Pan American Silver Corp. (NASDAQ: PAAS) (TSX: PAAS) reported unaudited results for the second quarter ended June 30, 2020. Pan American’s unaudited condensed interim consolidated financial statements and notes, as well as Pan American’s management’s discussion and analysis for the three and six months ended June 30, 2020, are available on Pan American’s website at panamericansilver.com and on SEDAR at www.sedar.com.
“The global COVID-19 pandemic had a significant impact on Q2 results, with all our Latin American operations placed in care and maintenance mode for periods of time during the quarter. Except for our two polymetallic underground mines in Peru, all operations are now back in production under comprehensive health and safety protocols,” said Michael Steinmann, President and Chief Executive Officer. “Our ability to successfully navigate the extraordinary challenges over the first half of this year demonstrates the resilience of our business and the capability and efforts of our team. With the updated guidance for 2020 that we provided today and rising precious metal prices, we are looking forward to strong cash flow generation over the remainder of 2020.”
Added Mr. Steinmann: “Despite the challenges, we further improved our financial position during Q2. We had the opportunity to crystallize value through the divestiture of some non-core assets, including portions of certain equity investment interests held within our diversified portfolio. As of June 30, 2020, our cash and short term investment balances increased to approximately $262 million, while the amount drawn on our Credit Facility was reduced to $200 million. In August, we repaid an additional $40 million on our Credit Facility.”
Q2 2020 Highlights:
Cash Costs, AISC, adjusted earnings, basic adjusted earnings per share, sustaining capital, project capital, working capital, total debt and total available liquidity are not generally accepted accounting principle (“non-GAAP”) financial measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this news release for further information on these measures.
COVID-19 Impact on Operations
During Q2 2020, Pan American placed its operations in Mexico, Peru, Argentina and Bolivia in care and maintenance for various durations, depending on the government restrictions imposed in those regions in response to COVID-19. Company-wide, Pan American restricted international travel and enabled work-from-home arrangements where practical. The Company’s Timmins operation in Canada continued to produce gold at modestly reduced capacity to comply with physical distancing restrictions. Limited production also continued at the Dolores, La Arena and Shahuindo open pit operations during their suspensions from circulation of process solutions on the heap leach pads. The Company incurred $46.5 million in care and maintenance costs in Q2 2020 for the COVID-19 related suspensions.
By the end of Q2 2020, all of Pan American’s suspended operations had resumed production; however, its Huaron and Morococha operations in Peru were returned to care and maintenance on July 20, 2020 after several workers at the mines tested positive for the COVID-19 virus. A reduced workforce will conduct care and maintenance activities at those mines until it is determined that normal operations can safely resume.
Pan American coordinated closely with government authorities, local communities and its workforce on the safe restart of operations and the implementation of comprehensive COVID-19 protocols to protect health and safety. These protocols include strict sanitary measures, return-to-work health screenings, and where applicable, testing for the COVID-19 virus, contact tracing and quarantining. For more information on these protocols, see panamericansilver.com. Pan American has been remobilizing the workforce gradually in order to provide greater physical distancing and to allow time to adopt as well as progressively assess and refine the pandemic related operating protocols. Overall, operations are producing modesty below design capacity to accommodate physical distancing restrictions.
Pan American sustained site care, maintenance and monitoring activities and continued the ventilation upgrade projects at La Colorada during the operating suspensions in Q2 2020. Development work on the underground mine at COSE was suspended on March 23, 2020 and resumed on May 4, 2020, and the Company expects to commence processing ore mined from COSE in the third quarter of 2020. The Company achieved 90% completion of the Timmins expansion project in Q2 2020; however, production capacity is expected to continue to be reduced by COVID-19 related restrictions.
We remain concerned about the humanitarian crisis that the COVID-19 pandemic has caused throughout much of Latin America. We are adapting our community outreach programs to best support the communities near our mines during this very difficult time. Our support is currently focused on donating food and sanitation supplies, conducting hygiene and sanitation campaigns, and working with local authorities to assist in delivering education and donations of healthcare equipment and supplies.
