Pan American Silver - Earnings Call - Q4 2024

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver Fourth Quarter and Year End 2024 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star, then one, on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero. I would now like to turn the conference over to Siren Fisekci, VP, Investor Relations. Please go ahead, Ms. Fisekci.

Siren Fisekci (VP of Investor Relations)

Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our Q4 financial results, our audited financial results for the 2024 year, and our outlook for 2025. 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 2024 audit 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.

Michael Steinmann (President and CEO)

Thank you, Siren. Hello, everyone. I'm glad you could join us to discuss Pan American's 2024 results and our outlook for 2025. We are very pleased with the company's performance over the past year. Revenue was a record of $815.1 million in Q4 and $2.8 billion in 2024, reflecting the contribution of a full year of production from the acquired Yamana mines and strong metal prices. We achieved our production guidance for 2024. Silver production totaled 21.1 million ounces, and gold production was a company record of 892,000 ounces. All-in sustaining costs for the silver segment, excluding NRV inventory adjustments, were $18.98 per ounce in 2024, slightly above the guidance. Gold segment all-in sustaining costs, excluding NRV inventory adjustments in 2024, were $1,501 per ounce and were within the guidance. In 2024, we completed several major projects, notably the new ventilation infrastructure at La Colorada.

We are now seeing the benefits in terms of higher throughput at La Colorada, achieving our target 2,000 tons at the end of last year and lower per ounce operating costs. We finished construction of the new filtration plant and dry stack tailings storage facility at Huaron and the paste backfill plant at Timmins. These investments have set those assets up well for the future, while today our operations are generating record cash flows. Cash flow generated from operations was a record $274.1 million in Q4 and also a record of $724.1 million for the full year, reflecting strong margins. We also achieved record free cash flow of $196.2 million in Q4 or $445.1 million for the full year. We recorded net earnings of $107.8 million or $0.30 per share in Q4. Full year net earnings were $112.7 million or $0.31 per share in 2024.

Net earnings in Q4 reflect the gain from the sale of La Arena, being almost entirely offset by adjustments at Dolores to the closure and decommissioning liability and to the net realizable value of the inventory. The adjustments at Dolores reflect the completion of mining and the transition to the residual leaching phase and active reclamation. Based on our most recent estimates for residual heap leaching in the post-mining phase, we expect economic production to continue at decreasing rates through mid to late 2026. The gain from the La Arena sale and the adjustments at Dolores were adjusted from earnings. This resulted in adjusted earnings of $126.9 million or $0.35 per share in Q4. Full year adjusted earnings were $286.7 million or $0.79 per share. Pan American is entering 2025 in a strong financial position.

We are now in a net cash position with $887 million cash and short-term investments against roughly $800 million of debt, largely related to the two long-term bonds we acquired through the Yamana transaction. Our credit facility remains undrawn, giving us $1.6 billion of total available liquidity. This is a great position to be able to pursue our growth objectives while returning capital to shareholders. Yesterday, we announced a $0.10 per share dividend with respect to Q4. In the first quarter of 2025, we also repurchased approximately $20 million, or roughly 900,000 shares, under the share buyback plan. That brings total share repurchases since introducing the share buyback plan last March to roughly 2.6 million shares. Total dividends paid over 2024 were $145.4 million.

I'm very proud that we have been able to return over $1 billion in dividends and share buybacks to investors since 2010, while investing in growth, maintaining a strong balance sheet, and not issuing any equity through public offerings. Moving on to our guidance for this year. In 2025, we are expecting largely steady state operations, with the notable changes relative to 2024 being the sale of La Arena, Dolores entering the residual leach phase, and improved operations at La Colorada following the ventilation upgrade. We are expecting to produce between 20-21 million ounces of silver and 735,000-800,000 ounces of gold in 2025. We expect both silver and gold production to be weighted to the second half of the year with corresponding effects of lower per unit costs over that period. Please see our Q4 news release and MD&A for quarterly production and cost estimates.

Average All-in Sustaining Costs for the silver segment in 2025 are expected to be between $16.25-$18.25 per ounce. For the gold segment, we expect All-in Sustaining Costs of between $1,525-$1,625 per ounce in 2025. Sustaining capital is forecasted to be between $270-$285 million and project capital between $90-$100 million. Project capital includes investment at La Colorada and the current vein mine operation aimed at opening production access to 13 new veins. These discoveries will expand high-grade zones in the eastern part of the mine and were highlighted in our December 9, 2024, annual exploration update news release. For the La Colorada's current project, we plan to invest $39-$42 million in exploration and infill drilling and to advance the technical studies to determine the optimum development scenario for the company.

