Pan American Silver Corp (PAAS) 2023 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Pan American Silver's fourth-quarter 2023 and audited results conference call and webcast.

(Operator Instructions)

This call is being recorded on Thursday, February 22, 2024.

I would now like to turn the conference over to Siren.

Thank you, please go ahead.

Thank you for joining us today for Pan American Silver's Q4 and full year 2023 conference call.

This call includes forward-looking statements and information and makes reference to non-GAAP measures.

Please see the cautionary statements in our MD&A news release and presentation slides for our Q4 2023 audited results, all of which are available on our website.

I'll now turn the call over to Michael Steinmann, Pan American's President and CEO.

Thanks, Siren, and thank you, everyone, for joining our call today.

Past year was a dynamic period of growth and change for Pan American.

We added four new mines into new jurisdictions.

We streamlined our portfolio through the sale of non-core assets.

And we announced the preliminary economic assessment for the La Colorada skarn.

The integration of the assets we acquired from Yamana now complete, we continue our focus on improving margins to save cost, efficient operations, harvesting synergies and so the portfolio optimization.

In 2023, the nine months' contribution of the assets we acquired from the 11% increase in silver production and a 60% increase in gold production over 2022 and resulted in record revenue for both Q4 and for the full year.

Operating cash flow for Q4 was $167.4 million, net of $32.4 million in taxes paid and inclusive of $56.1 million of cash from working capital, we recorded a net loss of $0.19 per share in Q4, driven by three non-cash charges.

The first relates to the final purchase price allocation for the acquired Yamana assets, American finalized the purchase price allocation or PPA asset values for the amount of gold acquisition in Q4 2023, resulting in a $16.5 million improvement to previously reported Q2 2023 and Q3 2023.

IFRS accounting standard reporting rules for business acquisitions require that all accounting impacts to earnings from the finalization of PPA asset values see retrospectively recast to prior quarters.

As a result, the additional $16.5 million or $0.05 per share in earnings for the year related to revised depreciation charges for the final PPA asset values must be retroactively applied to Q3 and Q3 further then apply to Q4 2023 earnings, so there's no impact and full year 2023 earnings.

The second factor impacting Q4 earnings was $36.2 million impairment charge for the crushing and agglomeration plant of a window, plant was constructed prior to pan America's purchase of the mine in 2019, and we have never operated.

At the third factor was a $13.8 million closer and decommissioning expense, largely due to the revised reclamation estimate at Alamo Dorado in order to withstand high intensity rainfall events through the installation of impairment of barriers for the waste dump and enhanced site drainage system.

The closure of the tailings storage facility at Alamo Dorado has been successfully completed.

The impact of the impairment and the closure of decommissioning liability was removed from adjusted earnings.

Production in 2023 was pre-release on January 17, 2024, and largely in line with our expectations.

So we were slightly below our guidance range at 20.4 million ounces, while gold was within guidance range at a time of 882.9 thousand ounces, sort of following several production was largely due to the ventilation constraints at La Colorada, together with the temporary suspension of operations in October 2023.

We looking forward to the completion of the new ventilation system, mid 2024 in order to access to higher grade mine zones for the Northeast, excavation of the new 5.5 meter concrete line ventilation shaft was completed a final depth of 581 meters on schedule in December 2023.

But the remaining key pieces of infrastructure through large exhaust fans to draw the hot humid air out of the mine are expected to be installed by the end of Q2, for the first two quarters of this year will continue to reflect a challenging operation conditions expect significant improvement in the second half of the year at high throughput and lower costs thereafter.

Production shortfall at La Colorada and higher mining costs at both La Colorada and were on resulted in cash costs and all-in sustaining costs for our silver segment operations coming in above our guidance range for 2023, increase were partially offset by lower costs of several Morrow from higher than expected gold byproduct credits and at [AISC] center from lower costs and higher silver production.

Coal production and coal segment all-in sustaining costs were within our guidance range for 2023, our cash costs for the gold segment came in above the guidance range, largely due to the lower gold production of helping you as disclosed in the third quarter of 2023 gold grades mined at El Penon were lower than we had anticipated in certain high-grade sections of the mine.

We are increasing the drill density at our opinion after drilling fell behind late in 2022 and early 2023 due to a change of a contract to buy Yamana.

We expect to provide more information on El Penon with the midyear reserve update, we released our guidance for 2024 on January 17.

In 2024, we expect to produce between 21 million ounces and 23 million ounces of silver and between 880 thousand and 1 million ounces of gold.

