Q3 2023 Pan American Silver Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Pan American Silver third quarter 2033, Unaudited results conference call and webcast at this time.
All lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
During this call required immediate assistance, please press star zero for the Heartbreaker.
This call is being recorded on Wednesday November eight 2023.
I'd like to turn the conference over to Siren <unk>, Vice President of Investor Relations. Please go ahead.
Thank you for joining us today for Pan American Silver's Q3, 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 our Q3 2023 unaudited results.
All of which are available on our website I will now turn the call over to Michael Steinmann Pan American's President and CEO.
Thanks, Sharon and thank you everyone for joining our call today.
Let me begin with an update on our progress integrating the assets we acquired through the amount of transaction that closed on March 31.
I'm happy to report that we have integrated the <unk> operations into Panama consort innovation.
And advanced on streamlining the new company and with the sale of non core assets.
We have also reorganized the Yamana Latin American regional offices in line with focusing supported the mine operations and continuing to enhance corporate oversight leadership systems policies and procedures by taking advantages of substantial synergies and business improvement opportunities.
Working with the new teams.
Elevating many optimizations and mine life extension opportunities, we look forward to sharing more with you on that in the coming quarters as we advance detailed studies and near mine exploration programs and update the life of mine plans.
We committed to rationalizing our portfolio. Following this transformative transaction and we have made significant progress on that objective.
Earlier than I think most would have expected.
Additional opportunities yet to come.
In Q3, we completed the sale of our interest in the mono project in Argentina.
Promoter culture mine in Peru, and on Monday, we completed the sale of our interest in DIY. They left followed a project in Chile.
Q2, we divested certain non controlling equity investments.
Which are largely inherited from yamana.
We increased our equity interest in new Pacific in Q3 to 11, 6% of new Pacific's outstanding common shares helping to further advance interesting, believing in silver projects by leveraging our longstanding operating success, we have enjoyed that suddenly center over the past 24 years.
We also committed to paying down certain higher interest debt incurred for the <unk>.
The amount of transaction.
We repaid the amounts drawn under sustainability linked credit facility.
As of September 30 years after its full $750 million available on our credit facility. In addition to working capital of $832 million, which.
Which includes cash and short term investments of $386 million.
Total debt of 809 million is largely related to two senior notes Pan American assume so the amount of transaction.
Well, let's lease and construction bonds.
Alex has attractive terms.
$100 million with a coupon of 263% maturing in 2031.
And $283 million with a coupon of four 6% to 5% maturing in 2027.
On American has a strong balance sheet, which gives us the flexibility to manage a business cycles and capitalize on growth opportunities.
The steps, we have taken to divest noncore assets and repay debt will also significantly reduce costs going forward.
We expect to save approximately $90 million in cash annually, primarily from the elimination of care maintenance project development and reclamation costs associated with mono modal culture.
In addition to interest expenses from having repaid the $280 million that was drawn on the credit facility at the end of June 30.
2023.
We expect sort of savings from the amount of acquisition in the form of synergies, which we continue to estimate will be about $40 million to $60 million annually.
Finally, it is important to remember that we retain future upside on both tomorrow NPL they'll have filed our projects to the precious and base metal royalties we retained.
With the strong counterparties and those projects.
With that let's move on to our results for the third quarter.
Acquisition. After four Yamana operating mines has provided a significant increase in production with reduced unit operating costs and enhanced diversification.
We produced five 7 million ounces of silver and 244000 tons.
On the ounces of gold in Q3.
All in sustaining costs for the segment were $18 19 per ounce and $1461 per ounce for the gold segment.
While operating performance at most of our mines was in line with expectations to operations faced unique challenges, which weighed on Q3 results.
And the silver segment lack a lot of other continues to be impacted by ventilation constraints.
These constraints resulted in reduced throughput limited access to higher grade zones of the mine and required intensive crown support renovations in areas, where high heat and humidity have Brian they're older ground support methods ineffective.
We do not expect an improvement in <unk> performance until the new modulation infrastructure is completed around mid 2024, and we are able to increase development the mining rates in the TPS part of the mine thereafter.
We are making good progress on that work the excavation of the concrete line shaft reached a depth of 522 meters by the end of Q3 2023 and is expected to be fully escalated to a depth of 593 meters.
By year end.
We expect the installation of two large exhaust fans on the surface to shaft will be completed by mid 2024 <unk>.
Commissioning of this large primary ventilation system will deliver refrigerated fresh air we currently produce directly to the heat source in the deep eastern area work basis, and immediately <unk> vertically to the fully concrete line shops.
This will avoid signing up their back through to mine that is damaging our ground support systems.
And the gold segment mine gold grades were lower than we were expecting a delta based on reached the reconciliation data we have initiated a review of our mining sequence in certain sections of the mine to achieve a more stable gold production.
Over the next several months, we will be adapting to the mine development scheduled for opening the two.
