Q1 2022 Pan American Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Pan American Silver first quarter 2022 results Conference call. As a 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 queue. You May Press Star then one on your telephone keypad.
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I would now like to turn the conference over to Sue Brian Pitz, Sucky, Vice President Investor Relations and corporate Communications. Please go ahead Miss the second.
Thank you for joining us today for Pan American Silver's Q1, 2022 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 Q.
2022, unaudited results all of which are available on our website.
Now I'll turn the call over to Michael Steinmann Pan American's, President and CEO .
Thanks Sharon.
The start of the first quarter was heavily impacted by the army consortium that was spreading quickly around the world.
Our operations were experienced significant reductions in workforce deployment during January and early February .
Charlie give us this was largely due to our COVID-19 screening process and the government mandated isolation periods and not because of serious illness.
With the lack of visibility on how the only problem about play out we delayed issuing our 2022 guidance until late February.
By that time, the omnicom search well subsiding and our workforce deployment levels are rising.
I'm pleased to say that we are on track to achieve our production guidance for 2022 back end weighted to the second half of the year.
This view reflects the large impacts the only call. It had in Q1 and our expectation that Colgate in general will be less impactful on workforce deployment levels going forward.
The mine sequencing at La Arena and Dolores.
Continued operational improvements at La Colorado.
We're also maintaining our cost guidance for 'twenty to 'twenty two.
However, we are currently experiencing powered unexpected overall inflationary pressure.
Particularly for diesel and certain consumables as well as supply chain driven cost pressures on shortages.
Carefully monitoring this largely global inflationary pressures.
Just our cost estimates if necessary.
In Q1, we produced $4 6 million ounces of silver.
Silver segment, all in sustaining costs were $13 41 per ounce cash costs for the silver segment were $10.23 per ounce.
Despite the impact of omicron, and inflationary cost pressures higher byproduct metal prices contributed to the decrease in cost that's about all I'm more of a culture.
As well.
Your byproduct metal prices and silver grades led to lower cost of luck, what all that despite a 13% decline in throughput from Q4 because of omni call.
Well not jealous baseball recorded strong performance in Q1 due to the contribution of high grade ore from Cozy and walk in.
<unk> operations are now winding down of course as anticipated in our 2022 guidance.
Silver production at a cost in Q1 were negatively impacted by a decrease in grades at San Vicente from greater dilution due to the expected narrowing of the vein structures that stop.
We recorded some production and associated costs for motor coach on Q1.
For that operation went on care and maintenance in late February as these closed in February when we issued our 2022 guidance. He will be the commissioning date stopped processing plant to allow for the expansion of our neighboring mine.
We completed the closure at that plant in Chihuahua, and we are currently investigating alternative opportunities for modal culture, including monetization joint venture operation or accelerating exploration of prospective areas.
With enhanced the attractiveness of allocating capital to build a new processing facility.
Moving onto our gold segment operations, we produced 131000 ounces of gold in Q1.
The second one to all in sustaining costs for $1502 per ounce cash costs were $1069 per ounce.
Coal segment production and costs were impacted by lower mine grades due to mine sequencing, that's not right now as expected and that's all all of us.
Only calling on inflationary pressures also impacted coal segment costs in Q1.
A large net realizable value or an RV inventory adjustment at Dolores increased all in sustaining costs at that operation by $321 per ounce.
Kris consolidated gold segment, the all in sustaining costs by $94 per ounce.
As a reminder.
Inventory adjustments are accounting adjustments, so recognize the production cost of inventory relative to the market why are you upset inventory at the time of assessment.
Inventory adjustments do not affect cash costs.
At Dolores production was impacted by lower mindful grades due to mine sequencing and the reconciliation shortfall and phase nine be off the open pit.
This appears to be the localized tissue, that's how our model has been performing well over the past three years and Vietnam mining interface Paternoster pit.
So window made a strong contribution to gold production in Q1 due to improved ore blending and try it unexpected weather, which allowed us to increase the palms stacked on the heap.
Revenue in Q1 was $439 9 million, which included inventory draw downs.
On the $31 6000 ounces of silver and $17 6000 ounces of gold.
Net earnings in Q1 were $76 $8 million or 36 cents per share.
This includes a one time $44 $6 million of fair value adjustments for our interest in Maverix.
We have changed our accounting treatment for our interest in Maverix.
Just on the determination that we no longer have significant influence on the Mavericks, our 17% interest in Maverix is now recorded as long term financial assets on the balance sheet and will not affect quarterly earnings.
