Pan American Silver Corp

TSX:PAAS

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver First Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions]

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

Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our results for the first quarter of 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 Q1 2025 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.

Hello, everyone. I'm glad you could join us to discuss our Q1 results. 2025 is off to a strong start with Pan American posting another quarter of solid operating performance, building on the momentum from last year. Mine operating earnings have been increasing over each quarter in 2024, and this trend continued for the first quarter of 2025, reaching a record of $250.8 million in mine operating earnings.

The improvements in metal prices have certainly contributed to margin expansions, but I would like to acknowledge the work of our teams in not only maintaining a focus on safe, efficient operations, but also carefully managing costs in order to deliver the margin improvements that resulted in the record mine operating earnings for the quarter.

La Colorada is contributing strongly to these results. The improvement in mine ventilation conditions has allowed us to accelerate development rates and increase the number of production areas, which is leading to higher throughput and lower per unit costs. In Q1, we produced just over 5 million ounces of silver production, slightly above our guidance range for the quarter.

On cost, the performance was even better. Lower-than-anticipated production costs across the Silver segment contributed to all-in sustaining costs of $13.94 per ounce, well below our guided range. The low Silver segment all-in sustaining costs also benefited from higher-than-expected byproduct credits from higher gold production at Cerro Moro and higher zinc and lead production across our poly-metallic operations as well as some lower capital expenditures.

Gold production in Q1 of 182,200 ounces was in line with our guidance while Gold segment all-in sustaining costs, excluding NRV adjustments of $1,485 per ounce were better than expected. The main drivers of the strong cost performance in the Gold segment were higher-than-expected gold and silver production from residual leaching at Dolores and higher silver byproduct credits at El Penon.

Revenue in Q1 was $773 million, while net earnings in Q1 totaled $169 million or $0.47 per share. Adjusted earnings were $153 million or $0.42 per share. Operating cash flow before noncash working capital changes was $240 million, including $95 million cash taxes. The taxes paid in Q1 represent roughly 1/3 of the cash tax we expect to pay in 2025. After working capital changes, operating cash flow totaled approximately $175 million.

At the end of Q1, our cash and short-term investments increased to a record balance of $923 million, and free cash flow for the quarter was $112.6 million. Keep in mind that this increase in cash over the quarter is net of the $95 million in taxes paid, $81 million invested in our sustaining and growth projects, inclusive of lease and loan payments, and $56 million we returned to shareholders through dividends and the share buyback. The cash generated by our operations fully funded our business needs provided returns to shareholders and further improved our balance sheet.

Including our undrawn line of credit, we have approximately $1.7 billion of total available liquidity, which gives us plenty of capacity to pursue our growth objectives. Our largest organic growth opportunity, the La Colorada Skarn project, continues to move ahead. Over Q1, we advanced engineering work and continued with exploration and infill drilling. We are also continuing to discuss potential partnerships for development of the project. We expect those discussions to take several quarters given the size and long-life nature of the project. Our aim is to retain maximum exposure to the silver in this deposit.

We're also investing at the La Colorada Veins mine operations to explore extensions to the mineral resource in the higher-grade Candelaria zone to the east and southeast of our current operation.

At Escobal, Pan American had 4 working meetings with the Guatemalan government during Q1 2025 as part of the ILO 169 consultation process. Currently, there is no date for the completion of the consultation process or the potential restart of operations at Escobal.

The comprehensive mine and plant optimization studies at Jacobina are progressing well, and we expect to include the findings of the first phase in early August 2025. The initial findings will include evaluations of modifying mining and tailings disposal methods to maximize the long-term value for this flagship asset.

In closing, 2025 is off to a very strong start. Operating performance is in line or better than expected and our forecast shows higher production over the balance of 2025 as per the quarterly guidance we provided in February. We are maintaining the guidance we provided in February for consolidated production cost and annual expenditures.

