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.
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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 some reference to non-GAAP measures. Please see the cautionary statements in our Q3 2022.
U M DNA 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 discussed that would agreement with Iraq Nico 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 gold segment operations was in line with our expectations.
The production came in below our quarterly guidance range, because often in heap inventory buildup of 28900 ounces of gold not clear window and glass Latina.
That's a window the buildup was partially related to lower rainfall rights, which reduced irrigation flow rates and recovered ounces during the quarter.
Despite stacked ounces exceeding the plan by 18%.
In our gold production not only modestly exceeded plan in the quarter, but I don't suspect also surpassed expectations by 25% with greater tonnes placed up higher grades.
Yeah, Bob plans contained ounces placed on the heaps of chat window in Bahrain during Q3 positions us to reaffirm our annual gold production guidance towards the lower end of 550 to 605000 ounces.
We're also reaffirming our estimates for gold second the all in sustaining costs.
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 21 5 million ounces, we provided in our original operating outlook.
The revision is largely due.
So lower production from lower grade orphan 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 Lucky at ATA 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 constraint ventilation, we faced between 2017 and early two tower.
And in 'twenty two.
During Q3, we deployed additional resources with food 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 the ore mine sequencing towards the end of 2022.
We are pleased with the current ventilation conditions in the mine the progress I'm thinking the new ventilation shafts that little further secure long term installation systems and to accelerate the ground control system replacements and development the Atlantis to access the higher grade ore solved.
Cost inflation and supply disruptions continue to be an industry wide issue.
Just let us to expect that silver segment cash costs and all in sustaining cost could be marginally above the high end up the range and now we're 2022 original operating outlook, which indicators and 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.
Declared a dividend of <unk> per share in line with our dividend policy.
In September we updated our luckily it out is called mineral resource.
Now has 19 nineties.
95 9 million pounds.
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.
$147 8 million tons containing $132 9 million ounces of silver three 4 million tons of zinc and one 5 million tons of lab.
This mineral resource estimates does not include it's twill results released on November 1st funding 22, and on July 24 is 2022 that indicate the high grade silver zone of mineralization.
It will be part of the next resource update.
This morning, Triple flag muscles core finance the acquisition.
All of the outstanding shares of Maverix metals for sure and cash consideration.
In July 2016, Maverix acquired a portfolio of 13 royalties precious metal streams and payment agreements from Pan American silver.
As consideration for that portfolio Pan-american received at that time 42.85 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 was largely unrecognized and under recognized by the market at that time.
Over the years my rates continue to grow the value of its portfolio through acquisitions and additional metal streams and royalties.
On May 28, 2020 at 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 some cash.
Using our royalty portfolio.
The 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 4th 'twenty, 'twenty, two 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 a certain subsidiaries in partnerships that hold the amount of interest in its Canadian assets technical 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 Yamana became effective upon the termination of the agreement between Yamana gold fields.
To summarize a few of the terms of the transaction.
Total consideration of about $4 $8 billion or $5 and two sounds pretty amount of share as of November four 2022.
We announced a binding proposal.
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 a minus Latin American assets.
The transaction requires Pan American in the amount of shareholder approval as well as certain other regular T regulatory approvals.
It is important to note that agnico Eagle has committed to provide marketing support to the purchase of up to $150 million of Pan American shares.
But 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 them onto management independent Americas management team.
Finally, as far as timing is concerned we would exceed we would expect Pan American and Yamana shareholder vote to take place in late January next year.
Closing, sometimes in Q1 'twenty two 'twenty three.
The transaction would increase Pan American's portfolio to 12 operating mines and is estimated to increase our silver production by approximately 50% and gold production by approximately 100%.
Pan 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.
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.
Using mines and development assets.
The transaction would also be expected to enhance the Pan American silver all financial position and improve its ability to internally fund growth projects.
<unk> multiple opportunities for operational and administrative synergies, particularly between Pan American Humana's corporate offices in Canada.
The transaction is accretive per share the key financial and operating metrics and will make Pan American a lower cost producer with the 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.
That's before Pan American will maintain a strong balance sheet total debt, including the two yamana bonds aren't dependent 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 I will be happy to take your questions.
We will now begin the question and answer session.
And 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 I will call them just trying to kill.
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.
You know 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 you know 12 assets.
Even though there aren't a lot 10, and you know in that case, maybe too early but have you thought about core versus noncore assets.
And you know at this point in time anything that you can share with us.
Sure Duncan Kosmos for the question.
I mean, it's very early still as I sat there will be lots of opportunity to.
You to optimize that portfolio over time once we are ready to you know one of them for a while and run them for a while.
But I think as you know we had coming in.
Delores is like in the last.
