Q1 2023 Pan American Silver Corp Earnings Call
To improve <unk> rates.
Speaker 1: to significantly improve ventilation rates in this high-grade area of the mine around mid-2024. You'll find the site in his article that states,
Speaker 2: This new ventilation infrastructure will benefit both the long-term development of this CARN project as well as the current wane system operation.
Speaker 3: Until this new system is operating, we are restricting mining rates in the higher grade, deep eastern portion of the Candelaria deposit, which is reflected in our guidance for 2023.
Speaker 4: Gold segment production and costs were impacted by leach sequencing at Dolores and La Reina. In addition, production was interrupted for seven days at Dolores, while local contractor terms were revised in preparation for the completion of mining and the transition to a multi-year leach cycle.
Speaker 5: which we expect will begin in late 2024.
Speaker 6: Like last year, production at La Rena is back and weighted as the higher rates of waste mining extend into Q3, followed by higher rates of ore mining and production in the last quarter of the year.
Speaker 7: A large net realizable value, or NRV inventory adjustment at Dolores, decreased all insustaining costs at that operation by $775 per ounce and lowered consolidated gold segment all insustaining costs by $165 per ounce.
Speaker 8: As a reminder, NRV inventory adjustments are accounting adjustments to recognize the production costs of heap breach inventory relative to the market value of that inventory at the time of assessment.
Speaker 9: NRV inventory adjustments are non-cash movements and do not affect cash costs.
Speaker 10: Revenue in Q1 was $390.3 million which included finished goods inventory drawdowns of 779,500 ounces of silver and 11,300 ounces of gold.
Speaker 11: Net earnings in Q1 were $16.5 million or 8 cents per share. This includes $18.9 million in transaction and integration costs related to the Amana transaction.
Speaker 12: and $12.7 million in severance provisions. Adjusted earnings were $21.2 million, or 10 cents per share in Q1. Cash flow from operations totaled $51.3 million, which includes $30.7 million in cash taxes. Our annual tax payments are typically the highest in Q1 and Q2.
Speaker 13: We are in a strong financial position with a cash and short-term investment balance of $513 million and $425 million available under the sustainability-linked credit facility.
Speaker 14: We assumed two senior notes, one for $283 million and another one for $500 million as part of the Eman acquisition. Both with attractive coupon rates.
Speaker 15: and have $325 million drawn on our credit facility.
Speaker 16: Our capital allocation priorities for the expected increase in cash flow generation from the expanded portfolio are consistent with our history. We need to reduce debt, invest in growth and provide dividends to shareholders.
Speaker 17: With respect to Q1, we announced a dividend of 10 cents per common share in March, a bit earlier than normal, in order to align with the amount of timing for dividends.
Speaker 18: Future dividend declarations will revert back to Panamarkas previous casual.
Speaker 19: We have been paying dividends consistently since 2010 as an important means of returning capital to shareholders.
Speaker 20: Moving on to growth projects, earlier this month we released additional trail results for the local arthritis care.
Speaker 21: We completed nearly 14,122 meters of infill and exploration drilling on this car in a quarter.
Speaker 22: 25.2% lead and 16.7% zinc.
Speaker 23: We have now drilled over 20 holes into this area, which remains open to the west and northwest. An infill and exploration program of 28,000 meters from surface and underground drill stations
Speaker 24: over 20 holes into this area which remains open to the west and northwest. An infill and exploration program of 28,000 meters from surface and underground drill stations is currently underway.
Speaker 25: We also progressed other projects for the SCARN, including engineering work associated with the Preliminary Economic Assessment or PEA.
Speaker 26: We are planning to provide an updated technical report on the La Guarada property in the second half of 2023 that will include the PA of this current deposit.
Speaker 27: describing our view of project development, operating costs and capital estimates and overall economics.
Speaker 28: In 2023, project capital will also be invested in completing Yamana's plant upgrades at Jacobina, construction of new dry stack tailing storage facility at Waron, and installing a phased backfill plant at our Bow Creek mine in Timmins.