That outlook, combined with today's favorable precious metal prices points to the potential of generating very strong profit margins this year. We generated $112.6 million of free cash flow in Q1 alone, and gold prices are currently trading substantially higher than the average in Q1. This is an incredibly exciting time to be in precious metals and invested in Pan American.

I would now be happy to take your questions together with the other members of our management team.

[Operator Instructions] The first question comes from Ovais Habib with Scotiabank.

Congrats to a strong start to the year, especially on cost. Michael, a couple of questions from me. Just starting off with -- just remaining on the cost side. So costs, both at the Silver and the Gold segments, really outperformed the quarterly guidance that was provided. Now with Q1 trending ahead of guidance, should we expect subsequent quarters to adjust for this cost improvement? How should we be looking at costs kind of going into Q2 and kind of beyond?

I'll have Scott answering the question. But just in general, obviously, great performance on the cost, as you mentioned. We normally don't make adjustments after 1 quarter, but we're pretty happy with what we're seeing. But I'd like Scott to answer the rest of the question, please.

Yes. It's Scott Campbell here. Yes. We're very encouraged by the strong cost performance in both Silver and Gold segment operations. That's in large part, a function of our commitment to cost control, the high byproduct metal prices, and in some cases, favorable exchange rates in the countries where we operate.

We're maintaining our cost guidance for the year. And as Michael said, we don't usually make an adjustment after only 1 quarter, but we're encouraged by our cost performance so far this year. And we think this will continue, provided metal prices and exchange rates to maintain their levels. We [ normally ] see a cost increase on a per ounce basis as we get into the placement and compaction of our thickened tailings from our new tailings filtration plant. And sustaining capital spending will also increase at several operations, specifically Shahuindo as we get into the dry season and our large capital projects begin.

So essentially, I would get a little bit of an uptick in Q2, but as kind of production increases going into the second half, your per ounce cost essentially should come down in the second half? Is that how we should look at it?

I think as Scott said, if everything stays the same, right, as you know, our costs have different important inputs. One, of course, is our operation and how we perform there.

The other one, because this is net of byproduct credits, the other big input is byproduct metal prices, which we all know are very high right now. So if that continues, of course, it has a positive impact to our cost.

And the last big one is exchange rates. And as we have some favorable exchange rates in some of the countries at the moment, that helps us as well. So if those inputs that are out of our control, maintain their position. And of course, we will continue to have very strong control of our cost on site, and then you're right, Ovais.

Perfect. And Scott, just then -- just moving on to -- in terms of gold and silver sold, that seemed to be high this quarter as compared to previous quarters. Are you able to give any sort of information on what the drivers were on that?

This is Ignacio speaking. Yes, the main driver there was, as you remember, we had a very strong Q4 production and a lot of that production came in late in December. So we did sell in January that extra production from December. And you'll see in some of our slides, I think it's over 445,000 ounces of Gold inventory that we sold in Q1.

Really just timing of shipment, which happens many quarters, sometimes there is an increase of inventory, sometimes a decrease depending on how the production ends at the end of the month. Obviously, a little bit easier to control timing on the dore shipment, a bit harder sometimes with the concentrate that we sell there where we have to wait for ships and ports to be ready.

So that's just kind of the normal course of business at the end of each quarter. And as I said, sometimes it's a bit more, sometimes less. But as Ignacio said, after a very strong Q4, that's kind of the rest of selling that went on there in January.

That's great. And just 1 more question. At Minera Florida, you were talking about costs that were high and you noted that absenteeism as one of the causes. Are you able to kind of shed some more light on what's happening there? And how should we kind of position ourselves going into Q2?

Yes. Minera Florida had a rough quarter, certainly. We were affected by mine sequencing, some lower grade than expected, some absenteeism out of operation there and delays regarding plant and equipment delivery, mobile equipment delivery. We expect to claw that loss of production back and get those costs per ounce back in line in Q3 and Q4.

