Q2 2019 Earnings Call
Welcome to the Pan American Silver second quarter, 20, 910 results conference call.
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After the presentation, there will be an opportunity to ask questions.
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Thank you operator, and welcome everyone to Pan American Silver second quarter 2019 conference call.
We released our results after yesterday's market close and a copy of the news release and presentation slides for today's call are available on our website.
In a few moments I will turn the call over to Pan American's, President and CEO , Michael Steinmann, who will provide a brief review of our results. We will then open the call to questions and answers.
Joining us for the Q and a portion are Pan American's, Chief operating officer, Steve Busby, Chief Financial Officer, Rob Doyle.
Senior VP project development, George Greer, Senior VP technical services and process optimization, Martin, a whopper and VP of business development and geology, Chris Emerson.
I'd like to remind everyone that our news release and certain statements and information in this call constitute forward looking statements and information. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent form 40 F and annual information form.
Media and other participants on the call are invited to participate in listen only mode. I will now turn the call over to Michael.
Thank you Sarah and.
Welcome everyone joining us today to discuss our results for the second quarter of 2019.
[noise] revenue in Q2, 2009 team was roughly $283 million up 31% from Q2 2018.
Driven by higher quantities of metal sold except for copper.
This number excludes revenue of $57.5 million from our tenants mines, which are classified as assets held for sale.
Oh volumes more than doubled quarter over quarter, reflecting the strong contribution from our new Latino and shall window mines in Peru, That's why last about Creek Containments West mines in Canada.
Partially offsetting the higher quantity sold at lower metal prices for silver and base metals compared to Q2 2018.
An increased higher direct selling costs due to increased treatment and refining costs for concentrate.
And the temporary export tax in Argentina.
Net earnings for the quarter were $18.5 million or nine cents per share.
Adjusted earnings were $9 million or four cents per share.
The primary adjustments made to earnings where the removal of earnings from the Timmins mines.
And removal of I'm not readjustments at Dolores.
Net cash generated from operations in Q2 was $83.5 million strong operational cash flow of us more than sufficient to cover our sustaining capital taxes interests dividends and approach our capital, while adding $17 million to our cash and short term investment balance, which was about $139 million at June thirtyth.
Working capital at the end of Q2 was $793 million.
Which includes 376 million relating to the Timmins mines.
Total debt was 378.8 million.
Comprised of 43.8 million up for these liabilities at $335 million drawn on our credit facility.
We continue to have founded and $65 million available under the credit facility and total liquidity of $304 million.
We produced 6.5 million ounces of silver and handed on 54600 ounces of gold in Q2.
Consolidated cash costs were a negative $4 or 19 cents per ounce and all in sustaining costs were $6.12 per ounce.
Consolidate the cost metrics are calculated on silver sold basis with all byproduct metal sales, including the gold revenues, that's a credit to costs.
Cost for silver segment operations and our goal segment operations are detailed in our Q2 report.
For the first half of the year cost for truck and below guidance.
Together with expectations for the reminder of the year, we have revised our annual 2019 cost guidance.
Consolidated silver cash costs are now expected to be between negative $3.30 and negative $1.80 cents per ounce.
All in sustaining cost guidance has been reduced to between $7 and $9 per ounce.
Again, the detail on segment that basis is available in our Q2 report.
We are reducing our guidance for I know 2019, the silver and gold production to slightly because of the postponement of commercial production from the coast and worked in protests in Argentina by about three months.
Silver production in 2019 is now expected to be between 25.3 million ounces and 26.3 million ounces.
Gold production of between 550000 and 600000 ounces.
After the tragic ground fall accident in June we are now conducting an extensive evaluation of alternative mining methods best suited for the ground conditions. We are now experiencing at cozy.
The slight delay in the development of course, and working increases our guidance for approach our capital expenditure by about $5 million to a total of $45 million.
Guidance for sustaining capital expenditures remains at $203 million to $213 million for 2019.
Operationally, we assumed that monarch gel is payable on June 23rd after a thorough safety assessment on additional safety training and we expect development best of luck in project to resume over the next couple of weeks.
