Q4 2022 Pan American Silver Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the Pan American Silver fourth quarter and year end 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 zero.
I would now like to turn the conference over to Mr and <unk> VP Investor Relations. Please go ahead Mr. <unk>.
Thank you for joining us today to discuss Pan American Silver's Q4, 2022 results. This call includes forward looking statements and information and makes reference to non-GAAP measures. Please see the cautionary statements in our MD&A for the period ended December 31, 2022 and news release.
And the presentation slides for our call today, all of which are available on our website I will now turn the call over to Michael Steinmann Pan American's President and CEO .
Thank you for joining our call today I'm looking forward to discussing with you the major event of 2022.
Which is our transaction to acquire the Latin American assets of Yamana gold.
Shareholders of both Pan American and Yamana overwhelmingly approved the transaction in January .
And we expect it to close sometime this quarter.
But first let's recap kind of America's 2022 results.
Pan American produced $18 5 million ounces of silver and 552500 ounces of gold in 2022.
Silver production came in at the top end of the revised range. We issued in November while gold production was in line with our original operating outlook.
Gold production in the fourth quarter marked the second highest on record driven by backend loaded production from a window and La arena as we had expected and communicated.
Both silver and gold production were impacted by a reserve grade shortfalls in phase <unk> B of the open pit at the Dolores mine Silver production was further impacted by mine sequencing into lower silver grade stopes at local at ATA in the second half of 2022.
Ventilation conditions in the local that underground mine improved in the second half of 2022, following the installation of two booster fans and the commissioning of our refrigeration plant.
We expect to complete the shrinking of the new concrete line shaft late this year and equip the shops to advanced relation defense during 2024, which will further improve access to the higher grade zones of the lock what other branded pulse it.
Operating costs came in above our original guidance range as we indicated they would largely reflecting the global inflationary environment.
Total capital expenditures were in line with our original operating outlook, we made significant progress on our major capital project to advance to lot Corrado Com in 2022, we completed 32000 meters of exploration drilling discovering a high grade zone of mineralization.
We announced mid year and about 46000 meters of infill drilling.
Willing us to update the mineral resource estimate for this corn in September .
We also advanced construction of the new concrete line ventilation shaft, reaching a depth of 88 meters by the end of the year you.
We have included a couple of photos in the slides that accompany this call.
And we completed and put into service to refrigeration plant this new infrastructure real benefits to existing Lockwood out online as well as future development of the scar.
At our Escobar mining Guatemala progress was made on the Ilo 169 consultation in 2022, the pre consultation phase was completed and the Ministry of energy and mines unchanged Representatives delivered a progress reports to the Guatemalan Supreme Court of Justice.
You know we cannot provide a timeline for completion of the consultation for a potential restart of the mine.
Revenue in 2022 totaled $1 $5 billion during.
During Q4, we had a buildup in silver and gold finished good inventories.
At about $45 million to $50 million.
Which reduced the amount that could be booked to revenue due to the timing of shipment at the end of December .
Cash flow and the earnings in Q4 and for the full year were distorted by expenses related to the Yamana transaction.
Q4, we expensed $157 $3 million.
For transaction costs, primarily for the $150 million, we advance to yamana, but what the termination fee paid to Goldfields limited.
We are expecting to record additional expense related to the transaction in Q1 2023.
The other significant factor affecting earnings in 2023, plus the impairment and inventory charges related to the reserve grade shortfall of the Delores phase nine P open pit.
We reported in Q2.
On an adjusted basis earnings were $17 $9 million on <unk> per share in 2022.
We exited 2022 with cash and short term investment balances of $142 million.
And total available liquidity of $482 million.
We drew down our revolving credit facility by $160 million to fund the costs related to the Yamana transaction.
We maintain a dividend of <unk> 10 cents per share for Q4.
At American liquidated its remaining equity interest in Maverix metals, Inc. In January 2023 in connection with the acquisition of Maverix metals, but triple flag precious metals Corp. Realizing net proceeds of $105 $3 million previously in May two.
H 'twenty, we had sold a portion of our equity holdings in Maverix for $45 $4 million. Therefore in total we have crystallized $157 million value for the 19 royalties precious metal streams and payment agreements that had been sold from our portfolio.
To Maverix metals.
We are in a solid financial position entering 2023 and expect our financial performance to further improve over the coming year as we integrate the Latin American assets, we will acquire through our transaction with Yamana.
The Yamana transaction will strengthen our competitive advantage in Latin America, where we have nearly 30 years of operating experience.
As an expanded and more diversified portfolio plus the suite the highly promising development projects and exploration properties, we see opportunities for growth and operational and administrative synergies.
We are planning to provide our operating outlook for 2023. Following the completion of the transaction, which is expected to occur later in the first quarter of 2023.
