Silvercorp Metals Inc. Stock

Thank you for standing by. Good afternoon. My name is Ina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp First Quarter Fiscal 2027 Financial Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead.

Thank you, Ina. On behalf of Silvercorp, I'd like to thank everyone for joining this call today to discuss our Q1 fiscal 2027 financial results, which were released yesterday afternoon. Copies of the news release, the MD&A and the financial statements are available on SEDAR+.

Before we start, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. Also, please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings.

So let's start with our financial results. We delivered a strong first quarter despite the temporary production slowdown at our Chinese operations that's related to the safety upgrades that began in June. Revenue rose 70% year-over-year to $139 million, while cash flow from operating activities and free cash flow reached nearly $62 million and $29 million, respectively, and that was up 28% and 27% from the prior year.

This performance was mainly driven by a 135% increase in the realized selling price of silver, which averaged above $69 an ounce after smelter deductions. And silver accounted for 77% of our revenue in Q1. We reported a net income of $59.4 million for the quarter or $0.27 per share. This includes an $11 million gain on investments and a $6 million gain from the sale of the Santa Barbara project in Ecuador. Removing noncash and nonrecurring items. Our adjusted net income for the quarter was $53.9 million or $0.24 per share, and that compares to $21 million and $0.10 in the comparative quarter. We delivered strong cash flow from operating activities before changes in noncash working capital of $70.4 million, up 82% compared to last year.

During the quarter, we spent and capitalized about $22 million at our operations in China, $12 million at the El Domo project in Ecuador and $2.6 million at the Chaarat ZAAV project in Kyrgyzstan. Additionally, in May, we made a $60 million cash payment to the Kyrgyzstan government following the issuance of the new mining license and license agreement for ZAAV, which extends the license term by 20 years to June of 2062.

As we advance on our growth strategy, our strong balance sheet provides us with significant financial flexibility. We ended the quarter with $387 million in cash and that excludes our investments in associates and other companies, which had a combined market value of $304 million as of June 30. We have further funding available through the RMB denominated term loan facilities that we signed, which totaled approximately USD 220 million, which remains undrawn.

Now to recap our operating results, which we reported in July. During the first quarter, we produced approximately 1.5 million ounces of silver, over 2,500 ounces of gold, 13 million ounces of lead and 4 million pounds of zinc. Compared to last year, gold production increased 24%, while silver, lead and zinc production decreased 17%, 15% and 15%, respectively. Production at Ying was impacted by lower head grades, reflecting higher dilution associated with the shift to more shrinkage mining. Also on June 29, we reported that we voluntarily suspended operations at both Ying and GC to complete a comprehensive safety self-review. This followed the rollout of new nationwide safety requirements across China's mining industry after a major accident occurred in the country in May.

Through this process, we identified areas requiring some upgrades to meet the new regulations and engage 5 certified vendors to complete the 6 major safety systems underground upgrades. Safety has always been our top priority. While these upgrades are temporarily impacting production, they're an important investment in our operations, and we expect to emerge from this process with even stronger and safer mines. For the quarter, consolidated mining operating income was $84.8 million with Ying contributing $80.1 million or approximately 95% of the total.

Turning to costs. Ying's production costs averaged $87 per tonne was up 5% year-over-year. This increase was primarily driven by a 6% depreciation of the RMB against the U.S. dollar. Despite this, production costs remained below our annual guidance range of $88 to $90 per tonne. Ying's cash cost per ounce of silver, net of by-product credits was $2.45 compared with $1.26 in the prior year quarter. This is mainly due to a 15% decline in the silver sold in the quarter and the stronger RMB that I mentioned, partially offset by a $3.8 million increase in byproduct credits. All-in sustaining production costs at Ying were $130 per tonne, essentially flat year-over-year and below our annual guidance range of $155 to $160 per tonne.

On a per ounce basis, Ying's all-in sustaining cost, net of by-products, was $13.94 an ounce. This is up 30% year-over-year, and the increase reflected the same factors impacting cash costs but also 60% -- 68% increase in government taxes, which was driven by the higher revenue that we reported.

Turning to our growth projects. At Ying, capital expenditures totaled over $16 million in Q1 for underground development and drilling, mainly aimed at improving underground access and material handling to boost productivity. At the Kuanping Project north of Ying, mine construction focused on underground development to access the ore. The project, which has a license to produce up to 200,000 tonnes of ore per year. We'll deliver some nominal development ore to be milled at yen in this fiscal year. With the capacity expansions at the existing Ying permit areas in Kuanping, we'll have a permitted mining capacity of approximately 1.5 million tonnes per year.

In anticipation of higher mine production, we've begun constructing a new mill, the #3 mill. Capital expenditures totaled $300,000 in the quarter with foundation treatments and the elevated water tank currently in progress. The mill is expected to add 3,000 tonnes per day of capacity and be commissioned in Q1 of fiscal 2028.

Switching to Ecuador. El Domo, construction continued to advance in Q1 despite unusually heavy rainfall. On the infrastructure side, the noncontact water channel, processing plant foundation work and initial tailings storage facility dam construction progressed with more than 600,000 cubic meters of earthworks completed. In parallel, open pit pre-stripping is underway and efficiency is improving through the addition of large-scale equipment, expanded operating areas and road upgrades.

In addition, major equipment for the processing plant and water treatment plant has been procured and is being shipped Ecuador. The construction contract for the plant has been awarded to T.G.J.A., an experienced contractor that recently constructed the 80,000 tonne per day flotation mill at the Mirador copper-gold mine in the south of Ecuador.

