Q4 2021 Pan American Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Pan American Silver full year and fourth quarter 2021 results conference call and webcast. As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Mr. Van <unk> VP Investor Relations. Please go ahead Mr. Mr. Sankey.
Thank you for joining us today for Pan American Silver's fourth quarter and full year 2021 conference call. This call includes forward looking statements and information and makes reference to non-GAAP measures. Please see the cautionary statements in our MD&A news release and presentation slides for our Q4 and full year 'twenty.
'twenty, one audited results all of which are available on our website.
I'll now turn the call over to Michael Steinmann Pan American's, President and CEO .
Thank you Sharon.
I will provide a brief recap of our 2021 resolved sometimes move on to our guidance for 2022.
Revenue in 2021 totaled $1 $6 billion in it.
So relatively strong metal prices production recovered from 2020 levels, but all but our tenants' operations in Canada faced temporary government mandated suspensions related to COVID-19.
A market improvement in production late in Q4 2021 led to an increase in finished product inventories.
Approximately $22 million, which were not booked in revenue for the quarter.
We did not face any government mandated suspensions in 2021, the Covid pandemic continues to impact production costs and progress on projects, primarily from my parents throw out a year or two hour intensive coverage protocols, which included testing comes back.
Racing isolation of physical distancing and sanitary protocols.
He produced $19 2 million ounces of silver and 2021 in line with our November 2021 revised guidance, and one 9 million ounces or 11% greater than the previous year.
The increase was largely due to temporary government mandated suspensions incurred at our Latin American operations that don't use 2020 production, partially offset by reduced silver grades at Dolores as expected due to mine sequencing.
I'd love to sort of improve ventilation to the high grade deep eastern area of the mine in mid 'twenty, 'twenty, one which allowed access to higher grade ores to in the second half of the year and increase in production to one 6 million ounces in Q4.
We produced 579300 ounces of gold in 2021 in line with our November 2021 revised guidance.
And 57000 ounces or 11% greater than our 'twenty 'twenty production when we faced the temporary mine suspension.
2021 gold production reflects substantially higher gold grades at Dolores as expected from mine sequencing.
That increase was partially upset by encountering a graded unexpected quantity of clay rich or such a window, which increased blending requirement and slowed leaching efficiencies.
As well she had technical challenges at Bell Creek reduced throughput at the end of 2021 we have to build approximately 46900 <unk>.
Ounces of gold heap inventory.
Silver segment, all in sustaining costs were $13 57 per ounce in Q4 and $15.62 for the full year of 2021 slot.
Slightly below our November 'twenty, 'twenty, one and revised guidance.
Q4, 2021 all in sustaining costs were 18% lower than costs for the first nine months of the year.
Collecting improvements at all operations.
Golf segment, all in sustaining costs were $1461 per ounce in Q4.
And $1214 for the full year in line with our original 2021 guidance.
That's realizable value inventory adjustments at the Lotus increased gold segment, all in sustaining costs by $21.7 million in Q4, and $8 $7 million during the year.
In 2021 operations generated 390 to fund $1 billion of cash flow.
Including about $71 million use of cash for working capital changes.
We paid $72 million of dividend, reflecting a 55% increase in aggregate the dividend so what 'twenty 'twenty and ended the year with cash and cash equivalent of $283 $6 million and short term investments of $51.7 million.
Net earnings were $98.6 million in 'twenty, 'twenty, one or 46 cents per share inclusive of a noncash mark to market loss on short term investments of $59 $7 million, primarily for our interest in new Pacific and an income tax.
<unk> hundred $46 $4 million.
The high effective tax rate, primarily reflects a significant number of expenses in the year with no corresponding tax benefit largely did you ask about car and maintenance expenditures.
And the investment losses related to new Pacific.
Adjusted earnings in 2021 were $161.8 million or 77 cents per share.
Yesterday, we also issued our production and cost guidance for 2022.
The guidance reflects the challenges we experienced during January and February 2022, with the rapid spread of Covid.
Tobey, it's very young.
In and around our operations, which is thankfully quickly subsiding now.
The impact of the pandemic on operations has been difficult to predict so over the last two years and there has been knock on effects largely on cost inflation high absenteeism supply constraints and shipping disruptions.
We are very pleased to report that over 90% of our workforce is now 40 vaccinated.
We estimate silver production of 19 to 21 5 million ounces in 2022, including the impact of placing the motor coach operation in care and maintenance.
We reached an agreement with aluminum corporation of China or Chinalco.
Commission our processing plant early this year.
