Q1 2020 Earnings Call
Thank you for standing by the conference operator, welcome to the Pan American Silver first quarter 2020 results conference call.
Reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be an opportunity to ask questions to join the question Q You May Press Star then one on your telephone keypad should you need assistance. During the conference calls you may signal, an operator by pressing star and zero.
Now, let's turn the conference over to see Ramsey Sackey.
VP Investor Relations. Please go ahead.
Thank you operator, and welcome everyone to Pan American Silver Spring quarter 2020 Conference call. We released our results after yesterday's market close and a copy of the news release Mdna and 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 of our results.
We will then open the call to questions and answers.
Joining us for the Q and a portion our Pan American's Chief operating Officer, Steve Busby, Chief Financial Officer, Rob Doyle Senior VP technical services in process optimization, Martin Wafforn and VP of business development 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 release and presentation as well as to the risk factors described in our most recent form 40 F and annual information form.
Immediate another participants on the call are invited to participate in listen only mode.
I will now turn the call over to Michael.
Thank you everyone for joining us today to discuss our first quarter results.
Q1 is obviously mark to quite a koby 19, pandemic, which affected lives businesses around the world. They're all working together to contain the spread of the virus. Other expressed many of you are listening to this call from a remote work location I hope you and your loved ones, our health and well.
Mining sector, particularly those with operations in Latin America has been I'm continues to be severely impacted by Kobe 19.
Pan American immediately engaged its crisis response team to manage the highly dynamic of disrupting cascade of events related to Cobbett 19.
The health and safety, how far employee some communities is always the primary concern you noted to prevent an outbreak off the virus that our sites, we adopted health and safety protocols consistent with those recommended by the local health authorities pest management practices.
<unk> health organization across all our operating sites.
Corporate offices.
Where possible, we established remote workers instruments for employees and contractors, we voluntarily reduced throughput that sites not subject to suspensions to enhance physical distancing amongst our personnel.
In addition to our existing community programs, we are supporting our local communities to donations of food and how chain supplies and providing access to health care.
That's pretty much a report that Pan American suspend the normal operations that its mines in Mexico, Peru, Argentina, Bolivia into latter part of March 2020 to comply with mandatory national Quarantines imposed in response to the Koby 19 pandemic.
Limited production has continued at the open pit mine from circulation of process solutions on the heap Leach pads.
Well the Timmins West at Bell Creek Gold mines in Canada have continued to operate at 90% of throughput capacity.
That has allowed us to achieve close to our expected to consolidated gold production for the quarter.
Silver production in Q1, however, most impact that largely by the suspension of the Polymetallic silver mines in Peru, but on a moral culture.
Well at La Colorada silver production, that's affected by lower than planned dog rights related to the ventilation issue.
And reduced throughput from the cobbett 19 matters to increase physical distances.
Well that delays nature that luck, let out that relates to a failure Oh fun up the primary ventilation raises in the eastern higher grade portion of the mine.
This necessitated an adjustment to our mine sequencing towards low grade ores, Bobby advance efforts to replace the failed ventilation raise.
We have been able to continue that worked you're into called me 19 restrictions.
The work in progress on the primary ventilation circuit includes new races that are being bought between the surface that the 340 505 on the 28 levels.
That's there are areas a week rock that resolved within the previous Faler. The area is being pretty supportive frac routing before to raises our board.
We expect that entering ventilation solution will be completed in Q2 2020.
But the long term infrastructure, a complete into first half of 2021.
These D.V. eastern ventilation constraints have also limit the amount of underground thrilling when our exciting skarn deposit necessitating more directional drilling from surface rigs for definition of the large Steve mineral resource.
This has proven to be quite effective effective and officials.
However, we have curtailed they surface exploration work during to covert 19 operational suspension, but I still on track for a resource update in conjunction with our annual reserve and resource estimates in mid 2020.
Despite the impact of called me 19 related disruptions our operations generated $114.1 billion off net cash flow mine operating earnings of $50.1 billion on free cash flow of $63.8 million in Q1.
Gordon exiting the quarter, however were impacted by several unusual items, resulting in a net loss of $77.2 million or 37 cents.
Basic loss per share.
The loss reflects a tax expense, so $52.7 million driven by weakening of local currencies against the U.S. dollar.
On deferred tax liabilities and own cast 28.3 million dollar investment loss, primarily from unrealized mark to market adjustments when our interest in new Pacific metal score.
$16 million and care and maintenance.
Fund 8 million dollar loss on commodity and foreign currency contracts.
Adjusting for many of these non cash items, resulting in net loss of $7.6 million or four cents per share loss.
Importantly, we do not just for the non cash investment loss, which represents about 13 cents per share.
