Pan American Silver Corp.

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver third 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 Sirin Feseke, BP Investor Relations. Please go ahead.

Thank you for joining us today to discuss Pan American Silver's Q3 2022 results and our agreement with Agnico Eagle Mines Limited to acquire Humana Gold. This call includes forward-looking statements and information and makes reference to non-GAAP measures. Please see the cautionary statements in our Q3 2022 MD&A and news release. and the presentation slides for our call today, all of which are available on our website. I'll now turn the call over to Michael Steinman, Pan American's President and CEO.

Thank you, Sharon, and thank you for joining our call today. We have been looking forward to this call and being able to finally discuss our agreement with Agnico to acquire Yamana. But before we get into the discussion, let me first provide a brief recap of our Q3 results. The underlying performance of our gold segment operations was in line with our expectations, although production came in below our quarterly guidance range because of an in-heap inventory buildup of 28,900 ounces of gold, largely at Chavindo and at La Reina. At Chavindo, the buildup was partially related to lower rainfall rates, which reduced irrigation flow rates and recovered ounces during the quarter. despite stacked ounces exceeding the plan by 18%. At La Reina Gold Production, not only modestly exceeded plan in the quarter, but ounces stacked also surpassed expectations by 25%, with greater tons placed at higher grades. The above plan contained ounces placed on the heaps at Jawindo and La Reina during Q3 positions us to reaffirm our annual gold production guidance towards the lower end of 550 to 605,000 ounces. We are also reaffirming our estimates for gold segmental and sustaining costs of between $1,450 and $1,550 that we provided with our Q2 results. We are revising the estimate for full year 2022 silver production to be between 18 to 18.5 million ounces from the 19 to 20.5 million ounces we provided in our original operating outlook. The revision is largely due to lower production from lower grade ores in Phase IXb open pit at Dolores and revising our mine sequencing into lower grade silver ores at La Clarada during the second half of 2022. Re-establishing mining from the higher grade ore zones at La Cuerada has proven more challenging given our ground control systems have been compromised to a greater extent than expected from the prolonged exposure to high heat and humidity during the constrained ventilation we faced between 2017 and early 2022. During Q3, we deployed additional resources with two development contractors to accelerate ground control system upgrades necessary to access the higher-grade ores in the deeper portions of the eastern Candelaria deposit. We expect to re-establish near-reserve grade ore mine sequencing towards the end of 2022. We are pleased with the current ventilation conditions in the mine The progress on sinking the new ventilation shaft that will further secure long-term ventilation systems and the accelerated ground control system replacements and development advances to access the higher-grade ore zones. Cost inflation and supply disruptions continue to be an industry-wide issue. which has led us to expect that silver segment cash costs and all-in sustaining costs could be marginally above the high end of the range in our 2022 Original Operating Outlook, which indicated an all-in sustaining cost for silver segment of $14.50 to $16 per ounce in 2022. Our financial position remains strong with cash and short-term investment of $187.2 million and an undrawn line of credit of $500 million at close of Q3. We declared a dividend of 10 cents per share, in line with our dividend policy. In September, we updated our La Corada's corn mineral resource. We now have 95.9 million tons in the indicated category, containing 94.4 million ounces of silver, 2.7 million tons of zinc and 1.2 million tons of lead. In addition, we estimate an inferred mineral resource of 147.8 million tons containing 132.9 million ounces of silver, 3.4 million tons of zinc and 1.5 million tons of lead. This mineral resource estimate does not include trill results released on November 1, 2022, and on July 21, 2022, that indicate the high-grade silver zone of mineralization, which will be part of the next resource update. This morning, Triple Flag Metals Corp. announced the acquisition of all of the outstanding shares of Mavericks Metals for share and cash consideration. In July 2016, Mavericks acquired a portfolio of 13 royalties, precious metal streams, and payment agreements from Pan American Silver. As consideration for that portfolio, Pan American received at that time 42.85 million common shares and 20 million common share purchase warrants. Pan America's strategy for divesting this portfolio was to crystallize value for a group of assets in Pan America's mining portfolio that was largely unrecognized by the market at that time. Over the years, Maverick