amount of work on it, and we're looking at the idea of putting an XRT unit in the front end of the mill. That would allow us to, A, mine more, but not have to be selective in our mining.
That one's of interest, needless to say. The mine itself, the Capire mine, is very price sensitive and to do that we would have to commit to an XRT unit, which is about $2 million in total, and hope that the price of metal stays up there while we're doing it. It's one of those that once we're really comfortable that we're seeing a strong price of metal, it's one that we'd have to take a very serious look at reinitiating. The second part is there is an underground part of this as well that we haven't put a number to. And as well, we drilled off Aurora Uno, Aurora Dos rather, which looks like it has some tonnage available as well. We're gonna be redoing those numbers because I think the tonnage is probably larger.
Part of it will be from underground, part of it will be from surface. We'll have an XRT unit in front of it, and we'll have to do a CapEx of about $5 million or so for surface equipment, what have you. All of that's gotta get together and we are working on that. Quite frankly, our job is to get the Plomosas up and running and to get Zacualpan to the point where it's getting closer to the mill capacity of over 500 tons a day rather than 450 tons a day. Once we've done those two, Capire is certainly on the list.
Okay, great. That's all the questions we have from investors this quarter. Thank you very much for your questions and interest in IMPACT Silver. Please submit questions to us or to inquiries@impactsilver.com. We look forward to hearing from you for our next call. For more information, please visit www.impactsilver.com. Follow us on TSXV at IPT or on Twitter @ IMPACT_Silver. We look forward to hosting you on our next call.