Q4 2019 Earnings Call
Thank you for standing by this is the conference operator, welcome to the Pan American Silver fourth quarter and year and 29 P. results Conference call.
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The presentation, there will be an opportunity to ask questions.
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Thank you operator, and welcome everyone to Pan American Silver fourth quarter and year end at 2019 Conference call. We released our results after yesterday's market close on a copy of the news release or presentation slides for today's call are available on our website.
In a few moments I will turn the call over to Pan American's, President and CEO, Michael Steinmann, who will provide a brief review review of our result, we we'll then open the call the questions and answers.
Joining us for the Q and a portion of Pan American's, Chief Operating Officer, Steve Busby, Chief Financial Officer, Rob Doyle Senior VP project development, George Grier Senior VP technical services and process optimization, Martin Walker, and VP of business development and geology, Chris Emerson.
I'd like to remind everyone that our news release, a certain statements information in this call constitute forward looking statements and information.
Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent form 40 F and 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 Sarah.
Welcome everyone joining us today to discuss our results for the fourth quarter and full year 2019.
Our results clearly reflect the significant contribution of the mines, we acquired with the tower transaction.
Which closed on February 20 seconds 2019.
Consolidated gold production rose by three on the than 80000 ounces to a total of 569000 bounces in 29 team.
Revenue.
1.35 billion, what's up 72% over 2018.
Finally on higher gold sales volumes.
Persons mother process.
It through government weren't be ARX, Bakken production increases up 7% for silver and 16% for gold.
Considering the strength of our business I'm financial position. The board has decided to increase the quarterly dividend by 43% to five cents per share.
Net income in Q4, 2000, <unk>, Jude must $51.7 million or 25 cents per share.
This included the investment income of $33.7 million, mostly related to the game and I were 17% interest in new Pacific models, offset by a 40.1 million dollar impairment charge related to the monarch jealous belmond in Argentina.
Net income for the full year was $111.2 million or 55 cents per share.
Adjusted income in Q4, 2009 June was $68.9 million or 33 cents per share.
Our adjusted income, that's 100 on $58 million or 78 cents per share.
Record quarterly net cash flow from operating activities up $129.5 million was recorded in Q4 2019.
Reflecting strong operating performance I'm improvement in Brussels mother process during the quarter.
Operating cash flow before working capital changes interest, Texas, a mine care and maintenance plus $151 million in Q4.
The strong cash flow allowed us to repay $40 million an hour line of credit.
Before bringing the total repaid in 2000 $19 million to $60 million.
At year end.
$75 million must drawn on our line of credit.
We already repaid another $15 million in January of 2020.
I want to come genius de leveraging our balance sheet. According to our road truck objective of caring no doubt.
2019 operating cash flow before changes in working capital My car maintenance, an income tax $432 million was enough to fund our operating requirements, including sustaining capital income taxes on dividends.
Also covered our growth comparable transaction costs are used for mine care and maintenance and increase our year end 2019 cash on short term investment by $26 million.
That's December 31st 2019, cash and short term investments totaled $238.3 million.
Working capital above $517.2 million.
Our next to operations production, it's funny 19 was inline with expectations, while costs were below our guidance.
You produced 6.6 million ounces of silver in Q4 to 29 pm.
Bringing the total production in 2019 to 25.9 million ounces.
Consolidated gold production was founded 73900 ounces in Q4.
At 559200 bounces wonderfully here.
All in sustaining cost for the silver segment of our operations were $11 I'm 37 cents in Q4 and $10 on 46 times for the year.
Relative to 2000 abating costs benefited from higher than expected byproduct credits and pockets, if not realizable value inventory adjustments.
I guess, if it impacted by an increase in concentrate treatment charges.
All in sustaining cost for the goal Chuck month of our operations were 901 dollar in Q4 $948 per ounce.
Yes.
Sustaining capital of $179.1 million Goodman below our guidance of two on that then $3 million to $213 million.
Actually as a result of timing.
<unk> Capex is included in our guidance for 2020 sustaining capital.
In 2020, we are expecting to respond to women $25 million to $240 million on sustaining capital.
Important projects are heap leach pad on race dropped dump expansions at the Lotus shall window on lottery, not as well as tailing storage expansions at luck, let out on Siemens.
Capital of $20 million to $27 million is largely directed at the luck what all that's gone discovery I production expansion a Bell Creek mine.
That's starting to produce 27 to 28.5 million ounces of silver on six on the 25000 to 675000 ounces of gold and 20 point.
All in sustaining costs are expected to be into range.
Dollison 25 cents to $11 in 75 cents for the silver segment.
Another increase in all in sustaining costs related to higher treatment charges for concentrates lower same price assumption.
Our sustaining comparable.
All in sustaining cost for the gold segment are expected to be into range of $1090.
1001, other than somebody dollars due to higher sustaining capital I'm more conservative assumptions regarding positive grade reconciliation said low lottery and entre window for the new pit faces.
