Q3 2024 Pan American Silver Corp Earnings Call
Good morning ladies and gentlemen and welcome to the PEN American Silver third quarter 2024 unaudited results conference call and webcast.
At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session.
Speaker Change: Thank you for joining us today for Pan American Silver's Q3 2024 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 2024 unaudited results, all of which are available on our website. I'll now turn the call over to Michael Steinmann, Pan American's President and CEO.
Michael Steinmann: Thanks, Siren, and thank you, everyone, for joining today's call.
An American delivered strong financial performance in Q3. Revenue was a record 716.1 million dollars which, due to timing of sales, excluded the sale of finished goods and concentrate inventories with a value of approximately 30 million dollars.
Speaker Change: Cash flow from operations before working capital changes was a record $235.8 million.
Free cash flow also reached a record of $151.5 million.
At the end of Q3, cash and short-term investments of $469.9 million had increased by $101.3 million compared to Q2 2024.
Net debt decreased to $376.2 million.
Speaker Change: These record financial results further strengthen the balance sheet. At the end of Q3 we had 1.2 billion dollars of available liquidity to invest in future growth and provide returns to shareholders. Yesterday we announced a 10 cent per share dividend with respect to Q3.
Speaker Change: Year-to-date dividend payments totaled $109.1 million. In addition, we also repurchased and canceled shares for $24.3 million under our share buyback plan.
Speaker Change: Net earnings in Q3 were $57.1 million, or $0.16 per share.
Speaker Change: It includes a one-time tax expense for a settlement with the Mexican tax authorities and an amendment of certain Argentine income tax filings, both of which relate to prior years tax filings.
Speaker Change: Q3 tax expense was partially offset by reversal of the inflation-driven tax expense in Argentina that we recorded in the first half of 2024.
Adjusted earnings were $115.1 million or $0.32 adjusted earnings per share.
Speaker Change: Yesterday, we announced that we have received regulatory approval from the Government of Canada for the sale of Lorena in Peru. We expect the transaction to close later in Q4.
Speaker Change: Proceeds from the sale of $245 million will further strengthen our balance sheet.
The agreement also grants Pan American a life-of-mine gold net smelter return royalty of 1.5% for the La Arena 2 project and an additional contingent payment of 50 million dollars when commercial production starts from the project.
Turning to the operations, we produced 5.5 million ounces of silver in Q3.
Speaker Change: Led by La Colorado where silver production was up 59% and cash costs down 26% compared with Q2
Since completing the new ventilation infrastructure in mid-July, we have seen substantial improvements in mine operations.
Speaker Change: throughput rates have been rising averaging over 1,800 tons per day in October and we expect throughput to reach 2,000 tons per day by year end.
Speaker Change: Improving performance at La Grada will further increase silver production and lower cash costs.
Speaker Change: We produced 225,000 ounces of gold in Q3.
Jacobina's strong results led to gold operations delivering robust margins with production of 50,400 ounces of gold at an all-in sustaining cost of $1,195 per ounce at that mine.
Speaker Change: The Cerro Moro gold production was reduced by delayed development due to severe winter weather in Q2 that reduced access to the site and portals and due to higher than planned dilution in the underground mines.
Weathering Q2 also restricted access to the Nati Zone, which is 30 kilometers from the mill, resulting in delayed development, thereby reducing mining and processing of gold ores from this zone.
Speaker Change: We are now catching up on production at Cerro Moro by increasing production from the Nati Zone and increasing the development meters at the underground mines, focusing on higher grade areas.
At Mineta, Florida, surface access to some of the mine portals was affected by heavy rainfall, which delayed the development of higher gold-grade zones, which is now underway.
Speaker Change: As planned, we completed mining at Dolores in Q3 and have been processing lower-grade stockpiles since July.
Speaker Change: Gold segment cash costs were within expectations in Q3. Cash costs for the gold segment in Q3 were $1,195 per ounce, and all in sustaining costs were $1,516 per ounce, excluding NRV adjustments.
Speaker Change: Silver segment cash costs in Q3 were $15.88 per ounce. All in sustaining costs were $20.90 per ounce.
excluding a net realizable value inventory adjustment that decreased costs by $1.27 per ounce.
Speaker Change: Costs for silver segment in Q3 were higher than expected, largely due to lower gold by-product credits from Cerro Moro, the catch-up of sustaining capital spending at La Colorado and Dwaron, and higher royalty costs at San Vicente from higher metal prices.