All-in sustaining costs for the silver segment are expected to be between 16 per ounce and 18.50 per ounce and between 1475 per ounce and 1575 per ounce for the gold segment.

The Jacobina, now we are expecting processing rates of approximately 8,500 tonnes per day, stable gold recovery rates around 96%.

The new carbon in pulp tanks for mechanically completed and a new concentrate leach system began operating in late 2023.

We are undertaking a comprehensive optimization study of Jacobina to evaluate alternative mining methods and the enhancements to the processing facility to optimize the long-term throughput and economics of that mine.

At El Penon, we are assuming that grades and throughput rates will be similar to what we realized in the second half of 2023.

And in the new infill drilling results, we expect to complete mining at lowest by Q3 2024 with residual leaching to follow for several years thereafter.

Silver production is expected to be largely back-end loaded from improved ventilation conditions at La Colorada and an expected improvement in grades, et cetera, more as we access and bring into production than that.

The satellite deposit, which is located 25 kilometers from the plant site, costs will reflect that production profile being heavily weighted to the first two quarters and significantly decreasing in the back half of 2024, as shown in the quarterly operating outlook provided with our Q4 disclosure.

We also expect to spend between $295 million to $310 million on sustaining capital and another $80 million to $85 million on growth projects primarily for advancing the La Colorada skarn, completing the tailing filtration project at Warren, finishing the paste backfill facility at Bell Creek and completing some plant upgrade projects initiated by Yamana, Jacobina sustaining capital is largely to expand tailings dams and leach pads to extend underground mine ventilation systems and open pit mine waste dumps for exploration to replace our whole mobile equipment and for Turkey operating lease payments.

Turning now to our strategic initiatives.

In January, we filed an updated technical report for our La Colorada property, which included the preliminary economic assessment for the La Colorada skarn project.

Our objective is to provide investors with exposure to silver and discount provides that exposure in scale.

Annual silver production is estimated to average 17.2 million ounces during the first 10 years.

The results are expected to produce 427,000 pounds of zinc annually during that period, given the volume of base metals in the deposit, we are assessing interest from base metal producers and other capable parties.

We explore long-term partnerships to develop this polymetallic project focused on the large amount of anticipated silver production from this deposit.

Turning to ask about the new government took office in Guatemala in January 2024, and we had our first meeting with the new Ministry of Energy and Mines of men on February 7, 2024 the meeting for the ILO 169 consultation was held yesterday on February 21.

It's a newly appointed Vice Minister of Energy and Mines pension representatives, during which presentation on the observations of the centre’s appointed consultants was communicated.

We look forward to receiving the reports and working with demand to ensure accurate information is communicated for the Xinka participating in the consultation process.

As usual, we are not providing a timeframe for completion of the consultation or the potential restart of tomorrow and America's financial position strengthened over 2023.

At year end, our cash and short-term investments reached a record of $440.9 million, and we have the full $750 million available under our undrawn revolving sustainability-linked credit facility.

Total debt of $801.6 million was mostly related to two senior notes we acquired through the Yamana acquisition.

We expect cash flow generation to improve in 2024 as we realize the contribution of a full year of the four new mines and cost savings through synergies and lower car maintenance costs.

However, we expect cash flow to be back-end weighted given the production and associated cost profile I previously outlined as well we expect approximately half of the estimated $95 million to $100 million of tax payments we'll be paid in the first quarter of 2024.

Yesterday, we announced our intention to begin buying back some of our shares.

We have been opportunistic in the past for making acquisitions at the current market dislocation between our equity and asset valuations.

We believe that share buyback is a prudent and accretive use of capital, and we will apply the same opportunistic approach in repurchasing Pan American shares.

We also announced yesterday a cash dividend of $0.1 per common share in line with our policy in 2023, dividends paid totaled $130.4 million.

Before opening up for questions, I would like to welcome Scott Campbell, who is coming back who joined the company in April.

Scott will help oversee the company's operations and leads the Corporate Projects Group reporting to our Chief Operating Officer Steve Busby.

The senior operational expertise will be very valuable as we work to optimize our portfolio and advance our growth projects.

On behalf of the entire team at Pan American, I also thank George Greer for his contributions to the company over the past 17 years for which we wish you all the best for your retirement coming up later in this year.

Together with the other members of our management team.

We would now be happy to take your questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session.(Operator Instructions)

Cosmos Chiu, CIBC.

Please proceed.

Thanks, Michael and team, and thanks, George as well.

Happy retirement, but maybe my first question is on your quarterly guidance, thanks, Michael, for providing us with the quarterly guidance, as we can see, it improves quarter over quarter.