Positive grade reconciliation at the same levels as 2019 would have a positive impact on the 2020 cost estimate.
Well the information on our 2020 gardens is available in our news release issued on January 15.
2019 was a transformative year for kind of American.
I'm very pleased with what we have achieved in the short timeframe and probably our position for the future.
We completed the highly accretive type acquisition, adding four new mines to our diversified portfolio.
We are capturing animal G.N. day synergies of $25 million to $30 million.
You asked about mine now first material upside for investors.
The new government other precedent Alessandro to him up they took office in Guatemala on January 14 2020.
We look forward to the new government advancing the court mandated the yellow Onesix man consultation process that indigenous population.
Executing the tower transaction was an exceptional event Yep you had another exceptional event with the discovery of the large polymetallic Skarn, that's our luck let out mine.
In December of 29 thing, we announced an inferred mineral resource estimate for it as Khan of 72.5 million pounds, averaging 44 grams per ton of sober cedar 0.17% copper.
2.02% less than 4.4% sank.
Moving a world class deposit.
In 2020 Pan American plants, and rest fix didn't really onto $18 million on the drilling program early stage engineering and metallurgical testing for the luck without us gone.
The 44000 me to drill program is focused on infill and exploration drilling before to be fine expand.
Confidence to the inferred resource estimate.
Last week, we released the results of 14 additional halls conducted during the fourth quarter of 2019.
Rich for not included in the resource estimate that indicate the potential to increase our initial resource estimate.
That's drops off my formal comments on that would like to open the call for questions.
Thank you.
We will now begin the question and answer session to join the question Q You May Press Star one on your telephone keypad, you'll hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset before pricing any Keith to withdraw. Your question. Please press star too we will talk for a moment as colors join the queue.
You.
Our first question comes from Chris Terry with Deutsche Bank. Please go ahead.
Oh, Hi, telemarketing congrats on a on a great entered the year, let's see a few questions from me just in terms of the La Colorada scan discovery, you said you'd spend six tend I didn't really nothing this year what are the nics data points. Some that we should look for just for the project.
Updates was the next addition to results met testing project, Tom on the et cetera that we should look out for thank you.
Sure Good morning, Chris.
First of all well put out every quarter I think as a result press release like we did last week of in drilling a lot of me. There. So we don't want a in a whole hold up back to long because it will just accumulated.
I'm, not saying Theres all unfold. The continued some somebody positive results that will share with you. So I look forward every quarter to that.
As you know we moved a bit that after the transaction of Tavi moved tower reserve and resource update to mid year. So don't expect any update.
The beginning of the year anymore, we started that last year on published I wish it ourselves.
End of June it'll come to continue do that that aligns our reserve updates much better with our budget process that comps just a few months, let's start a few months later.
And gives us the newest newest and finest reserve stuff that we can use for Alan that's it. So that's a much better timing for us. So again, when we put that that the resource and reserve update out in June there will be an update on the first inclusion of our resource.
Falafel, a though so I expect there further updates on metallurgy and and on first pass engineering.
That's what we'll just continue with updates during the year I think this will be a year ago, having drilling a lot of metallurgical work Oh, we published a few results only around and a lot of early stage engineering to see what kind of size should be gone to envision.
Do advanced this project.
Okay. Thanks, Thanks struggle and then the couple of others May you unless you guys gardens for the full year 2020 in January since then the macros been pretty volatile <unk> metals in particular, but not the pressure just wondering on the call Scott Anderson the bought sort of Curtis.
Yes, and different currency moves just if you could speak too.
Conservatism more or where you where you have costs could come out. This is what is what you guarded in January thanks.
Yeah look that's doesn't mean forgotten is only a month old and a lot of things move up and down a in that case, you mentioned the base, Michael but the fact that'll basemat little Oh or Polymetallic minds on the cost because thereby problem credits, but they're not a father moving parts as well do it like corn to fluctuate.
Hey, stones or labor cost goodson parts et cetera, et cetera. So of course, we kinda to update our our cost guidance for each of that moved some go out some go down and you know I don't see any reason to make a change at this point.
Okay No that's what's on and then just thinking about some of that so many country exposure I'm, Argentina in particular, where there's been some changes just wondered if you comment broadly on the operating environment. How comfortable you all would you be operations there a in that country. Thanks.
Well our to Vietnam definitely a gut that's harder.
This year you solve it took a 40 million dollar write down on Monday of this battle of course is lucky or mostly for those reasons are they looking at additional export taxes really looking at.
Additional restrictions in the country right now due to the you know issues on a they're facing right now.
No they're comfortable to work in Argentina Me American Argentina for a long time, but it definitely gotten a bit harder right now and that's what it's reflect that then bad debt write down as we also know right now and one on data is painful and Oh see Joaquin is a very small part of our NAV.
That's a very minimal exposure right now from Argentina on the other thing you know I think that's how I see that a it it's just a point in time.