<unk> more flexibility when encountering unexpected grade shortfalls and is highly variable deposit.
The delineation drilling strategy has been reviewed to reduce the grade variation risk.
Currently encountering.
<unk> remains one of our core assets with excellent exploration potential and excess mill capacity supporting that mine is being an important contributor to the company's future cash flow.
Given year to date production and our outlook for the next two months, we are reaffirming our annual 'twenty to 'twenty three guidance ranges for silver and gold production with the expectation that production for both will come in at the low end of the ranges.
<unk> gold segment cash costs, and all in sustaining cost to be within our guidance ranges from 2023.
Expect silver segment cash costs, and all in sustaining cost to be marginally above our guidance range largely due to ventilation constraints at la Colorado I mentioned earlier.
The two week suspension of operations at the mine in early October to address security concerns as previously disclosed.
We are maintaining our 2023 guidance for base metal production and sustaining and project capital expenditures as well.
We reported a net loss of $22 7 million in Q3 or a basic loss per share of <unk>.
Adjusted earnings were $3 1 million or <unk> per share.
Operating cash flow was $114 $6 million net.
Net of $35 8 million taxes paid.
Including the cash dividend of <unk> 10 per common share we declared yesterday, we will have paid $135 million in total dividends this year.
Turning to the lack of what others current project. We are on track to release, a preliminary economic study by year end. The study will be based on using the sub level caving mining method.
Which we believe fault for superior economic benefits, given the size and geometry of the large silver bearing a poly metallic deposit.
We will carefully consider potential alternatives for the optimal funding structure for those <unk> once the preliminary economic studies released.
And all of the development details risks and opportunities can be thoroughly discussed and debated.
The Ilo 169 consultation process for the Askable mine in Guatemala continued to progress in Q3.
Pan American has now hosted three visits to the mine Foreshank indigenous representatives and their advisors and several other meetings have been held.
This included work in meetings with Schenker Representatives, and Guatemalan Ministry of energy and mines or <unk> for short.
I know many of you check mammoths upside for the Escobar consultation, which does provide very transparent reporting on the process and noted that demand had intended to complete the consultation by the end of October.
Although the schedule was not met all of the participants continued to engage in a peaceful comprehensive transparent and good faith consultation process.
Consultation meeting is scheduled for November 10th.
And as usual, we are not providing a timeframe for completion of the consultation for potential restart of the mine.
While the consultation process moves that we are also continuing with our care and maintenance activities for us Gopal I would like to congratulate the pan-american team in Guatemala for receiving first place in the environment category from Guatemala Chamber of industry for their work on reforestation and conservation project.
The project involves an innovative approach to reproduction of oak trees with NDS Kibali mine area with the primary objective of bringing up the lodging forest regions, the mine property and transforming them into protected valuable habitats for floor on phone.
If you'd like to learn more about this you have the video posted on Pan American's Linkedin page.
Michael Let me post updates on some of our company's initiatives and to balance.
In closing we are pleased with our progress on the integration of Yamana assets, which is delivering pan American with significant production growth and reduced unit costs. We're currently preparing our plans for 2020 for focusing on safe reliable cost efficient operations at the development of additional value.
Enhancing future growth opportunities.
We will continue to evaluate ways to streamline our overall portfolio <unk> of remaining the world's premier Silver mining company.
Together with the other members of our management team.
We would now be happy to take your questions.
Thank you.
Ladies and gentlemen, we will now conduct a question and answer session.
I have a question. Please press star followed by the number one on your Touchtone phone.
He was here at the rebound.
Generic question.
If you would like to cancel your request express part too please.
Essentially you lift the handset that you are using a speaker phone before pressing NTT.
Your first question.
Comes from the line of.
Cost smart Xu your.
Your line is now open.
Thanks, Michael.
<unk>.
Maybe if I can hi, good morning, maybe if I can start off with open your first.
I guess, you know what I'm going to ask in terms of the shortfall in grade.
Am I reading it correctly I guess.
No.
Q3 year head grade was <unk> 98 grams per tonne and two seven gram per tonne for gold.
If I look at the proven and probable it's closer to 213 gram per tonne ore.
Probably 148 Gram per ton so great in the quarter was about half.
Gold and silver compared to your reserve grade does that is that correct and maybe if you can elaborate on kind of kind of what happened.
Yes, Cosmos, Steve here.
Hey, How's it going.
Yes, basically if I can talk first about in Q3, we had anticipated mining and we've been developing for most of the year. According to our mine plan that was developed previously.
<unk> thousand 22, and we were planning to develop into these high grade structures that would be mined in the second half of this year three of those structures and keep in mind <unk> spatially quite vast where mining several phases across faster is about 12 kilometers by.
Eight kilometers so it's spread out quite a bit so there's a lot of development that goes into these areas all over the different mine and there were three of these areas that were particularly high grade.
