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

INDIVIDUAL MINE OPERATING PERFORMANCE

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

Cash Costs and AISC Guidance

Capital Expenditures Guidance

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.