Pan American Silver Corp (PAAS) 2024 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

And welcome to the Pan American Silver second-quarter 2024 unaudited results conference call and webcast.

(Operator Instructions) This call is being recorded on Thursday, August 8, 2024.

I would now like to turn the conference over to Siren Fisekci, VP, Investor Relations.

Please go ahead.

Thank you for joining us today for Pan American Silver's Q2 2024 conference call.

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

Please see the cautionary statements in our MD&A, news release, and presentation slides for our Q2 2024 unaudited results, all of which are available on our website.

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

Thanks, Siren.

And thank you, everyone, for joining the call.

Our operations generated record cash flow before changes in working capital of $203.3 million in Q2.

This resulted in $102.1 million free cash flow in Q2.

Balance sheet further improved with cash balances rising to $337.2 million at June 30, an increase of $36.1 million from the previous quarter.

This strong financial performance was impacted by an unusual income tax expense, driven primarily by foreign currency exchange rate fluctuations in the quarter, namely evaluations of the Brazilian real and the Mexican peso, which reduced foreign-dominated deductible tax attributes, as well as inflation adjustments on monetary liabilities in Argentina.

Reported net loss in Q2 of $21.4 million or $0.06 per share was significantly impacted by the $93.1 million in income tax expense and $26.7 million net realizable value inventory expense.

Adjusted earnings were $40 million or $0.11 per share.

The impact of the inflation-driven Argentine income tax, which was not adjusted, reduced adjusted earnings by $0.03 per share.

Turning to operations.

Silver production of 4.57 million ounces in Q2 was below our expected range of 5.36 million to 5.78 million ounces for the quarter, as continued ventilation constraints at La Colorada affected silver grades and throughput.

I'm very pleased to report that the new ventilation infrastructure was completed at the end of June.

And commissioning and start-up of the new plan started on July 11, 2024, as scheduled.

And ventilation conditions in the deeper eastern areas of the mine have improved significantly.

We are currently accelerating mine rehabilitation and development rates, which should steadily increase access to the higher-grade eastern Candelaria production areas.

As a result, we are expecting to achieve higher throughput and grades in the second half of 2024 as planned.

The slides that accompany this call available on our website include a brief video that shows the operations of the new ventilation fans that were installed at the surface of the shaft.

The fully concrete-lined 5.5-meter diameter by 580-meter deep (inaudible) of ventilation shaft, that was completed last December.

I'd like to congratulate the team on the successful completion of this large complex project.

Total production was also impacted by weather-related disruptions at Dolores and Cerro Moro.

At Dolores open pit, geotechnical challenges hampered ore tons mined and unusually prolonged site conditions limited water availability, which impacted the (inaudible) cycle.

This resulted in lower grades and low ratio of ounces recovered to ounces stacked during the quarter.

We now expect to extend ore stacking activities and increase heap irrigation rates throughout Q3, given some stockpile processing at the start of the rainy season.

At Cerro Moro, heavy precipitation in Southern Argentina restricted access to the satellite Naty zone, impacting throughput and grades.

We have regained access to Naty and expect to make up the Q2 shortfall in production during the remainder of the year.

At Minera Florida, unusual heavy rains restricted access to the site and resulted in a 10-day suspension of ore processing during the quarter.

We have now upgraded the road access to both Cerro Moro and Minera Florida, which will reduce the impact of heavy rainfall events in the future.

We produced 22,400 ounces of gold in Q2, slightly below our expected range of 221,000 to 252,000 ounces.

Continued strong performance at Jacobina and higher gold grades and recoveries at El Peñon helped offset the weather-related impacts at Cerro Moro, Dolores, and Minera Florida.

Costs in Q2 came in better than expected with all-in sustaining costs, excluding NRV adjustment, for both the silver and gold segment below our guidance ranges for the quarter.

Silver segment all-in sustaining costs were $18,000.12 per ounce, excluding an NRV adjustments that increased cost by $0.95 per ounce.

Gold segment all-in sustaining costs were $1,465 per ounce, excluding NRV adjustments, has increased cost by $119 per ounce.

In total, $26.7 million of NRV adjustments were included in Q2 production costs.

The NRV adjustments are primarily related to projections of higher future unit costs at Dolores to extract the in-heap inventories once ore stacking activities have been completed.

We are on track with our major projects for the year.

The new dry-stack tailings storage facility at Huaron is on schedule to be completed in the second half of 2024 and will be commissioned thereafter.

The construction of the paste plant project at Timmins is on scheduled to be completed in Q3 2024.

This will enhance our extraction and improve mine stability at the Bell Creek mine.

At Jacobina, we continue to advance plant upgrades and to stabilizing throughput at 8,400 tonnes per day and recoveries at 96%.