My question is it all I understand the second half is going to be better than first half, but do you see a big drop or improvement in terms of silver costs in Q4?

Just wondering how you're going to get I think it's a fairly big drop even from Q3 into Q4 in terms all-in sustaining costs for silver?

Yeah, Cosmos types and yes, there's a big drop, of course, heavily impacted by La Colorada changes to go back to bigger production, more ounces after the ventilation circuit is back working.

Of course, that was the reason for the high cost last quarter.

So that big impact and they'll be reversed and that's why it's so big.

But I'll hand it over to Steve to give us a bit more color on the cost side?

Yeah, Cosmos, I think I would add the other thing to look at is on Cerro Moro.

We have a back end loaded gold production in Q4.

It's quite high, and that's the by-product credit.

So that's really driving a big part of the Q4 changes from.

Great.

Thank you.

And then, Michael, as you mentioned, you know, there were a number of one-time items in your earnings in Q4, including Shahuindo, the crushing and agglomeration plant, $36.2 million write-down.

I'm just wondering, was that something that you could have sold to.

Again, I will start and then Steve will have more color to this.

At this plant has been built by the Tahoe before we actually purchased the company.

We have obviously looked at that at that plant during operation.

We opted for a solution of blending between coarse and fine grain material as well by more economical solution than using the plant.

The plant is now let me just think a probably seven years old, eight years old.

We have never used it and I think where we stand right now and with the blending solutions that we found, we come to the conclusion that it's that we will not turn it on looking forward Steve, maybe a little bit further--

Yeah, Cosmos, Michael precisely right and really the issue was we were trying to decide where we're trying to look at all the alternatives of treating behind closed doors and window and looking at the plans, looking at the rock availability.

And so we kind of kept that plant in Czech just in case we didn't have enough rock that may have been the alternative to go to.

Now.

We're more confident with our blending capabilities.

We understand the percolation characteristics on the heap.

So we've made that decision?

We didn't need that plant anymore.

Yeah, Okay.

I'm just wondering, I know I used to cover Tahoe as well.

I know it was no longer needed.

I'm just wondering if it's something that cash just monitor and in terms of.

Yeah, if I could add, Cosmos, we do plan to market that equipment on.

There's some that we want to keep for other developments we have internally, but there's, you know, large pieces of crushing and agglomeration equipment that we will have tried to market over the next year or so.

And then maybe one last question on Dolores.

As you mentioned, you know, mining will likely come to an end soon.

If this is going to be a residual leach sort of operation.

Can you maybe talk about the ongoing, what would you call maintenance costs or closure costs that you will you will need to spend?

And then as you enter the closure period, what would you need to do in terms of ensuring the safety of site, the no structural integrity of the leach pads and making sure that no accidents kind of happen?

Yeah, Cosmos, that's a great question.

I can tell you, we're focused on trying to structure the operation monitoring this residual leaching as efficiently as we can we will absolutely maintain all of the monitoring systems, the geotechnical monitoring, elaborate monitoring that we have on the heaps and the dumps during the during the residual leaching.

Those aren't expensive items to instruments to run on the real cost is going to be on just circulating solutions through the heat.

And then the big question is going to be cyanide concentration and for the solubility of the silver, the gold pretty well solubilize.

So it comes out as you as your rents at the silver, you've got to you've got to keep the cyanide concentrations that are at a critical level.

So that's really going to be what we what we monitor, what we what we operate.

We'll do it as streamlined as we can we've made some estimates in this guidance, particularly in Q4, where it's all residual leaching at that time.

But until we get there and we actually structure and see how it goes and may change from that point.

Great.

Thanks, Michael and Steve, but those are the questions I have.

Thanks once again.

Welcome.

Thank you.

John Tumazos, Very Independent Research.

Please proceed.

Thank you for all the explanations.

Michael, La Colorada skarn PDA was $2.8 billion of capital.

If you go to 50,000 tonnes a day at $2.6 billion, if you stop at 30,000 tonnes a day is a big future item on the share buyback and potentially in 2024, maybe you have a lot of time.

They're earning money in two, three, four, five years from now, you're heavy in the construction and La Colorada skarn, should we take this essentially as your expression of confidence, you're going to complete a JV with a base metal partner and that your share of the capital might be less than half of the PEA number or the subsequent studies are going to reduce that CapEx number and reduce your capital?

Yeah, thanks for the question.

Absolutely I think I made it very clear from the first call on that.

And the focus now is to find the right partner for that project, as you can imagine, for such a large of I call it this 7% deposit book of the largest in the world.