continued to grow the value of its portfolio through acquisitions and additional metal streams and royalties. On May 28, 2020, Pan American sold a portion of its shares for gross proceeds of $45.4 million. With the transaction announced today, Pan American will receive approximately $102 million in Triple Flag shares and cash. Using our royalty portfolio, To start Mavericks Metals in 2016 has been a very successful way to create value for our shareholders from assets largely unrecognized by the market. Let's now move on to the Pan American and Agnico arrangement agreement with Yamana. On November 4, 2022, Pan American and Agnico Eagle Limited announced that we had delivered a definitive binding offer to the Board of Directors of Yamana Gold. Under the proposal, Pan American would acquire all of the issued and outstanding common shares of Yamana, and Yamana would sell certain subsidiaries and partnerships that hold Yamana's interest in its Canadian assets to Agnico Eagle, including the Canadian Malarctic mine. On November 8, 2022, Pan American and Agnico Eagle further announced that the arrangement agreement among Pan American, Agnico Eagle, and Yamana became effective. upon determination of the agreement between Yamana and Goldfields. To summarize a few of the terms of the transaction, the total consideration was $4.8 billion or $5.02 per Yamana share as of November 4th, 2022, when we announced the binding proposal. The consideration is made up of $1 billion in cash funded by Agnico Eagle, approximately 36.1 million shares of Agnico Eagle, and approximately 153.5 million shares of Pan American Silver. Pan American will retain all Yamana's Latin American assets. The transaction requires Pan American and Yamana shareholder approval, as well as certain other regulatory approvals. It is important to note that Agnico Eagle has committed to provide market support to the purchase of up to $150 million of Pan American shares. Pan American will appoint three independent directors of Yamana to be added to the current Pan American board. And Pan American will work corporatively with Yamana to integrate Yamana management into Pan America's management team. Finally, as far as timing is concerned, we would exceed we would expect Pan American and Yamana shareholder votes to take place in late January next year, with closing sometimes in Q1 2023. The transaction would increase Pan American's portfolio to 12 operating mines and is estimated to increase our silver production by approximately 50% and coal production by approximately 100%. Pan American has over 28 years of approval and expertise and experience building and operating mines in Latin America. Yamana has built a portfolio of long life assets with extensive exploration and potential and we have been impressed by the quality of their mining and management teams during our due diligence. The combination of our two teams and assets will create the leading silver and gold producer concentrated in Latin America well suited to realize further value from the combined portfolio and producing mines and development assets. The transaction would also be expected to enhance Pan American's overall financial position and improve its ability to internally fund growth projects. It presents multiple opportunities for operational and administrative synergies particularly between Pan America's and Humana's corporate offices in Canada. The transaction is accreted per share to key financial and operating metrics and will make Pan American a lower-cost producer with anticipated annual operating cash flows of over $650 million for the first five years. It will also add significantly to our proven and proven silver and gold reserves and could increase our annual revenues to over $2.5 billion. The enlarged company will benefit from further geographical diversification and create opportunities for future portfolio optimizations. As before, Pan American will maintain a strong balance sheet. Total debt, including the two Yamana bonds and the Pan American equipment leases, will be around $850 million with a debt to EBITDA ratio of only 0.8 times. Total liquidity will be over $680 million, including our sustainability linked revolving credit facility. This is a very exciting opportunity for Pan American and Yamana shareholders to create the strong leader in precious metals concentrated in Latin America with unparalleled exposure to silver. And with that, I will be happy to take your questions.

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. We will pause for a moment as callers join the queue. The first question is from Cosmos Chu from CIBC. Please go ahead.

Thanks, Michael and team, and congratulations on the deal. Maybe my first questions are around the acquisition here. Michael, as you mentioned, with the acquisition, you will have 12 operating assets. What's your interest level in terms of running 12 assets, even though they're all in LAT-10? And in that case, maybe too early, but have you thought about core versus non-core assets? And, you know, at this point in time, anything that you can share with us?