I'm sure I cant de Novo well do it's best to do advance here in a in.
And on spring bring their economy back on track and Ah I never think Liberals again.
Good thanks log on just the last one from me hard level I guess after doing the tolerate a acquisition and then not Shaw selling some of those gold assets because of the the improvement you've been able to do over the course of 20, not saying when we look forward to 2020 and beyond you've obviously got mall.
Revenue from Gold then still a is that something you're comfortable with going forward do you need to continue to raise shuffle portfolio back towards silver.
Or are you just going to you know just stick with what they will be for me, thanks, well well the our silver company, it's embedded in our name and in our history.
Of course, there is more revenue right now coming from the gold site not only because of higher gold production, but also because of the gold silver ratio, where it sits right now we called outperforming silver.
Should have a look in our corporate presentation on our website. There's a slide that compares our revenue without ever reserves, Andy will clearly see that our resources a silver reserves, mostly I think it's about half of our resurface. So were that's obviously very it's gonna going here into future. So while we developed this assets.
Huh.
But that Theyre very silver rich a they'll go back to a you know a much more kind of what do you are used to silver gold ratio for the company's production.
But Meanwhile, that's where the gold price Donlin gold outperforming I'm very comfortable to have the higher gold production basically generate into cash flow for us to advance our silver projects.
Great. Thanks small group, that's still from a little definitely.
Thank you.
Uh huh.
Our next question comes from Cosmos Chiu would see IVC. Please go ahead.
Hi, Thanks, Mike one team and their first off congratulations on a very strong Q4, and a great and to 2019 and certainly I'm sure investors are happy with the dividend to increase.
Maybe first off on a yard 2020 guidance here Michael.
You touched on top of the goals segment, you touched on higher cost for sure window and lock arena for 2020, there's been some conservatism it sounds like built into it but how about how about 10 minutes you know Timmins had a fairly good or 2019 with a new shaft in place.
You know you're still sort of forecasting a higher all in sustaining costs and your 2020 is there any kinda upside here as well in terms of potentially coming in below what you're guiding to for cost.
For 2020 attendance.
Good morning, Cosmo This is Steve my especially if the.
The big driver to that cost increased projection attendance. There's really two drivers. One is we do have a substantial tailings dam expansion in the sustaining capital that we have to complete that's an important project for us so that will get done during the year. The other thing is there's there's a.
I'm access road, you know we ship the ore from Timmins West to Bell Creek, and along that highway there's projected this summer some substantial highway works going on quite a oh by the province, there. So we're having to redirect trucks and that's quite a bit of a distance so it's going to add.
To that haulage cost from Timmins west during that construction period on the highway. So we factored that in now we're looking up some potential offsets to that we may find some better economics by investing in some short bypasses and things like that there maybe some upside there, but I wouldn't factor that in right now I think though.
<unk> cost projections that humans are pretty Sol overall.
Well sure.
Since I've been here Steve.
Maybe if I can talk about the recoveries at Dolores.
I know you didn't publish I don't even want to caught a recovery, it's more like the ratio of what stock down what spend or you know what what came out.
In terms, so far but if I were to back calculate what was stocked in Q4 I work out to somewhat of a 51% to raise show for silver.
So many 1% for gold at Dolores.
Especially for silver that seems a bit low and I thought you know given what you've done in 2019 for the full year and given the pulp agglomeration plant that's in place.
You know what should we how should we look at it you can always is just a one off is the high grade stocked in Q4 Gonna benefit Q1, 2020, you know what's what are we targeting in terms of quote unquote recovery here at Dolores.
Good color Cosmo, you're right on [laughter], what we did see in Q4. The one thing that we're seeing a dolores is the heap stack height in this pad three areas getting extremely deep were worst stacking over 100 meters right now in some areas. So we got for sure.
Stacked Hong Leach spent or a that's 100 meter in depth and it's taking a long long time.
First solution to percolate through that he and Q4 is notoriously the quarter, where we get a lot of rainfall and a lot a dilutive effects of the increase in water inventory, we take on doing a core the which was compounded a bit this year.
Because we're in the middle and construction on what we called pad, one north and so we had to expose liner on a new pad that the collected quite a bit of rainwater that came in at a pretty high volume. So we have a lot of inventory we got to work through we haven't we talked about this last year, we have kind of reduced our.
Solution application rates to make sure we got effective percolation conditions for leaching through that he so Q4 was below what we were hoping to see below our expectation below what we typically had been seen from the pulp agglomeration plant addition, but we think it is a worn off thing.
I think when you look at the full year, you'll see our silver recovery is it is a record silver recovery for the year for that might so you are seeing the benefits over the whole year, even though Q4 was a bit behind we do think will catch up on it early part of this your 20 Twond.
Mhm.
And then I guess on that Steve I worked it out how about 62% silver recovery for the year is that.
Well, you're targeting or could it be even higher <unk>.
