Q3 2019 Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Pan American Silver third quarter, 20, Nike Inc. earnings Conference call.
As a reminder, all participants are in listen only mode and the confidence being recorded.
In the presentation, there will be an opportunity to ask questions. The joined the question can you hear me Press Star then one on your telephone keypad. She didn't need assistance during the conference call you might think that one operator by pressing star in zero I.
Market clothes, and a copy of the news release some presentation slides for today's call are available on our website in a few moments I will turn the call over the pound Americans President and seal, Michael Steinmann, who will provide a brief preview of our results I will then open the call the questions and answers.
Joining us for the Q. and a portion are pound Americans Chief operating officer, Steve <unk> be Chief Financial Officer robbed oil senior B.P. project development, George Greer Senior V.P. technical services and process optimization, Martin Walker and V.P., a business development in geology, Chris Emerson.
I'd like to remind everyone that our news release and certain statements and information. This call constitute forward looking statements and information. Please review the cautionary statements included in our news really some presentation as well as the risk factors described in our most recent form 40 at an annual information form.
Media and other participants on the call are invited to participate in listen only mode. I will now turn the call over to Michael.
Thank you Sir.
Welcome everyone joining us today to discuss over results for the third quarter of 2019.
Revenue in the quarter was $352 million primary reflecting the increased gold production on higher gold and silver prizes.
Revenue estimated that $17.8 million most mode realize thing Q3, due to the timing of shipments, resulting in a inventory built.
Expects the revenue associated with that metal inventory will be realized during two four.
Due to changes in market conditions and effective thing Q3 2000 in 19, the Bell Creek <unk> mine's are no longer classify best held for sale.
As a result determines assets and liabilities are no longer presented separately on the company's September 30th 2019 balance sheet and another income generated by payments for the tree a nine month reflected on the company's income statements into normal course.
Not the incoming Q3 was $37.7 million or 18 cents per share.
Income included investment income of $36.1 million, which was offset by 29.1 a million dollars of tax expands under 15.6 million dollar noncash adjustment related to the re classification of <unk>.
Adjusted earnings were $74.2 million or 35 cents per se, which is higher than got burnings due to the adjustments related to the re classification of payments and then I'll be a charleston related to the delores cheap inventory and unrealized foreign exchange losses.
Operating cash flow of $81.9 billion, plus more than enough to fund all operating and growth needs pay dividends of $7.3 million and repaid $20 million on the credit facility.
Cash on short term investments under the quarter 177 million.
Total that was 360.5 million, including lease liabilities, so $45.5 million.
I'm working capital was 459.3 million.
Into tree, we produce 6.7 million ounces of silver and hundred 50000 ounces of gold, which is on track to meet the guidance revised on August 7th of 25.3 million to 26.3 million ounces of silver and between 550002 600000 bounces of cold.
Please keep in mind that the towel transaction cost on February 22nd which means that only 10 month of coal production from those mines is reflected in the guidance.
Q tree consolidated silver basis cash costs were negative $8.66 and all and sustaining costs were negative 11 times per silver accounts sold.
Costs for our silver segment operations and our goal segment operations are available in the queue three results released yesterday.
Given that cost performance was better than expected and higher goal prize or some since we have lower the original guidelines for 2019 consolidated silver basis cash costs two between negative five dollar 50, the negative three dollar and 80 cents per several rounds.
And the all in sustaining costs to between $6 and $7 50 per cell rounds.
The related reductions in silver and gold segment cast costs and all that sustaining costs are detailed in our Q3 results.
In summary, we're operating assets continue to perform very well and we are on track to meet our revised production guidance from August 7th.
But at lower costs.
Financial position continues to strengthen enabling us to advance growth pro checks in our portfolio and to focus on brownfield expiration, especially of like Colorado.
During two three we completed another 14300 meters of thrilling under lock like others can't discovery.
We released over most recent drill results on October 30th which included some of the best Thrill intercept today.
Like 379 meters complaining 54 grams per Tom silver.
0.5%, copper, 1.96% lab, and 3.73%, saying or 253 meters. It 67 grams per ton silver, 0.19% copper, 3.84% less than 6.56%, saying.
Just to mention two highlights.
Yeah, if now completed over 52400 meters of trolling on this can target.
Allowing us to substantially expand demineralized footprint and to identify a highgrade course.
The drilling continues to define a large polymetallic mineralized contests them and cross cutting veins, starting about 300 meters below and the chase and to the current lowest production <unk> out of mine.
Eliminating metallurgical flotation test results are positive, we'd high metal recoveries and could concentrate qualities.
