Q3 2023 Pan American Silver Corp Earnings Call

Thank you.

Okay.

[music].

Good morning, ladies and gentlemen, and welcome to the Pan American Silver third quarter 2033, Unaudited results conference call and webcast.

This time all lines are in a listen only mode.

Following the presentation, we will conduct a question and answer session.

During this call you required immediate assistance. Please press star zero for dollar breaker.

This call is being recorded on Wednesday November eight 2023, I would now 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 to 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 Pan-american, so organizations 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 support to the mine operations and continuing to enhance corporate oversight leadership systems policies and procedures by taking advantages of substantial synergies.

This improvement opportunities.

Working with the new teams.

Evaluating 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 plants.

We are committed to rationalizing our portfolio. Following this transformative transaction and behalf 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, and promote our culture mine in Peru and on Monday, We completed the sale of our interest in India, where 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 Bolivian silver projects by leveraging our longstanding operating success, we have enjoyed it suddenly OTA.

Over the past 24 years.

We also committed to paying down certain higher interest debt incurred for the Yamana transaction.

We repaid the amounts drawn under sustainability linked credit facility.

And as of September <unk>.

The full $750 million available on our credit facility. In addition to working capital of $832 million, 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 to the amount of transaction as well as lease and construction loans.

No.

This terms.

$500 million with a coupon of 263% maturing in 2031 and $283 million, we had a coupon of four 6% to 5%.

During in 2027.

On American <unk> strong balance sheet.

Gives us the flexibility to manage a business cycles and capitalize on growth opportunities.

The steps we have taken do divest non core assets and repay debt. We will also significantly reduce costs going forward.

Expect to save approximately $90 million in cash annually, primarily from the elimination of care and 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.

Plenty of 'twenty three.

We expect further savings from the amount of acquisition in the form of synergies, which we continue to estimate it will be about 40% to $60 million annually.

Finally, it is important to remember that we retain future upside on both tomorrow <unk> projects to the precious and base metal royalties, we retained with strong counterparties and those projects.

With that let's move on to our results for the third quarter.

Acquisition. After 40 amount operating mines has provided a significant increase in production, which reduced unit operating costs and enhanced diversification.

We produced five 7 million ounces of silver and 244200 ounces of gold in Q3.

All in sustaining costs for the silver 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 weighted on Q3 results.

And the silver segment lack a lot of other continued 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 affirmed their older ground support methods ineffective.

We do not expect an improvement in <unk> performance until the new ventilation infrastructure is completed around mid 2024, and we are able to increase development the mining rates and the tep's path of the mind thereafter.

We are making good progress on that look 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.

By year end.

We expect the installation of two large exhaust fans on the surface of the shaft will be completed by mid 2024 <unk>.

Commissioning of this large primary ventilation system will deliver the refrigerated fresh air we currently produce directly to the heat source in the Dps some area of work basis and immediately <unk> vertically to the fully concrete line shop.

This will avoid signing up their back through to mind, whether it is damaging our ground support systems.

And the gold segment mined gold grades were lower than we were expecting a delta.

Based on recent 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 open yield that to provide more flexibility when encountering unexpected grade shortfalls in this highly variable deposit.

The delineation drilling strategy has been reviewed to reduce the grade variation risk. We are 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 meets the expectation of production for both will come in at the low end of the ranges.

Expect the gold segment cash costs and all in sustaining cost to be within our guidance ranges from 2023.

We expect silver segment cash costs and all in sustaining cost to be March above our guidance range largely due to ventilation constraints with lots of other I mentioned earlier after two week suspension of operations at the mining 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 of one time per share.

Operating cash flow was $114 $6 million net.

Net of $35 $8 million taxes paid.

Including the cash dividend of <unk> <unk> per common share we declared yesterday, we will have paid $135 million in total dividends this year.

Turning to the <unk> Com 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 felt for superior economic benefits given the size and geometry of the large silver battery in a poly metallic deposit.

We will carefully consider potential alternatives for the optimal funding structure for those <unk> once the preliminary economic studies rudi's.

And all of the development details risks and the opportunities can be thoroughly discussed and debated.

The Ilo 169 consultation process for the <unk> mine in Guatemala continued to progress in Q3 <unk>.

Pan American has now hosted three visits to the mine Foreshank indigenous representatives and their advisors and several other meetings have been held.

This includes work and meetings with Schenker Representatives, and Guatemalan Ministry of energy and mines or <unk> for short.

I know many of you check Mems upside for the basketball consultation, which does provide very transparent reporting on the process and noted that the man 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.

<unk> consultation meeting is scheduled for November 10th and Thats useful not providing a timeframe for completion of the consultation for potential restart of the mine.

Further consultation process moves we are also continuing with our care and maintenance activities for us football I would like to congratulate the pan-american team in Guatemala for receiving first plays and the environment category from Guatemala Chamber of industry for their work on reforestation and conservation folks.

Jack.

The project involves an innovative approach to reproduction of oak trees with NDS, Gabon mine area with the primary objective of reading.

The lodging forest regions.

<unk> property.

Transforming them into protected valuable habits flow on pharma.

If you'd like to learn more about this you have the video posted on Pan-american Linkedin page, where we regularly post updates on some of our company's initiatives and to bounce in.

In closing we are pleased with our progress on the integration of Yamana assets, such as delivering Pan American with significant production growth and reduced unit costs. We are currently preparing our plans for 2020 for focusing on safe reliable cost efficient operations at the development of additional value.

<unk> 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 if.

If you have a question. Please correct are followed by the number one on your Touchtone phone.

You will hear at return from generic question, if you would.

I'd like to cancel your request express part too.