Pulp agglomeration plant, we do think there's still upside to that you know the one thing that the recoveries side. The additional recovery, we're expecting close to 20% on the on the silver.
And we work we were also projecting additional quicker kinetics faster Leach times.
We believe today, we are seeing that higher overall recovery, but the timing to get there is longer than we expected and that's reflected because we had to slow down a leach application rate, we weren't getting quite the percolation. We thought we would would they corporates. So we have slowed that down that has affected timing, but no.
Well I think as we look into 2020, we do expect to see that come up to the higher sixties as opposed to the lower 60% overall.
And then.
Did the same calculation and push a window here I see that get all the gold recovery you know it was about 67% in about 67% for the year as well I seem to recall that are under tight how that number could be higher, especially when they get other question agglomerate are in place I know.
I know you're not crushing and agglomeration at this point in time. So I guess my question is you know is there upside to be honest, 67% out you realized in 2019 and is the crusher and collaborator back into cards in 2020.
But it's looking like you're reading my to do most of my desk [laughter], you're right. That's why I know like yeah, you're right on what do we.
We are not where do you think there is upside to the metallurgical recovery at your window, we're not yet convinced that it requires us to crushing agglomerate to get though it may we don't know yet we do think there are substantial upsides that all I would say to caution that a little bit is remember this.
As a run of mine heap Leach show, we only have one head grade that goes out to the pad and that's from our own control and our or control is showing substantially higher grades than reserves.
We need to verify that that is indeed, the case that there is a chance were hoping that's not the case, but there is a chance maybe the recoveries aren't as high or the recoveries are higher but the grades Arkansas.
So we're kind of working through all those issues. You described currently I have I have to say from my perspective, I'm optimistic we're going to find a ways to improve that your window.
Great.
Maybe switching gears a little bit here, Michael as you mentioned, the new reserve resource I start up date is now going to be met year. You know at this point in time have you determined what gold and silver price or other commodity prices you might be using just given how well gold and silver has done year to date or you know since a sort of late last year.
Sure and I only ask because I think somebody your minds might be a bit more sensitive to changes and a you know commodity price assumptions such as Dolores. So you know at this point in time have you have you figured out what you might be using.
No caused most of it they did not so if we look at our official resource statement as of June that surprises said there that we use of course I was a lot of changes.
During the last few months, that's a short time it will look at they've done undefined at a in a couple of months before we do the reserve update but in China ROE. That's you know VR Oh, so very careful they like to generate good margins of our minds and just running up the metal price to create more reserves. This another.
What I have in mind at all and I've never had a.
But they did not have enough they find a price that company. That's that's would like to US you touched on the happy story off the dividend I would like to get a quick updates here.
Got it on our capital allocation and our plans, which is very straightforward and very simple that the threeg clear stops that'd be follow here and I think we have proven here over the last few years that that's working outdoor develop our shareholders number one that creates a highly accretive projects and acquisitions a that's the best return for our shareholders.
I think they have proven that Larry clearly over the last 12 months with the tile acquisition, well, that's kind of impact a creative transactions can have.
Number two our capital goes is a improving our balance sheet that and maybe improving is not the right because even improving from nerf because our balance sheet does he knows very strong.
Yeah, I had a very strong free cash flow allowed us to allow us to year to pay back $60 million an hour line of credit 40 million in the fourth quarter alone and I don't know if you heard it in my calls actually already paid another 15 million backing in January on the line of credit I.
I I know you know what and I really liked that I liked to have a little that does possible on the line of credit available to us because it gives us the flexibility too.
Jumping in and for opportunity. This if they come along on accretive acquisitions. So that's that's a surgical right. That's like when I look at running happened when Tal.
And you need to keep your powder dry we do very few a transaction on when we do down there.
We need to be ready, though with a alike will have a line of credit available on the very strong balance sheet done you know if prices stay where they are out of it will continue due to pay back our lineup crowded out very quickly and then the last point. This returned to our shareholders with dividends, mostly they were down slightly a new so that they increase I think.
That's a third increase here and in a in three years I believe that have be very happy to return a.
Dividends to our shareholders I think they returned to about 440 of $450 million since 2000 and time between dividends and share buybacks sour shareholder. So it's a very is very simple treselle plan that we follow the followed up for a few years an island a I don't see any any reason to change though.
Yeah for sure I might go I think that's great and on the debt repayment or the payments back to the Atlantic credit Michael as you mentioned you did about $60 million in 2019 15 again in January 2020 have you you know do you have any targets in terms of what level you want to what a payback.
And in 2020, I know you know there's dividends there's capital allocation I'm. Just wondering if you publicly made any statements in terms of how much you want to decrease that debt by in 20 Twond.
Like I said, we will follow this three step plan on the on the couch location and you know the more of the more money is left stuff that at the end up today, the more of a little pay back on the line of credit. The idea is to go to that's led to lower zero adaptive possible.