Speaker Change: We are on track to achieve our guidance for 2024. As indicated previously, we expect silver production to come in at the low end of the 21 to 23 million ounce range.
Speaker Change: We are very pleased with the progress we have made in our capital projects. The new filter plant and filter tailing storage facility at Warren is on schedule to be in full operation by the end of Q1 2025.
Speaker Change: At our Bell Creek mine in Pimmins, commissioning of the new Pace plant project is underway.
Speaker Change: At Jacobina, we are investing in upgrading the plant facility infrastructure and in a study to maximize Jacobina's long-term economic and growth potential. We expect to release this optimization study in the first half of 2025.
Speaker Change: We are excited by the potential of our Jacobin asset. In our most recent mineral reserve and mineral resource update as of June 30th, 2024, which we released in early September, we more than replaced mine production with new mineral reserves for the eighth year in a row.
Speaker Change: In addition, exploration added 1.2 million ounces of new gold-inferred mineral resource.
This is a long-life mine with excellent exploration potential, and we believe there's opportunity to capture more value from this high-margin operation.
Speaker Change: Our resurgent resource update also highlighted the potential for Lackawanna's corn project.
Speaker Change: The estimate for indicated mineral resource increased by 53% to 265 million tons and grades improved by 10% for silver, 2% for zinc, and 4% for lead.
Speaker Change: An estimated 309 million ounces of silver are contained in the indicated mineral resource category in addition to 59 million ounces in inferred mineral resource.
Speaker Change: There is significant interest in this large, long-life silver and zinc project from potential partners and we continue to evaluate future agreements.
Speaker Change: At Escobar, the Guatemalan Ministry of Energy and Mines appointed Mr. Luis Pacheco as Vice Minister of Sustainable Development in August.
Speaker Change: His position, responsible for overseeing the ILO 169 consultation process for the mine, has been vacant since April 29, 2024.
Speaker Change: During Q3 2024, Mr. Pacheco visited the mine along with other members of MEM and held working meetings regarding the consultation process.
Speaker Change: The MEM has communicated to the company that the Chinko Parliament is in the process of conducting meetings in their communities, but no new timeline has been published yet for plenary consultation meetings.
Speaker Change: The Escobar mine remains in care and maintenance and there is no date for a restart of the operation.
Speaker Change: That completes my brief recap of Q3. I'm pleased with the progress we have made year-to-date, particularly at La Guerrera in Jacobino and on our capital projects.
Speaker Change: We are focused on achieving our production targets and managing costs to deliver margin expansion.
Speaker Change: Current metal prices are improving profitability and we are expecting a strong finish to the year from a back-end loaded production profile.
Speaker Change: I would now be happy to open the call for your questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star 4 by the 1 on your telephone keypad.
Speaker Change: If you will hear a three-tone prompt acknowledging a request, questions will be taken in the order received. Should you wish to cancel a request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.
Speaker Change: Your first question comes from the line of Oveis Habib from Scotiabank. Please go ahead.
Oveis Habib: Thanks, operator. Good morning, Michael and Pan American team.
Oveis Habib: Really, congrats on a good quarter and congrats on getting Larry Nutshale deal approved.
Oveis Habib: A couple of questions from me. My first question, staying with Larina, Michael, with the introduction of the offtake agreement,
Oveis Habib: Could we expect any sort of implications on the cash or contingent element of the consideration of the NSR royalty? That's already been agreed upon. Any additional color you can provide on this OPTEC agreement?
Speaker Change: This is just in addition, so there is no changes on the consideration at all, neither on the cash nor on the NSR, as we put that in the press release. And we assume to close the transaction later this quarter.
Speaker Change: And yeah, I think it's a great outcome, it's a good outcome for everyone.
Speaker Change: and look forward to it. It was a great mine, Lorena, it's a great producer on the oxides. Obviously, as we made very clear, the sulfide part is not really what we are focusing on, on this business, but, you know, I'm looking forward and I think it's a great outcome for Peru.
Speaker Change: for the mind, for the community, and everybody around.
Oveis Habib: Thanks, Michael, for clarifying that. And just moving on to 2024 guidance, again, great to see that you have raised the gold guidance.
Speaker Change: again with silver production on the lower end of guidance.
Speaker Change: But is that the right way to be thinking about this? Or maybe, you know, what assets could you expect to drive stronger Q4 finish?
Steve: Yo, this is Steve.