Yes. this is Steve. If I can just add on the absenteeism. January is the big month for holidays in Chile. And this year, it was a particularly hard hit month in terms of the number of holidays that we had our people out on, that's really what affected us in Q1 at Florida.

Again, congrats on the great quarter.

The next question comes from Cosmos Chiu with CIBC.

Michael and team, congrats on -- I agree, very strong start, very strong Q1. Maybe if I can ask about Bell Creek. I read that there were some technical challenges at Bell Creek in the quarter. And then I actually went back to the commentary in Q1 2024, and there were some challenging ground conditions at that time as well. So is this a continuing kind of issue? Could you maybe give us a bit more color in terms of what's happening? I know it's not your largest asset, but I'm just wondering if you can give us a bit more color?

Yes. I'll start and maybe Martin can add in a little bit as well, Cosmos. But yes, that central zone of Bell Creek, which is where our high grade and our little bit bigger stopes are for the Bell Creek mine, it's been challenging. We've been seeing some seismicity there, and we have to manage that carefully as we mine and we've put in some dynamic support as we enter into that area. And it's just -- it's a more challenging area than we expected.

We thought we were putting in some programs that we did see some benefits last year. Last year, what we were seeing was a lot of hole squeezing. We were reporting hole squeezing on our drill holes. We have gotten some additives and things we're doing there that has helped a lot, but we're still facing some ground movements, ground seismicity in the area that we have to manage very carefully and it has slowed us down more than we expected in Q1.

I don't know, Martin, if you had any more you want to add.

No, that's a great answer, Steve. As we get deeper in the mine, certainly, seismicity is there. It's sort of with us all the time. The guys do a fantastic job of managing that and dealing with it. We've had to increase our support in some areas. But it's with us, and it does cause us at times to change our production plans during the quarter when you see that with the grades going up and down a bit as we have to change out some things in our plan. But we're sort of used to it now, and we've got systems in place to deal with it as it happens, and it's part of our mining process there at the mine.

Maybe switching gears to Escobal. Michael, as you mentioned, there were 4 working meetings with the Guatemalan government in the quarter. Is that what you had expected? Are you happy with that progress? I know you can't give us any kind of timing at this point in time. But I'm just wondering, were you're happy with what happened in Q1?

Yes. This is Sean. We had those meetings. They were -- yes, that's good to talk to you. Yes, we had those meetings during the quarter. Things have been moving very slowly, and it's always been hard to predict the rhythm of the meetings and the larger meetings, but they were good meetings, lots of dialogue around the main concerns in the process, which, again, focused around water, environmental health concerns and blasting vibrations from the mine. So we expect to have some more working meetings in the coming weeks and months and provide an update at the next results call.

Great. And then on [indiscernible] side, some questions here. Number one, I know that when you talk about all-in sustaining costs, you still talk about the NRV adjustment. But just to confirm, that should be -- that is going to become less and less important as Dolores comes off. And at some point in time, will you stop talking about the NRV adjustment?

Cosmos, it's Ignacio here. Yes, no, I think you've got that right. Obviously, if you look at our previous results, a lot of the NRV adjustments that we had were due to Dolores. Now that Dolores is in full leach mode, that will become less of an issue. So we should see that those numbers disappear.

However, we do have other mines that have large heap leaches and large inventories in heap leaches like Shahuindo. So Shahuindo has very good margins. But yes, in theory, we could see NRV adjustments in Shahuindo in the future. But yes, now that Dolores is winding down and in leach, those numbers should taper as well.

Great. And then maybe 1 last question following up on my buddy Ovais' question here. Asked a different way in terms of guidance, I know you've maintained full year guidance. But my question is, previously, you had guided in Q2 to $19.50 to $21.25 an ounce. In Q3, you've guided to $14.25 to $16.25 an ounce all-in sustaining cost. At this point in time, are those still good goalposts to use in terms of us model in Q2 and Q3?

