Executives

Rhonda Bennetto – VP, Corporation Communications

Bob Archer – CEO

Analysts

Heiko Ihle – Euro Pacific Capital

Jeff Wright – Global Hunter Securities

Christos Doulis – Stonecap Securities

Joseph Gregor – Global Hunter Securities

Great Panther Silver Ltd (GPL) Q3 2012 Earnings Call November 15, 2012 10:00 AM ET

Operator

Good morning Ladies and gentlemen. Thank you for standing by. Welcome to the Great Panther Silver Limited Third Quarter 2012 financial results conference call. As a reminder all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator instructions)

I would now like to turn the call over to Rhonda Bennetto, Vice President Corporate Communications. Please go ahead.

Rhonda Bennetto

Thank you, Denise. Good morning. And thank you for taking the time to join our call today. Mr. Bob Archer, Great Panther’s CEO and Jim Zadra, our Chief Financial Officer will be reviewing our Q3 operational and financial results and answering any questions at the conclusion of the prepared remarks.

Before we begin, I’d like to mention that some of the commentary on today’s call will contain forward-looking statements. Although we will make every effort, you should be cautioned that there can be no assurance that those statements will prove to be accurate and that actual results and future events might differ materially from those noted today in the forward-looking statements.

After some remarks from Mr. Archer, there will be a question-and-answer session and a replay of this call will be available a little later today. The details to access the replay were noted in the press release announcing this call and will be available also on our website.

I’ll turn the call over to Bob Archer, Great Panther’s CEO.

Bob Archer

Thank you, Rhonda. Good morning, everyone, and thank you for joining us. I apologize for the slight delay in our reporting schedule. But we felt that we needed a little extra time to complete our comparative analysis for the previous quarters.

Before I speak to the actual financial results for the quarter, I’d like to review a few operational highlights from the third quarter in order to provide some context. Processed ore from our two operations increased 9% to 58,307 tons compared to the third quarter of 2011, and increased 10% over the second quarter of 2012 due to a concerted effort to increase production.

Metal production increased 22% to 592,586 silver equivalent ounces compared to the third quarter of 2011, an increase 7% over the second quarter of 2012.

Gold production increased 102% to 3,015 ounces compared to the third quarter of 2011. Silver production was up 8% to 371, 857 ounces compared to the third quarter of 2011.

At Guanajuato, processed ore increased 6% over the third quarter of 2011 due in part to the move to a seven-day work week for Guanajuato Mine operation. Guanajuato ore grades of 188 grams per ton silver and 2.22 grams per ton gold or 321 grams per ton silver, excuse me, silver equivalent were up 32% over the third quarter of 2011.

Guanajuato achieved strong metallurgical recoveries of 90.9% and 91.9% for silver and gold respectively due largely to the addition of a re-grind mill earlier in the year. At Guanajuato the Rayas shaft [ph] was closed for maintenance during the later part of the third quarter primarily to enhance the overall safety conditions. A thorough assessment has been completed; and determined the cost of the shaft rehabilitation to be approximately $760,000 US and taking about five to six months to complete.

In the interim, workers are accessing the mine via the main Guanajuato ramp. While this has had a minor impact on productivity due to the travel times, steps are being taken to mitigate the situation until such time the Rayas shaft [ph] is back in operation.

A new tertiary crusher was not installed at Guanajuato as planned in the third quarter of 2012 due to delays by the supplier. But it is expected that installation will be completed in the fourth quarter or early in the first quarter of 2013.

At Topia, mill throughput for the third quarter of 2012 was 14,593 tons of ore representing an increase of 22% compared to the second quarter of 2012 and also a 22% increase over the third quarter of the prior year.

Heavy rains in the third quarter alleviated the water shortages cost by the drought in the first half of the year. However, excess humidity did cost some problems for crushing and screening. Despite this, we were able to increase overall throughput in the third quarter of 2012 and draw down an ore stockpiles which resulted from the drought conditions in the first half of the year that limited processing.

At Topia, ore grades were 316 grams per ton silver, 0.55 grams per ton gold, 1.69% lead and 2.78% zinc or 442 grams per ton silver equivalent which is down 19% compared to the same period in the prior year.