Our goal not so much silver.
We go into so when you look at the reserves that average is correct, but the distribution dependent the sequencing can affect that grade quite a bit now when we mined into these areas.
What we discovered is that.
Looking back now and evaluating what happened there.
Three of those areas that were particularly high grade had very limited drilling information on.
It was specially drilled quite a bit wider than the normal reserves that we'd like to see so we're reconfiguring our drill programs to target these higher grade areas in the future.
Really a Q3 impact that's going to carry us over into Q4.
Because they were scheduled to be mined this quarter. So we're going to be looking at those areas drilling more and kind of.
Increasing the density of drilling if you will particularly in the higher grade zones of the reserves. We're just finding its not its not to the level.
Gives us the risk tolerance that we wanted to see so that's going to report into our plans for next year and depending on how that increased drilling goes that will kind of adjust those higher grade zones that were seeing I think we're going to see positive or negative surprises as we do that just the variability of the ore deposit but according.
To your question on <unk>.
Silver grade really half of that the answer is yes, and thats sequencing, we do have higher grade silver zones.
But the average grade is about 100 158 Gram silver on the reserves when you put the Pnp together, so we're 98 such as sequencing.
Just to add Cosmos.
As Steve explained.
But then under capitalized exploration project here at Yamana was running.
It's not.
Not enough drill density as we would do it on in order to fix that we increase now drilling side to about 10000 meters a month.
Actual <unk> fund.
Quite a bit more I mean, my bus like paring back Green Greenfield drilling what far far away and focusing weighted.
Further drilling on side. So we will further increase that's rolling to kind of catch up but.
So that's been done in the past.
Very confident here that.
I was just at the mine couple of weeks ago, and I've seen some really interesting intercepts there so that.
Drilling necessary back now.
Or more power meters a month in both increased further here in the coming months and Kozmino, if I can kind of add a little bit more detail too as we mined into those high grade zones, and we didn't see.
The orders that we expected.
Open your own theres quite a bit of feed that goes to the plant that slow grade. So when we're not producing off the mine we supplement rather from the low grade stockpiles, which were quite a bit lower silver grade and thats what drives that.
Sure and then if I could follow up on that question.
In terms of Q4.
I don't know how much you can share with us but.
You've maintained your guidance for the year.
But how much of these high grade stopes have you factored into your Q4 number and how much you're hitting those Q4 numbers is dependent on getting some of these higher grades. So I'm just trying to figure out how much conservatism of your clock.
In light of what.
In light of the great shortfall that you realized in Q3, so we're moving into Q4, Cosmo anticipating we're not going to see that high grade that we anticipated in the original mine plan, So where we say we're going to still make.
The gold guidance on the low end, it's really looking at our other operations to kind of make up some of that difference.
Of course, okay great.
Maybe if I can switch gears a little bit.
Going to ask you about in Guatemala.
Thanks, Michael for the update.
And on top of the compensation I think we're all aware that there was a presidential election early on this year.
Give me a there will be a presidential transition early next year. However, there seems to be a bit of noise in terms of the Supreme Court and validity of the.
Of the one off in terms of election, how much.
Should we should we monitor that situation and how much of that situation could potentially impact the timing.
Escobar.
Yes, because I hand over to Sean Microliters here, who is running Guatemala are also in countries. So please sean.
Yes, good morning, it's hard to speculate.
What the outcome will be with some of that noise that you mentioned.
The president of Guatemala has publicly stated its commitment to smooth transition.
At the Ministry of energy and mines the transition team from the newly elected party has met on several occasions.
With the men and so they are moving forward to have a smooth transition in January.
Well we've met with.
Members of the incoming team a few times.
And.
Hard to say, what's going to what's going to be the timing and if theres going to be any delays certainly if there is a transition in the processes.
Completed by the end of the year, we would expect.
It takes some time to continue that on but.
They are committed as well to the Ilo 169 consultation process and so we're looking forward to government.
Government transitioned in January and we will continue working with the government today as needed.
Great. Thanks, Michael Sean and Steve So that those are all the questions. Jonathan Thanks again, thanks Cosmos.
Your next question comes from the line of obese have EBIT.
Tibet.
Sure.
Sure.
Hi, Michael and Pan American team.
Tom applied.
Hi, some of my questions have already been answered and thanks for the color on the opinion.
But I did have two more questions.
Just number one.
The amount of transactions, obviously, one of the priorities was to sell non core assets and was really great to see the scale of <unk> as well.
Are you expecting to continue to monetize non core assets and are we expecting any sort of relief or any sort of update on the asset sales by the end of this year.
Yes.
No. This is selling assets is a very dynamic process until a deal. So I can't give you exact timing, but we are definitely working.
And in the preamble to this call.
We are working on further opt.
Optimization of our portfolio. So that's continuing there is quite a few more assets.
