Pan American Silver Corp (PAAS) 2017 Q3 法說會逐字稿

Thank you for standing by.

This is the conference operator.

Welcome to the Pan American Silver Third Quarter 2017 Results Conference Call.

(Operator Instructions) I would now like to turn the conference over to Ms. Siren Fisekci, Vice President of Investor Relations.

Please go ahead.

Thank you, operator, and welcome, everyone, to Pan American Silver's Third Quarter 2017 Conference Call.

We released our results after yesterday's market close and a copy of the press 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 some quick highlights for the quarter.

We will then open up the call to questions and answers.

Joining us for the Q&A portion are Pan American's Chief Operating Officer, Steve Busby; Chief Financial Officer, Rob Doyle; Senior Vice President Technical Services and Process Optimization, Martin Wafforn; and Vice President of Business Development and Geology, Chris Emerson.

Before we get started, I'd like to remind everyone that our press release and certain statements and information in this call constitute forward-looking statements and information.

Please review the cautionary statements included in our press release and presentation as well as the risk factors described in our most recent Form 40-F and the Annual Information Form.

I will now turn the call over to Michael.

Thank you, Siren.

Welcome, everyone, joining us today to discuss our third quarter results.

Q3 was a solid quarter with net earnings of $17.8 million or $0.11 per share.

Adjusted earnings were $23.3 million or $0.15 per share.

Cost performance continues to be very strong, leading us to reduce our guidance for 2017 cash costs for the second time this year.

And we are maintaining our annual production guidance for gold and silver in 2017.

Most important, we are starting to see the expansions at (inaudible) La Colorada and Dolores mines ramping up very nicely, which underpin the rising production profile.

Revenue in Q3 2017 was about $191 million compared with $233.6 million last year, mainly because of lower quantity sold for silver and gold, and lower realized prices.

In addition, the value of our inventories increased by about $12 million during the quarter.

Base metal sales were up quarter-over-quarter with higher production and prices for zinc, lead and copper, all up around 30% compared with Q3 last year.

We produced 5.89 million ounces of silver in the quarter at cash cost of $3.12 per ounce.

Given cash costs year-to-date of $5.04, we have, again, reduced our estimate for 2017 cash costs.

This time to $4.50 to $5.20 per ounce.

That's a 30% reduction from our original guidance provided in January, based on the midpoint of the ranges.

Year-to-date silver production totaled 18.4 million ounces and given our outlook for Q4, we are on pace to reach our annual guidance of 24.5 million to 26 million ounces.

Silver production in Q3 was down largely because of discontinued production at Alamo Dorado.

We finally completed the processing of all the residual ore at that mine.

And due to lower production at San Vicente and Manantial Espejo.

We had very strong performance from La Colorada, and we are just starting to see production ramp up from Dolores.

I'll provide more detail on each mine's Q3 operating performance shortly.

Gold production was 40,800 ounces, down 19% from Q3 2016.

We had expected gold production to decline primarily because of Manantial Espejo where we have completed open-pit mining and are now supplementing underground production with lower grade stockpile material.

With year-to-date gold production of 116,300 ounces, we are on track to achieve our gold production forecast for 2017 of 155,000 to 165,000 ounces.

We have made some revisions to our outlook for base metal production.

Based on the midpoint of the guidance range, we have increased copper by 46%, and modestly adjusted lead and zinc production.

The specific guidance range are provided in our Q3 disclosure.

I'll now spend a few minutes discussing operations at each of our mines, and how we see things unfolding over the coming months.

We have been very pleased with how the expansion at La Colorada is ramping up.

Mining and processing rates averaged just over 1,900 tonnes per day during Q3.

Our target was to reach 1,800 tonnes per day by the end of this year.

So clearly, the expansion is ramping up better than expected.

La Colorada produced 1.8 million ounces of silver in the quarter, up 32% from Q3 last year and accounted for roughly 1/3 of our consolidated silver production.

Zinc production was up 50% and lead up 81% further benefiting cash costs, which dropped 74% to $1.71.

All-in sustaining costs at La Colorada were down 50% compared to Q3 2016 coming in at $3.48.

At Dolores, we are currently ramping up the new pulp agglomeration plant, which started in August with the plant processing a total of 120,000 tonnes of high-grade ore in Q3.

Total heap leach stacking rates have already achieved the expanded design capacity of 20,000 tonnes per day.

Development of the underground mine is proceeding well.

Our target is to have the first open production by the end of this year.

Cash costs at Dolores came in at negative $0.57 per ounce, while all-in sustaining costs were $8.03 per ounce of silver.

