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Bandes blanchissantes – Edited Transcript of GPR.TO earnings conference call or presentation 31-Mar-20 2:00pm GMT

VANCOUVER Apr 17, 2020 (Thomson StreetEvents) — Edited Transcript of Great Panther Mining Ltd earnings conference call or presentation Tuesday, March 31, 2020 at 2:00:00pm GMT

* Jim A. Zadra

H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research and Senior Metals & Mining Analyst

* Jacob G. Sekelsky

Good morning, and thank you for standing by. Welcome to Great Panther Mining’s Fiscal Year 2019 Financial Results Conference Call and Webcast. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the call over to David Wiens, VP, Corporate Finance and Treasury. Please go ahead.

David Wiens, Great Panther Mining Limited – VP of Corporate Finance & Treasury [2]

Good morning, everyone, and thank you for taking the time to participate in our call today.

Joining me this morning are Jeffrey Mason, Chair of Great Panther and Interim President and CEO; Neil Hepworth, Chief Operating Officer; and Jim Zadra, Chief Financial Officer.

Before we begin, I would like to mention that some of the commentary on today’s call contains forward-looking statements. You should be cautioned that actual results and future events may differ from those noted in today’s presentation.

The commentary also refers to various non-GAAP measures, definitions and reconciliations that are included in the company’s MD&A for the period ended December 31, 2019. All dollar amounts expressed in this presentation and the associated financial statements and MD&A are in U.S. dollars, unless otherwise noted. For reference during the call, A-I-S-C or AISC refers to all-in sustaining costs.

I would like to remind everyone that this conference call is being recorded and will be available for replay later today. Replay information and the presentation slides accompanying this conference call and webcast will be available on our website at greatpanther.com.

I will now turn the call over to Greg Panther’s Chair, Jeffrey Mason.

Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [3]

Thank you, David. Good morning, everyone. Thank you for joining us on the call. I’m Jeffrey Mason, the Chair of Great Panther and the Interim President and CEO.

Before we begin our review and discussion of the 2019 results, I want to briefly discuss the COVID-19 pandemic, how it is affecting us and what we are doing to ensure everyone is safe.

At Great Panther, we have a set of core values that we take seriously, and our most critical value is safety. Safety is our priority. Before we act in every job, every day, we prevent harm by looking out for one another, our communities and the environment because life matters most. Our team is closely monitoring the latest developments with regard to COVID-19 through the World Health Organization, the Public Health Agency of Canada and local and national health authorities in the countries to which we operate. We’ve taken a number of measures to help flatten the curve, including: travel restrictions and suspension of international travel until further notice; implementation of supervision, monitoring and response plans to reduce the risk of exposure and outbreak; health screening of local contractors, visitors and employees have been implemented when appropriate; limited external visitors to only critical business functions; and continuous assessment of the latest developments locally. Our operations have not been impacted by these measures, and we have no confirmed cases of COVID-19 across our corporate office and mining operations. So far, we are continuing to operate as planned.

However, we have implemented some contingency plans in case there were to be a shutdown, including: one, stockpiling of ore at Tucano; procedures to follow in case of an outbreak; and we have $37 million in cash, which will allow us to withstand a shutdown, should it occur.

During this unprecedented time of uncertainty, we remain committed to the safety of our people and of our communities, and we are prepared to act quickly as the situation evolves.

Turning to the results. 2019 was a transformational year for Great Panther as we completed in March 2019 the acquisition of the Tucano Gold Mine located in Northern Brazil and became a primary gold producer. We now have operating assets in both Mexico and Brazil and an advanced stage development project in Peru.

Consolidated gold equivalent production nearly tripled to almost 147,000 ounces, up from just over 52,000 gold equivalent ounces in 2018 at an AISC of $1,383 per ounce.

Driving that growth in production was the Tucano Gold Mine, which produced nearly 124,000 ounces of gold in calendar 2019, of which approximately 106,000 ounces were to our account post March 5, 2019.

With the successful completion of commissioning of the sulfide processing plant in April, we’ve seen steady recoveries of gold at approximately 92%. The Tucano Mine is now our flagship asset and is a big focus of ours in 2020 as we carry out our 55,000-meter exploration drill program. Our team is excited to explore multiple near mine targets with the intention of replacing ounces mined in 2020 as well as advancing exploration covering our broader 2,000 square kilometer land package.

In 2020, we expect Tucano to produce between 120,000 to 130,000 ounces of gold at an AISC between $1,150 and $1,250 per ounce, a 15% improvement year-over-year in AISC based on the midpoint of 2020 guidance.

