Thank you for standing by. Good afternoon, my name is Anas, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silvercorp Third Quarter Fiscal 2022 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Lon Shaver, Vice President, for opening remarks. Please go ahead.

Great. Thank you, Anas. Good morning, everyone. On behalf of Silvercorp Metals, I'd like to welcome you to the Silvercorp Metals Third Quarter Fiscal 2022 Financial Results Conference Call. We released our results after yesterday's close, and a copy of the news release, MD&A and financial statements for today's call are available on our website. Before we get started, I'd like to remind you that certain statements on today's call will contain forward-looking information within the meaning of securities laws. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent second quarter 10-Q and Form 40-F and Annual Information Form. Now getting into the quarterly results. We finished a solid financial quarter. Revenue in Q3 was $59.1 million, up 11% compared to the prior year quarter. Based on the production levels and realized prices, silver was 54% of our revenues on a net basis compared to 58% in the same quarter last year. Our Q3 net earnings attributable to shareholders were $5.1 million or $0.03 per share compared to $8.4 million or $0.05 for the same period last year. The decrease was mainly due to a mark-to-market charge of $8.5 million against equity and bond investments in this quarter. Our adjusted earnings for the quarter were $13.4 million or $0.08 per share compared to $13.8 million or $0.08 per share in the same period last year. As a reminder, our adjusted earnings is a supplemental non-GAAP measure. And it's intended to provide the market with another metric to better measure the performance of the underlying business, its continuing profitability and growth potential. The adjustments made were to remove the impacts from noncash and unusual items, including the elimination of share-based compensation, foreign exchange loss, impairment adjustments and…

[Operator Instructions] Your first question comes from Dalton Baretto with Canaccord.

A couple of questions from me. First one, now that we're past the Lunar New Year holiday, what's your assessment of the impact it's had on production? I mean, I remember you were flagging potential issues. I just want to know how that all panned out.

Yes, I mean, I think right now, looking at this year, it's probably a return to a more normal year. It's maybe a little bit too early to have any sort of definitive answers. But it doesn't look like it's been the sort of disruptive years that we've seen in the past as related to, obviously, the big COVID interruption in 2020. So I think from the question that you asked last time and where we are, recognizing that our guidance is a range and looking at the lower end of the range, I think we're going to come pretty close to that lower end for this last quarter. And really, the final numbers are going to be determined by what we see in the next few weeks.

Got it. Okay. And then I've got actually a couple of questions on this expansion here. First, I just want to try and square away some numbers. So if I look at your November press release, it says the mill is going to cost $25 million, it's going to be done by the end of 2023. The tailings dam is going to cost $38 million and Phase 1 is going to be done by the end of 2024. But of that $63 million budget, you're going to spend $40 million this year alone. Just trying to kind of square away the timing there.

With timing, I mean, obviously the tailings facility is expected to be operational with a bit of a lag relative to the mill. And so you can see that we are putting money into both the mill and the facility in this next fiscal year, and recognizing that -- those numbers in that November news release, not that it's a big difference, but were related to calendar years.

Okay. But I guess, I'm just wondering if you're spending 63% of the budget this year, why won't the mill be done until the end of next year and the tailings dam the year after if you're spending this much upfront?

No. But no, we'll be spending it in this fiscal year to then be looking at it producing in fiscal 2024 with the milling -- the tailings facility coming on later in calendar 2024.

Okay. And then as a follow-up, and two parts to this question, based on something you said in your comments. So number one, how should we think about the production profile post the expansion? And number two, I thought I heard you say that the Zhonghe Project is no longer at the table, it sounds like. I think you pulled your application or something. Wasn't that supposed to kind of be a piece of the expansion? And how should we think about that?

Well, I think it was intended to be initially a potential source of satellite feed for an expanded mill. But I think what we're showing in the results again, we've got enough to work with at our existing mine permits to justify the expansion. And so while it's -- unfortunately, we haven't been able to proceed on this, important to note, we haven't put any money down on that project. It's unclear exactly what the outcome will be here, whether there's still the ability to move forward or what happens. But it doesn't really change the planning that we have for the Ying proper mining facilities as well as this mill expansion.

Okay. So then how should we think about the production profile in fiscal 2024 onwards?

Well, I think at this point, it's early days for us to provide guidance in terms of the studies and projections. We haven't completed sort of what you call a 43-101 report that we could put out on that. So what I would guide to is looking at the next fiscal guidance for 2023 as an indication of what we can do with the existing facilities in terms of growth. And later in the year, we're looking forward to providing more details on what the expansion will actually provide.

Okay. So it is your intention to put out a tech report this year?