We are also investing project capital at Timmins for the construction of the Stage 6 tailings storage facility and exploration of satellite deposits. At Jacobina, we are directing project capital to advance the comprehensive mine and plant optimization study, expecting to describe some initial value enhancement projects by mid-year. At Huaron, we have some residual project capital related to the new tailings filtration plant and filter stack tailings storage, which have been successfully commissioned and ramping up to full operation. We plan to invest about $80 million on exploration in 2025, mostly for reserve replacement. We are forecasting cash taxes of $240-$260 million, with approximately one-third to be paid in the first quarter of 2025. Care and maintenance costs are estimated to total between $20.5-$24 million, mostly related to Escobal.

Working meetings among the participants in the consultation process for Escobal resumed in late January after the Christmas break. We will continue to work with the government of Guatemala and the Xinka representatives to advance the consultation process. The government has not yet published the timeline for completion of the consultation, and there is no date for restart of the operation. Heading into 2025, Pan American is well positioned to benefit from the strong metal price environment we are in. The mines we acquired through the Yamana transaction and the strong operating teams managing them are now well integrated in our organization. We made significant strides in rationalizing the portfolio, and we will continue with a focus on safe, efficient, and sustainable mining operations.

We will continue to build an even better and stronger company that offers investors unique upside to silver with expanding margins in a rising metal price environment. We are well on track with that goal, and I look forward to keeping you informed of our progress. I will be happy now to take your questions.

Operator (participant)

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. The first question comes from Cosmos Chiu with CIBC. Please go ahead.

Cosmos Chiu (Analyst)

Thanks, Michael and team. Maybe my first question is on La Colorada. I see that your 2025 guidance is 5.5-5.8 million ounces. I would have thought that could have been slightly higher, just given that you produced 1.6 million ounces in Q4. But again, now everything's in a straight line. So could you maybe comment on 2025 guidance for La Colorada?

Michael Steinmann (President and CEO)

Sure, Cosmos. Good morning, and I'll let Steve answer that question.

Steven Busby (VP Operations)

Yeah, good morning, Cosmos. Thank you for that question.

Cosmos Chiu (Analyst)

Hi, Steve.

Steven Busby (VP Operations)

If you recall, in December, we put out a press release that highlighted some of the really significant exploration intercepts we're seeing off to the east side of that area in Candelaria. What we decided to do is there's a bit of a balancing going on. We're trying to reduce a little bit the burden. We've got a capacity burden in the system on waste movement, and we want to develop out into this new area to bring long-term value to that operation. So we're balancing what kind of impacts do we want to see next year compared to trying to get that aggressively opening up that new area and understanding better the potential reserves out in that area. So it was kind of a happy medium we chose for 2025, take a little bit of short-term pain for long-term gain there.

I'll let Chris talk a little bit about what we're seeing out there and why we're doing it. Before that, I just also want to mention that along the way going out to that east, we do cross a section of concession that belongs to one of our neighbors. We will be mining through a concession there, and there seems to be some more there. We'll share some of the profits with that concession owner as we pass through there. That has a bit of an impact on the cost and the production as well. It's really the waste constraint. We want to develop that area. We only have so much capacity to move ore and waste. Something's got to give as we open up that area. We think long-term, it's going to bring substantial additional value to the company.

I'll let Chris kind of highlight on that.

Christopher Emerson (VP Exploration)

Yeah, hi. Cosmos, this is Chris here. As Mike mentioned, you have 13 new structures, which was highlighted in the December exploration press release. We've been alluding to this over last year. We've put a lot of effort into sort of moving a lot of the exploration over to that east portion. We have some of the major structures, the NC2, etc. If you remember, the La Colorada mine has been deepening. As we know that through these systems, it becomes more polymetallic rich. Finding new structures and finding new areas higher up in the system is obviously beneficial. That's why we're really concentrating on that eastern portion and southeast of the Skarn area, which is at depth as well. We've had some great results, as you can see in that press release.

That's certainly something to look forward to for the future of the company.

Cosmos Chiu (Analyst)

Great. And maybe same type of question for Jacobina as well. Your guidance 285,000-295,000 ounces in 2025. I thought that could have gone higher potentially as well, just given that you did a record 52.4 in Q4 2024. Could you maybe comment on that and also maybe comment on, I believe there's some optimization studies ongoing at Jacobina, how that's going so far as well?