You're aiming to provide a first resource estimate in December but this exciting discovery.
In Guatemala, a new federal government was elected in August .
Transition to the New administration officially occurs in January 2020.
You know the court mandated Diallo 169 consultation process is left by the Guatemalan Ministry of mines, and we will support the process that's required by the government.
In the meantime, we are listening to and responding to inquiries from the communities near the ask about property.
That's we've indicated previously we are taking a patient approach and they're not providing any timeline or a restart off the mind.
As you can see from the quarterly results integration of the tower. So just moving along very well and all assets are performing as planned.
Generating very strong cash flows and are focused on I sat optimization, that's reduction and brownfield expiration all yielding very strong results.
That wraps up my form or comments and like to open the call for questions now.
Certainly sir.
Oh no begin the question and answer session.
The question Q. you Remember Star then one then your telephone keypad, you will hear a tone acknowledging or request.
Using a speaker phone please pick up your hands it before pressing any keys.
All your question. Please press Star then too.
You'll pass for a moment of college trying to queue.
The first question comes from Cosmos Q.T.I.B.C.D.'s go ahead.
Hi, Thanks, My Cohen team and congratulations on a very good financial quarter here.
Maybe her stuff on the former towel assets you about almost nine months now with the former towel last such good you maybe you know summarize for us what's being good what continues to neat improvement clearly you know as I look at your results I spend a net positive as we see that you know through put as Inc.
Do you stay in grade has also increased many of these operations, but you know cause you may be give us a bit more color in terms. So what you.
You been findings so far.
Mmm sure on good morning Cosmos.
Just just read some general comments and done real passes on to Steve make a few more comments from from read his his for you on the operations and <unk> located.
Really positive how the integration advanced during the year, it's dumb forgot that's only the second full quarter really we have T.O. such a if you compare it to Q3 2018 results. That's just before a few weeks before we announced actually a transaction last year you look at the tree.
Golden <unk> mines, our we're all in sustaining cause sat down about 27%. So very positive advances there and the biggest moose ready and and 10 minutes, where we so big cost savings.
Chef being in a in operation Senseless February March and very big improvement Ducho? window, where we increased production substantially compared to a year ago.
So very good very good.
Improvements on on those minds on the other side, especially very happy with integration over the last few months, but I pass it on to stay for a few more comments here.
Yeah.
Oh and more specifically I guess, you know in the past sure window crushing agglomerate any was an issue you know is that still an issue here, Steve and then as Michael mentioned you know the shaft at Bell Creek, you know there's potential for cost savings as you talked about also potential I believe fell creek has higher grades is that what we should be.
Expecting in any other comments on Lackawanna as well thanks, Keith Yeah, you're <unk> Ah roll. It took this your window and <unk> and agglomeration circuit as we reported last quarter in this courtroom likewise, we're not running not sure because we're not casting to run not sure could probably through next year as well.
Do faced some fine or some or call it a little bit of clay yours that do cause some permeability concerns boat. So far we've been effective blend in with the more <unk> and we're able to process good pretty decent Ah results out of the out of the he brought a mine. So we're very pleased with.
That asset I'm very pleased with its performance.
And to be honest I think we see some more upside as we go on the next year on that so we're pretty excited about that one at 10 minutes as we mentioned last quarter. The the shaft as perform better than we expected. It's it's it's tracking along kind of what we saw or Colorado, you know over the two years after commissioning in law, Colorado.
We saw a better than expected productivity is and lower cars coming from that sharpton, where you'd expect him I think we're seeing the same kind of trend that bell creak as Michael mentioned, we are very happy with the costs structure of the cost that's coming out of that whole operation between.
<unk> then that's highlighted by our east coast that came in or if the quarter of a $10000 in 26 cents an hour and simply compare that back to Q3 under <unk> last year were 20% below that albeit with a little higher grade we're still like 12%.
15% lower on a cost per turn basis.
The interesting thing about that is it would that lower costs. It helps us to look up the life of mine economics and push for the highest profitability. We can on that mindsight by dialing in the cut off grade to the to the most optimum levels.
So why are we did see higher grades in Q3, I think as we go for we're going to see that grade kind of come back to what you'd probably typically saw in the past, but still have some very healthy margins given today's metal prices in its current color structure. So we're really happy about that we think there's some some upsides in terms of.
Life from mine economics, as we look at that we think we can extend the life out a little bit more on those assets were really happy with that law Rayner <unk>, we were drew a pretty substantial stripping cycle. During the first three quarters of 2019, we're moving into your now we were.