ER I cannot be can always stake you know the money again on that line of credit and react on an opportunity, but there's no reason they my mind, even if interest rates out low do you know the do service that if we can pay Pat I, rather invest that money and further drilling that local let out of for example.
Yeah for sure and then get Overwatch, where they have a.
Forecasting free cash flow of $200 million for your company in 2020, so there's going to be a lot of a lot of cash for you are coming in [laughter], Okay area.
And then maybe one last question Argentina.
You know could you give us a bit more detail I guess you know there was a write down and you talked about the increase in export tax I wasn't aware that I wasn't aware that that's been put into law.
As it and could you maybe give US you know any other changes.
Yeah, there has been confirmed or were expecting in Argentina.
Yeah Cosmo this Steve specifically on the export tax at La has a lot has been passed but it has not been regulate it yet we expect one it is regulated they will be retroactive to the first of the year, that's our expectation under the law the export tax effects.
Actively does increase because it takes it from a pay so based to a revenue based tax. So so net net it isn't increasing that tax.
Hmm.
And.
Magnitude <unk>, sorry, Oh, you're probably also seen there that was quite a few other changes theres a double severance payment that was one of the reason why we decided to go a bit slower Victor production.
And you know like do it to the people that we had that we have there or there's something some currency restrictions a it's not the simple anymore system. The move money a in allows them.
So that's a whole bunch of changes sets us up into into the former called up.
<unk> dollar operations in Argentina, but again.
And when you look at our corporate Nap and that the part that is in Argentina is this is very small it's a few percentage point relative to the magnitude on up to export tax Cosmo when it first came out it came out as a pretty so based tax and then the pace or the road. It what we're seeing is.
Effectively about a 3% percentage point increase in export revenue.
Yes.
Okay.
Yeah, because I think I think when it first came out as you start with a depreciating pay so worked out to ice you know, what I remember seven or 7.5% equivalent sort of.
Tax, but now you're saying, maybe an additional 3% too.
That's correct.
And then and then you know Michael I agree with you that Argentina is not only a small portion of DNA via Pan American Silver, but you do have in your guidance about four to 4.3 million ounces in production silver production included 420 20.
Any concerns at this point in time, either be geopolitical a ground conditions at cozy Joaquin in terms of getting to that guidance.
No no concerns on that.
Okay, great, Thanks, Michael Steve and team and congrats once again, a very good Q4.
Thank you bye now.
Our next question comes from Chris Thompson with Pi Financial Please go ahead.
Hey, good morning chance, a what I kind of what caused most of saying congratulations [laughter] just a couple of my little questions related to guidance I guess looking at some of the a the gold assets here.
First of all a you know you're guiding for between 42 and 44 million in sustaining capital for La Arena. You know my understanding is a limited mine life and how many you could just to unpack, where that's going up.
Yeah. Good morning, Chris This is Steve I'm, a big part of that and I think it's close to 30 million of that does on pre stripping we had what we called Oh used to refer to it as a phase eight we are kind of changing those phases, a little bit we would this.
Reconciliations, we think there's opportunities maybe to increase some of the reserves there and maybe look at the pit a little differently, but but we are doing some lay back there. So there's some substantial pre stripping in that number and then in addition, we do have a waste dumps, we have substantial costs on a on preparing.
Waste dump ground, it's a very boggy area very wet where you have a lot of drainage efforts to go in and ground preparation work that has to go in before we can start placing waste on on waste rock dump a new areas. So those are predominantly the big increases in capital.
Okay, Great you guys doing any work on the on the full flight opportunity there.
We are not Chris there's it's really a copper gold play, it's it's really not in our interest.
And I are focused right now as long this law rain a one if you will do the oxide gold and we think there are some opportunities there were fairly optimistic we we might be able to squeeze little bit more value honor, though.
Okay, great slot in a lot in not too obviously very interesting project and but I think that made very clear sense. The same staff was they send up you know a very large copper porphyria is not something that's kind of American a show done well built so I don't point of course that that approach at the vote will be out for sale.
But there is time I see I hear from was from Steve stars some opportunity and a on the reserve side on the outside side. So the lives of it you know devote the Burke from the so far outside Florida <unk> for a large copper component to do.
Great. Thanks for that and just stage. It's finally, I guess moving onto the Tindemans assets. I mean, you say a lot of euro your capex guidance, a little bit of it anyway, it's going into a 20% to expansion of the Bell Creek there.
How should we be viewing that from a from a timing perspective see that you see there was also then.
Yeah, It's really interesting that's a you know that I think we'd laid off 5 million dollar for that expansion and roughly half of that is going into the plants and that's really just upgrading pumping systems throughout the plant and so the schedule of completing that work is really dependent on manufacturing and deliver.
Rescheduled the pumps and the mine equipment, we think that will trickle in throughout the year. So that by the ended the year won't be up to that that 20% expanded were.
Right, Okay, and I can say would be what does the 5500 tonnes a day mark.
Yeah.