Steven Busby (VP Operations)

Yeah, Cosmos, Steve here again. Yeah, we had a remarkable year and a remarkable Q4 at Jacobina. We're very, very happy with the way that operation is debottlenecking, continues to debottleneck. With that said, there are some projects that are underway during 2025 outside of the optimization study to try to firm up the plant and give us stability. We got some screens that are undersized. We're pushing them too hard. So we're replacing some screens in the crushing plant as well as the grinding circuit. We're doing some upgrades on our CIP carbon and pulp tanks to give us that sustainable run rate. But those projects won't be done until late in the year. So we didn't want to forecast the kind of production throughputs we had during Q4 for the whole first nine months, given those projects. Once those projects are done, we're quite confident.

As part of the optimization work that I'll talk about next, we're quite confident mid-year we'll be able to come out with some looking forward beyond 2025 as to how we can push that plant up a little bit. Relative to the optimization studies, that work, it's going really well. There's a few projects that are going to come out. We're going to be announcing them later in 2025, mid-year, that deals with handling of this concept of this paste plant that we've been talking about for the underground mine that allows us to get a better recovery of the reserve and resources that exist there. Also in the longer-term picture, we got to change the way we're handling some of the tailings. We're looking at a filter plant there too. The optimization studies is kind of starting to break up into different phases.

The first phase will focus on getting those projects out along with getting this mill sustained at the kind of throughputs we saw in Q4, and then we see future potential is really starting to get exciting there as well too as to what we can do during 2026 and 2027.

Cosmos Chiu (Analyst)

And maybe one last question, sort of bigger picture. Michael, I'm sure you've noticed that Newmont has now sold their Timmins assets. Does this now change how you view your Timmins assets? And then also can you remind us of the book value you have for these assets?

Michael Steinmann (President and CEO)

Yeah, look, these assets are doing really, really well, as you can imagine, but I think we talked about that in the past that I'm a strong believer, and we are strong believers, that that district, the entire Timmins district, can generate way more value in maybe a bit of different form, looking at, you know, how that will look like, but working together on many fronts, there are lots of trucks and transportation going all different directions between Newmont or soon Discovery Silver and ourselves, so I think there's a lot to optimize. It's probably a bit early to talk about that, but I think there's a lot we can do that helps our shareholders and probably helps Discovery shareholders as well, and that was obviously the reason why they did the deal with Newmont. I think that it's a great district in Canada, great producer of gold.

And don't forget, it's not only our two operations there, but I think we shared in the past some results from some of the more satellite exploration programs that Chris is doing at Whitney and Gold River as well. So there are some very, very interesting additional satellites. And I think everything will play in those decisions. So I think it's a very exciting time for Timmins.

Cosmos Chiu (Analyst)

Great. Thanks again, Michael, Steve, Chris, Siren, and team. Those are all the questions I have. Thank you.

Michael Steinmann (President and CEO)

Thanks, Cosmoss.

Operator (participant)

Once again, if you have a question, please press star, then one. The next question comes from Don DeMarco with National Bank Financial. Please go ahead.

Don DeMarco (Analyst)

Thank you, Operator. And good morning, Michael and team. Yeah, constructive guidance really shows some stability in the ops.

Michael Steinmann (President and CEO)

Thank you.

Don DeMarco (Analyst)

So a few questions. Can you hear me okay?

Michael Steinmann (President and CEO)

We do, yeah. Go ahead.

Don DeMarco (Analyst)

Okay, great. So I jumped in a little bit late. You may have talked a bit about Jacobina, but what is the timing of the optimization study? And what details can you share now about the throughput increases or mine life extensions, things like that, that had been talked about at one point?

Steven Busby (VP Operations)

Yeah, hi, Don. Steve here. Yeah, we had a great Q4 at Jacobina. We were able to accomplish kind of a target we set ourselves of trying to get the throughput through the mine and the plant at 275,000 tons or just at 9,000 tons a day. We accomplished that. We were very pleased with that. But we do have some projects that we have to complete in the plant. We're changing some screens in the crusher. We're changing some screens in the grinding circuit. We're upgrading some of the tanks and some of the tailings pumping that will give us stability and sustainability of that kind of throughput is what we're seeing. So a big part of the optimization study is those projects are done. It'll capture those values and give us sustainability late into 2025 and certainly into 2026.

We'll kind of disclose what those numbers are looking like mid-year. Now, mid-year, the optimization study is starting to split off into different phases. And we're seeing phase one where we're looking at this paste plant that we've talked about over the last year or so, bringing that in to allow us to recover more of the reserves. And also, we got longer-term tailings disposal alternatives, which the paste plant helps us with. But also, we were looking at a filter plant for tailings disposal too. So that will kind of be the phase one optimization. We'll announce kind of some projects around that and what the returns are, investments are. We're targeting mid-year this year to do that.

