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Pan American Silver reports net income of $0.34 per share in Q2 2021 and increases quarterly dividend by 43% to $0.10 per common share

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Pan American Silver reports net income of $0.34 per share in Q2 2021 and increases quarterly dividend by 43% to $0.10 per common share

 

 

 

 

 

Pan American Silver Corp. (NASDAQ: PAAS) (TSX: PAAS) reported unaudited results for the quarter ended June 30, 2021. Pan American’s unaudited condensed interim consolidated financial statements, as well as Pan American’s management’s discussion and analysis for the three and six months ended June 30, 2021, are available on Pan American’s website at panamericansilver.com and on SEDAR at www.sedar.com.

 

“Strong mine operating earnings of $103 million and strong operating cash flow in Q2 have further improved our financial position. Together with the sale of non-core assets, our cash and short-term investments increased by $34 million in Q2,” said Michael Steinmann, President and Chief Executive Officer. “We expect cash flows to further improve in the second half of the year, with the anticipated rise in throughput rates at La Colorada along with the normalization of inventory levels that were built up during the first half of 2021. Based on our strong financial position and our expectation for improving free cash flow over the remainder of the year, we are increasing the quarterly dividend to $0.10 per common share. This marks the third dividend hike in the past 18 months.”

 

Added Mr. Steinmann: “At La Colorada, we have now restored ventilation in the high-grade area of the mine, allowing underground development and throughput to ramp up over the coming months, together with an improvement in grades.”

 

Q2 2021 Highlights:

 

