Good day, ladies and gentlemen. Welcome to IMPACT Silver's Q2 2025 call, ending June 30, 2025, 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 on the quarter results and a 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 the future, which inherently involves risk, uncertainties, and could cause actual results to differ materially from those in the forward-looking statements. I would like now to turn it over to President and CEO of IMPACT Silver, Mr. Fred Davidson.
Thank you, Jerry. It's good to be able to talk about the second quarter and the year-to-date. And we're really pleased about the overall revenue factor. It was CAD 9.8 million for the second quarter. That's a 27% increase over Q2 in 2024. That brings the year-to-date revenue to almost CAD 20.5 million. That was driven by an increase in production and strong commodity prices.
Mine operating income, which is a critical number in mining before amortization and depletion in Q2, was CAD 1.6 million. That's a substantial improvement over last year's CAD 0.2 million loss in the equivalent period, Q2. The loss for the quarter included a $ 0.5 million in deferred taxes, and as everybody knows, that's a reflection of the difference between accounting, depreciation, amortization, and tax claims. CAD 1.1 million in exploration, which we're certainly encouraged.
We've had shareholders pushing us to do additional exploration, and we're certainly trying to do that, as they can tell, and then CAD 0.6 million in amortization and depletion, so the loss was CAD 2 million. At the quarter end, we had CAD 10 million in cash and over CAD 13 million in working capital and long-term debt.
Part of that was financing in the quarter that closed for CAD 5.2 million, including participation from Trafigura. What we were looking at for the quarter was a couple of events which changed things a little bit. One was at Plomosas. We had some bad ground that encumbered our ability to access two of our higher-grade stopes, and we were obliged to mine lower-grade stopes. The tonnage was there, but the grade was down, and as we got clear of that area, we're going to see that grade slowly rising.
Plomosas is somewhat unique compared to Zacualpan because we only really have one access to the mine. So when we're mining, it's very difficult to develop for new zones. And when we're developing for new zones, we can't mine. It's what Zacualpan was like 20 years ago when we first acquired it. And it takes time to develop the workings and develop the exposure.
So the quarter was a little frustrating, and that development was slowed down by the bad ground a nd then right at the end of the quarter and into the first quarter part of Q3, the very flooding that Texas had, we had the same thing. And it impacted us only for about four days where we were totally down, but it did again hit one of our better stopes in the Mina Juárez.
It's taken us almost a month to get the water out of that area. We built subsequent drainage around it, so it can't happen again. I think going forward, Plomosas is looking pretty solid, but the increases in throughput are going to be slowed down by dealing with that development work we've had going forward.
Zacualpan, on the other hand, had an excellent quarter. We are spending a fair bit of time and money at Zacualpan. We have much of the infrastructure there was originally built almost 30, 40 years ago and needed to be upgraded. Those upgrades are not just sort of replacing what was there, but we're upgrading it to improve the throughput. That's especially important when we're talking about the new Cañada Vein. You may recall the Cañada Vein had grades up to five kilos of silver, so it felt well worth the development.
And as we go forward and we improve the access there, we're going to start to see the resulting grades coming through in the last quarter of this year as we open up Cañada Vein a nd Cañada Vein is still being explored, and hence we're writing off exploration costs on that as well because it seems to be larger than we anticipated, but we need drilling and development to prove that a nd so we'll see some interesting results coming out over the next quarter on what we drill at Cañada Vein as well. So overall, the mines are going forward.
The issues we're facing are no different than what you get exposed to in any mining industry, especially when you have a case like Plomosas limited access and we have to develop it. So, production. We've been working hard on the production side, and we substantially reduced our operating costs from last the comparative quarter in last year at Zacualpan. It was $152.72 last year. It was $145.21 this year.
Part of that is just where we're working, and part of that is efforts to address inflationary impact on the operating mines. Plomosas was even more dramatic, and that is for the direct cost for the quarter was $243-$244 a ton, as opposed to $284 a ton in Q2 2024. The year-to-date is even more dramatic, but you do have to remember that last year was a startup scenario, and we were running up to $400 a ton as we developed all these areas, and we write off that development cost. So we eat all of that.