Cosmos, Steve here. Yes, we feel that, that guidance is still in line our quarterly guidance. So I think that's a good gauge. As we mentioned, there are some sustaining capital projects that start picking up steam, things like that. We've got some -- the tailings compaction that we're on, some developments picking up steam. So those are good guidance as we look forward. And as production comes up and the costs come down, we think that quarterly guidance still is in line.

Yes. And maybe if I can just...

Obviously, just to reiterate here, of course, that all depends where metal prices and exchange rates stand, right? I mean if we -- because those cost guidance have been calculated with the metal prices that we used at the time in our guidance. So you have to look at that. And of course, when we have higher by-product metal prices and more favorable exchange rate, that will be and has right now a positive impact to our cost. So when you look at the guidance, just have a look at the metal prices and the exchange rates that we used for that guidance as well.

Of course. We'll definitely adjust for those different input factors here. And then, Michael, since I have you here, maybe if I can slip in one more question. In the MD&A, you don't talk much about Navidad. I know there's still a lot of questions about the province of Chubut, but from our industry sources, it does seem like Argentina is becoming a better place to do business. And so any comments that you can make on Navidad?

Yes. Look, I mean, we are a long time working in Argentina many decades. And of course, we have operations in Santa Cruz and had operations in Santa Cruz for a long time. So things are changing in Argentina on many fronts. But I think it's still too early to talk about.

Navidad, obviously, we will see, hopefully, continued positive changes here over the years under the new administration. We see the positive impact already on Cerro Moro. And hopefully, that will continue. We are very happy to have kind of some long-term pipeline projects with us that are there. And there's very little cost to hold on, on this project. And one of the largest silver resource on the planet. So we'll just monitor and watch and see how Argentina evolves over the next, I would say, 12 to 24 months.

Congrats once again on a strong Q1, and we look forward to that continuing for the rest of 2025.

[Operator Instructions] The next question comes from Don DeMarco with National Bank.

Great quarter, certainly on costs. On costs, and I'll start off with that. In response to a previous question, you mentioned a few drivers, commitment to cost control, favorable FX rates, strong byproduct credits. Do you have a sense of the approximate benefit of each of these categories on the aggregate outperformance in Q1?

That's quite complicated to answer, Don, because just on the exchange rate, for example, right, there is a lot of different pieces depending where we buy different services and products and equipment from which country that comes in, et cetera. So I don't have a detailed number on that.

Obviously, the byproduct credit is a bit easier. I think if you just look at -- you look at the metal prices that we used on our cost calculation for the guidance at the beginning of the year and then looking at the result with the higher metal prices now.

But as I said, that kind of those exchange rates and obviously, cost control at the site are all very tightly intertwined. So it's -- I think it's quite difficult to get you exact numbers on how much is coming from which side.

Okay. Okay. Well, that's helpful nonetheless. But then maybe shifting to my next question on capital allocation. So your balance sheet is continuing to improve. You got cash over $900 million. You mentioned $1.7 billion in liquidity. So what are your priorities on capital allocation? Like considering the different range of options, you got debt repayment, do you see opportunity to increase the NCIB or dividends or maybe see a better ROI by deploying cash into the pending Skarn development that's pending?

Most of them, what you just mentioned, probably debt repayment is not really urgent for us. Just for everybody to remember, we have 2 bonds and they're very, very favorable bonds and their interest rates. I think the $500 million bond is about 2.65% and then the rest up to the $800 million. So that's about $280 million. Some are sitting around 4.6%. So these are very favorable bonds. I don't think there's no hurry to pay those back.

By the way, the larger one, the $500 million bond only matures in 2031, so 2.65% interest rates until 2031. I think we can, obviously, with that money, provide better return to shareholders than buying back that debt.

