Exclusive KE Report Commentary – Tue 5 Sep, 2017

An Update From Impact Silver – Ramping Up Exploration

I reached out to Impact Silver a couple weeks ago for an update for all of you. Impact Silver’s President and CEO Fred Davidson joins me for an update on the production side of the Company as well as the rejuvenated exploration plans.

Click here to visit the Impact Silver website for more information on the Company.

Also please comment below or email me with your questions for Fred and his team.

Click download link to listen on this device: Download Show


Featuring:
Cory Fleck

Comments:
  1. On September 5, 2017 at 4:54 pm,
    Excelsior says:

    Thanks Cory. Glad to hear the update from Fred.

    Good stuff!

    • On September 5, 2017 at 5:05 pm,
      Excelsior says:

      Looking forward to the next 6-9 months of exploration and drilling updates.

    • On September 5, 2017 at 9:03 pm,
      Matthew says:

      I almost forgot, thanks Cory.

  2. On September 5, 2017 at 5:15 pm,
    CFS says:

    I used to own this stock, but I’ve never seen it run at a profit or even a reserve estimate.

    Sorry, Cory, but talking a good talk proves nothing.
    Ans this wasn’t even a good talk.

    • On September 5, 2017 at 8:05 pm,
      Excelsior says:

      I enjoyed the talk, and adding heavily to IPT in July and August when that fun was liquidating shares, has worked out pretty good. It’s over 30% in the last 6-7 trading sessions, so investors that snub their noses at gains like that must have really been killing it the last few days….

      • On September 5, 2017 at 8:08 pm,
        Excelsior says:

        Here were today’s gains as an example of just how far and how fast this stock can move when it really gets moving:

        IMPACT Silver Corp. (IPT.V)

        $0.41 +$0.05 (+13.89% gain)

        • On September 5, 2017 at 8:15 pm,
          Excelsior says:

          It’s the upside leverage due to their very high Silver exposure as a % of their output, their 0 debt, and improving margins on a percentage basis when Silver prices increase that gives them such leverage. Obviously that leverage is a 2-way street in falling prices versus rising prices.

          In addition, for a pure discovery potential and Exploration upside, Impacts land package is one of the most prospective in Mexico, so they likely haven’t even found their largest mines yet. Lots of upside to grow their resources in a substantive way over the next few years.

    • On September 5, 2017 at 8:56 pm,
      Matthew says:

      The lack of a reserve estimate is likely due to the fact that they don’t need to blow money to impress anyone to get a loan they don’t need. Instead, they avoid debt and use their resources to fast track mines to production while continuing to drill — when prudent.

  3. On September 5, 2017 at 5:43 pm,
    CFS says:

    Q2 Conference call:

    This quarter was, if you will, interesting. We faced the usual issues of the price of silver was pressing against our overall market, down considerably from the first quarter. And to counteract that, we made a conscious effort to increase our throughput. The average tonnage going through was 535 tonnes a day and compared to last year which was 496 tonnes, about an 8% increase. The simple fact is we are expanding the capacity of the mill and the intention is to counterbalance both the price of silver and to a degree, the slightly lower grade that we’re currently experiencing in the areas we’re mining.

    Revenues remained about the same, about $8.2 million, but because of the higher tonnage throughput, obviously costs of mining were higher. The other thing was in our mining numbers, we for the first time in a long time were able to conduct a fairly aggressive underground exploration program. We’d deferred that obviously over the last couple of years to address the issue of cash on hand. With the financing last year, it allowed us to start to expand what we’re doing, and we expanded both our development and our underground drilling.

    We also did a fair bit of — actually an extensive amount of repairs and maintenance, bringing equipment up to snuff and added some additional pieces of equipment to increase the production in the mines itself.
    Mine operating loss for the six months was $0.3 million compared to operating earnings of about $1.0 million in 2016. Again, if you look at grades, we’re responsible for one and the other side was slightly higher prices. So, we’re looking at revenue per tonne in last year for the six months of $93, this year was $85 million and — $85 a tonne. And in fact for the quarter was down to $76, the pressure we’re seeing from slightly lower grades and quite a bit lower silver prices. The EBITDA however was still fairly strong. And what we separate from in the loss for the first six months was included $1.7 million foreign exchange loss. We’ve seen the Mexican peso get quite a bit stronger and U.S. dollar get weaker. And there was of course non-cash items and amortization and depreciation. If we exclude the foreign exchange and non-cash items, the adjusted net earnings were about $0.5 million compared to $1.2 million in the same period of 2016.