We're also progressing the optimization study to optimize the long-term economic and growth potential in Jacobina.

At Escobal, we met with several of our Guatemalan government institutions to support the ILO 169 consultation process over Q2 and into Q3.

During this period, we also hosted compliance visits by the Ministry of Energy and Mines and Ministry of Environment under the care and maintenance program for Escobal.

The appointment of the vice minister of sustainable development, who will assume responsibility for overseeing the consultation process, remains pending.

Given the successful commissioning of the substantial La Colorada ventilation system upgrade in July, we are maintaining our operating outlook for production, cash costs, the all-in sustaining costs, and capital expenditures in 2024.

While we anticipate silver and gold production to fall within our original guidance range, we expect production for both to be more heavily weighted to the fourth quarter of 2024 than originally indicated in our quarterly operating outlook and for annual silver production to be towards the low end of the annual guidance range.

With improvement in our balance sheet over Q2, net debt declined to $472.3 million.

We maintain our base cash dividend at $0.10 per common share.

We look forward to increasing levels of free cash flow from back-half-weighted production in 2024.

Together with the other members of our management team, we will now be happy to take your questions.

(Operator Instructions) Cosmos Chiu, CIBC.

Hi.

Thanks, Michael and team.

Maybe my first question is on La Colorada.

Michael, you kind of touched on it.

La Colorada, the ventilation shaft is now in place.

It sounds like it's going pretty well.

Could you maybe elaborate?

Is it functioning as expected?

How has that sort of helped airflow?

And ultimately, I guess, what I'm trying to get to is, in terms of getting to 2,000 tonnes per day, you said you're going to get to it by year-end along with higher grades.

Is it going to be more a straight-line sort of increase now until then, or is there going to be some kind of step change?

And is that going to be part of the fact that, as you mentioned, overall, Q4 is going to be stronger than Q3.

Yeah.

Thanks, Cosmos.

Yeah, the shaft completion and the installation and start-up of the fans was right on time, as we indicated since the beginning of the year.

It will happen midyear -- it happened midyear.

It looks very exciting what we see on the results side on the impact to the mine of that shaft, which, as you know, was a multiyear project really to kind of bring us back on track here with the production at La Colorada.

But Steve, maybe give some more data.

Sure, and good morning, Cosmos.

Thanks for the question.

I have to say we're incredibly happy with the results of this new shaft.

Immediately, when we turned the fans on July 11, we increased overall flow rates into the mine by about 200,000, 300,000 cubic feet per second of airflow (inaudible) per minute, sorry.

And immediately, we saw temperatures drop in the Candelaria east zone by 3-degree wet-bulb Celsius.

So a substantial improvement which led -- immediately, we saw a bump in tonnage of 25% over what we've been seeing.

Up until that point through the year, we were about 1,400 tonnes a day going in for the year before we started that fan.

We're now up at around a little over 1,700 tonnes a day.

So between now and the end of the year, the other thing I wanted to mention is that we also bumped our development of 10% from where we were prior to when that things

[are up].

So within the 2.5, 3 weeks of running the fan, we've seen incredible boost of production and development rates.

That will continue to ramp up.

I think for purposes of quarterly reporting, it will be a bit of a straight-line ramp-up.

Obviously, day to day, there's fluctuations that take place.

But we're feeling good that we're starting from a good pace, and we'll ramp up through the rest of the year.

Yeah, that's great to hear.

And then maybe on the quarterly guidance as well.

Michael, as you mentioned, Q2 due to weather-related issue, silver production was lower than your quarterly guidance.

However, I do see that your cost, all-in sustaining cost, was also lower or better than your quarterly guidance.

So how you would achieve that lower cost despite lower production?

And then, ultimately, what's your ability to sustain those lower costs on a go-forward basis.

Can we see that once again in terms of that better cost once again in Q3 and Q4?

Well, don't forget that, especially at La Colorada, other places with increased production later in the year.

And La Colorada is the best example of that.

We obviously have a fixed cost there, and having a larger denominator will bring the cost per ounce right down.

That's really the reason why we forecast those lower costs at La Colorada go into the year, really based on that ramp-up of the production.

So that's, of course, still there for us.

Yeah.

Just to add, Cosmos, I think in the first half of the year, some of the lower costs we've seen has been related to the timing of our inventory of by-product credit sales relative to what we're producing.

We sold a bit more by-product than what we produced during that period.

So that will offset as we look to the second half of the year.

As Michael said, we do anticipate reduced unit cost per tonne substantially at La Colorada.

We are seeing some improvements that we've made at Cerro Moro and Jacobina.

They're coming in at pretty good cost per tonne.

So we've kind of projected that out with the actual by-product credits.

