Q1 2020 Earnings Call
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Thank you for standing by this is the conference operator, welcome to the Pan American Silver first quarter 2020 results conference call.
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I would now let's turn the concept of Vectrus you ran see Sackey <unk>.
VP Investor Relations. Please go ahead.
Thank you operator, and welcome everyone to Pan American Silver is the first 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 <unk>.
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 steep buds be Chief Financial Officer, Rob Doyle Senior VP technical services in process optimization, Martin Whopper, and VP of business development geology, Chris Emerson.
I'd like to remind everyone that our news release and certain statements in 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 to the risk factors described in our most recent form 40 F and annual information form.
Media 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 result.
Q1 is obviously marked by the Koby 19, pandemic, which affected lives businesses around the world. They're all working together to contains a spread of the virus ondecks, but many of you are listening to this call from a remote work location I hope you and your loved ones, our health and well.
The mining sector, particularly those with operations in Latin America has been I'm continues to be severely impacted by koby 19.
And American immediately engaged its crisis response team to manage the highly dynamic disrupting cascade of events related to Cobbett 19.
The health and safety of our employees and communities. He's always the primary concern in order to prevent an outbreak off the virus that our side, we adopted health and safety protocols consistent with those recommended by the local health authorities.
Management practices of the World Health organization across all our operating sites and 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 through donations of food and high teens supplies and providing access to health care.
That's pretty with a report depend American suspend the normal operation thought its mines in Mexico, Peru, Argentina unbelievable 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 from the heap Leach pads.
Well the Timmins West on 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 the model culture.
That's well at La Colorada silver production, that's affected by lower than planned old rights related to the ventilation issue.
Hundred used through both from the Colgate 19 measures to increase physical distances.
Ventilation issue at La Colorada relates to a failure of one of the primary ventilation raises in the eastern I agree portion of the mine.
This necessitated an adjustment to our mine sequencing cohorts low grade ores bavi advance efforts to replace the failed ventilation raise.
We have been able to continue that work during the call the 19 restrictions.
Work in progress on the primary ventilation circuit includes new races that are being bored between the surface and to 345 and 528 levels.
That's there are areas a week rock that resolved within the previous fail or the area is being pretty supportive frac routing before the races Airport.
We expect that entering ventilation solution will be completed in Q2 2020, but the long term infrastructure complete in the first off 2021.
These de eastern ventilation constraints have also limited the amount of underground thrilling when our exciting scarring deposit.
That's it they do more directional drilling from surface rigs for definition of the large Steve mineral resource.
This has proven to be quite effective effective and efficient.
However, we have curtailed they surface exploration work during the call. The 19 operational suspension, but that's still on track for resource update in conjunction with our annual reserve and resource estimates in mid 2020.
Despite the impact of calling 19 related disruptions our operations generated $114.1 billion off from that cash flow.
Mine operating earnings of $50.1 billion on free cash flow of $63.8 million in Q1.
Earnings in 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 of $52.7 million driven by weakening of local currencies against the U.S. dollar.
On deferred tax liabilities and non cash 28.3 million dollar investment loss, primarily from unrealized mark to market adjustments when our interest in new Pacific metals core.
$16 million on care, and maintenance and 8.8 million dollar loss on commodity and foreign currency contracts.
Adjusting for many of these non cash items resulted in a net loss of $7.6 million or four cents per share loss.
Importantly, we do not just for the noncash 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 at $15 million repayment on our credit facility.
I'm going to 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 investments decreased by $26.4 million in Q1, due primarily to mark to market value declines you know a new Pacific Shareholdings features now fully recovered.
At the end of Q1, you have totaled up excluding lease liabilities of $260 million.
We also maintained our quarterly dividend of five cents per common share.
Well they are in a strong financial position to manage this current business environment.
Still dealing with much uncertainty regarding the course of to call the 19 pandemic.
As a precautionary measure we grew $80 million on the credit facility in April to further improve liquidity.
It currently no plans to deploy these funds.
This follows earlier steps to reduce spending by instituting corporate wide spending controls in mid March differing certain capital and exploration spending and reducing renew moderation for senior management and board members.
A little bit workforce is conducting care and maintenance activities at all our suspended operations.
I would demobilised workforce remains on standby.
To be redeployed once the government restrictions are lifted and we determine that we have the necessary Sen in health protocols to safely resume 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.