At our Mexican silver operations, Topia achieved record metal production in 2019 of 1.8 million silver equivalent ounces or 22,500 gold equivalent ounces. We made significant progress in our exploration efforts at the Guanajuato Mine Complex, commonly referred to as GMC. We plan to complete further exploration in 2020 with a 25,000-meter drill program for Mexico, focusing on Guanajuato, which is already well underway with 4 drill rigs.

GMC is expected to produce between 1.2 million and 1.4 million silver equivalent ounces in 2020 at an AISC between $13 and $14 an ounce.

As we will discuss later on the call, Topia’s guidance will be released at a future date, but no later than the end of Q2.

Mine operating earnings before noncash items increased significantly in 2019, and we have further enhanced our balance sheet by repaying approximately $37 million of borrowings assumed in the acquisition of Tucano.

We also finished the year with $37 million in cash. Those debt and cash numbers do not include another $14 million of nondilutive capital we successfully raised post year-end.

In March of 2020, we completed with Roscoe Postle Associates a rigorous inaugural Mineral Reserve & Resource Estimate referred to as the MRMR for the Tucano Gold Mine. The updated MRMR provides greater confidence in mine planning, reduces total tonnages, yet increases the average grade.

Furthermore, it provides better information and data to plan and guide our exploration program, which is primarily focused on finding near mine resources and converting existing open pit resources to reserves. As a result of the MRMR, we incurred a noncash impairment of goodwill in 2019 of $39 million.

We also announced a new mineral resource estimate for the San Ignacio and Guanajuato mines at the Guanajuato Mine Complex.

Great Panther has a strong, diverse operating platform from which to grow with exploration upside and the financial strength, along with an experienced team to execute on these important initiatives.

I’ll now turn the call over to Neil Hepworth, our CEO, to cover operations.


Neil Hepworth, Great Panther Mining Limited – COO [4]


Thank you, Jeffrey. Okay. Starting with Tucano. After closing the acquisition in March of 2019, we immediately focused on finishing construction and commissioning of the sulfide processing circuits, which unlocked the higher grade sulfide ore or fresh rock operations at Tucano. We completed this mill upgrade in April and have since seen steady billing recoveries of 92% or better.

In the fourth quarter, despite significant headwinds caused by the isolated West pit wall instability at Urucum Central South pit, we still managed to produce 34,181 ounces of gold by resequencing mining in the other pits.

After closing of the Tucano acquisition to the end of 2019, the mine has produced 105,561 ounces of gold at an AISC of $1,406 per gold ounce sold. Our team in Tucana has focused on steady operational productivity improvements that continue into 2020.

Okay. This slide is a good illustration of these types of improvement that the team has achieved. As a reference point, the dotted red lines indicate when we acquired the mine. On the left-hand chart, you can see that the material movement progressively increased since the activation of our new mining contract to U&M, with the decrease in October caused by the UCS incident.

On the right-hand chart, plant recoveries dramatically increased starting in April of 2019 with the completion of the supplemental oxygen system. Okay. Recoveries have held steady at 92% since that time, with a recent dip caused by seasonal lower feed grade to the mill.

All right. Let’s move to the Mexican operations. It’s important to note that our primary metal produce is now gold. However, we continue to use and report cost metrics per payable silver ounce to manage and evaluate operating performance at our Mexican silver mines.

Okay. As Jeff mentioned, Topia achieved record metal production in 2019 of 1.8 million silver equivalent ounces or 22,500 gold equivalent ounces. It represented a 15% increase over 2018 and is attributed to higher grades and increase in processing rates.

Cash costs and AISC per silver ounce were $12.09 and $15.35 per ounce, respectively. Unit costs were impacted by less favorable market conditions for Topia’s lead and zinc concentrates as well as increased input costs. As noted in our March 9 press release, we temporarily ceased depositing tailings on its Phase II tailings storage facility based on a recommendation by our consultants on evidence of mass movement. Our team is reviewing various alternatives, including evaluating mitigation measures to continue using the Phase II TSF and advancing of permitting for Phase III of the TSF. Currently, we estimate a potential mill stoppage for 3 to 6 months with ongoing mining and stockpiling of ore.

At the Guanajuato Mine Complex, nearly all of the ore processed in 2019 was sources — sourced from the San Ignacio Mine while we continued exploration activities at the Guanajuato Mine. The 2 mines, together with a shared processing plant, comprise our Guanajuato Mine Complex or GMC.