Adjusted earnings for $32 million or <unk> 15 per share in Q1.
Cash flow from operations totaled $68 $8 million, which includes $58 $3 million in cash taxes, and a $15 $1 million buildup in working capital largely from timing of accounts payable and receivable.
I know tax payments are typically the highest in Q1 and Q2.
We are in a strong financial position with net cash of $224 $8 million.
Based on the dividend policy, we introduced in February we announced a dividend of 12 cents per common share with respect to Q1, our dividend policy provides for a base dividend up <unk> <unk> per common share and a supplemental amount tied to the net cash on our balance sheet.
These allow shareholders to participate in improving financial performance, while providing liquidity to fund our growth projects.
Moving on to the growth projects early this week, we released additional drill results for the lack of let us call. It.
We completed nearly 26000 meters of infill and exploration drilling on the scarring in the quarter. The most we have completed in any single quarter.
The infill drilling confirmed continuous mineralization over a 400 meter wide area in the central eastern part of the deposit well step out drilling to expand that the mineralization to the east South and west.
We have now completed over 100000 meters of infill and exploration drilling since the last resource estimate dated August 4th plenty of 'twenty.
We also progressed our projects what is called advancing the pre thinking for the concrete blind modulation shops, and starting the commissioning of the retro duration plant.
I've been evaluating bulk mining methods, which appear to offer an attractive alternative for mining the deposit.
We will be assessing these metrics against an updated resource estimates for this car that we intend to provide early in Q3 together with the animal company reserve and resource update.
Our basketball they close this IL 169 consultation process continues with the pre consultation meeting held on May nine at the next meeting planned for June 5th.
Before we open up for questions, but at least our 2021 sustainability report last week.
The report includes solid performance on environmental social and governance metrics and our goals in this areas, notably we published our climate change policy statement that sets an objective to reduce our G. H T emissions by at least 30% by 2030.
Our 2019 baseline emissions at an aspirational objective net zero carbon dioxide equivalent emissions by 2050.
And with that I would like to open the call for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad you were here at telling acknowledging your B class.
If you are using a speakerphone please pick up your handset before pressing any chief.
To withdraw your question. Please press Star then two.
We'll pause for a moment as callers join the queue.
Yeah.
The next the first question comes from Chip Moore Turnbull Scotiabank.
Go ahead.
Hi, Michael I I, just checked the website for the SK ball consultation process and it looked like the last update was back in February So I appreciate the additional.
Information you just gave about.
The meeting in May and and I think you said the next one either June or July them on.
On the website. It did sound like there was about 12 meetings that needed to take place.
And so if we count are the ones in may and in the summer that it seems like that would take us to seven is that the right way to think about kind of the length of the process, but there's going to be roughly 12 meetings.
Hi, Good morning, good morning driver. So I don't think so that there's a set amount of meetings. So I think you know we are at this.
Similar similar placement last quarter, when I mentioned that we saw this increase of meetings and you see now there's a very.
So it's kind of a richer schedule much many more meetings than what we've seen last year, obviously due to COVID-19 I as I explained that.
Earlier calls are you know they've got a lengthy delay.
For the two years of call. It that we saw that you know we didn't didn't didn't allow the ministry of mines to call me dance, but a lot of people in person for obvious reasons so right.
Right now it's as I said since since January we see this continuous.
No meetings every month at least sometimes in between them.
You know I would assume that will continue but I don't think so traveled I did kind of a discount.
A certain amount of meetings and say it's done at 12.
Definitely encouraged but that's you know what that schedule that we see now and you know hopefully hopefully COVID-19 will be stays in check in the world for all of US I guess all of US we hope that the so far.
As I mentioned in the call as well, we see you know a huge change really compare to the last waves that really hit the world. That's the clinical spend what I call. It. The first omicron waves are I think the subsequent Lewis our subs.
Second waves that we see now from omicron, probably not having that much of an impact a lots of people are vaccinated. We have in the company are very high rate of vaccination.
I think for the first time I can say that we are.
Pretty much back to normal volcker levels are everywhere. So.
Yeah.
Read too much in there I think it's moving.
Forward us as hoped for at the beginning of the year and Oh, let's see write downs.
Yeah, No I'm I'm glad to hear that it does obviously seem to be moving and maybe picking up pace a bit and without asking.