At our Huaron mine in Peru, we've made several upgrades with the flotation circuit, which has improved mill recoveries, while maintaining concentrate qualities.

The resulting increase in throughput has helped offset lower grades due to mine sequencing.

Silver production of 939,000 ounces in Q3 was comparable to Q3 2016.

Copper and zinc production at Huaron was up quarter-over-quarter, while lead production was down.

Overall, the increase in zinc and copper production and higher base metal prices resulted in cash costs of $0.31 per ounce, and all-in sustaining costs of $2.94 per ounce.

In addition to higher by-product credits, all-in sustaining costs benefited from improved concentrate terms.

At our Morococha mine, silver production was down 8%, with a decrease in silver head grades by the same amount.

Cash costs were negative $8.16 per ounce, while all-in sustaining costs were negative $0.46 per ounce.

A 22% increase in copper production combined with higher base metal prices contributed to those very low cash costs.

Turning now to our San Vicente mine in Bolivia.

Operating performance has been impacted by our efforts to transitioning mining of the Union vein to more mechanized methods, similar to what we did at our Peruvian mines.

That transition delayed our access to higher grade stopes and led to higher mining dilution.

As a result, silver production declined 30% quarter-over-quarter and cash costs were $12.99 per ounce in Q3 2017.

All-in sustaining costs were $18.62.

At our Manantial Espejo mine in Argentina, we've completed mining from the open-pit with production now coming from the underground mine plus lower grade material that was stockpiled during operation of the open-pit mining.

As a result and due to lower grades from mine sequencing, silver production was down 20% and gold 36% compared with Q3 2016.

Cash costs came in at $12.73, and all-in sustaining costs were $19.25.

As you may know, we plan to take advantage of the excess capacity at Manantial Espejo to process 2 deposits we acquired earlier this year.

At COSE, we are expecting to begin development of the decline this quarter.

We are targeting production to start at the end of 2018 and run for about 18 months, producing approximately 112,000 ounces of silver and 2,300 ounces of gold per month.

Further details on the Joaquin project will be provided in the preliminary economic assessment, which will be available by year-end.

Overall, our operations generated cash of $63.8 million in Q3, enabling us to fund our operations and repay all of our bank debt.

We now have only $7.5 million of debt, which relates to capital leases.

Our net cash position, cash and cash equivalent and short-term investments less total debt rose to $178.8 million at the end of Q3 2017, an increase of $27.3 million since Q2 2017.

At September 30, 2017, we had working capital of $409.7 million and the full $300 million available under our revolving credit facility.

Given this strong financial position and the outlook for higher free cash flow generation, as our Mexico mine expansions ramp up, Pan American Silver is in a very strong position to grow value for our shareholders.

That concludes my formal remarks.

I'd now like to open the call to your questions.

(Operator Instructions) Our first question comes from Cosmos Chiu of CIBC Capital Markets.

Just a few questions from me here.

Maybe first up on the La Colorada expansion.

Clearly, it's performing better than you had expected, over 1,900 tonnes per day.

But at this point in time, can you remind me once again, what's the capacity here?

What's sort of like the high-water mark?

What's the potential bottleneck?

Is it the underground mining that's sort of catching up?

Could you give us a bit more color?

Yes, I'll pass that on to Steve, Cosmos.

Cosmos, this is Steve.

Yes, basically it is our underground mining rates.

We -- as I mentioned in the past, our mining shaft has been designed to go ultimately to a 1,000 meters in this first stage for our current 10-year reserve plus is down to the 620-meter mark.

So there is excess capacity even in the shaft at this current stage.

We did build that sulfide plant.

It does have some excess capacity, plus we have the old sulfide plant available if we really saw the ability to grow.

So the bottleneck is clearly in the underground mining, and it's the development and it's the combination of development and balancing of the waste fill for the cut-and-fill operation.

And today, we feel this 1,800 tonnes a day design -- give or take 100 or more tonnes a day overs and unders.

1,800 tonnes a day is the design we feel pretty comfortable with that.

We would have to do some other things to really think about trying to increase that underground.

And what kind of, in terms of meters of advancement underground are you averaging per quarter?

I think, our overall is about 10 -- about 9,000 to 10,000 meters a year in that neighborhood.

Okay.

And then Steve, can you remind me again in terms of the shaft.

What's the capacity here and how much are you hoisting all the waste back up to surface or you're leaving some behind?

We -- most of the waste stays behind.

The shaft is capable.

It was designed for 2,200 tonnes a day in total.