The outlook will include the Latin American assets acquired through the transaction as well as consolidated forecast for annual general and administrative exploration and project development costs.
It will also reflect the monetary special operation in Argentina being placed on current maintenance after reaching the end of its mine life at the end of 2022.
The transaction with Yamana is truly transformative and build some pan-american core operating strengths.
The new Pan American has a stronger larger and more diversified company, whether able to internally fund and advanced our growth projects.
I am proud of what our team has accomplished in 2020 to positioning the company and our stakeholders for our very promising future.
I would now be happy to take your questions.
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'll hear at Cowen 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 join the queue.
The first question is from Craig Hutchison from TD Securities. Please go ahead.
Hi, good morning, guys.
Good morning.
With respect to the upcoming guidance will it be retroactive to January 1st.
My first question and then second question is with respect to the segments can we expect say of Cerro Moro to fall into the silver segment and the remaining assets to report to the gold segment or will all the assets report to the gold segment.
Yeah. Thanks for the question correct, yes, our.
The guidance for Pan American's original assets the guidance will be for the full year.
Some of the assets that come to us through the amount of transaction will of course be adjusted through the closing date.
So that's what we what we are planning as we have not completely sure with the closing the atheist. That's that's.
Kind of a moving target yet so that's what we have in mind and I think the separation between.
Gold and silver.
Segment operations.
Probably very close or what do you what you mentioned.
Okay.
And then do you expect any cyclicality with respect to your existing assets similar to this past year showing doing la arena.
But grades to be you know recoveries be backend weighted or maybe front end weighted.
Kind of clarity on that I'd appreciate it.
Yes, Craig this is Steve.
It will be back end weighted it's typical at la arena, whether chirping schedule, but we did carry over some of the the weighting in 2022 into 'twenty three so we're actually it'll probably be more even than the previous years, we've seen but it will trend towards the back there.
To some degree.
Okay. Thanks, guys.
Just to add that crack something on the guidance of course that will be quite some different numbers. When you look at the costs because the amount is showing it in gold equivalents biologics mentioned, we separate it out and goals.
Silver segments net of byproduct credits, so theres not going to be complete apples to apples to compare from one company to the other.
Okay I appreciate that thanks.
Thank you.
The next question is from John Tumazos from John Tumazos, very independent research. Please go ahead.
Yeah.
Thank you.
Okay.
Here on February 23rd where the first quarter is over half done.
Can you.
Give us a little guidance on.
The March quarter.
Well, the silver output be above or below 4 million ounces.
Hi, John its Michael.
Yes.
We don't have obviously, all this data yet I think where we're.
We're off to a decent start of the year.
And I think that's fair to say and.
Well as I said once we have the transaction closed when you have that closing date that we can include in our India adjustment to the guidance does that cause the yamana assets will be able to you know to put the full guidance out and then of course, we report the first quarter results.
Around and and made like like every year.
I would expect that sooner.
Soon after we close we should release a press release that our full year guidance.
For the for the combined for the combined company.
And as a news flow I would also expect you should expect to see some additional information on the drilling and exploration results.
<unk> got enough this is ongoing.
So you probably notice that we have like probably three or four times a year, we put out results I'm sure that will be a additional information, that's probably going to come out before.
Our Q1 results in May.
Michael as you know when you pay a premium to acquire a company and then another premium for the break fee.
You have to improve the performance of the other company.
To justify the higher valuation.
Or else later down the road there can be.
Impairment charges, if you don't earn the return.
And agnico use case, they have a big savings.
Cause they won't have to build a mill for Wassa Mac.
Yes.
And the operation of our Latin American mines.
Others in G&A.
And purchasing.
Are there any obvious improvements.
Our ways, you're going to run the mines better than Yamana would have.
Yeah Yeah.
John first of all this is a it's a very accretive transactions of any discount.
The part that that like Nikos paying for <unk>.
Assets in Canada.
You left off with.
With the.
South American assets under a new when you look at what we paid for it.
It's probably about <unk> seven times NAV somewhere in that range.
The replay for those assets if you add in all the.
Closing costs on some of the some of the break fees, you've probably got to like point to 85 somewhere in that range. So it's a very accretive transaction.
So probably a bit different than when you just look at the at the acquisition of a full company because this goes out into into pieces and more split between North America, and South America, there was an opportunity for us.
To pick up those assets in an accretive transaction basically at it at a discount.
<unk> did a good job in running those assets, but what's changing first of all on the G&A acreage, which are you know quite big numbers.
What's changing and not another.
Not only G&A in north.
North America, but also in South America, because we have some overlap in some of our offices. We are obviously very happy that the operational teams, who will join us from Yamana. They did a great job.
But he also have to see that we're gonna be a much larger entity in Latin America are having much more purchasing power and negotiation power for our big.
Purchases up, let's say cyanide steel balls explosives et cetera, which will also result in additional synergies, which we did not include yesterday an hour.