For speculation on timing or outcomes I do wonder, though could you provide any sort of sense of how long provided you're allowed to recommence recommence operations, what kind of lead time, you would need to get Recommissioned.
Well the demand isn't kind of a maintenance there is work that we kind of have to do on the on the on the environmental management plan for that care and maintenance program.
Of course, they keep the mine down the ground part on the mill and in good shape. So that's all all are ready to go of course, we are not doing any stope development or something like that so that that would have to pick up and it would need to replace some of the I'll stay on the ground equipment and of course higher works.
So as you can imagine that will be you know a few months, but as I said to go back to production, but that's just starting up the plant. The mine everything is in constant care and maintenance programs.
And and everything is in good shape, So that's where and you saw that you know we spend we spend probably about $1.82 million a month on that.
Graham.
So you can imagine there's quite a bit of work going in there.
Yeah.
And then just my last question is about La Colorado scarring.
You've been drilling an independent resource is coming up later this year. It appears you've done a huge amount of drilling since the previous estimate it looks like almost 50% more potentially by the time you you provided the update I know some of the work was focused on infill drilling and some of it was step out into the new areas and I just.
Wondered how we should expect a resource update to be focus is this going to be more about upgrading inferred resources.
Whereas this is gonna be a more about just adding to the inferred with the step out holes.
Well it will it will do both right I mean, we have much more information from the infill drilling but.
But we were still looking with the step out holes, obviously 40 kind of the french's around self disorder, and we did not find them yet so you'll see there is still open.
Many many directions.
Pretty amazing if you look at those holes.
And actually a traveler if youre familiar for sure with this kind of current deposits.
It's a it's actually amazing continuation after minority station like you normally have.
Lots of concert I've seen in my career I've been much much more variable on the Iraq alert than this so so far so good it's growing still growing and are really looking forward to that resource update that we started with well over 100000 meters since the last one.
They are very active we have constantly 13 14 rigs drilling on it.
So it's quite a quite a bit of production on the Thunder thrilling. None so just expect them both as I said with a lot of infill drilling, but the step outs spoke for sure increase the inferred resource as well.
Okay, Yeah looking forward to it thanks Michael.
Thanks Trevor.
Once again, if you have a question. Please press Star then one.
The next question comes from Don Demarco with National Bank Financial. Please go ahead.
Thank you operator, and good morning, everyone, Michael and team just maybe Michael continuing with some questions on the scan. So yeah. We certainly look forward to that resource update in Q3.
And but what what would be the next steps beyond that resource update of course, there was a P. A to have at one point been scheduled maybe for some point last year that was deferred.
What do you need to know at this point in order to put that back into the calendar to put a technical report back in the calendar.
A lot of work is going in on the engineering side right now and it's really to define the mining method.
And in like November late last year, when we talked about it when we start finding suddenly this this this very.
Big wide and high grade zones are extremely high grade zones that will call them and some of the intercept we published in November .
But kind of similar value.
All of the amortization then our ways.
Uh huh.
And then obviously the bigger size that we see that it's growing everywhere. So the fact that we can look.
What possible Baker bulk mineable ore mining bulk mining methods.
So its related engineering on that to define what's going to be the mining method as you can imagine that's the main driver.
On the cost for that for that mining and once we have that nailed down well that's real obviously defined that.
The minable part of that resource. So those are really the next steps I think once we have that we know much more about but exactly what would be the daily tonnage for it and that will obviously dictate the size of the plant we have the bell and the tailings management that they have to look at our you know.
Equipment size access etcetera, etcetera, so that's really kind of the steps forward here. So.
But that's why I put that resource that's really the first step that we're doing a lot of I know that the engineering team is doing a lot of work on the mining method side of course parallel to that and are now looking forward to that to those results.
Okay. Yeah as are we so okay, well as a second question if I may.
Shifting to Laura so divorced costs well above guidance.
You had some discussion on the call about doors could you hear just reiterate factors that contribute to the costs at Dolores and comment on whether or not they're transient and whether you expect the cost to rebound.
For the rest of the year.
Dawn, Steve Busby here.
Hi, Dara.
Really the biggest driver to that cost in Q1 was the fact that we did end up processing lower grade ores than we anticipated we did mine into an area of phase nine of the pillars of the open pit.
The ore we had a high grade drill hole from exploration.
The original exploration on the project.
Looked like it got a little bit overextended in that area. So the aura that we encountered was quite a bit lower grade.