Total metal production from the GMC was approximately 1.5 million silver equivalent ounces or 19,000 gold equivalent ounces at a cash cost of $6.74 per payable silver equivalent ounce and AISC of $13.21 per ounce — per equivalent silver ounce.

Okay. The exploration program continues to advance at Guanajuato Mine with 4 underground drill rigs in operation and the objective of outlining in-situ blocks of higher grade mineralization. Underground and surface exploration has also been increased at San Ignacio.

In March of this year, we announced an updated NI 43-101 resource for both Guanajuato and San Ignacio. Jeffrey will tell you more about that in a minute.

Exploration efforts will continue this year, with the goal of boosting production from the Guanajuato Mine in the second half of 2020.

Right. I’ll now hand it over to Jim Zadra, our CFO, to discuss our financial summary for 2019.


Jim A. Zadra, Great Panther Mining Limited – CFO & Corporate Secretary [5]


Thanks, Neil, and welcome, everyone. The acquisition of Tucano in March 2019 had a significant impact on our financial results for the year. The addition of Tucano’s production and stronger metal prices drove strong increases in our revenue, mine operating earnings before noncash items and operating cash flow. Revenues increased 234%, and mine operating earnings before noncash items increased 248% to $41.9 million or $0.15 per share. Our operating cash flow increased to $13.8 million for the year.

Despite the strong increases in mine operating earnings and operating cash flow, we reported a net loss of $0.33 per share after accounting for noncash items. Notably, these included the $39 million noncash goodwill impairment charge Jeffrey spoke to, $35 million in depletion and amortization charges and other provisions and noncash charges.

Reflecting adjustments for these noncash items, including the impairment charge, our adjusted EBITDA for 2019 was $7.9 million. The noncash impairment charge reflects our reevaluation of the accounting purchase price allocation for Tucano following the receipt of the Mineral Reserve & Resource update or MRMR.

Of the approximately $165 million purchase price for Tucano, we assigned a value of $85 million to the existing Tucano mining operations on acquisition and $43 million to the nondepreciable elements, which include the underground mine reserves and resources and open pit resources.

We believe this is a conservative allocation of value to these growth elements of the mine. Particularly as these include existing open pit resources, we are targeting to convert the reserves with a significant exploration program.

In addition, the — an existing technical study for the underground mine provides a pretax net asset value of $25.5 million at $1,200 per ounce gold. The balance of the share exchange purchase price of $39 million was represented as goodwill on acquisition and was then taken as a noncash impairment charge.

In this regard, our view is that there is no value represented on our balance sheet for the exploration potential at Tucano to find new resources either in the existing mining corridor or regionally across the greater than 2,000 square kilometer land package, which we are also actively exploring.

The $24 million in exploration, evaluation and development or EE&D expenditures represent 105% increase over last year, reflecting an increase in our exploration programs in addition to $9.7 million increase in our reclamation and remediation provisions, which have not been capitalized. These relate primarily to changes in regulations and requirements for remediation at our sites in Mexico.

EE&D expenditures also include the advancement of Coricancha in Peru with the bulk sample program completed in June 2019.

In October 2019, we commenced a limited mining and processing campaign of approximately 25,000 tonnes of material.

G&A expenditures were higher than 2018 due to the addition of G&A costs from the acquisition of Tucano and additional legal provisions in respect to Tucano. We expect to see a significant reduction in G&A in 2020 as we realized cost synergies from consolidating the former parent company head office of Tucano. In the second quarter of 2020, most of the contractual ongoing employment and other administrative costs of the former head office will have been wound down.

For 2019, consolidated cash cost was $1,071 per gold ounce sold and all-in sustaining costs, excluding corporate G&A, was $1,383 per gold ounce sold. AISC and cash costs were impacted by the issues related to the UCS pit at our Tucano operation as discussed by Neil. This resulted in lower-than-anticipated production and a higher-than-expected AISC.

In terms of our balance sheet, we assumed $69 million of borrowings on the closing of Tucano in March 2019. During the year, we repaid about $37 million of Tucano’s debt, including about $11 million that was converted to equity.

On the refinancing side of the equation, we nominally increased our credit facilities in Brazil. And in December, we closed the IXM prepayment facility for $10 million. The net result was — we ended the year with about $43 million of borrowings and $37 million of cash, and there are no further equity conversion rights associated with our debt facilities.

Following the end of 2019, we closed the gold prepayment facility with Samsung for $11 million and increased our credit facilities with Banco Bradesco in Brazil by a net $2.5 million. All of our prepayment facilities are for metal delivery at spot prices and do not involve any hedging. We’re continuing to pursue additional capital to fund our exploration growth programs and to improve our balance sheet.