And there is quite some interest from the base metal side just because of the long live the underground nature and the big CapEx in production.

So yes, that's absolutely my confidence to work on that.

And on such kind of an agreement that obviously growth will reduce our share on that on the capital.

But always stay focused on that very large silver production.

So remember, there's about a 50,000 tonne about 17 million ounces for the first 10 years average silver production, which really will be our focus in any kind of agreement data that hopefully will come to.

Should we also take this perhaps is an expectation that the silver or the zinc prices might rebound to help your economics or the Escobal restarts in the Guatemala.

I don't have control, obviously better silver and zinc prices are going.

I think I know all the listeners have their have their view on that.

I have my view of it, but I think once we see interest rates move the other direction, we will see a strong rebound on precious metals for sure.

And I don't know when that will happen this year.

Does the different views out there, but just to remind everyone like last year, we it will be a be repaid a $400 million debt and we paid about 100 and over $130 million in dividends, while we ended the year with a record cash and short-term investment balance of over $440 million.

So those are those are very important numbers here and obviously one of the reasons why we decided at this point in the market where we believe there's a lot of value is now La Colorada is one of them that are not fully included in our share price, but it's a good time and an accretive time to buy back some of our shares, of course, of looking forward, as you saw in the quarterly guidance, too.

I mean, our stronger and strong 2024 especially the second half and costs come off, as we explained the Cosmos earlier in the call.

So all that combination.

And obviously, last but not least, we will continue to work on divestments.

We have been, I think, very successful last year on the divestments, and we'll continue to work on that.

So all that together and but the fact that we probably created last year dividends sorry, that royalties out of those divestments that we did, which in our property values on somewhere around on the $50 million to $200 million range at today's prices.

So another kind of big value bucket that we have under our control.

So I think it's a very prudent approach for us to do obviously pay the dividend and come out with that share buyback at this time.

Thank you.

Thank you.

Thank you.

Craig Hutchison, TD.

Please proceed.

Hi, good morning, guys.

Just like La Colorada, can you give us a sense of what the grades will be in the second half of this year, obviously is going to be a big inflection point.

And how durable are those higher grades kind of going forward?

Is it more of a year or two or is that a very short period of time?

Yeah, good morning, Craig, this is Steve.

And fortunately we are seeing the grades at La Colorada that we expect during Q4, we were about 288 grams silver from that's close to the reserve grade.

It's what we expect going into next year.

It's really a matter of tonnage.

We got to get our tonnage up and the tonnage that we got increases in that in the higher grade portion of the Candelaria deep zone.

So that's like the ventilation shaft and mine and the vent fans will give us access to get that tonnage up.

But we're pretty young.

I'm happy with the grades where they are we're pretty confident those grades are going to sustain over a long period of time.

We see potential to continue to add as we drill out more.

Yeah, we have feathered at the moment, probably about eight or nine years of proven and probable reserves at this kind of throughput.

So I guess second sustain a long time, obviously that will be advanced to La Colorada skarn during that during that time period.

But I yes, I think there's a long reserve in the vein fleet around those things.

Well, so enough with the skarn deeper down.

Because of the plan from a throughput perspective is around 2000 tonnes a day as we should be modeling actually ledger?

Yeah once we get the ventilation up and running.

That's kind of our targets is good above the 2000 tonnes a day.

So once the ventilation fans are running, we do have some development, some acceleration that we have to do in that Candelaria zone.

So, you know, you'll see it start to ramp up from the current kind of 1,300 ton a day range and it'll take us a couple of months, two, three months to ramp up from there to the 2000 tonnes a day once the vent fan is running campaign paid.

Okay, great.

Just in terms of, I guess, the sort of free cash flow you guys going to generate here.

Do you guys anticipate being free cash flow positive in the first half of this year?

Given the higher taxes you have to pay salaries you weighted to the first half or is it sort of ROE?

You anticipate free cash flow sort of more of a second-half story.

Hi, Craig, this is Ignacio.

That's a great question.

And just following up on what Steve just said, our forecast is for it to be back-end loaded and as usual, there is heavy taxes being paid in the first half of the year, plus some extra capital.

So we are we will be able to pay our dividends in the first half of the year without drawing from our credit facility.

But the bulk of the free cash flow does come second half of the year.

Okay, great.

Thanks, guys.

Thank you.

Thank you.

(Operator Instructions)

Don DeMarco, National Bank Financial.

Please go ahead.

Thank you, operator, and good morning, Michael and team.

So first question that you had some strong cost performance in Q4 at a couple of your flagship mines, both quarter on quarter and relative to 2024 guidance.

