Sharply weak silver is weighing heavily on primary silver miners with some of the hardest hit being smaller miners. Among the worst affected is one-time market darling Great Panther Silver (TSX:GPR)(NYSE:GPL), which has seen its stock plunge by a whopping 51% since the start of 2018 compared to silver only shedding 15%. The primary silver miner’s latest results have not helped assuage market concerns about its operations nor the financial impact of the stagnant outlook for silver on its financial performance.
Great Panther’s third-quarter 2018 results disappointed the market with the miner missing analyst estimates. It reported a whopping net loss of US$3.6 million for the quarter, which was more than five times greater than the equivalent period in 2017. This equates to a loss of $0.02 per share, which is double the forecast analyst consensus loss of $0.01 per share. A key culprit for that disappointing performance was weak silver prices over the quarter, which saw Great Panther report an average realized price of US$14.45 per silver ounce sold — 15% lower than a year earlier.
While weaker silver and its poor outlook is of significant concern, the bad news doesn’t stop there.
Great Panther reported third-quarter production of 1,023,128 silver equivalent ounces, which was 5% lower year over year, and silver output fell by a worrying 16%, while the volume of gold ounces produced was down by a disconcerting 19%. This is troubling because the marked decline in production can be attributed to a sharp deterioration in the grades of silver and gold mined by Great Panther.
However, the acute decline in precious metal production was offset by a significant lift in base metals output for the period with lead production rising by 29% year over year and zinc by 14%.
Another disconcerting aspect of the Great Panther’s third-quarter results was a distinct increase in operating expenses. Cash costs per silver equivalent ounce produced shot up by 10% year over year to US$13.56 per silver equivalent ounce produced, which was only US$0.89 lower than Great Panther’s average realized price per silver ounce sold for the quarter. All-in sustaining costs (AISCs) were also higher rising by 3% year over year to US$16.86 per silver equivalent ounce produced, which was US$2.41 higher than the miner’s average realized price.
Those results highlight the profitability issues that Great Panther is facing in an operating environment where silver has weakened substantially to be trading at close to the miner’s marginal cost of production. This is being further exacerbated by softer base metal prices with lead and zinc both decreasing in value over the past six months. It is feared that both base metals will remain soft because of slower than anticipated global economic growth.
Nonetheless, Great Panther has implemented a strategy aimed at bolstering production and reducing costs, key being a restructure of the operations at its Guanajuato mine complex.
Because of these results, the miner has revised its full-year 2018 guidance. Surprisingly, it increased forecast production by 100,000 silver equivalent ounces, which should help to offset the impact of softer silver prices on Great Panther’s earnings. It was, however, also forced to increase anticipated costs for the year, which, at the top end of the range, sees it expecting cash costs of US$8.20 per ounce produced and AISCs of US$15.50, which is 26% and 7% greater than originally planned. This — along with weaker silver prices for the foreseeable future — makes it difficult to see Great Panther reporting any significant improvement for the fourth quarter or full year 2018.
Great Panther’s friendly acquisition of Beadell Resources Ltd. will go some way to addressing the issues it is facing. This deal will boost the miner’s gold reserves by almost 1.5 million ounces and add production of around 130,000 gold ounces, thereby reducing its dependence on silver, giving its earnings a boost. This is particularly important to note, because despite silver softening sharply since June 2018, gold has remained firm and should do so for the foreseeable future.
Great Panther’s latest results certainly explain why its stock has been so heavily marked down by the market. While the outlook for silver remains poor, the latest sell-off combined with Great Panther’s planned all-stock acquisition of Beadell make it an appealing but risky contrarian play on firmer gold and silver.