Then beyond that, we'll move into phase two, which, once we understand how those feed in, we got some really interesting optimizations that we're going to be continuing on that'll bring value into 2026, 2027, 2028. That will be a phase two program later.

Don DeMarco (Analyst)

Okay. Thank you for that. And Steve, while I have your ear here, on El Peñon, we're seeing stable production year over year. Costs are stable and attractive, AISC midpoint at $1,235, actually even slightly lower year over year. Does this mean that those sort of initial integration hiccups are really in the rearview mirror and you're feeling comfortable with this asset now?

Steven Busby (VP Operations)

Absolutely. Yeah, great question, Don. And yeah, we're very pleased with the stability of that. We're focusing a lot of effort on exploration. We want to extend that mine life. It's a great cash-flowing asset for us. Costs are stable. The operation's stable. I'll remind you, it's at 130 kind of thousand ounces a year gold production levels. It was a little less than what we aggressively pursued in 2023. But that kind of dialing that in, we feel very comfortable with that operation and it's performing incredibly well.

Cosmos Chiu (Analyst)

Okay.

Michael Steinmann (President and CEO)

It was, Don, if you recall, it was really the spacing of some of the drilling and some of the stopes that we saw that impact at the beginning. I wouldn't call it really an integration hiccup. I think the team at El Peñon is doing an unbelievable job and integrated very easily into our company and our system. So the other Yamana assets. So not really an issue on the integration, but really that spaced drilling. And Chris and his team did a lot of work drilling that out. And I think we're seeing the result of that now.

Don DeMarco (Analyst)

Okay. Good to see. And so, Michael, last question on Escobal. So you mentioned that the government hasn't published a timeline for completion of the consultation process. What is your sense here? It's been a stalemate for about a year now, but there's probably other meetings going on. Are there reasons to be optimistic for 2025? Or what are your thoughts on Escobal?

Michael Steinmann (President and CEO)

Yeah, I wouldn't call it a stalemate. I mean, there's a lot of meetings going on. As you recall, with the new government coming in just about a year ago, there was kind of a slow startup last year to get there. But there's a lot of work going on in the background between the actors. So I wouldn't call it a stalemate. We had kind of some timings for meetings published years ago by the government. And I think that really didn't bring that much as it just put pressure on actors as unnecessary. So we rather just continue with as many meetings, as many discussions we can on the way to hopefully a positive solution here. So yeah, I wouldn't call it a stalemate. I think there's probably well, maybe let me have Siren giving a quick update here. There's quite a lot going on.

Siren Fisekci (VP of Investor Relations)

Yeah, well, thank you, Michael. There were those changes in government last year. And so they did change out the vice minister of sustainable development who leads the process. So that was a key in some of the delays last year. But the meetings are ongoing into Q4. We had several meetings with the government as well as Xinka Parliament's meetings with the government. So those were good. And then things always slow down over the holidays and into early January. And then we've just started picking up again with some meetings with the government. So I feel like there's going to be a lot more activity in the coming weeks and months. And hopefully, we're able to provide a more meaningful update of some of the developments after the Q1 results into May. So I'm looking forward to that.

Don DeMarco (Analyst)

Okay. Okay. Excellent. Thank you for that. That's all for me. Good luck with Q1 and the rest of the year.

Michael Steinmann (President and CEO)

Thank you.

Operator (participant)

This concludes the question and answer session. I would like to turn the conference back over to Michael Steinmann for any closing remarks. Please go ahead.

Michael Steinmann (President and CEO)

Sorry, Operator. I just see that a question came in. Could we answer that, please?

Operator (participant)

Yes, of course. The next question comes from Ovais Habib with Scotiabank. Please go ahead.

Ovais Habib (Analyst)

Hi, Michael, and Pan American Team. Just a couple of questions for me. Sorry if you've already touched upon some of these as I've been bouncing between a couple of calls. Michael, just a first question in regards to the guidance. I believe production and costs are second-half weighted. Any kind of color that you can provide in terms of what assets will drive the split between the first and second half?

Michael Steinmann (President and CEO)

Yeah, well, let's dive deep into that. But just in general for the listener, this is obviously a recurring theme with Pan American. And it's largely driven, partially driven by the weather, so by the seasons, rainy seasons, dry seasons, cold winters in the far south. As you remember, we are in a whole different kind of climates. You saw the same last year, obviously in the year before. And you saw the really strong production we had in Q4. Nothing obviously we can do with the climate there. That's just what it is for the assets that are distributed so widely over different climate zones. But I'll have Steve give you a bit more details.

