Mr. Michael Steinmann reports
PAN AMERICAN SILVER REPORTS CASH FLOW FROM OPERATIONS OF $114.9 MILLION IN Q3 2020 AND INCREASES DIVIDEND BY 40%
Pan American Silver Corp. has released unaudited results for the third quarter ended Sept. 30, 2020. Pan American's unaudited condensed interim consolidated financial statements and notes, as well as Pan American's management's discussion and analysis, for the three and nine months ended Sept. 30, 2020, are available on Pan American's website and on SEDAR.
All amounts are expressed in U.S. dollars unless otherwise indicated. Unaudited tabular amounts are in thousands of U.S. dollars except per-share amounts, unless otherwise noted.
"Low operating costs and strong precious metal prices contributed to robust mine operating earnings of $124.6-million in Q3," said Michael Steinmann, president and chief executive officer. "All operations are running, and projects are proceeding. We have replenished the heap leach inventories drawn down during the mine suspensions in [second quarter] of this year, are nearing completion of the first of two ventilation raises at La Colorada, which will reopen access to the high-grade area of the mine, and have started processing the high-grade ore from the COSE mine at our Manantial Espejo plant."
Added Mr. Steinmann: "We have generated strong operating cash flow year to date of approximately $292-million. In line with our capital allocation priorities, we have substantially reduced debt, with only $60-million drawn on our credit facility, as of today. We are aiming to have no bank debt by the end of the year. We are also increasing the dividend for the second time this year, raising the quarterly dividend by 40 per cent to seven cents per common share."
Operations review and impact of COVID-19
During Q3 2020, seven of Pan American's nine operations were operating with limited work force levels to accommodate COVID-19-related protocols. Two of the company's operations, Huaron and Morococha in Peru, were suspended for most of Q3 2020, having previously been returned to care and maintenance on July 20, 2020, because of an increase in workers testing positive for COVID-19. The company began gradually redeploying its work force at these mines over the last two weeks of September after intensive health screenings and testing. Huaron and Morococha resumed operations at the end of Q3 2020. Pan American continues to enforce protocols to help protect the health and safety of its work force during the COVID-19 pandemic.
Pan American is engaging with its communities to better understand the effects of the COVID-19 pandemic on its residents and how it can support them during this time. In Q3 2020, Pan American entered into a $1.5-million partnership commitment with UNICEF Canada to provide health and education to vulnerable children in Latin America affected by the pandemic. In addition, its Shahuindo mine donated an oxygen plant to the province of Cajabamba in Peru, as part of Pan American's commitment to support its local communities.
Q3 2020 highlights:
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Revenue was $300.4-million, primarily reflecting lower quantities of metal sold, partially offset by strong realized precious metal prices. The company recorded a $79.8-million increase in inventories during Q3 2020, of which approximately $25.0-million was in the form of dore and finished inventories. Revenue associated with these dore inventories were not recorded in Q3 2020 due to timing of shipments and will be reflected in revenue in the normal course. The remaining increase in inventories largely resulted from the replenishment of the heap leach operations at Dolores, Shahuindo and La Arena, where inventories were drawn down during the mine suspensions earlier in 2020. These inventories, equivalent to about 30,000 ounces of gold and 500,000 ounces of silver, were replenished during Q3 2020.
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Net income was $65.3-million (31-cent basic income per share). Net income includes $13.1-million of investment income and $27.1-million of mine care-and-maintenance costs, largely incurred from the suspensions of Huaron and Morococha, which restarted operations at the end of Q3 2020.
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Adjusted earnings of $72.1-million (34-cent basic adjusted earnings per share) exclude the $20.5-million of mine care-and-maintenance costs related primarily to the Huaron and Morococha suspensions.
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Net cash generated from operations was $114.9-million and includes $9.0-million source of cash from working capital changes.
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Consolidated silver production was 4.1 million ounces. Silver production was impacted by the COVID-19-related suspensions of Huaron and Morococha, lack of access to high-grade ore at La Colorada due to the delay in completing a ventilation project, in-process inventory buildup on the Dolores pads following drawdowns of those inventories in Q2 2020, and reduced operating capacities at the other mines on account of adopting stringent COVID-19 protocols. Those factors also affected base metal production.
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Consolidated gold production was 116,900 ounces, primarily reflecting the expected replenishment of in-process inventories at the heap leach operations following the drawdown of inventories that occurred during the COVID-19-related suspensions earlier in 2020. In addition, reduced operating capacities on account of COVID-19 protocols and adjustments being made to the mining methods at the Timmins Bell Creek mine reduced gold production.