The monarchy out, especially of course, the lucky and assets are not material. They didn't pan America's largest diversified portfolio and we don't expect a significant impact from the slight delay to our 2019 financial performance turning to what in Molla. Our active at this are limited to the care and maintenance of the Escobal mine. That's the Guatemalan government continues with yellow onesix nine consultation process.
We will fully support them participate in this government led consultation process.
And we will continue to put forth our best efforts, so whats establishing peaceful dialogue with the communities near the Escobal property.
Before we move into the Q and a portion I would like to touch on the recent drill results from our luck Colorados Carne discovery.
Which we provided in a news release on August 1st.
Those results included the best scan drill intersects so far.
Drill hole 50, vitamin return hundred 40 meters at 109 grams per ton silver, 1.66% less than 3.8% think.
On hold for the six intersected founded on 26 meters at 55 grams, a ton silver 3.8% less than 6.55% thing just to mention two of the outstanding results.
We are continuing to drill this exciting discovery of its seven drill rigs.
With the plan to release, a first resource estimation at the end of the year.
The potential of the luck what other discovery.
This one significant catalysts within a solid well capitalized company that is delivering strong operational and financial performance.
The integration of the former tower operations is going very well.
And the associated transaction costs should now be substantially behind us.
Precious metal prices have strengthened considerably since the end of Q2.
Which points to a strong financial performance in the second half of the year.
That's wraps up my formal comments and I'd like now to open the line for questions.
We will now begin the question and answer session.
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The first question comes from Chris Terry with Deutsche Bank. Please go ahead.
Hi, Hi, Marco and and team Yeah few few questions from me just just the first one on on Divestments. I think previously you had said that you were pretty close on a on the team in style and Youre doing the day with some potential buyers. Just wondering if you could give a timeline on your latest thinking on on on the on the assets you might divest and when that might occur. Thank you.
Yeah look I don't I've, obviously far far or things like that there's no fixed timeline aside as you understand.
As I indicated from the beginning on the idea is to divest non core assets I think they're pretty well defined now it obviously it happens a lot I know too that I'll be fine does a big copper porphyry that this is not a good fit for for US I also indicated our ownership and a large shalipayco seeing deposit in Peru that we had in our portfolio and a few few smaller assets from the Pan American side. So a lot of France, Weve, Oregon as you can imagine, but a lot of changes in metal prices how would the loss what is it now a couple of couple of month month, and a half or a large a lot changed and Ah think Ah you know people have to regroup, we have to regroup and I don't see a how to move forward.
I was very clear that a you know we are not in a hurry at all to sell these assets you have seen that the results on two fronts. For example itself in a very positive even Oh said considerable lower prices actually in Q2 that we see actually right. Now. So you know we will be very patient here and obviously on the sell these assets. If you got the right value for our shareholders. So stay tuned on that set us up a little and we'll see how it advances over the next few months.
So thanks, all go Oh, Mike still makes sense and then just in terms of the great success, you've had at La Colorada. I think you said you expect you know outside resource at the end of the year can you talk a little bit more about the ways that you're looking at to best monetize that that success just whatever framework you can provide thank you.
Sure. It that you know its a great discovery, it's a already quite a bit early to talk about how we monetize it right away I mean, you've seen the results that's come into rolling that that's happened Rex on it's how it's obviously a very important project for us I think its a.
It's a very fascinating ER discovered very wide intersects and on high grades on do because you can hear here speaking the geologist out of me being very excited about this large discover it just a few a few notes on this keep in mind that this is separate from the ready from the silver side off of lock, let us all of us.
Let out a very important and very strong silver producer on cash flow generator for the company that will happen over a long long time, you know we have long very long resources very long resource life at that asset.