Please ensure you lift the handset that you are using a speaker phone before pressing any key.

Your first question.

Comes from the line of.

Kosmos Chu.

Your line is now open.

Okay.

Thanks, Michael and team.

Maybe if I can.

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.

Media correctly I guess.

In Q3, our 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 or problem.

<unk> was 148 Gram per ton so great in the quarter was about half.

Gold and silver compared to your reserve grade is that is that correct and maybe if you can elaborate on kind of kind of what happened.

Yes, Cosmos, Steve here.

Keith.

Is it growing.

<unk>.

Yes, basically if I can talk first about Q3, we had anticipated mining in we've been developing for most of the year. According to our mine plan that was developed previously.

2022, 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> is basically quite vast where mining several phases across vast areas about 12 kilometers by <unk>.

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 mining there were three of these areas that were particularly high grade.

Our goal is not so much silver.

That 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.

Looking back now and evaluating what happened there.

Three of those areas that were particularly high grade had very limited drilling information model.

There was specially drove quite a bit wider than normal reserves that we'd like to see so we're reconfiguring our drill programs to target these higher grade areas in the future.

It's really a Q3 impact it'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 that's not it's not.

Not to the level.

It gives us the risk tolerance that we wanted to see so that's kind of our board.

Into our plans for next year and depending on how the increased drilling goes that will kind of adjust those higher grade zones. So we're 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 the.

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 and the losers when you put the Pnp together, so we really R&D 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> spend.

Quite a bit more I mean, my bus like pairing back green Greenfield thrilling, what far far away and focusing <unk>.

Further drilling on site. So we will further increase that drilling to kind of catch up but.

So that's been done in the past and then all of that.

Very confident here.

I was just at the mine couple of weeks ago, and I've seen some really interesting intercepts there so that.

Drilling sss back now.

There are more thousand meters, a month and Volvo increased further here in the coming months and Cosmo if I can kind of add a little bit more detail too as remind 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, but 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 withdraws.

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 higher grades stopes have you factored into your Q4 number and how much of hitting those Q4 numbers is dependent on.

Getting some of these higher grades so I'm just trying to figure out how much conservatism you clock today in light of what.

And lay up the great. Thank.

That you realized in Q4, yes.

So we're moving into Q4, Cosmo anticipating we're not going to see that higher grade that we had 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 wearing.

There was a presidential election earlier this year.

It could be a there will be a presidential transition early next year. However, there seems to be about noise in terms of the Supreme Court and validity of the.

Of the one off in terms of election.

Should we should we monitor that situation and how much of that situation could potentially impact the time.

Escobar.

Now of course, I hand over to Sean Microliters here, who is running with them. All up are also in countries. So please sean.

Yes, good morning, it's hard to speculate.

You know what the outcome will be with some of that noise that you mentioned.

Guatemala is.

Publicly stated his 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.

With the men and so they are moving forward.

To have a smooth transition in January as well we've met with.

Members of the incoming team a few times and.

It's hard to hard to say, what's going to what's going be the timing and if theres going to be any delays certainly if there is a transition in the processes.

<unk> completed by the end of the year, we would expect that.

It would take 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 transition in January and we will continue working with the government today as needed.

Great. Thanks.

Thanks, Michael Sean Steve those are all the questions Jonathan Thanks again, thanks Cosmos.

Your next question comes from the line of <unk>.

Habib.

Thank you.

Hi, Michael and biomedical team.

Good morning.

Hi.

Some of my questions have already been answered and thanks for the color on neon.

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 noncore assets and are we expecting any sort of relief or any sort of update on asset sales by the end of this year.

I'd say no at this 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.

Mentioned 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.

That we have in our portfolio debt.

No subsidy impacts our operations or our production profile right now.

Got some inbounds from the interest so we definitely we will continue that process.

Very very pleased.

But the team has been able to achieve in the 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 the last what is it now 10 months.

Just about below just clicking on about $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.

And all of US was really supported by this by this asset sales on just let me mention again.

Put it in the press release, we're looking at about a $90 million annual saving in care and maintenance costs project.

<unk> cost.

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.

Niches.

We've talked in the past, we always guided somewhere around $40 million to $60 million sandwiches.

I think we are pretty confident that we're going to be at the outbreak 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 very end of the year. When we have all the final tally of numbers.

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 with you.

This year still or early next year.

As I said look that's a very dynamic process side, our country dependent team down on one monthly or more or less but.

And novel or Chevron or try to bust here to advance that theme and continue that theme that we started this year on the disposition.

Thanks, Thanks for the color on that.

And just.

In regards to the synergies.

You mentioned $40 million to $60 million.

Have you already started seeing those synergies kind of going into Q3, I'm guessing you're expecting more of kind of going into Q4 and more into 2024.

Yes, So let me say in Q3, but very little on the synergy side for sure and 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 on the current maintenance close like later and later and I think like a just.

Just the week before the end of Q3.

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 flow.

So into the next year add plenty plenty for together ISO side with some additional.

Synergies that we will be able to harvest our swap.

Okay sounds good and just 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 convert position.

So the signs that project and then for Dave you guys left.

Yes look <unk> and <unk>.

1997.

A long time, it's on with and that's been a very successful place for us.

So this quarter somewhere centered it 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.

Our big discoveries that our exploration.

Cover is still earlier stage, but they are all of the size that are absolutely.

Must be of interest for Pan American ex that come through.

Yes.

As a mine.

With our experience in Bolivia.

Combined with that large size on the silver side of course, Thats thats of interest for us and Thats really the reason why we continue we have been renewed Pacific from the beginning on May <unk>.

The <unk> very early stage and we did some off the first financing to help bringing that exploration and drilling forward.

When new Pacific.