As previously disclosed we have an agreement, which and I'll call that the core moral culture facilities.
Clothing, the processing plan, if we need to be moved to enable the expansion of their copper mine.
You have been in discussions with Chinalco for several years on the timing of that move and have been working on initial engineering plans for a new plant that's disclosed in our private capital budgets. However, currently we do not believe the economics support the construction of a new processing plant.
She ate thing and evaluation of several alternative opportunities for modal culture and working to ensure a fair transition for the workforce.
Our culture contributed just under $2 2 million ounces of silver production in 2021 the least from all our silver segment operations.
Our outlook for 2022 silver production assumed the one seven to one 9 million ounces.
Or <unk>, 33% to 37% increase in silver production at Lucky, let order, which will be upset by moving more of a culture to care and maintenance.
The increase with luck, let all of that is due to the ventilation improvements and further work to the ventilation system is planned over the next few years as we continue to mine deeper into the eastern extension of the mine.
This includes commissioning of our refrigeration plants around the middle of this year and completing the concrete line ventilation shaft in 'twenty two 'twenty three because it will be equipped with large more efficient ventilation fans in 2024.
In addition, we will be making investments to accelerate mine development rates and improving ground control systems that really support progressing the transition of the Candelaria area of the mine to.
For a more mechanized and efficient mining methods using long hole stoping techniques over the next couple of years.
Our outlook for 2022 gold production is between 550 to 605000 ounces.
Similar to our 2021 production.
We are anticipating another strong year of gold production at Dolores.
Also expect improved bleaching efficiencies, leading to a higher ratio of ounces produced to stacked at both Dolores I'm sure window, given more favorable pad construction sequencing unimproved ore blending.
Relative to 2021 before kind of slower production with a lot of in our Monticello faithful largely from lower grades due to mine sequencing.
Attendance, we are expecting a modest increase in production from mining that's why their sone at the Bell Creek deposit ground controls has become a bottleneck to production at Bell Creek over the last couple of years. So we will begin construction of our paste fill plant in 2022 to improve backfill quality and avail.
Related to more effective ground support systems.
We believe this will increase mineral resource recovery rates in the future.
Despite the inflationary pressures, we have been experienced recently and to move of motor coaches to care and maintenance our all in sustaining costs for silver segment. In 2022 are expected to be relatively flat compared to last year.
Our forecast range is $14 50, and $16 per ounce, reflecting the benefit of increased production of luck, let up and one of them.
Bold segment all in sustaining costs in 2022 are forecast to range between 1240 and $1365 per ounce, which is an increase relative to last year.
In addition to cost inflation gold segment costs are impacted by a sharper increase in community and then environmental spending and higher waste mining rates, such a window as well as additional ground support in backfill cost about 10 minutes.
We expect sustaining capital expenditures to be consistent with 2021, and the range of $200 million to $210 million.
We plan to invest $68 million to $81 million and project capital at Blackwater, Although preferred is rolling off the current deposit engineering work to determine optimal project design for developing this con.
The infrastructure upgrades that we expect will benefit both the long term development of the con and the current vein system operation.
These upgrades include starting development after ramp in mid 'twenty, 'twenty, two which would eventually excess to scar beginning construction of the concrete lined ventilation shaft and completing and commissioning the refrigeration plant by the middle of the year two.
2020 to protect capital also includes exploration for the vet more and Whitney project payments at the construction of the paste backfill plant at Bell Creek that I mentioned earlier.
Total capital spending, including sustaining and project capital is estimated at $280 million to $305 million for 'twenty to 'twenty two.
We expect to spend between $42 million to $46 million on exploration in 2022.
Roughly a third is for brownfield exploration aimed at reserve replacement and is included in the sustaining capital guidance.
$22 million to $24 million included in project capital guidance for drilling at La Colorado scanner and as Jason veins.
And for exploration at the vet more on Whitney project opinions.
The remaining roughly $8 $4 million is directed at Greenfield exploration.
Our priorities for 2022 are to continue managing the COVID-19 pandemic to protect the health and safety of our workforce and communities to improve mine efficiencies as we return to full workforce deployment.
Advanced a local artist gone in 10 minutes projects.
Our aim is to provide an update for the luck, let us gone with our animal mineral reserve and resource release midyear, depending on progress after drilling programs.
The pre consultation meetings for the court mandated Ilo 169 consultation process for the basketball mine in Guatemala have resumed following delays due to COVID-19.
Three pre consultation meetings were held in 2021 and additional meetings were held in January and February 2022.