We look at a ton per hour, but we're going to go from about 220, just just little above 220 to two to to 50 tons, an hour and we're getting about 92% availability on the now so Texas right about 55 hundreds are good.
Right.
Great guys. Thanks, a lot congrats.
[music].
Our next question comes from Lawson Winder with Bank of America. Please go ahead.
Oh, hi, Thank you for taking the a call maybe if I might just started on a lot, Colorado and Steve I think this is this is probably for you, but I mean it it seems now for two quarters.
Operating cost per ton are running in the <unk> in the low Ninetys answer really I've two questions on that I mean, one is that the level that you're budgeting for 2020 guidance and and then is that a level that you see is being sustainable going forward at least on a on a medium term basis.
Thanks.
They are Lawson a nice question, we have seen some pretty substantial de bottlenecking efforts in the mine at La Colorada, that's led to quite a bit higher throughputs and what we had originally designed I think where you're trying to just over 2100 tonnes a day on average for the year of 2019.
We're optimistic we can actually improve upon that some more were also off domestic that that coupled with some interesting mechanization efforts, we got going on over the next several years will lead to some better cost efficiencies with all that said, we do have some challenges during 2000.
The 20, we'd have some substantial ventilation raises that we're going to be installing and the mine and we need those raises to kinda give some of this mechanization efforts moving so I don't anticipate big changes through 2020, but I think when we look beyond that we see some optimism for some additional costs.
Cost optimizations, if you will unit cost decreases going forward.
So for 2020, you would expect it to be in the in the lower 90, so yeah, I I'd say birth, we're forecasting a little higher there are some met costs increases that were absorbing on labor, particularly where you emphasis but you know 5% kind of escalation of costs. So we're probably in the mid mid ninetys mid to.
Mid 90 95 dollar town.
Okay. Thanks, that's very helpful. Steve and then and then just on the and the dividend that was a pretty remarkable increase I think what is Ah.
Two questions one.
When you're a.
Setting this dividend or you are you basically looking at what your budgeted gold and silver price assumptions are for 2020.
First question and where it's coming from doesn't mean, it seems conservative versus historical increases.
The current.
Spot price and the second question is I think historically the cadence of of dividend change announcement has got to play calm in the first quarter with Q4 results is that something that you expect to continue going forward or could that cadence perhaps change. Thanks.
Let's not think it's a when I talked a about capital allocation I think that's really the key on your when you look at that so a as I mentioned to the return in dividends is a number three and I want list very high and very important.
But vicki if deference to accretive to accretive protex and pay back our debt.
ER.
I know, it's a very nice increased 43% or what we do is we really look quarter by quarter I'm optimistic that I'm not talking to our capital allocation.
Or depending what's what's going on there.
They make a decision you can imagine that right now there's a lot of cash flow generation of other free cash flow generation.
Some money will also be need and the capital that would be needed to advance the lock, let others ask on deposit and so we've kind of you know tried to keep a balance here.
Turning now to south of very high created Protex two hours that holds or sounds returning a dividend at the same time.
Okay. Thanks, Michael that's a very helpful. And then bench movie to one of the other assets Mora coaching and Mark Kucia, rather in Peru is there still an expectation that you you'll need to move the plants and if so what are you expecting that might have.
To happen thanks.
Or maybe.
Timing, if that should happen, Steve Kinda give me a an update there I think there's still a I would call it the fluid.
Situation, there unless they actively discussing with our neighbor how that bounce the open pit and how that will impact our plant, which is really located that very much on the French or even a bit outside the us how stupid. So.
I think Steve timing wise, we started that thing.
I made the public last year and this year that vistar spending some money on some early stage.
Engineering, that's what we're working on the we have at the end up they see or better idea about I don't have a date yet there anything sat.
If and when such a move should happen.
Okay.
Just to add on to Michael's comments is exactly right through 'em. We are doing engineering. We are actually is doing permitting efforts, but in terms of timing, we have not yet to find the timing with with our neighbor.
Okay. That's very helpful and then.
Maybe maybe just finally on on the Escobal Iola Onesixty nine process I'm not sure to what extent, you're able to share where that process is but my question really as you know at what point are you guys in that process and you know is the process still as we had I understood. It a little over a year ago with the with the four stages.
Yes look Oh I'm, sorry, you saw that there's a new administration as I mentioned that call under Alexandre Okay on Monday.
So a lot of changes in Guatemala on the federal and local side Oh, the new government took office on the 14, so thin glass of China rates are very recently, just a month ago and so they look really looking forward for them to advancing that.
The process that dialogue 196 consultation process went the indigenous population we are.
Obviously, enhancing still and educating training our team there are addressing a lot of a lot of issues for the going from.
Human rights, social concern indigenous mothers etcetera, etcetera, you can imagine that's a lot that's allowed to do and of course will support the best government left the aiello Onesix nine a process as much as we can.