We're now down to $230 year-to-date, and I think it's going to stay there in that general region until we get more access to more zones, but overall, a 43% reduction in mining costs at Zacualpan and about a 2% reduction in mining costs for the year-to-date at Guadalupe. I think we're looking forward to an interesting time based on precious metal results, and we're certainly going to be looking at developing some of the areas that we've got that have traditionally been fairly high in gold, and there's one mine that we'll be working on an exploratory basis, and again, we're incurring those costs to develop potential for gold.
What makes us really unique, and I think people sort of forget that, is in this industry, you're either a producer or you're doing exploration, well, what we've done is somewhere in between a nd we did that recognizing that in a place like Mexico, you cannot acquire new concessions. You cannot stake new concessions.
They're not being granted. So we have a unique situation where we have a very large and very valuable property. But in order to create value with that property, we've got to do exploration a nd it puts us in a unique situation in that in doing so, we're permitted in most aspects, and we don't have to worry about individual stakeholders interrupting what we do a nd we're seeing that sort of situation throughout the Americas, including British Columbia, where you acquire a concession or you may not even be able to acquire a concession because of outside interests. We've already got our concession secured. We're in a good position. We have a major land position in Mexico.
We're working underground, which gets us around any issues of the open pits that the Mexican government's discriminating against as well. So yeah, we are doing exploration, but we're doing it on one of the largest mineral concessions available in Mexico. Jerry, over to you.
Thanks, Fred, for that overview. Question one we have from the investors, and obviously, for future inquiries, please send us questions at inquiries@impactsilver.com or call us directly at 778-867-7909. Great quarter, Fred and team. Could you explain the accounting statement of CapEx and what does that mean for earnings and EBITDA this quarter and going forward?
We differentiate. There's CapEx, which is the capital investment we make in things like infrastructure. That's capitalized, and it's amortized. So you see that amortization over its anticipated life as a depreciation or amortization. The other aspect that changed was with the pressure from IFRS, the new accounting treatments that have been in place for the last five, 10 years, is that our exploration now, although it's in many cases enhancing the quality of the property, and say we've got that very large property, we're obliged to write it off. So we're sitting on over 200 sq km.
We're doing work on it, which enhances that property, but we can't capitalize it. We have to write it off. The upside is, of course, is we do have 200 square kilometers at Zacualpan, and I think we're creating value there.
Although we're writing it off, there is being value attributed. We're like anybody else in the mining industry right now. The EBITDA, we are trying to reflect what the real implications of it are. EBITDA in this case, we're deducting taxes, debt, well, we don't have any debt, interest debt at least, and amortization and depreciation a nd then what we're trying to say as well is we're making a capital investment, but we have to write it off of exploration.
That's adding to the value of the property, but because of IFRS, we're writing it off. So it does create a bit of confusion, but in many ways, we're very much, we're sort of doing our accounting like a large mining company, and yet we're a small mining company. That's going to impact earnings, obviously, but in mining, especially, most people are looking at cash flows, and that one we're working on very diligently.
That's a great answer. Question two, team. At nearly $40 an ounce silver, can investors expect non-adjusted profits or net income?
Yeah. We are going to have to deal with that commitment we've made to do exploration. And that exploration, of course, gets written off. We don't have interest charges because we don't have any long-term debt. We do have amortization and depreciation, so the capital expenditures are always there a nd the end result is, and we have deferred taxes because we are generating what would be income at the mines, but because we're accelerating the depreciation for tax purposes down there, we're having to set up a deferral of having to possibly pay taxes down the road. So very much like most mining companies, getting non-adjusted profits is a climb.
At the same time, getting positive cash flow is not. And that's one we're focusing on right now, is being able to demonstrate positive cash flows a nd going forward, we'll have to deal with IFRS and their somewhat peculiar way of dealing with accounting, but we're certainly aiming to generate positive cash flows.
Question three. The MD&A in Q2 noted Plomosas Mine, Chihuahua operated at 75% capacity, milling a total of 27,000-plus tons in the first half, which is a 116% increase from the same timeframe of 2024. The question is, when will investors can expect that Plomosas will get up to 100% capacity, or is that a plan?
