Q3 2022 Pan American Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Pan American Silver third 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 should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I'd now like to turn the conference over to serving for Secchi VP Investor Relations. Please go ahead.
Thank you for joining us today to discuss Pan American Silver's Q3, 2022 results and our agreement with Agnico Eagle mines limited to acquire Yamana gold.
This call includes forward looking statements and information and make reference to non-GAAP measures. Please see the cautionary statements in our Q3 2022, MD&A and news release and the presentation slides for our call today, 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 and thank you for joining our call today.
You have been looking forward to this call and being able to finally discuss our agreement with agnico to acquire Yamana, but before we get into the discussion. Let me first provide a brief recap of our Q3 results.
The underlying performance of our recall settlement operations was in line with our expectations. Although production came in below our quarterly guidance range because often in inventory.
Inventory buildup of 28900 ounces of gold not actually at Cerro Lindo and last Latina.
That's a window the buildup was partially related to lower rainfall rates, which reduced irrigation flow rates and recovered ounces during the quarter.
Despite stacked ounces exceeding the plan by 18%.
Atlanta, and our gold production not only modestly exceeded plan in the quarter, but ounces stacked also surpassed expectations by 25% with greater tonnes placed up higher grades.
Hey, Bob plan contained ounces placed on the heap such a window in Bahrain during Q3 positions us to reaffirm our annual gold production guidance towards the lower end of 550 to 605000 ounces.
We are also reaffirming our estimate for gold segment, all in sustaining costs of between 1450 and $1550 that we provided with our Q2 results.
We are revising the estimates for full year 2022, silver production to be between 18 to $18 5 million ounces from the 19% to $20 5 million ounce as we provided in our original operating outlook.
The revision is largely due to lower production from lower grade ores and phase nine be open pit at Dolores and revising our mine sequencing into lower grade silver ores at La Colorado during the second half of 2022.
Reestablishing mining from the higher grade ore zones at La Colorado has proven more challenging given our ground control systems have been compromised to a greater extent than expected from the prolonged exposure to high heat and humidity during the constrained land relation we faced between 2017 and early two.
'twenty two.
During Q3, we deployed additional resources with development contractors to accelerate crowd control system upgrades necessary to access the higher grade ores in the deeper portions of the eastern Candelaria deposit.
We expect to reestablish near reserve grade ore mine sequencing towards the end of 2022.
We are pleased with the current ventilation conditions in the mine the progress on thinking the new ventilation shafts that will further secure long term installation systems and the accelerated grant control system replacements and development Atlantis to access the higher grade ore zones.
Cost inflation and supply disruptions continue to be an industry wide issue.
It has led us to expect that silver segment cash costs and all in sustaining cost could be marginally above the high end of the range in our 2022 original operating outlook, which indicated in all in sustaining costs for silver segment of $14 50 to $16 per ounce in 2022.
Our financial position remains strong with cash and short term investment of $187 2 million.
And an undrawn line of credit of $500 million at close of Q3.
We declared a dividend of <unk> <unk> per share in line with our dividend policy.
In September we updated our Luckily <unk> mineral resource we now have 90.
$95 9 million pounds in the indicated category containing $94 4 million ounces of silver two 7 million tons of zinc and one 2 million tons of lab.
In addition, we estimate an inferred mineral resource of $147 8 million pounds.
<unk> $132 9 million ounces of silver three 4 million tons of zinc and one 5 million tons of blood.
This mineral resource estimates does not includes total results released on November <unk>, 2022, and onshore like 'twenty, one 2022 that indicate the high grade silver zone of mineralization.
<unk> will be part of the Max resource update.
This morning, Triple flag Metals Corp announced the acquisition of all of the outstanding shares of Maverix metals for a share in cash consideration.
In July 2016, Maverix acquired a portfolio of 13 royalties.
<unk> metal streams and payment agreements from Pan American silver.
As consideration for that portfolio Pan-american received at that time, 40, 285 million common shares and $20 million common share purchase warrants.