From that we have in our portfolio debt.
No don't really impact our operations or our production profile right now.
We got some inbounds from the interest so we definitely we will continue that process.
Really really pleased.
But the team has been able to achieve and really short like.
I think we announced in summer after only three months.
If you look at the at the Big numbers, that's really allowed us to repay for the full year or for the last what is it now 10 months.
Just about below just cooking Mama $398 million in debt.
We also for the full year paid about $135 million in dividends, including the dividend payment that just has been announced yesterday. So.
Huge change, obviously to our already strong balance sheet before which.
Nova was really supported by this by this asset sales on just let me mention again that.
Put it in the press release, we're looking at about the $90 million annual saving in care and maintenance costs project.
<unk> costs.
From.
Mara.
And motor coach and then plus as you saw we repaid.
Our lineup.
Got it fully so there is savings substantial savings on interest payment there as well. So these three things together amount to about $90 million now you have to add on top of this.
The niches.
We've talked in the past, we always guide at somewhere around $40 million to $60 million sandwiches.
I think we are pretty confident here that we are going to be at the upper end of that of that range on the synergy side I think there is still a bit more to do on the optimization of our working on some.
Some photos synergies coming in and we have to wait for the really end of the year when we have.
All of the final tally of numbers on.
Early I guess early next year, we'll have the final numbers on percentages, so big changes from those disposition of assets.
That theme will continue do we have something ready to share it with you.
This year still or early next year.
As I said look that's that's a very dynamic process side, a contrary paint the team down on one.
Monthly or more or less but.
And novel.
I want to try to bus tier two advanced that theme and continue that theme that we started this year on the disposition.
Thanks, Thanks for the color on that and.
And just.
In regards to the synergies.
Obviously, you mentioned $40 million to $60 million.
Have you already started seeing those synergies kind of going into Q3 or arm I'm guessing we are expecting more kind of going into Q4 and more into 2024.
Yes.
In Q3, but very little on the synergy side for sure not on the not on the care and maintenance cost.
As you remember the closing of dose of those deals happen really in specialty mono modal culture, which are the bigger biggest months of the current maintenance close like late third later and I think like that.
Just the week before the end of Q3.
So no no advantage really in Q3 on that but from Q4, we will see the full effect of dose of those savings and then of course that will go into the next year plenty plenty for took out their ASO side with some additional.
Synergies that we will be able to harvest our swap.
Okay sounds good.
Switching gears a little bit.
Last question from me, we saw that you had increased your stake in new Pacific This quarter.
How do we think about Panama <unk> position on the silver signs that project and announced for <unk>.
Yes look <unk> and <unk>.
1997.
Long time, it's on with and that's been a very successful place for us.
Also this quarter to some extent that is really really well.
So that's to continue and I don't know there is a place that we are very happy doing business now you look at new Pacific.
Big discoveries there their exploration discoveries are still earlier stage, but they are all of the size that are absolutely.
What would be of interest for Pan American ex that come through.
As a mine.
And with our experience in Bolivia.
Combined with with that large size on the silver side of course, that's that's of interest for us and Thats really the reason why we continue we have been with new Pacific from the beginning on way we liked the <unk> very early stage on risks that some of the first financing to help bring aimed up exploration and drilling forward.
And when new Pacific look for financing, we were happy to increase slightly our steak and continue to advance on how to advance those projects in Bolivia.
Perfect.
And that's it for me in terms of question. So thanks for taking my questions Michael.
Thanks Ross.
Your next question comes from the line of Kerry Macquarie Mccrory from Canaccord Genuity. Your line is now open.
Yes.
Hey, Good morning, guys. Just a question on Cerro Moro there was a big jump in the onsite direct operating cost this quarter versus last quarter. Just wondering if you can give any color on what drove that increase.
Yes sure.
Yes.
Hi, Gary this is Steve.
Overall, I think the cost Cerro Moro, it's reflecting the development we have to do to get to some of these really high grade variable ore deposits. So our development rates increased the mining with some kind of decreased according to schedule. So it was pretty much on plan.
Relative to what we anticipated for overall spending there.
And then I think financially we had some impact.
The cost for yes, Hi. This is Ignacio in addition to what Steve just mentioned, it's worth mentioning that there was a buildup of inventory at the end of Q2. The production in Cerro Moro was back loaded into Q into Q2 of the last couple of weeks.
June and that inventory flushed out during Q3, so that was another factor contributing to the higher costs for Cerro Moro Q3 relative to Q2.
But just in general I think we talked about.
Often about what our cost drivers.
Our side so there is a.
The big difference between our silver segment minds in the gold segment mines.
The second one months in many cases come with base metals. So.
These are byproduct credits our base metal prices have a big impact to our costs. Both places to go up or down it can be headwind or tailwind for us.
Other big impact is exchange rate, so that depending on.
I know you gave in any given country that impact.