Again, I think, there is probably a little bit more capacity of that at our current stage.

But most all of the waste we mine does stay underground.

We don't really bring much to the surface at all.

And actually we supplement that waste with tailings from the plant to help with the fills.

Great.

And maybe switching gears a little bit and turning to Dolores here.

The gold grade was a bit lower this quarter compared to last year, but comparable to what we've seen so far in 2017.

Is that sort par for the course for Dolores until some of the higher grade underground ore comes out?

Yes -- no, I think, Cosmos, that's a reflection that we did stockpile high-grade ore during the quarter in anticipation of the start-up of the plant.

So we did actually mine overall probably a higher gold grade than what we fed through the plant or what you saw feed through the plant just because we did stockpile probably 0.5 million tonnes or so ahead of the plant.

Great.

And then, I guess, as you said, Steve, the pulp agglomeration plant has started.

Should we start seeing some kind of -- I don't want to call it recovery.

You call it the stack versus produced ratio.

Should we start seeing that increase in Q4?

We expect to see it start to steadily increase, yes.

We are seeing really good recovery rates in the pulp agglomeration plant for the first stage of recovery.

We do produce about 60% of the gold and about 40% of the silver right away in the pulp agglomeration.

It has about an 8-hour retention time, and we get those kind of extraction rates.

So that's a bump in the early stage recovery.

And then ultimately, we're bumping on the high-grade ore that goes through pulp agglomeration about 10% more gold and 20% more silver.

But of course, that takes quite a bit of time out on the pad.

So overall, yes, I would say, we're going to tend to see the recovery ratios kind of trend upwards.

It's going to be slow.

These heaps are big and they are slow to react.

But we are seeing that incremental recovery right upfront, and we're really pleased.

It's actually exceeding our expectations that we thought we'd see there.

Just in general, I would like to say here how pleased I am personally with these 2 projects in Mexico and how they come along, Cosmos.

They are in-house built, first-class top-notch constructions.

Obviously, built at a time where metal prices suffered a few years ago, and that really reflected in the cost for those project.

That was relatively low-cost builds with really high-class companies and contractors that help us achieving these great results.

And I'm really pleased how they are coming along, either on time or faster than we expected.

So my congratulations to the team here.

Yes, I would agree.

I guess, with the higher grades that you have mentioned, Steve and Michael, I guess, you are getting to some of the underground stopes in Q4.

So should we be expecting some of that higher grade stope ore coming from the underground and also in combination of what you've stockpiled in Q3 to be put through the pulp agglomeration plant in Q4?

Yes, one thing to keep in mind, Cosmos, is we do have quite a bit high-grade in the open-pit as well and the open-pit mining rates in reality, they kind of overwhelm the underground mining rates.

So that additional tonnage as we start to stope mine in the underground, it won't really generate a big difference that you're seeing there.

An overall grade going to the plant will trim out some of the low-grade from the open-pit into the stockpile.

But the reality is and certainly, some of our best grades that we see throughout the deposit, probably occur at the lowest depths of the open pit.

And there are probably areas in that open pit that are higher grade than what we'll see even in some of the underground.

Not a lot different than what we saw at Manantial Espejo through its life.

Some of our best grades came through the open pits there as well.

And then Steve you mentioned the height of the heaps at Dolores here.

They're getting pretty tall and pretty high now.

How -- is it -- is everything getting stacked on to the valley heap leach, the leach pad?

And how high is it now, like where you stacking it?

Yes, very good question.

It is a very deep valley fill heap.

I think, ultimately, our ultimate stack height will be about just something under 200 meters or 180 meters.

We're probably -- the thing is it varies all the way around from the edges where you're stacking right against the liner to the center, where it may reach depths of 100 meters today.

And as we started the pulp agglomeration plant, one of the factors was we wanted to keep the agglomerated ore kind of on the edges where we would, one, see a quick turnaround; and two, really understand the permeability characteristics of this ore before we started stacking it in the center, just to make sure it was performing well before we started putting it in a real deep stack.

But things are looking really good.

Our permeability results are as good or better than we expected on the agglomerates.

We're really pleased with the characteristics with the agglomerate.

So we now are starting to stack it, but it is a big heap like you say.

And the dilution aspects of that preg solution, if you will, as it percolates down through that big heap.

It does attend to slow this -- I would like to term it as a big bowl of momentum.

It's a big bowl of momentum as we build it, and everything just reacts very slowly.

Our next question comes from Robert Reynolds of Crédit Suisse.

Going back again to Dolores.