    Earnings before interest, taxes, depreciation and amortization known as EBITDA, decreased to a small loss of about $0.4 million for the first half compared to $0.9 million. For the actual quarter, we saw revenues were about $3.6 million compared to $4.3 million for the comparative period last year. And amortization and depreciation was marginally higher.
    We also had two items that increased our G&As. One was of course the share-based payments because of the fact we haven’t given increases to the staff et cetera for the last two and a half years, we granted options last year, and the other side was, there was pressure from the actual mine site that the mining staff would receive an increase in salaries to match those that we were experiencing from the miners union. Again, the mining staff hadn’t received an increase in two and a half years, and we gave them an incremental increase to keep them focused and keep them — putting their shoulders to the wheel. So, the operating loss for the period was $1.4 million.

    Cory, You should have asked at what silver price they would estimate they actually might turn a profit.
    Gross Margin
    0.20%
    EBITDA Margin
    -2.50%
    Profit Margin (Cont. Op)
    -16.77%
    EBIT Margin
    -17.30%
    Pre-Tax Profit Margin
    -21.80%
    Profit Margin (Total Op)
    -16.77%

    After 10 years of operation I expect a company to make a profit…..or there is NO POINT in owning the thing.

    • On September 5, 2017 at 7:39 pm,
      Excelsior says:

      CFS – IPT is highly leveraged to the price of silver rising. They can’t just shut off all the mines and fire everyone (which is usually the death nail for miners that due that), and they are not losing that much and are debt free.

      When the price of Silver is $20+ they’ll get re-rated much higher (like what happened last year year when silver ran to $20+ and I personally don’t expect Silver to stay camped out in the $16-$18 level forever. Do you?

      Where do you think this stock could get re-rated to at $22 Silver, $25 Silver $30 Silver?

      • On September 5, 2017 at 7:43 pm,
        Excelsior says:

        Bottom line this is a call option on higher prices, and if/when those higher Silver prices arrive, it will jolt up multi-fold, due to the increased profitability on its margins.

        If you want a Silver Company making good money at today’s prices then buy some (USAS) Americas Silver, (SVM) Silvercorp, or (HOC.L) Hochschild.

        The thing is, when Silver really starts to move, those companies are more properly valued already and won’t move nearly as much on a percentage basis.

        It comes down to if you want safety or leverage.

      • On September 5, 2017 at 8:17 pm,
        Matthew says:

        IPT is conservatively run by an honest team and just might be the lowest risk way to get so much leverage to the price of silver.

        It also offers gold exploration potential and is not a glorified zinc or lead company.

        http://stockcharts.com/h-sc/ui?s=IPT.V&p=W&yr=3&mn=3&dy=22&id=p46877580818&a=533531451

        *I dig IPT and am biased.

        • On September 5, 2017 at 8:20 pm,
          Excelsior says:

          +1

          • On September 6, 2017 at 6:53 am,
            Shootingfish says:

            Thank you CFS for your comments/concerns. Thank you Ex and Matt for your reasoned explanations and finally, thank you IPT for the % gains these last few days… gotta love the KER family!!!

  4. On September 5, 2017 at 6:00 pm,
    CFS says:

    Maybe I’m just in a bad mood today or something. Sorry Cory and Big Al.

    But I really don’t see the point of raising capital,
    digging minerals out of the ground, and selling them for less than the cost of production.

    Sure, it pays the salaries of the board,
    but it depletes resources in the company,
    and depresses the cost of the minerals. making the hole deeper.

    Similarly for high-grading.
    (you are producing at a loss, so you produce more and deplete faster,
    hoping to make a profit on lower grade material later!)

    I am sick of (what to me appear ) idiots running companies.

    • On September 5, 2017 at 7:46 pm,
      Excelsior says:

      Fred is a quite competent CEO and far from an idiot.

      As for their resources, they haven’t even begun to explore their land package. Have you ever looked at their 4500 old artisinal workings and around 70 old processing centers peppered all over their land?

      Their exploration upside is huge, and my only regret is that they don’t have the budget to really attack things with 7-10 drills and really get the party started. It will be a slower pace with only 1-2 drills going, but that gives investors plenty of time to get positioned before this bull market kicks off in earnest.

    • On September 5, 2017 at 8:24 pm,
      Matthew says:

      Fred is anything but an idiot. In fact, he has always been near the top of the heap when it comes to keeping dilution to a minimum by raising capital when he should, rather than when unforeseen conditions force him to.