Yeah. That is an issue. Primarily, as I mentioned earlier, that the thing slowing us down on getting the production out is having to do the development, and we're set back by a month or two on development work just by the ground conditions, and then another at least, well, I said four days where the mine mill wasn't turning, but it did impact, say, developing Juárez, and it took us almost a month to drain Juárez after the flood. So these things happen.
It's the nature of mining. So our focus still is to get up to that 200 tons a day, but in order to get there, I have to do more development, rather, and that development has been slowed down in the last little bit, and we have to push forward on it. So we're still focusing on the 200-ton-a-day target. It's probably going to be. We were looking at later this year. It's probably getting pushed into 2025, 2026, rather, just because we want to do the development, which is so important to have continued production at the higher levels.
Got it. Question four. There was a mention about the Guadalupe developing a comprehensive infrastructure upgrade program to improve efficiency and cost. What does this include, Fred, and what does that mean for future margins at Guadalupe?
Yeah. I think I alluded to that a little earlier, but let me elaborate. Most of our ore coming. Well, 50% of our ore is coming from the Guadalupe Mine as opposed to the whole area, which is called Zacualpan. And the Guadalupe Mine is historically one of the oldest mines in Mexico. So what it means is there's been various players in the mine and working on it, including Peñoles about, I guess, about 40, 50 years ago.
They put in the shaft. They put in the basically hoists, etc., and they did some of the track laying in the mine. And what's happened is we're making discoveries underground, which now is putting a demand on those. And that is, can we get up to 60% or 70% of our feed coming from Guadalupe, or can we just, especially from the new Cañada Vein?
The capacity of the shaft was limited, and bearing in mind that it was also in pretty poor shape. The end result is what we're doing right now is we're replacing most of the steel in the shaft. We're replacing the skips which bring the ore to the surface. We're replacing the draw points because we're putting in draw points that will handle the Cañada ore.
All of this is sort of building up to the point where we're going to be seeing more access to the higher-grade Cañada ore. We're going to be able to bring more tonnes to the surface, and the track system will be more reliable. For instance, we do electric locomotives on there, and we've had to go and we've acquired an additional locomotive to move these underground trains as well.
It's a commitment, but it's ultimately designed to improve the flow of material at the Guadalupe Mine and to access new zones such as the Cañada.
Got it. That's great. Next question five. Can the company provide additional maps and geological interpretation about Plomosas's area along with drill results?
Yeah. Plomosas is a little more difficult. We've got fairly elaborate maps. The problem is for the average reader, it's almost impossible to understand them. I'm not talking down to anybody. It's just that Plomosas is very complex, and I've described it before as a manto and chimney situation a nd chimneys normally describe these tubes that run sort of upwards. Well, there's also flat-lying ones, and some of the mantos are twisted to the point where they act more like a chimney.
The end result is it's a very complex map. So what we try and do is simplify it a bit on a conceptual basis, and we'll work on that one. I've got to admit, it's hard for the average reader to really understand it. But the other side of it is, of course, we're talking 600 m of it, so it becomes three-dimensional.
And the three-dimensional even gets more complex because all the development starts running across each other. The tubes run across each other. But yeah, we're working on it, and hopefully we can get something better in the next few months where people understand or at least appreciate the complexity of what we're doing.
Yeah. Definitely. Next question comes about the revenue per ton. It's great to see the presentation on the two projects, team, on revenue per ton. It's broken down by the two projects. At Plomosas, it seems like the delay due to weather caused higher issues at $230 a ton, still obviously a great drop from $400 a ton last year's time. What can investors expect the price per ton to drop further down to?
That's a tough one, mainly because the very nature of IFRS is even the exploration we do underground gets dumped into that cost per ton. So all that development, all of that exploration is part of that cost per ton. I can drop it down by stopping doing exploration, but without exploration, there's no future. So it's a combination of what we're doing there. It's a combination of trying to clean up a mess we inherited almost two and a half years ago.
It's still haunting us to a degree. And the other side is there's some major investments we'd have to make to get it down more. Right now, we have this decline, which is expensive to maintain, and it is really tough on the equipment. Ultimately, once we have a better delineation of the resource at Zacualpan, sorry, at Plomosas, we can rehabilitate one of the shafts there.