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Silver segment cash costs
and all-in sustaining costs (AISC) were $7.14 and $6.01 per silver ounce sold, respectively. Net realizable value (NRV) inventory adjustments reduced silver segment AISC by $5.96 per ounce.
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Gold segment cash costs and AISC were $793 and $1,057 per gold ounce sold, respectively.
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Consolidated AISC, including gold byproduct credits from the gold segment mines, was ($8.42) per silver ounce sold.
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Capital expenditures totalled $41.7-million, composed of $36.4-million of sustaining capital and $5.4-million of project capital.
During Q3, Pan American repaid $110.0-million
on its four-year, $500.0-million revolving credit facility. At Sept. 30, 2020, the company had $90.0-million drawn on its credit facility, cash and short-term investment balances of $231.6-million, and working capital of $465.6-million. Total debt was $129.8-million, including $34.3-million of lease liabilities and $5.6-million of loans in Peru. In October, 2020, the company repaid an additional $30.0-million on the credit facility and plans to repay the remaining balance of $60.0-million by the end of 2020.
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The board of directors has approved an increase in the quarterly cash dividend from five cents to seven cents per common share, or approximately $14.7-million in aggregate cash dividends per quarter, payable on or about Nov. 27, 2020, to holders of record of Pan American's common shares as of the close on Nov. 16, 2020. Pan American's dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada). As is standard practice, the amounts and specific distribution dates of any future dividends will be evaluated and determined by the board of directors on a continuing basis.
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Relative to the guidance provided on Aug. 5, 2020, management has maintained its 2020 guidance for gold and base metal production, silver segment and gold segment cash costs and AISC, and consolidated silver basis AISC, while revising its estimates for 2020 silver production and capital expenditures. See the guidance section of this news release for further information.
Cash costs, AISC, adjusted earnings, basic adjusted earnings per share, sustaining capital, project capital, working capital, total debt and total available liquidity are not generally accepted accounting principle financial measures.
CONSOLIDATED RESULTS
Three months ended Sept. 30,
2020 2019
Financial
Revenue $300,414 $352,187
Mine operating earnings 124,561 63,850
Net earnings 65,260 37,719
Basic earnings per share (1) 0.31 0.18
Adjusted earnings (2) 72,088 71,202
Basic adjusted earnings per share (1) 0.34 0.34
Net cash generated from operating activities 114,943 81,948
Net cash generated from operating activities
before changes in working capital (2) 105,959 96,842
Sustaining capital expenditures (2) 36,352 42,256
Project capital expenditures (2) 5,359 12,309
Cash dividend per share 0.050 0.035
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Production
Silver (thousand ounces) 4,087 6,665
Gold (thousand ounces) 116.9 150.2
Zinc (thousand tonnes) 8.6 16.8
Lead (thousand tonnes) 3.4 6.8
Copper (thousand tonnes) 0.7 2.3
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Cash costs (2) ($/ounce)
Silver segment 7.14 5.47
Gold segment 793 729
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AISC (2) ($/ounce)
Silver segment 6.01 8.80
Gold segment 1,057 920
Consolidated silver basis (8.42) (0.11)
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Average realized prices (3)
Silver ($/ounce) 24.77 17.16
Gold ($/ounce) 1,914 1,477
Zinc ($/tonne) 2,189 2,276
Lead ($/tonne) 1,822 2,002
Copper ($/tonne) 6,463 5,780
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(1) Per-share amounts are based on basic weighted-average common shares.
(2) Non-GAAP measures: adjusted earnings, basic adjusted earnings per share and
net cash generated from operating activities before changes in working capital
are non-GAAP financial measures.
(3) Metal prices stated are inclusive of final settlement adjustments on
concentrate sales.
INDIVIDUAL MINE OPERATING PERFORMANCE
Silver production (ounces 000s) Gold production (ounces 000s)
Three months ended Sept. 30, Three months ended Sept. 30,
2020 2019 2020 2019
Silver segment
La Colorada 1,445 2,091 1.0 1.2
Dolores 871 1,496 22.7 33.1
Huaron 274 975 0.0 0.3
Morococha (1) 142 588 0.1 0.3
San Vicente (2) 655 860 0.1 0.1
Manantial Espejo 606 606 5.4 5.4
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Gold segment
Shahuindo 81 37 33.0 40.6
La Arena 9 6 21.6 31.0
Timmins 4 5 32.8 38.3
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Total (3) 4,087 6,665 116.9 150.2
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(1) Morococha data represent Pan American's 92.3-per-cent interest in the mine's
production.