Kind of proposed synergy number that we that we put out there and it's about $40 million to $60 million a year.
At $40 60 is mostly G&A includes I think a little bit on the exploration side, but it's mostly G&A. So there will be additional synergies from the operational side, it's no doubt.
We need to of course closer deal and start working with the assets before we could put our finger on that number but the 40 to 60 million to start with just saying that it's a pretty good number $400 million to $600 million in the first 10 years.
It's Mike.
Could you explain the accretion of a little more.
It would seem like in this share swap.
The biggest driver of the accretion as the Pan am Mindshare very little gross margin.
And the Yamana mines have a bigger gross margin.
And I apologize I know.
Great.
Street NAV estimates.
Sometimes people use very low discount rates are.
Assumptions are foreign to me.
Could you explain that accretion in a little more detail.
Right.
When you look at accretion dilution analysis for foreign acquisition, you, obviously look at many different.
Factors.
In this case, it's of course as I explained already accretive to NAV, it's accretive to cash flow.
It's accretive to production.
It's accretive to cash cost are very important as we start from the beginning this will result in a combination of.
Higher on lower cost production with and in some cases significantly long along their life mines.
And then when you look at the reserves of course, we already had the largest silver reserves are one of the largest silver reserve in the World I think we add there are about 110 million ounces give or take to the reserve, but the biggest addition of alphabet.
On the reserve side on the accretion side there is of course on the gold side.
Substantial amount of coal to our reserves as well. So these are kind of the you know the major main points on the accretion dilution analysis of course, you can dive into other smaller details, but but the biggest one is the bigger stronger and longer time.
Production at lower cost.
I can ask one more.
Or do you think is a good guess for when La Colorado scarring enters production.
That's a that's a very good question and we spend a lot of effort on this as you know this you know no doubt.
That's been our biggest discovery ever and.
It's a great deposit it keeps growing and one that is outside and alluded to a little more exploration results during the year as we go.
I'm sure you noticed when we put out the last resource update that this is kind of a moving target Dusty exploration has been so successful not only with infill drilling, but we're at a step out drilling plus added that really high grade zone that we that we reported in September last year.
But the engineering.
Has to adapt constantly.
To decide on the mining method.
We go forward with it.
I think we are still on track.
The P a.
Probably late this year as I said, we will have more information as we go during the year out there.
It's going to be a very sizable deposit as you can imagine it's a.
Now I've already with all the categories, probably around a quarter billion tons of resources.
Which which I have no doubt, we'll grow with the current exploration program. So it will take a number of years to put it in production and it really depends.
What mining method at the end, we put a pin in and how we deal with the high grade zone that you deal with that separately or it's part of our overall.
Option profile. So that's all really dictate the P. R. A few years faster or if he just felt that really big operation and it takes a few years more to do so but I I don't have that number yet John .
So it might be 'twenty or 'twenty, seven or it might be a range of 2027 to 2029, if it's a bigger more complicated construction.
And for sure.
Sorry, I don't have the final the ear, but for sure. It will be a ramp up you can imagine and I think we discussed that before we're looking at in a sizeable production.
Anything between 15 to 20000 tonnes a day our Baker you can imagine that is not starting up a mine from scratch in a few months like that that there will be a long ramp up to get to that did that tonnage like any very large underground operation in the world.
Thank you and good luck.
Have a good day.
Once again, if you have a question. Please press Star then one.
Oh.
Okay.
All right.
The next question is from Sarah Constantine from Summer Min. Please go ahead.
Good morning.
I had a quick question on Escobar I know you guys mentioned there is no timeline, but I guess in your annual report.
So that in 2023, there is no expectation of.
Production and Escobar. So should we assume you guys believe that your latest production would be back on line would be in 2024.
Uh huh.
That's a piece of it I guess misinformation or what are your thoughts on it.
Thank you Yeah, Hi, this is Sean Mcmillan.
We've got the consultation process ongoing right now and the <unk>.
It's obviously taken some time due to COVID-19 change of government after the acquisition and its hard to put a date on when the consultation will be concluded.
And obviously, that's a prerequisite before we we can set any kind of parameters around when we would enter production.
The ball startup when and if it does occur.
You know later on in the year or in 2024, it's going to take months to get back up against that we can't give a date for it.
Alright startup.
The benefit of all of that now.
Okay.
Okay alright, 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.
Yes, thank you for calling in everyone I'm sure there will be many more questions. Once everybody is off restrictions on.
We closed we closed the transaction on a kind of detailed discuss new Pan American it will be very exciting.
Transformational transaction for us that there will be an exciting journey.
During 2023, and I'm really looking forward to discuss that in detail with you.
In some press releases on for sure at our May or they start Q1.
Update in May 2023.
Good spring everyone. Thank you.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
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