Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q3 2024 period ending September thirtieth, 2024 financial and production results conference call. Before we begin, we would like to go over our disclosure statements followed by Mr. Fred Davidson's comments about the quarter's 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 inherently 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. It was a very interesting quarter. I think we had numerous positive events occur, and amongst those would be the obvious. We saw some good metal prices. We saw that Plomosas is now at about 70% of its rated capacity, which is normally where we would have said, "Okay, we're now in production, and from here on in, everything gets expensed." Under IFRS, everything was expensed from day one. That's why the quarters have been carrying a pretty heavy burden that normally they wouldn't have. In any event, we're there. It's steady enough. It's continuing to grow, and we're forecasting sort of the fourth quarter should be at least around 175 tons a day either. It's overall been a really positive quarter for Plomosas.
We've got control of a lot of what's happening there. Exploration is continuing fairly aggressively, and we should have results of it out on it very shortly. With regard to the Zacualpan, a little bit of a tough quarter. Primarily not that the metal prices were bad and it's not an issue with grade. In fact, we had 176 ounces of gold production finally starting to come on stream from Alacrán. It was in the last month, September. We got caught up in the storms that hit central and lower Mexico, as you probably all know. We had several days where there was no power to the mill as the lines were down. Also the haul roads for two of our four mines were washed out, and we had to rehabilitate those.
That hit us in the last sort of half of September. Unfortunate, but that's the nature of mining. You run into these things, you work through them, and you continue on. Overall, let's get to some of the statistics here. Revenue from the Zacualpan district was CAD 6.1 million dollars. And that's up from 4.8 in the comparable period last year. For Plomosas, even more impressive because the revenue was CAD 2.5 million. There was no revenue from Plomosas last year 'cause it was in startup mode. The net loss was CAD 1.2 million, and that's down from CAD 2.6 million in the previous quarter and 3.1 million in the first quarter as we started working through the issues at the Plomosas mine.
We found that the tonnage milled went from 3,594 tons in Q1 to 12,686 tons in Q3. You can see there's been a dramatic improvement. Interestingly enough, operating costs haven't changed significantly. You can see a lot of those costs were related to development. We're now starting to see that development producing ore for us. Going forward, we're seeing some strength. Both silver and zinc are pretty strong in the market today. Interestingly enough, based on some of the forecasts, we may be producing about 50,000 ounces of zinc from Plomosas as well. Those are virtually free because as far as we're concerned, it's a zinc byproduct. Revenue per ton was also interesting. That was for the operations at Zacualpan.
We were running up to $180 a ton, whereas the direct cost for mining and production was $146. We're starting to see a healthy margin. That's in fact lower by about $7 than it was in the previous quarter. We're starting to control those costs. At the same time, we're starting to see some results from the higher metal prices and grades that we're putting through. Overall, the outlook for what we're doing is we're continuing to see production growing at Plomosas. We are gonna be spending a lot of money and time there on the development and exploration because that's why people really are interested. Yes, we can produce and we can be a small producer, but that exploration can make us a big producer.
That's the interest we have there. As for Zacualpan, we've been pretty consistent in our operations. We've had some successes, some failures, and the grades we're getting on the exploration are potentially quite interesting. We've had a couple of releases on those, and we'll have some more coming in towards year-end as well. The exploration side of us, because we are both a producer and a major explorer, is going fairly well. Hopefully we can have some really good results coming out in the new year as we go into new areas. Overall, the balance sheet's still strong. We've got CAD 8.9 million in cash, and our working capital is about CAD 8 million, a little more than that, CAD 8.5 million.
At the same time, our earnings demonstrably are, when you talk about a gross revenue of CAD 4.7 million, for the first time in a while, we've had sort of net of amortization. We've had a positive income from mining operations and that should grow as our production from the Plomosas grows. Our overall G&A's are pretty well consistent. The issue we run into is more and more the regulatory requirements, both in Mexico and Canada, are getting quite onerous for a small company. These have to be brought under control, not by us, because we can do nothing about it, but the governments are going to have to look at how prudent they are in their statutory regulations. Overall, what also distorts the financials a little bit is FX.
When the U.S. dollar is strong and the Mexican peso is weaker, it's really a translation from the Mexican peso to the Canadian dollar in when we translate to what we've disclosed in our financial statements. Because the operating currency is Mexican peso, we have a triple conversion, if you will. You go from peso to U.S. dollar to Canadian dollar. That distorts the balance sheet more than anything, which causes some confusion on, with the average reader looking at, for instance, the expenditures. You look at it, and some are capitalized and raised in value because the currency's gone up or gone down. It's a hard read for the average person. I think the most prudent thing we have to look at is working capital and what we're doing on operations.
On operations, we're finally, we've turned the corner on Plomosas. We're starting to rebuild what we're doing at Zacualpan. I should add, Zacualpan is also down because we're replacing the track system underground on the 9,195 level and on the shaft. That's also slowed production coming out of there. Going forward, it's looking very positive for the new year. Jerry.