We also recognize the additional stress and challenges the COVID-19 pandemic present to our employees. We are introducing programs to support employee mental health and stress management at our operations. In addition, we are communicating with our employees, including those who have been demobilized or working from remote locations, to check on their physical and emotional health.
|Three months ended||Twelve months ended|
|Weighted average shares during period (millions)||210.0||201.4|
|Shares outstanding end of period (millions)||210.1||209.8|
|Three months ended
|Mine operating earnings||$||48,386||$||51,058|
|Basic earnings per share(1)||$||0.10||$||0.09|
|Basic adjusted earnings per share(1)||$||0.28||$||0.06|
|Net cash generated from operating activities||$||62,750||$||83,518|
|Net cash generated from operating activities before changes in working capital(2)||$||31,479||$||63,378|
|Sustaining capital expenditures(2)||$||23,479||$||55,911|
|Project capital expenditures(2)||$||9,836||$||13,688|
|Cash dividend per share||$||0.050||$||0.035|
|Silver (thousand ounces)||2,791||6,474|
|Gold (thousand ounces)||96.6||154.6|
|Zinc (thousand tonnes)||4.3||17.4|
|Lead (thousand tonnes)||1.7||6.8|
|Copper (thousand tonnes)||0.3||2.1|
|CASH COSTS(2) ($/ounce)|
|Consolidated Silver Basis||(3.14)||6.06|
|AVERAGE REALIZED PRICES(3)|
|(1)||Per share amounts are based on basic weighted average common shares.|
|(2)||Non- GAAP measures: adjusted earnings, basic adjusted earnings per share, and net cash generated from operating activities before changes in working capital are non-GAAP financial measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this news release for further information on these measures.|
|(3)||Metal prices stated are inclusive of final settlement adjustments on concentrate sales.|
INDIVIDUAL MINE OPERATING PERFORMANCE
|Three months ended
|Three months ended
|(1)||Morococha data represents Pan American 92.3% interest in the mine’s production.|
|(2)||San Vicente data represents Pan American 95.0% interest in the mine’s production.|
|(3)||Totals may not add due to rounding.|
($ per ounce)
($ per ounce)
|Three months ended
|Three months ended
|Silver Segment Consolidated(2)||6.23||6.67||12.54||10.67|
|Gold Segment Consolidated(2)(3)||905||696||1,015||977|
|Consolidated metrics per silver ounce sold(3)(4):|
|Consolidated AISC before NRV inventory adjustments||(3.62)||6.40|
|(1)||Cash Costs and AISC are non-GAAP measures. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of the MD&A for the three months ended June 30, 2020 for a detailed description of these measures and where appropriate a reconciliation of the measure to the Q2 2020 financial statements.|
|(2)||Silver segment Cash Costs and AISC are calculated net of credits for realized revenues from all metals other than silver and are calculated per ounce of silver sold. Gold segment Cash Costs and AISC are calculated net of credits for realized silver revenues and are calculated per ounce of gold sold. Consolidated AISC is based on total silver ounces sold and are net of by-product credits from all metals other than silver.|
|(3)||2019 Timmins, Gold Segment, and Consolidated AISC were adjusted to reflect amounts recast, and presented, for the three months ended June 30, 2019 as if Timmins had not been classified as held for sale.|
|(4)||Consolidated silver basis total is calculated per silver ounce sold with total gold revenues included within by-product credits. G&A costs are included in the consolidated AISC, but not allocated in calculating AISC for each operation.|
On May 6, 2020, the Company withdrew its 2020 annual production, Cash Costs, AISC and capital expenditure forecasts, as provided in the 2019 annual MD&A dated March 12, 2020 (the “Original 2020 Guidance”). The decision to withdraw the Original 2020 Guidance was based on the uncertainties regarding the impact of the COVID-19 pandemic on our operations.
The Company has revised its annual production, Cash Costs, AISC and capital expenditure forecasts for 2020 (the “Revised 2020 Guidance”), which is provided below. The estimates comprising the Revised 2020 Guidance are forward-looking statements and information that are subject to the cautionary note associated with forward-looking statements and information at the end of this news release.