Now let me shift into some of the key financial results from the quarter. While we continue to enjoy a strong balance sheet, grade variability continues to be a challenge at both mines, especially at Topia and is a major focal point for our mine planners in order to reduce our unit cash cost going forward.

Quarterly revenue was impacted by lower year-over-year metal prices and a large in-transit shipment of concentrate from Guanajuato. The in-transit shipment simply defers revenue recognition until the fourth quarter.

In Q3, the company earned revenues of $15.3 million compared to $16.3 in the same period of 2011, a decrease of 6%. The decrease was primarily the result of a 9% decrease in silver equivalent ounces sold in the third quarter of 2012 as compared to the same quarter in 2011 as well as the decrease in average realized metal prices of $31.92 compared to $35.38.

The in-transit shipment of concentrate accounted for the decrease in the equivalent ounces sold as it represent at the approximately 108,000 ounces of silver equivalent with an approximate revenue value of $3.3 million. When compared to Q2 2012 though, revenue increased 6%. This increase was primarily the result of higher metal prices in the third quarter compared to the second which offset the decrease in equivalent ounces sold.

Cost to sales increased by $1 million in Q3 to $7.6 million compared to the same period in 2011. The increase is attributable to higher site cost at Guanajuato and Topia and lower grades at Topia which resulted in lower metal production and higher unit cost of sales.

The average silver grade at Topia was 316 grams per ton for the third quarter and although still attractive, it represents the 25% decrease compared to the Q3 of 2011. When compared to the second quarter of this year, cost of sales decreased by 8% largely due to a decrease in silver equivalent ounces sold.

Consolidated cash cost for silver ounce of $13.16 US [ph] for the quarter represents the 46% increase when compared to the same quarter of last year. This increase is attributable to lower grades, higher site cost and an increase in smelting and refining charges, particularly associated with our Topia operation.

The cost per ounce net of byproduct credits at Topia came in at $22.23, whereas Guanajuato was lower than the comparable quarters at $6.84 per silver ounce.

Let me compare Q3 to Q2 this year, we realized a 15% increase in cash cost. The increase is attributable to an increase in cash cost at the company’s Topia mine resulting from reduced grades and higher production cost.

General administrative expenses were $3 million for the quarter compared $2 million for the same period in 2011 and $2.1 million for the second quarter of this year. The increases over each of the comparative periods were primarily the results of a $0.7 million share-based payment expense and a $0.2 million accrual for a capital tax assessment in Mexico related to prior years which were incurred this quarter. Both of which are non-cash items.

Exploration and evaluation expenses were $0.7 million for the three months ended September 30, 2012 compared to $0.3 million for the same period in 2011 and $0.4 million for Q2 this year.

The increase in the third quarter was mostly due to an increase in exploration cost outside of existing properties as exploration cost on our properties with a define resource are capitalized under IFRS.

Finance and other expense amounted to only $0.5 million for this quarter compared to $2.7 million in the same period of 2011. This is the result of a decrease in the foreign exchange loss resulting from fluctuations in Mexican peso compared to the Canadian and US dollars.

We have significant Canadian- and US-dollar loans receivable from one of our Mexican subsidiaries. And fluctuations in the Mexican peso create significant unrealized foreign exchange gains and losses on the loans owing to the Canadian parent. These unrealized gains and losses are recognized in the consolidated net income of the company.

Net income to the three months ended September 30, 2012 was $1.8 million which compares to net income of $3.4 million for the same period of 2011. The decrease in net income is primarily attributable to a decrease in gross profit of $2.5 million, an increase in general and administrative expenses of $1 million and an increase in exploration and valuation experience of $0.4 million. These were offset by a foreign exchange loss of only $0.6 million in the third quarter of 2012 compared to a loss of $3.1 million in the comparative period.

Net income for this quarter of $1.8 million compares favorably to $0.4 million in Q2 of this year. The increase is primarily attributable to an increase in gross profit of $2 million and a decrease in the income tax expense of $0.2 million offset by a $0.9 million increase in general and administrative expenses primarily due to share-based payment expenses.

Adjusted EBITDA was $5 million for the three months ended September 30, 2012 compared to $7.8 million for the same period in 2011. The decrease in adjusted EBITDA primarily reflects the decrease in gross profit and an increase in general and administrative expenses before amortization and share-based payment expenses.