Moving to Condor. Our permitting work continues with the formal consultation process underway with the directly impacted communities. This is the final step required to secure the small-scale environmental license which we expect to obtain later this quarter. Once it is received, we will commence development of two 1,500-meter exploration tunnels at the Camp and Los Cuyes deposits to support underground drilling and advance exploration and resource definition.

We have also made significant progress in Kyrgyzstan since acquiring Chaarat ZAAV in January. This is a joint venture company that holds the Tulkubash and Kyzyltash gold projects and is 70% owned by Silvercorp with us as operator and with the remaining 30% owned by the state mining company, Kyrgyzaltyn. At the fully permitted Tulkubash oxide project, construction is underway on the temporary camp and related facilities. We have contracted CRCC 19 which is currently on site building access roads to the future open pit and waste rock storage areas and preparing the foundation for the heap leach pad.

CRCC 19 has operating experience in Kyrgyzstan and is also our mining contractor at El Domo. The updated feasibility study on Tulkubash is expected later this month. As outlined in our budget release in June, we plan to invest $166 million to develop a 4 million tonne per year open pit heap leach operation at Tulkubash with $42 million of capital expenditures planned for fiscal 2027.

At the neighboring Kyzyltash sulfide project, we completed nearly 13,000 meters of drilling to the end of the quarter with 16 rigs currently turning and assays pending. This work is part of our ongoing 50,000-meter drill program for the year focused on both infilling the deposit to upgrade resources and stepping out to extend mineralization and make new discoveries. This program will support the completion of a PEA next year, followed by a further 60,000-meter drill campaign to support feasibility level studies and detailed engineering design for construction. We look forward to providing further updates as we continue to advance our growth projects.

And with that, operator, I'd like to open the call for questions.

[Operator Instructions] And your first question comes from the line of Kevin O'Halloran from BMO Capital Markets.

On -- starting off on the -- starting off on the guidance. Are you still comfortable with the production guidance even with the temporary shutdowns? Or should we maybe expect those numbers get reviewed as you get through the next kind of quarter or so and get a better sense of the impact on these shutdowns? And then I guess, similarly on the cost side, you were below the dollar per tonne range on the cash costs and the AISC at Ying. Is that something that there's also maybe some potential upside there that you might review as you get through these shutdowns?

Well, I mean I think 1 quarter does not make a year, obviously, both in terms of the negative that we've talked about and addressed with the protection curtailment, but also some of the positive numbers that we see in a particular quarter may not be what applies for the budget for the year just based on what activities are happening at different times during the year.

Also, obviously, we are facing a bit of a strength in the RMB, which had an impact, which would have made the cost even better if we hadn't experienced that this past quarter. But coming back to your first part of the question, like it's premature to start making projections at this point and then having to revise them several times. So I think we will wait it out here through this quarter. We're obviously seeing production coming back online on a gradual basis. We're still comfortable with the target that we gave in that news release of 40% to 50% of target for this quarter. And I think once we have better visibility on that, we'll be in a better position to make a comment for guidance for the year.

Yes, that's fair. I appreciate that. Maybe just switching over to Ecuador at El Domo. The spending was a little bit lower this quarter. It sounds like probably that's because of the rainy season there. But just wondering what's the cadence of remaining capital spend that you're expecting and that you would need to spend to get you on track for production next summer?

Yes, I mean the numbers don't tell the full story because there is expenditures and deposits made on equipment, which are obviously a big part of the CapEx that don't flow through into the actual CapEx expenditures for the quarter. So there has been work done on that front. And then just from the nature of the build, it tended to be more back-end weighted anyways based on assembly of the equipment at the process plant and continuing the stripping of the pit.

So at this point, while we're maybe a little bit behind our original budget for spending, we don't see that as being an issue. A lot of that work, as I said, was back-end weighted anyways. And some of that work, we had a bit of slack in the schedule with respect to earthmoving and some of the stripping. Our contractor had been quite confident that we had very conservative schedule and they do a lot more in a lot -- in a shorter period of time. So now we'll be holding them to their word for here for the balance of this year and fiscal year.

Okay. No, that's great to hear. Final question for me. Just on Condor. I noticed you guys increased your ownership during the quarter. Was there any payments or royalties or other consideration associated with that?

It was a very nominal payment and it was really just cleaning up what was sort of more of a legacy ownership in the corporation from a government agency.

And your next question comes from the line of Joseph Reagor from ROTH Capital Partners.

I guess, you briefly touched on this, but just any additional color you could give on how the safety upgrades are going? And is there any chance at all that this rolls into fiscal Q3?

I mean not from where we sit at this point from what we've disclosed, we're comfortable with. And obviously, production has recommenced at Ying on a reduced rate. But it is up and running as we disclosed, GC is still waiting for some approvals before we can get that going. But we're currently comfortable with our projection and our target for Q2 of being sort of a 40% to 50% of original plan.

Okay. And then on [ Q2 ], I noticed in the release that there was some commentary around converting it from being a lead zinc mine to a silver mine and that, that would change how many production levels you could have -- is this a precursor to you guys announcing some kind of mill expansion throughput expansion there?

I mean it's a necessary element if we were to go down that road and to consider that. We have obviously been limited as to how much production and growth we could plan out of GC. There are other additional areas where we know there's mineralization, but it's been a bit of a moot point to think about planning for them or bringing them in based on this current restriction.

