45
MANAGEMENT’S DISCUSSION AND ANALYSIS
DRIVING GROWTH FROM WITHIN
For the three months ended December 31, 2013, the Company’s adjusted net income was $3.0 million after adjustments
for the non-cash impairment charge of $10.2 million, net of tax, and after a one-time non-cash income tax provision of
$7.7 million resulting from the initial recognition of the Mexican mining tax reform.
Mine operating earnings decreased 4% from Q4 2013, while gross margins (mine operating earnings over sales)
decreased from 29% to 26%. The impact of lower metal prices on gross margins was partially offset by lower unit cash
costs at San Jose (down 5%), and by higher head grades for silver and gold.
Cash flow from operations, before changes in working capital, decreased 11% to $10.0 million (Q4 2013: $11.2 million)
driven by lower metal prices.
Operating cash flow per share, before changes in working capital items, decreased to $0.08 (Q4 2013: $0.09) (refer to
non-GAAP financial measures).
Sales
for Q4 2014 were $37.8 million (Q4 2013: $36.4 million). Silver and gold ounces sold increased 16% and 29%,
respectively, while realized prices for silver and gold decreased 21% and 6%, respectively. Sales at San Jose increased
15% to $23.0 million (Q4 2013: $20.0 million), as a result of higher production. Sales by Caylloma decreased 9% to
$14.8 million (Q4 2013: $16.3 million), as a result of lower realized prices for silver.
Sales comprised 61% silver and 20% gold, compared with 66% and 16%, respectively, in the prior year.
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 fourth quarter consisted of provisional sales of $38.4 million (Q4
2013: $38.7 million); negative price and mark-to-market adjustments of $0.5 million (Q4 2013: negative $1.0 million);
and negative assay adjustments of $0.1 million (Q4 2013: negative $1.3 million).
The net realized prices shown below are calculated based on provisional sales pricing and on contained metals in
concentrate sold and after accounting for payable metal deductions, treatment, and refining charges before government
royalties. To establish the net realized price for silver, treatment charges on our mineral concentrates are allocated to
the base metals at Caylloma and to gold at San Jose. The Company has not hedged its exposure to metal price risks.
QUARTERLY RESULTS
Three months ended December 31,
2014
2013
Sales and Realized Prices
Caylloma
San Jose
Consolidated
Caylloma
San Jose
Consolidated
Provisional Sales
15,260,751 23,123,753 38,384,504 16,914,394 21,817,857 38,732,251
Adjustments*
(429,376)
(132,291)
(561,668)
(572,594) (1,782,823) (2,355,416)
Sales
14,831,374 22,991,462 37,822,837 16,341,801 20,035,034 36,376,835
Silver
Provisional Sales (oz)
544,603
1,066,710
1,611,313
546,633
848,156
1,394,789
Realized Price ($/oz)**
16.41
16.28
16.33
20.70
20.74
20.72
Net Realized Price ($/oz)***
14.07
14.48
14.34
17.96
18.95
18.56
Gold
Provisional Sales (oz)
318
8,452
8,770
642
6,158
6,801
Realized Price ($/oz)**
1,204.32
1,192.43
1,192.86
1,266.41
1,274.33
1,273.58
Net Realized Price ($/oz)***
701.67
908.15
900.66
1,013.68
933.06
940.67
Lead
Provisional Sales (000's lb)
4,181
–
4,181
3,789
–
3,789
Realized Price ($/lb)**
0.90
–
0.90
0.96
–
0.96
Net Realized Price ($/lb)***
0.68
–
0.68
0.71
–
0.71
Zinc
Provisional Sales (000's lb)
6,954
–
6,954
6,532
–
6,532
Realized Price ($/lb)**
1.01
–
1.01
0.86
–
0.86
Net Realized Price ($/lb)***
0.65
–
0.65
0.57
–
0.57
* Adjustments consists of mark to market and final price adjustments, and final assay adjustments
** Based on provisional sales before final price adjustments
*** Net after payable metal deductions, treatment, and refining charges
Treatment charges are allocated to the base metals in Caylloma and to gold in San Jose