We ended the quarter with cash and cash equivalents of hundred $47.8 million, an increase of 27.3 million compared to December 31st 2019.
Despite the large cash tax payment of $36.5 million, a $15 million repayment on our credit facility.
And an increase to the dividends to five cents per said last quarter.
Please remember that a large portion of our animal taxes are paid in Q1.
Our short term investment decreased by $26.4 million in Q1.
Due primarily to mark to market value declines you know a new Pacific Shareholdings, which is now fully recovered.
At the end of Q1.
Totaled up excluding lease liabilities of $260 million.
Also maintained our quarterly dividend of five cents per common share.
Oh the are in a strong financial position to manage this current business environment.
We are still dealing with much uncertainty regarding the course of to call. It 910 pandemic.
That's a pretty cautionary measure we drew $80 million on the credit facility in April to further improve liquidity.
Currently no plan to deploy these funds.
This follows earlier steps to reduce spending by instituting corporate wide spending controls and medmarc.
Referring certain capital and exploration spending and reducing renew moderation for senior management and board members.
I leave it that workforces conducting care and maintenance activities at all our suspended operations.
And our de mobilized workforce remains on standby <unk>.
To be redeployed once the government restrictions are lifted and we determine that we have the necessary Sen in health protocols to say sort of assume operations.
Meanwhile, we are closely monitoring our critical supply available at this and delivery logistics, which to date have remained largely on interrupted.
We started off the operations will be under a phase and careful approach following health care guidelines and government decrease in each country we operate.
Which could take several weeks.
Do you expect to graduate resumption of activities, we did modifications to accommodate greater physical dates than saying that'd be the appropriate protocols in place to protect the health and safety of our workforce that communities.
We currently have no confirmed case of called me 19.
Any of our Pan American silver operations or offices.
Given the level of uncertainty regarding a ramp up to normal operations in Q1, maybe through our guidance in 2020, we intend to provide revised guidance as soon as we have sufficient clarity to do so.
I will now review the current status in each of our operating jurisdictions I would like to caution you that this information is as off today and circumstances are changing rapidly adopt difficult to predict.
In Mexico, the government extended the health emergency to make 30 years. However.
The latest decree included the provisions that may permit to restart of non essential activities, including mining beginning on May 18.
If located in a municipality with low or no active Colgate 19 cases.
Our operations are both situations in municipality.
Today, a very few or no cases.
We are now deploying plans potentially restarting our Mexican minds initially had to reduce capacity pending local authorizations ondecks up those.
In Argentina falling the national current team that's suspended our operations in March mining was subsequently deemed as essential business by the federal government on April Threerd.
There are currently restarting the Manav telesphere cooperation that reduced underground mining rates and redeploying personnel for the restart of causey on working operations.
In Bolivia, we are currently preparing for the restart of hours somebody sent operation.
Following the government authorization that mining activities candid with you on May 7th 2020.
In Peru discussions are advancing with government officials on the restarting large scale granted on 5000 tonnes per day open pit mining operations at reduced capacitors, which could permit the restart of our lottery non show into operations potentially on May 11 2020.
In Canada, the payments mines continue to operate the 90% of throughput capacity on the reduced staffing and strict health and safety protocols.
Our escobal operation in Guatemala remains a care and maintenance that's required under the mines environmental management Black.
The government of Guatemala declared a state of Calamity on March 5th and on April 29th extended it by a further 30 days.
Posing restrictions on travel movement within the country.
On meetings that suspended all non essential activities.
We don't expect any progress has been made regarding the iola onesix nine consultation process considering the circumstances.
I have been extremely impressed with the ability of our teams have been country management to safely manage the extraordinary crisis presented by this pandemic.
All being sensitive to the health and wellbeing concerns of employees their families and communities.
That is what gives me confidence that reveal successfully navigate this temporary period of disruption and return to the normal productive operations, we had beforehand.
I'm equally impressed on deeply move by the heroic efforts of our frontline healthcare workers, who are fighting daily against this worldwide and dynamic.
Before closing I must say a few words on our incredible I caught off guard discovery.
We continue to be the exploration drilling and initial engineering efforts on this current during Q well before these activities are suspended in April.
We haven't released any new drill results. This quarter, however, I'm able to process all samples due to the coffee nineteens expansions.
But we are still anticipating providing an update that resource estimate of this car and with our June Thirtyth reserve and resource updates, which will be released with our Q2 results in August.
We continue to advance on the initial engineering I put onto approach I play out design efforts throughout this year.
You will find additional information on the short video regarding this exciting discovery on our website.
And with that I would like to open the call for questions by the way. They are doing this call from different location. So please be patient if I direct the questions to the relevant member of our management team.
[noise], we will now begin the question and answer session to join the question Q You May Press Star then one on your telephone keypad.