Speaker 29: At Escobal, the ILO 169 consultation progress is progressing well. The consultation meetings held in March and April , and the next meeting planned for later this month.
Speaker 30: The 2023 guidance detailed in our Q1 disclosure is largely the same as the guidance we provided in April 27th. The only change was an increase in project capital for the Lakhlaratas Khan project to reflect updated estimates for completing the PEA and advancing exploration drilling.
Speaker 31: The guidance provided in our Cuba and Disclosure now includes a forecast for G&A, care and maintenance and expiration expense in 2023. We are expecting to produce 21 to 23 million ounces of silver in 2023 and 870,000 to 970,000 ounces of gold.
Speaker 32: We expect all in sustaining costs of between $14-$16 per ounce for the silver segment and $1275-$1425 per ounce for the gold segment.
Please note, this reflects nine months ownership of the mines we acquired from Yamanah and the full 12 month for Pan-Americans original mines.
You can see estimates for individual minds and quarterly breakdown of comes-to-date production costs in our Q1MDNA. We plan on releasing our 2022 Sustainability Report later in Q2, which will report on the performance on environmental, social, and governance metrics for Pan-America's original assets.
and our goals in this area. Information on all former human assets following the Yamana acquisition.
will be included in the 2023 Sustainability Report that will be published next year. Before I hand the call over for questions, I would like to address our integration efforts for the former Yamana assets.
Integration is advancing very well. In a timely fashion, and we have started harvesting the 40 to 60 million dollars of annual synergies we announced earlier.
We have welcomed a large group of new colleagues that joined Pan American at the end of March, and it is an absolute pleasure working with the new team.
welcome the large group of new colleagues that join Pan American at the end of March, and it is an absolute pleasure working with the new team. And with that, I would like to open a call for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4x1 on your telephone, Kipad. You will hear a treat on prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star 4x2.
If you are using a speaker phone, please leave the handset before pressing any keys. One more keys for your first question.
Thank you. And your first question comes from the line of Cosmos 2 from CIBC. This is the first question.
Thanks Michael and team and I'm in congrats on a very strong start to 2023.
Maybe my first question is on Mexico. Mexican paid so high.
strengthened and we've heard from others operating in Mexico that it has had an impact on cost. Maybe could you comment on the Mexican peso? I believe right now you're assuming 18.75 to one. I think now it's closer to 17.5.
And then overall, if you can also talk about, we've also heard in Mexico, labor of power, consumables, my bucks, should increase in prices as well. Is that impacting you as well?
I may be a customer's eyes Michael, I will start and I'm handy over to Ignacio, but just in general it's a great question and the impact that we see in our cost in general from from foreign exchange rates during the years.
It can be very big, positive or less positive impact as we have. Even before with the original Pan American assets, probably around $600 million of our cost in local currency. So it's not only Mexico, of course, moves on the currencies have a big impact.
Just in general, I would like to make a statement there. You probably saw on the cost side we assume that think about around 5% inflation for this year. We see probably a bit more push on wages and less so on...
a lot of it has to do with the high interest rates in Mexico, relative to other rates. So it's something that we've been monitoring throughout the year. We do have a Mexican PISO hedge program that's detailed in our MDNA. There's a table there. So today, approximately, I think 24% of our Mexican PISO costs are being covered through.
and when there's opportunities to lock in some favorable rates, we'll do that.
Of course, that's great to hear. Maybe also on Mexico on April 29th, the Mexican Senate passed the amendment to the federal mining law.
Changes include 50 to 30 years in terms of the concessions and also 5% contributions to social funds in the country. Have you looked into it? You know, I'm getting mixed reviews in terms of is it retroactive, is it not retroactive? And even if it's not retroactive, would it impact, say, something like a La Colorada Scarn.Mania.
Maybe if you can comment on that, Michael.
Sure, and of course we are looking into it, monitoring it very closely. As you know, it's changing right now. There's more and more information coming out every day. So there will be more changes found in the road for sure once we have all the details available. At the moment, I understand it really applies to the new concessions.