But America strategy for divesting this portfolio of us to crystallize value for a group of assets in Pan American's mining portfolio that is largely unrecognized under recognized by the market at that time.
Over the years Maverick continued to grow the value of its portfolio through acquisitions and additional metal streams and royalties.
On May 28, 2020, Pan-american sold a portion of its shares for gross proceeds of $45 4 million.
With the transaction announced today Pan American will receive approximately $102 million and triple flag share some cash.
Using our royalty portfolio to stock Maverix metals in 2016 has been a very successful way to create value for our shareholders from assets largely unrecognized and recognized by the market.
Let's now move on to the Pan American and Agnico arrangement agreement with Yamana.
On November four 2022 Pan American and Agnico Eagle Limited announced that we have delivered a definite this binding offer to the board of directors of Yamana gold.
Under the proposal Pan-american will acquire all of the issued and outstanding common shares of Yamana and Yamana would sell certain subsidiaries and partnerships that hold the amount of interest in its Canadian assets.
<unk> Eagle, including the Canadian Mill Arctic mines.
On November eight 2022 Pan American and Agnico Eagle further announced that the arrangement agreement among Pan-american Agnico Eagle and Yamana became effective upon the termination of the agreement between Yamana gold fields.
To summarize a few of the terms of the transaction.
The total consideration was $4 8 billion or $5 <unk> per yamana share as of November four 2022, when we announced a binding proposal the.
The consideration is made up of $1 billion in cash funded by Agnico Eagle approximately $36 1 million shares of Agnico Eagle and approximately 153 5 million shares of Pan American silver.
Pan American will retain all of the Americas Latin American assets.
The transaction requires Pan American and Yamana shareholder approval as well as certain other regulatory regulatory approvals.
It is important to note that agnico Eagle has committed to provide market support to the purchase of up to $150 million of Pan American shares.
Pan American will appoint three independent directors of Yamana to be added to the current Pan-american Board and Pan American will work cooperatively with Yamana to integrate Yamana management into Panama because management team.
Finally, as far as timing is concerned we would exceed we would expect pan-american Andy amount of shareholder votes to take place in late January next year.
At closing sometimes in Q1 2023.
The transaction would increase Pan American's portfolio to 12 operating mines and is estimated to increase our silver production by approximately 50% and coal production by approximately 100%.
On American has over 28 years of approval from the expertise and experience building and operating mines in Latin America.
Yamana has spilled a portfolio of long life assets with extensive exploration potential.
And we have been impressed by the quality of their mining and management teams during our due diligence.
The combination of our two teams and assets will create the leading silver and gold producer concentrated in Latin America.
Well suited to realize further value from the combination combined portfolio and producing mines and development ourselves.
The transaction would also be expected to enhance Pan American silver all financial position and improve its ability to internally fund growth projects.
Presents multiple opportunities for operational and administrative synergies, particularly between Pan America, and do Manav corporate offices in Canada.
The transaction is accretive per share some key financial and operating metrics and will make Pan American a lower cost producer with anticipated annual operating cash flows of over $650 million for the first five years.
It will also add significantly to our proven and probable silver and gold reserves and could increase our annual revenues to over $2 5 billion.
The enlarged company will benefit from further geographical diversification and creates opportunities for future portfolio optimizations.
As before Pan American will maintain a strong balance sheet total debt, including the two yamana bonds and the Pan American equipment leases will be around $850 million with a debt to EBITDA ratio of only <unk> eight times.
Total liquidity will be over $680 million, including our sustainability linked revolving credit facility.
This is a very exciting opportunity for Pan American and Yamana shareholders to create a strong leader in precious metals concentrate that in Latin America with unparalleled exposure to silver and.
With that we'll be happy to take your questions.
Yeah.
We will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad.
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The first question is from Cosmos <unk> from CIBC. Please go ahead.
Thanks, Michael and team and congratulations on the on the deal.
Maybe my first questions are around the acquisition here.
Michael as you mentioned with the acquisition you'll now have you will have 12 operating assets. What's your interest level in terms of running 12 assets.
Even though there are in Latam and <unk>.