<unk> pretty strong queue for and we're looking at next year as to whether to do and how big of a lay back we may do again going into next year and actually we've opened up some areas from as for some additional drilling there the may enhance that resource a little bit so we're pretty excited.
What about that one as well overall I I Gotta say, it's a it's a great story those assets have been performing well they helped us step up or game at her assets a pair of American silver and we kinda got an internal are run every quarter to quarter really every month to month between the operation.
Kinda race between sure window Timmins law, Colorado, even delores is in that race now and I think law rain is coming right in there. So it's kind of finance keeping us all on our toes and we see a lot upside across the board.
Sure.
And and you know I guess going back to 10 minutes here you know clearly d. operation improvements were a factor in 10 minutes no longer being classified as available for sale, but I think it might call. You also mentioned the other factor being market conditions, you know which of the two was a bigger factor <unk>.
<unk> to make it no longer available for sale and then like cause we can make any kind of general market comments in terms of what is the market like right now so asset sales.
Oh sure sure look and channel does A.V., obviously always looking at our assets. We have a you know big suite of Oh facets in different places. So we always looking at the bus long term fed done <unk> try to change return on investment on this is not so that doesn't.
And to me do that month by month or quarterback quarter, looking and looking at Domino think they're very comfortable with the assets.
Suite, we are holding right now in general if they look they must have very little lemon day activity actually over the last few quarters, probably a bit surprising label actually and I've seen the market being very cautious on Monday.
And then you coupled out with a strong improvements as I sat the <unk> lowering costs by 20% compared to a year ago and entire.
Gold assets Swede from a town being down 27% on the cost side and put on top of that Ah substantially higher goal price.
For us that that obviously kind of kind of tipped it over and and you know made us made us think again what to do with this assets.
And.
Oh to send our 10 minutes of also made should contributed to to consolidate the free cash flow into tree. So.
However, you right now is that the the performance provide so much better long term returned for our shareholders fun.
Then it would be you know accepting a insufficient nah.
Offer kind of looking at them into insufficient a assessed value that that will come from somewhere so that's why we where we stand right now you know and I'm very happy with him.
Push maybe switching gears, although they're talking about one of your longer standing asset to the lowest I noticed that delores grades were higher income 351 Gram per ton of course over a 0.78 Grand part time for gold could you remind US you know is that higher grade due to any kind of your back doing underground mining at this point in time if not.
When is that gonna come back and from that perspective horses sustainability somebody's higher grade style. We we were able to see in kids too.
Yeah, <unk>, Steve again, the the underground mining is continuing we continue to run it about a thousand ton for days pace. It does generating some do some gray doors that we feed to the <unk> will be around I've been married up continuously over the next six months or so to the 1500.
Time of day design that'll help as well, but really the high grades that you saw during Q3 were really function or.
Sequencing in the open pit and and you know I think if you go back to the <unk> great distribution, you'll see as we as we phase sure. These picks we we get into that Highgrade, a little bit more each time, we get down there. So we got down there during Q3, well she's carrying the queue for we've got a little bit of stripping to do again.
And next year, and then we're getting into it I'm pretty heavily towards the end of next year and certainly end of 2021, just nature, the or bought in nature of the mineral distribution.
Mhm <unk> one last question for me her if I may I'm looking at your whole you're a gold guidance I think you've got to answer this question, but you'll need a quarter of a quarter, increasing too far production to get to full year guidance could you made me just summarize for US you know in terms of what you're expecting which which asset is going to generate that quarter over a quarter inch.
Grease, where you in gold going to four.
Yeah, I mean I'll be honest, it's it's a challenge we we are expecting a increased production, particularly at.
A lot of rain as I mentioned also Dolores without Highgrade that came during Q3, Indiana q. trees kind of Iranian period. There. So we do get a little bit of inventory build up in a in a hopefully start to see it come out as a ring subside in November . So so we are challenge, but according to.
Our mind plan and what we see we do we do expect to see those higher production is that those two facilities, particularly to drive us back into what we are minor gardens.
Mhm push.
Thanks, again, like calling Steve and team and congrats I got a very good financial corner.
<unk>.
The next question comes from Chris <unk> with P. I find that show.
Go ahead.
Hey, good morning, guys. Congratulations on a really solid quarter number my questions are being onto that I've got a couple here I just see the the I guess reversal of all the status of the 10 Mins assets Mike.
You I you can send this sort of maybe they grow at departure from from a move back towards being a primary silver producer or just.
The reality that you know no I guess margin and then cash flow outweighs that strategy.
No I'm not concerned at all Chris you look at our reserve.