So, as you know, our two operations are on concessions that are established for a long time. There will be for sure some some impacts, but I don't have any final numbers from it, but like the timing on the new concessions, obviously, would only apply if we state new concessions mid-experation ground, for example. So, something that I got like a lot of scour would not be a new concession, it would be.
or being part of the existing conception. Yeah, La Cogradas Carn is right below our current producing mine, the Vane, so it's on the same consumption span than the current production at La Cogradas.
Perfect, got it. Maybe switching gears a little bit. Thanks again, MDNA. I'm sure it's a lot of work in the page 28. You actually gave us quarterly projections. And I see that it is back in weighted. Q4 appears to be the best quarter that you're projecting. Could you maybe talk about that? What are some of the key drivers here in terms of the back in weighted production?
Yeah, good morning Cosimo, this is Steve. Hi Steve. The back end, yeah, is driven largely through La Reina is a good example where Michael mentioned, you know, the typical pre-stripping schedule at La Reina opens up most of the ore flow at the end of the year in Q4, a little bit in Q3 as well. We're seeing similar trends.
that they're currently operating in. Those are the main drivers.
Great, thanks Steve. And then maybe one last question on the guidance as well. You know, thanks again for giving us guidance to on sustaining costs for silver and gold. Just one confirmation, those guidance numbers, do they include the NRV adjustment? Is it before or after? And then in terms of NRV adjustments, again Michael, thanks for explaining it to us.
I'm going to go for it.
The NRB is a calculation on the recoverable amount on our inventories and one of our largest inventories are the heap leach pads. And if you notice from the ACE numbers, it's mostly in the gold segment and that's directly related to the LORIS. So one of the biggest drivers in that positive adjustment.
and that was the key driver in that positive adjustment. In terms of going forward, NRVs are excluded from our guidance numbers. They're very difficult to project.
And from the new operations, none of them have a heat bleach pad. So we don't expect the new operations to be driving big NRV adjustments going forward. So El Tanyon does not have a heat bleach pad. Oh, it doesn't? Okay. Clearly, I've never covered Yamana. Thanks Ignacio for letting me know.
Great, those are the questions I asked. Get back into queue. Thank you, Kostas. Thank you. And your next question comes from a line of Craig Hotchison from PD Securities. Go ahead.
Let's get back in the queue. Thank you, Carlos. Thank you. And your next question comes from a line of Craig Hodgson from PD Securities. Please go ahead. Good morning, guys.
I have a question on Escobar. You guys have been in the phase two consultation process for about a year now. Can you just give us a high level overview of where those discussions are at and whether you see a potential time frame to kind of wrap up that phase and move it on to the Supreme Court? Thanks.
Yes, correct. Thanks. It's actually a bit less than a year, but I'll pass it on to Sean McAleer who is running our activities and Guadamale can give us some more details. Sean, please. Yeah, good morning. There's currently a timeline published on the MEMB website. You can access that through our website.
There's a series of activities that are coming up in the consultation. Right now it's information sharing, evaluation of information with the consultants and a series of meetings. I would expect there's, after the meeting we have on May 19th, we'll probably have monthly meetings. And then at the timeline that's published shows.
some field consultation activities taking place in July-August with a target end date in October this year. So we've seen some delays in the process in the past and so I'm always cautious about that and, you know, I don't know if we're going to have delays anymore in the future but...
That's basically the timeline that the Ministry of Energy and Mines in Guatemala has published.
Does the consultation phase going to end in some kind of impact benefit agreement? Is that not necessarily the case? Yeah, I think that's the idea and you'll see that timeline talks about reaching agreements. So I think the intent is that there will be some agreements, again the content and what the exact.
You guys should be generating some substantial free cash flow going forward with the Humana assets. Is the priority just to pay down the RCF over the next couple of quarters or do you guys plan to build up cash? Thanks.
Yeah, look, nothing has really changed with our capital allocation priorities. It's really paying back at the moment our line of credit for sure. It's always nice to have that all available for whatever else, you know, we want to do our comms up and our capital side. So that will be focus number one for this year, as I said in my remarks.