In terms of our capital allocation priorities, our primary focus, optimization and exploration at Tucano; and secondly, exploration at our mines in Mexico.

I’ll now turn the call back to Jeffrey Mason.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [6]


Thank you, Jim. I’d like to touch on our updated Mineral Reserve & Mineral Resource estimates that we announced recently particularly for Tucano.

As mentioned earlier in the call, we undertook a more rigorous approach to Mineral Resource & Mineral Reserve estimates at Tucano compared to the June 30, 2017, estimate by the previous operator. The MRMR at Tucana reflects operating experience since acquiring the mine in 2019 and a better understanding of the mine’s geology, and therefore, expected to improve the reliability of mine forecasting.

As a result, overall mass decreased, but proven and probable grades improved by 17%, and measured and indicated, M&I, grades increased by 27%. While the new reserve estimate implies an open pit mine life to the end of 2021, it’s important to note the significant opportunities we have to add resources and extend mine life, starting with our expanded exploration program for 2020. Specifically, we are spending $6.6 million on a 55,000-meter drill program that is now underway primarily targeting near mine areas that could contribute to the mine plan over the next couple of years. $5 million is dedicated to near mine within our 7-kilometer North-South trend of open pits while $1.6 million is focused on regional targets within a 20-kilometer distance to the mill, being within economic trucking distance. We also see opportunities for bringing some of the incremental M&I resource into the mine plan particularly at current gold prices and foreign exchange rates.

In addition, the advancement of the existing pre-visibility study for our ground opportunity at Urucum North and regional exploration on our larger land package are both opportunities to extend mine life over the medium and longer term.

At GMC, we saw a successful exploration program in 2019 with the Guanajuato Mine’s M&I resources increasing 66%. We are continuing exploration at both Guanajuato and San Ignacio in 2020, with the goal of increasing Guanajuato’s production in the second half of the year and building mineral inventory at San Ignacio.

Looking at Tucano on the right-hand side of the slide, you can see the planned view of the main 7-kilometer North-South mineralized corridor with the current resources in red. To the left is a schematic longitudinal section of that same North-South corridor. We will be targeting areas between each of the open pits and extensions of the pits, which should improve near-term mine planning.

At Urucum North, illustrated by the number 5 at the right-hand side of the long section, we have existing underground reserves and a pre-feasibility study that was completed in 2016.

In 2020, we will be conducting both exploratory and geotechnical drilling here to better understand the deposit and geological controls. The advantage of Urucum North is that the underground axis is near the bottom of the existing pit and the rock is highly competent. As a reference, the existing pre-feasibility study outlined an initial capital cost of $10 million and a 2-year time frame to production. We are considering the commencement of a feasibility study in the fourth quarter, thereafter, building a decline to improve accessibility for exploration, potentially converting this access decline to a production decline. In addition, as part of the feasibility study, we plan to evaluate the economics of dual production declines, different mining methods and contractor versus owner operator models.

Outside the main mineralized corridor, but within 20 kilometers, we have identified numerous targets with high-grade soil anomalies. In 2020, a $1.6 million, 28,000-meter Auger and Rotary Air Blast drill program has been outlined within trucking distance of the Central Tucano plant. These areas provide longer-term resource development opportunities within our approximate 2,000-kilometer land — square kilometer land package.

Turning to Peru. We made significant advances on our Coricancha project in 2019. In June, we completed a bulk sample program, which confirms some of the key assumptions in our 2018 preliminary economic assessment, including the ability to mine the narrow, higher grade veins that characterize the deposit and achieving target metallurgical recoveries. We have since continued with the 25,000-tonne processing campaign from remnant ore, with the mill performing as expected and providing incremental revenue to offset some of the care and maintenance costs.

In 2020, we will be casting further engineering and refinement analysis for the project. While the mine remains on care and maintenance, we will continue to evaluate the conditions for a potential restart.

In terms of production guidance for 2020, we expect gold production from Tucana of between 120,000 to 130,000 ounces, an increase of 13% to 23% compared to the approximate 106,000 gold ounces to our account in 2019. Cash costs for Tucano are expected to range from $900 to $1,000 per ounce, with AISC of $1,150 to $1,250 per ounce, a 15% improvement at the midpoint relative to 2019 as we expect to benefit from the weaker Brazilian real, lower oil prices and a number of key business improvement initiatives. For GMC, we expect gold equivalent production between 14,000 and 16,000 gold ounces based on a 90:1 silver to gold ratio. On a silver equivalent basis, this is between 1.2 million and 1.4 million ounces. Cash costs will range between $9 and $10 per ounce of silver with AISC at about $13 to $14 per silver ounce produced.