Speaker Change: Great question. I mean, we do have several of our assets, particularly Cerro Moro, and actually, and this will play a role depending on closing, La Arena, those two assets particularly have a strong finish to the year.
Speaker Change: So those are what we're looking for. We're cautiously optimistic, you know, that we'll come closer to midpoint maybe, assuming all those assets carry through towards the end of the year and we capture all that production.
Speaker Change: Obviously it was, just to make that clear again, what Steve mentioned, obviously depends on closer, the closing of the, of the LARENA deal happens.
Speaker Change: in the last month of La Reina due to the cycles, the leach cycles and the climate and weather that we have around our mind is always the strongest month of the year so it really depends when closure happens therefore.
Speaker Change: For the other details, and I don't have I don't have that date yet. So we have to wait for that.
Speaker Change: Can you comment on how should we be thinking about the gold and silver grades in this asset going into Q4?
Speaker Change: Yeah, great question. We're seeing some really interesting exploration opportunities on the silverside at El Pino.
Speaker Change: Won't so much affect this year, but looking out into the future, we see opportunities to see
Speaker Change: Some interesting silver production increases there.
Speaker Change: going forward. The gold side
Speaker Change: You know, as we've mentioned during 2023,
Speaker Change: This deposit's pretty variable, pretty...
Speaker Change: spotty in terms of the high-grade distribution of gold, and we're in and out of it quite a bit. We do expect a little bit stronger gold grade going into Q4 than we saw in Q3, but it is
Speaker Change: uncertain. There are some variables there in terms of when we're in and when we're out. Overall, the average, we feel good with the reserve average, and we are running a bit of low-grade stockpile right now to overall come in a little bit lower than the reserve grade on gold, but we're comfortable with that reserve grade.
Speaker Change: Okay, thanks for that Steve. And my last question, any sort of updates on how the partnership discussions are progressing at the La Corolla Skarn? Should we be expecting any sort of news by the end of the year?
Speaker Change: Look, there's several very large companies that are going or have been going through the data room are already completed a large part of the technical review. There's a lot of interest interest in a project like that. As you can imagine, it's a very large, very long life asset. They're hard to find. One of her
Speaker Change: And so I'm feeling very, very optimistic, very happy of the group of companies that are looking at this and are interested in this. As you can imagine, this will take a while to...
Speaker Change: to structure a partnership agreement for it. So I don't think that we can have something ready to make public by the end of the year, but we'll definitely continue to work on this and continue. But as I said, I'm very happy how this is shaping up.
Speaker Change: Excellent. That's it for me, guys. Thanks for taking my questions.
Speaker Change: Thanks.
Speaker Change: Thank you. Bye. Bye.
Speaker Change: Thank you. And your next question comes from the line of Don DeMarco from National Bank. Please go ahead.
Don Demarco: Thank you, Operator, and good morning, Michael and team. Thanks for taking my question. Congratulations on a great quarter.
Don Demarco: And really good to see the operations back on track with read-through for a strong Q4. Now, first question on LAC Colorado. Michael, so the ASIC is significantly lower quarter-to-quarter. What kind of ASIC range might we expect once you're up and running at 2k tom per day?
Don Demarco: Yeah, Don, this is Steve. We're still working on next year's budget, so I can't really forecast yet what the ASIC is going to look like in 2025 when we're at this kind of 2000 ton a day running rate. You know, we're evaluating our cost structure and, you know, kind of predicting where the escalation inflation might go next year, exchange rates, things like that. So, you know, there's quite an intensive process of budgeting going on right now, and I can't really forecast out ahead. Yeah.
Don Demarco: Don, just to make clear again here, exchange rates have a huge impact.
Don Demarco: to our cost structure across the globe and obviously with the U.S. elections now behind us there we need a little bit time obviously to see how that falls out and where exchange rates will follow up for next year. Okay.
Don Demarco: Okay, thank you. Yeah, we see the pace of weakening recently, so we'll keep an eye on that. Now, a couple questions on Timmons.
Speaker Change: You know, can you quantify the potential favorable cost impact from the new pace fill plant?
Don Demarco: And then secondly, I see it's been averaging ASIC around $2,000 an ounce this year. You know, previously, this might flag as a concern, but have higher gold prices reduced concerns and extended the life of this asset?
Don Demarco: Thank you.
Speaker Change: Yeah, great question. The simple answer is yes. Higher prices are extending the life of that asset. Absolutely. Cut-off grade, you know, as we can lower that cut-off grade, it definitely has an effect on our life.