To find a you know a peaceful dialogue with the dollar neighbors and a lead to host come in at this time that'd be a broken down there. So a lot of changes in Guatemala on a you know a a like what I see theres I still am I have a timing I think the process right has to go through the is still the same so nothing changed on that.
Faced no, but I wouldn't know about.
A big because you know that's this is for four stages as we saw last year.
They have not been informed by anybody that that would have changed but again, it's a it's a government run process on the they are just a participant in it.
Understood. Thanks, very much your comments.
Our next question comes from John Tumazos, with John Tumazos, very independent research.
Please go ahead.
Thank you.
<unk>.
Could you give us a.
Timetable or density of drill holes maybe.
Good luck, Colorado scar issued indicated maybe.
[noise] to reserve reports out next year.
And.
And Oh.
As they reported there was almost 20 million ounces of gold 6 billion pounds of copper and resources.
Across Ontario, and the two sulfides and Peru.
I know, you're very busy with la Colorada scar existing mine operations.
Oh.
Nabil Dod.
There are one or two of those projects.
Right.
We already from the.
[noise] resource Q.
Uh-huh, if you have time to get to it and then next year.
Sure Hydrants Crimson here I'm reluctant to explain the drill hurt them of drilling for that instead resource will probably at around 70 to 80 me to space left alignment with when it got down to below 50, and depending on the just statistics as to what the variability within those two.
I was in grades so certainly with the 44000 meters or does she it will probably hopefully be upgrading again it all depends on the result, those tend to be looking to maybe.
Daniel said the sentence that certainly put June this year and then as that program advances into December this year.
Great and I've said that that certainly work.
A little away from getting that old 72 into a and Tonight.
For instance is absent twinkie front, yes, let's say we'd be looking for a couple of years. All continue drilling and then at that detailed reserves, where they would probably want to be closer to that I get underground and actually two other than that because at the moment, where we're probably drilling 18% from surface with direct.
Well drilling which is obviously so costly so to get it down to that yeah close to Stacy will definitely want to sort of say get more efficient.
It's a sound. It's obviously one of our top priority projects here as it kind of match and this is a world class discovery and well Chris is thrilling we are moving quickly out here with that but I would metallurgy and engineering on parallel are the most approach us for with us as fast as possible.
So stay tuned for updates I submit mid year on the under Resourced ER and then West coast continues to drill to advance stuff into the different categories.
One of the reseller stayed at your second question regarding that copper that that's how I didn't diary since most of it is located that in a and Latino tooling and into and.
I was wondering if we are very happy what we see and I think a you know there's some upside and we're very happy, but we see I'd love a 90 outside spend the gold production.
So I mentioned before letting up to as a big copper porphyria Philadelphia protest.
While advance and a vote the look to divest approach up over time, but there's really no no big way on us. So they have still several the S. A predominant outside that uncertainty over 10 million ounces of gold resources.
Much of which Tony Macoutes required when it was lake shore up in Ontario.
Are there any of those.
You have time.
To evaluate and 2020 2021.
You're busy with.
There's other suite arms in the fire.
Yes, yes, yes, we actually looking at that me I've been doing some work on it then I'm talking about those projects.
I haven't really made to final decision and all of them if their core or not for us some are.
They close to our daughter, Tim in South operations on the that they know that the chance to do just being trucking distance and then some are favorable average that's definitely will be no high on our list a protest sound a little probably look to divest them.
Thank you [noise].
Thank you Phil.
Our next question comes from Adam Graf like B. Riley SPR. Please go ahead.
Well, thank you guys, but a lot of questions, but just the.
I know that you talked a bit about the conditions in Argentina.
Becoming more difficult, but I was curious to hear if there's been any update.
On the progress to.
Be able to move forward on Navidad and if the challenging conditions in Argentina, actually well would help or hurt or that process to to open up a riocan up development Caldwell lobby that.
Yeah. It's you cannot just compare very simply a a kind of a shorter lives.
Mine like might not be Outdoorsy, bucking, where you know we looking at a three year, maybe three and a half year a life and then a you look at a project like Novvi that that she needs a few years to do go through permitting and building and then many many years of production so.
I see the they suicide in Argentina US no. That's just that's just a point in time somebody says that the government or through it and but but that short term. So let's look at a chore tournament definitely made it more challenging.
For us.
I so sad when when you look at really long term projects like Navios Dot that you know who will be in production for decades, I don't think so that they can just extrapolate those issues. So that's a different that that's a different time frame.
[laughter].
Yeah.
Michael perhaps you could give us an idea of where things stand as far as.
As far as politics, indeed in the province, and at the federal level as far as well moving.
The things forward to to allow for just the approval or not at all.
Sure can do that unlike many other places we work in Latin America that wasn't it doesn't change out stuff government that we had elections.
Huh.
But let's just later in the province actually to exceed them No company. They showed positive onto the 10th of December I believe tighten up 12 somewhere around there.
Lets bye bye.