Sure. Thank you, Cosmos, for the question. Look, I mean, it's very early still. As I said, there will be lots of opportunity to optimize that portfolio over time once we have ready to, you know, own them for a while and run them for a while. But I think, as you know, we're coming, you know, the Lotus is like in the last, what, two, two and a half years of mine production, and then we'll go into a leach cycle, probably until 2030. So that will, you know, use much less of our attention on the mining side for that. As you know, Manantiales Pejo in our portfolio is soon coming to an end with the reserves. You know, there's a lot of opportunity to optimize that portfolio and really focus later on at the larger cornerstone assets. But as I said, it's very early, too early to decide at this point.

Of course. Maybe in my next question, Michael, as you mentioned, Pan American Silver is buying, you know, essentially Yamana, the company. And I would assume that you're also taking on Yamana's cash and Yamana's debt. Could you maybe walk through, you know, there is a termination fee that's payable to gold fields. I'm sure there's transactional costs as well. Is that going to be coming out of Yamana's cash? And what, you know, what are your plans in terms of Yamana's debt?

Yes, and look, I don't have the final numbers on that. You probably saw on the press release that We funded $150 million of the break fee that went to Goldfields. Yamana funded the other $150 million. You said it, there is cash and debt. We will take on the two bonds that Yamana has currently, and we'll take on the reminder of the cash as well. So, you know, we have to advance that further now, obviously, and see I don't have final numbers yet on the exact closing cost for the transaction.

Great. And then on the bond that you're taking out for Yamana, I checked out Yamana's MD&A looks to be a fairly attractive interest rate. From that perspective, has Pan American Silver approached the ratings agencies for a credit rating impact assessment of the transaction? Given that Pan Am doesn't have any debt right now, so I don't know if you have your own sort of rating. And at the same time, I see that For example, Yamana, their rating right now is investment grade. So any potential for an upgrade in terms of that rating or risk of downgrade? Anything that you can share with us?

Yeah, thank you. I'll pass the question on to Ignacio, our CFO.

Hi, Ignacio.

Hi, Cosmos. Yeah, so...

Obviously, as you mentioned, those are very attractive coupons on the two bonds, so we will strive, of course, to keep those. So in due course, we'll be talking to the rating agencies. Both S&P and Moody's have already put out in their bulletin their expectations, and so far everything we've seen is that they're neutral. uh so so yes we'll do everything in our in our power to keep those to keep those uh two bonds valid um but yes we'll keep you informed our expectation is that that the bonds will be re-rated upon closing or the new rating will come out upon closing that's great to hear um and then maybe one last question here before i pass it on um you know commodity mix michael um with this acquisition

um silver as a percentage based on my numbers will go from high 20s to to low 20 percent um and then with the increase in gold gold uh any concern in terms of that mix you know indiana pan-american silver is a silver company um but um you know any comments on that in terms of near term and long term yeah and look that was of course one of the attractions to this portfolio that

it immediately increases our silver production by about 50%. So, as you said, there's a large part of gold coming in as well. Our silver-gold mix, depending on metal prices, if you look at revenue, will drop a few percentage points on the silver side of this, but it's still a very strong, you know, lower 20% number to start with. And then don't forget Escobar. As I said, look, we had further meetings on that process. That process of the LO169 consultation is proceeding. I don't have further timing, as I talked about it many times, but if you add in Escobar back in there, you know, it would bring us right back to probably a high 30% of silver versus gold. So very, very strong silver producer.

Great. That's great to hear. Thanks, Michael, Ignacio, Sarin, and team. And those are all the questions I have. Thank you. Thank you, Cosmos.

The next question is from Lawson Winder from Bank of America Securities. Please go ahead.

Hi, good morning. Thank you for the update, guys. I wanted to follow up on Cosmos' first question also with regard to the size of the new portfolio. So I imagine your team already accumulates a pretty shocking amount of air miles. So with that expanded portfolio, even with a few non-course sales, it would still be quite large. Do you expect any sort of expansion of the existing management team?