  • Consolidated silver production was 4.5 million ounces, primarily impacted by reduced production at La Colorada due to ventilation constraints. In July 2021, the Company successfully cleared the blockage that formed during the Q1 2021 commissioning of the surface to 345 metre level primary ventilation raise, which relieves the ventilation-driven constraints that have impacted development and mining rates at La Colorada. Mine development is now underway to enable throughput rates to increase and mine sequencing into higher grades, with production anticipated to rise through the remainder of 2021. Q2 2021 silver production was also impacted by the expected transition in mine sequencing into higher gold grades and lower silver grades as well as the timing of leach kinetics and heap sequencing at Dolores, and COVID-19 related protocols limiting workforce deployment levels. The Company is reaffirming its annual silver production forecast for 2021 of 20.5 to 22.0 million ounces.
  • Consolidated gold production of 142.3 thousand ounces benefited from mine sequencing into higher grades at Dolores and La Arena. A buildup of 23.8 thousand ounces of in-heap inventory occurred at Dolores and Shahuindo, the majority of which is expected to be recognized as production in the second half of 2021. The Company is reaffirming its annual gold production forecast for 2021 of 605.0 to 655.1 thousand ounces.
  • Revenue of $382.1 million was impacted by the following factors: (i) delays in revenue recognition for the La Colorada concentrate stockpiled in Q1 2021 due to shipping schedules; (ii) a ramp-up in production toward the end of Q2 2021 at the Company’s open pit gold mines that was not recorded in dore sales due to timing; and (iii) a build-up of in-heap gold inventories from the timing of leach kinetics at Dolores and Shahuindo. These issues are transitory and are expected to result in higher revenue and cash flows over the remainder of 2021.
  • Net income was $71.2 million ($0.34 basic income per share), driven largely by strong mine operating earnings of $103.0 million.
  • Adjusted income was $46.6 million ($0.22 basic adjusted income per share). In addition to removing the $10.6 million of investment income, mostly related to the Company’s interest in New Pacific Metals Corp., the other primary adjustments were removal of a $4.1 million gain on the sale of assets and removal of $5.2 million in income for the effect of foreign exchange on taxes.
  • Net cash generated from operations of $87.1 million includes $37.0 million use of cash from working capital changes, driven mainly by the inventory build noted above. Concentrate and dore inventories increased by $45.1 million during the first half of 2021, which are expected to normalize and be a source of cash flow during the remainder of 2021. In addition, heap leach inventories increased by $47.0 million during the first half of 2021.
  • Silver Segment Cash Costs and All-in Sustaining Costs (“AISC”) per silver ounce were $12.71 and $16.36, respectively. Silver Segment Cash Costs reflect lower gold by-product credits from the move of Dolores into the Gold Segment in 2021, an increase in treatment and refining charges due to increased contribution from concentrate mines, and an increase in royalties, primarily at San Vicente. Silver Segment AISC included $4.19 per ounce of sustaining capital, impacted by spending on the critical ventilation work at La Colorada. Additionally, both Cash Costs and AISC were impacted by costs associated with COVID-19 protocols, and inflationary pressures on energy, wages and consumables.
  • Gold Segment Cash Costs and AISC per gold ounce were $857 and $1,163, respectively. Gold Segment Cash Costs benefited from the move of Dolores to the Gold Segment and the current mine sequencing at La Arena resulting in higher mining rates and grades. Cash Costs were negatively impacted by geotechnical conditions at Bell Creek preventing access to higher grade zones and increased waste mining rates at Shahuindo. Gold Segment AISC included $324 per ounce of sustaining capital, reflecting an increase in spending as the Company catches up on projects deferred due to COVID-19. Additionally, both Cash Costs and AISC were impacted by costs associated with COVID-19 protocols, strengthening of the Canadian dollar, and inflationary pressures on energy, wages and consumables.
  • Consolidated AISC, including gold by-product credits from the Gold Segment mines, were $1.42 per silver ounce sold.
  • Capital expenditures of $66.0 million were comprised of $53.2 million of sustaining capital and $12.8 million of non-sustaining capital. The majority of non-sustaining capital was directed to project capital for exploration drilling activities at the La Colorada skarn project and the Wetmore project at Timmins.
  • Pan American realized cash proceeds of $14.0 million from the sale of a portfolio of royalties and the receipt of non-refundable deposits for the sale of the Waterloo exploration stage asset. The sale of Waterloo closed in early July, and the $22.7 million in cash received has been recorded in the third quarter of 2021. The Company retained a 2% Net Smelter Royalty on any future production from the Waterloo asset.
  • At June 30, 2021, Pan American had cash and short-term investment balances of $240.4 million, working capital of $603.1 million, and $500.0 million available on its revolving credit facility (the “Credit Facility”). In addition, the Company has an equity investment in Maverix Metals Inc. that was valued at $140.0 million based on the June 30, 2021 closing share price of $5.39 on the New York Stock Exchange. Total debt of $47.7 million was related to equipment leases and construction loans.
  • The Company recently entered into an amendment agreement to amend and extend its Credit Facility into a $500 million sustainability-linked revolving credit facility (the “Sustainability-Linked Loan”). The 4-year, Sustainability-Linked Loan features a pricing mechanism that allows for adjustments on drawn and undrawn balances based on third-party sustainability performance ratings, which aligns the Company’s Environmental, Social and Governance performance to its cost of capital, thereby demonstrating its commitment to ESG practices and responsibilities. The Sustainability-Linked Loan remains fully undrawn.
  • The Board of Directors has approved an increase in the cash dividend from $0.07 to $0.10 per common share, or approximately $21.0 million in aggregate cash dividends, payable on or about September 3, 2021, to holders of record of Pan American’s common shares as of the close on August 23, 2021.
  • Pan American is reaffirming its Guidance for 2021 annual metal production, cash costs and AISC, as revised on May 12, 2021. The guidance incorporates the impact of comprehensive COVID-19 protocols, which increase costs and restrict throughput levels, especially at our underground mines. Estimates for capital project expenditures also reflect the deferral of some spending from 2020 into 2021. Inflation driven increases in energy, wages and consumables are within guidance assumptions. See the “2021 Guidance” section of this news release for further details, and the Company’s MD&A for the three and six months ended June 30, 2021.

 

Cash Costs, AISC, adjusted earnings, basic adjusted earnings per share, sustaining capital, project capital, working capital, and total debt are not generally accepted accounting principle financial measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this news release for further information on these measures.