Well the Marlin Ministry of furniture of mines is sleeping consultation process with the sync up people and Pan American as a participant.
Pan American looks forward to continuing its participation in a transparent respectful and inclusive process during 2022.
We are in a strong financial position with operations generating healthy levels of free cash flow and net cash position of $238 million.
Based on that strong position that we have introduced a new dividend policy. The base dividend remains at 10 cents per common share paid quarterly.
In the future that base to even then it will be supplemented with a variable quarterly dividend linked to the net cash on the balance sheet for the previous quarter if.
If not cashless between 100 and $200 million, we would pay an additional one cents per common share between 200 and $300 million in additional two cents per common share between 300 and $400 million in additional six cents.
Net cash was over $400 million and additional eight cents per share.
In line with our new dividend policy yesterday, we announced a 20% increase to the dividend amounting to 12 cents per share to be paid in March 2022.
This new dividend policy provides us with the liquidity to fund our growth projects might allowing our shareholders to participate in the upside of precious metal prices through higher cash returns in addition to capital appreciation.
And with that I'd like to open the call for questions.
We will now begin the question answer session to join the question queue. You May Press Star then one on your telephone keypad.
Hear a tone acknowledging your request if youre using a speakerphone. Please pick up your handset before pressing any keys to withdraw your question. Please press Star then two.
We will pause for a moment as callers trying to Kim.
The first question is from Cosmos <unk> from CIBC. Please go ahead.
Thanks, Michael and team for the conference call. Maybe my first question is on La Colorado, Michael as you mentioned in your remarks in 2022, you're looking for a fairly sizable increase year over year in terms of silver production could you maybe talk a bit more about the throughput.
And also the grade that you're expecting in 2022 for that increase at all in the past you had talked about potentially getting up to 2000 tonnes per day in terms of throughput by mid 2022 is that is that still the target.
And then in Q4 I believe your head grade was higher than the reserve grade is that also something that we can expect for 2022.
Yeah, good morning Cosmos.
And as you recall a little bit.
With the renewed access to our higher grade areas with the changing and improvements into the ventilation system, we did last year.
That's that's all as a result of that so that we get access back to the really high grade zones.
I wouldn't be too stuck just under throughput because as you know the great plays a really very big role in local thereafter, we have this very high grade zones are so when you look at the total ounce produced its really you know.
Did that play between the throughput on the grades you see that or to our forecast somewhere between about 6658 and $7 1 million ounces.
The big increase compared to the production, we had the year before but let me pass it onto Steve and I can give us a bit more details on that yeah. Good morning, Cosmos just to highlight on what.
Alright, what Michael was saying I mean, we're not.
We've got some flexibility in terms of tonnes and grades as we look at the 2022 plan and as we were implementing this long hole mining advancements and accelerating some of the developments to improve that long haul mining. It may lead to some more tonnes efficiencies, which allows us to kind of blend in from some.
Lower grade areas, but as Michael says, we do have these high grade areas accessible. So we kind of manage the production. According to the efficiencies we get through the long haul mining so I hate to focus too much on throughput versus grade, we do have flexibility to move there and generally what we see we have a lot of.
Fixed costs at La Colorado, So we kind of think about it in the ounces, we feel very confident in our own projection for the year in production, how we get there whether it's greater tonnes is there's a little bit up in the air.
Great. Thanks, Steve and maybe as a follow up as you can.
Mention you know part of it a large part of it is great. It sounds like a higher grade area to candle area East, but as you mentioned in the MD&A you know you're seeing a bit more heat and humidity as you go lower and more east is that as anticipated and I guess my question is you know do you need to sort of refrigeration.
The plant in place before you can get to.
The candle area East area.
Yeah, Great question that is one of the reasons, we accelerated that refrigeration plant, we know as we move into the scorn our thermal Isa grams, you know the thermal gradients as we go.
Let's see how it gets harder and harder we did expect more heat.
And candidly were used as we develop that I'd say, we probably saw a little bit more than we even expected we are bringing that refrigeration plant on early that'll help us manage that in that area and allow us even greater access in future years. So we are you know we are somewhat constrained in how much we can pull out of there.
And that will start to relax as we get more refrigeration into that area.
Okay great.
And maybe a clarification on the la Colorado.
In the MD&A I read that are you know you have the concrete line ventilation shaft. That's expected by mid 2023, and then in the you know scarring section. You also talk about you know putting selling ventilation infrastructure in place where the sky is that is that the same shop is that the thing that ventilation shafts that we're talking about.
What was it two two different lines.