At this time, we are only providing 2020 production guidance for the Tucano Mine and GMC. As Topia’s operations will be impacted by our ability to continue mining and processing after April 2020, we plan to complete an assessment of alternatives before providing consolidated 2020 guidance. We expect to provide annual operational guidance no later than the end of the second quarter of 2020, concurrent with the availability of a more reliable outlook on Topia.

As a reminder, Topia accounts for approximately 15% of our consolidated gold equivalent production.

Thank you. The call is now open for questions. Over to you, operator.


Questions and Answers


Operator [1]


(Operator Instructions)

The first question comes from Heiko Ihle with H.C. Wainwright.


Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research and Senior Metals & Mining Analyst [2]


I mean taking the midpoint of guidance, you’re guiding down 10%. And just to confirm, that does not include any potential impact or any contingencies for COVID-19, right?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [3]


That’s correct.


Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research and Senior Metals & Mining Analyst [4]


Okay. And then just building on this. Can you just walk me sort of through the longer-term production potential of the site as you see? I mean you guys have very extensive reserves and resources at the site. I mean just sort of walk me through your 2021 through, call it, 2026 plans, please.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [5]


Okay. Well, where we stand currently, and thanks for the question, is we have the mining reserve to which we’re mining, which takes us to 2021 in the open pit scenario. We are — because of the exploration, we are using RPA’s, Roscoe Postle’s findings, which has helped us to vector and pinpoint where to drill, both on both sides of the pit and below the pit, such that the geometry of the pits can be redesigned to take in potential additional findings and/or resources converted to reserves. So for the next couple of years thereafter, our target is to replace the current year’s production through exploration and then ensuing as well for the following year.

Likewise, in parallel, we look to advance that underground target. It was preliminarily drilled and a pre-feasibility study done in 2016. And there is additional drilling that we will entertain to do in the fourth quarter this year, geotechnical in part, but also between the 2 lenses and to depth to try to understand a little bit more of its extent. It plunges to the North and as well appears to carry on to depth, but there has not been any deep drill holes at that target. And we will be looking to entertain that as well in the fourth quarter.

And then in the longer term, it’s really the outside targets within the 20 kilometers or thereafter. We are really going to tickle those targets this year. And then based on that findings, next year, consider a more fulsome program to bring those to a further understanding.


Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division – MD of Equity Research and Senior Metals & Mining Analyst [6]


And then just one more. And just thinking about conceptually there. You’ve deferred production from UCS to 2021, and you currently guided caps — all-in sustaining, rather, from $1,150 to $1,250 an ounce. Can you just provide some color and quantify where that guidance would have stood if UCS was producing as planned this year? And can we maybe use the answer to that last question as our outlook for 2021? And if not, why not at least?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [7]


Yes. It’s actually a good question. So the West wall of UCS subsided. We did not have a collapse. And for the first quarter of this year, we have been removing diggable material from that area, basically, taking the load at the high end of that West wall. We’ll be working closely with Knight Piésold to blast and bench on that. So in essence, we are stripping 2 levels on that pit. Had we completed last year, we would have then come back in an ensuing year and strip that pit. We are going to take both strip levels starting in the third quarter this year, and we’ll reach the ore by the end of the fourth quarter. So we’ve conservatively said production of ore and gold from that pit will be in 2021.

And then going to your question, that additional pre-strip is being reflected both in our cash costs and AISC. It will be deferred from an accounting perspective on our balance sheet, but we’re taking the brunt of the expense this year, which will enable 2021 to be a more favorable AISC and cash cost scenario.

The magnitude will be likely in the $100 to $150 range per ounce, but that’s to be determined subject to Knight Piésold and the geotech holes, which will commence in April.


Operator [8]


Our next question comes from Jake Sekelsky with Roth Capital Partners.


Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division – Director & Research Analyst [9]


On that last question a bit more. It looks like you guys have those 5 geotechnical holes plans starting in May, and you’re making some good progress on the review to UCS. And right now it looks like the plan is to keep it in the mine plan for next year. But I’m just wondering, when should we expect the final determination there? I’m just trying to get a better handle on what the mine plan might look like next year.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [10]


No. It’s a good question. And there is some variability, and it’s subject to success. I mean we can tell you today, there has been no additional subsiding and movement on that West wall. For whatever pressure that was relieved in that West wall appears to be completed. However, we need to understand the geology and the geotech behind that wall. We will have further information and a plan beginning in the third quarter. That is the dry season. So we’ll be dealing with less water pressures, hydrostatic and the like. So we’ll make movement and stripping of that area more secure or more predictable. And we will provide updates as we move along in the quarters. I think the critical part will be the first section of that as we move towards it. And then thereafter, we’ll become more routine as we’ve unloaded that West wall.