Yes. And the exact nature of that report is still to be determined. For sure, we're going to be addressing the reserves and resources and likely a mine plan. Not certain whether that mine plan will factor in the expansion, it may not. But as we obviously are driving towards getting these details finalized and getting the planning in place, we'll be in a better position to give guidance on what we expect from the expanded facility.

Okay. But since we're going to give you for the CapEx, is it fair to say that the mill will run at 3,000 tonnes per day at reserve grade? Is that a reasonable assumption?

Sorry, I heard the first part, the 3,000 tonnes per day?

I'm just saying if we're going to give you credit for the CapEx, is it fair then to just assume that the mill will run at 3,000 tonnes per day at reserve grades until you have a better mine plan?

Well, I think you know that our current mine plan doesn't run at reserve grades. There's obviously a prioritization of higher grades at the beginning of the mine plan. And then typically, those will trail off. We've done a good job over the years with our ongoing exploration to keep finding new higher-grade reserves and resources to keep deferring the lower grade that obviously brings the overall down to the reserve grade average. But obviously, with an expanded facility, different economics, the additional resources and reserves we're identifying within the mining permits, some of that planning has yet to be done on exactly what that production profile will look like. So I think if I were to give you guidance, I would run the numbers off of the existing facility and based off of a reasonable expanded mine plan, similar to this fiscal 2023 guidance and look at the expansion as optionality that we'll be providing more information on.

Your next question comes from Joseph Reagor with ROTH Capital Partners.

A couple of things. First, you had this write-off on bonds in the quarter. Any additional color than just you had a write-off on bonds?

Well, I guess, some color, I think the -- obviously, unfortunate, but we'll get through this. Obviously, it's a noncash charge that we've taken. Going forward, our notes show that in terms of the mix of short-term investments as of December, roughly $50 million of that $59 million is in money market instruments and there's only $10 million in bonds. So we're not anticipating any further impairment charges. But obviously, we'll wait and see. There's also the potential for a recovery.

Okay. That's fine. Second thing, this gold bulk sample you're doing, can you give us any color on timing of that? Should we spread it evenly across the 4 quarters? Is it going to be done in a specific quarter? Obviously, it's going to impact the gold production when it occurs.

Yes. It's not -- in terms of time, it's not obviously a huge number. I don't have the quarterly breakdown. So at this point, I would spread it over the year until we have any further guidance for you on that.

Okay. Fair enough. And then I think the previous person asking questions was trying to get to, I think, the point of if we're putting all this CapEx into the model, how should we be accounting for it properly? The sense I get is that while you guys don't have specific guidance yet, that your reserve grades are based off of a mine plan that's based off of a more lower throughput kind of scenario and that as you expand and try to grow, you're going to pick up maybe a lower grade halo around the stuff you've been mining, that overall grades might come down a touch. But since production rates are going to go up so much on a margin basis, it might be the same. Is that something we could think about? And is that a fair assessment?

Yes. I think that's certainly possible. And the other thing to consider in that model is on the higher throughput basis, that may be -- enable us to incorporate a bit more mechanization, which should lead to lower unit costs in the mining activities.

Right. So that would -- basically, the economies of scale will offset potentially lower grades is kind of the assessment I'm coming up with here.

Yes. No, that's certainly a possibility. We're looking -- we're obviously looking at refreshing the mine. The mine has been running and producing profitably for many years. It still has a long license on it. We are seeing opportunities here to grow the resource/reserve base as well as the production profile. And that may mean some changes, but we're not anticipating the economics to be less than what we've been experiencing, but in fact, to be better and deliver bigger earnings and cash flow for investors going forward.

Okay. And then one final thing. I saw Rui is also going to be CEO of another company again. How do you think this might impact his use of his time between the two entities?

Well, I think it's important to recall he was CEO previously at both companies. Both companies have developed and invested since that time. I don't really see, given the team in place, any issues with progress at either company. And in fact, I think we'll see more progress based on what we're reporting as well as news that's been put out by New Pacific and future news on development of Silver Sand and its other projects.

Okay. Great. I just wanted to confirm it wouldn't be a time issue for him.

No, no, no, we're not anticipating any issues in that area.

[Operator Instructions] Your next question comes from Craig Stanley with Raymond James.

Just first off, on Zhonghe, so can somebody else come in now and take that project?

Well, it's unclear exactly what the process will be going forward. There might be a way that we can resolve this procedural impasse. It might be put up for auction again. And at which point, we may or may not participate. It's really too early to say. I think it's just from our standpoint, we're sending the message that we are in a position to move on because it's just taking too long, and we're not seeing sort of a clear path forward to resolve this -- sort of this regulatory process.

Okay. The bulk -- I guess, you're calling it a bulk sample that you're doing on the gold, how many mines is it being taken from?