This quarter is a little bit on the side and novo be separate threesome and obviously a everybody saw that you know the civil rights are a bit lower although there are some really fascinating intercepts and theres, obviously, some high grade silver veins as well cutting this con cross cutting it. That's if you look at a the press release that we put out last week, you'll see there are some more narrow very high grade silver veins. The narrow intercepts are obviously the events across cutting to spawn, but very wide answers I'd start there very interesting well need obviously aseptic different mining method is completely different do you know why the ore body and not want to be mine at La Colorada right now.
Well in a required different treatment.
You know we did not think yet about size of planned on location et cetera, et cetera that you know all we do right now is be fascinated about the results keep drilling. They you know they keep coming and they're very very wide and that's we indicated though what's down enough do you ever come out of it but the maiden resource on it does thank enough to really fully out of that we'll take that too will take the time knives are very very large discovery.
Great. Thanks, Thanks, Rocco all the best.
Thank you.
The next question.
Comes from Cosmos Chiu.
Please go ahead.
Hi, Thanks, Michael and team.
Maybe my first question is on a cozy and Joaquin and maybe if you can give us elaborate a little bit more on the ground condition issues here a cozy.
I recall, you know two years ago at the Analyst day I ask you. Another question on queue value and also you know rdq of cosy or either closing about Canada and that number turned out to be pretty low. So I would imagine you had some thoughts in terms of you have to be careful in terms of how your mind.
The two assets you bought but what does is it just more fractured than you had expected or you know certain time, a mineral that's causing you issues.
And in terms of fixing it is it as simple as you know more ground support or maybe even a faster cycle time, if you can give us a bit more color that'd be great.
Yes, Thank you Cosmos Hi, Steve.
Yeah, obviously, we did encounter ground conditions that were a little bit more trickier than we had anticipated we do anticipate bad ground. The Ark studies were were quite high I mean, there were broken up material, we knew that we didnt recognize some of the.
Some of the.
Structure or some of the fault features in there and we we ended up opening up an area a little bit bigger than we were hoping to open up and unfortunately, that's the area that came down in terms of.
Our mitigation plan to get back in there we're looking at ways of mining that structure to where we don't open up as much. If we do have to open up as much obviously, we're going to much more elaborate a support systems, possibly rebar bolton's cable bolting are getting a lot more lengthens the wall. So that's kind of what we're focused on where the delay that we have in doing this is going to be probably a few months as we look at the engineering or that which means we'll start stope production towards the end of the year and we are up and producing a bit of development Mark as we got into that structure, which which looked pretty good I mean, we already have 1500 tons on the ground that's greater than 2.6 kilos of silver and 33 grams of gold. So the structure is there. It's broken up there are ways. We know we can mine. It. It's just a matter of getting all the the design properly done and then training our miners.
Howdy, how to properly use that new ground support systems.
And then in terms of June 2019 guidance. The updated 2019 guidance I guess, you mentioned that it includes only development ore coming from cozy in 2019.
Can you remind us anything coming in from Joaquin in terms of that guidance.
Yeah.
Yeah, I don't have that number right in front of me Cosmo, but yeah. Its a.
We've also reduced that back a little bit because we have decided to do a little bit more work on ground control methods in that mine as well it won't be as big a delay as we're seeing that a a cozy, but there will be about a month delay there.
Compared to what we originally planned so we did trim that that guidance down a little bit too I don't have it broken out by those two different assets. So.
So so but as you mentioned, Steve that's been factored into your updated 2019 guidance. That's correct. It is unknown.
And then in terms of the issues that we just talked about is it you know couldn't find too cosy yours.
As you mentioned, you're looking at some of the ground support systems out Joaquin as well, but it's not as you know sensitive I don't I don't even know what the word is is it.
Does that translate is are you seeing the same thing at at Joaquin.
No the the issue at walking we saw in the development ramp in the in the waste rock it wasn't in the yours on at all and we saw some interesting claims stones and galleries zones in the ways that we Didnt expect we did elaborate on the ground support systems as we got into that area. It looks pretty solid, but given what happened at cozy, we decided we needed we're bringing in a lot of Geo technical experts look at closely we thought we'd take advantage of that and look at walking at the same time. So we're just being an extra cautious given the nature of the accident that occurred but but that's not in the order zone and we're not anticipating any change in in our understanding is that youre at Joachim as we get into.