Okay. Excellent. Thank you for the overview, Fred. Here are some of the questions we compiled from investors this quarter. Again, please feel free to send questions to inquiries@impactsilver.com or call us directly at +1-778-888-7649. Question 1. Fred and team, that's a great boost in revenue year-over-year of 81% from CAD 4.7 million-CAD 8.6 million for the quarter. Can investors expect this to ramp up even further as Plomosas's tonnage going higher?
I think we're going to see a ramp-up in both Plomosas, which is, as I say, has gone from 3,500 tons to 12,600 tons in a matter of two quarters or three quarters. We're going to see that go up. As I say, our forecast is roughly 175 tons a day average, and that third quarter was only 138. So yeah, we should see some strength there. Interestingly enough, zinc is maintaining itself very well, probably number two to copper. We expect it to stay the same in terms of strength going forward. The other side of it is Zacualpan. Zacualpan tends to be, because these are epithermal veins, you're mining, you develop, you finally get to production.
We did do a release on it, with one of the discoveries we've had last year. We're expecting to see that one come on, basically. I would say second quarter, and it's decidedly higher grade, at least based on the studies we've done to date. We're hoping that'll start to impact our production in the second quarter, combined with the fact that Alacrán should. Again, this is mining. We're looking at the Alacrán producing more gold than it produced in this quarter, back up to maybe the 400+ level, or more. That would be rather nice because it certainly reflects the fact that gold is still really leveraged compared to silver. Yeah, we expect revenues to boost.
81% might be pushing it a bit because what it is, it was the startup at Plomosas. I think we're gonna see some strength in our revenues going forward next year.
Okay. Excellent. Question two. Positive operating costs for Q3 2024 before amortization and improving CAD 1 million from Q3 of 2023 is great to see, but operating loss is a concern. Will this still be a trend even at these higher silver prices, Fred?
Well, the actual operating costs pretty well are. I won't say are static 'cause you have to deal with inflation, what have you. The operating costs we seem to have a pretty good handle on. I don't think they're going to move on a per ton basis so much. Quite frankly, the revenue per ton is really a difficult one to judge, primarily 'cause of prices. I would suggest that if the operating costs are fairly static and that we get things like the Plomosas up to 175 on average tons per day, and we see Zacualpan getting its production up again after that third quarter, I think we're going to see sort of continuing positive operating income.
Depletion and amortization is always a bugbear because it's a non-cash, and it represents expenses that occurred in the past, including some exploration expenses. What I'd suggest is the way to monitor us, and I think virtually that's how most other silver producers are being monitored, is what's happening on that line that's the sort of operating income net of the amortization and depreciation. Is there other things happening next year? Would be nice to know, but at this point in time, I think we're going to see the point where on our operating basis, we're looking at as the way we're doing it net of things like amortization and that, we're looking at a pretty positive approach for next year.
The only other thing that's gonna impact that, of course, is as we continue to accelerate exploration and how that is treated under IFRS, because there's all sorts of rulings of what you have to do with it. Ignoring the exploration side, 'cause that really is a different part of our valuation, the operating income, I think will continue to grow.
Okay, that's fine. Question 3, will more expenditures be needed at Plomosas to get to that additional 30% of capacity?
You're probably thinking CapEx, and there are always one or two things that will be needed, but nothing material at this point in time. I think the vast majority, let's hope, have been spent. We'll always be doing development, and that's one that you always have to incur before you can actually get production. The way to describe Plomosas for somebody who's not familiar with this type of deposit, it's very much like what they call a chimney and mantle. If you take your hand and put it out in the air and spread your fingers, the fingers are the chimneys and mantles are the palm of your hand. With these type of deposits, at any one time, you might be in a chimney, or you might be in a mantle.
If you're in a chimney, that's great, but there's not a lot of tonnage. You follow it, and you get to the mantle. Part of what we do is we drill, but part of it is we have to develop. 'Cause to drill that thing off entirely, you'd go bankrupt. In fact, what you have to do, you get into a chimney, you follow it, and if it sort of is only a couple of meters wide, but then you've got an idea you're definitely into one of those chimneys. If you get enough of them, you can start to plot where the mantles are, and the mantles are where you make some serious money.
At any point in time with Plomosas, it's going to be, are we into a mantle or are we into a chimney, and the subsequent development that would take place. On average, it's looking pretty solid. I think that as we go forward, we're gonna see some success there. With Zacualpan, it's a different animal. These are epithermal veins. You don't need to drill them intensively. What we do is, 'cause we've got a history of, let's face it, 500 years, you can drill, say 50 meters apart, and if both of them offer you grade, you know you're onto what we'd call a hot vein. We then go in and develop, because the development costs aren't much more than the cost of drilling a hole that's 300 meters deep.
That's what we'll be doing over the next year. The development then, the exploration related to that development are probably the biggest outlays we do, and depending on the success or the decision, they'll be larger or less. As for physical assets people look at, you know, we might buy an underground truck, we might buy something or else. No large capital expenditures. We've finished the tailings pond for the most part, the extension. We've rehabilitated most of the underground. We've put in new infrastructure. We've rebuilt the mill. No serious dollars we really anticipate spending at this point in time.