Could you just provide a little more color around what the actual mining rate was in the third quarter, not the process rate in that?

Because you mentioned you stockpiled about 0.5 million tonnes and then also what the strip ratio was?

Yes.

I don't have that data right handy.

But I want to say, we're just pulling it up here.

Yes, can we get back to you on that, Robert?

I'm sorry, I don't have that data right in front of me.

Yes, that's fine.

And then just looking at the pace of sustaining capital spend at Dolores, $22 million year-to-date.

The outlook was $38 million to $39 million.

Is there a big catchup we should be looking for in the fourth quarter?

Yes, there will be -- Q4 is definitely going to be our heaviest quarter for sustained capital, so there will be a catchup there.

And a lot of that's reflected in our mine equipment replacements and rebuilds.

They kind of all got stacked into Q4 this year.

So those will come through fairly quickly, and we should see a pretty heavy quarter relative to what we've seen so far year-to-date.

Okay.

And then just moving over to San Vicente.

The transition to mechanized mining.

Is this something that's been planned for a long time at that asset or is this a newer strategy there.

I guess, I'm trying to gauge whether you would have planned for this transition in your prior 2018, 2019 outlook that was released at the beginning of this year?

Yes, what's happening there is San Vicente has always been a combination of conventional, kind of older style mining, more labor-intensive mining systems, and the mechanized mine from Day 1 when we started the operation, the expanded operation in 2009.

So we have been running the mechanized mine there for virtually 8 years already, for half of the feed roughly to the plant over the last 8 years and the other half was conventional.

The issue was that conventional mining in the past was done on the Litoral vein our high-grade vein, which was a fairly large structure.

I think, overall, the average width of that structure that we mined was 8 meters.

So what's happening now, when we talk about mechanization of the mine, we're starting to slowly mechanize some of the more conventional mining, which is on narrower vein structures that may go down to as small as 2 meters or so.

So our next -- we've kind of mined out of that Litoral, that big high-grade zone that was heavily mechanized, and we're mining into now our high-grade zone is called the Union vein.

And the Union vein is about 3 meters wide on average.

So it's still a mechanized approach, but it's directed towards more narrow vein mining.

And that's really where we've had a lot of our success in technology improvements in Peru was towards those narrower veins.

So that's when we talked about bringing that technology over to San Vicente.

It's slowly starting to increase the amount of ore and the targets of the veins that we mine at San Vicente, increased the number of those areas that we do that at.

Okay.

And then just a question on exploration ahead of the annual reserve resource update.

Which assets have you guys been seeing the best results year-to-date?

Maybe if you could just talk about where we should be looking for potential reserve resource increases at the end of the year?

And then also, if you'll be taking a look at all on the metals price assumptions that you used to calculate those reserves and resources?

I'll start here on the last part of your question and then hand it over to Chris.

Looking at metal price assumption, we have seen fairly flat silver and gold prices during the year.

So I would say from now until the end of the year, I don't see anything really -- any reason why we would change a lot on those assumptions.

Base metals are a bit higher, maybe we do a little correction there, but I would see very similar prices than we applied last year for the reserve update.

And to a bit more details of what we are doing, I hand over to Chris Emerson.

Yes, Robert.

Yes, I mean, obviously, we, at the beginning of the year, posted a relatively aggressive drilling program for all of the mines at around 115,000 meters, and then around 30,000 meters in exploration in more regional.

I'm happy to report that all of our mines have been performing exceptionally well.

We've actually increased the drill budgets for the Peruvian operations at Morococha and Huaron, which have all pretty much completed 50,000 meters of drilling.

And really that's where I would focus on potentially gains for next year in those particular assets.

Yes, they're historic.

Yes, they have been in the past viewed more polymetallic than they are.

And of course, that is obviously helping in the exploration finds with the current polymetallic prices coming in.

And these -- Morococha, for instance, with Toromocho and you've got all those intrusives and limestones, we're finding good results in specifically Morococha.

And Huaron as well and we're very, very pleased.

La Colorada has constantly been an outstanding performer over the past years.

Yes, we are drilling out sort of more lateral and having to go deeper.

So that has a long resource base.

And Dolores, we've actually started exploration again in Dolores going south of the vein and San Francisco.

So we're expecting some nice numbers at the end of the year and, certainly, Peru.

Watch out for Peru.

The next question comes from Mark Mihaljevic of RBC Capital Markets.

I guess, I'll kick things off down at Dolores.

I was just wondering how the underground development rates are progressing and how much stope inventory you've got opened up in front of you.