I think, it's mainly -- at this point, I don't have a mine-by-mine breakdown. I think it's mainly focused from one, maybe two mines at this point. We'll have more details on this with the technical report that we'll put out later this year.

Okay, perfect. But it's around like sort of existing stopes and stuff?

Well, yes, it's obviously -- if you look at the capital we've been putting in both in drilling, tunneling and ramp access, there's sort of been blanket programs across all the mines. And with that, we've identified different zones, provided -- created access either as part of normal course activities to get to the silver-lead-zinc areas at [ renewals ], but then also realizing that these gold zones that are available, and we're obviously now in a position to include in our guidance that we'll be mining some of these gold zones and producing primarily gold ore from those areas.

Okay. The write-down that you had to do in those bonds, where were those bonds domiciled?

A lot of those would be bonds held in China in terms of a range of different companies. Some of them -- yes, across a range of industries.

And just finally, smelter charges, are you seeing anything much change?

No, I don't think there's really been any change in that area. And I know you flagged a question in terms of realized numbers. I think it's important to note that our realized pricing in U.S. dollars is a function of obviously Western-based pricing, when we're actually selling, what the move is in the Western markets relative to the Chinese markets and then also how the changes -- especially how the changes in the exchange rate can have fluctuations in certain periods. What we have seen in recent years is a strengthening of the RMB to the U.S. dollar so that, that has had an impact on what appears to be our realized numbers in U.S. dollars, whereas the relationship on the ground really hasn't changed.

Your next question comes from Gabriel Gonzalez with Echelon Capital Markets.

Just two main questions on -- principally on costs. Just considering the guided cash costs and all-in sustaining cost increases at Ying, I just wanted to ask, given all of the drilling and development work that was done, and it sounds as though that is producing better access and perhaps, in terms of costs, not much in the way of potential increased costs to access deeper ore or harder-to-reach ore, is it fair to assume then that the majority of that cost increase is mainly related to increased labor, consumables and COVID-related supply chain issues? And on the all-in sustaining costs, is part of that increase going to come through from drilling -- exploration drilling that's coming on the heels of all of the drilling that you did to get to where you're at right now with the drilling that was done this particular year?

Yes. So there's quite a bit to unpack there. Obviously, we've been doing a lot of drilling. The numbers show that. We're still expecting to be working and drilling pretty aggressively going forward as we see a lot of opportunity there. Some of that drilling is capitalized, in particular, the surface drilling. Some of the underground drilling is also capitalized as well. You see in the numbers we are bringing down for fiscal 2023 are ramping. So at Ying, for 2022, it was 6,100 meters, 5.2 million, dropping now to 3.2 million. So that's an example of where we're sort of shifting activity based on the results that we've been seeing. But obviously, Ying drilling is still very strong. And then I guess, yes, to your previous point, we have seen, as we reported earlier this year, that with the renegotiation of contracts with the contractors as well as our employees, we could see some increases there. In the most recent quarter, there were some increases just in power prices. Those are not permanent. Those fluctuate based off of market conditions. We're anticipating just, in terms of supplies and consumables, a regulatory shift in terms of the blasting caps that we're using is increasing some of the consumable costs. But that as a whole is not a huge number. I think really the bigger driver is now just the activity that we're putting in to explore and develop this mine and accommodate our growth plans going forward.

Okay, great. And so just a question related to the capital cost for the expansion at Ying, with capital cost as a whole increasing considerably for projects really throughout the world, is -- I guess, would you be able to quantify the confidence that you have in the numbers that you published, I believe it was November, for the expansion? Or should we potentially bake in a little bit of conservatism? And then what do you think that conservatism might entail to those capital costs as we model them?

Yes. Gabriel, that's a tough question. Obviously, those are the numbers, the best numbers we had at the time. That's not just picked out of anywhere. That's been with very detailed discussions with the engineering groups that we've engaged to work on the detailed design. The work that they're doing is also not just picking numbers out there, looking at realized quoting in the marketplace for what these products and services would be. So I think those are the best numbers that we have at the time as of November. I see no reason to change them at this point. Your guess is as good as mine, what we're dealing with going forward in terms of inflation. And so I think you'll have to sort of make your call, but we'll keep the market up to date if we do think if there's a change that needs to be disclosed. But I would say those are quality numbers based on, on-the-ground experience with people that would be working on actually executing on this plan, given this time frame that we're looking at.

[Operator Instructions] This concludes the question-and-answer session. I now like to turn the conference back over to Lon Shaver, Vice President, for any closing remarks.

Thank you. Thank you, Anas, and thanks to everyone for joining us today. Obviously, we'll wrap up here. But please, if you have any additional questions, as always, please do call or e-mail us. We'll be happy to respond to you. And we look forward to updating you again in May on our year-end fiscal 2022 results. Have a great day, everyone.

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