Can be quiet, because we have quite a lot of spending in local currency. So you always have to keep that in mind.
Of course, we look we look at it.
All of this at the per ounce base, but Tom base, which is more like a neutral way for us to track the cost. So that we see obviously that variability, which is often driven as I've set up and down by by other factors as well.
Maybe just a follow up to that maybe for Nashville.
So last quarter, the last quarter, there was a $32 million of fair value adjustments relating to the managed transaction like I'm. Just wondering are there is still a fair value adjustments flowing through these numbers this quarter or are those pretty much were stock now.
Yes. Those are those are minor PPA adjustments just to keep in mind that our initial purchase price allocation. That's just preliminary we have a year to finalize those numbers.
We didn't see.
We didn't see any more changes.
In Q3, so I'd say stay tuned as I said, we have a year to finalize those numbers, but.
But I think all those small changes are mostly flushed out in Q2.
And as I said, we have a year and we'll see how those numbers ended up only when we finalize our analysis on the purchase price.
Alright, great. That's it for me thanks, guys. Thank you.
Okay.
Your next question comes from the line of Don Demarco from National Bank Financial Your line is now open.
Thank you operator, and good morning, Michael and team.
We'll start off with basketball.
We're seeing some a lot of activity in terms of the meetings for a number of visits to the mine are their engagements with.
The ministry of mines and so on.
I appreciate these details, but can you share what.
I mean, why are we presenting them by three times.
Are they impressed by the mine or what's the nature of their visit and what are they looking at when they go.
Obviously I mean this is a very open process. So as we always described.
Our doors are open to a lot of visitors.
And we had those visits.
Cinco representatives as well, so where I see it as very positive yes.
Yes, a lot of activity.
The consultation online visits during this quarter, maybe Sean you want to give some more color to that.
Excuse me.
First visits we had in August.
That was over 40 members of Shaker Parliament came to the mine site.
The first time, a lot of them that well first time all of them had been to the mine site. So just a general site tour and overview of what the mining activity is what the operation is visit.
Visits in the underground mine.
To the processing plant and tailings facility.
So obviously.
You can imagine a daylong tour and then lots of questions.
Around those tours and then there were two other visits.
Where we talked about water and then another visit which focused on are filtered tailings facility and questions around.
The design of that facility and some of the some of the other asps.
Aspects of that facility so.
And during the meetings were going into some detail discussions about water quality water quantity and so it's it's always.
Well pretty dynamic meetings and lots of learning in Q&A, So it's been pretty productive and really good dialogue over the last quarter.
Yes, exactly thanks, Sean as SaaS.
The very positive open open dialogue here, Richard <unk> of <unk>.
Of course, the way that consultation that's been out so far.
We obviously support we obviously support that Blake.
Okay, well, thank you for that Michael and so looking ahead at this consultation process, we had a charge that will a quarter judges that will weigh on the process and determine if it was carried out at.
True Ilo 169 standards, but what happens beyond that.
At that point the consultation with larger would be concluded is it will you then be negotiating or having continuing discussions with the zinc or other members what happens beyond participation.
I think another process as outlined in our on our slides as well on our website.
Once the consultation is finalized.
Report.
We will be handed over about the consultation to the Supreme Court in Guatemala under Supreme Court.
We will then determine.
And so everything has been followed in the process.
And I would assume in the court ruling that central.
That's after works off the bat the session ma'am can this decides to reinstate our mining license so suddenly.
Yes, that's pretty accurate I think yes, and I think.
We will get some more color around that over the coming months and coming weeks at a future meeting so yes.
Okay fair enough because the court can say the process followed the iron ore once again, but that doesn't necessarily mean that the market gets restarted but anyway.
We'll look for color.
In the coming months, but we are encouraged by this activity that took place this quarter.
So a lot count.
Some of it please call question on.
Ventilation is going to be completed by mid next year. So what should we be modeling for AFC in the next two to three quarters.
At the $30 range or.
Or is that pipeline.
Yes, Hi, Dawn Steve here.
I'd say were going to be trending towards the upper $20. We are seeing some improvements there has been some work done.
And reducing dilution, we're seeing better grades it's really a tonnage play right now we're trying to get air pumped into scenarios. So we can get some higher throughput and I think we're going to see some.
Marginal improvements in that but until that new shelf comes on.
I don't think we'll see a major change.
Okay. Thank you Steve for that on La Colorado, and then final question just companywide cost.
Directionally heading into the Q4 of last quarter of the year.
Are you expecting an improvement versus Q3.
Yes from an operation standpoint, when we look at all the operations I would say.
We're seeing pluses and minuses and they seem to be balancing out. So I think Q3 is probably a reasonable projection for the operations side, yes, we.
Really a lot depends on when we sell a higher oil price again, its coming up again a bit.
Always a big big impact to our operations.
The cost obviously of diesel, but translating in higher cost across the board.