Two and a half years of mine production and then we'll go into a leach cycle, probably until 2030. So although you know use much lots of our attention on the on the mining side for that that's you know a month yeah. That's basically in our portfolios are soon coming to an end with the reserves. So you know there's a lot of that.
So a lot of opportunity to optimize that portfolio and really focus our later on on the at the larger cornerstone assets, but also said it's very early too early to decide at this point.
Of course, maybe my next question, Michael as you mentioned Pan American Silver's buying you know you send clean your manner the company.
And I would assume that you also take on Ya man as cash and Yeah man is that could you maybe walk through you know there is a termination fee that's payable to goldfields I'm sure. There was transactional costs as well is that going to be coming out of yeah man is cash and what you know what are your plans in terms of Ya man is dead.
Yeah. So when I look I don't have the final numbers on that you probably saw on the press release that.
We found that a $150 million yourself the break fee the Atlanta, the Goldfields Yamana fund up the other $150 million.
You said at the start our discussion that we will take on the two bonds that the that the yamana highest currently.
Take on the remainder of the cost as well. So you know we have to.
One step further now honestly I see I don't have final numbers yet.
On the exact closing costs for the kind of stuff.
Great and then on the bond that you are taking out for Ya man.
Get older.
Oh, Yeah man is a N DNA looks to be a fairly attractive interest rate from that perspective has your old Pan American silver approach the ratings agencies.
Or you know a a credit rating impact assessment of the transaction given that you know Pan am doesn't have any 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 I rating or or you know risk of downgrade anything that you can share with US you know that gets asked the question on food Nasty our CFO .
Oh.
Hi, Cosmos, yes so.
Obviously as you've mentioned those are very attractive coupons on those on the two bonds. So we will strive of course to keep those so in due course will be it won't be talking to the rating agencies. They both S&P and Moody's has already put out in their bullet than their expectations.
And and 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 will keep you informed our expectation is that that the bonds will be re rated upon closing or the new rating will come out upon closing.
Mhm.
It's great to hear and then maybe one last question here before I pass it on it'll commodity mix Michael.
With this acquisition.
Silver as a percentage based on my numbers will go from high Twenty's to low 20%.
And then with the increase in gold gold.
Any concern in terms of that mix, you know, Indiana Pan American Silver is a silver company, but you know any comments on that in terms of near term and long term.
Yeah, and look that was of course, one of the attractions of this portfolio that it immediately increases our silver production by about 50%. So that's it.
That there's a large part of calls coming in as well our silver gold makes depending on metal prices. If you look at revenue.
We will drop a few percentage point on the silver side of this but it's still a very strong you know lower 20% number to start with.
And then don't forget basketball US and said look we had a further meetings on that process that process. If they outlaw 169 consultation is proceeding.
I don't have for the timing as I talked about it many times, but if you have any NASCAR ball backend. There you know it would bring us right back to probably a high 30%.
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. Thank you. Thank you cosmos.
The next question is from Lawson Winder from Bank of America Securities. Please go ahead.
Hi, Good morning, Thank you for the update guys.
I wanted to follow up on Cosmos as a first question also.
With regard to the besides of the new portfolio. So I imagine your team already accumulate a pretty shocking amount of air miles so with that expanded portfolio, even with a few non course sale 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 the.
I see very similar.
Strategy of Yamana, So that's actually a while there's still a lot of travel keeps dark quiet are well under control that goes.
Its you know our assets historically answered they are run by very strong local teams are so it's not that we do all everything out of Canada. So, adding further mines and you know and in very close by or same jurisdiction that we already are and it doesn't really make you know.
Change is not that much I mean in the case of Argentina, we already have all the same office.
Team because they run a mine there for what a decade under half nearly.
And that's a lot, Brazil, and Chile eventual source 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 the MIT that.
Structure that we have off of strong local management teams I really don't see I really don't see.
A big problem and as I said in my call. You know, we didn't really have been very impressed with it.
Teams that we encountered from your model when we did due diligence on that and all that.
Makes me.
It makes me feel very very good looking at that aimed at the integration there very similar ways a lot of focus on safety a lot of focus on ESG.
Our focus on high quality production and assets and.
You know.
Very similar then what we are focused on so I'm really looking forward to integrate those teams because I think that there'll be it's a very very good fit.
Thank you for that perspective with regards to the La Colorado Scar will this acquisition once it closes in any way be emphasized the development or perhaps extend the development timeline.
Thank you.
Look the scar and there's a there's a long term approach as we all know it's a very high quality discovery, we all know it will take a number of years to do.
Moved up forward and develop it I think that that discovery upset high grade.
The zone or you know in some drill holes absolute Bonanza grade.
We do.
I discovered and published over the last few months are you know maybe that changes a little bit of our development timeline, maybe we'll try to go on mind, that's one first but theres still a lot of drilling and engineering to be done for that and you have to include that someone in our in our resource update.