Great and as Michael mentioned, you know at least for 2019 Cozier Watkins production isn't exactly material to the company.
Oh and from that perspective, as you kind of find out more about a cozy and Joaquin and learning about the potential additional costs is there any possibility that cosy I'm Lucky My just never come in in terms of production.
I don't believe so Cosmo I think we see some real benefits in keeping that asset moving down there imminent deals fail keeping people gainfully employed and it is providing some some limited value, but it keeps our Argentine business kind of established well established well well respected within the community down there. So we feel some importance to that.
Although this does mines by themselves are not material I think that that overall operation, we see some strategic value and as we look forward.
Of course.
Maybe switching gears, a little bit in terms of Dolores.
You know Q2 cost were still fairly high.
And tracking to a higher than your 2019, all in sustaining costs guidance.
You know could you give us a sense in terms of what we should be expecting in terms of improvements in the second half and you know in terms of the pulp agglomeration plant, how how is that working out and I guess last year. You know there were some setbacks in terms of mining and Mexico has that been fully resolved.
Let me start with the second part there first mine the mining is running quite smoothly. The operation is running well, we still have the support of local law enforcement escorts on the access road all that's working incredibly well for us. So the mine is operating very smoothly were very happy with that.
We don't anticipate any changes to that going forward.
Relative to the costs a cozy during the first half great question actually during the first half of the year. We moved just under 3 million tons of spent or that was sitting on pad. One pad. One was the old pad that Minefinders said originally built that failed and we are now approaching the point of the Leach pad development at Dolores, where we want to expand into that pad, one area and repair and and upgrade what was originally so it all in order to do that we have to remove that spent or there's actually some value in that spent doors. So we are removing it we like I say it took about 3 million tons out during the first half and the team at the side actually cleverly they were able to we anticipated some production out of that or based on the grades and the recovery projections. We had on that they went through some pretty extensive testing and prove that by.
Better cyanide management, better ph management, we could actually enhance the recoveries that material. So a lot of those costs that you see in H. One is additional regions that we use during the dot pad one relocation as we move into age to 2019, that's going to drop way off we slowed that way down we just needed enough room to start our geotechnical work and repairing that pad area pad wondering during the first half the year, where now there were building on that pad as we speak so we've slowed that rate of movement of that spend or way down. There is about 2 million tons left and we have it may take us as much as a year to move that next 2 million tons. So you won't see that cost impact moving into into the second half that we had in the first half relative to the pulp agglomeration plant. We have now got the third set of filter expansion kits on the plants running really well, we're consistently achieving about 5000 tons a day.
Just under 5000 tonnes, a day recoveries or at what we expected.
The the site really likes it because we get that recovery immediately versus how it on the pad as you know we got quite long leach cycles out there. So as we start to move and a high grade ores later in the year, we're really excited about the pulp agglomeration plant delivering returns right away for us.
For sure.
Maybe a question for Mike Collier.
You know Michael earlier this month I'm, you know the inn at Escobal or in Guatemala, and the BC cards, the case against lower with Garcia was settled.
You know should we read into it any kind of positive read through and.
Asked his question anyways in terms of timing for basketball likely you can't answer me at this point in time, but well.
Yes.
Sure look I mean.
You shouldn't read more or less into it than what we had in the press release on the Garcia you had their my statement as well. So I thought it was important to us due to resolve that it's really hope that this is you know a step forward on new parents, almost and relationships with the broader communities in Guatemala, I don't think so that you should read more or less into into that.
On timing look guys I stay my core Selflessly on the timing side I suppose that this well this will take time I don't know the timing for it.
So stay tuned on this as I've since since November last year indicated a this will take a while.
And Oh got you now take the time to do got this done right. So you have to be patient.
I think Meanwhile, you receive up to what the other assets that we purchased a side I'll, let them all are capable to do even not quite lower metal prices than what we see right now so that's and I'll start slow quite interesting here.
Looking forward, but no good mindy.