Some more pressure on some inflation, but then there's some other costs that also coming off.
So, let's just steeps up probably plus or minus this AFR last quarter.
Okay.
Thank you again, good luck with the rest of the year and Thats all for me. Thank.
Thank you.
Your next question comes from the line of Craig Hutchison from DB Securities. Your line is now open.
Hi, guys. Good morning, Thanks for taking my question.
Just on La Colorado, It's a follow up question on the throughput should we assume the throughput that we saw in Q3 are representative of the throughput. We can expect until mid next year and to put ventilation is all up and running.
Yeah, Thanks, Craig Steve here.
The simple answer is yes, I think thats correct. I mean, we are focused on advancing development rates, which will generate a bit more or we brought additional contracts are on we are getting a little bit.
The areas with a little bit more air So I think youll see some marginal improvement in overall tonnage, but yes. Once again until that sharp comes on we won't see a material change.
April.
But thanks for that.
Just the way they are and I think Steve talked about we expect to.
Finalize the escalation of the shaft.
Later.
We're on track to finishing the excavation by year end.
And then we'll be installing the big ducting systems and the big fans are 2000 horsepower fans each that we'll be putting on the surface and commissioning by midyear. So all in all on time industry as I indicated already like I think a couple of quarters ago.
Budget as well.
Okay, and maybe just a.
Question on Cerro Moro or maybe another Ya man assets in general.
The lack of drilling density that impacted the grades expected grade through our opinion.
Is that a concern and somebody other operations at Cerro Moro.
Have more confidence in terms of the drilling work that's been done to date and the grade profile there.
Yes, Hi, Hi, Craig it's Chris here.
Suddenly we have when we do.
At El Pen Jan and we look at the spacing at $60 60, and then not necessarily by 30 meters for that for that initial grading and.
Drilling when we look at Sarah Mora suddenly see a higher ratio of drilling and certainly the auctions have behaved more consistently.
Doug.
Within the major structure.
Of the Escondida and Zoe So we certainly don't have that feeling.
In Cerro Moro and really.
Mike.
The increase in helping you on drilling up to 10000 meters on a monthly basis.
We're certainly trying to catch up with with some losses at the beginning year due to a change in contractors, which was.
Completed in January this year before we got onto on the site. So certainly we see that we're going to be catching up there.
If I can add Craig I will say reinforce so that jacobina absolutely no concern, we're seeing really good ore zones are in good continuity.
And even Florida matter, we're seeing we need to get drilling just to get some more tons into the into the reserve category, but.
One is looking really good too sure what Chris was talking about and just to mention and you only see.
See some nice upside in the exploration of more blue Sky stuff, certainly something we will be concentrating on in 2024.
Okay, great great to hear and then maybe one last question from me just La Arena.
Sustaining capex is tracking well below guidance.
I think some of that has to do with <unk>.
Lack of development of the Leach pad construction, so dump work preparation but.
Is that a is that something that can impact production next year or something you guys need to catch up on.
Yes.
Steve again, the main driver there is pre strip capital and Thats. The way we account for pre stripping of the open pit and what's happened there was a big chunk of that got shifted to operating costs. This quarter and probably you will see Q4 as well. So I think the east coast were solid Thats, just where we distribute.
Pre strip, whether it's capital or expenses there are some.
There are some dollars as you alluded to being pushed out into 2024 for pad five expansion.
And it's.
We're working through that right now we seem to be on schedule to where it wont disrupt production, but definitely that's one of our key focus areas.
Okay. Thanks, guys.
Thank you.
Our next question comes from the line of John Tumazos from very independent Research. Your line is now open.
Thank you very much for taking my question.
Concerning new projects in general.
And Colorado scarring in particular.
Do you have a minimum.
Hurdle rates threshold rate of return.
Or do you rely on.
Some qualitative events things like exploration potential.
Size synergies was the next to mine that stores et cetera.
All of Us all.
Board approval virtually la Colorado Scarring project will go in the context of your approval process.
Sure and just there's no board approval at this point, we obviously on the kind of late stage exploration.
Face here with local and <unk>.
Come out with with our study at the end of the year.
It will give us much more information on to the shareholders, how big and while we already we already know it so it's a very.
Large discovery.
How we think mining could look like over a very long time.
When you look at.
Our hurdle rates.
<unk> a few things that play in this there's a lot of factors that of course play into this.
Long term metal process, well have a very very big impact.
Did that calculation, so, especially in a project like this car type.
That goes over very very long time.
No.
There's obviously some impact big big impact on the capital number upfront and big impact on the module price here.
Using your model for later on so there's a lot of things to play in there but of course.
At the end, it's all about the quality of the asset.
About the mine lives fits about the exploration potential we already know at La Colorado Squander.
Keep drilling and we just keep finding more and more so we know there is this asset.
It's still growing.