But look that's a project they'll be I see like Colorado, where long term as an absolute cornerstone you saw the numbers you know large large resource and that's car that's going to be.
The decade of of a possible production on.
You know that's that that will go ahead I mean, the beauty here is that you know this will make a very strong financially very strong company with very strong cash flows and will actually help to develop development pulse check to Florida.
As you work towards that our.
Preliminary economic assessment.
L C scarring.
What do you kind of thinking in terms of a range of throughput sizes at this point today.
I'll pass it onto Steve Yeah, Good morning loss and 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 shave.
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 the long hole 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 up an opportunity perhaps.
To get in early with the long haul system, So I think that well.
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 for you Paul.
Okay, Yeah. Thank you for that Steve.
I wanted to ask you about the dividend also so.
You announced 10 cent dividend, so effectively paid no special dividend, but according to the Formula I shouldn't you have paid a penny.
And the dividend.
So our dividend policy at this stage it's.
It's calculated for the additional dividend based on net cash on our balance sheet.
So that's following that.
Policy and a result of into town.
Oh, Okay, Oh, sorry, I thought it would've been at 11% based on having greater than $100 million.
Cash.
Hi, This is ignacio so 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.
Eliminate two the leases that we have the operating leases. So they can do all that it is a it is below the threshold of $100 million.
Yeah short term investments I didn't I didn't realize that was netted out.
I feel 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 would 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.
Yeah.
Look I mean, we're working in Argentina for a long time.
We know that that's outside the mine until you.
You know come here pretty soon to the end of its of its reserves, but this transaction is to separate the lab another additional operations to us.
Which is great because you know we have the infrastructure ready for it Oh yeah.
The Yamana has a strong team there and it's been very successful operating.
So tomorrow not for a fault for a number of years.
Replacing reserves.
You know I don't want to speculate how Argentina is going to change in the future. This are like everywhere rework their political changes that go on with elections, and and you know changes come and go I mean, our assets pay down and we are active third where you know there have been in the country and I'm happy to take the unnecessary.
The.
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.
Hum.
Hey, Michael.
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 the metal prices for those assumptions.
Just a follow up question.
Any sense on a free cash flow are there any major capital spend required for either yourselves or the assets being acquired for Ya man over that five year period.
Excluding obviously it'll skirt yeah look really concern me the module process I'm sure. It's in our it's probably an analyst consensus stack that somehow it's been used so.
They can pass it on to you, but I'm sure you have it there as well.
That would be used for that calculation.
Capital do you mean carpet like project capital. In addition to sustaining capital was that your question well, yes, yes.
Yeah look I mean, the Yamana has like us are no some.
Some of the high quality development assets on and they would need some capital to move them forward I think in my view one of the you know one of the biggest one is obviously in Canada, which is not gonna be in our portfolio anymore.
The main producing assets I you know that.
I think some projects that that Yamana has two you know in some cases to expand production in some cases do you know improve or expand tailings facilities et cetera, but you know nothing like out of the extraordinary that I can see.
Okay.
And then just a sheer window you mentioned that the I guess it 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.
Yeah. Craig This is Steve we are looking at expanding on some of the wells, where you have access to.
And this this period we saw during Q3 was really an extension of the dry season. It lasted longer than it typically does in a little bit dryer and that typically is as the leach pad grows as the heap grows we actually are able to retain more and more precipitation as the wet season.
Can come through so we actually anticipate not only reducing our reliance on wells as the heap grows but also will be will be look in the other direction is to trying to divert some of the runoff water around the facility. So it's quite an interesting dynamic situation again as it grows.
I actually get access to more precipitation and water for inventories on the heaps. So in the future we think it'll be less of a problem.
Okay.
And then one last question for me guys just on La Colorado.
I think in your remarks, you said you think you can get back into the high grade zones by end of this year is that correct should these issues will be behind you going into 'twenty three.
Yes, that's correct, we've got a really good assessment now on the ground control systems that had been compromised from the time periods of the ventilation constraints, we hadn't realized the required as severe in terms of corrosion and the erosion of our of our ground support system the rock bolt the motions things.
That nature.
We've launched a very extensive program with support from outside consult our contractors to accelerate that.
Read read redoing reestablishing of that ground control that we need to get back into those high grade zones. So we're quite comfortable where we're at today it'll take us through the rest of Q4 to get through that and we feel won't 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'd like to turn the conference back over to Michael Steinmann for any closing remarks.
Thank you operator, and thank you everyone for calling in Oh, that's great great pleasure to update you on on this transaction in the quarter and looking forward to give you an update on that.
The year end and obviously, how this transaction progresses.
And in China, right. So I'd talk about at the end of year I guess at the end of a later in February .
Until then stay safe.
That's a good end of the year. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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