So removing this will allow us to look at the mine more holistically and make some longer-term plans, if it makes sense then to expand it at that point, then we will. We currently don't have any plans to expand it, but this gives us the flexibility to down the road.

[Operator Instructions] Your next question comes from the line of Matthew O’Keefe from Cantor Fitzgerald.

Just on Condor. That's quietly kind of moving ahead here nicely. Can you remind us -- I know you mentioned it in the press release and also in the comments here, but it sounds like you're getting closer to doing some development there getting in a portal. Can you just take me through the time line -- take us through the time line of that?

And then sort of the next steps, I mean, as far as moving towards production. Is that portal going to be more for resource development and confirmation or will that actually be a precursor to some production?

Well, what we're -- with receipt of the permit, we're aiming to move ahead with really two major projects in parallel. One is the tunnels, as you mentioned, which we think to complete them would take approximately a year is our guess. So if we started them in Q4, you could look forward to being in the ore zones a year from then. But what it allow us to do earlier from that is to start setting up drill stations to drill off and more density.

The other work that's going on right now is looking at a plan and detailed engineering for what would initially be a smaller scale surface plant operation, tailings facility and process plant, say, 900 to 1,000 tonnes per day, which would be able to treat some initial high-grade ores that we've come pull out of our deposits, but also toll treat some of the ores that are being produced in the -- by some of the smaller scale miners in the region. And so that is being worked on right now in terms of detailed planning and a budget for what that would cost. And when we've got those details together, and we're moving ahead with the concrete expenditures for that, obviously, we'll give more disclosure at that time.

Okay. And is that mining rate or process rate is less than what you had in the PEA. Is that as an interim step? Or is that just a sort of permit restrained.

So what it would do is it would be tied into the small-scale mining permit, we would get it going. And whether it's initial or interim, we would view that as a stepping stone, generate some cash flow and also be able to go back to the regulators with a successful start of operation and then amend that permit to grow the throughput rate rather than getting into a larger scale mining permit process that would certainly take more time before we would see any cash flow.

And this concludes the question-and-answer session. I would now like to turn the conference back over to management for any closing remarks.

All right. Well, that's great. Thanks, operator, and thanks, everyone, for joining us today and for those questions. If anybody has more questions, we're obviously here and available to take calls or e-mails and address them. Thanks again, and have a great day.

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

Thank you for standing by. Good afternoon. My name is John, and I'll be your conference operator today. At this time, I would like to welcome everyone to Silvercorp Fourth Quarter and Full Year Fiscal 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead.

Thank you, John. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our fourth quarter and full year fiscal 2026 financial results, which we released on Tuesday. A copy of the news release, the MD&A and our financial statements are available on our website and SEDAR+. Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws.

Additionally, please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings. So I'll start with the financial results for the quarter. We delivered another quarter of strong performance in Q4, which was highlighted by record revenue of $147 million, up 96% from last year.

Cash flow from operating activities and free cash flow reached $90 million and $58 million, respectively, up 194% and 308% from last year. This performance was mainly driven by a 183% increase in the realized selling price of silver, which averaged just above $78 an ounce after smelter deductions.

Silver accounted for 78% of our revenue in Q4. It's obviously a good time to be a silver miner, and these results show why Silvercorp remains a compelling investment. We're profitable, growing and still undervalued. Moving down the income statement. We reported an unadjusted net income of negative $700,000 for the quarter or negative $0.30 per share -- sorry, $0.03 per share, which reflected a significant $60 million noncash charge on the fair value of derivative liabilities.

We have since removed the cash settlement option on our convertible notes, which reclassified the conversion feature from a derivative liability to equity and eliminated future fair value volatility that would flow through the income statement. This will clear up this reporting issue going forward and simplify our financial statements.

So removing these noncash and onetime items, our adjusted net income for the quarter was $59.3 million or $0.27 per share versus $14.7 million and $0.07 in the comparative quarter. As I mentioned, revenue was up 96%, while adjusted net income rose 303%, showing that we've been able to flow these higher metal prices through to the bottom line.

Adjusting our operating cash flow for a positive $3 million impact from noncash working capital and backing out the Wheaton stream contribution that we showed in Q3, the Q4 operating cash flow of $87 million was a quarterly record. On the capital allocation front, during the quarter, we invested nearly $15 million at our Chinese operations and $13 million at the El Domo project in Ecuador.

Additionally, we made a cash payment of $92 million in late January for the acquisition of the Tulkubash and Kyzyltash Gold projects in Kyrgyzstan. As we embark on an aggressive growth strategy, our strong balance sheet will become increasingly important. We ended the quarter with a strong cash balance of $422 million, which does not include our investments in associates and other companies, which had a total market value of $275 million on March 31.

Additionally, to add further liquidity, after quarter end, we secured a low-cost RMB term loan facilities totaling approximately $220 million, which further strengthens our financial position. To date, these remain undrawn. To quickly summarize the full year 2026 results, which just like the quarter were record-breaking across the board. Revenue reached $438 million, up 47% from the prior year, driven by a 72% increase in the realized selling price of silver over the year.

Adjusted net income for the year was $151 million or $0.69 per share versus $75 million or $0.36 per share in the prior year. Our annual cash flow from operating activities was nearly $311 million. This was up 124% from $139 million in the prior year.

Capital expenditures for the year were approximately $124 million, which is up from $87 million in the prior year, and this includes $75 million for underground development, equipment and facilities at our Chinese operations as well as over $46 million for construction at the El Domo mine.