In that case, maybe too early but have you thought about core versus noncore assets.
And at.
At this point in time anything that you can share with us.
Sure the anchor customers for the question look I mean, it's very early still as I said, there is there will be lots of opportunity to.
<unk>.
To optimize the portfolio over time once we are ready to.
Owned them for a while and run them for a while.
But I think as you know we are coming in.
Dolores is like in the last.
Two and a half years of mine production and then we'll go into the Leach cycle, probably until 2030 so.
Sure.
As much lots of our attention on the mining side for that as you know Manav <unk> basically in our portfolio as soon coming to an end with the reserves. So.
There's a lot of a lot of opportunity to optimize that portfolio and really focus.
Later on at the larger cornerstone assets, but as I said, it's very early too early to decide at this point.
Of course.
And my next question, Michael as you mentioned Pan American Silver's buying essentially in your manner the company.
And I would assume that you also take on Ya man as cash in that manner is that.
Could you maybe walk through you know there is a termination fee that's payable to goldfields I'm sure those transactional costs as well is that going to be coming out of.
Yeah Man.
Cash and what are your plans in terms of you manage that.
Yes, so when I look I don't have the final numbers on that you probably saw on the press release.
We funded $150 million off the brake feed Atlanta Goldfield, Yamana fund up the other $150 million.
<unk>.
You said it.
Our cash and debt, we will take on the two bonds.
<unk> currently.
I'll take on the remainder of the cost as well so.
Half two.
Advanced up further now obviously on the <unk> I don't have final numbers yet.
The exact closing costs.
Great and then on the bond that you are taking out for Ya man.
I checked all Yamana has MBNA looks to be a fairly attractive interest rate.
From that perspective has pan American silver approached the ratings agencies.
For a credit rating impact assessment of the transaction given that Panam doesn't have any.
Is that right now so I don't know if you have your own.
Sort of rating and at the same time I see that.
For example, yamana their rating right now is investment grade so any potential for.
And upgrade in terms of our rating or risk of downgrade anything that you can share with us.
Ask the question on food <unk> our CFO .
Hi, Cosmos, yes so.
Obviously as you've mentioned those are very attractive coupons on those on the two bonds, So who will strive of course to keep those.
So in due course, we'll be we'll be talking to the rating agencies.
Both S&P and Moody's has already put out in their bullets in their expectations.
And.
So far everything we've seen is that there are neutral.
So so yes, we will do everything in our power to keep those to keep those two bonds valid.
But yes, we'll keep you informed our expectation is that that the bonds will be re rated upon closing or the new rates will come out upon closing.
Okay.
That's great to hear.
And then maybe one last question here before I pass it on.
Commodity mix Michael.
With this acquisition.
Silver as a percentage based on my numbers will go from high <unk> to low 20%.
And then with the increase in Gulf.
<unk>.
Any concern in terms of that mix in the Pan American Silver is a silver company.
But.
Any comments on that in terms of near term and long term.
Yes look that plus of course, one of the attraction to this portfolio.
Immediately increases our silver production by about 50% So that's <unk>.
There's a large part of coal coming in as well.
Our silver gold makes depending on metal prices, if you look at revenue.
We'll drop a few percentage point on the silver side of this but there is still a very strong.
<unk> lowered 20% number to start with.
And then don't forget to Estaban said look we have further meetings on that process. The process of the outflow 169 consultation is proceeding.
I don't have for the timing.
As I talked about it many times, but.
If you had a nasco ball backend.
It will bring us right back to probably a high 30% of silver versus gold, so very very strong silver producer.
Great that's great to hear thanks, Michael Ignacio surrender and team and those are all the questions I think.
Thank you Cosmos.
Yeah.
The next question is from Lawson Winder from Bank of America Securities. Please go ahead.
Hi, Good morning, Thank you for the update Doug.
I wanted to follow up on Cosmos as first question also.
With regard to the besides of the new portfolio. So.
Imagine your team already accumulates, a pretty shocking amount of air miles.