For the current study obviously you have a cutoff I think it looks like.
Statements. This December 'twenty, two we drilled a lot of meet their sense. Since then actually Chris system is 50000 meter additional drilling so that deposit. This is still to grow. This is just a point in time that we're looking at it but as I said and as you mentioned a lot of factors to play into.
Calculating.
And IRR approach.
And a lot of decisions.
But we like to see depending on country jurisdictions size.
<unk> to other mines as Hugh mentioned sandwiches with all of our operations et cetera et cetera. So there's a lot of factors in there and lots of time will be discussed in our study.
So for example, as five or 10% our minimum hurdle rate of return.
5%.
I hope you're very very low number of course, that's not something that they are.
Looking really for.
But as I said look it's really the pumps, but they got.
The metal prices are tied to us and that's probably one of the most critical and also.
Difficult decision.
They look at a very very long mine life.
Way easier, obviously to the kind of come up with that with the metal price. If we look at the <unk>.
More process muscle kind of projects are normally around like let's call them 10 to 12 15 years very different when you look at.
Of course concentrate.
Contracts that play a lot of.
Into this as well.
Just one one side note there, which is really nice obviously, la Colorado poly metallic a lot of <unk> there are a lot of silver as well.
As a side note local artists producing really related claims zinc and lead concentrate.
I already know from the veins on the.
The metallurgical testing, we do so that the carnival produced the same so that's a very very attractive concentrates in this term so.
And a lot that plays in there but.
People with X by quite favorable concentrate terms for that kind of quality.
So Michael someone might be listening.
And reading between the lines in a way maybe you don't want to.
Should someone infer from your explanation.
<unk> requires higher lead and zinc prices than current prices.
So it's a mini dedicated project youre going to wait.
Wait for zinc to recover to $2.
Go ahead, assuming zinc recoveries to $2 <unk>.
No.
John this debt.
The beauty of long life assets.
Like everybody does all of this that you don't have to kind of tried to time.
For the same price a lot price our process model across cycles and they all know that that's very difficult to do because you have.
Construction time upfront on that.
None of US knows led uprising go exactly but that's exactly the beauty when you look at this very very long mine.
Mine lives that are going to catch a few quite a few of those cycles. So anyway.
That's the beauty that's the reason why.
Mining companies, especially the large mining companies look for very large large long lifestyle sites, because it takes that risk out of the equation.
It's Mike one last one I'm sorry to be so interested this morning.
Some investors are impatient and their clients of quarterly performance pressures on stuff like that.
And NATO and understand that it takes a long time.
You know four or five years, just to get to the point here.
And.
Sometimes in the stock market.
<unk> publishes the 150 million ounces of gold that don't exist and disrespect meticulous engineers to take five years to plan the project.
Do you think that would be <unk>.
Procreate to buyback a little bit of your stock.
Since.
Some of these short term investors might give up.
Yes.
<unk> project this is Mike.
At June your stock is going nowhere scale.
Let me first answer on the timing.
This has been incredibly fast if you think it's like one five years since the first drill hole in this car.
Resourcing up to like a quarter billion tonnes of resource still to grow as I said.
This will be a.
Pure Greenfield discovery, you know, we were talking probably about 15 or more years to bring a project to that place. The reason why it was so fast as obviously it sits below.
Local it out at one of our silver mines, so that of course helps with infrastructure and thrilling live faster.
I've got that work done so.
The team has done an excellent job to advanced approach that quickly.
To kind of.
And economic study here, so thats pretty in pretty impressive and would not be possible. If it wouldn't be outside discovery, which I may say, so in a very unusual to make that large of alpha <unk>.
Discovery talking about share buyback that you mentioned that look I've said, we have this year the board opted to return capital to shareholders in form of dividends, it's over $130 million.
Still working on finalizing the new the new dividend policy, we will probably put that in place at the beginning of the year with just the normal <unk>.
Ill take place for us to.
To do that and I didn't know it will be at the at the ports. This question, how we return, Florida further capital to.
<unk> shareholders will be paying dividend uninterrupted since 2010 of course, we disposed of applied a few assets, which are the very positive effect as I mentioned on our balance sheet.
And all of our shareholders participated with that with the dividend payments. So we will see next year or the board's position will be in what form and shape.
But to return to shareholders will happen.
So Seth this year very strong dividend payments.
For sure David and will always be one part of it and I will continue to do so.
Thank you.
Thank you John.
As a reminder, if you have a question. Please press star followed by the number one.
Next question comes from the line of Lawson Winder from Bank of America Securities. Your line is now open.
Yes, thank you operator.
Yeah.
Morning, Michael <unk>, Thanks for that.
Okay. Okay.
Hopefully I can keep my questions pretty snappy.
Paul I wanted to ask about the Jackup BNET. So you guys provided.
The RMR update back in.
Late August.
And the reserve grade Jackup <unk> for gold.