Maybe, Neil, do you have some additional comments? You’ve been on the ground several times with this and have the background in the geotech category.


Neil Hepworth, Great Panther Mining Limited – COO [11]


Yes. I’m fairly optimistic about that. I think we’ve sort of removed a lot of the problem material that was actually setting above the instability. We’re still removing that material. What we’re waiting for is basically the go-ahead from Knight Piésold to start doing the drilling and blasting operations at the front. I think once we get that go-ahead, there’s a chance that we can accelerate the production versus what we’ve actually said in the mining schedule. But at this stage, because we’re not bringing any ore in 2020 on the UCS pit, we’ve kept the stripping to basically sort of fit in with that. But there is a good chance that if we get the green light from Knight Piésold in sort of end of May, early June, that we can actually accelerate production from there and actually see some more this year.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [12]


Excellent. Jake, back to you, please.


Jacob G. Sekelsky, Roth Capital Partners, LLC, Research Division – Director & Research Analyst [13]


Got it. That’s very helpful. And that leads into my next question, just looking at the planned capitalized stripping of $23 million to $27 million this year. Are you able to break this down a bit? I mean should we expect this to be more heavily weighted in the first half of the year versus the second half?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [14]


Yes, it is. The production profile, just on an ounce basis is pretty even between the first and the second half. We’re roughly 45% to 55% current split between the 2. And then on a moving material pre-stripping, it’s heavily weighted in the first half as opposed to the second half. And that normally involves UCS. We’re higher in the pits because we’re in the rainy season. So we’re stripping the top parts of the pits. It’s more freely diggable, and we’ve got all the large pieces of equipment. Whereas later in the year, as we draw down inside the pits, we become more constrained in our movement, and our production is more focused on the ore. So we don’t have specific breakdowns one way or the other, but you’re — on the split between first half, second half, that’s the way it is.

Unlike last year, we are not planning for a big fourth quarter. We’re tending to be much more homogeneous across the quarter, a slight lower in the first quarter, rainy season or pre-strip, higher second and third and then a modest fourth quarter, so much smoother projection for this year.


Operator [15]


(Operator Instructions) Our next question comes from Bhakti Pavani with Alliance Global Partners.


Bhakti Pavani, Alliance Global Partners, Research Division – Senior Research Analyst [16]


Given the 2-year development time frame of the underground resource at Tucano, at this point, what’s kind of your strategy towards accessing that underground reserve and how would the production of Tucano look like combined with open pit plus the underground reserves?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [17]


Yes. Great question. And I think there’s a couple of things there. Number one, we need to understand more of that underground. Clearly, there needs to be more drilling in that area. That underground is best defined in the North, but there is indication that it extends down towards the Southern trend, i.e., North to South trend. The pits, as shown in the surface reflection are also likely reflected to depth. We have indications they continue to depth. So we need a better understanding there.

Two, driving the drift or a decline to access the ore will give us a much clearer understanding. RPA designed it based on a stand-alone basis, and it was able to withstand the economics of production. However, our goal is to have a layered-on supplementary higher-grade underground operation to supplement open pit production. Thereby, we can continue to produce a 10,000 tonnes per day throughput through the mill. In order to do that, the key is the exploration. And in the third quarter, we will reassess the results for the first half of drilling, along with targets and vectoring, to maybe consider accelerating, increasing our exploration efforts, dollars, drill holes to drive to earlier understanding of open pit targets or extensions. So short answer is we plan to try to make it a two-pronged attack, both underground and open pit by extending the underground and accelerating our understanding of the underground, from accelerating open pit findings and then accelerating our understanding of the underground. Does that answer some of your question?


Bhakti Pavani, Alliance Global Partners, Research Division – Senior Research Analyst [18]


It does. I’m just kind of curious how would let — you just mentioned that you expect or you plan to do it at 2-year along with open pit and underground. I’m just trying to understand how would the production look like. Because currently from the open pit, the guidance is about 120,000 to 130,000 ounces. How much can the production increase when underground resource or ore comes into picture is what I’m trying to understand.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [19]


And right now, we just have the AMC pre-feasibility study. And the grade tonnage is about 4.13. There’s about 288,000 ounces of defined reserve there. And you can see there’s a gap in one of the slides that we had up between sort of the top lens and the bottom lens, which needs to be drilled. So I just think it’s too preliminary. We are looking at the drilling and understanding to move to a feasibility study to better understand it. And I think that towards the fourth quarter and the first quarter next year, that will become much more in focus to how that will play in with our open pit. So it’s too early. Bottom line, it’s too early. Although we do see line of sight that it’s going to be a layered production of underground higher grade to supplement open pit feed.