<unk> expanded portfolio, even with a few noncore sales that would still be quite large do you expect any sort of expansion of the existing management team.
We are actually very decentralized company, so our head office in Vancouver, which is quite small.
Very strong local teams on.
I see very similar strategy of Yamana, So thats actually while there is still a lot of travel keeps dark quiet well under control the cost.
Our assets historically answered they are run by very strong local teams.
So it's not that we do all everything out of Canada. So, adding further mine and you know and very close by or same jurisdiction that we already are.
It doesn't really make.
Changes that that much I mean in the case of Argentina, we already have all the same office.
And the team because we run a mine therefore.
Decade under half nearly.
And Thats, a lab, Brazil, and Chile, which of course neighboring countries.
Peru, and Argentina, where we already have our offices. So I as I said look over time, there will be optimization of our portfolio for sure but at the moment with that with that.
The structure that we have off of strong local management teams I really don't see really don't see.
A big problem and as I said in my call. We didn't really have been very impressed with it.
The teams that we encountered from Yamana, when we did due diligence on that.
That makes me.
It makes me feel very very good looking at the name at the integration, they're very similar ways a lot of focus on safety a lot of focus on ESG.
While our focus on high quality production and assets.
Good.
Very similar then what we are focused on so I'm really looking forward to integrate those teams because I think that there will be it's a very very good fit.
Okay.
Thank you for that perspective with regards to the La Colorado scarring.
This acquisition once it closes in any way deemphasize the development or perhaps extend the development timeline.
Thank you.
Look the scarring.
As a long term project, we all know it's a very high quality discovery, we all know it will take a number of years to do move that forward and develop it I think that discovery offset high grade.
Zone or in some drill holes absolute Bonanza grade.
Great.
Discovered and published over the last few months.
Maybe that changes a little bit our development timeline, maybe we'll try to go on mind that zone first but.
There's still a lot of drilling and engineering to be done for that and you have to include that so on an hour in our resource update but look that's a project that will be I see local it out our long term as an absolute cornerstone you saw the numbers.
No.
Large large resource and that's car that's going to be multi decade of.
Possible production.
That will go ahead.
The beauty here is that.
This will make a very strong financially very strong company with very strong cash flows and will actually help to develop development approach us further.
As you work towards that.
Preliminary economic assessment.
LTE scarring.
What are you kind of thinking in terms of a range of throughput sizes at this point today.
I'll pass it on to Steve Yes, good morning, Laura.
That's a great question and it really depends on mining methods as we've talked about in the past.
We've been looking at some of the.
Sub levels.
Shaving methods that may get up in the range of 20000 tonnes a day.
Those are kind of some of the estimates we saw if you remember back to long haul studies, we were down in the 10000 ton a day range is what we've been discussing and as Michael says this high grade zone offers us up for an opportunity perhaps to get into early with the long haul system. So I think we.
We havent settled in on what the throughput rate would be but those are the kind of numbers you are looking at depending on the mining methods we have Paul.
Okay, Yes, thank you for that Steve.
I wanted to ask you about the dividend also so.
Tencent dividends, so effectively paid no special dividend, but according to the Formula Shouldnt you have paid a penny.
And the dividend.
So our dividend policy at this stage.
Calculated for the additional dividend based on net cash on our balance sheet.
So that's following that.
The policy and a result of <unk>.
Oh, Okay, Oh, sorry, I thought it would've been at 11% based on having greater than $100 million.
Net cash.
Hi, This is ignacio.
Just a couple of details on that calculation. So it isn't that cash excluding short term investment. So you have to remove the short term investments from from the number and then as well as net out any any debt in our balance sheet, which is just just.
Limited to the leases that we have the operating leases. So when you do all that it is.
Below the threshold of $100 million.
Yes short term investments.
Didn't realize that was netted out.
For clearing that up.
And then just finally, if I could just get your thoughts on that.
So I mean, it is a relatively challenging place to operate.
You be inclined to continue operating in Argentina, and then just.
Looking at the regulatory environment, there, particularly from a federal level do you see any changes developing to improve that situation. Thank.