Do you think you'll be able to kind of hit the ground running and ramp up to that 1,500 tonnes per day target pretty quickly or should we be expecting a pretty gradual ramp up over the next 12 months or so?

Yes, Mark.

This is Steve.

Yes, our underground mining development rates right now are developing probably about 2,500 meters a quarter, somewhere in that neighborhood.

We are already starting to develop, obviously, we have been for quite some months now along the ore zone.

So we are producing some ore that goes directly to the pulp agglomeration plant already.

I think year-to-date, maybe 30,000 tonnes of ore has been mined from that.

Kind of our first stopes that we're moving into, they are looking like roughly 50,000, 60,000, 70,000 tonnes stopes.

They are fairly large stopes.

We probably will start to see a kind of a slow ramp up to that 1,500 tonnes a day as we get into those stopes.

We kind of want to open up maybe 3 or 4 stoping areas to eventually get to 1,500 tonnes a day.

That may take us 6 months or so into next year.

But the initial stopes are fairly good size, and we should start to see those come in.

The grade should be a little bit better than what we're seeing along the development.

But the developments haven't been that bad a grade.

I mean, overall this is Dolores 2.5-gram gold equivalent-type grade stopes is what we're looking at.

So that's kind of where we're moving with that underground.

So just Mark, one comment here to what Steve alluded in the former question.

We reached our kind of our max stacking rate now of about 20,000 tonnes per day, and that includes, obviously, the material that goes through the pulp agglomeration, which in the future will include part of the underground.

But there's sufficient high-grade material available from the open pit as well.

So you will not see a difference, obviously, if you look at the end result what came from high-grade open pit or high-grade underground mining.

So to make that short, it doesn't really -- it obviously, the open pit -- the underground, sorry, will add a lot of higher grade long-term ore.

But at shorter-term, it doesn't really matter for us to look when we take the high-grade from the pit or the underground, the result will be the same.

Perfect.

I guess, moving on down to Bolivia with San Vicente.

Obviously, you guys had had great success in Peru bringing costs down when you transitioned a lot of the conventional mining to mechanized.

So I was just wondering how much -- or what type of impact you are expecting once you get all these teething issues sorted out.

Obviously, you're losing some of the wider zones as you were mentioning earlier, but just -- how you see the cost structure evolving there?

Yes, great question, Mark.

The answer -- the short answer is yes.

We do expect to see some general cost improvements as we mechanize despite the overall vein structures we'll be mining are narrower.

The one thing that complicates San Vicente a little bit is we have a very large royalty payment to our joint venture partner, the Bolivian government, through COMIBOL, and that flows through our cost.

So as you see our cost come down and profitability goes up.

You actually see our royalties go up.

So there is kind of an offsetting dilution there.

So we think the costs there are going to be fairly flat.

We are seeing some high inflation rates on labor, kind of 8% a year type numbers.

We've seen over the last 4 years.

We're trying to supersede that with this productivity of the mechanized mining.

So generally our feeling is, as we mechanize, you'll probably see the costs being fairly flat.

Okay.

And I guess, as you kind of build a little more mechanized mining into your mine planning, should we be expecting a bit of a lower diluted grade going forward, just if you're taking some wider widths to be able to do mechanized mining versus the conventional?

Yes.

The quick answer there is yes.

We did face some heavy dilutions over the last, kind of, 6 months, as we're making this transition.

We've got some cavity monitoring systems and survey equipment that we've been very proficient in using in Peru and it takes some time to really understand how to use this equipment to our fullest advantage.

And as we're bringing that stuff in, we did see some fairly high dilutions early on, as our miners get used to how to control these kind of mechanized mining systems, if you will.

But we're confident, we're seeing some really good progress.

We're pretty encouraged by what we see going in to Q4.

October has been a really positive month for us.

So I think everybody is going to be happy as we see these things come online.

Okay.

And I guess, one final one for me.

Obviously, a bit of a bump on the base metal production outlook.

How much of that is a reflection of you guys kind of changing the sequencing to capture the higher metal prices that we've seen versus just kind of outperforming your original plan?

I think, Mark, what we really see here is the geology reflected in our base metal production.

What you also see is, obviously, the improved productivity that we have at La Colorada.

We're mining more and more sulfides there, high-grade silver vein, but also increasingly higher grade of zinc and lead.

So the more we increase production at La Colorada, the more base metals we'll mine as well.

So you see that there as well.

But if you allude to Morococha and higher copper production, I'm sure you remember for the last few years actually, we have been very successful mining those small deposits with small ore bodies with copper in it which was, obviously, of great help.