Thank you. And your next question comes from the line of John Tomatoes. From John Tomatoes for Inspire Independence Research, please go ahead.
Congratulations on all the work. I was especially impressed at the new balance sheet that there's no goodwill or intangibles. With 1.1 Billion of debt,
including the Yamana acquisition, how much is the debt level that you're comfortable with for the new Pan Am? I know historically you've been...
conservative, liking a strong balance sheet.
and how much would you need to reduce the debt to before you would go ahead with
any of the major
big dollar projects at hand like Colorado's Scarn or
big dollar projects at hand like the Colorado Scarn or the Mera project or the...
Yeah, John , look, I mean, I'm very comfortable with the debt level now. I think if you look at the size of the company, it's a very comfortable level.
But I think everybody knows me for a while and knows that I like to have, you know, very conservative balance sheet. So as we alluded in the last question, there will be excess cash that will be used to pay back on our line of credit for sure. There are two bonds that we took over from Yamana that...
You know, very attractive interest rates and will run quite long. I think one is maturity in 31 and the other is like 27. We received an investment grade from S&P and Moody's on that, so I'm very comfortable and happy about that.
You know, these projects are not ready right now to receive huge investments. You saw the investments that we do this year at La Coloradas Can, for example, for the PEA and for the drilling to prepare that project to go forward. So the big spend will obviously come down the road.
So, everything goes parallel. We'll repay our line of credit as the first line item while our technical team will continue with their work on most of the projects you mentioned. I mean, we don't need to work on Lorena sulfides. We still have oxides that we mine.
On top of that, for free that will last probably well into 2026. But all other projects are ongoing as normal as I said, the big capital spans will be coming later.
are large.
When you...
book the acquisition March 31, what is the carrying value for the Mera project? It must be at least $400 million if the cash was over $200 million.
Yes, I'll start and hand it over to Ignacio, but you're right there is just north of $200 million in our cash balances is for MARA, is assigned to MARA. That money is consolidated on our balance sheet because we are the majority holder on that project with over 56.
So that's the reason why I chose up on our balance sheet. Ignacio, do you have, kind of give us some more details? Hi John , this is Ignacio here. So I will point you to note nine of our financial statements where we have the breakdown of the property plans and equipment. Now just to let you know, we did assign values to all the new assets, however those are preliminary numbers.
that is around 26% of the total value assigned to the properties. Now the total acquisition cost for Yamana was around $2.8 billion, but that's the net number of assets and liabilities are assigned on our balance sheet. So that's the net number of liabilities offset in the app.
and Escobar got the green light in six months.
and La Colorado is getting closer to getting ready. And maybe Glencore really wants to build Mara given how much enthusiasm they have for.
all those projects in tech. If you have three projects that are ready to go around the same year or two and they all look good.
How do we manage that wonderful scenario? Look, I mean, as I said, like the La Colorado SCAR, there's a lot of work going on right now, but we are not ready to build a project there. So that's way out there. So it's not possible that that would happen.
all in the same year. We will present the PEA later on this year and then take next steps from there. But as we do all that technical work and we'll be able later in the year to share with everyone how those numbers look like, the scenario that everything will come through in one year, in this year, is not as much as we thought it would be.
balance sheet. So, just Ignacio has something to add to this. Yeah, just one last thing John , just to clarify that 1.36 billion that I mentioned, that's 100% value. We own only 56.25%. So that was the value for.
So, John , even if everything lines up perfectly, they're wonderful projects and they will come in due time into our pipeline and not all together. So that would be a very nice scenario, yes. So I don't want to minimize the...
future work ahead for Don Ignacio and you Michael but Glencore is the most spectacular partner
We have a company in the US called Century Aluminum that had Glencore as a trading partner and Glencore owns 43% of the public stock now and has been taking has been saving the day for Century Aluminum since 1990 and for Polymet metal since around 2006
where they own 70% of polymet now and merged it with tech.
What sort of creative solutions are there?
