Q2 2023 Pan American Silver Corp Earnings Call
Good morning, My name is Joanna and I will be your conference operator today.
At this time I would like to welcome everyone to Pan American Silver second quarter 2023 Conference call. Sharon you May begin your conference.
Thank you for joining us today for Pan American Silver's Q2, 2023 conference call. This call includes forward looking statements and information and makes reference to non-GAAP measures.
Please see the cautionary statements in our MD&A news release and presentation slides for Q2 2023 unaudited results all of which are available on our website.
I'll now turn the call over to Michael Steinmann Pan American President and CEO .
Thanks, Sharon and thank you everyone for joining our call today.
The second quarter is the first period, we are reporting results inclusive of the assets acquired through the amount of transaction, which closed on March 31.
The results clearly deliver on the benefits, we had expect that sort of strategic acquisition enhancing both the scale and quality of our portfolio.
With the contribution of the new assets production in Q2 up 102% for gold and 55% for silver relative to Q1.
Consolidated silver production of 6 million ounces, that's at the high end of our 2023 quarterly guidance and consolidate this record gold production of 248200. The ounces also approach the upper end of the range.
Silver and gold segment, all in sustaining costs per ounce of $15 17.
And $1342, respectively are within our full year cost guidance.
With the strong performance year to date, we have reaffirmed our original 2023 operating guidance provided in our Q1 2023 MD&A.
As indicated with that guidance our production is back end weighted particularly for gold in the fourth quarter.
Please see the quarterly operating outlook provided in the Q1 MD&A for the slides that accompany this call for the detail.
The strong production and sales volumes resulted in Q2 revenue of $639 9 million.
Net loss in Q2 versus $47 $4 million 13 per share.
This reflects noncash accounting impacts, notably the $33 $3 million impairment charge net of tax related to the sale of our 92, 3% interest in Morocco.
Cash consideration of $25 million.
As per our news release from July 31.
The net loss also includes $26 $1 million net of tax for fair value adjustments on finished goods inventories.
That were expense during the quarter.
As these inventory adjustments are related to the Yamana transaction.
And more onetime in nature from purchase price accounting.
Adjusted them from the earnings.
The adjusted earnings were $14 7 million or <unk> <unk> per share.
Cash flow from operations totaled $117 million net of $55 million in taxes paid our annual tax payments are typically the highest in Q1 and Q2.
We repaid $55 $4 million of debt.
In Q2 and exited the quarter in a strong financial position that $470 million available under this <unk>.
The inability length credit facility.
Cash and short term investment of $409 2 million.
This includes the 192 $9 million of cash that is restricted to the Morocco chopped.
Our financial position improves further.
Divestment of noncore assets, we announced on July 31 2023.
The sale of our interest in the Mato project in Argentina, the motor coach our mine in Peru, and DIY della followed a project in Chile.
With the divestment of non core equity investments is expected to yield total cash proceeds of $593 million.
The sale of Asti equity investments have already been completed and we expect the other three asset sales to be completed in the third quarter of 2023.
In addition to the cash proceeds Pan American will retain future upside through the retention of copper and gold royalties with strong counterparties.
The divestments of the motto project in motor coach our mind will also allow meaningful reductions in our animal project development reclamation on care and maintenance costs for 2023 and going forward.
As part of our capital allocation objectives.
Panther fully repaid $280 million drawn on our credit facility as of June 32003.
Minor after proceeds will increase our cash balance further strengthening our balance sheet and position us to advance our growth projects, including the <unk> as well as paying dividends to the shareholders.
We announced yesterday at <unk> <unk> per share dividend with respect to Q2 equivalent to $36 $4 million in aggregate dividends.
Optimizing our portfolio was an important and stated objective following the amount of transaction and I am pleased with our progress to date.
Turning to the local auto current project work continues on the preliminary economic assessment of PPA.
Which we aim to release as part of an updated local auto property Technical report later this year.
The PPA will include a review of project development operating and capital cost estimates for this call.
At the local or out of mind, the concrete line ventilation shafts that advance to a depth of about 420 meters at the end of July and is expected to reach shaft bottom by the end of this year.
Once the two exhaust fans are installed mid next year, we expect to see significant improvement in ventilation into high grade East Candelaria.
Area of the mine.
Until this new system is operating we're restricting development the mining rates in the higher grade Dps <unk> portion of the malaria deposit.
As reflected in our year to date results and our guidance for 2023.
The new ventilation infrastructure, which includes a refrigeration unit that was commissioned in 2022, we will also provide benefits to the development of this corn project.
At the <unk> mine in Guatemala, three meetings were held in the second quarter under the Ilo 169 consultation process being led by the Guatemalan government.