And that's where we're saying that we feel will come in line with what we guided for our cash and East Coast costs for the year.

One last point, Cosmos.

As I also mentioned, on the cost side, currency fluctuations have a big impact on our costs.

We saw a devaluation in the quarter, especially in the Mexican peso and the Brazilian real.

And that had a positive impact on our costs and will continue to do so if that continues down the road.

Just on the flip side of that, obviously, when you have a devaluation of the currency, we see kind of an increase of our noncash tax expense due to those currency fluctuations.

So you see that in our earnings numbers.

But as I said, that's a noncash tax expense there.

And I really like to see that the positive impact to our cost that we have now.

And it's a very, very exciting combination of lower cost and higher metal prices, which obviously -- a reflection of that, obviously, was the record cash flow.

I agree.

And maybe one last question on Escobal.

It seems like from your MD&A, meetings are still continuing into Q3, despite the fact that the appointment of the vice minister of sustainable development is still pending.

Am I reading that correctly?

And was there any more updates in terms of Guatemala and Escobal?

Yeah.

We have actually got a large number of meetings with government officials during the quarter.

And I think, after a bit of slow start-up, I think, of the new government, they have most of the people in place.

There are still a few people missing to be put there.

But I think the other meeting scheduled between us and the government officials has definitely improved, and looking forward to continue and go back into the full consultation meetings that we need to have to advance this.

Great.

That's great to hear.

And thanks again, Michael, Steve, and Siren and the team.

And those are the questions I have.

Thanks, Cosmos.

Don DeMarco, National Bank Financial.

Thank you, operator and Michael and team.

Maybe first question, just continuing on with Escobal.

So I've been looking at the price of the contingent value rights, and they've eased a little bit over the recent months.

Do you think this is a fair indicator of the likelihood of a restart or just the tenor of activities at Escobal related to the consultation process?

I will be careful when you look at the price of the contingent value rights.

As you know, there is a $330 million CVRs out there, so a large number.

And when you look at the trading numbers, this is a very limited trading on those CVR.

So they obviously follow [Panama and share] price, of course.

And then I think the fact that the new government needed a bit longer to set everything up here could have had an impact to that.

But I will not read too much into it, as I said, as it is a very, very limited trading of those CVRs.

Okay.

And then just -- I mean, it's encouraging to hear that there's a number of meetings that have been held.

But is there any visibility for next meetings or the filling of that vacancy?

This is just kind of maybe repeating some of the questions that were asked by the last caller.

But just wondering what we might anticipate in the coming months on this process.

Look, I mean, we anticipate that that role will obviously be filled by the government at time and will pick up, I think, with that the kind of the style of meetings we had before as I start at the moment.

All I can say is that there has been quite an impressive number of meetings with government officials between the company and us.

And it was really like quite a slow start of the year with the new government, which kind of has to be expected, obviously.

New government, as you can imagine, a lot of new officials in place that need to brought up to speed that have other issues to deal with in the country than just as Escobal, as you can imagine.

And now they are in place, most of them probably five, six months now.

So I think I [expect] we'll see kind of a normalizing the discussion here in the future.

Okay.

We look forward to that.

And so next question, the quarter we see a true portfolio effect here.

You got lower costs offsetting higher costs of different operations.

The cornerstone mines look strong, Jacobina in particular.

Now you've got this optimization work that's underway.

The mine is running seemingly great at 8,400 tonnes per day.

Are you still -- is the optimization still looking at maybe trying to increase that throughput?

Or what are some of the areas of focus that we can look forward to whenever that report will be released?

Yeah.

We're very excited about Jacobina.

And as you see very, very strong cash flow for us, very strong production, very, very long line lives.

So yes, we're still working on the optimization.

I think there is there's much more to do at Jacobina.

But maybe, Steve, if you want to -- I know you're not ready yet with the study

(inaudible).

But maybe

(inaudible)

Sure.

Thanks for the question, Don.

Yeah, the optimization work is proceeding at full order.

We are seeing benefits to changing some of the mining methods, particularly at depth as we've talked and asked that would allow us to capture more of the resource recovery, reserve recovery with the same development that could lead to higher throughput you kind of said it well.

We're really happy running 8,400 tonnes a day.

We got a throttle there.

Everything is coming in line.

We're making a few upgrades to circuits in the process plant, a few upgrades in some of the systems in the mine.

We're very happy with where running there.

And we want to make sure that the optimization study is done in a way that will achieve the same kind of stable, steady state run at a higher throughput with understanding all aspects of that.

So there's still a lot of work to do.

We're still talking sometime in the first half of next year to come out with the results.

I would say, tend to think it's going to show us higher throughput.

But I don't really want to give any numbers on that right now.

Okay.