That's I'm referring to LTE on Q4, A6 1178 midpoint guidance is 1250, Jacobina 1022 and the midpoint of the ;24 guidance is 1,300.

So in light of this Q4, are you feeling more confident on guidance at these mines, maybe even tracking the lower end of the ranges?

Yeah, thanks, Don.

I mean, I we feel very confident with the guidance we put up for those mines, which does show a modest inflation rate that will absorb like five to 5% to 7%.

We've got some wage adjustments that we believe need to be made in Brazil and so on.

Some added payroll costs that we have to look at there.

So I think what we forecasted out, we're quite we're quite dumb, confident it up.

There is some potential upside to those things, but it's really driven on productivity.

That's really where we're focusing our efforts there.

But I think from the cost side, we're pretty confident in our guidance for the first time period.

Just to add here, don't forget that that big impacts our cost, say more than one product at the mine is to by-product credit from the from our by-product metals.

So that metal prices are big and last but not least, currency.

So foreign currencies have one can have a big impact.

You saw that in Mexico, there are percentages with the strong peso that was kind of a headwind number on the cost side for us.

I know the company very strong tailwinds as well.

So those are the things that we have no control over.

But yes, we are very confident with our guidance over the items that we that we're controlling.

Okay, thank you.

So just shifting to Escobal, then the ILO consultation meetings resumed and meeting was held yesterday.

It's good to hear that the new minister was present.

Is there any feedback from this initial meeting or insight into the next meeting or any next steps?

Yeah, it was a Vice Minister, thus person yesterday was the first meeting after a few weeks of transition with the new government and the government has indicated to us to look to be committed to the ILO169 process, of course, of some time needed to do to transition and integrate the new government.

That's absolutely normal, and you're correct.

We have a last meeting was yesterday.

I think there are some working meetings planned here for the for the future, but for us really are looking forward to, you know, continue to process with all the parties involved and that will be for sure, I guess, from time to time update on website for the consultation.

So just this type of local, therefore, for updates from demand directly.

Okay.

Fair enough.

And final question then with producer valuations and where they are in the market right now is call it depressed.

Are your plans for asset divestment maybe de-prioritized until now valuations recover?

Not really, I mean, it depends obviously on the on the valuation and prizes.

We got I think we have been very successful divesting assets last year at very, very successful prices and royalties, I think, and you know, most of these projects are especially like last year when you looked is a long-term project, big buyers, big companies, they look at very, very long, much longer timeframe than just current metal prices.

So I don't think so that it really impacts a lot of their valuation when they look at assets.

And I see that continuing into this year.

So all depends on the on the prices on the valuations we got from potential partners this year.

But I know I'm very confident that we can continue that route down and divest some assets this year.

Okay.

And just as a follow-up to that, I think La Arena to sulphide project has been mentioned as a candidate.

Others certainly are.

Can you share any color on what might be the sort of top candidates for divestment consideration?

I mean, I think we talked about La Arena to obviously try and align our oxide mine is producing.

So very strong producer for us.

I think everybody knows we extended actually that oxide life from probably when we purchased our like 2021 to 2026.

So very successful exploration program from that asset as well.

The deep sulphides or deeper sulphides, the copper deposit obviously in like a similar kind of bucket for us than [Mauro] was saying?

No, we are it's not our commodity ready to build out copper deposits, but the rest of the divestments.

Look, we are very active working on it.

We are very active working on the search for a partner for La Colorada, and I would like to leave it with there with that at the moment that are actually real inform the market as soon as anything is ready to share.

Okay.

Thank you, Michael, and good luck with the rest of Q1.

Thank you.

Thank you.

There are no further questions at this time.

Mr. Siren, please proceed.

Yeah, thanks, operator, and thanks, everyone, for being on the call.

It has been a very dynamic year last year, as has been indicated with the close of the transaction integration of the asset selling multiple assets retaining not only good cash values for that, but also a strong royalties.

And last but not least, coming out and publishing that that's really exciting.

Our PA on local and US cards are very active year, a lot of a lot of cash movements in our in our portfolio over the year, as I mentioned, strong repayment of debt.

We don't have short-term debt anymore.

Our very strong cash balance and now be in the fortunate situation to be able to use that cash for further growth and keep investing in our projects, not only sustaining capital, but also project capital on something like La Colorada to advance that project, but still be obviously in the position to maintain our dividend and to buy back some of our shares at this point.

What I would say very low valuation.

So we're looking forward to 2024 and looking forward to keep you updated in May of our Q1 results until then.

Thank you very much.

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you all for participating.

You may all disconnect.