The JORC was sort of a global, "This is what we think is there." We're now having to define where it is. In many cases, where it said there was something there, it's not. In other cases where they never allowed for it, it's there. So we really got to get that all mapped out before we do the underground development that goes to the shaft and justifies the warranty of a shaft. That's an investment.
That will reduce the cost because what happens then is the attrition on the underground equipment goes down fairly dramatically. The ability to bring it to surface, including fuel costs, labor costs, what have you, gets reduced fairly substantially. That's one. Two, we are looking at more than just the cost per ton. We're looking at squeezing out a little more in terms of revenue per ton.
And that's the one that's more dramatic because you always have to deal with labor. You have to deal with fuel. You have to deal with those. And that one is where we're doing—and I think we've alluded to it before—the previous operators couldn't deal with the material that was oxidized a nd although we can't deal with the zinc oxides yet, and that's relatively low percentage in any event of the zinc, most of it's sulfides, the lead was sometimes very significantly oxidized.
W hat we have got is, with a bit of investment in time and money, we've got a part of the mill that's now capable of processing those lead, rather, oxides a nd that's important from our point of view because in some cases, the lead is almost 30%-40% oxide. So not a huge thing, but what we're looking at is ultimately it's going to increase the revenue per ton.
Okay. Excellent. That actually perfectly leads into the next question. Question six. Revenue per ton has continued to increase nicely. With the Plomosas, wasn't it expected much higher than Guadalupe? Since Guadalupe is around $200 a ton, last quarter it was around $220. With the high-grade zinc and silver credits, can investors expect a rough range of revenue per ton, Fred?
That's a risky situation because when you think about it, last year, the revenue per ton was looking pretty good, mainly compared to Zacualpan because the price of silver was $20. As we approach $40, it automatically makes the revenue per ton at Zacualpan dramatically higher. In terms of the high-grade zinc we've got, we are getting a fairly good rate per ton.
What's interesting is very recently we're starting to see a little more silver in that material, and that will add to the revenue per ton as well. So the revenue per ton is based on what you can put to the smelter. It's running about 40%-50% zinc. So it really doesn't change. Revenue per ton doesn't change dramatically except to the price of zinc and at the same time what percentage of the silver is reporting to it.
So I think we're going to see it's not going to change dramatically from what we're forecasting with zinc for the next little while, but we are seeing some pressure there. And as we go further north on the property, there is an expectation that some of the mines, the old mines in that area, there were some old workings in the area, will have a higher percentage of silver. Now, the revenue per ton is not necessarily just zinc. It's also lead. And quite frankly, more of the oxides are going to be recovered in the lead tons, and more of the silver will be recovered traditionally in the lead tons. So we're going to see this evolve over the next sort of six to nine months as we go forward.
Okay. That's excellent. Last question. With the higher silver prices and likely going higher from what it looks like, silver back in vogue will impact restarts of Capire, or are there other plans?
Capire is certainly a teaser. It's a medium-grade deposit. It's very sensitive to the price of metals. And to put it back into production, and certainly it's one that we are looking at very seriously, we need certain equipment that takes up to about a year to deliver. So we need a comfort level that we're seeing a solid price going forward because you may recall a long time ago when we first started up Capire, two things happened.
One, we had a problem with the ore definition, and we think we've now resolved that. So our mining costs are down dramatically using XRT. The second part of it is to get XRT, the order time can be up to a year. And that means while we're waiting for that equipment, and it's going to be about a $2 million capital investment, what happens to the price of metal?
That's exactly what happened to us when we first started out. We started out with a good solid price of metal, and by the time we were starting to operate, not only were we having recovery problems in the mining, the price of metal dropped dramatically. We want a degree of comfort, and that's something we're going to build into it when we press the go button for Capire.
Okay. Excellent. That's all the questions we have for this quarter. Thank you, Fred, for wrapping it up for us. Thank you to all the investors for all your questions and interest in IMPACT Silver. Please submit questions to me or to inquiries@impactsilver.com for future conference calls. We look forward to hearing from you from our next call. For more information, please visit www.impactsilver.com or follow us at Twitter @IMPACT_Silver. This has been a quarterly call with IMPACT Silver. We look forward to the next one.