Nonetheless, we generated more than $181 million in free cash flow in fiscal 2026, and that's more than triple what we delivered in the prior year. Now to quickly recap our operating results. As we reported last month in Q4, we produced approximately 1.5 million ounces of silver, nearly 2,500 ounces of gold, 14 million pounds of lead and 4 million pounds of zinc.

And for the full year, we produced 6.8 million ounces of silver, 8,723 ounces of gold, 60 million pounds of lead and 22 million pounds of zinc. Compared to last year, gold production increased 16%, while silver, lead and zinc production were down 2%, 3% and 7%, respectively.

The decrease was mainly driven by lower head grades, reflecting higher dilution associated with an increase in shrinkage mining. Consolidated mining operating income came in at $254 million in fiscal 2026, with Ying contributing $240 million of that or 95% of the total.

On the cost side, Q4 production costs averaged $78 per tonne at Ying, down 8% from last year. The improvement reflects a 43% and 2% increase in tonnes mined and milled as continued mine mechanization and greater use of that cost-efficient shrinkage mining method boosted productivity.

For the full year, production costs averaged $80 per tonne, which was below our Ying's annual guidance of $87 to $88 per tonne. Ying's cash cost per ounce of silver net of by-product credits was negative $1.03 in Q4 compared to positive $3.05 in the prior year quarter.

The decrease was driven by an $800,000 increase in byproduct credits. For the full year, cash costs averaged $0.01 per ounce compared to $0.62 last year, reflecting a $10 million increase in byproduct credits. All-in sustaining production costs increased by 11% year-over-year at Ying to $130 to $4 per tonne in Q4, driven mainly by higher government taxes on increased revenue as well as higher sustaining capital spending on tunneling.

For the full year, the all-in sustaining cost also averaged $134 per tonne, down 4% year-over-year and below Ying's annual guidance of $158 to $161 per tonne. On a per ounce basis, net of byproducts, Ying's all-in sustaining cost was $1,309 in Q4 and $1,149 for the full year, delivering strong margins amid higher silver prices.

Turning to our growth projects. At Ying, we invested $29 million in fiscal 2026 for ramp and tunnel development and are budgeting $37 million this year to further enhance underground access and materials handling. This work goes hand-in-hand with our broader effort to expand mining capacity across all 4 licenses at Ying. We've now completed the permit extensions and capacity expansions for the 4 mining permits comprising Ying with total approved capacity increasing to 1.32 million tonnes per year.

Now we're focused on completing the required production safety licenses. At SGX, the safety facility design has already been approved and construction is underway to support the capacity expansion. At HPG, the design has been reviewed by the Henan provincial government and is now awaiting final sign-off.

At the TLP, LM and DCG licenses, the safety facility designs have been completed and submitted for approval. At Kuanping, the satellite project north of Ying mine construction focused on ramp development to access the ore bodies. The project, which has a license to produce up to 200,000 tonnes of ore per year, has delivered some development ore in Q1 of fiscal 2027, which was shipped to Ying for processing.

With the capacity expansions at the existing Ying permit areas in Kuanping, we will have total mining capacity of approximately 1.5 million tonnes per year.

In anticipation of higher mine production at Ying, we're moving ahead with the construction of a new mill, the #3 mill. Design and construction began in Q4 and with a total budget of $31.6 million. It's expected to add 3,000 tonnes per day of milling capacity and be commissioned in Q1 fiscal 2028.

Once mill #3 is in operation, we plan to decommission the older mill #1, which will leave Ying with a net effective milling capacity of approximately 6,500 tonnes per day, up from the current 4,000 tonnes per day. This will give us more capacity at the mill to process at a higher mining rate and still leave some excess capacity for future growth.

We plan to release an updated mineral resource and reserve estimate along with an updated mine plan for Ying incorporating Kuanping shortly. Switching gears to Ecuador at El Domo, construction continued to ban in Q4 despite a heavy rainfall. On the infrastructure side, we awarded contracts for 3 sections of external power lines and 3 substations to qualify Ecuadorian contractors, which have since received formal approval from SNL, the domestic power company.

We also saw Klohn Crippen Berger mobilized to site to support construction quality assurance for the tailings storage facility. In parallel, we continue to strengthen on-site capacity with a regional workforce of 372 people as of March 31. Key infrastructure milestones were also achieved, including the completion of the ore shed and continued progress on process plant earthworks and site preparation, supported by ongoing blasting and leveling activities.

And importantly, we signed the definitive mining contract with CRCC 19 in February. The contract were mobilized to site immediately and has transitioned into active construction, including access road development to the open pit and initial stripping of that open pit area.

We spent approximately $60 million on construction through March 2026, which represents about 21% of our updated budget of $284 million. At the Condor project in Ecuador, we plan to develop two 1,500-meter long exploration tunnels into the Camp and Los Cuyes deposits to support underground drilling and advance exploration and resource definition.

To move forward, we required an environmental license and water permits. The water permits have been approved by the relevant government authorities. Technical reports for the environmental license were also completed and submitted to the relevant government agencies for review. The environmental impact study for the Condor project has been approved by the Ministry of Energy and Mines. We're now actively engaged in formal consultation with directly impacted communities.

This is the last step required to secure the small-scale mining license, which we're targeting for Q2 fiscal 2027. Once received, we'll then commence development of those underground access tunnels into the 2 deposits. And this access we would expect to use if and when we transition to a mining operation once we receive the appropriate permits for this and the necessary surface infrastructure.