The ones that we talked about initially for the scarring there'll be two primary ones that are different they are bigger they're larger than this one we're building. This one potentially will provide a service to the scar and development it won't be the primary it'll be more of a secondary.
Ventilation shaft, and maybe even equipped to do some some material movements things like that and as we also announced we are going to advance on ramp development towards those garden. This year will be portable and the ramps and starting ramps up this year and then that all.
So we'll provide additional ventilation into those areas. So there's primary and secondary ventilation. That's one that we're starting now that we hope to enhance what were currently mining on the veins will probably be served to be more of a secondary shaft in the future it won't be the primary ones.
Got it maybe.
Maybe switching gears a little bit.
Dolores you know there were some inventory buildup.
Last year, but it sounds like with the construction of the phase one self leach pad.
It sounds like that's worked itself out and my am I correct that when you start stacking at the phase one south of in each card yeah.
Yes, we did we started stacking there in late November and started leaching there in early December and that's where you saw pretty good kick in production from reducing inventories during December as we moved into January .
We do see that continuing now with the pad one sell through we don't have near the height. The board that we're leaching on so it gives us quick return on what's been leached at the same time, we continue to recover ounces from the inventory builds over on pad three part five which is quite deep or so.
General Cosmos on the on the inventory as you know over a year was back end loaded you know not not dissimilar to what's going to happen this year.
Look at the production and as we increased production in the fourth quarter and especially towards December there you probably saw that we had about 13300 ounces in finished goods that did not get sold just because the year end 2000 and land.
We won't be able to solve that Oh, you know Christmas in the end of December . So that's about a probably about two $222 million off revenue that has not been recognized in.
In the quarter about has been has been produced as finished goods.
Oh, Great and then maybe just one last question to wrap everything up in terms of your 2022 overall guidance can you maybe touch on you know how much inflation have you factored in on a unit cost basis and then in terms of you know COVID-19 costs you know Michael as you mentioned in your prepared remarks, you know there's testing costs.
Oster is additional sort of PPE costs, how much of that has been.
Doctor It into your 2022 guidance.
It just makes a ton of statement before Steve comes on enough of course, RV experience exactly the same than all of us and all of you out there in the world.
Supply chains are giant interruptions delays and delivery et cetera. That's always on cost is obviously one of the reason we see worldwide.
And an increased inflation.
Besides the you know the wage pressure that we see on top of that because of mostly because of shortage of flavor. So it's something very similar that we see in Latin America, We know that Latin America has been impacted by COVID-19 much harder than than many other places in the world, but the.
You know the pressures that we see are very similar than what we see across the world and maybe see if you can give some more detail yeah sure just a little bit more color on that but you know our inflation rates as we look into next year or end of this year 2022 it's quite variable depending on what we're looking at.
Particularly energy is a focus of ours as you can imagine what's happening today were also focused on wages and logistic costs transport costs supply costs coming in.
We saw reasonably sharp inflation figures for those areas when we roll it all up on a consolidated basis as I say, it's it's why it varies quite a bit across each material commodity commit consumable we use when we roll it all up we're somewhere I would say roughly 5% to 10%.
<unk> is the kind of numbers, we've assumed for 2022, which is which is probably a bit more than we've done in previous years, where we were down around three to 3% to 5%.
Can't imagine a big pressure on energy cost, we still have some diesel fuel hedged for this year and a detailed R&D and D&A.
That went all the way back when we put those diesel houses in place are at the very beginning of.
Of Covid as you recall when when when oil prices dropped there. So that that's been a great program for us but of course, it's it's running out at the end of this year on and we all know where oil stands today. So there's more pressure on energy costs for sure.
One more word of mouth when they look at that inflationary pressures are.
You know how advance a tailwind some on our cost without dumps the gossip forgot the foreign exchange rates that are really important to us are mostly Canadian dollars, a Mexican peso and Peruvian Sol Africa quite a quite a big impact to us is while I I believe it's somewhere in the five.
I found that.
Dollar range, a hour hour and all costs that are paid in local currencies. So that you know depending where the exchange rate goes that's a headwind or a tailwind for us.
Uh-huh of course very good color. Thanks, again, my color, Steve and team and those are the questions I have.
Thank you Cosmos.
As a reminder, it is star one to ask a question.
The next question is from Don Demarco from National Bank Financial. Please go ahead Sir.
Thank you operator, and good morning, gentlemen.
Couple of questions first of all.
Yeah, Michael you had mentioned.
Sure.
Back end loaded, which I had sort of expected maybe given the delays to the guidance and we would expect that Q1 would be the.