We also took part in a working meeting in late June with participation of the Shinko Parliament their advisors and Guatemala government institutions.
During the meeting.
Presented details on the dry stack tailings facility.
Management of water and vibration from blasting activities when the mine was in operations.
Following the meeting with responses to requests for additional information and continue to work with men the ministry of energy and mines and the process.
Now that all parties have delivered to our institutional presentations demand considers that information transfer process for phase two of the consultation is complete.
The Mam has established several states for work in meetings with the parties involved in the consultation.
We continue to participate in dialogue consultation process in good faith and their respecting constitutional Court order.
Escobar continues under the care and maintenance.
And at this time no date has been set for a potential restart of operations.
Please see the Ministry of energy and mines website for further information activities and the timeline for the <unk> process.
Anchor is provided on our website <unk> cobalt page.
Our second quarter results. So the successful transformation of Pan American into a major precious metal producer with more diversified operations across the Americas and a strong focus on silver.
The integration of the amount of assets is progressing well and we are on track to capture the $40 million to $60 million of annual synergies we had identified.
Yes.
We are committed to maintaining operational efficiencies and delivering on our targets and I look forward to updating you in next quarter as we continue to evolve into the new Panama unsold.
Before we move on to questions a few housekeeping items.
We are currently working on the outside that reserve and resource report inclusive of our Yamana acquisition properties.
To be released in the next few weeks.
I would also like to note that we have revised the date for our ESG call.
The call will now be on October 19, 2023 at eight a M Pacific time.
11, a M eastern time.
We will provide further details closer to that date.
Together with the other members of our management team.
I'd be happy to take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
Do you have a question please press the star.
Followed by the one on your Touchtone phone you will hear today, Tom from technology of Macquarie.
You are using speaker phone please lift the handset before pressing.
Okay.
Oh.
Our next question comes from Lawson Winder at Bank of America Securities. Please go ahead.
Okay. Thank you very much operator, and Hello, Michael and team. Thank you for the update today.
I would like to start off just by asking about your capital return, which you touched on briefly in your prepared remarks, but I just wanted to kind of.
Ask that again and hopefully get a little more color from you and that is one with the dividend I would expect.
With a much larger asset base that you have now with the <unk> assets. If there is that ability to pay a higher dividend.
I'd like to hear your thoughts on that and then secondly.
With the share price trading now well below where you issued shares for the Humana acquisition, I mean does it make sense for Panama.
Pan American to be repurchasing its shares thank you very much.
Thanks, Lawson look I.
Our capital allocation did not change of what we did the last few years in the sense that first of all we maintain a very strong balance sheet.
<unk> proven already in the first quarter here.
On track doing so we announced last week the sale of a few non core assets.
For about $593 million cash on some will some high quality royalties as well.
We just announced that loss until that closing.
Closing will have funds for most of them I would guess in Q3. So that money is obviously not in our bank account, yet, but it will come.
And of course, that's where your question I guess, hence onto under capital allocation, so strong balance sheet.
Low debt levels.
But to me to come to bonds from Yamana Theyre very attractive interest rates on those bonds.
The long term bonds. So that's fine.
They took some money on our line of credit is not for.
Credit, which as you can imagine I mean, the current interest rate situation is a more expensive debt and will be paid back when we received the cash from those transactions.
And in the rest of course will improve even further our balance sheet and there will be returns to our shareholders. So that brings you to your question.
We declared a.
Dividend, that's kind of like a.
Probably the last the last quarter of our dividend payment under the old policy.
That got kind of a bit distorted because our dividend policy was based on net cash.
We put that in place for a long time Pan-american did not have any debt. So that's how it works really well. So we're working on a new policy right now.
We believe that the right time to install the <unk>.
At the end of the year when we have all that cash in from from those non core asset sales.
And we and the board did not make a final decision yet how that will look like but it will be something easy to follow.
Our oil policy.
I think the door will be opened their two anything like dividends share buybacks et cetera, but don't forget that we also have some high quality projects and absolutely.
At the core of our business to build out high quality projects that do that with cash in our balance sheet. So a lot of Colorado's com of course will be a focus on that.
I also mentioned in the call just before the PAA should be out somewhere late in this year.
Okay. Thank you for those thoughts.
If I could also follow up on the asset sales.
<unk> make a lot of sense that la arena, two would also be a noncore asset potentially.
To be divested.
That a fair assumption and then secondly, how do you think about that given that there is still a couple more years or maybe maybe several more years of really strong gold production left at that asset.
Yes, I mean look we I think we've done the holding these assets for about three or four months, we have been able to come through follow through here and come out with a very strong group of non core assets. I also we are working on others.