<unk> in for Greg and I in particular any client.
Sure.
I wanted to ask a question.
Got it.
Ample of some of the drill spacing issues that you'd experienced at El pen Yamana and what are some of the potential other factors. Thank you.
Yes, hi.
It's Martin <unk> here.
Pretty much.
<unk> that you saw in the.
And the reserve grade at Jacobina was related to looking at the metal prices.
Cutoff grade the operating costs going forward.
We have a slightly different approach than the way that the Amanda was doing it they were using.
A low.
The lower gold price.
Then we use we bumped up the gold price.
But we are also looking at the cut off grade and how that works.
And.
We were able to use a lower cutoff grade for a reserve estimation that.
Yes.
Based on our analysis.
So the methodology and thats that brought in quite a lot of ounces.
The overall grade.
I believe it was being mined anyway.
And so so that's what happened there that's what you see loss from the FERC could add from an operating point of view.
I think from my perspective, the operations much more comfortable with the slower grade cut off at higher grade cut off there was a lot of pieces, meaning if you will of the deposits and it wasn't it opens up the mining it opens up some opportunities for us to lower the cut off.
To where we can look at more bulk mining even.
What theyre doing now that could drive costs lower again, yet so that's really where we're trying to drive to us looking for efficiencies and it may come at a little bit less less grade, but it's that's what we're trying to that's what this whole optimization studies that we're talking about is for jacobina is worse.
That best Sweet spot.
Can we mined more volume at a lower cost per ton.
Withstand a bit lower grades.
That's going to be many months of study, but we're pretty.
Optimistic walking into this and I think that's kind of the taste, what youre describing is kind of the change to where we see we'd like to take optimization. If you will.
And just drilling at Jacobina I mean, it's by far our most productive mine in tens of kilometers per ounce is added.
Yes.
It.
Definitely an excellent asset.
Now what would the implications then for potential production growth.
Thanks.
Great question, and I get that a lot.
Yes, Lawson Steve here.
I don't want to I don't want to speculate on what thats going to be.
I just look at the ounces in reserves the tonnes grades I look at the ounces in resource tons grades.
It makes me excited.
There are some opportunities here, but I I don't want to speculate how big that could happen, it's going to take us months to get through.
Well I can definitely hear the excitement in your voice that's great.
Yeah.
I just wanted to add.
Thank you.
Yeah.
Hi.
On that but just.
Maybe you could just share with us.
What's the base cases for throughput and then as a follow up question to that with respect to financing. Its construction I know you mentioned.
That is it thank you.
Potential consumers of funding going forward and have even sort of.
Suggested some cautiousness with respect to.
Potentially more aggressive capital return.
What other prospects.
And help alleviate some of that.
Those funding demands.
I can start and sorry, you're cutting in and out there, but I think.
Got a question on this car.
So let me know.
If you need more detailed Starbucks.
Yes.
Look we need to finish the study of course and it will be out in time, we have a lot of numbers and details to discuss how this is going forward.
We're very very open to do any.
Way to look at this project later on I think there is a lot of ways to optimize return for our shareholders.
Different different.
Foreman shape.
I can go from you know from time.
Finding a partner or focusing on the silver too many other ways, how to do that and I really don't Wanna.
Fixed up yet because there will be a lot of a lot of.
Details that need into that need to go into that decision.
But I think a large deposit like this con opens up huge opportunity for us to optimize that to return to our shareholders. So I think it should not just think in the normal.
The case is building the mine and mining it out over the next whatever 30 or 40 years.
Doing it all ourselves that could be one outcome for sure, but there can be many different outcomes to optimize the returns are a little bit early loss and once we have to study out there.
I'm sure there'll be a lot of activity going on.
How we can how we can optimize that in a lot of ideas. So we already have a lot of ideas how to do that and we'll start sharing those ideas of course with everyone. I think once we come out with the study and early into next year.
And then if I can add loss and Mr. Steve relative to the throughput almost gone.
That is one of the most debated subjects, we have here internally right now and we are going to have to pick a base case as I understand it to presume a base case, but I think we're going to open up debate, even beyond ourselves and showed some alternatives because it's very interesting to look at throughput on this project it as such.
Massive projects, there's so many opportunities as Michael alluded to and the more people we get the more I do as we get better right now so we're going to open that up a bit when you see the studied coming up.
Great Guy I apologize for that.
Sound quality on my end, but I think you guys captured the nature of my question very well with your response. Thank you very much. Thank.
Thank you.
There are no further questions at this time I will now hand over the call back to Michael Please continue.
Thank you everyone for calling in.
Today.
Like use of Louisville provide early 'twenty 'twenty four our outlook for for the new year I don't know it was later this year because of the transaction, but normally we do that.
And we'll do that in January 2020 for memorial Cheryl that those details with you.
We'll then have a great end of the year and talk to you in January Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.