Turning to Kyrgyzstan. In late January, we acquired a 100% interest in Chaarat ZAAV for $92 million. This is the Kyrgyz entity that holds the Tulkubash and Kyzyltash Gold projects.

This is an important step in our strategy to build a more globally diversified producer with added exposure to gold's strong fundamentals. Subsequent to year-end in May, we successfully completed the next step by converting ZAAV into a joint venture company with Silvercorp owning a 72% interest in acting as operator and Kyrgyzaltyn, the state-owned gold company holding the remaining 30%. At the same time, the Kyrgyz government issued a new mining license, extending the validity of the mining period by 30 years to June of 2062, for which we made a $60 million payment, which had been previously agreed.

Together, these projects give us the opportunity to apply our mine building expertise and financial strength to unlock value through a phased development approach, starting with the fully permitted Tulkubash project, followed by Kyzyltash.

Since we announced this deal, we've been actively advancing Tulkubash. Our focus is on updating the bankable feasibility study, adapting and localizing engineering designs and continuing surface work and site preparation to move the project towards construction with initial pre-stripping targeted for Q2 fiscal 2027.

We look forward to providing further updates on our development plans for Tulkubash in the near future. Last but not least, earlier this week, we filed an application to list our shares on the Hong Kong Stock Exchange, something we expect to occur later this year.

Our rationale is that such a listing will give us the opportunity to present the Silvercorp investment case to a new audience of investors, one that has shown itself to be receptive to mining stocks in general and in particular, to profitable global growth-oriented companies. And with these comments, I'd like to open the call for questions, operator?

[Operator Instructions] Your first question comes from the line of Joseph Reagor from ROTH Capital Analyst.

Congrats on a strong finish to the year. I guess, first thing, I mean, we're pretty far into your fiscal Q1 already. Is there any color you can give us about how things are going? Is everything according to plan? And is there any onetime maintenance or anything we should be aware of?

First off, thanks, Joe, for joining your question. No, nothing notable that is worth reporting.

Okay. And then on this third mill for Ying, when do you expect that to start contributing production? And essentially, I believe it's replacing what mill # 1, right? So like what's the total capacity going to be when everything is said and done?

Yes. Once we've built mill #3 and decommissioned mill #1, we're looking at around 6,500 tonnes per day of milling capacity.

We expect to commission mill #3 roughly a year from now in Q1 fiscal 2028. And then as it comes on stream, we look to ramp down and then eventually decommission. It's not going to sort of happen instantaneously, but we'd look to just switch over and shut down mill # 1 after that.

Okay. And then I mean, obviously, there would be a significant increase from your current planned milling rates. How should we think about that extra capacity? Should we expect an updated mine plan to come out where it shows what percentage of that capacity you're going to actually use?

Yes. Yes. With the report that I mentioned that will give detailed mine plans for each of the mill now 7 at Ying and with Kuanping, 8 mines that are going to be ramping up with obviously, these permit expansions.

And then as we get the safety production licenses validated, forecast will factor in growth from each of those, and you can see how that tonnage will be used by mill #2 and #3 going forward.

[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Okay. Well, great. Thanks, operator, and thanks for everyone for joining us today. If anyone did have or does have any further questions, happy to address that through calls or e-mails going forward.

And we look forward to catching up next time on our Q1 fiscal 2027 results in early August. Have a great day, everyone.

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

Thank you for standing by. Good afternoon. My name is Constantine and I will be your conference operator today. At this time, I would like to welcome everyone to Silvercorp.'s Third Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions].

I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead, sir.

Thank you, Constantine. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our third quarter fiscal 2026. Financial results, which were released yesterday. A copy of our news release, the MD&A and the financial statements are available on our website and SEDAR. Before we start, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. Additionally, please review the cautionary statements on our news release as well as the risk factors described in our most recent regulatory filings.

So we'll kick off with our financial results. We delivered record-breaking performance in this Q3, highlighted by revenue of $126 million, which was up 51% from last year. Cash flow from operating activities and free cash flow reached $133 million and $90 million, respectively. And those were up 196% and 336% from last year. This performance was mainly driven by an 80% increase in the realized selling price of silver, which added just under $49 an ounce after smelter deductions. Silver accounted for 72% of our revenue in the third quarter.

These results reinforce why Silvercorp remains a compelling investment in the silver sector. We are a profitable and growing producer that provides leverage to higher metals prices.

We reported a net income of negative $15.8 million for the quarter or negative $0.07 per share, which reflected a significant $60 million noncash charge on the fair value of derivative liabilities. However, removing these noncash and onetime items, our adjusted net income for the quarter was $47.9 million or $0.22 per share compared to $22 million or $0.10 a share in the comparative quarter. As I mentioned, revenue was up 51%. So with adjusted net income up 118% that shows our ongoing efforts to control costs and drop these improvements to the bottom line.

I also mentioned the record cash flow from operating activities earlier. This figure included an initial $44 million draw on our 175.5 million streaming facility from Wheaton Precious Metals for the El Domo construction as well as a positive $9.4 million change in the noncash working capital during the quarter.

Even after adjusting for these items, our Q3 operating cash flow was still the highest quarter ever at $79.6 million, up 129% compared to last year. During the quarter, we invested nearly $26 million at our operations in China and $18 million at the El Domo project in Ecuador. And despite that, we added cash to the balance sheet, ending the quarter with a strong cash balance of $463 million, an increase of over $80 million from September 30.