      The company is over twenty years old and has well under 100 million shares out. That should tell you something.

      • On September 5, 2017 at 8:27 pm,
        Excelsior says:

        +20

  5. On September 5, 2017 at 8:43 pm,
    DGHH says:

    Thanks Cory, really appreciate you arranging time with Fred Davidson.

  6. On September 5, 2017 at 9:01 pm,
    Matthew says:

    I’m glad Resolute had to sell since it moved a lot of shares into stronger hands (directly and indirectly as some sold because of the resulting decline).

    My stake has increased ten-fold since January.

    Here’s a monthly chart for those who can see it:

    http://stockcharts.com/h-sc/ui?s=IPT.V&p=M&yr=15&mn=0&dy=0&id=p89492231933&a=455983998

  7. On September 5, 2017 at 9:25 pm,
    CFS says:

    I understand all the points you are making.

    The fact of the matter is, however, that I own shares of other companies bought over the years that have much better performance than impact, even if it were to go back to being above $2.
    It has a lot of prospective land, but little data on that land.
    How can any analyst make an informed judgement on the worth of a company compared with others when there is so little data?

    Silver Miner Proven & Probable
    Silver Reserves
    (ounces; end of 2015 fiscal year)
    Fresnillo (FRES – London) (FNLPF) 547,570,000
    Tahoe Resources (TAHO) 334,959,000
    Pan American Silver (PAAS) 280,100,000
    Hecla Mining (HL) 175,429,000
    Buenaventura (BVN) 172,681,536
    Coeur Mining (CDE) 155,895,000
    Silvercorp Metals (SVM – Toronto) (SVMLF) 101,020,000
    First Majestic Silver (AG) 100,554,000
    Hochschild Mining (HOC – London) (HCHDF) 73,900,000
    Fortuna Silver (FSM) 35,800,000
    Americas Silver (USA – Toronto) (USAPF) 31,116,000
    GoGold Resources (GGD – Toronto) (GLGDF) 26,400,000
    Sierra Metals (SMT – Toronto) (DBEXF) 17,600,000
    Avino Silver & Gold (ASM) 13,638,653
    Endeavour Silver (EXK) 11,990,400
    Excellon Resources (EXN – Toronto) (EXLLF) 10,458,000
    Gold Resource (GORO) 8,569,700
    Santacruz Silver (SCZ – Vancouver) (SZSMF) 5,543,000
    Impact Silver (IPT – Vancouver) (ISVLF) Company does not disclose resources or reserves
    Great Panther Silver (GPL) N/A (9,926,700 M&I Resource)
    TOTAL 2,103,224,289

    Apologies if columns do not line up.

  8. On September 5, 2017 at 9:33 pm,
    CFS says:

    I like to buy stocks based on analysis. not a guess and “soft” data such as photos of artisanal workings.
    I may do that for “exploration” stocks, but not “production” stocks.

    I guess my trust level is low, and suspicion level high.

    • On September 5, 2017 at 9:42 pm,
      Matthew says:

      Of course other shares performed better during the bear market. Leverage works in both directions so WHEN you buy matters more than anything. Relatively few miners beat IPT last year.

      As for the info necessary to make a decision, there’s enough for me and I’ve owned IPT for over ten years.

      • On September 5, 2017 at 10:00 pm,
        CFS says:

        Of course leverage works both ways, but how can I put any numbers on the leverage without data?

      • On September 5, 2017 at 10:09 pm,
        CFS says:

        As far as I can tell Impact will just amble along, hopefully making a small loss or a small profit indefinitely, unless silver really jumps in price.
        It has a lot of prospective land, but it does not really know exactly what it has got, and it does not really care. It can go on longer that management will be alive and that’s fine by them.
        If silver jumps a lot in price then it will think about increasing production, but otherwise it will just amble along.

        Please don’t think I am singling out IPT.
        It’s behavior is also typical of many mining companies.
        I’m sure, because you tell me, that the CEO is highly knowledgeable about geology and picking good land.

        • On September 5, 2017 at 10:31 pm,
          Matthew says:

          As long as the silver price stays down, yes, IPT will probably amble along, but I don’t buy silver companies in general unless I expect silver to move and I really don’t want growth for the sake of growth anyway.

          Their prospects probably aren’t as mysterious as you think based on the work they’ve already done but we obviously can’t know the details before drilling. They did test some tailings (waste rock) from an old mine a few years ago that was high grade by today’s standards.