You Salvi V. up they now a resource statement made of fear and if you look at the reserve that that was it gives you an idea ever been Americans going that longer term and you know it's a solid large large strong silver producer right now where we stand of course, we producing more gold and silver that's just.
Just a mother off the distribution of D. assets, but nevertheless doesn't matter what we produce if it's some based methods some gold or silver.
<unk> always focus on optimizing our assets and return an hour investment and if it's on short term now and his goal last that's done we will do it on that and or longer term, obviously I will return do our normal silver gold distribution. So no I'm not concerned at all.
Oh, Okay get on so.
Good question on on I guess, it's gone discovery. There you mentioned the two we're anticipating a resource update estimate rather than I guess before the end of the yeah could you just sort of a layout sort of milestones moving forward from that on a on on how this has it's gonna hopefully matured it'd be on on parade in operation.
Well my way of Economics study.
That's it you know quite a quite a few answers here are very preliminary I I don't <unk> pine. Yeah does this is growing by today I'm sure. Many if you have seen our latest press, where he's been some of the best to intercept.
The hat due date and actually to be honest, probably something the best real intercept I have seen in my career.
Huh, I mentioned, there too and and and then in my call. You know two to 300 meters wide intercept blindness, nearly 400 meter high grade base metals with with some really good silver grey it as well as I would encourage everybody to have a look on our website, where do you see plans and sections.
There's a whole bunch of core photos as well and you will see that as many pretty long intercept as well that's run as high as over 40% blood thing combined with someplace is very high silver grey dust wall. So.
<unk> very very exciting discovery that unfolds here in front of our eyes, well will come out with a maiden resource Ah before the end of the year. So that's the only a few weeks few weeks left.
I'm looking forward to that we will continue to drill a thing Chris <unk>, how many drills to me half going right now we have eight drones <unk>, okay. They drill rigs going just on this con just on this <unk> between underground interfaced, writing that will continue for sure as it is so large that will continue for sure.
Rival T. or at least another year, maybe two years I didn't go through the details you up in a bunch of but I could imagine that that's how it looks like so.
<unk> maybe start later next year some early stage Ah.
Kind of engineering on I.D.S., how are we going to tackle that asset.
Elvis pointed out here this will not affect for a long time, the <unk> silver mine. So they'll sell remind that we have right now with the new plan, that's performing ready well producing over 8 million ounces of silver on the high Red silver vein that will obviously continue this this <unk>.
A bit the upset to do large part of the of the Senator veins.
So that that <unk>, obviously require a whole different set off of.
Than than level, south extraction, how's it is much much larger than than than the veins. So <unk> update the everybody I could see probably drill results quarterly I'm done the update during the conference call on in the <unk>.
But I see you know that that's only a year now since we just just just about the years since we announced a the discovery hall, so having drilled over 50000 meters already by now.
It's very good advances on I'm already looking forward to here to come out with the resource estimate on done advanced approach I prefer to next year.
And to seek Mike really exciting fun. A quick question. This is probably one for all the the taxes in the queue three here a little bit of a jump.
Color on that.
If money because <unk> quarterback quoted the the effect of tax rate is going to move around a year right 40, 344% effective tax rate that we had in key three was was elevated above what you normally see the year today is probably a more reflective number I'm coming in <unk>.
Percent so.
Anywhere in that sort of mid Thirty's, maybe a little bit higher would would be along Tim expectation, but it's just 70, leaving pods between the the deferred tax and carrying tax piece that it's really hard to to to to Guy ended on a on a three month basis.
Okay No worries okay. Thanks, Thanks, guys congrats.
The next question come from John <unk> very independent research. These go ahead.
Thank you for taking my question.
Could you give us an update on the scope all contingent right.
Indefinite or windows should expire.
I you Register for the security to trade suck it could you give us a little update on Argentina, I want to know when we're all gonna sing Phillies Snobby died for now.
[noise] answered.
What is a reasonable time table.
For.
Oh, you're traveling to get on a definitive fees to Colorado expansion I know it was to figure it is the longer it takes.
The better it is the longer it takes a smoking bigger and better. Thank you.
Your stuff.
Children running John rubbed down here I I'll I'll take the the C.B. a Christian and then <unk> two two Steve on on the essence in like <unk>. This the contingent value right that we issued as part of the consideration for the <unk> transaction is a 10 year instrument side was issued in in in February .
This year so it it it still has about nine and a half years of of until until the final maturity as you know the the right is two additional Pan American shows about 15 million additional pen American shows would be triggered a upon that face concentrate shipment from the ASCII.
Well mine.
That security is not listed it it is transferable, but it it it it is not an unlisted instrument.