The biggest impact can you confirm that that's the case then so we would expect.
You know Q1 to be the lightest quarter of the year.
And would we expect maybe some of that.
Likeness to be more focused on the underground mines, where were the COVID-19 impacts I believe to be the greatest.
Yeah, I think you're right on there down this.
Of course, we see January February or especially in China are exactly the same that we experienced in the world with Omicron and it's just that you know well.
A very bacon quick wave looks like under and that's coming off now but that was the reason why we delayed the guidance starting January because the cluster med stuffed away, if we see relaxing off of.
You know in every country now where we are active and I think again, you'll see exactly the same in the U S in Europe and in Canada. So very similar pictures picture that we see there like last year, yes, its impacting underground operations all the way, it's a bit harder than on the open pit.
For obvious reasons I need to you know distancing and anti amount of people. They have available the amount of contractors that we have available.
To help us with.
With D. A open pit operations versus the underground operations, but but as is set and doesn't start and end of called RBC. You know very quick improvements from the from that hopefully lastly, but who knows right.
Okay.
Okay, well, we'll look for that and as a second question just shifting to basketball.
So it's encouraging to hear that the Ilo 169 pre consultation processes resume you had three meetings last year, but can you give us some kind of a sense of what.
You know, we're still in the pre consultation stage, which implies that it's in an early stage pre.
Will we be heading to a consultation stage at some point or what could we expect over 2022 if if there's no interruptions to the meetings.
Yeah first of all I mean, COVID-19 for sure happen you know cost of delaying the whole process over the last two years like in every country. So I'm very happy that all does not meet the meetings to resume.
<unk>. This is what goes first bus our reviews at a four stages to it then it goes to a pre consultation and second stage consultation and the third stage and then the.
Court review in the fourth stage, so that's and it's detailed.
Explain a great detail on our website, if you want to read more about that so yeah. We are sparing the pre consultation phase right now as I said I don't have timing when we move from one stage to the other of course when that happens, we'll advise the market, but at the moment as of Saturday. Yeah. You know we already have two meetings in January .
Oh, sorry, one meeting in China, one in February so I'm very happy that we are you know back debt at a regular meeting schedule.
Okay, well, we'll just keep an eye out for updates and then as it progresses.
That's all for me and good luck on Q1 and the rest of 2020. Thank you.
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.
A decade very much operator, and thanks for everyone calling in.
Looking forward to give you an update on Q1 at a time when he said he may may 2022, and have a good day. Thank you everyone.
Oh, sorry, sorry, operator, I think there's another question in the queue.
Sure thing and we have a question from Craig Hutchinson from T. D Securities you can go ahead.
Hi, good morning, guys.
Just a question on Mt Hood show.
I'm sorry, it's just a question on barcode show I know you guys plan to put it on a care and maintenance but.
When should we assume that happens is it a Q1 event or a Q2 event in terms of modeling kind of the production in.
Does your Capex guidance include anything for that.
At this point.
And stuff.
Hi, Craig Steve here.
You know we started winding operations down it is a process, we go through winding down and running through stockpiles and things like that we started that process actually in December . So we have started that in and you know the specific dates of when it actually comes down it's a little bit of a movie.
<unk> target and we are working with the employees and the unions and the ministries in Peru to manage that as carefully as we can.
So in our guidance we have put we have included a little bit of production during January .
Where do you kind of offset some of the effects of the army crown. So our guidance kind of reflects what we think we will see for the full year and its contribution we have not included the cost of care and maintenance in our sustaining capital we kind of provided guidance outside of sustaining capital for care and maintenance, which includes Escobar naveen.
And we put about $12 million to $13 million in for more coaches this year.
Right.
And maybe can you just talk about the process you guys Mike.
Run here just in terms of some of the strategic alternatives Youre going to review.
Oh, Yeah, Yeah, Yeah sure look I mean, we did a detailed risk analysis on this on this asset of course on economic risk social risk political risk and in a country and no came to the conclusion that at the moment. This is the best way forward.
Our actions with modern culture do you know.
Keep the value impact at this point looking at alternatives and opportunities.
With just the smallest asset that we have in a monoculture produced about two 1 million ounces of silver and 2021. So of course, there's a lot of analysis going in there.
That's our conclusion and I think it's the right place for what a at this point from what I'll call just to look at other.
Strategic alternatives.
Okay. Thanks for the color guys.
Okay. Thank you.
There are no more questions at this time.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Yeah.
Okay.
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Yeah.
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