VANCOUVER, BRITISH COLUMBIA, Nov 08, 2011 (MARKETWIRE via COMTEX) — (All amounts in US dollars unless otherwise stated and all production figures are approximate) –
Pan American Silver Corp. (“Pan American” or the “Company”) today reported unaudited financial and operating results for the quarter ended September 30, 2011. The Company also provided an update on its operations and development projects.
Starting January 1, 2011, the Company is required to report its financial results in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Consequently, beginning January 1, 2011 Pan American is reporting under IFRS for interim and annual periods, with comparative information for 2010 restated under IFRS. A detailed description of the changes is included in Note 2 of the condensed consolidated financial statements for the nine months ended September 30, 2011, available on SEDAR ( www.sedar.com ).
This earnings release should be read in conjunction with the Company’s MD&A, Financial Statements and Notes to Financial Statements for the corresponding period, which have been posted on SEDAR at www.sedar.com and are also available on the Company’s website at www.panamericansilver.com .
Third Quarter 2011 Highlights (unaudited)(1)
— Consolidated silver production of 5.6 million ounces
— Consolidated gold production of 20,647 ounces
— Consolidated cash costs(2) of $9.58 per ounce of payable silver, net of
by-product credits
— Revenue increased 34% to $220.6 million
— Mine operating earnings(3) increased 73% to $106.2 million
— Net earnings attributable to common shareholders of $52.4 million, or
$0.49 per share
— Adjusted net earnings attributable to common shareholders(4) increased
to $45.6 million, or $0.42 per share as compared to $27.4 million or
$0.26 per share for the corresponding period in 2010
— Operating cash flows, before changes in working capital(5), rose to
$99.9 million, or $0.93 per share
— Cash and short term investments at September 30, 2011 climbed to $485.1
million
— Working capital rose to $625.7 million
— The Company commenced a normal course issuer bid and to date has
repurchased approximately 2.2 million shares of its common stock at an
average price of $27.43 per share for total consideration of $61.2
million
(1) Financial information based on IFRS; percentages compare Q3 2011 with
Q3 2010.
(2) Cash costs per payable ounce of silver is a non-GAAP measure. The
Company believes that, in addition to cost of sales, cash cost per
ounce is a useful and complementary benchmark that investors use to
evaluate the Company’s performance and ability to generate cash flow
and is well understood and widely reported in the silver mining
industry. However, cash costs per ounce does not have a standardized
meaning prescribed by IFRS GAAP as an indicator of performance. A
reconciliation is included in the Company’s MD&A on page 15.
(3) Mine operating earnings is a non-GAAP measure used by the Company to
assess the performance of its silver mining operations. Mine operating
earnings are equal to sales less cost of sales and depreciation and
amortization and is considered to be substantially the same as gross
margin.
(4) Adjusted earnings attributable to common shareholders (a non-GAAP
performance measure), are net earnings attributable to common
shareholders less the mark-to-market impact of the Company’s
outstanding warrants.
(5) Operating cash flows before changes in working capital is a non-GAAP
measure used by the Company to manage and evaluate operating
performance. The Company considers this measure to better reflect
normalized cash flow generated by operations. Cash flow per share is a
non-GAAP measure used as a measure of return on capital and is
calculated using cash flow from operations, before changes in non-cash
working capital, divided by basic weighted average shares outstanding.
Investors are cautioned that this measure is not defined in current
GAAP and there is no comparable measure defined in GAAP.
Commenting on Pan American’s third quarter results, Geoff Burns, President & CEO, said, “As a consequence of the volatile commodities and currency markets during the third quarter, we took a $12.5 million foreign exchange loss on our Canadian dollar cash balances and a $5.1 million negative adjustment on previously recognized concentrate sales. Even with these negative impacts, we still had a very respectable production quarter and once again generated strong earnings and cash flows.” Burns added, “It is nice to see that in the face of this volatility the silver price has demonstrated significant resilience, having again rebounded to $34 per ounce; a price that certainly allows us to continue to generate healthy financial returns and build our cash balances in anticipation of the development of the world class Navidad silver project.”
Financial Results
During the third quarter of 2011, Pan American generated revenues of $220.6 million, 34% more than a year ago. Significantly higher realized prices for all metals sold by the Company were partially offset by lower quantities of silver, zinc, lead and copper sold during the quarter.