 

CONSOLIDATED RESULTS

 

Three months
ended
Twelve months
ended
June 30,
2021
December 31,
2020
Weighted average shares during period (millions) 210.3 210.1
Shares outstanding end of period (millions) 210.3 210.3
Three months ended
June 30,
2021 2020
FINANCIAL
Revenue $ 382,132 $ 249,509
Mine operating earnings $ 103,048 $ 48,386
Net income $ 71,241 $ 19,412
       Basic income per share(1) $ 0.34 $ 0.10
Adjusted income(2) $ 46,625 $ 11,093
       Basic adjusted income per share(1) $ 0.22 $ 0.05
Net cash generated from operating activities $ 87,143 $ 62,750
Net cash generated from operating activities before changes in working capital(2) $ 124,158 $ 31,479
Sustaining capital expenditures(2) $ 53,225 $ 23,479
Non-sustaining  capital expenditures(2) $ 12,799 $ 9,836
Cash dividend per share $ 0.07 $ 0.05
PRODUCTION
Silver (thousand ounces) 4,484 2,791
Gold (thousand ounces) 142.3 96.6
Zinc (thousand tonnes) 12.4 4.3
Lead (thousand tonnes) 4.8 1.7
Copper (thousand tonnes) 2.1 0.3
CASH COSTS(2) ($/ounce)
Silver Segment(3) 12.71 6.23
Gold Segment(4) 857 905
AISC(2) ($/ounce)
Silver Segment(3) 16.36 12.54
Gold Segment(4) 1,163 1,015
Consolidated per silver ounce sold(5) 1.42 (3.14)
Consolidated before NRV inventory adjustments 3.21 (3.62)
AVERAGE REALIZED PRICES(6)
Silver ($/ounce) 26.88 16.58
Gold ($/ounce) 1,809 1,708
Zinc ($/tonne) 2,935 1,791
Lead ($/tonne) 2,151 1,643
Copper ($/tonne) 9,679 5,217
(1) Per share amounts are based on basic weighted average common shares.
(2) Non-GAAP measure; please refer to the “Alternative Performance (non-GAAP) Measures” section of this news release for further information on these measures.
(3) As of Q1 2021, Dolores was moved from the Silver Segment to the Gold Segment due to the expected mine sequencing into a higher gold zone of the mine. 2021 Silver Segment is comprised of the following operations: La Colorada, Huaron, Morococha, San Vicente and Manantial Espejo. The 2020 Silver Segment metrics include Dolores.
(4) 2021 Gold Segment is comprised of the following operations: Dolores, Shahuindo, La Arena and Timmins. The 2020 Gold Segment metrics exclude Dolores.
(5) Consolidated per silver ounce sold is based on total silver ounces sold and are net of by-product credits, including gold revenues. Corporate general and administrative expense and exploration and project development expense are included in Consolidated AISC, but not allocated amongst the operations and thus are not included in either the silver or gold segment totals.
(6) Metal prices stated are inclusive of final settlement adjustments on concentrate sales.

 

 

INDIVIDUAL MINE OPERATING PERFORMANCE

 

Silver Production

(ounces ‘000s)

Gold Production

(ounces ‘000s)

Three months ended

June 30,

Three months ended

June 30,

2021 2020 2021 2020
La Colorada 1,099 801 0.7 0.6
Huaron 903 211 0.3 0.1
Morococha(1) 568 47 0.3 0.0
San Vicente(2) 601 265 0.1 0.0
Manantial Espejo 635 503 8.1 3.5
Dolores 612 915 43.3 17.7
Shahuindo 54 40 30.3 26.8
La Arena 9 5 23.7 13.7
Timmins 4 4 35.6 34.2
Total 4,484 2,791 142.3 96.6
(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.

 

 

Cash Costs(1)

 ($ per ounce)

AISC(1)

($ per ounce)