No that a nice that the government has to lead this true through the Ilo Onesix nine indigenous consultation process and as I said, we will continue to put a put forth our best efforts towards establishing a peaceful dialogue with the community. This on now.
That's probably all I have right now.
Yep. Thanks, Thanks, Michael and I have one more question.
Following up on the divestitures of some of the non core assets here.
Maybe I'll ask the question a little bit differently, whether you get all commodity prices you know being more robust.
In Q3 does that help in terms of interest in those assets have you seen an increased interest in those assets based on what's happening to the gold price.
I think it was always quite a quite a quite a good interest in that.
It's just a you know I as I said I want to be patients, who got the right value for our shareholders out of that.
I don't think so that everybody is just you know because of what is it that's inside the month to month and a half of higher prices.
And that's happened probably in most People's summer vacation. So I think people will you know got back from vacation and September looked at a at the second half or have lost part of the year on probably update some of their price assumptions on those we'll see what happens when it happens by Don.
Great. Thanks, Michael and Steve those are all the questions I have thank you.
The next question comes from Kris Thompson with Pi financial Please go ahead.
Hi, Good morning, guys. Thanks for hosting the call a couple of quick questions. Most specifically I guess slipped, let's just look at Dolores I Wonder if you could just.
Maybe just unpack the components that make up the operation I know that comes from Asquith. The question relating to the agglomeration there, but what are you what is the production rate on the underground right now.
Yeah we're.
The last probably three or four months, Chris we've been running about a thousand tonnes a day out of the underground we're still ramping that up our goal is to get the 1500 tonnes a day towards the end of the year. It's wrapping up well costs are looking good we were down below $50 a ton all in costs and and that includes all our development that's going underway right. Now. So we're very pleased with the ramp up. We're finally, there to where it's wrapping up quite nicely grades are coming in reasonably well, we're seeing above a two gram gold equivalent type grades coming through so so overall, it's performing well and we expect to deliver according to our plans.
Great Thanks for that Steve.
So just remind me the goal I guess was it 20000 ton a day stacking rights on the pads you Little short obviously this quarter would that would that be the makeup you're looking for by the year end the from the underground.
Yeah, I mean, a big part of that a shortfall in stacking rates during the first half of the year is really youre coming out of the pit we're in that big stripping phase of that open pit phase eight and it's just we're just not seeing you know and we didnt expect that we're not seeing the order flow and the smoothed high grade ore flow. Its just that period of time at the strip in sequence. So as we move towards later part of the year I do expect we'll see us getting up to that 20000 tons a day stacking rate again and that'll that'll include the 1500 tonnes a day coming out of the underground.
Great. Thanks for that Steve just I guess moving over to the other the other heap leach operation the shoe window here.
Again, just can you just give us a little.
I guess in follow on on the agglomeration there the component what are you putting through the agglomeration plant right now whats run of mine.
How that's working out for you.
Yeah right now we are not operating the crushing and agglomeration circuit at your window, we're processing all orders run of mine.
So we're just simply are not seen yet the the high clay or that requires a crushing and agglomeration we expect that in the future. We're still we're revising our geologic models to try to better understand that distribution, but as as I mentioned I think last quarter. All of this year and probably most of next year, we're not really anticipating much to start that plant up so the plants idle we haven't really stopped it we're not really putting any cost to it we're running all run a mine. We're very pleased with that operation. We are building leach pads. The waste dumps are coming together, well and I think you know.
I still feel there's some decent upside to <unk>.
Yes definitely.
And then just quickly moving onto llerena again.
A a little light I guess on the on the tons place there.
I think historically you looking if I looked at 30000 ton a ton a day operation here.
Do we are we going to see that sort of a.
Improve or or what's your sense there.
Yeah, absolutely, Chris or another one [laughter], we happen to hit Dolores and a lot of rain at the same time in a stripping sequence. So this is that the effect of that phase seven stripping and then separately because its run of mine leaching all or that's mine goes directly the leach pad. So that's just the order flow that's coming out as we strip that phase seven.