And that's really what drove those costs up we see that as a very localized issue. It was at the bottom of that pit phase we're now over into phase 10.
I'd like to reiterate that that the model were using we we haven't really adjusted it for three years and it's been performing incredibly well. So it was just this one area that happened to come in during Q1, but.
But with those lower grades that drove that cost per ounce up quite a bit with that said I mean COVID-19 was the other big impact just lack of people or a lack of.
Deployment of our workforce kind of brought productivity is down and broader cost or unit costs up during that period we.
We didn't really phase.
I can say, they're kind of inflation numbers.
We may be seen today during Q1 as an average should kind of came on strong as you've seen throughout the world inflation rates on fuel prices and an <unk>.
Explosives and supplies and consumables I'm really kind of heated up over the last couple of months. So I wouldn't really point to inflation factors as Q1 being that big of a driver. It is something we're very keen on very watching very closely today, but the real drivers at Dolores was that lower grade and you end up.
Since he's with Covid.
Just don't know.
Nothing to add.
Obviously quite a sizable in a readjustment.
And that we've seen there and on the cost of the Lora to see if you'd take the onvia that makes quite a big difference.
And you know there's different drivers for that as you know they're on their readjustments R. R.
Adjustments due to the heat, but it is not that not not not impacting our cash cost of course.
But mostly driven by either metal prices or costs entire definitely we see the inflationary cost pressure.
Pack that that then you know the sooner that comes off obviously the sooner we will probably see that will change depending on where metal prices go up but.
So definitely a higher energy costs across the world and inflationary pressure that we see you know every round the world and in our daily lives.
Have an impact or there's kind of a noncash on the readjustments as well.
Mhm, Okay, Okay, well, thank you for that additional color and as a third question.
Just shifting to a an asset of yours that doesn't get a lot of airtime La arena two.
Could you just give me what your strategic intention is for this asset is it a divestment candidate are you planning to drill expand but it potentially or issue an updated technical report maybe even develop at some point.
Yeah, and I I think two main reasons why it doesn't get a lot of airtime.
First one is that we have been incredibly successful went to exploration and Chris with his team to expand the life of my colleagues Lorena, one, though the oxides the gold production at La Arena.
I recall three years ago, when we when we looked at the assets are all standard power resources.
We assume that a lot of in our oxide. The current mine will be mined out in 'twenty or 'twenty one.
We are still successfully drilling that we'll see what that brings us.
But with our new resource and reserve update midyear, but you know very positive outcome. There. So we added.
Quite a few years by now of additional gold production from the oxides, Atlanta and not one of them.
So that's one of the reasons why I think when somebody looks at the when we did the transaction.
Got quite a few questions on libre, not too, but I don't as I said, everybody thought that a lot of it and one has a very short lives, which obviously you know a J.
Changed quite substantially that's the one reason 70 more time not wanted a lot of people looking at it because then Khalid <unk> technical study I believe they used about $3 to $3 30 somewhere around there to do the study.
Sorry for that.
And as you can imagine three years ago that didn't look all that interesting today that looks very interesting.
That's a large copper gold.
And just to remind everybody who is not familiar with Larry and that too is it's basically the copper gold porphyry that sits below the a lot of N of one.
Open pit under you know.
What basically mine out.
The current pit and make a make a bigger pit below and it's a copper gold porphyry, probably about 75% copper, 25% gold gold revenue. So definitely a type of asset that a lot of process model companies are looking for so.
So that big change happened in the last few years and I think.
You know it hasn't been on the radar for for for a while as I said due to metal prices and due to the fact that we just keep producing gold at ladder and I'm, probably for quite a while longer obviously.
But there's definitely starts to get more interest on that on that stuff really getting more interest from my side as well as you can imagine that today's copper prices at the copper price outlook.
You know the fact that as I said that a lot of precious metals company looking for a porphyry copper gold porphyry and we already have one in the portfolio.
Very interesting.
Okay, Okay, well, thank you for that and well, we'll keep an eye out for the the resource update in Q3 and good luck in the coming quarters.
Thank you though.
This concludes the question and answer session I would now like to turn the conference back over to Michael Steinmann for any closing remarks.
Thanks, operator, and thank you everyone for calling in and looking forward to give you an update on our Q2 results, which will be well Oh August already so.
So your spring and early summer I'm talking August Thank you everybody.
Okay.
This concludes today's conference call.
<unk> disconnect your lines. Thank you for participating and have a pleasant day.
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