The cash position does not include our investments in associates and other companies, which had a total market value of $233 million on December 31 and was more recently pegged at just under $260 million. After quarter end, we announced a transaction to acquire gold projects in Kyrgyzstan for $162 million in cash, of which $92 million was paid at closing on January 27.

Now to quickly recap our operating results. As we reported last month, in Q3, we produced approximately 1.9 million ounces of silver, just over 2,000 ounces of gold, 16 million pounds of lead and 7 million pounds of zinc. Production at Ying benefited from increased use of shrinkage mining relative to cut-and-fill re-suing which drove record productivity with tonnes mined and milled up 23% and 18%, respectively, compared with Q3 2025. Head grades were lower due to the XRT silver undergoing maintenance in October as well as higher dilution associated with the shift to more shrinkage mining. We stockpiled over 61,000 tonnes of ore to be processed during the Chinese New Year holiday later this month.

Year-to-date, we have produced 5.3 million ounces of silver, 6,231 ounces of gold, 46 million pounds of lead and 18 million pounds of zinc representing increases relative to last year of 1%, 42% and 1%, respectively, in silver, gold and lead production and a 6% decrease in zinc production.

On the cost side, Q3 production costs averaged $76 per tonne at Ying, down 11% from last year. The improvement reflects ongoing mine mechanization and greater use of cost-efficient shrinkage mining, boosting mine and mill productivity. Year-to-date production costs also averaged $80 per tonne below our annual guidance for Ying between $87 and $88 per tonne.

Ying's cash cost per ounce of silver net of by-product credits was negative $1.22 in Q3 compared to a negative $0.30 in the prior year quarter. The decrease was driven by a $3.5 million increase in by-product credits.

Q3 all-in sustaining cost per ounce net of byproducts was $11.32 at Ying, supporting robust margins amid higher silver prices. Consolidated mining income came at $77.1 million in Q3, with Ying contributing $71.6 million or 93% of the total.

Turning to our growth projects at Ying, we invested $9 million in Q3, primarily ramp and tunnel development to enhance underground access and improve material handling. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that we increased the permit at the SGX mine with a renewal for another 11 years and a capacity increase from 198,000 tonnes to 500,000 tonnes per year. The HPG permit was also renewed and expanded from 50,000 to 120,000 tonnes and the DCG permit increased from 30,000 to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit from 230,000 tonnes to 600,000 tonnes per year with approval expected later this quarter. Once all approvals are in place Ying's total permitted annual mining capacity will rise to 1.32 million tonnes.

At Kuanping, our satellite project, north of Ying mine construction continued with over 3 kilometers of ramp development and 693 meters of exploration tunneling completed in Q3. Kuanping is expected to begin delivering some mining development ore starting in June of this year. Kuanping has a mining permit to produce up to 200,000 tonnes per year which at a full contribution would bring our total mining capacity to 1.52 million tonnes per year. As we previously mentioned, we will publish an updated technical report for the Ying District to include the Kuanping contribution by midyear of this year.

Switching gears to Ecuador at El Domo mine construction continued in Q3 with around 1.1 million cubic meters of material moved. Cumulative earthmoving volumes have now reached 46% of the total design volume for Construction Package 1 with activities focused on haul road development process plant site preparation and the TSF starter dam. We also commissioned the 600-bed construction camp, allowing us to accommodate the new mining contractor, CRCC 19, with whom we are in the process of finalizing the contract to carry out mine construction. CRCC 19 has mobilized personnel and will bring equipment on site later this month. We spent approximately $45 million on construction through December 2025, which represents about 16% of our updated budget of $284 million.

And at the Condor Gold project in Ecuador, we completed and announced a PEA in December for an underground gold operation centered around the Camp and Los Cuyes deposits. The study demonstrates a long-life, low-cost gold project with strong economics at a base case gold price that was used of $2,600 an ounce. This represents a first step as the company continues to derisk the project through further technical work. Our plan is to drive 2 exploration tunnels into these deposits in order to complete underground drilling to facilitate advanced exploration and resource definition.

To proceed on this basis, we require an environmental license and water permits. The water permits have been approved by the relevant government authorities. Technical reports for the environmental license were also completed and submitted to the related government authorities for review. The environmental impact study for the Condor project has been approved by the Ministry of Environment, Water and Ecological Transition. We're now actively engaged in the formal consultation with the directly impacted communities surrounding the project. This represents the final stage in obtaining the environmental license for exploitation. Once this license is secured, we will commence in the development of underground tunnels into the Camp and Los Cuyes deposits, access that we believe could be used if and when we transition to the mining operation once we have received appropriate permits for this and the necessary surface infrastructure.

Turning to Kyrgyzstan. We have recently acquired a 70% interest in the Tulkubash and Kyzyltash gold projects. This represents another important step in our strategy to build a globally diversified producer with added exposure to gold strong fundamentals. These projects give us the opportunity to apply our mine building expertise and financial strength to unlock value for all stakeholders through a phased development approach starting with a fully permitted Tulkubash project and followed by Kyzyltash. The Kyrgyz government retains a 30% free carried interest. So we feel interests are aligned as we advance the projects toward production in a modern and responsible manner that benefits our shareholders and the country as a whole. We look forward to updating the market on our development plans over the coming months.

And with that, operator, I'd like to open the call for questions.

[Operator Instructions]. Your first question comes from the line of Joseph Reagor from ROTH Capital Partners.