And while in the meantime, it's looking great.

So last question, looking to the Mexican administration, Claudio has been in the seat now for a few months.

Have you had a chance to meet with the new administration?

And are there any concerns or issues that might potentially develop concerns in the quarters ahead with this change?

Yeah.

The new administration has been elected, you are right.

But they are not -- they did not take office, yes.

September 1 while the change happen.

So it's a bit early to answer your question.

Look, I think we will continue to happily work with the government of Mexico.

Mexico has always been a good place for us to work.

We have very strong operations in Mexico.

Sorry, sorry, October 1 -- sorry -- will be the change of government.

So I just said, a bit early.

But I don't see -- foresee any big changes how we work with the government in Mexico.

Governments, as you know, change in every country.

We are working over time, and we are dealing with very long reserve lives in some of our assets, especially when you look at La Colorada

(inaudible).

There will be many, many administrations passing, while we produce for decades and decades on that asset in the future.

So we're very happy to work in Mexico.

I don't see any issue at this point.

Okay, Michael.

Thanks so much for that, and good luck with Q3.

Thank you.

Operator?

Hello, operator?

Nicholas, if you can hear us, you're in the queue to ask a question.

Thanks, Michael, for taking my question here.

I just had a question on Cerro Moro, if I could.

I understand that grades have been a little bit variable here for the previous two quarters.

And that's been due to some regulated impacts.

But I was hoping you, guys, can provide some color on what the next quarter or two might look like there with respect to grades and throughput.

Thank you.

Yeah.

And it's very hinting on the Naty zone that we are mining 25 kilometers away from Cerro Moro high-grade satellite.

And we couldn't really access that site all the time during Q2 because of the very, very strong rains and snow falls during winter.

We are obviously getting now into springtime soon, and access has been re-established.

So that's why we're maintaining, obviously, our outlook for the production there.

Steve, can you give some details?

Yeah, SURE, Nicholas.

And we were pushing pretty hard to get Naty online towards the end of last year.

We talked about it.

It was kind of the next grade zone, if you will, we were going to open up after mining of the higher-grade portions of the [soy] deposit.

It was very important to us.

So we pushed out there, got that up, and running quite well early in Q1.

And it was starting to deliver pretty well.

I have to admit we had some pretty good range there higher than normal.

But we also -- our road wasn't really built to the kind of standards we would have liked to have seen.

So the combination of the two definitely limited -- restricted our ability to access the pit.

We didn't really have dewatering systems in place to the degree that we should have to dewater the pit in these kind of rainstorms.

So we've been -- as we regained access and now we are mining back in Naty at the rates we like to mine, we're upgrading those roads.

We're upgrading those dewatering systems so that we can face these storms in the future.

And we're also looking at plans now to accelerate production in Naty to kind of claw back what we missed in Q2 there.

We feel pretty good that we've got a good plan in place to be able to do that.

But that's going to load up Q4 more so.

You won't see as much coming on in Q3.

So when you look at the distribution at Cerro Moro, it's going to be stronger in Q4 than Q3.

Got it.

Okay.

That's helpful.

Thank you.

Just if I could sneak in one more.

We're almost halfway through the quarter here.

And I understand that (inaudible) two transactions still expected to close sometime this quarter.

I was just wondering if you guys could provide any updates or color on what you say happening?

And if anything with respect to approvals that you're still waiting for.

Yeah, Nicholas, that's right.

And at the moment, we're still waiting for some regulatory approvals.

And at the moment, it's still planned for Q3.

Great.

Thanks, Michael.

Thank you.

There are no further questions at this time.

I will now turn the call over to Michael for closing remarks.

Thank you, operator, and thanks, everyone, for joining the call today.

Very exciting times coming here for Pan American, as we got a glimpse here when you look at the record revenues, record cash flow, free cash flow, cost below guidance.

Obviously, a very nice combination here when we go into a high metal price environment.

At the same time, we finalized the ventilation system at La Colorada after quite a few years of very, very hard work to get there.

So as Steve explained, we already see an increase in not only production number, but also development needs.

We are nearly back on development [needed] on track, where we want to be at about 2,000 meters a month, I believe.

So that will lead to a ramp-up at La Colorada.

As I explained, that will lead to lower cost at La Colorada, and we're a very exciting combination.

While we still obviously work on our exciting Skarn deposit, no doubt that this is one of the largest -- worldwide largest discovery of silver and base metals over the last decade.

We'll continue to work on that.

And of course, we'll have the optionality on Escobal.

So lots of exciting projects ahead of us and right out there to harvest the fruits of higher metal prices with a combination of lower costs.

So looking forward to report on Q3 later this year.

Until then, have a good time.

Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today.

We thank you for participating and ask that you please disconnect your lines.