This is not this is not done by any means we have a lot of assets.
And in our portfolio.
I'm from Pan American's from Yamana side so.
We'll continue looking at that and optimize our portfolio.
I think I made statements before that.
Copper for US does not obviously another another focus we're focusing on our silver production and our gold production.
And I would envision with copper project something similar than we did with model, where we look at cash flow and asset and a very small royalty copper royalty to keep our hands on the upside of the future.
Copper price so kind of the similar structure than we did than we did model youre right that the Lorraine is still has a few years of full production from the oxides on the top.
I'm not worried about that there will be many different ways.
The structure.
Uh huh.
Like a deal on something like that where you keep the gold mining and handle all the asset later on or a new buyer, who wants to look at the sulfides below finishes the mining of the oxides on pesos protocol. So I'm really not worried about that but I think thats just a detail that we can solve and deal negotiation.
Okay, Great and then hopefully just one final question that should be fairly straightforward just on the silver unit cost guide for Q4 and by the way. Thank you for providing quarterly guidance.
So unit cost step down in Q3 versus Q2 on higher production and then there's still even higher production in Q4, but the cost step back up is that just are you expecting a decline in some of the byproduct credits in Q4 versus Q3.
Yes, Hi, Lawson, Steve you're no it's more reflective of our sustaining capital.
Timing, we see a heavy quarter in Q4 for sustaining capital spend.
And Thats really a weather related particularly in some of our assets.
Q4 is kind of the peak time for our construction loan Leach pad, where its terms things like that.
The weather related in many places when we go from the west into the dry season.
So it's something to the quarterly guidance lessons in case people didn't see that its in our MD&A.
When you look at the quarterly.
And the Q1, sorry in the Q1 MD&A and if you look at our guidance there per quarter, we actually our costs were actually below our guidance.
In the guidance for the animal one, but when you look quarter by quarter. We are we did very well and in Q2.
Okay. Thank you all very much I appreciate that.
Awesome.
Okay.
Thank you. The next question comes from Craig Hutchison of TD Securities. Please go ahead.
Hi, Hi, good morning.
Yes.
I had a question on <unk>.
Tomorrow.
Do you plan to retain and I think you could you kind of touched on it is that something you'll hold longer term or would you be looking to monetize that.
Post the deals close and I guess have you got any expressions of interest on that MSR since you announced it last week.
Hi.
But it will come in at the moment, it's really.
Selling focusing to solve some of these noncore assets and.
We whenever we can try to.
Keep access to future upsides through royalties.
And I think has worked for us really really well in the past.
I'd like to remind everybody.
The Mavericks transaction, we did.
With our pharma portfolio of royalties, we had during 2015 by restarted Maverix metals.
In a very strong and longtime shareholder until the company got sold.
Earlier. This this year I think a tougher yet laughter.
What's going on.
Transaction size.
So.
Really really well for us I think we got in about $152 million cash from quite a smaller portfolio. This royalties. We're talking now are very strong royalty as you can imagine when we're talking in especially in the case of model about the.
Our life of mine copper royalty.
Probably one of the larger copper deposits in the world.
Develop.
You know I don't want to make a decision right now what we do with this royalty as you can imagine there's a lot of demand for royalties.
And of course people are asking what we're doing with them, but at the moment, we're just focusing on optimizing the portfolio.
And those royalties will decide later on how we create most value for our shareholders out of that portfolio.
Okay, Great and then one last question just on the tax you mentioned taxes cash taxes. The higher Q2 can we expect them to drop off fairly.
Fairly substantially here into Q3.
Can you just provide some context of why it was so high is this for catch up payments from 2022.
Yeah.
Hi, Greg This is Ignacio speaking so in general yes, as you know we pay installments throughout the year. However, there is always a catch up that we do.
Usually typically between March and April and in this case, there was a large catch up in April .
On taxes, specifically I think it was in Chile.
But yes, that's just the normal cadence of our tax payments in installments of in a catch up and sometimes in March and April . So do you like either lines in Q1 or Q2.
But yeah Youre right Thats normally our biggest largest tax payments are in the first two quarters of the year.
Prior.
Great. Thanks, guys.
Thank you.
Thank you. The next question comes from Don Demarco from National Bank Financial. Please go ahead.
Thank you operator, and good morning, <unk> first question.
If youre looking at the asset disposition late July does this change your care maintenance guidance for 2023.
It was about $100 million for the year and maybe $50 million has been spent in each one.
Yes.
Really good point.
It's not only the cash that comes in and the royalties but.
A lot of care and maintenance costs that will go away with those transactions.
The biggest one four for the care and maintenance costs really motor coach on and of course Mara.
It really depends when the transaction closes.