I guess, first thing on the guidance. You guys didn't make any changes to guidance, but it seems like you're probably tracking towards a higher than the high end on throughput at Ying, but obviously lower grades than expected. Is it fair for us to make assumptions like that?

Yes. I mean I think it's pretty obvious given the challenges that we had in Q2, that it was going to be tough to catch that up. Certainly, going into Q4 with some extra tonnes to mill during Chinese New Year will certainly help smooth over and not make it as low of a Q4 as we typically would have because of Chinese New Year. But yes, I think right now, if we're going to be looking at guidance, it would be at the lower end and that might be still challenging at this point.

Okay. Fair enough. And then on the quarter, the $60-plus million derivative liability. Was that solely related to the convertible notes? Or is there something else in that?

Yes. No, that's related to the convertible.

[Operator Instructions]. There are no further questions at this time. This concludes our question-and-answer session.

I would now like to turn the conference back over to the management team for any closing remarks.

All right. Well, thank you. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions, we're always happy to take calls or e-mails, and we look forward to catching up with all of you next time when we discuss our fiscal 2026 year-end results. Have a great day, everyone.

This concludes today's conference call. You may disconnect your lines. Thank you for your participation, and have a wonderful day.

Good morning, and thank you for standing by. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp's Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions]

I would now like to turn the conference over to Lon Shaver, President of Silvercorp. Please go ahead.

Thank you, Ludy. On behalf of Silvercorp, I'd like to welcome everyone to this call to discuss our second quarter fiscal 2026 financial results. They were released yesterday after the market closed and a copy of our news release, MD&A and financial statements are available on our website and SEDAR+.

Before we get going, please note that certain statements on today's call will contain forward-looking information within the meaning of securities laws. And also please review the cautionary statements in our news release as well as the risk factors described in our most recent regulatory filings.

So let's kick off the call with our financial results. We delivered more solid performance in Q2 highlighted by our revenues of $83 million, which was up 23% from last year and marks the second highest quarter ever. Additionally, cash flow from operating activities was $39 million, and that was up 69% from last year. This performance was mainly driven by a 28% and 37% rise in the realized selling prices for silver and gold compared to last year. Also notably, the amount of gold sold in the quarter was up 64% compared to last year. Silver remains our most significant revenue contributor at approximately 67% of net Q2 revenue, followed by lead at 16% and gold at 7%.

Moving down the income statement. We reported net income of negative $11.5 million for the quarter or negative $0.05 per share. This is down from positive $17.8 million or $0.09 a share in Q2 of fiscal 2025. However, this quarter had a significant $53 million noncash charge on the fair value of derivative liabilities, which was partially offset by a $22 million gain on investments. Removing noncash and onetime items such as this, our adjusted net income for the quarter was $22.6 million or $0.10 a share versus $17.7 million or $0.09 a share in the comparative quarter. Note that the average shares outstanding used to calculate EPS this quarter was 218.6 million compared to 206.5 million in the same period last year.

On the capital spending side, we invested nearly $16 million at our operations in China and $11 million in Ecuador during the quarter. We generated $11 million in free cash flow for the quarter, which supported our strong closing cash position of $382 million. This cash position does not include our investments in associates and other companies, which had a total market value of $180 million on September 30. And after quarter end, we participated in New Pacific Metals equity financing and acquired an additional 3 million common shares for roughly $7.8 million.

Also, subsequent to quarter end, in October, we made the first draw on our $175.5 million Wheaton Precious Metals streaming facility for the El Domo project. We drew down the first $43.9 million tranche, which will be used to fund our ongoing construction at El Domo.

Now to just quickly recap our operating results. As we reported last month, in Q2, we produced approximately 1.7 million ounces of silver, just over 2,000 ounces of gold, 14 million pounds of lead and 6 million pounds of zinc. Silver production was essentially flat, but gold production was up 76%. So silver equivalent production, considering just the silver and gold was up 5%. Lead production was up 8% and zinc production was down 3%.

Production at Ying was impacted by the temporary closure of certain mining areas, which have since reopened. We expect to mine approximately 346,000 tonnes of ore in this current quarter Q3 compared to the 265,000 tonnes mined in Q2. At the GC mine, production in Q2 was interrupted for about 10 days by Typhoon Ragasa. Year-to-date, we have produced 3.5 million ounces of silver, 4,135 ounces of gold, 30 million pounds of lead and 11 million pounds of zinc, which represents increases relative to last year of 3%, 78% and 4%, respectively, in silver, gold and lead production and an 11% decrease in zinc production.

On the cost side, Q2 production costs averaged $83 per tonne at Ying which was down 11% from last year. The improvement reflects greater use of shrinkage stoping over the more labor-intensive cut-and-fill resuing method along with higher ore throughput. Year-to-date production costs also averaged $83 per tonne, which was below the Ying annual guidance of between $87 to $88 per tonne. Ying's cash cost per ounce of silver net of byproduct credits was $0.97 in Q2 compared to $0.62 in the prior year quarter. The increase was driven by a $4 million increase in production costs due to 26% more ore being processed, while silver production grew by only 1% as shrinkage mining tends to have higher dilution rates. This was partially offset by a $3 million increase in byproduct credits.

Q2 all-in sustaining cost per ounce net of byproduct credits was $11.75 at Ying, up 30% from the prior year quarter due to a $1.4 million increase in mineral rights royalties following its implementation in China in Q3 of fiscal 2025. A $2.6 million increase in sustaining CapEx and those previously mentioned factors that impacted cash costs.