We expect that graduate resumption of activities, we did modifications to accommodate grades or physical distancing unburied appropriate protocols in place to protect the health and safety of our workforce and communities.
We currently have no confirmed case of cultivate 19.
Any of our Pan American silver operations or offices.
Given the level of uncertainty regarding a ramp up to normal operations in Q1, you read through our guidance in 2020, we intend to provide a 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 and difficult to predict.
In Mexico, the government extended the health emergency two may Thirtyth. 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 conveyed 19 cases.
Our operations are both situations in municipality.
Today, a very few or no cases.
Now deploying plans potentially restarting our Mexican mines initiative to reduce the capacity funding local authorizations and acceptance.
In Argentina following the National current Dean that's suspended our operations in March meaningless subsequently deemed as essential business by the federal government on April Threerd.
There are currently restarting the Manav telesphere cooperation that reduce the underground mining rates and redeploying personnel for the restart of cosy unlocking operations.
In Bolivia, we are currently preparing for the restart of our San Vicente operation. Following the government authorization that mining activities candid with you on May 720 20.
In Peru discussions are advancing with government officials on the restarting large scale greater than 5000 tonnes per day open pit mining operations at reduce capacities, which could permit the restart of our lottery non show window operations potentially on May 11 2020.
In Canada, the Tindemans mines continue to operate that 90% of throughput capacity on the reduced staffing and strict health and safety protocols.
Our escobal operation in Guatemala remain sick care and maintenance that's required under the mines environmental management blank.
The government of course, Tamala declared a state of Calamity on March 5th and on April 29th extended by a further 30 days imposing restrictions on travel movement within the country and meetings.
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 and then country management to safely manage the extraordinary crisis presented buddies pandemic.
Well being sensitive to the how involved being concerns of employees their families and communities.
That is what gives me confidence that we will successfully navigate this temporary period of disruption and return to the normal productive operations, we had before hand.
I'm equally impressive on deeply move by the heroic efforts of our frontline healthcare workers were fighting daily against this worldwide and dynamic.
Before closing I must say a few works on our incredible I caught off guard discovery.
We continued with exploration drilling and the neutral engineering efforts under its current during Q1 before these activities are suspended in April.
We haven't released any new drill results this quarter as Hoover 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 khan with our June Thirtyth reserve and resource update which will be released with our Q2 results in August.
We continue to advance on the initial engineering and potential Protract 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.
Away, we are doing this call from different locations. 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 made press Star then one on your telephone keypad.
Actually I count acknowledging your request if you're using a speakerphone. Please pick up your handset crushing any kids to withdraw your question. Please press Star then too.
And we'll pass for a moment calories trying to Q.
The first question is from Chris Thompson S.P.I. 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 a 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, I'm looking at say tons processed a grade.
What what should we be looking for.
Q2 Q3.
Yeah. Good morning perceived books being 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 attempt 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 high grade that probably close to the rates that we we had before we lost the main ventilation raise a bob.
345, probably roughly.
In round numbers about a quarter or Barb production comes from those high grade deep sulfide 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 you as we move into Q3, we expect to 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 another mines in Mexico, a pre grouting the pill.
Our oh material before we pull a big raise bore there. These are 3.1 meter diameter race boars upper our long term ventilation needs there given what's happened here a lot loss of the one raise bore.
Actually taken advantage of this and with this new design. It it is kind of incorporating some some longer term concepts because this will be a very durable long term infrastructure project for the site. It will actually help support even as we move into the Scarlets because the scars kind of adjacent on that eastern edge of tomorrow.
Fine so long term this not only provides maybe enhanced production out of that high grade East zone, 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.
Thanks, Steve just moving on I guess to Laura So when if you just give us updates on the only underground there as well as a the agglomeration components of Oh the mine.
Prior to the prior to the operating suspension there, Chris well 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'd looked pretty good on the pulp agglomeration plan the underground where we're kind of that does thousand tonnes. A day rate. We're we're trying to open up or more to the to the west side of that mine or started to the north side to that mine or some additional stopes didn't take is up to that 1500 ton.
Okay. So that'll probably happened towards the latter part of the year, but I think the big thing at Dolores that we saw during Q1 was kind of residual from Q4 last year and we have a lot of all solution inventory given the size of these pads that we're working through in towards the end of Q1, we really.