You know, we are actually a very decentralized company, so our head office in Vancouver is quite small. We have very strong local teams and, you know, I see very similar strategy of Yamana. So that's actually, while there's still a lot of travel, keeps that quite well under control because, you know, our assets historically and today are run by very strong local teams. So it's not that we do everything out of Canada. So adding further mines and, you know, in very close by or same jurisdiction that we already are doesn't really make, you know, changes that much. I mean, in the case of Argentina, we already have obviously offices and a team because we're running mines there for, what, a decade and a half nearly. And that will add Brazil and Chile, which are neighboring countries, to Peru and Argentina, where we already have our offices. So, as I said, look, over time, there will be optimization of that portfolio, for sure. But at the moment, with that structure that we have of strong local management teams, I really don't see a big problem. And as I said in my call, you know, we really have been very impressed with the teams that we encountered from Yamana when we did due diligence. And, you know, that makes me feel really, really good looking at the integration there. Very similar ways, a lot of focus on safety, a lot of focus on ESG, a lot of focus on high-quality production and assets. And, you know... very similar than what we are focused on. So I'm really looking forward to integrate those teams because I think it's a very, very good fit.

Thank you for that perspective. With regards to the La Colorado SCARN, will this acquisition, once it closes, in any way de-emphasize the development or perhaps extend the development timeline? Thank you.

Look, the SCARN is a long-term project. We all know it's a very high-quality discovery. We all know it will take a number of years to move that forward and develop it. I think that that discovery of that high-grade zone or, you know, in some drill holes, absolute bonanza grade that we discovered and published over the last few months You know, maybe that changes a little bit our development timeline. Maybe we'll try to go and mine that zone first. But, you know, there's still a lot of drilling and engineering to be done for that, and we have to include that zone in our resource update. But the project will be – I see La Colorado over long term as an absolute cornerstone. You saw the numbers, you know. large large resource and that's karn that's going to be multi-decade of of possible production and uh you know that's that that will go ahead i mean the the beauty here is that you know this will make a very strong financially very strong company with very strong cash flows and will actually help to develop development projects further as you work towards that uh

preliminary economic assessment on LC-SCARN. What are you kind of thinking in terms of a range of throughput sizes at this point today?

I'll pass it on to Steve. Yeah, good morning, Lawson. That's a great question, and it really depends on mining methods, as we've talked about in the past. We've been looking at some of the sublevel caving methods that may get up in the range of 20,000 tons a day. Those are kind of some of the estimates we saw. If you remember back to long-haul studies, we were down in the 10,000-ton-a-day range is what we've been discussing. And as Michael said, this high-grade zone, offers us up an opportunity perhaps to get in early with the long-haul system. I think that we haven't settled in on what the throughput rate would be, but those are the kind of numbers you're looking at depending on the mining methods we apply.

Thank you for that, Steve. I wanted to ask you about the dividend also. you announced a 10-cent dividend, so effectively paid no special dividend. But according to the formula, shouldn't you have paid a penny out in the dividend?

So our dividend policy stage is calculated for the additional dividend based on net cash on our balance sheet. So that's following that policy and resulted in the 10 cents.

Oh, okay. Oh, sorry. I thought it would have been an 11 cents based on having greater than $100 million of net cash.

Hi, this is Ignacio. So just a couple of details on that calculation. So it is net cash excluding short-term investments. So you have to remove the short-term investments from the number and then as well as net out any debt in our balance sheet, which is just limited to the leases that we have, the operating leases. So when we do all that, it is below the threshold of $100 million.

Yeah, short-term investments. I didn't realize that was netted out. Thanks, Ignacio, for clearing that up. And then just finally, if I could just get your thoughts on Argentina. So, I mean, it is a relatively challenging place to operate. Would you be inclined to continue operating in Argentina? And then just looking at the regulatory environment there, particularly from a federal level, do you see any changes developing to improve that situation? Thank you.