This adjusted EBITDA for Q3 of $5 million is a healthy increase over the reported $3.7 million for the three months ended June 30 of this year. The increase is primarily attributable to the higher gross profit earned in the third quarter compared to the second quarter.

An important item that I’d like to address is the reduction in our cash position relative [ph] to our working capital compared to 2011. Although I spoke to this last quarter, I think it’s significant enough issue to bear repeating. At September 30, 2012 we still have a healthy networking capital of $45.9 million and cash and cash equivalents of $26.8 compared to networking capital of $53.8 million and cash and cash equivalents of $39.4 million at December 31, 2011.

The decrease in cash and cash equivalents for the year is attributed to capital expenditures which exceeded the cash provided from operations by $13.2 million. One of the factors for the decrease in cash provided from operations is the timing of payments on concentrate shipments.

Under our existing contract with the European smelter, there’s a long lead time for payment resulting in a temporary dry down on cash but an increase in accounts receivable.

We had the credit facility available to receive advances on shipments of concentrates but decided not to use it as there would have been a cost of borrowing against the line as well as locking in spot silver prices. Given that we had the cash available at no-cost, we determined it was prudent to simply use our cash.

Capital expenditures of $21.8 year-to-date represent a $5.7 million increase in investment in plant and equipment, mine development and capitalized exploration as compared to the same period in the prior year as well as the purchase of the El Horcon project. The increase investment was made primarily to our operating mines.

We expect that cash flow generated from mining activities along with working capital will be enough to fund our operations without requiring any additional capital to meet our plan’s growth and to fund development activities during the next 12 months.

We expect to invest approximately $27 million to $29 million in capital expenditures for 2012. These investments in 2012 include the purchase of new, more efficient mobile mining equipment and the funding of plant upgrades, mine development and increased exploratory drilling. The objective of these expenditures is to increase production in mineral resources.

As for what the short-term future looks like for us at Guanajuato – our [ph] development on the 525 meter level in Cata and development along strike at Los Pozos will begin before year end. Stoping will get underway in Guanajuatito north zone with the development of the new 245 meter level stoping block together with ramp development towards the lower levels of the mine towards Valenciana.

At Topia, the ore that was stockpiled during the drought will continue to be processed and hopefully completed by year end. Grade variability continues to be a challenge at both mines especially at Topia. And it’s a major focal point for our mine planners in order to reduce our unit cash cost going forward.

Permitting at San Ignacio is expected to be completed by the first quarter of 2013, followed immediately by portal and ramp construction. First, vein development at San Ignacio should be conducted in the fourth quarter of 2013 and production is expected to begin to ramp up in early 2014.

We plan to commence a drill program by the first quarter of 2013 at El Horcon with the goal of delineating the resource. And finally, we remain committed to aggressively analyzing acquisition opportunities in both Mexico and Peru.

So that concludes my commentary on our Q3 results. And operator, at this time I’d like to open the Q&A session, please.

Question-and-Answer Session

Operator

(Operator instructions) One moment please while we poll for questions. We have a question from Heiko Ihle from Euro Pacific Capital. Please go ahead.

Heiko Ihle - Euro Pacific Capital

Good morning guys.

Bob Archer

Good morning, Heiko. How are you doing?

Heiko Ihle - Euro Pacific Capital

Not too bad, not too bad. Thanks for taking my question. First of all I’m trying to get a little bit more color on the way of perceiving the financial. I mean, you mentioned earlier that you need more time to go over the year-over-year figures, but I’m just trying to figure out what exactly caused this because – I mean, I saw the release and I figured the quarter was going to be terrible and that didn’t really happen. So, I’m just trying to figure out what caused this?

Bob Archer

Just the timing delay, Heiko. I mean, as you’re aware, there is a big change over last year to IFRS, we’ve had some internal changes in personnel. And, I mean, we have to compare back to comparable periods and we just needed an extra day, that’s all.

Heiko Ihle - Euro Pacific Capital

Got it. Okay. Moving on–

Bob Archer

Nothing sinister.

Heiko Ihle - Euro Pacific Capital

Sorry?

Bob Archer

Nothing sinister.