So towards the end of the year, where you've actually.
I don't know if you recall, but actually Tal late in the life. There had increased the permit levels to 45000 tons a day.
I think as we move through the rest of the year, you're going to see that order flow once we get back into that or are in the next couple of months jump up to the 45000 tons a day right.
That'd be great. Okay, and then just.
Yeah excellent.
And then just just I guess finally here motor coach I'm, a little light on the Gray front I'm expecting about 150 <unk> are we going to see it's a move higher silver grades there.
Yeah. Good question Chris.
You know as as I've mentioned before both were on a more coach you were doing nearly 25 kilometers of underground development every year.
Mine's require a massive amount of development and and you know some of those development. We've got many many faces going at one time and some are exceeding plan. Some are not not meeting plan and unfortunately into some of the higher silver grade ores of all the pump a we're short on that development and we didnt get into the higher grade silver ores, where you that plan for this year, so to offset that we've moved to the orders, where we have had better results and an underground development and those orders are higher zinc grade, but lower silver.
Unfortunately, I think thats going to remain that way for the rest of the year and that also was factored into our new guidance when we got it in.
The new guidance too.
[noise] see thank you very much for your comprehensive ounces. So my question. Thanks, guys.
Thanks, Great. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Lawson Winder.
With Bank of America Merrill Lynch. Please go ahead.
Hi, everybody. Thanks, so much for taking my questions. Just two from me one first on La Colorada that the cash cost guidance of 252 or 350, there's kind of working through those numbers and then.
The implication is that in an age to the the cost per ton is going to go up quite materially but.
And that just doesn't make a lot of sense to me is the is there a reason why that might be happening here.
All right or is it something elsewhere, perhaps it's just that the byproduct production is anticipated to go down a lot. Thanks, Yeah, Yeah loss and this is Steve and I I think you're getting close to where we're out there, but the real issue is the base metal prices were projecting lower base metal prices moving into the second half. So it's that byproduct credits due to pricing not due to production our unit cost per ton were not anticipating any change really from maidenform.
Okay. That's very helpful. Thank Steve and then just my other question was on the depreciation there and there's a lot of movement in the depreciation per ounce at several of the mines in Q2 versus Q1.
I'm just curious are you guys expecting to see.
Any substantial moves at any of the assets into the second half versus Q2.
And that's it for me thanks.
Hi, Louis and Rob <unk>, Yeah, No. We don't anticipate any any changes from from Q2, you know obviously, we gained through the purchase price allocation prices for the the tie assets. We've just brought onto the balance sheet. So as as we finalize that prices there may be some change in carrying values, which would impact depreciation, but nothing material anticipated day, so and I think what's important to bear in mind is sales volumes. That's that's a key driver for the depreciation that we recognize obviously, it's a little ticket by revenue recognition. So.
Just make sure that you're looking at sales volumes as opposed to production volumes when you when you're doing that calculation.
Yeah, no that definitely okay. So I mean Q2 can be taken that as a as a very sensible right Mitch it should be a good proxy gainful yet okay. That's very helpful and I know I said I'd ask only two questions you got one mind asking why margins were short window the.
How are the grades reconciling versus your models.
Yeah, Thanks Lawson yeah.
Very solidly I mean, we're still outperforming our model, where we got our teams our geologic teams, Chris and his group looking very hard weather along with Martin.
As we go to build our new reserve like I said I think this reserves going to capture some of the upsides weve been seen as we open up the phase two of that pit. We're just opening that up here in the last couple of months, it's too early to really call. It that's going to carry through to phase two yet, but I would say year to date, we're still we're still running about 15% ahead of the reserve model. So we're we're we're we're optimistic looking forward.
Thanks, so much.
This concludes the question and answer session.
I would like to turn the conference back over to Michael Simon President and CEO for any closing remarks.
Thank you operator, and thank you very much for calling in today I'm looking forward to give you an update on Q3 in November that's already.
I enjoy the rest of the summer everybody and talk to you soon thank you very much fine.
Thank you. This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.