We understand that there is an I.T.C. market that some of the bank, so I'm, making but.
But it's not listed instrument.
Okay, I'll give you an answer to Argentina us we all know in October 27, we sell them the the federal election in Argentina happened there will be a change of.
Of the precedent here coming I believe fits in the first or second week off of December actually I think it's December 10th. We also saw elections in all the province to stop and actually a bit earlier in the <unk> that happened in in in June or so both of further already provincially.
Yeah.
We'll see a new administration, obviously looking forward to start working with the New administration just to remind everybody does not need approach I in order to go to go ahead requires a change of the mining lined up <unk> mining for them for that exciting pro check in general quite a few changes in our.
T know the last few months, we obviously, so some some currency restrictions.
In in in Argentina, <unk> look at that and we also saw Doreen statement off to export tax earlier. This year, we all know about that that that's impacting obviously pro chucked, it's impacting obviously right now <unk> cozy a walking complex.
Swell, but look at any any any decisions and investments we.
Doing Argentina, we can do over appropriate analysis.
And look at risk versus returns to make the best position for our shareholders.
Sorry, what was the third question, where it might be a timetable for.
He's in Colorado expansion.
Well I kind of that kind of gave it a little idea there John and then the question before I think at the moment, they're really focused on thrilling we haven't finding <unk> I talked to open on all sides. So far so it's a bit difficult to put the timing here.
Or on a on a like a definite the study.
As we really focus focus on drilling a that's a very exciting development obviously, the the bigger it gets especially with this kind of great to that the better I I was really think it's a safe thing to say that we need at least another year off drilling like we do now maybe it's going pushing it for two.
But I'm sure, we'll do parallel to dad, starting with our technical studies.
On the metallurgy that crime conditions on the mining mad that.
Get the ideas, how big the mail to see if that that's out there. So that will all that we'll all take a it's time, so sorry, I don't have a time frame yet, but stay tuned to us that we won't keep trolling full speech during the end of the year on on next year and I could imagine.
They have more technical information come made up next year.
Some I could financial it's like me.
A 10000 kinda de Mille into our model.
Five years from now.
You think that would be premature for truant.
Let's let's see voted me come out with the with the resource estimate that's a saturday not define any any size neither off the resource which will happen in a few weeks here and we didn't know define any size of any any installation are male. So that's that's will come in due time, but so far it's a sad very exciting.
Development, <unk>, obviously, no way to generate more value for our shareholders than finding a large exciting protract like that in one of our assets that their own 100% off.
Thank you very much. Thank you for not showing any assets on lousy terms.
Bought very well thank you [laughter] package.
Once again, if you have a question. Please press alright, then one.
The next question comes from Don <unk> National Bank Financial Please go ahead.
Oh, Hi, gentleman, thanks for taking my call.
My question is on a shoe window and and I see that the A.S.C. has been trending up over the past few corners, although although I'm courage to hear that you're not running crushing Islam ration that's positive.
But but yeah I see these costs increasing.
And and I also noticed that you'd guided toward sustaining Catholics on the order of about 45 to 50 million and and 2019, yeah, you've only spend but 16 million year to date.
So maybe you could just provide a little color on what we should expect in Q4 and going forward in other words are you planning to accelerate this <unk>.
<unk> well some of the C. moved into 2020.
Yeah very good question <unk> [noise], yeah, they're kinda enter related reason you're seeing the the the.
Increase in East Coast sure window is because of the capital spending because it's higher sustaining capital spending through the quarters.
And that's related to weather related events, where you can only do the heavy civil works for leech pads and waste dump preparations during the dry seasons. So we are in just approaching the what season coming up. So there is some heavy civil works going on right now we are expecting a pretty heavy sustaining capitals.
Spend during queue for which will be reflected in the east coast as well. So that's why you're seeing those kinda. When you look at the guidance, we think will come in on guidance.
So that's that you can kind of figure that through.
Okay. So so you probably expect maybe higher and C.N.N. Q4, but then I'm, just giving the the weather seasonal patterns and so on and and pay suspend probably lower values in key one two and then you every city again.
Yeah, I tell you that's a good way that that's a very good way to think about it yes.
Okay. Thanks, a lot that's all for me.
This can clearly the question and answer session I would now like to turn the conference back over to Mr. Michael assignment for any closing remarks.
<unk>. Thank you everyone for calling into then discuss how requeue three results and I'm looking forward to talk to everybody again. She February already will be to look at every year end results and forecast guidance for 2000, then funny I figure dressed up to your bank everyone.
This includes the days conference call. You mean disconnect Airlines. Thank you for participating and have a pleasant hey.
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