Don Demarco: there. I will say, you know, the $2,000 ACE that we're seeing there
Don Demarco: A large part of that is as we've extended the life of that asset, we've extended it quite a bit further than where we thought we would be already when we bought Tahoe back in 2018.
Don Demarco: And one of the things that we're seeing increased cost is on tailings disposal. We're having to build, you know, quite a bit larger tailings facilities than we anticipated, and that's driving a significant amount of sustaining capital each year. We're looking at some opportunities
Don Demarco: that kind of fold in and couple, there's a bit of a double benefit with the paste plant that maybe there's some opportunities we can go to a little bit.
Don Demarco: more of a filtered approach or other approaches on the tailings. The tailings are quite useful at both Timmins West and Bell Creek now for the Pace backfills, so that allows us more and more, so it does.
Don Demarco: There's an offset with the cost of paste and the cost of cement that we add to the paste.
Don Demarco: which is not a cost, we get a benefit.
Don Demarco: for less costs on the tailings facility.
Don Demarco: But the other big benefit, as you mentioned, is we get to mine more tons of ore resources for every meter of development.
Don Demarco: So net-net, we don't see a significant cost decrease, but bringing in the pace, we see a similar cost with much more reserve recovery than what we saw before.
Speaker Change: Okay, that's helpful. Thanks for that. And then as a final question...
Speaker Change: Michael, do you have any comments on the recent M&A in the solar space course?
Speaker Change: from the Gatto's and Silvercrest. You're the dominant player in the sector. Are you comfortable with your level of silver production as a percent of revenue? Or are you looking at M&A from a different perspective now that these acquisitions have occurred?
Michael Steinmann: Well, look, uh...
Michael Steinmann: We are a completely different sized company obviously and when you look at our M&A strategy
Michael Steinmann: We are always looking around, of course. We are always interested in buying high-quality, long-life assets that fit into our cost structures.
Don Demarco: and that those are really some absolutely important...
Don Demarco: what we are looking for and those.
Don Demarco: That's really in our focus. Of course, it's nice to find silver assets. As you know, we already have most of the very large silver assets.
Don Demarco: in our portfolio, either in our resource or in our resources.
Don Demarco: There still has obviously some work needs to be done to bring them
Don Demarco: either back or bring them into production. But, you know, we hold the biggest reserve and biggest resource of silver. And as I always say, the current picture of silver and gold production is just a picture in time. This will obviously change. And if you add to that,
Don Demarco: The Scarn with a very, very large silver production as well. You can very clearly see where this is going. So we are not obviously not interested in looking at smaller assets.
Don Demarco: simplified and improved the quality and simplified our portfolio.
Don Demarco: I think you see the result this quarter. Very, very strong financials. And, you know, that was really the path we wanted to do.
Don Demarco: Of course, continue looking around for opportunity. I think we're in an incredibly strong position.
Don Demarco: for an incredibly strong balance sheet, especially after we closed the Larena transaction.
Don Demarco: And, you know, we are ready. We did the integration very successfully, and I think we are.
Don Demarco: We'll be ready for the next transaction, but as I said, we're very disciplined in that, so it has to be accretive, it has to be of size, and cost structure that fits into our company.
Speaker Change: Okay. Thank you very much for that. That's all for me. Good luck with Q4.
Speaker Change: Thank you.
Speaker Change: Once again, that is Tara and Juan to ask a question.
Speaker Change: No further questions at this time. I will now hand the call back to Mr. Michael Simon for any closing remarks.
Michael Simon: Yeah, thanks everyone for calling in and.
Michael Simon: A very busy day for everybody.
Don Demarco: for the whole world, obviously, looking at political events.
Don Demarco: in the U.S., but Q3 has been a great quarter for us.
Don Demarco: Very, very strong cash flow.
Don Demarco: Free cash flow, operational cash flow, production, cost control, just across the board.
Don Demarco: very strong quarter and I'm really looking forward to
Don Demarco: to Q4, which is, you know, historically always our strongest order as well. This is a great time to be in precious metals. It's a great time to be in silver and gold.
Don Demarco: And we are the dominant player in this space, so really looking forward to next quarter and looking forward to sharing January our annual production.
Don Demarco: Looking backwards and looking forward with our forecast for 2025 with our budget numbers. Until then, have a great time. Thank you. Everyone.