But we are silver miner, that's what we mine.

But if we find the base metals on the way, for sure we take it, especially right now with the current base metal prices.

Next question comes from Mark Morgan with UBS.

Honestly, a lot of my biggest questions have already been answered.

But I just wanted to ask about guidance for next year and 2019 from your presentation.

Is that still looking on track?

Yes.

We are in the midst of the budget process right now.

We'll have our budget meetings here in a couple of weeks, going through the final numbers.

And then like every year, we'll come out with our guidance and numbers in January with a new 3-year guidance.

There will, obviously, be some differences to what we showed last year, because we added 2 new projects in Argentina, COSE and Joaquin.

We expect a technical report on COSE -- on Joaquin, sorry, to be out at the end of this year.

So you will see some additional production coming in later on the long-term guidance.

And as I said, the shorter-term for 2018 guidance, will be out in January.

Okay, but -- so it sounds like there is nothing which has impeded that guidance and there is potentially some longer-term projects to be added in at the backend?

That's correct.

The next question comes from Lucas Pipes with B. Riley FBR.

Most of my questions have been asked and answered, I appreciate all the detail, the color on the various operations.

I was maybe looking for a summary in terms of updated cost guidance, you lowered cost guidance twice this year.

When you look back and think about your original expectations, where do you think you exceeded them?

What has been kind of most surprising on the positive side leading to this improved cost guidance twice this year?

I can start this, Lucas.

This is Steve, and then I'll turn it over to Michael to add to it.

The only area that, I think, when I look back over the year that I think was the positive result that maybe we were being a bit too conservative on, was the cost at Dolores.

With the pulp agglomeration plant coming on, with the underground mine coming on and kind of these new systems in place, I look back and yes, I can say we were clearly being conservative in what we thought those things would cost us as we get them up and running.

So I think that was been a strong driver from a direct operating cost basis that we've seen reductions.

There have been some offsets.

We had some unpleasant surprises, I think, this year in some of inflationary effects and some are particularly in labor across the board.

But clearly, some of those savings at Dolores has overwhelmed those.

Don't forget, Lucas, when we do this cost estimate for the year-end, obviously, that will -- you will see something similar again.

Then in January, we have to make estimates for the full year and beyond that on our byproduct metal prices, base metals, gold.

We have to make estimates on exchange rates for all the countries we are working in.

So there is a lot of moving parts that we have to estimate and they obviously all change up and down, and some go in our favor, some not.

What I also want to add is, what I said at the beginning, the expansion that is now in full swing already at La Colorada, for sure, provided us with a lot of low-cost production that had helped us greatly on this cost reduction we see during the year.

Got it.

And then to pick back up on this last point and also what Rob mentioned with the assumptions going into Dolores.

Is it fair to assume that as we look into 2018, '19, et cetera, that there was some conservatism was also baked into those cost guidances?

That's really far out there.

As we said, I mean, when we do the 3-year guidance, we kind of apply the similar measuring stick if you want to call it like that, then apply similar input data.

Look, I mean, so many things can happen on the FX side, for example, and the byproduct metal price in the next 2, 3 years.

So I won't be really able to tell you if that estimate that long out will be conservative or not.

Time will tell.

(Operator Instructions) Our next question comes from Trevor Turnbull of Scotiabank.

Yes, it looks like a pretty good quarter from my perspective.

And I notice that the share price reaction in the market has been surprising, at least, in my estimation.

It seems like of all the silver companies, Pan American's actually had a rougher day of it.

And on the back of what looked like really strong results across the board, whether it be costs or renewed guidance and beating consensus.

Do you guys have any sense or have you heard anything as to what people are concerned about with respect to the share price?

Trevor, it's Michael.

Yes, it was a really strong quarter actually -- not dissimilar what you mentioned, we are very pleased with the numbers.

We guided cost down against strong cash flow numbers, solid earnings.

You've seen that we have been able not only to pay for all our capital and sustaining capital and project capital, but pay back most of our debt.

Actually there is only some capital leases back there, all the bank debt has been paid up.

So our net cash position increased by over $27 million.

So that was a really strong quarter and on the back of -- not incredibly strong precious metal price.

So I'm very pleased with the quarter.

The market reaction at one day is what it is.

We focus on a long-term very profitable business here and keep growing it, and generate value for our shareholders, and that's our focus.

Okay, fair enough.

I had a couple of questions, then, I guess, on the more technical side, maybe for Steve or yourself.

