Pan American Silver Corp.

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver second quarter 2022 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 and zero. I would now like to turn the conference over to Sarin Feseke, VP, Investor Relations. Please go ahead.

Thank you for joining us today for Pan American Silver's Q2 2022 conference call. 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 Q2 2022 unaudited results, all of which are available on our website. I'll now turn the call over to Michael Starman, Pan American's President and CEO.

Thank you, Sharon, and welcome everyone to our Q2 call. In Q2, we produced 4.5 million ounces of silver, led by strong performance at La Colorado. Production at La Corada was up more than 50% from Q2 last year to approximately 1.7 million ounces, reflecting the improved ventilation conditions in the mine. In July, the new refrigeration plant began operating, which we expect will further improve working conditions in the mine. Coal production was 128,300 ounces in Q2. Despite lower than expected production at Dolores from Phase 9b, which also reduced consolidated silver production, Q2 gold production was within our expected range for the quarter. Dolores had a marked impact on our Q2 results. This stems from the shortfall in grades from Phase 9b and the resulting production year-to-date being less than expected, which triggered an analysis for impairment. We did that impairment analysis at a time of industry-wide cost inflation. Incorporating higher cost assumptions especially affects the value of the shorter-lived assets such as Dolores. It was a factor in our decision to suspend the underground mining Q2 and the subsequent reclassification of underground reserves to resources, and it resulted in shortening the estimated duration of economic residual leaching to the year 2030. Of course, this is highly dependent on metal prices and costs over the coming years and will be adjusted accordingly. The exploration drilling originally conducted for Phase 9b of the open pit at Dolores had some high-grade intercepts in the area that we expected to mine during the first half of 2022. However, these high grades were not fully realized and we now believe the high-grade intercepts contributed to a localized overestimation of the contained ounces within Phase 9b. Our updated winter resource and production plan for the life of mine adjusts for this overestimation. We recorded a $99.1 million impairment charge for the lorries in Q2, And together with a $62.8 million net realizable value inventory adjustments, primarily at Dolores, drove the net loss of $173.6 million, or 83 cent loss per share, for Q2. Adjusting for these items, among other adjustments, results in an adjusted loss of $6.5 million, or 3 cent loss per share. Cash flow from operations totaled $20.8 million, which includes $42.4 million in cash taxes and a $19.5 million buildup in working capital. Moving on to our guidance for 2022, we are maintaining our production guidance for both silver and gold, but expect to be at the low end of the ranges. The slides on our website that accompany this conference call include a quarterly breakdown of production in 2022, which better clarifies our expectations for the year, which we have always been weighted to the back half of 2022. Cash costs for the silver segment were $12.10 per ounce and $1,132 per ounce for the gold segment in Q2. All operations were negatively impacted by inflationary pressures, particularly from increased diesel prices and certain consumables, including cyanide, explosives, and steel products, such as grinding media, as well as supply chain shortages. Further, we are experiencing cost increases in services and other supplies indirectly due to the inflationary impact of consumables on their input costs, particularly diesel fuel. In addition to these global inflationary pressures, gold segment cash costs were impacted by the lower grades of Dolores and Chavindo and Lorena from mine sequencing. We expect gold segment cash costs to be at the high end of our original guidance range for 2022. Silver segment all-in-sustaining costs were $17.30 per ounce, excluding not-realizable value NRE adjustments Silver segment all-in sustaining costs were $15.90 per ounce. We are maintaining our guidance for 2022 silver segment cash costs and all-in sustaining costs. Gold segment all-in sustaining costs were $2,051 per ounce and $1,540 per ounce, excluding NRV adjustments. We are increasing our guidance for gold segment all-in sustaining costs to between $1,400 and $1,550 per ounce, excluding of un-RV inventory adjustments as a result of increased capital spending and the great shortfall at the lowest. We have increased our estimates for sustaining capital to between $240 million and $250 million due to a change in the financing strategy for certain plants sustaining capital investments at the open pit mines in Peru. Rather than funding these projects through construction loans, as we had originally intended, we will fund them directly through cash flow, which will be offset by a decrease in future expected cash flows and loan obligations. We have decreased our estimates for project capital to between $55 to $60 million, based on expected delays in spending at both at the La Colorado SCAN and Timmins projects. Total capital spending is now expected to be between $295 to $310 million in 2022, up slightly from our original guidance of $280 to $305 million. The decrease in capital for the La Corada SCARM project is due to delaying the design and initiation of the access ramp developments to optimize alignments with the highly efficient bulk mining method designs now being considered. The current major projects at La Clarada are progressing well. In addition to completion of the refrigeration plant, we have set the Galloway structure during the quarter and now installing the hatch frame and hoist for the concrete line ventilation shaft. We will start sinking the shaft before year-end and aim to advance to the 600-meter depth by this time next year. Yesterday, we provided an update for our consolidated reserves and resources as of June 30th, 2022, which demonstrated reserve replacement at our most significant mines. We replaced 108% of the annual silver production at La Clarada and added another 42.8 million ounces to the inferred mineral resources in the veins above this corn. At Guarón, we replaced 165% of the silver mined last year. 81% of gold production was replaced at Chavindo and 46% at La Reina. Timmins replaced 26% of the gold mined and added a further 53,000 ounces to inferred resources at Timmins West. Gold and silver mineral reserves were impacted by the reclassification of reserves to resources at the Dolores Underground mine. We're looking forward to updating the resource estimates for the La Clarada Skan later this quarter. On July 21st, we announced the most recent drill results for the La Clarada Skan, which included the highest grade intercepts to date of 97 meters at 654 grams per ton of silver, 15.35% lead, and 11.38% zinc. These most recent drill results will not be included because they were drilled after the timing cutoff for the new resource estimate. At Escobar, the ILO 169 consultation has now progressed to the consultation phase from pre-consultation, with the next meeting scheduled for August 21st. We look forward to participating in the next phase of the consultation process and to listening to the Xinka people regarding their perceptions about Escobar in an open, inclusive, and respectful process. We are on track to achieve most of the ESG goals we set for 2022. We are hosting our third annual ESG call on September 22nd. when we will provide more information on our progress and areas for improvement. In closing, we remain in a solid financial position with cash and short-term investment of $241.3 million and an undrawn line of credit of $500 million. We declared a dividend of 11 cents per share in line with our dividend policy. And now I would be happy to take your questions.