Well share count acknowledging your request if you're using a speakerphone. Please pick up your handset for pressing any kids to withdraw your question. Please press Star then too.
It'll cost for a moment as college trying to Q.
Yeah.
The first question is from Chris Thompson S.P. ice financial please go ahead.
Hi, Good morning, guys. Good morning, Michael I'm, just a couple of quick questions here, obviously, a challenging quarter for la Colorada.
Some adjustments being made or I guess are related to the ventilation issues. There I wonder if you could just walk us through the I guess, how should we be looking at this from a near term production perspective, looking at say tons processed grade.
What what should we be looking for.
Q2 Q3.
Yeah. Good morning perceived Bugs me here basically a we're we're putting in the key raised for US right now is from the 345 level down to the 528.
We're putting a type oh, we call an interim raise in that should be in in the next by the end of June and that'll get us back in the mining the high grade that probably close to the rates that we had before we lost the main ventilation raise above the 345.
Probably roughly.
In round numbers about a quarter or bar production comes from those high grade deep Sulfides zone and this is super high grade.
We affectionately no. This is our jewel box so having limited production there are definitely impacts are grades. So I'd say as we move into Q3, we expect what success of this lower rates will be back up to the rates that we saw before but I think it's important to mention.
The.
Given the ground conditions, which we've we've always addressed we've always had issues with the ground at La Colorada, it's pretty fractured up broken ground, we decided to go to this new technology. That's available proven technology, that's been used to another mines in Mexico, a pretty grouting the pillar.
Her oh material before we pull a big raised four there. These are 3.1 meter diameter raised spores.
For our long term ventilation needs there given what's happened here are not loss of the one raise bore.
We're actually taken advantage of this and where this new design that it is kind of incorporating some some longer term concepts because this will be a very durable long term infrastructure project for the site.
Actually help support even as we move into the Scarlets because the scars kind of adjacent on that eastern edge of the mine. So long term. This not only provides maybe enhanced production out of that high grade you saw on but allows us access to understand the skarn, even better yet so there's some this it's pretty positive thing.
Overall, it's just a temporary disruption for this first kind of six months from 2020.
Okay. Thanks, Steve.
Moving on I guess to Laura So many of you just give updates on a on the underground there as well as a the agglomeration component of Oh the mine.
Yeah prior to the prior to the operating suspension there Chris.
I'll start with the pulp agglomeration plant was running very well we have all the filter plants at full capacity now and we were achieving 5500 plus tons a day through that plant I'm pretty pretty consistently so we look pretty good on the pulp agglomeration player.
Around where we're kind of that does thousand tonnes, a day rate, where we're trying to open up a more to the all to the west side of that mine or started to the north side of that mine. Some additional stopes to take us up to that 1500 today, so that will probably happen towards the latter part of the year.
But I think the big thing Dolores that we saw during Q1 was kind of residual from Q4 last year, and where you have a lot of all solution inventory given the size of these pads that we are working through and towards the end of Q1, we really started to see that production rate finally, starting to come up through all.
That dilution that we took on and what season of last year 2019. So unfortunately, what the suspension I mean, the the pads keep producing so that's that's good there, but we didnt have you know we need to get more on that pad as we go through 2020 to me kind of what we think that's capable and.
Meeting that sure definitely the indications are positive the pulp agglomeration plants running well it does give us a big boost at the start of the production of the high grade as reminding into it now but right now we're focused on getting that operation.
Back up and running as soon as we can once the restrictions allows true.
Alright, Thanks, and then finally, Steve I'm, just Lorraine I look I'm, just noticing the the drop off in tons mined and unloaded [noise].
Compared to the the Q4 and I understand the Q4 was an exceptional quarter for the might little disappointed with the limited tons I guess minded loaded in a in the Q1 you got to comment on that yeah. I mean, that's basically Curtis it's just the nature of the the stripping necessary and when we opened up or.
When were indoor given its all run of mine as we mine whatever ton or are we love and goes right to process that minute. So we knew at the end of Q4, we were at the bottom of the pit were endo solid or it generates a lot of or in a short period of time, but we're back to laying back that kind of recall it pays aid if you.
We will have the pit so the your release out of that mine plans pretty limited. So we always said, even one we projected out law reign of production for this year. We always said it was backend loaded just like 2019. If you go back to 2019, you're almost looking another mirror immature.
Of what's happening and won't be into high grade ore again.
Following the disruption of the Covances suspension, we'll be back into high grade ore at the end of that part I think the other very interesting thing that law rain is is we do see some potential opportunities to expand some of the resource down at the bottom of the pet into adjacent to kind of the ultra.
That phase they pit design that we have now so we're we're anxious to do a bit more exploration drilling there which is also at that property currently suspended but once we get back in there. We think we can do a bit of exploration and some highly perspective areas that might lead to a little bit of a.