          As a speculator, there’s plenty to keep my interest based on the size of the property and the number of good targets — not to mention the fact that exploration is mostly funded by cash flow most of the time.

          Bull markets tend to be extremely good to companies like Impact.

        • On September 5, 2017 at 10:34 pm,
          Matthew says:

          I’m not taking your comments negatively, btw.

  9. On September 5, 2017 at 9:36 pm,
    Matthew says:

    When you consider that the miners have been in a two-decade bear market in real terms (i.e. versus gold), it’s a very good thing that management didn’t try to grow IPT much more aggressively too soon. The consequences could have been disastrous.

    However, now that the miners have bottomed versus gold (18 months ago), the time to grow IPT aggressively is coming sooner than most expect and I think management will deliver.

    The XAU is currently up 100% versus gold since January, 2016. How many would guess that it is still down 82% versus gold since its 1996 high?

    The bull market of a lifetime is very likely brewing…

    http://stockcharts.com/h-sc/ui?s=%24XAU%3A%24GOLD&p=W&yr=20&mn=8&dy=22&id=p81133998745&a=471646105

    • On September 5, 2017 at 9:49 pm,
      CFS says:

      I do not disagree with “it’s a good thing that the management didn’t try to grow IPT more aggressively too soon.”

      But how much data do they actually now have?
      They have just been stumbling along drilling and producing.
      As far as I can tell they don’t know where the best concentration of silver is.
      They know they have a good land package. (I don’t disagree)
      But when silver price drops, they increase production, so they can carry on just making a small loss. That is not optimal planning.

    • On September 6, 2017 at 4:40 am,
      OOTB Jerry says:

      “The XAU is currently up 100% versus gold since January, 2016. How many would guess that it is still down 82% versus gold since its 1996 high?”says Matt.
      GREAT thought and question………..IMO………………………………………………

  10. On September 5, 2017 at 9:40 pm,
    CFS says:

    Further any company that is prepared to move along being frugal, keeping share count low, making small losses and slowly developing its package and mines, is almost guaranteed NOT to be optimizing profit for shareholders.

    If you want I can produce many simplified computer models that prove that fact.
    But I would ask, given the limitations of this posting capability I would ask you simply to accept my word.

    • On September 5, 2017 at 9:48 pm,
      Matthew says:

      Near the end of the bear market 18+ months ago, IPT started turning the profitability corner before many of its debt-laden “superiors.” USA, for example, was losing nearly $5M per quarter as of January 2016.

      • On September 5, 2017 at 9:58 pm,
        CFS says:

        Matthew, do you really understand the economics of maximizing profit from a limited resource with varying cost factors and varying sales price factors?
        There is a difference between “turning the profitability corner”
        and optimizing the total profit extracted from a mine over many years.

        • On September 5, 2017 at 10:39 pm,
          Matthew says:

          I really think we have different concerns, CFS. The kind of gains I’m after don’t come from maximizing profits when the silver market is depressed. Still, IPT was in better financial shape at the lows than most of its peers and management refrained from diluting shareholders needlessly during the bear market.

          • On September 5, 2017 at 10:43 pm,
            Matthew says:

            Most companies have far worse share structures and many have a history of share rollbacks/consolidations.

            All things considered, IPT is hard to beat in my book.

          • On September 5, 2017 at 11:29 pm,
            CFS says:

            You’re right.

            My investment decisions are highly structured, for risk minimization.
            I’m not saying IPT will not experience great gains if silver price cooperates.
            I’m basically saying:
            There is a lack of data compared with other companies and optimization by management is impossible without it.
            I realize also that if the land package is not right, no amount of optimization will make a good stock.

          • On September 6, 2017 at 1:12 am,
            Matthew says:

            Compared to most other silver miners with similar market caps, IPT is a blue chip as far as risk goes. There’s enough data to know that it is very cheap for the risk/reward if silver goes anywhere near where I think it is going.

            I like such juniors precisely because they tend to become extremely undervalued at major lows as most people try to value them using conventional methods.

  11. On September 5, 2017 at 10:48 pm,
    Matthew says:
  12. On September 6, 2017 at 4:44 am,
    OOTB Jerry says:

    Great question and answers, by you gentlemen………….thanks for the discussion, particularly …..Matt, CFS, and the feisty Shad…….. 🙂

  13. On September 6, 2017 at 7:26 am,
    Chris says:

    Agreed! A great healthy discussion, a true credit to this board. I tune out the minute the screamers go after each other.