41
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
Annual 2014 Financial Results
Years ended December 31,
Expressed in $000's, except per share data
2014
2013
2012
Sales
174,006
137,394
161,020
Mine operating earnings
60,253
41,775
70,662
Operating income (loss)
33,750
(9,629)
45,168
Net income (loss)
15,602
(19,100)
31,463
Earnings (loss) per share, basic
0.12
(0.15)
0.25
Earnings (loss) per share, diluted
0.12
(0.15)
0.25
Total assets
350,310
302,215
316,983
Other liabilities
4,661
2,343
2,250
For the year ended December 31, 2014, net income was $15.6 million, compared with a loss of $19.1 million for the
year ended December 31, 2013 (“2013”). Silver sold increased 45% to 6,694,552 ounces, while the realized silver
price decreased 20% to $18.90 per ounce, from the prior year. Gold sold increased 70% to 35,758 ounces, while the
realized gold price decreased 10% to $1,260.44 per ounce, from the prior year. Net income was negatively affected by
a higher share-based compensation expense of $3.5 million compared to 2013 mostly related to mark-to-market effects,
and restructuring and severance costs of $1.1 million.
For the year ended December 31, 2014, the Company’s adjusted net income was $15.7 million (2013: $9.4 million)
related to the non-cash impairment of inventories of $0.1 million (refer to non-GAAP financial measures).
For the year ended December 31, 2013, the Company’s adjusted net income was $9.4 million after adjustments for the
non-cash impairment charge related to the Caylloma Mine of $20.4 million, net of tax, a one-time non-cash income tax
provision of $7.7 million resulting from the initial recognition of the Mexican mining tax reform, and a non-cash write-off
of mineral properties, plant and equipment of $0.4 million, net of tax, related to the San Luisito concessions (refer to
non-GAAP financial measures).
Mine operating earnings increased 44% over the prior year, while gross margins (mine operating earnings over sales)
increased from 30% to 35% (refer to non-GAAP financial measures). The impact of lower metal prices on gross margins
was offset to a large extent by significantly lower unit cash costs (12% lower at San Jose and 1% lower at Caylloma) and
higher head grades and metal recovery for silver and gold.
Cash flow from operations, before changes in working capital, increased 46% to $59.8 million (2013: $40.9 million),
reflecting 27% higher sales and improved margins, from the prior year.
Basic earnings per share were $0.12 (2013: loss $0.15). Operating cash flow per share, before changes in working
capital items, increased to $0.47 (2013: $0.33) (refer to non-GAAP financial measures).
Sales
for the year ended December 31, 2014, were $174.0 million (2013: $137.4 million). Silver and gold ounces sold
increased 45% and 70%, respectively, while realized silver and gold prices decreased 20% and 10%, respectively. Sales
at San Jose increased 66% to $108.0 million (2013: $65.1 million) as a result of higher production and a reduction of
inventories, while sales at Caylloma decreased 9% to $66.0 million (2013: $72.3 million) mainly as a result of lower
silver prices.
The Company’s metal concentrates are provisionally priced at the time of sale based on the prevailing commodity market
price. Final prices are set in a period subsequent to the date of sale based on a specified quotational period, either one,
two, or three months after delivery. Under current sales contracts, final pricing for all concentrates takes place one month
after the month of sale.
Our recorded sales during the year ended December 31, 2014, consisted of provisional sales of $176.0 million (2013:
$146.9 million); final price and mark-to-market adjustments of negative $0.5 million (2013: negative $4.5 million); and
negative assay adjustments of $1.5 million (2013: negative $5.0 million).
The net realized prices shown below are calculated based on provisional sales pricing and on contained metals in
concentrate sold and after accounting for payable metal deductions, treatment, and refining charges before government
royalties. To establish the net realized price for silver, treatment charges on our mineral concentrates are allocated to
the base metals at Caylloma and to gold at San Jose. The Company has not hedged its exposure to metal price risks.