Three months ended

June 30,

Three months ended

June 30,

2021 2020 2021 2020
La Colorada 4.52 7.13 12.42 12.56
Dolores(2) 2.23 12.95
Huaron 5.11 3.93 9.47 6.61
Morococha 11.35 12.90 15.42 17.42
San Vicente 19.76 2.61 21.06 4.52
Manantial Espejo 25.30 16.24 24.47 16.54
Silver Segment Consolidated(2)(3) 12.71 6.23 16.36 12.54
Dolores(2) 602 716
Shahuindo 762 632 1,160 747
La Arena 720 1,082 1,244 1,259
Timmins 1,352 1,092 1,676 1,171
Gold Segment Consolidated(2)(3) 857 905 1,163 1,015
Consolidated AISC per silver ounce sold(4) 1.42 (3.14)
Consolidated AISC before NRV inventory adjustments 3.21 (3.62)
(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 period ended June 30, 2021 for a detailed description of these measures and where appropriate a reconciliation of the measure to the Q2 2021 financial statements.
(2) Due to the expected mine sequencing into a higher gold zone of the mine plan at Dolores, the Company has determined that the mine is better identified as a Gold Segment operation from 2021 onwards. Thus, as of Q1 2021, Cash Costs and AISC at Dolores are reported on a per ounce of gold basis and included as part of the Gold Segment Cash Costs and AISC calculations. Dolores Cash Costs and AISC in the 2020 comparable period were reported on a per ounce of silver basis and included as part of the Silver Segment Cash Costs and AISC calculations, as previously reported. For comparison purposes, had Dolores been reported in the Gold Segment in 2020, Gold Segment Cash Costs and AISC for Q2 2020 would have been $923 and $1,133, respectively, and Silver Segment Cash Costs and AISC for Q2 2020 would have been $9.16 and $12.24, respectively.
(3) Silver Segment Cash Costs and AISC are calculated net of credits for realized revenues from all metals other than silver (“silver segment by-product credits”), and are calculated per ounce of silver sold. Gold Segment Cash Costs and AISC are calculated net of credits for realized silver revenues (“gold segment by-product credits”), and are calculated per ounce of gold sold.
(4) Consolidated AISC is calculated per silver ounce sold with total gold revenues included within by-product credits. Corporate general and administrative expense and exploration and project development expense are included in Consolidated AISC, but not allocated amongst the operations and thus are not included in either the silver or gold segment totals.

 

2021 GUIDANCE

 

The following tables provide management’s guidance for 2021, as at August 10, 2021. Management is reaffirming its guidance for annual 2021 production, Cash Costs, AISC and capital expenditures, as revised on May 12, 2021. The guidance reflects Management’s expectation that production will be weighted to the backend of 2021.

 

These estimates 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 Guidance

 

Silver – Moz 20.50 – 22.00
Gold – koz 605.0 – 655.1
Zinc – kt 55.5 – 60.5
Lead – kt 21.0 – 23.5
Copper – kt 8.5 – 9.0

 

Cash Costs and AISC Guidance

 

Cash Costs(1)(2)

($ per ounce)

AISC(1)(2)

($ per ounce)

Silver Segment Total(3) 9.60 – 11.60 14.25 – 15.75
Gold Segment Total(3) 825 – 925 1,135 – 1,250
Consolidated Silver Basis(4) (2.80)  – 2.70
(1) Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this news release for further information on these measures.
(2) The Cash Costs and AISC forecasts assume realized metal prices for H1 2021 and the following metal prices for the remainder of 2021: 24.00/oz for silver, $2,850/tonne ($1.28/lb) for zinc, $2,000/tonne ($0.91/lb) for lead, $9,500/tonne ($4.20/lb) for copper, and $1,750/oz for gold; and average annual exchange rates relative to 1 USD of 20.00 for the Mexican peso (“MXN”), 3.50 for the Peruvian sol (“PEN”), 96.67 for the Argentine peso (“ARS”), 7.00 for the Bolivian boliviano (“BOB”), and $1.25 for the Canadian dollar (“CAD”).
(3) Corporate general and administrative expense, and exploration and project development expense are included in Consolidated Silver Basis AISC, but are not allocated amongst the operations and thus are not included in either the silver or gold segment totals.
(4) Consolidated Silver Basis AISC is calculated per silver ounce sold with gold revenues included in the by-product credits.

 

Capital Expenditures Guidance

 

(in millions of USD)
Sustaining Capital 230.0 – 245.0
Project Capital 55.0 – 60.0
Total Capital 285.0 – 305.0

 

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. Pan American provides enhanced exposure to silver through a large base of silver reserves and resources, as well as major catalysts to grow silver production. We have a 27-year history of operating in Latin America, earning an industry-leading reputation for sustainability performance, operational excellence and prudent financial management. We are headquartered in Vancouver, B.C. and our shares trade on NASDAQ and the Toronto Stock Exchange.

 

Posted August 11, 2021

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