I had a chance to visit La Colorada and saw the expansion firsthand.

One of the things -- it did seem that as you are mining more of the ore body, you're getting laterally quite a ways out from the shaft.

And I just wondered, is that a potential challenge for you guys in terms of getting the backfill out to those far headings, while you are pulling ore from a fair distance away from the shaft?

Any thoughts on kind of how you are addressing that?

Yes, Travis.

It's Martin here.

Yes, sure, we'll be looking at our backfilling systems coming up next year in our capital plans, probably foresee needing to expand our hydraulic backfill circuit to be able to get to fill out to some of those lateral areas like you're talking about.

But at the moment, things are going very, very well.

And so yes.

So just a bit of an upgrade perhaps on the [hydrophil] just to extend those systems out a bit?

That's correct.

And I know this is a bit nitpicky, but I've been struck at how consistent the grade has been at La Colorada for several years, not just 1 or 2. And it did seem to dip.

Again it's nothing major, but it did seem to dip this quarter.

And I just wondered if there was anything particularly behind the slightly lower grades at La Colorada this quarter?

Yes.

Trevor, it's Steve.

Yes, it's a good observation and we saw it as well.

And I can tell you, we've put a lot of investigation into that.

Our reserves are solid.

We're pretty comfortable with the reserves.

As we went into this expanded program -- and maybe you saw it while you were there, we did see some areas of dilution that crept in on us, and some of the higher grade stopes.

And there was some tricky geometry there on the dip of the vein and trying to capture all the recovery without over-diluting it.

So we put some additional systems in place there, some additional filling techniques and marking techniques to improve on that.

And we're comfortable that we're going to overcome that little dip that we saw during the quarter.

And we are very confident of our reserves, and we see no issues there whatsoever.

Okay, Steve.

And then my final question.

Interesting that the copper guidance has jumped.

You've really -- making quite a bit of money on that as a byproduct.

Again, looking kind of back at the model over the years or near term, it didn't look like copper went through any sort of major step change at Morococha or Huaron.

I was just curious, why copper seem to be working so well for you all of a sudden?

Like I say, I just didn't see that there was a huge change in the grade, at least at the first glance of the information I saw.

Yes, if you go back a couple of years, Trevor, you will see a pretty good bump in both Huaron and Morococha on copper grades.

And that reflected some exploration success we had in these zones that gave us some decent -- I'm talking multi-percent copper zones.

They don't represent all of our feed to the plant, but they represented more and more significant amounts of it as that exploration success defined more of that material.

We also have some zones of high zinc and I think I've mentioned in previous quarters, that Huaron and -- both Huaron and Morococha, it's a little bit tricky to predict the zinc and the copper grade, because we can move in and out of both of those right now today fairly easily.

So we kind of capture the ones that give us the best opportunity.

Fortunately today, they have both given us really good opportunities.

So it's a bit of a coin toss as to which one we might go into over the other.

So it's kind of hard to sometimes guide out too much distance, because you can flip-flop between those 2 type of ore zones.

Economically, they are fairly similar with each other.

So economically, we're pretty positive on our outlooks on these mines.

We're pretty confident of them.

But that distribution of what's going to come in as copper or zinc, yes, that can flip on us one way or the other, depending on exactly which zone we're mining.

Our next question comes from Rob Reynolds of Crédit Suisse.

Just 2 quick follow-ups here.

The first was on the provisional pricing of your concentrates.

I was surprised that there wasn't a greater realized price benefit from the sort of quarter-over-quarter jump in the base metals prices, in particular zinc and copper.

I mean, if prices jump again in Q4, do you often see those tailwinds or is there something I'm missing here in terms of how your provisional pricing works?

Robert, it's Rob Doyle here.

No, you're thinking about it the right way, to the extent that we have open QPs at any period that will settle in the future.

Obviously, as prices go up, then we get positive adjustments to revenue.

So there was a modest adjustment somewhere in the, sort of, $3.5 million, $3.6 million benefit in the quarter to our revenue from previously shipped and reported revenue.

So there was an uptick, but the nuance is that it also depends on when the pricing is during the quarter.

So it maybe -- you may see some strong prices to end the quarter.

But if you have large shipments settling in the first month of the quarter, then you may not quite get the expected result.

But overall, the way you're thinking about it is correct.

Okay.

And then thanks for that, that helps.

Just back to San Vicente once more.

The throughput rate, it does look like it's improved in Q3 back to about 87,000 tonnes.

Where do you ultimately want to get that mine to on an underground throughput rate?

Yes.