Net earnings attributable to common shareholders generated during the quarter ended September 30, 2011 were $52.4 million, compared to $0.02 million during the same period of 2010. Net earnings attributable to common shareholders per share increased to $0.49 per share from nil a year earlier. Adjusted net earnings attributable to common shareholders were $45.6 million or $0.42 per share, and included a negative provisional concentrate sales adjustment of $5.1 million on the decline in metal prices at September 30, 2011 and a foreign exchange loss of $12.5 million from the mark to market valuation of the Company’s short term investments held in Canadian dollars.
In addition, at the end of the third quarter of 2011, the Company’s inventory of silver contained in dore and concentrates increased by approximately 500,000 ounces from the end of the previous quarter, to 2.7 million ounces. If sold at $32 per ounce, the increase in silver inventories built up during the third quarter of this year would represent additional after tax earnings of $6.1 million, or $0.06 per share. Pan American fully expects to realize this benefit over the remainder of 2011.
Mine operating earnings for the three months ended September 30, 2011 rose to $106.2 million, which represents an increase of 73% from the same period of 2010. The positive difference resulted from higher sales, partially offset by higher cost of sales and the negative impact of the theft of dore bars at one of our operations for a value of $5.4 million. The Company has recuperated the margin on the stolen metal through an insurance policy and the Company has stepped up security at its operations.
Operating cash flows, before changes in working capital, generated during the third quarter of 2011 were $99.9 million or $0.93 per share, an increase of 73% from the $57.6 million generated in the same period of 2010. The increase in operating cash flows resulted mainly from increased operating margins.
During the third quarter of 2011, Pan American added $24.1 million to its cash and short term investments position to end the quarter with $485.1 million. The increase resulted primarily from cash flow from operations of $90.8 million generated during the quarter, partially offset by capital expenditures of $32 million and $27.9 million invested in the share repurchase program announced on August 26, 2011. To date, the Company has purchased approximately 2.2 million shares and invested a total of $61.2 million in the program.
At September 30, 2011, the Company had working capital of $625.7 million and with the exception of capital leases Pan American remains debt-free and has an undrawn $150 million credit facility.
Production and Mining Operations
Pan American produced 5.6 million ounces of silver during the quarter ended September 30, 2011, or 10% less than during the same period of 2010. The year-on-year decline was caused by less silver ounces produced at the Alamo Dorado, Huaron, Morococha and Quiruvilca mines, which produced 1.4 million ounces, 0.7 million ounces, 0.4 million ounces and 0.2 million ounces, respectively, due to lower silver grades and recoveries. The Huaron and Morococha mines experienced decreases in throughput during the quarter following a decision to demobilize approximately 25% of the contract miners working there (approximately 500 miners) in favor of hiring and training direct mine employees in order to enhance safety and mine efficiencies. The Company expects the hiring and training efforts will continue into early 2012, after which time productivity should be improved.
The La Colorada, San Vicente and Manantial Espejo mines achieved significant silver production gains relative to the third quarter of last year. La Colorada and Manantial Espejo produced 1.1 million ounces each, or 18% and 11% more than a year ago, respectively. San Vicente also gained 11% year-on-year and produced 0.8 million ounces of silver. While higher than a year ago, the production increase at Manantial Espejo was less than anticipated due to delays in commissioning the additional mining fleet that was purchased to accelerate open pit production. The delays were caused by new Argentine importation restrictions, which have hindered our ability to purchase the necessary spare parts in-country to keep all of our open pit mining equipment in continuous operation.
During the third quarter of 2011, consolidated production of all by-product base metals was down year-on-year, while consolidated gold production declined a modest 3%, to 20,647 ounces. Copper production at San Vicente and zinc production at La Colorada were both up; however, these gains were outweighed by the effect of lower throughput rates and grades at our Peruvian operations, which resulted in consolidated zinc, lead and copper production of 9,077 tonnes, 2,920 tonnes and 1,072 tonnes, respectively, or 16%, 23% and 13% less than a year ago, respectively.
Consolidated cash costs for the quarter ended September 30, 2011 were $9.58 per ounce of silver, net of by-product credits, or 58% higher than during the third quarter of 2010. The cash cost increase reflected higher direct operating costs from higher-than-anticipated labour and development costs at the Company’s Peruvian operations, costs to demobilize contractors at Morococha, the additional costs at Manantial Espejo to rent open pit mining equipment due to the import restrictions in Argentina, higher royalties paid in Peru and Argentina as a consequence of higher metal prices, and higher treatment and refining costs for the Company’s complex copper concentrates, particularly those being produced at the San Vicente mine in Bolivia.