Look, I mean, we're working in Argentina for a long time. We know that, as I said, Manantial, the you know, come here pretty soon to the end of its reserves. But this transaction, as you said, will add another additional operation to us, which is great because, you know, we have infrastructure ready for it. As I said, we have Yamana as a strong team there and has been very successful operating Cerro Morona for a number of years and replacing reserves. I don't want to speculate how Argentina is going to change in the future. Like everywhere we work, there are political changes that go on with elections, and changes come and go. I mean, our assets stay there, and we are active there. We are happy in the country and happy to take on, as I said, that Cerro Moro has a really high-grade, very high-grade asset into our portfolio.

Okay, thank you all very much. Thank you, Lawson.

Once again, if you have a question, please press star, then one. The next question is from Craig Hutchison from TD Securities. Please go ahead.

Hi, good morning, guys. Hi, Craig. Hey, Michael. With respect to the presentation here today, there's a mention of the pro forma operating cash flow of $650 million a year for the next five years, excluding Eskimo. Can you give us the metal prices for those assumptions? And then maybe just a follow-up question. Any sense on free cash flow? Are there any major capital spends required for either yourselves or the assets being acquired for your man over that five-year period? Excluding obviously the scorn.

Yeah, look, we can send you the metal prices. I'm sure it's probably an analyst consensus stack that has been used, so we can pass it on to you, but I'm sure you have it as well that we used for that calculation. Capital, you mean capital like project capital in addition to sustaining capital? Is that your question?

Yes.

Yeah. Look, I mean, Yamana has, like us... some high-quality development assets, and they would need some capital to move them forward. I think, in my view, one of the biggest ones is obviously in Canada, which is not going to be in our portfolio anymore. uh the main producing assets i you know there's i think some projects that that yamana has to you know in some cases to expand production in some cases to you know improve or expand tailings facilities etc but you know nothing like out of the extraordinary that i can see okay and then just to show window you mentioned that the

I guess there was a bill of inventory related to lower rainfall rates, which impacted irrigation. Is that something you guys can mitigate through either wells or something so that doesn't happen in the future, or is it really going to be kind of rain-dependent?

Yeah, Craig, this is Steve. We are looking at expanding on some of the wells that we have access to. And this period that we saw during Q3 was really an extension of the dry season. It lasted longer than it typically does and a little bit drier than it typically is. As the leach pad grows, as the heap grows, we actually... are able to retain more and more precipitation as the wet season comes through. So we actually anticipate not only reducing our reliance on wells as the heap grows, but also we'll be looking the other direction as to trying to divert some of the runoff water around the facility. So it's kind of an interesting dynamic situation. Again, as it grows, we actually get access to more precipitation and water for our inventories on the heaps. So in the future, we think it'll be less of a problem.

Okay. And then one last question from you guys, just on Lack of Colorado. I just I think in your remarks you said you think you can get back into the high-grade zones by end of this year. Is that correct? Should these issues really be behind you going into 2023?

Yes, that's correct. We've got a very good assessment now on the ground control systems that had been compromised from the time periods of the ventilation constraints. We hadn't realized they were quite as severe in terms of corrosion and erosion of our ground support system, the rock bolts, the meshes, things of that nature. We've launched a very extensive program with support from outside contractors to accelerate that reduction. redoing, reestablishing of that ground control that we need to get back into those high-grade zones. So we're quite comfortable where we're at today. It'll take us through the rest of Q4 to get through that, and we feel we'll be back in where we should be mining at the reserve grades of Loft, Colorado. Okay. Thanks for your responses.

This concludes the question-and-answer session. I'd like to turn the conference back over to Michael Steinman for any closing remarks.

Thank you, operator, and thank you, everyone, for calling in. It was a great pleasure to update you on this transaction and on the quarter. I'm looking forward to giving an update on the year end and obviously how this transaction progresses in January. So we'll talk about the end of the year, I guess, at the end of later in February. Until then, stay safe and have a good end of the year. Thank you.

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