Bhakti Pavani, Alliance Global Partners, Research Division – Senior Research Analyst [20]


Got it. Moving on to Topia. In your prepared remarks, Neil, in the press release, it does say that the operations are moving uninterrupted until April of 2020. What kind of a time line or an interruption do you expect to see? And during that time frame, what are kind of the holding cost that you plan to incur while the processing facility is temporarily shut down?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [21]


Sure. And I’m just going to give a little bit of color, and then I’ll pass it over to Neil. So a couple key takeaways. Both Phase II and Phase III, we call it the Victoria TSF, tailings storage facilities, have capacity for a number of years. Typically, there is a seasonal shift in the TSF 1, 2 remnant tailings. We think it’s isolated, and we’re carrying out mitigating activities so that we can reactivate TSF 2.

Having said that, we have been permitting since November, Phase 3, which has multiple years of potential use. However, both — particularly on the second one, it’s subject to Mexican authorities’ approval, which, as I mentioned, we submitted in November. Whereas, Phase 2 is subject to sign off by our various geotechnical and TSF administrator/management group consultants. And we are increasing our review of TSF 2, both the instrumentation and monitoring of that to see if we can get the green light.

So I’ll pass it over to Neil to give you a little bit more technical on that. But just on the last comment, we have guided to 3 to 6. It could be shorter. It’s just some of these items are outside our control, so we better to suggest 6 months. With respect to contractors, it’s about 2-week notice for contractors. Because we’re in a small community, we’re leaning towards a month, if noticed. However, it’s a very small community. They’re very dependent on us. So we are working with the community, regulators and the like to not have a prolonged shutdown. But at the same time, we have the ability to minimize costs. Over to you, Neil, please.


Neil Hepworth, Great Panther Mining Limited – COO [22]


Yes. Just to say that this — what we’re talking about is a — they call it a paleo-slip surface. It’s been around for many tens of years already. And this movement has been registered on this thing sort of fairly consistently. But what we have in place is what they call a TARP, which is a Trigger Action Response Plan. And this movement sort of exceeds a certain amount and a certain sort things that you need to do. And one of them — so what happened was we had excessive rains during 2019, way, way above the average. And the drainage wasn’t quite up to standard. And some of this water would have got into this paleo failure surface, and we have an acceleration of movement that went into the red zone in terms of the Trigger Action Response Plan.

As I say, that means stopping work on the — sort of stacking on TSF 2. Subsequent to that, the movements have stabilized, and they’re now back in what — there’s 4 nucleometers and 2 of them are showing green, which is sort of normal situation, and 2 of them are showing yellow, almost green. So basically, we could actually make a decision now to move back. But we want to give it a little bit longer to make sure that these numbers have stabilized. We also, as part of the yellow sort of responses, we need to do a whole — we need to install some additional instruments and do some additional testing. So we’re doing all of that, and we’re complying with this Trigger Action Response Plan. We could — there’s a good chance that we could get in sooner rather than later, but we’d rather be a little bit conservative on this because everybody is very sensitive about tailings downs at this stage. I think — do I need to say anything more, Jeffrey?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [23]


No. I think that’s good. And so the key takeaway is we’re attacking it on 2 fronts. Phase 3 permitting, moving along with that. Phase 2 mitigation procedure is underway. And number 3, we’ve assessed costs that we can defer between 2 weeks and 1 week to go towards that. And there is one other element, we will also consider some underground mining to stockpile. Or in the interim, keep the mine running, not the mill, with the view if we can see through that the mill will be reactivated and tailing storage. And these are dry stacked tails, not conventional wet, can be resumed, then we would continue on that track. So 3 to 6 is a conservative stance, and that’s where we’ve left it and then we can reduce costs if need be.


Bhakti Pavani, Alliance Global Partners, Research Division – Senior Research Analyst [24]


Just one follow-up. With regards to the mitigation of the remediation cost, is there any kind of cost you expect to incur at Topia TSF 2 in the near term?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [25]


So TSF 2, we will be doing some contouring. We’re going to move some houses that are further downstream as mitigating centers. There’s additional devices to monitor movement and then consulting fees. We see that in a range of between $250,000 and $500,000 yet to be determined.