Increase in life of that asset so we're pretty excited about it particularly with these gold prices.
Great. Thank you Steve Thanks, a lot.
That Chris just just just to go out here and I alluded to this a already during the call of course, while even to the heap Leach operations, we have our in stock and on standby Big we continue to do the each on the novel Leach pads movie continue to circulate the solution on recover.
Golden thing in London, Lotta in until window, we recover gold and silver at the lowest or just keep in mind that.
That's a there will be a certain certain.
Working capital requirements funds will be stocked up again as we need to replenish obviously, the the inventory that we thought we throw out of stuff. The heap Leach now that goes much slower in the case of silver for total orders as we all know that each perficient is very flat far Dolores and a bit quicker on the gold side.
Yeah.
Thanks, Mike.
As a reminder, it is star one to ask a question.
The next question is from John Tumazos of Johnson assets very independent research. Please go ahead.
Thank you for.
The presentation, taking my question.
Concerning.
The drilling at La Colorada or other.
Places that.
I guess would have to hold as soon as a government.
Puts out a walk down.
Are you able to maintain Q a QC procedures.
Or essentially.
The security of samples and have everything sprinkled 43, one on one compliant.
Through the walk down.
Hi, Yes, John absolutely, but I'll pass it onto Chris I'm are sent to give you more details on that Chris can you can you take that.
Absolutely Mike John Yes, No of course, the case you see it helps you very important parts of the system of control and an assurance floor.
One of our exploration drilling et cetera, and certainly if we we've we've suspended a lot of that as as Mike alluded to a through much I think we're shutting down so well the samples have been drilled role in locked areas.
And you think that's done that the mine site go see that known looks like you said the mines as we do lot of stuff in house. So there was also reserves, which is just the normal in sale and exploration drilling at the mine sites.
Really the only exploration projects of significance is the la Colorada scum, which is obviously shutout to external that's one of underlying key and and all the purchase pools.
So the third party independent Guy Didnt have his wife call them home and leave you stranded no no and actually set and he felt like Colorado, We got in a certain amount of batches and we've actually would held and haven't sensor lots that rolled out onto lucky and everything kids secure.
[noise], Michael will see interruptions sort of already occurred.
You think it's possible that the second quarter might hit 100000 ounces of gold and 4 million ounces of silver.
I don't have numbers, yet John for the second quarter, just as you can imagine this is a very fluid situation things are changing by the day.
I explained there does this start ups in each in each country. You know that there will be steps do that on faces to this like like that the reopening B C right, but since yesterday here in British Columbia.
That that we see in Europe, and Andy into U.S. and there are obviously similar kind of stops everywhere.
In the World. So we don't have all these details yet or how quickly and how fast on to what tonnage weekend got that John. So Unfortunately, I don't have a you know forecast <unk> for the quarter just in general a as we didn't know if a new guidance yet. That's obviously the same reason I mean nobody knows how.
This pandemic you've also right now nobody in the world. Neither us so it wouldn't make any signs to speculate here.
From our side on the production profile, but as soon as we have more clarity of course will get five new guidance on our production.
Costs on capital.
Do you have any locations that are operating normally.
Hi, John This is Steve Buzz for you I would say Timmins is pretty close to normal I mean, we're guiding 10% lower at current capacities, but reality is that's 10% below where we expected to be because remember we were doing to Nick a modest expansion of that operation This year and why.
What's happened is more a case that some of the equipment, where you border has been delayed would go with 19 impacts. So our expandability is pushing out a few months for more where you originally had it. So net net I would say you know I would tend to say when you think about timmons and you look back over to pre.
This quarter's we're pretty close to those kind of rates. It's just not at the expanded rate that we were kind of forecasting this year, but outside of that no. All the other rate operations. Besides the heap leaches there continued to produce off of the inventories it's been suspended.
Let's say China role here, obviously, there is no no normal nowhere in the world right now a I'm doing all that the market thing remotely Oh, we do all work from home and we obviously have to follow social distancing a anti virus me Barack so.
No. That's just reality for the time being I'm sure. We're gonna go beyond that done or it will go absolutely back to normalize it must before John.
Thank you.
This concludes todays question and answer session I would like to turn the conference back over to Michael Steinmann for any closing remarks.
Thank you everyone are definitely challenging times here for the world.
Yeah, absolutely a situation doesn't that none of us ever has seen and in our lives, but you know this will pass as well we will go through this on the pilots and if we go I mean, even though well, but we'll find a solution that go on Luckily Panama as a very strong or.
Company and ER and looking forward to give you an update for Q2 in August until then stay healthy unsafe. Thank you.
This concludes today's conference call you may disconnect your lines. Thank you for participating today.
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