Started to see that Productionwave finally, starting to come up through all that dilution that we took on and what season up last year in 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 pattern.
We go through 2020 to me kind of what we think that's capable of meeting minutes, you're definitely the indications are positive the pulp agglomeration plants running well it does give us a big boost at the start of the production or the high grade as reminding into it now but right now we're focused on getting that operation a backup.
And running as soon as we can once the restrictions allows too.
Alright, Thanks, and then finally, Steve.
Hello, Ryan I look I'm, just noticing the the drop off in tons mined and unloaded.
Compared to the the Q4 and I understand the Q4 was an exceptional quarter for the mine.
Little disappointed with the the limited tons, I guess mind and loaded in a in the Q1 you got to comment on that.
Yeah, I mean, that's basically Chris 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 we might 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 Saul at all.
Sure it generates a lot of ordering a short period of time, but we're back to laying back that kind of recall it pays aid. If you will have the pit so that youre release out of that mine plans pretty limited. So we always said, even when we projected out law rain and production for this year.
We always said it was backend loaded just like 2019, if you go back to 2019, you're almost looking out a mirror image here.
What's happening and will be into high grade ore again.
Following the disruption of the cold winters 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 pit into adjacent to kind of the ultra.
That phase eight 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 in 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 a particularly with these gold prices.
Great. Thank you Steve Thanks, a lot.
That Chris just just just to add here and I alluded to this a already during the call of course, while even to the heap Leach operations, we have ornstein and on standby Big we continue to do Leach on a novel each fast moving continue to circulate the solution on recover.
Golden thing in London in line 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 not working capital requirements bonds, we de stocked up again as we need to replenish obviously, the the inventory that we that we draw out of stuff that heap Leach now or that goes much slower in the case of silver for Dolores as we all know that each perficient is very flat for Dolores and a bit.
Quicker on the gold side.
Thanks, Mike.
As a reminder, 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 <unk>.
The presentation, taking my question.
Concerning.
The drilling at La Colorada or other.
Places that Oh.
I guess would have to hold as soon as a government.
Yeah 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 Emerson to give you more details on that Chris can you kind of take that.
Absolutely Mike John Yes, No of course, the case you see is obviously, a 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 Mike alluded to a through March I think we're shutting down so well the samples that are have been drilled role in lot Perry is.
Anything that's done at the mine site. They see that know much like you said the mines as we did a lot of stuff in house. So there was also says which is just the normal in sale and exploration drilling at the mine sites.
Really the only exploration projects of significance is a lot, Colorado column, which is obviously shutout to external that's a little under looking key and and all the parts schools.
The third party independent Guy Didnt have his wife call them home and leave you stranded.
No no and actually 70 for like Colorado, We got into certain amount of batches and we've actually would held and haven't sensor lots that rolled out onto lucky and everything is secure.
Michael will see interruptions that have already occurred do 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. It is I think any imagine this is a very fluid situation things are changing by today I explained there does this start ups in each in each country. You know that there will be steps do that on faces today.
Like like that the reopening we see right, but since yesterday here in British Columbia, a that we see in Europe, and and in the 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 time to what tonnage weekend got that John. So Unfortunately, I don't have a you know forecast the asphalt <unk> for the quarter just in general a as we didn't know given you guidance yet. That's obviously the same reason I mean nobody knows how.
This pandemic evolves right now nobody in the world I need to Ross 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 give out new guidance on our production.
Costs on capital.
Do you have any locations that are operating normally.
Hi, John This is Steve bodes for you I would say timmons 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 then Nick a modest expansion of that operation this year and more.
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 from where we originally had it. So net net I would say you know I would tend to say when you think about Timmins and you look back over the 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 eight operations. Besides the heap leaches that 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 the the marketing remotely Oh, we do all work from home and we obviously have to follow social distancing a anywhere between me Barack so I'm not that's that's reality for the time be I'm sure we'll be going to go beyond that then.
Yeah. It will go absolutely back to normalize it must before John.
Thank you.
This concludes the 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.
Huh.
Absolutely a situation doesn't that none of us ever has seen in and in our lives, but you know there's little passes while we will go through this on the pilots and if we go I mean, you know what we'll find a solution that go on Luckily Panna and it's a very strong or.
Company and ER and looking forward to give me 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 Sir participating today.
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