You know mr. our siani.
Uh huh.
You know one very clear election, there is a strong.
Governor into province, I think I think he has very good good ideas, how to advanced to the province, and the economic self the province.
And Uh huh.
I am I'm looking forward to work with the new with the new incoming government, Minnesota Covenant that this that and I'm for a month and I'll hop.
Nothing changed in my view on the on the project Navidad is a very strong very very large silver deposit and it's still probably felt the largest a wonderful arts Hassan developed silver deposits in the world.
It's very scalable so they're shallow open pits Ah think terrorists and that's about eight so and set our mineralized stuff that we can mine. So it's very scalable in size in terms of size on stocked up and how much capital they want to spend up front and how much how many faces you want to grow the pro chunk of it didn't make the.
Actions that that how we do that will depend on the situation.
And then the permitting etcetera etcetera just approach at goes ahead, but at the moment, a obviously, there's no way to do the open pit mining because trusted there's the mining law in place that prevents us from doing that so.
So this is with the government to make that changes in political process I I can't you know icon.
Do that obviously, I'm, just sitting down and aside a waiting and.
Discussing providing information.
And then we see how they'd advances, but as I said, the really important part a of nominate out this is a sustainability.
That makes it a thing to much more adaptable for us to once we make a decision on size and scale.
And capital requirements on timing for for possible startups.
So just so I'm understanding you correctly no change in the provincial or the all federal level.
So far as initiatives or or or to change the law that would that would allow this project to move forward.
Rising as far as you can tell I know that's not that's not correct that first of all.
The federal side, that's now.
Really matter on this on this law. This is a problem shalabh <unk> resources in Argentina belong to the province. So that's another that's not the federal law on the provincial side a lot of changes out with a lost or does it 12 12 month of let's say a Mr. I see only a if you remember came in as vice Governor.
A a bus that last year and so the province subsidies working on a on the Zonification lassonde, providing and provide that a kind of fits in the draft map I think that that will kind of explain where.
But that wouldn't installed kind of mining zones, I know mining songs and so we're talking about.
Possible mining zones, a into some throughout the province called Miss that.
And then I'm done Oh, because they know mining or not around the big levers play shows coastline et cetera et cetera. So there has been lots of advances are there, but but at the end up today. It's a you know it's it's it's pretty black and white decision by the provincial legislator to change that law not until.
ER to allow open pit mining ER and once that's done obviously people, but people to provide our our environmental impact study, which is ready to go and and then I'll start the permitting process.
So with that draft law expected to be finalized and come up for a vote in the next six months in the next year. The next 18 months, where there's not schedule.
I I don't have a timing for about a Adam.
Right.
Thank you very much thank you.
Our next question comes from Trevor Turnbull Scotiabank.
Scotia Bank. Please go ahead.
Hi, Michael.
Here at the end of the Q I ended up getting most of my question to answer including from Adam just previously, but I guess it was one nuance to the discussion of Navidad I wanted you to touch on you know, we try and keep an eye on the news coming out of Argentina, I look at the local papers and so forth.
And towards the end of the year and into January there was quite a bit of lot of articles a lot of protests going on about a the environment specifically in should food and it seemed like this this open pit mining law was getting kind of wrapped up in that.
It was a lot of other issues at play, but but certainly it was one of the things that was being bundled with other concerns that these environmental people had.
At first we thought that this increased.
Agitation by environmental concerns men, perhaps that didn't mining law west coming to ahead, maybe they were getting closer but it all seems to have died down a bit here in the last couple of weeks and I wondered or we reading too much into these protests are they unrelated or what's that a bit of an indication that government.
It was in your opinion getting closer to doing something.
I think that were mostly related to.
And with a issues that happening mendo aside the and left Oh, the year I would say probably see that.
Actually it tranche alignment Dalsa I think unfortunate that didn't up.
I didn't know are providing the law a zomig vacation. So there was no mining on non mining zones, and the province, which I think the population or would it didnt like I said kind of say no mendosa. So big one producing area. So that should be areas of course that should be non mining and other stuff.
You know combining mining could go forward so.
That that cost a lot of basis, and I think that kind of spilled over to vote.
Yeah, I don't have pretty much more information on on this Trevor I think you.
Yes, probably reading a bit too much into it above where we stand with the government I mean, I as I said, it's a political process the.
The governor on so let's just later I'm sure they'll eventually working on a lot of issues into province, and that mining law is one of them.
Do you know to provide jobs and developed to provide income for the for the province a into future on.
Very extensive Dan ASO said, it's at the session of the off the provincial legislator.
Okay I appreciate that Michael Thank you.
This concludes the question answer session I would like to turn the conference back over to Michael Steinmann for any closing remark.
Thank you very much a great call and that's a great year for Pan American Silver for sure transformational here.
And are looking really forward to update you in our Q1 results, which will be in may have a good time until then.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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[noise] [noise] Uh huh.
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Uh huh.
[music].