Robert, this is Steve.

I think that's where we want to be.

When we look at our reserves and we look at the kind of staged exploration we're doing and replacement of reserves as were mined, it all looks pretty well balanced at that rate.

We don't really have a strong desire to really push that rate right now as we look at our current resources there.

Our next question comes from Lawson Winder of Bank of America Merrill Lynch.

Just on, I guess, more of a strategy question.

You guys have paid down all of your debt.

So I think you can check that off of your potential uses of cash list.

So just in terms of uses of cash going forward, how do we think about balancing that between sort of dividend, exploration, M&A, project spending, looks like it's going to be quite a bit lower going forward, maybe there is something in the pipeline that you guys hope to keep the powder dry for.

Any thoughts on that would be appreciated.

Yes, Lawson.

Yes, you mentioned all the parts to it actually already.

It is a distribution between exploration and on the exploration side, the distribution between shorter-term just replacing reserves or having project close to operations to projects like the ones we acquired in Argentina this year that allow us to truck high-grade ore to an existing plant, to some projects that are further out there and have may or may not the potential to be a stand-alone operation filling our pipeline over a multi-year timeline.

At the same time, we like returning value to shareholders in the form of either dividend or share buyback.

What we did in the past was over $400 million since 2010 that we returned to shareholders, lately, mostly in dividend.

We believe that's a very good way to return money to our shareholders.

And now as we are nearly out of the big spending at Dolores and start generating really substantial free cash flow, we will definitely have look at those dividend payments as well.

And then the last point.

We always out on the -- out in the market or looking at what there is in the silver space.

We are a strong company with a lot of experience in mine building and mine operating.

And we are always looking out there for really good high-quality accretive projects that we can add to our pipeline or to our producing mines, if that would come along.

You see we have a very low-cost profile right now.

And we, obviously, are looking around for projects that kind of are in the similar range.

So to assure that we create here really substantial value for our shareholders with any acquisition.

Our next question comes from John Bridges of JPMorgan.

Mike, Steve, everybody.

Just sort of following on from the last one.

You've mentioned before in some of your comments the sort of state of the industry in terms of opportunity.

How would you characterize the opportunity to pick up new assets out there at the moment?

Well, actually, as I said, we are always spending kind of the same management time to look for those opportunity.

We know where they are.

But then they come up at different times, they are available.

And others just come up like the ones in Argentina.

Some projects come up that have not been discovered before.

As I said, there are different stages.

I'm actually pretty pleased with the pipeline and opportunities I see in the market right now.

It's a difficult silver market for a lot of companies.

If you look at us, I think, we are in a very fortunate situation with the mines we have, the cost profile we have and the balance sheet that we have.

So I actually see pretty strong market for opportunities here.

And I would expect if the market stays the same and the silver and gold price stay the same that, that shall continue into next year.

I suppose to an extent, your expanded drilling at the Peruvian mines is giving us an indication as to your mindset as to expanding reserves there, rather than going off and buying other people's reserves.

That's correct.

I mean, Peru has been very successful for us with reducing costs, strong production.

And replacing our reserves -- John, you know that we replaced our reserves every year nearly since the last about 14 years.

Replaced actually in total more than what we mined in that period from our existing assets.

That's been a big value driver for us and our shareholders, and it's always one of our main focus as well.

Okay, great.

And just finally a bit of bookkeeping.

The stockpile at Manantial, how long is that going to last?

Will it last until you bring on the new projects?

How should we model that?

Yes, John.

Steve here.

Yes, it will last through the new projects.

There is pretty good size stockpile there.

We're hoping to find even more of these satellite deposits and keep stringing them out.

We are also having some exploration success underground at Manantial and to kind of string that one out too.

So right now, I think our long-term plan had always shown it going out to 2019, 2020.

We think we will easily make that and maybe even a little bit longer.

Obviously, the addition of COSE and Joaquin, John, will change the time we're going to use the plant at Manantial, beyond that time frame.

As said, towards the end of this year we have the technical report out in Joaquin.

And as soon as we have that in January our 2018 and 3-year forecast, you'll see the impact of those 2 additions as well.

This concludes the question-and-answer session.

I would like to turn the conference back over to Mr. Michael Steinmann for any closing remarks.

Thank you, operator.

Just a reminder for everybody, we are holding an Investor Day on November 21, the live webcast will be available on our website for those who cannot participate in person.

With that, thank you everybody for being on this call and have a good day.

This concludes today's conference call.

You may disconnect your lines.

Thank you for participating.

And have a pleasant day.