Okay. Excellent. Question four follows a line with questions from earlier. Receivables and cash equivalents are piling up to over CAD 5 million with cash a bit lower than last quarter. Will liquidity be an issue or concern in the next year?
Yeah, we're like any ongoing business, you do run up receivables. The nice thing about these receivables is they're with a major, and they're reliable. It just they take up to 90 days to get paid on. That's actually a positive sign. It means we're actually generating revenues, we're generating production, which is generating receivables, which ultimately we'll be recovering in terms of cash, as we go forward. Yeah, that one, I'm quite comfortable with. We haven't had too much of a problem with things like value-added taxes 'cause we get that back in terms of our receivables. It's sort of one versus the other. It's not an issue, and our trade and other receivables are all good quality.
Okay. Excellent. Question five follows Plomosas again. Can we expect to see more drilling results from the high-grade and the carbonate replacement deposit project at Plomosas in 2024 still?
I'm hoping you can get results from both it and Zacualpan. A lot of our drilling is sort of into the actual existing deposits that we're working on, and traditionally, we don't release those because it's sort of a mining decision. You drill ahead of where you're mining, you go to it. But for the exploration type drilling, we certainly want that out, and we're trying to resolve how to, in case of Plomosas, how to interpret it, because it is again, as I say, if you're with these fingers and the mantle situation, if you happen to conveniently drill down one of those fingers, you can have a very large drill hole, but it's misstating what's really there.
We have to be very careful in interpreting what we drill before we do those releases, and that means we have to understand the deposit that we're actually drilling on. Yeah, there will be some coming out. I think one is expected shortly, if not a second, from Plomosas. There will be sort of a summary as well, and ultimately of the exploration update on year-end, as we summarize the work both at Plomosas and at Zacualpan.
Yeah. Absolutely. Question six goes into the nitty-gritty and details. Direct cost per ton has dropped to $146 a ton. That's a great sign of the efficiency improvements mentioned in the MD&A for our team. Will this continue to drop or is this a one-off?
I don't think it's a one-off. The real issue we're going to have here is inflation and FX. People say, "Okay, the Mexican peso is down, so your cost should be cheaper." A significant portion of our costs are quoted in U.S. dollars. We don't get any extra bonus points for the fact that we're in Mexico and Mexican peso in that respect. The other aspect is inflation is still fairly high in Mexico, which means we're gonna be continually pressed by labor for that. Yeah, I think we can continue. I think what we'll see is with the increased production coming through at Zacualpan, we're not gonna see that much in the way of increases in costs.
The whole idea is there's a fixed component to our expenditures and there's a variable component, and the fixed component is fairly high. As we add additional ore, it doesn't really impact on that fixed component. Yeah, I think we'll probably see at least under control the direct costs and hopefully a little bit of a break in terms of throughput and hence lower costs per ton.
Yeah. Excellent. Last question. The Capire with the silver over 31, at one point $34 announced in the last quarter. Zinc had very good regional levels. What are the plans for this now that Plomosas is up and running?
Well, Capire is a teaser. We did mine it, as you know, almost a decade ago. What we found in mining it, that the mill worked well, the tailings were all set up, everything was done. But the mining itself, we found mining the deposit, the grade and the structure was very, very irregular. The end result is, when we mined it, the selective mining was prohibitively expensive. As we've talked about it in the past, we looked at a way of perhaps ore sorting, and that is we mine the whole thing and let some system sort the ore before it actually gets to the mill. There are two methods of doing that. One is dense media separation, but that requires a lot of water, and this is a fairly dry area, so that wasn't on the cards.
The other one is XRT, and that's X-ray sorting. Really what happens is you break the rock into a certain size, it runs over a belt, and that belt has a X-ray that measures atomic density of each rock, and the machine sorts those rocks based on atomic density in them. We've already done a bulk sample. It worked very effectively. It took the average grade up almost double. The mining cost would drop dramatically because all you're doing is bulk mining, and it's very, very cheap to do. The end result is it's a model that works, we believe, and at the right price, and the prices are about there. It's one that we'd probably look at doing.
It's going to require CapEx and probably the XRT unit, the bigger crusher unit that we'd need 'cause you're putting through more tons and what have you. It's probably in the $5 million-$6 million range. Right now, we're busy trying to get Plomosas under our belt and Capire is just gotta wait. Plomosas is what we're working on right now. Would I like to put it in production? Yes. How fast could I do it? The XRT unit has a delay of delivery of almost a year. Even if we laid out the money now, it would be a year before we saw it coming on. It's one of those things that's we just have to wait on from our perspective.
Okay.
Look for somebody who wants to do it with us.
Definitely. Okay, great. That's all the questions we have for this quarter. Thank you for all the investors that fielded in questions and interest in IMPACT Silver. Please submit your questions to us or to inquiries@impactsilver.com. We look forward to hearing from you at the end of our next call. For more questions or information, please visit www.impactsilver.com or follow us on Twitter or various social media at Impact_Silver.