Steven Busby (VP Operations)

Yeah, thanks, Ovais. And one of the bigger drivers is Cerro Moro and not just mine sequencing. As we're opening up the Naty open pit, we're getting into the higher grade later in the year. That's really driving a big part of it. Shahuindo, as Michael mentioned, is very, very weather-dependent. So we generally see better production going in late in the year there as well. I think those are probably the two bigger drivers. There's a bit of that at El Peñon, but again, it's just mine sequencing.

Ovais Habib (Analyst)

Perfect. Thanks for that, Steve and Michael as well. And my next question is more the fact that, again, you had a great Q4, generated a lot of free cash flow in Q4. That, based on operations, kind of looks like they are stabilizing going into 2025 as well. So that's really good to see. Now that, kind of, you've integrated all those Yamana assets, you've done a great job on the non-core as well. Is it time now to start focusing more on exploration side? Or how should we look at 2025 in terms of exploration?

Michael Steinmann (President and CEO)

We never really slowed down on exploration. You see there's a substantial budget for exploration. We tend to even increase that budget during the year. It really depends on the results. As you know, I'm a geologist by trade. Strong exploration results always will be rewarded with more investments. This is really the bread and butter of our business. Obviously, you have the plant already built. The mine is already developed largely. In each place, replacing that reserve is incredibly important and generates a lot of value. Exploration always is a very big focus. Our exploration, as you know, is really focused on brownfields or close to our sites, reserve addition. Maybe some truckable distance where we're looking at some truckable satellites in some places. I think Cerro Moro comes to mind where we are actually mining at one zone right now.

We just discovered another one that Chris and his team are drilling out. So exploration is always really a core to us. If you look back, we have been incredibly successful in replacing hundreds of millions of ounces of silver over the last, I would say, 15 years with brownfield exploration, on-site exploration. And don't forget, our exploration program discovered this Candelaria deposit. So there will always be a big focus on that.

Ovais Habib (Analyst)

That's perfect. Thanks, Michael, for that, and thanks for taking my questions and looking forward to seeing you during PDAC.

Michael Steinmann (President and CEO)

Thank you. See you then.

Operator (participant)

The next question comes from Adrian Day with Adrian Day Asset Management. Please go ahead.

Adrian Day (Founder and President)

Yeah, good morning. Just to follow up, if I may, on Escobal, but taking a different direction. Once you get the approval to reopen, and of course, you'll obviously get an indication it's coming probably before it actually happens. But how soon before you're producing again and how soon before it's fully ramped back up?

Michael Steinmann (President and CEO)

Yeah, hi, Adrian. Look, I think it would take probably a good quarter to two to start up the first stope. As you know or probably remember from the time with Tahoe when the asset was in production, those stopes are very sizable, produce a lot of silver. So that would start, I guess, one stope at Escobal to be equivalent to about five to six million ounces of silver per year. So that's already a strong startup. I think thereafter, probably about the better part of a year to bring it, what would it take to bring it back to the full production, which was somewhere in the range of 20 to 22 million ounces a year.

Adrian Day (Founder and President)

Okay. Okay. That's helpful. And just once the approval is granted, are you as a company, are you ready to start? Or would you say, "Well, we've got other things going on. We'll leave it a few months now"?

Michael Steinmann (President and CEO)

It's obviously an incredible mine and project. So of course, all our focus is around this. There's always a lot going on. We have a very accomplished team that can handle many assets at the same time. I think that we have shown that year over year over year. But of course, that will be a number one focus. You probably noticed over the past years that we normally spend probably as much as $24 million in the past, maybe now more between $18 and $20 million in care and maintenance at that asset to make sure that everything is in top shape and the restart can happen or could happen as quickly as possible.

Adrian Day (Founder and President)

Okay. I appreciate that. Thank you.

Michael Steinmann (President and CEO)

Thank you.

Operator (participant)

This concludes the question and answer session. I would like to turn the conference back over to Michael Steinmann for any closing remarks, please.

Michael Steinmann (President and CEO)

Thank you, Operator, and thanks for everyone calling in today. Yeah, these are exciting times for Pan American Silver, very high metal prices, very strong cash flow generation, and great returns to our shareholders, so we will really, really focus on maintaining rigorous control on our costs to maintain those great margins that we are enjoying right now, and I'm really looking forward to update you in our Q1 call in May. Until then, have a good day. Thank you, everyone.

Operator (participant)

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.