What sort of creative solutions are there for financing Mera?
Do you have to do any work at all and can you simply rely on the good graces of Glencore that can finance all their partners? Of course Glencore is a great partner to have in a new project. We are working together with Glencore to make this project possible.
in many, many fronts on our trading side. For people who are familiar with my bio, they will see that I worked for Glencore actually before I joined Pan American for quite a long time. It is a great partner to have. But look, we only own those assets now, the former Yamana assets for about six weeks. So it's... that's my area. So
Of course, as I said before, asset management and optimization of our portfolio will be a focus going forward here, but we need a little bit more time to work on all that, so we'll have more answers for you as the year progresses.
Excuse my enthusiasm, Michael and Ignacio. Buona sera. Thank you. Thank you. And your next question comes on the line of Adrian Day. From Adrian Day Asset Management, please go ahead.
Yes, good morning. I've got three questions, two of them very quick. I'll ask them all in a row. The first one is, I don't think you mentioned the cash costs you just gave the all-in sustaining. Can you tell us what the cash costs are? I realize there's variability among the mines. The second question is, can you tell us what the cash costs are?
Again, I realize it's far too soon to have made a thorough review of all the amount of assets, etc. But is it your intention? Should we expect some disposals of properties? Is that an intention? Or is it still not clear? And then the third one, and I'm sorry to harbor on Escobar, is the
I'm a little unclear on what the current process is. As I understood it, there was a Supreme Court mandated consultation with the government and the local people. And you were sort of observers, if you like. And I thought that was completed in January or February .
So the current process, the current consultation is still government, right? It's not pan-american. Those are my three questions.
Thanks Adrian, I have Sean starting with Guatemala. Yeah, so the process is, there's three principal actors in the process. The government of Guatemala and the Ministry of Energy and Mines leads the process, the consultation process. The Sheikah parliament, who are the representatives for the Sheikah people.
and then the company which is our Pan American Silver Guatemala subsidiary.
meetings generally happen, the formal meetings generally happen about once a month. So as we mentioned, we'll have another meeting on May 19th and those meetings will go and continue on through the summer. So we expect, you know, the information sharing process to continue and some of the other activities to continue and as I mentioned before those...
and on the gold segment it was 1,120. So factors affecting the cash costs, Q1 2023 versus Q1 2022 were the inflationary pressures that Michael mentioned, as well as the cessation of mining op activities at more culture, those are the main factors.
all in every country, a lot of exploration projects. There are some advanced projects we are looking at as well. So there's no, you know, there's absolutely no plan that we keep everything. There will be some disposals and that's the work we're doing right now. So as I mentioned before, it's a little bit early but you should expect that there will be some disposals coming over the...
Most of my questions have been answered, but maybe just a question on the care maintenance. I know you're guiding about $100 million for this year and we see that the Q1 expense is in line with that, but is there any visibility to reduce these care maintenance costs by way of dispositions or otherwise?
Like I get it that Escobar you're kind of keeping that ready to restart, but do the other care maintenance projects, does that much money really need to be spent or can it potentially be eliminated altogether? Thank you. Yeah Don, thanks for your question. Absolutely, as you said the big ones on the care and maintenance at Escobar and for all.
So thatís the reason why we spend the money on care and maintenance at Escobar. So very good reasons for that. The other big span is Amara and itís probably, you know, I wouldnít say the same situation but itís the money span to prepare the ProChat to move forward. So there isÖ
One portion of it really is care maintenance to us is to prepare it for technical studies and move that forward. So that will obviously change over time and move into more project capital later on, but the capital right now is in our care and maintenance budget. I think the other ones are fairly small. instantly materialization.
Thank you operator and thanks everyone for calling in. It was a great quarter and I'm really excited to look forward for the rest of this year. As from now on we have all the additional assets from Yamana in our ownership and are producing. You will see us three days after we are back in the market.
Looking forward to talk everyone to discuss Q2 in August . Have a great start of the summer. Thank you ladies and gentlemen. That concludes our conference for today. Thank you for participating. You may now disconnect.