Thank you.
Look I mean, we're working in Argentina for <unk>.
Long time.
We know that as I said.
<unk>.
Come pretty soon to the end of its of its reserves.
But this transaction as we separate the lab another additional operations to us.
Is great because we have infrastructure ready for it.
Yes.
<unk> has a strong team there and it's been very successful operating.
Set a model now for for a number of years and.
Replacing reserves.
You know I don't want to speculate how Argentina is going to change in the future. These are like everywhere. We work there are political changes that go on with elections.
And.
Changes come and go I mean, our asset stay there and we are active there where we are have been the country.
And happy to take on as I said.
So tomorrow, that's a really high grade very high grade.
Up into our portfolio.
Okay. Thank you all very much.
Thank you Lawson.
Once again, if you have a question. Please press Star then one.
The next question is from Craig Hutchison from TD Securities. Please go ahead.
Hi, good morning, guys. Thanks.
Thanks, Brian .
Hey, Michael with.
With respect to the presentation here today, there's a mention of the pro forma operating cash flow of $650 million a year for the next five years. Excluding Escobar can can you give us some metal prices for those assumptions.
And then maybe just a follow up question any sense on a free cash flow are there any major capital spends required.
Or either yourselves or the assets being acquired for Ya man over that five year period.
Excluding obviously the loss curve.
Yes.
The concern with the metal prices I'm sure it's in.
Probably an analyst consensus stacked up that has been used so.
We can pass it on to you, but I'm sure you have it there as well.
That we used for the calculation.
Uh huh.
Capital you mean capital approach our capital in addition to sustaining capital as part of your question Yes.
Yeah look I mean, the Yamana has like us.
And there was some.
Some high quality development assets and they will need some capital to move them forward I think.
In my view one of the one of the biggest one is obviously in Canada, which is not going to be in our portfolio anymore.
The main producing assets.
I think some projects.
That the amount of has two you know in some cases to expand production in some cases do improve.
Improve or expand tailings facilities et cetera, but nothing like out of the extraordinary that I can see.
Okay.
And then just to show window, you mentioned that the I guess, there was a buildup of inventory related to lower rainfall rates, which impacted irrigation.
Is that something you guys can mitigate through either wells or something so that doesn't happen in the future or is it really going to be kind of rain dependent.
Yes, Craig this is Steve.
Looking at the expanding on some of the wells that we have access to.
In this period, we saw during Q3 was really an extension of the dry season lasted longer than it typically does in a little bit drier in the typically those.
As with Leach pad grows so grows we actually are able.
To retain more and more precipitation as the wet season come through so we actually anticipate not only reducing our reliance on wells as the heap grows but also will be we will be looking the other direction is to trying to divert some of the runoff water around the facility so its cutting edge.
Interesting dynamic situation again as it grows we actually get access to more precipitation and water for inventories on the heaps.
So in the future, we think it will be lots of apparel.
Okay.
And then one last question for me guys just unlocked Colorado.
I think in your remarks, you said you think you can get back into the high grade zones.
Zones by end of this year is that correct should these issues will be behind you going into 'twenty 'twenty three.
So that's correct.
Got a good assessment now on the ground control systems that had been compromised from those time periods of the ventilation constraints, we hadn't realized that required a severe in terms of corrosion and the erosion of our of our grown support system. The world holds the machines things of that nature.
We've launched a very extensive program with support from outside contractors.
Contractors to accelerate.
Right.
Redoing reestablishing of that ground control that we need to get back into those higher grade zones. So we're quite comfortable where we're at today. It will take us through the rest of Q4 to get through that and we feel we'll be back in where we should be mining out the reserve grades La Colorado.
Okay. Thanks for your responses.
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 operator, and thank you everyone for calling in.
Great pleasure to update you on on this transaction in the quarter and looking forward to give you an update on that.
Year end and obviously, how this transaction progresses.
In January so talk about that.
And the fear I guess at the end of later in February .
Stay safe.
That's a good end of the year. Thank you.
This.
Today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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