Heiko Ihle - Euro Pacific Capital

Okay. Good, that’s all I wanted to hear. I’m trying to get a sense about the higher cash cost in the future. I mean, you mentioned obviously the higher smelting and refining charges but can you maybe just expand a little bit on those? And maybe provide a little bit of color when you expect that to subside? And I know you can’t give me an exact date obviously but. I mean, what are you guys hearing from other people you talked with?

Bob Archer

Well, I mean, it’s essentially industry wide, I think one of the things that I’ve noticed just looking at other company’s financials, when you look at cost per ounce, net of byproduct credits which I’ve often go on record of saying I don’t particularly like that metric. But there’s a really distinct break between companies that have gold as a major byproduct versus companies that have base metals as a byproduct.

And as gold prices have been higher and a lot of those companies don’t necessarily have to deal with smelters, their cash cost appear to be lower. Whereas companies that have a larger base metal components and do have to deal with smelters have a much higher cash cost.

We’re not unique in any way as far as our smelting cost go and, in fact, I think we’ve got very good contracts with the smelters. But it’s also a function of grade as well because if grade goes down and you’re producing fewer ounces from the same number of tons and so, you have to spread those smelting cost over fewer ounces. If you take a look at Topia in particular and you look at the grades quarter-over-quarter versus cost per ounce quarter-over-quarter, you’ll see there’s a pretty close correlation.

So that’s where we’re just trying to get a little better visibility ourselves on grades going forward. But it’s a difficult thing to do in a vein-type deposit. You can drill the thing to death at 10 feet or centers in order to get better visibility but then you’re spending more money on drilling than what the ore is worth. So, I mean, ultimately there comes a point where you just have to mine it and you get what you get.

Heiko Ihle - Euro Pacific Capital

Okay [ph]. Okay. And, maybe, just a last one, with shares going to $1.66 right now, I mean, one might argue [ph] you guys to have a target payment on your back to just be taking over by one of the three or four obvious candidates? Have you seen anything approach over the past couple of months or have you taking off any, take any steps towards something off that may be in the woods?

Bob Archer

Well, I mean, for starters our share price is pretty much in terms of rise and falls, I mean, it’s pretty much the same as everybody else is. I monitor all our peers as well on a daily basis. And we’re not down anymore than anybody else is at this point in time. So it’s all relative. I mean, we know –

Heiko Ihle - Euro Pacific Capital

And so the absolute number though –

Bob Archer

I’m sorry?

Heiko Ihle - Euro Pacific Capital

The absolute number – I guess the market cap is much lower though. It’s a lot more affordable (inaudible)?

Bob Archer

Yes. I look at some of the other companies out there. And, I mean, we often talk to them and we look at what they’re doing and their particular strategies and so on. We’re not in any discussions or having been approached and I’m not concerned about that happening at this point in time. And most of the things that we’re looking at are of a private nature.

Heiko Ihle - Euro Pacific Capital

That’s very clear. Thank you.

Bob Archer

Okay.

Operator

Our next question is from Jeff Wright from Global Hunter Securities. Please go ahead, sir.

Jeff Wright - Global Hunter Securities

Hey, good morning, Bob. Thanks for taking my question.

Bob Archer

Good morning, Jeff.

Jeff Wright - Global Hunter Securities

On San Ignacio, can you give us maybe a range if not a specific numbers to capital expenditures for 2013 before you get into production, first off [ph]?

Bob Archer

Well, we’ve got budget meetings coming up in Guanajuato in two weeks. So we’ll be fine tuning that at that time. But just as a ball park, I’d say, somewhere around $8 million to $10 million perhaps.

Jeff Wright - Global Hunter Securities

Okay.

Bob Archer

Just to give you a sense.

Jeff Wright - Global Hunter Securities

No, that’s a good range. And then remind us once San Ignacio is at a full run rate, what range of silver equivalent ounces do you think that would be contributing back to the overall Guanajuato complex operation?

Bob Archer

Well, again, we’d like to actually get underground and do some vein development to really put some hard numbers on that because as it stands at this point we don’t really have a mind plan. We’ve recently hired a project manager for the project. But we’ve looked at a number of different scenarios and based on what we know from the drilling and not withstanding things like ground stability and access and all that sort of stuff, it’s possible that we could be running about perhaps 300 tons to 400 tons a day out of San Ignacio, which we’d put it at about three quarters of the current production from Guanajuato.