But as soon as they close yes.
We'll go away.
Pending which month, we make on a just a little bit the care and maintenance capital.
One at the end of the year, but we really.
It really depends on that date, but definitely for future years.
Big improvement.
Okay. Thank you.
What we see with the reporting last night at the coffee AFC is little bit variable versus the guidance ranges.
Looking at some of the cornerstone assets legacy window in helping yawn there above the ranges on EAC jacobina positively near the bottom of the guidance range.
So what are some of the factors that are.
Driving the swings at these three mines.
And we expect a reversion to sort of midpoint.
The guidance range in age two.
Yes, Thanks Dawn, Steve here, maybe I'll start with Jacobina Jacobina is having very very good success on some of their cost control programs.
And we have enjoyed some pretty good costs, even cost per tonne unit cost per ton have been looking very good there.
We're a little bit we're monitoring very closely the exchange rate of the <unk> that has an effect there that's pretty strong but.
We did come up pretty good in Q2, and we're optimistic looking forward a jerk Convenor L.
<unk>.
There's quite a bit going on there in terms of.
The rescheduling some of the mine plan.
We've enjoyed some really good silver production coming out of a belt and you own a little bit disappointing gold production. During Q2. So we're kind of readjusting that plan, we always think anticipated a strong second half of the year, particularly early strong Q4.
<unk>, but we have kicked up development rates a bit.
And some of the activities or kicked up a bit so that's driving some of the cost differentials from what we had before.
And I think Cerro Moro I think that was the other one you were talking about.
No it was actually window.
<unk> <unk> <unk>.
<unk> I would say.
Right now it's really we're focused on this blending of course or with the fine quality yours and what that happened what we've decided to do is drop some of the cutoff grade. If you will of some of the orders to give us better blending rock for the higher grade <unk>.
And the effect of that kind of drives a bit of the cost as well and thats kind of the noise. We're seeing there, but maybe it's just that in China really to the channel cost driver a big cost driver. When you look at of course sustaining capital one and that various as we said before it's a month to month.
So seasonality to that rich.
Depends on the weather pattern, nor on the dry and wet season, that's different countries. We are working in.
When we can do certain work and whatnot, so thats us.
Given on and especially in Peru, the dry season starts and northern Hemisphere winter.
Bye bye.
Byproduct.
Very important byproduct.
Timing of sales of stats on prices of byproduct us all our costs are net of five products.
Those have a big impact.
On our cost and then the last one that Steve alluded to as currencies.
How much of a local currency payments, we have in a certain country and how strong that local currency is that has a big impact on our cost positive or negative depending where it goes so those are.
Kind of different impacts and of course on behalf.
To follow our capital schedule under the bipartisan currencies are out of our control.
So just keep in mind when you look beyond the all in sustaining costs that those are.
Sure.
Big factors as Wilder play into it.
Okay, Okay, well keep our modeling guidance ranges for time being and got final question, just going over to the Ilo 169 process.
It sounds like an encouraging quarter.
Meeting it sounds like good progress there theyre asking questions there.
There seems to be some dialogue there.
Yes.
I'm looking at your website here that you had mentioned.
And after phase II constipation Theres, the Supreme Court verification.
Could you give us an idea of when that phase two might conclude and then what the expected events would be two phase III.
Yes, I mean, you're right lots of activities in the quarter and ongoing.
The upside from the Ministry of mines, I think shows something like October end of October and November for the conclusion of that phase.
I don't know if thats really the exact timing, but I think that's what at the moment is on their website and thats. What the government is probably trying to to achieve and then it will go into the last place with that.
The core clarification, so I don't have really dates for you exactly.
Just encourage everyone to follow the upside from the government of Guatemala from the Ministry of mines.
There will be periodic updates.
As we go in and see.
See how that evolves.
Okay I can see the link and you might say okay. Thank you very much that's all for me.
For Q3.
Yeah.
Thank you, ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Oh.
Yes.
There are no further questions at this time, Mr. Simon I turn the call back over to you.
Thank you operator, and thanks, everybody for calling in today.
Busy quarter with a new larger and stronger Pan American.
The addition of the <unk>.
Former yamana assets.
Strong production and.
No big baked advance already divestments of non core assets in the quarter. So as you can imagine it was a very busy quarter I'm very happy to see the advances on on top of that as I mentioned, the integration has gone really well and we're very happy with our local teams.
Everything advancing well.
Harvesting of synergies is right on plan between our $40 million to $60 million. So.
We will continue that.
Then on that dropdown and our path.
We're looking forward to report the next quarter to you in November until then enjoy the rest up to some thank you very much.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.
Ladies and gentlemen, this concludes your conference call for today, we thank you.