Overall, for the operations, consolidated mining operating income came at $40.8 million in Q2, with Ying contributing $38 million of that or over 93% of the total.

Turning to our growth projects. At Ying, we invested $6 million in the quarter for ramp and tunnel development to enhance underground access and increased material handling capabilities. This work goes hand-in-hand with our efforts to expand mining capacity across the 4 licenses at Ying. Recall that last year, the SGX mine permit was renewed for another 11 years with capacity increase to 500,000 tonnes per year. The HPG permit was also renewed and expanded to 120,000 tonnes and the DCG permit was increased to 100,000 tonnes. We're now in the process of applying to increase the TLP LM permit to 600,000 tonnes per year with approval expected later this quarter.

Once all approvals are in place, Ying's total permitted annual mining capacity will rise to 1.32 million tonnes from approximately 1 million tonnes currently. At Kuanping, that's the satellite project north of Ying, mine construction continued with 831 meters of [ ramp ] development and 613 meters of exploration tunnelling completed in this quarter. Kuanping has a mining permit to produce 200,000 tonnes per year, which at a full contribution, would bring our total mining capacity at Ying up to 1.52 million tonnes per year.

Switching to Ecuador. Construction at the El Domo project is moving ahead steadily. In Q2, around 1.29 million cubic meters of material work cut for site preparation. Roads and channels, and that was a roughly 250% increase over the previous quarter. A 481-bed construction camp has been completed and work on the tailings storage facility began in September. For the 6 months ended September 30, approximately 1.66 million cubic meters of material were cut or removed, and $14.6 million of expenditures were capitalized.

Contracts for 4 sections of the external power line have been awarded to qualified Ecuadorian contractors, pending review by the state power distributor, CNEL. Additionally, orders for equipment with a total value of $22.2 million have been placed.

Overall, since January of this year, approximately $18.9 million has been spent on capital expenditures and prepayments for equipment purchases related to El Domo.

At the Condor Gold project, we kicked off the [ PEA ] for an underground gold operation and expect to complete this study before the end of the year. As a reminder, at Condor, our plan is to construct 2 exploration tunnels into the deposits, which will allow us to conduct underground detailed drilling. In order to do this, we required environmental license and water permits. The studies to support these applications have been ongoing over the year. And during the quarter, we submitted our application for the water permits. The application is now pending final approval. We have submitted our application for the environmental license, and it is under review by the relevant authorities.

And with those updates, I'd like to open the call for questions.

[Operator Instructions] With that, our first question comes from the line of Joseph Reagor with ROTH Capital Partners.

I guess first thing on El Domo, the guide for CapEx compared to what you spent year-to-date, is it a matter of -- there's a big lift coming here soon or some long lead items that you guys have to pay for? Or is it -- are things maybe tracking a little slower than anticipated as far as capital spending goes?

I was probably tracking a little slower initially. We began construction this year focusing on earthworks, and it was clearly a wetter year than Ecuador has experienced in past rainy seasons. But I think we've ramped up significantly here in recent months as indicated by the results that we published this quarter. And going forward, we should be able to provide an update on our construction progress this quarter, particularly as we are looking to execute the contract for bid package #2 in due course. And that's obviously the contract associated with stripping of the open pit and actually mining of the deposit. And we'll be in the position here shortly to share results from the metallurgical testing program that we've undertaken this year. So we expect to have an update prior to year-end where we can bring all these items forward and provide any updates.

Okay. And also on El Domo with the Wheaton drawdown, I think initially, when you guys made the acquisition, there was some thought that there was a potential to maybe buy that stream out or not use it in some way, but now you've drawn down on it. Does that just reflect that there was no way to really negotiate out of it given gold and silver prices have moved so positively since it was signed?

Well, I think your last comment really indicates what we'd be dealing with to renegotiate. There was contractually an opportunity to adjust the stream at the time of the acquisition. It didn't make sense at the time, and it still doesn't make sense based off of those numbers. What might be available to negotiate with Wheaton, I can't comment on. You'd have to speak to them as well in terms of what their expectations are based on the contract that they entered into with Adventus.

Okay. Fair enough. And then just on guidance, it sounds like you guys are expecting a pretty strong catch-up quarter at Ying in Q3 and that, that will get you back in line with guidance, whereas if you were operating at normal rates, you'd kind of be tracking a little below after the Q2, let's call it, issue for lack of a better word.

Yes. I mean, clearly, Ying is a mine in transition as we look to increase mechanization, we've certainly been demonstrating other than the temporary setback in this last quarter, the ability to generate tonnes. So that has been ramping up nicely. Also, we've been able to deliver more tonnes and produce more gold. So that is a bit of a shift in the profile. But whether we're able to make up for what was missed in so far this year, a little early to tell. I think it will depend on our ability to run at those expanded rates, great profile going forward and also Q4, just -- last year, we had some excess tonnes and we had a brand-new mill with excess capacity to work through those. So it kind of remains to be seen what we can push through in Q4 to get away from what has seasonally been a slower quarter. So still a bit early to tell. But as you point out, we're in a bit of a catch-up mode here.

[Operator Instructions] And we have no further questions at this time. I would like to turn it back to Lon Shaver for closing remarks.

Okay. Well, great. Thanks, operator, and thanks, everyone, for joining us today. If anyone does have any further questions after the call, please feel free to reach out by calling or e-mailing us. We look forward to hearing from you, and we look forward to catching up to discuss the results of our third quarter. Thanks, everyone, and have a great day.

And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.