Project Development
At the Navidad project in Chubut, Argentina, work towards the completion of a feasibility report by year-end continued. During the third quarter of 2011, the Company received a draft of the feasibility-level design for the tailings dam and the schedules for the mine development and concentrator construction, all of which are being reviewed. The exploration and infill diamond drilling campaign for the current year was completed, with some exceptional results, and the Company is updating the environmental impact assessment (EIA), which is also scheduled for completion by year-end.
Investments at Navidad during the third quarter of 2011 totaled $10.6 million and included contributions to local communities in the areas of education, communications infrastructure and environmental clean-up to help mitigate the ash fall effects of the recent volcanic eruptions in Chile. Management continues to hold an open dialogue with the local communities and the provincial and federal authorities to inform them about our activities and the project’s progress. Local community support remains high and there is a positive outlook for a legislative change in the near term, which would enable the responsible development of the Navidad project.
On August 11, 2011, Pan American released the results of a Preliminary Economic Assessment (“PEA”) for the La Preciosa joint venture project in Durango, Mexico. The PEA was filed with applicable regulatory authorities on September 22. The PEA outlined a combination open pit/underground operation, which would exploit 18 different vein systems and process 5,000 tonnes-per-day of ore via conventional milling and cyanide leaching methods. On a 100% basis, La Preciosa is expected to produce 6.8 million ounces of silver and 11,800 ounces of gold annually, over a 12-year mine life. Total capital and pre-production costs to construct and commission a mine at La Preciosa have been estimated in the PEA at $270 million and sustaining capital over the life of the mine is projected at approximately $115.7 million.
During the third quarter of 2011, Pan American invested $1.0 million at La Preciosa on activities geared towards the completion of the PEA. In addition, the Company commenced preparations for a geotechnical study on the site and a satellite topographical survey, as well as other technical work necessary to complete a feasibility study during the first half of 2012.
Recent Developments
In late September, the Peruvian Parliament approved a new law to amend the scheme for royalty payments and to introduce two new mining taxes, effective October 1, 2011. The current law introduced a scheme where royalties are based on operating profits and rates vary depending on operating margins – under the previous tax scheme, royalties were based on net sales. Additionally, two new taxes have been introduced; a special mining tax based on operating profits and a tax based on operating margins. Our analysis suggests that the change in the royalty structure and the new taxes will not have a material impact on the results of the Company’s Peruvian operations.
On October 23, 2011, Argentina held a federal election in which incumbent president Cristina Fernandez de Kirchner secured a second term in office with a landslide victory. On October 26, the federal government promulgated an “economic emergency” decree requiring all oil, gas and mining exporters to repatriate 100% of their sales receipts. Pan American is currently assessing the implications the new regulations will have on its Manantial Espejo mine and its development projects in Chubut and Rio Negro. As there were no new restrictions placed on the repatriation of profits out of Argentina, we currently believe that the likely impact would come in the form of additional transaction fees associated with the conversion of sales receipts to Argentine pesos and then back to US dollars prior to the repatriation of profits.
Outlook
Given the decision to demobilize a significant number of contract miners at Morococha and the delay in increasing the open pit mine production at Manantial Espejo, the Company is reducing its full year consolidated silver production forecast to 22.5 million ounces (down from 23 to 24 million ounces previously guided) and is reducing its consolidated base metal guidance for zinc, lead and copper to 35,000, 12,000 and 4,500 tonnes, respectively. The Company is maintaining its previous full year consolidated gold production forecast of 80,000 to 85,000 ounces and expects to be at the higher end of the previously-released cash cost guidance of $8.25 to $8.75 per ounce of silver, net of by-product credits, for the full year 2011.
About Pan American
Pan American Silver’s mission is to be the world’s largest low-cost primary silver mining company by increasing its low-cost silver production and silver reserves. The Company has seven operating mines in Mexico, Peru, Argentina, and Bolivia. Pan American also owns the Navidad project in Chubut, Argentina and is the operator of the La Preciosa project in Durango, Mexico.
Technical information contained in this news release has been reviewed by Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration, and Martin Wafforn, P.Eng., Vice President Technical Services, who are the Company’s Qualified Persons for the purposes of NI 43-101.
Pan American will host a conference call to discuss its 2011 unaudited third quarter financial and operating results on Wednesday, November 9, 2011 at 08:00 am Pacific Time (11:00 am Eastern Time). Participants can access the conference by dialing toll free 1-800-319-4610 (Canada & USA) or by dialing 1-604-638-5340 from outside North America. The call can also be accessed via live audio webcast at https://services.choruscall.com/links/pan111109.html or at www.panamericansilver.com .
The call will be available for replay for one week after the conference by dialing 1-604-638-9010 and entering code 6218 followed by the # sign.