So that leads us to the rest of the buckets that you mentioned. And yes, shareholder return is always on our radar, which is close to -- as you know, we have a policy in place that adds a special or additional dividend to our base dividend of $0.10 per share per quarter, depending on our net cash, we are very close there. I think it starts kicking in at $100 million net cash. We're just a little bit shy of that. I would expect to cross that threshold here pretty soon. And then our dividend will automatically increase. There's a graph and a table in our MD&A explaining that. I think it goes as high as about $0.18 depending on how much net cash we have.

So automatically, the dividend will increase. You saw that we were buying back shares in January. Now we will continue that theme during the year, we just extended or renewed our NCIB, and we'll continue the same thing to be very opportunistic in buying back stock. There's always pullbacks and opportunities to do that, and we'll jump in the market and do that. So very strong return in total to shareholders of $56 million in Q1.

And then, of course, the best return is investment in our business. And that goes from strong exploration results, investment in exploration to replace our reserves or add new resources to our assets. Continued development of the Skarn obviously comes to mind, which is a gigantic, very big, very interesting nice, long-life asset for the company. Those kind of projects, of course, will provide the best return to our shareholders.

But kind of the combination is obviously what makes it so interesting, I think, to be a shareholder in Pan American where you have all of this taken care of, right? It's such a strong business and we saw in Q1, where we can not only obviously pay for our sustaining capital, but invest money in special projects, and there's a whole list in the press release that we are taking care of a lot of exploration we normally spend during the year, mostly close to site, I would call it exploration, but probably close to $100 million, which, of course, the Skarn is one result of that very, very strong result and still have sufficient funds to return it to shareholders and have quite a big cash balance, which can always come very handy when opportunities arise in the market.

Certainly. Okay. And then you mentioned the Skarn and with that, the negotiations, you're looking to maintain maximum silver. Are you happy with the level of silver in your portfolio right now relative to gold? And can you share your thoughts on the different levers that you have to increase silver, Skarn being one, Escobal, with Cosmos' question, you touched on Navidad, maybe there's potential M&A. So how do you feel about that level right now where it is?

No, look, I mean, this is -- our silver-gold -- let's call it, our silver-gold ratio within Pan American, not the gold ratio that people normally talk about on prices, varies, goes up and down depending on the constellation of our assets. I remember back maybe quite a few years, maybe 15 years, we had a very, very large zinc production when we still had Morococha in our portfolio. And zinc was a very important metal then silver became -- went back to probably around 50%, 55% of revenue.

Of course, now silver is less. And again, for several reasons. Once we purchased together with some interesting silver production, obviously, in Argentina and Chile, also some very strong gold production. And the gold price is outperforming at the moment, the silver price strongly. And that's obviously skewing the kind of the percentages of the 2 -- of all the 4 metals or 5 metals we produce on our revenue. So it's just a picture in time.

But you mentioned, look, we have the largest reserve and the largest resource of silver in the world in our portfolio. There's a large number of big projects. just as Skarn, probably an average of about 17 million ounces of silver a year.

Of course, Escobal has the potential to produce 20 million to 22 million ounces a year. As I mentioned, Navidad, the largest silver resource in the world, one of the largest and probably not right now ready, but a very interesting resource there. So there's plenty of opportunity.

And you mentioned M&A as well. So there's plenty of opportunity for us to change in the future that silver-gold ratio that we have internally. So lots of silver projects there. But at the moment, of course, very strong cash flow generation from outperforming gold.

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.

Yes. Thanks, everyone, for calling in today. Great results, great quarter, great start of the year. Really looking forward to Q2 and beyond.

Just one item I would like to mention here. At the end of this month, we will release our 2024 sustainability report. So our ESG performance is core to our business and really look forward to updating you on our progress in that area with our report that's out there annually. You can look at probably the last 12 years of report on our website and get a very good idea of what we are doing on this really important projects that we do on the ESG side.

With that, thanks, everyone, for calling in and looking forward to talk to you in August for Q2. Thank you, everyone.

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