(2) San Vicente data represent Pan American's 95.0-per-cent interest in the
mine's production.
(3) Totals may not add due to rounding.
2020 guidance
The attached annual production, cash costs and AISC guidance table provides management's guidance for 2020 as at Nov. 4, 2020. Relative to the guidance provided on Aug. 5, 2020, management has maintained its guidance for gold and base metal production, silver segment and gold segment cash costs and AISC, and consolidated silver basis AISC. Management has reduced its estimate for 2020 silver production from between 19.0 million and 22.0 million ounces to between 18.0 million and 19.0 million ounces, as a result of an inability to access high-grade ore at La Colorada due to the delay in completing the first ventilation raise, and reduced underground mining rates at the company's Manantial Espejo operation, both related to the impact of COVID-19 protocols.
ANNUAL PRODUCTION, CASH COSTS AND AISC GUIDANCE
Silver production Gold production Cash costs AISC ($ per
(million ounces) (thousand ounces) ($ per ounce) (1) ounce) (1)
Silver segment (2) 17.7-18.7 130.0-138.0 $6.20-$7.70 $10.50-$12.50
Gold segment (2) 0.3 395.0-437.0 800-860 1,050-1,125
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Consolidated silver basis (3) 18.0-19.0 525.0-575.0 n/a (3.00)-0.75
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(1) Cash costs and AISC are non-GAAP measures. Please refer to the section "Alternative Performance
(Non-GAAP) Measures" of management's discussion and analysis for the period ended Sept. 30, 2020,
for a detailed description of these calculations and a reconciliation of these measures to the Q3
2020 financial statements. The cash costs and AISC forecasts assume the realized prices and exchange
rates provided in the MD&A for the period ended June 30, 2020.
(2) As shown in the detailed quantification of consolidated AISC, included in the "Alternative
Performance (Non-GAAP) Measures" section of the MD&A for the period ended Sept. 30, 2020, corporate
general and administrative expense, and exploration and project development expense are included in
consolidated (silver basis) AISC, but are not allocated amongst the operations, and thus are not
included in either the silver or gold segment totals.
(3) Consolidated total is calculated per silver ounce sold with gold revenues included in the
byproduct credits.
Management's guidance for zinc, lead and copper production is unchanged, as provided in the following consolidated base metal production section.
Consolidated base metal production
Zinc: 40,000 to 43,000 tonnes
Lead: 17,000 to 18,000 tonnes
Copper: 4,300 to 4,900 tonnes
Capital expenditures guidance
Based on capital expenditures to date, which reflect COVID-19-related delays, and those expected for the rest of 2020, management is reducing the forecast annual expenditures by approximately $15.0-million. These reductions reflect the deferral of certain capital investments.
Sustaining capital: $175.0-million to $180.0-million
Project capital: $20.0-million to $21.0-million
Total capital: $195.0-million to $201.0-million
Third quarter 2020 unaudited results conference call and webcast
Date: Nov. 5, 2020
Time: 11 a.m. ET (8 a.m. PT)
Dial-in numbers: 1-800-319-4610 (toll-free in Canada and the United States)
or 1-604-638-5340 (international participants)
Webcast: at the Pan American Silver website
Callers should dial in five to 10 minutes prior to the scheduled start time. The live webcast and presentation slides will be available on the company's website. An archive of the webcast will also be available for three months.
About Pan American Silver Corp.
Pan American owns and operates silver and gold mines located in Mexico, Peru, Canada, Argentina and Bolivia. It also owns the Escobal mine in Guatemala that is currently not operating. As the world's second-largest primary silver producer with the largest silver reserve base globally, it provides enhanced exposure to silver in addition to a diversified portfolio of gold-producing assets. Pan American has a 26-year history of operating in Latin America, earning an industry-leading reputation for corporate social responsibility, operational excellence and prudent financial management. It is headquartered in Vancouver, B.C., and its shares trade on the Nasdaq and the Toronto Stock Exchange under the symbol PAAS.
Technical information
Scientific and technical information contained in this news release has been reviewed and approved by Martin Wafforn, PEng, senior vice-president, technical services and process optimization, and Christopher Emerson, FAusIMM, vice-president, business development and geology, each of whom is a qualified person, as the term is defined in Canadian National Instrument 43-101 (Standards of Disclosure of Mineral Projects).
For additional information about Pan American's material mineral properties, please refer to Pan American's annual information form dated March 12, 2020, filed at SEDAR, or Pan American's most recent Form 40-F furnished to the Securities and Exchange Commission.
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