So, in terms of a silver equivalent basis, if we’re looking at about 1.5 currently, then maybe a 1 million to 1.2 million something like that coming from San Ignacio.

Jeff Wright - Global Hunter Securities

Okay. That’s fair enough.

Bob Archer

So not quite a doubling but a significant enough increase.

Jeff Wright - Global Hunter Securities

Okay. So, conservatively, if we start off at say 60% to 70% and then wait for a build [ph] that’s probably a conservative way to look at it.

Bob Archer

Yes. At this point in time, as I say, we don’t have a firm mine plan yet.

Jeff Wright - Global Hunter Securities

(Inaudible).

Bob Archer

So, that’s subject to change. But –

Jeff Wright - Global Hunter Securities

Then, last question on El Horcon and the acquisition there, how big is the drill program do you think that would be in 2013 and what do you think the approximate budget for that would be?

Bob Archer

We’ll probably do it in a couple of stages. But we’re looking at about maybe 5,000 to 6,000 meters overall. So we’ll get into that. I mean, if – we said that we’ll start in Q1, if we’re trying to advance it to the point where we can even start before Christmas, but we’ll see how that goes on the permitting. So getting into that right away and drill maybe 2,000 to 3,000 meters and then take a bit of a break and then come back on it again.

So, I mean, typically we’d budget about $100 a meter for direct drilling cost. So add in a few other cost items and maybe you’re looking at $1 million or something like that.

Jeff Wright - Global Hunter Securities

Okay.

Bob Archer

So it’s not huge.

Jeff Wright - Global Hunter Securities

Okay.

Bob Archer

Yes.

Jeff Wright - Global Hunter Securities

Appreciate it. Thanks a lot and I’ll get back in the queue.

Operator

Our next question is from Christos Doulis from Stonecap Securities. Please go ahead, sir.

Christos Doulis - Stonecap Securities

Hi, Bob. Just curious, so you gave us a kind of a number for 2012, $27 million to $29 million of CapEx total. Do you have a ‘13 budget roughly at all at this time?

Bob Archer

No, not that I can speak to. As I say, we’ll be having our budget meetings in two weeks in Guanajuato and we’ll be going through all of that at that time. So it will be premature for me to give you a number at this point.

Christos Doulis - Stonecap Securities

Okay. And so just based on that kind of the number you’ve given us there, is that kind of $5 million, $6 million, $7 million in Q4 remaining, somewhere around that?

Bob Archer

Yes, about $5 million to $6 million.

Christos Doulis - Stonecap Securities

Thank you. That’s it.

Bob Archer

Okay. Thanks, Christos.

Operator

Our next question is from Joseph Gregor [ph] from Global Hunter Securities. Please go ahead.

Joseph Gregor - Global Hunter Securities

Hi, guys, on Guanajuato, what is the long-term goal for ramp up just from that tons-per-day basis?

Bob Archer

Hi, Jo [ph]. Well, that’s something that we’re constantly working on. And, I mean, ultimately, as you’re probably aware of, the plant there is capable of somewhere between 1,000 to 1,200 tons per day. Guanajuato has been more of a challenge than we had anticipated in terms of ramping up production there for a variety of reasons, and something that we’re constantly looking at. So we’ll be revamping that, again, in a couple of weeks as the mine personnel present their plan and their budget for the coming year.

So it’s difficult to put a specific number on that and a lot of it depends on the success of our deep drilling particularly at Valenciana and some of the other zones. We’ve had good success discovering new mineralization at that depth Guanajuatito and also at Cata and Santa Margarita, but as we get deeper, everything is reliant on the continued exploratory drilling to depth.

Joseph Gregor - Global Hunter Securities

Okay. Thank you.

Bob Archer

You’re welcome.

Operator

(Operator instructions) I show no further questions at this time so I’d like to turn the call back over to management for closing remarks.

Bob Archer

Well, operator, since there are no further question, I guess this will end our third quarter results and thanks very much to everyone for joining us and have a great day.

Operator

This concludes Great Panther Silver Limited conference call. You may now disconnect your lines at this time. Thank you for your participation.

Bob Archer

Thanks, operator.

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