And then in TSF 3, there is some preparatory contouring, but some of that can be done at the same time we drive that. So costs are relatively minor. They are — but they are — there are some additional costs in that order of magnitude of $250,000 to $500,000.


Bhakti Pavani, Alliance Global Partners, Research Division – Senior Research Analyst [26]


Got it. Moving on to GMC. You did mention that in the second half, Guanajuato Mine would be included into the production. From the modeling perspective, what is — what is — what are the best grades to model for silver and gold in 2020 at GMC?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [27]


Good question. I’m going to touch a bit on that, and then I’ll let Neil consider the grades. So what we’ve been doing is we have been having some mine feed from Guanajuato. It’s mainly remnant and very stope cleaning and the like. We have 2 clear targets that we’re drilling on, and we are increasing our focus there. So we are doing wire frame models, engineering and design access to stopes and development areas to boost production. Currently, modeling is 10% to 20% feed from Guanajuato. With some exploration success, and we’ve got 4 rigs drilling there, it’s in the back half that we are looking to increase. And we will announce, should we get to that kind of position. So we are operating that mine in a modest situation.

And so one of the key variables there is it would increase the denominator, i.e., our mill would be running at fuller capacity, which would increase our ounce production, which would drive our costs down. So the additional feed is very important to drive the unit cost down. And then I’ll pass it over to Neil on grades that we’re looking. We’ve currently got line of sight in Guanajuato.


Neil Hepworth, Great Panther Mining Limited – COO [28]


Yes. I think the area that we sort of focused on the most is actually the Los Pozos area. And that’s — the latest resources are coming in at about 1.2 million silver equivalent ounces. And that’s running at about 350 grams per tonne silver equivalent. So that’s not too bad. We — so a lot of the focus is actually — we’re busy developing on the ore body there to try and define the — sort of basically define a reserve from a resource. Yes. I think there’s an opportunity as we expect this sort of — sort of towards the middle of the year that we’ll have enough access into that area that we’ve actually start stoping, so we could potentially sort of bring out another 80 to 100 tonnes a day from that area without any additional CapEx, basically just doing — just continuing what we’re doing.

One of the things, as Jeffrey was alluding to, is increasing the denominator, which is bringing more ounces out. I mean there’s a number of different areas that we identified with this latest sort of round of exploration. I mean I think it was about 3 million ounces or something that came into it. But what we’re going to be doing in the next — starting sort of immediately is we’re going to be doing a whole bunch of sort of many feasibility studies on each of the sort of the most promising veins like, for instance, Los Pozos, that’s got 1.2 million ounces; from Ontario, that’s got another 1.2 million ounces; and Cata has another 0.5 million ounces; and Guanajuatito, 0.4 million ounces.

So what we’ll be doing is we’ll be looking at what development is required to get in there and what CapEx requirement is and try and work out how many stopes we can run and what sort of grades. I mean one of the things with this — with the narrow veins is that you’re also mining — your production rates can vary from — I’ve seen some stopes running at 20 tonnes per day, another stopes running at 80 tonnes a day. It’s very much dependent on the continuity. And that you can only really pick up when you start doing this type of development that we’re pushing at this stage. You can’t pick it up from drill holes. I mean drill holes will just tell you that there’s assumption and it’s continuous in between.

So based on the development and based on these many feasibility studies, we’ll come to some sort of conclusion in terms of do we want to spend the extra bucks to get the extra production or not?


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [29]


Well, thank you, Neil. And you can see his passion and our operators all have passion to deliver on the results. And our best guide towards our mineral resource estimate, which is measured and indicated of 3.8 million silver equivalent at 339 grams per tonne silver equivalent and are inferred of 2.4 million silver equivalent at 354. And I think those are a pretty good guide right now if you model that in, subject to Neil and the team successfully engineering and developing those areas.


Operator [30]


This concludes the question-and-answer session. I would like to turn the conference back over to Jeffrey Mason for any closing remarks.


Jeffrey Robert Mason, Great Panther Mining Limited – Chairman, Interim President & CEO [31]


Thank you, operator. 2019 was an important year for Great Panther as we transitioned into a gold producer. Despite our recent challenges, I am confident that we now have a solid platform and a highly competent team to drive growth and continue to steadily improve our operations.

Thank you for your participation today. And on behalf of everyone here at Great Panther, I look forward to sharing our progress with you in the next quarter. Thank you very much.


Operator [32]


This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

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