Annual production, Cash Costs and AISC Guidance
($ per ounce)
($ per ounce)(1)
|La Colorada||6.40 – 7.20||4.0||6.20 – 7.00||9.50 – 10.50|
|Dolores||4.00 – 4.80||99.0 – 104.0||(5.60) – (3.90)||3.90 – 7.40|
|Huaron||2.00 – 2.20||1.0||8.20 – 9.10||11.80 – 12.80|
|Morococha (92.3%)(2)||1.20 – 1.40||1.0||11.00 – 12.30||16.80 – 18.40|
|San Vicente (95.0%)(3)||2.20 – 2.60||—||14.30 – 16.20||16.10 – 18.20|
|Manantial Espejo, COSE, and Joaquin||3.00 – 3.50||24.0 – 27.0||13.80 – 15.90||15.30 – 17.70|
|Total (4,5)||18.80 – 21.70||130.0 – 138.0||6.20 – 7.70||10.50 – 12.50|
|Shahuindo||0.20 – 0.30||147.0 – 164.0||590 – 660||860 – 960|
|La Arena||—||103.0 – 114.0||760 – 860||1,140 – 1,260|
|Timmins||—||145.0 – 159.0||1,030 – 1,060||1,175 – 1,240|
|Total (4,5)||0.20 – 0.30||395.0 – 437.0||800 – 860||1,050 – 1,125|
|Total Production (5)||19.00 – 22.00||525.0 – 575.0|
|Consolidated Silver Basis (4)||n/a (6)||(3.00) – 0.75|
|(1)||Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of the MD&A for the three months ended June 30, 2020 for further information on these measures. The Cash Costs and AISC forecasts assume realized prices and exchange rates for the six month period ended June 30, 2020 and the following price and exchange rate assumptions for the period July 1, 2020 to December 31, 2020: metal prices of $18.25/oz for silver, $1,850/oz for gold, $2,050/tonne ($0.93/lb) for zinc, $1,775/tonne ($0.81/lb) for lead, and $6,150/tonne ($2.79/lb) for copper; and for the period July 1, 2020 to December 31, 2020, average exchange rates relative to 1 USD of 22.50 for the Mexican peso (“MXN”), 3.50 for the Peruvian sol (“PEN”), 77.53 for the Argentine peso (“ARS”), 6.91 for the Bolivian boliviano (“BOB”), and $1.35 for the Canadian dollar (“CAD”).|
|(2)||Morococha data represents Pan American’s 92.3% interest in the mine’s production.|
|(3)||San Vicente data represents Pan American’s 95.0% interest in the mine’s production.|
|(4)||As shown in the detailed quantification of consolidated AISC, included in the “Alternative Performance (Non-GAAP) Measures” section of the MD&A for the three months ended June 30, 2020, corporate general and administrative costs, and exploration and project development expenses are included in Consolidated Silver Basis AISC, but are not allocated in calculating AISC for the Silver and Gold Segments.|
|(5)||Totals may not add due to rounding.|
|(6)||Pan American does not provide guidance for Cash Costs on a Consolidated Silver Basis, as AISC guidance better reflects costs on a Consolidated Silver Basis.
|Consolidated Base Metal Production|
|Zinc||40.0 – 43.0|
|Lead||17.0 – 18.0|
|Copper||4.3 – 4.9|
Capital Expenditure Guidance
|La Colorada||19.0 – 19.5|
|Dolores||42.0 – 42.5|
|Huaron||5.5 – 6.0|
|Morococha||5.5 – 6.0|
|San Vicente||3.5 – 4.0|
|Manantial Espejo, COSE, and Joaquin||3.0|
|Shahuindo||44.5 – 45.5|
|La Arena||40.0 – 41.0|
|Timmins||23.0 – 24.0|
|Sustaining Capital Total||185.0 – 189.0|
|La Colorada skarn project||13.5 – 14.0|
|Timmins expansion||4.0 – 4.5|
|Project Capital||25.0 – 26.0|
|Total Capital||210.0 – 215.0|
About Pan American Silver
Pan American owns and operates silver and gold mines located in Mexico, Peru, Canada, Argentina and Bolivia. We also own the Escobal mine in Guatemala that is currently not operating. As the world’s second largest primary silver producer with the largest silver reserve base globally, we provide enhanced exposure to silver in addition to a diversified portfolio of gold producing assets. Pan American has a 26-year history of operating in Latin America, earning an industry-leading reputation for corporate social responsibility, operational excellence and prudent financial management. We are headquartered in Vancouver, B.C. and our shares trade on NASDAQ and the Toronto Stock Exchange.
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