Pan American Silver Corp.

Good morning, ladies and gentlemen, and welcome to the Pan American Silver Third Quarter 2023 and Audited Results Conference Call and Webcast. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, November 8, 2023. I would now like to turn the conference over to Siren Feseke. Vice President of Investor Relations, please go ahead.

Thank you for joining us today for Pan American Silver's Q3 2023 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 Q3 2023 unaudited results, all of which are available on our website. I'll now turn the call over to Michael Steinman, Pan American's President and CEO.

Thanks, Hiran, and thank you everyone for joining our call today. Let me begin with an update on our progress integrating the assets we acquired through the Amana transaction that closed on March 31st. I'm happy to report that we have integrated the four new operations into Pan American's organization and advanced on streamlining the new company with the sale of non-core assets. We have also reorganized the Yamana Latin American regional offices in line with focusing support to the mine operations and continuing to enhance corporate oversight, leadership, systems, policies, and procedures by taking advantage of substantial synergies and business improvement opportunities. Working with the new teams, we are evaluating many optimizations and mine life extension opportunities. We look forward to sharing more with you on that in the coming quarters as we advance detailed studies and near mine exploration programs and update the life of mine plants. We committed to rationalizing our portfolio following this transformative transaction, and we have made significant progress on that objective. earlier than I think most would have expected, and with additional opportunities yet to come. In Q3, we completed the sale of our interest in the MARA project in Argentina and the Morococha mine in Peru. And on Monday, we completed the sale of our interest in the Agua de la Falda project in Chile. In Q2, we divested certain non-controlling equity investments, which are largely inherited from Yamaha. We increased our equity interest in New Pacific in Q3 to 11.6% of New Pacific's outstanding common shares, helping to further advance interesting Bolivian silver projects by leveraging our long-standing operating success we have enjoyed at San Vicente over the past 24 years. We also committed to paying down certain higher interest that incurred for the Yamana transaction. We repaid the amounts drawn on the sustainability linked credit facility. And as of September 30th, have the full $750 million available on our credit facility. In addition to working capital of $832 million, which includes cash and short term investments of $386 million. Total debt of 809 million is largely related to two senior Pan American assumed to the amount of transaction as well as lease and construction loans. These notes have attractive terms. $500 million with a coupon of 2.63% maturing in 2031 and $283 million with a coupon of 4.625% maturing in 2027. Pan American has an annual strong balance sheet which gives us the flexibility to manage business cycles and capitalize on growth opportunities. The steps we have taken to diverse non-core assets and repay debt will also significantly reduce costs going forward. We expect to save approximately $90 million in cash annually, primarily from the elimination of care, maintenance, project development, and reclamation costs associated with MARA and Morococha. in addition to interest expenses from having repaid the $280 million that was drawn on the credit facility at the end of June 30, 2023. We expect further savings from the amount acquisition in the form of synergies, which we continue to estimate will be about $40 to $60 million annually. Finally, it is important to remember that we retain future upside on both the MARA and the Agua de la Falda projects through the precious and base metal royalties we retained with the strong counterparties in those projects. With that, let's move on to our results for the third quarter. Acquisition of the four Yamano operating mines has provided a significant increase in production with reduced unit operating costs and enhanced diversification. We produced 5.7 million ounces of silver and 244,200 ounces of gold in Q3, all in sustaining costs for the silver segment were $18.19 per ounce and $1,451 per ounce for the gold segment. While operating performance at most of our mines was in line with expectations, two operations faced unique challenges which weighted on Q3 results. In the silver segment, La Colorada continued to be impacted by ventilation constraints. These constraints resulted in reduced throughput, limited access to higher grade zones of the mine, and required intensive ground support renovations in areas where high heat and humidity have rendered older ground support methods ineffective. We do not expect an improvement in La Querada's performance until the new ventilation infrastructure is completed around mid-2024, and we are able to increase development and mining rates in the deep east part of the mine thereafter. We are making good progress on that work. The excavation of the concrete-lined shaft reached a depth of 522 meters by the end of Q3 2023 and is expected to be fully excavated to a depth of 593 meters by year-end. The expected installation of two large exhaust fans on the surface of the shaft will be completed by mid-2024. Commissioning of this large primary ventilation system will deliver the refrigerated fresh air we currently produce directly to the heat source in the deep eastern area workfaces and immediately exhaust vertically to the fully concrete line shaft. This will avoid sending hot air back through the mine where it is damaging our ground support systems. In the gold segment, mine gold grates were lower than we were expecting at El Peñon. Based on recent reconciliation data, we have initiated a review of our mining sequence in certain sections of the mine to achieve a more stable gold production. Over the next several months, we will be adapting to the mine development scatter for El Peñon that should provide more flexibility when encountering unexpected great shortfalls in this highly variable deposit. The delineation drilling strategy has been reviewed to reduce the grade variation risk we are currently encountering. El Peñon remains one of our core assets with excellent exploration potential and excess milk capacity, supporting that mine as being an important contributor to the company's future cash flow. Given year-to-date production and our outlook for the next two months, We are reaffirming our annual 2023 guidance ranges for silver and gold production, with the expectation that production for both will come in at the low end of the ranges. We expect the gold segment cash costs and oil and sustaining costs to be within our guidance ranges from 2023. We expect silver segment cash costs and oil and sustaining costs to be marginally above our guidance range, largely due to ventilation constraints at La Colorado I mentioned earlier. And the two weeks expansion of operations at that mine in early October to address security concerns as previously disclosed. We are maintaining our 2023 guidance for base metal production and sustaining and project capital expenditures as well. We reported a net loss of $22.7 million in Q3 or a basic loss per share of $0.06. Adjusted earnings were $3.1 million or one cent per share. Operating cash flow was $114.6 million, net of $35.8 million taxes paid. Including the cash dividend of 10 cents per common share we declared yesterday, we will have paid $130.5 million in total dividends this year. Turning to the LaGuardia SCARM project, we are on track to release the preliminary economic study by year-end. The study will be based on using a sub-level caving mining method, which we believe offers superior economic benefits given the size and geometry of the large silver-bearing polymetallic deposit. We will carefully consider potential alternatives for the optimum funding structure for this current project once the preliminary economic study is released and all of the development details, risks, and opportunities can be thoroughly discussed and debated. The ILO 169 consultation process for the Escobar Mining Guatemala continued to progress in Q3. Pan American has now hosted three visits to the mine for Xink indigenous representatives and their advisors, and several other meetings have been held. This included working meetings with SINCA representatives and Guatemala's Ministry of Energy and Mines, or MEM for short. I know many of you check MEM's website for the Escobar consultation, which does provide very transparent reporting on the process. I noted that the MEM had intended to complete the consultation by the end of October. Although the schedule was not met, all the participants continued to engage in a peaceful, comprehensive, transparent, and good faith consultation process. The next consultation meeting is scheduled for November 10th, and as usual, we are not providing a timeframe for completion of the consultation or potential restart of the mine. While the consultation process moves ahead, we are also continuing with our care and maintenance activities for Escobar. I would like to congratulate the Pan American team in Guatemala for receiving first place in the environment category from Guatemala's Chamber of Industry for their work on reforestation and conservation projects. The project involves an innovative approach to reproduction of oak trees within the Escobar mine area with the primary objective of revitalizing forest regions the mine property and transforming them into protected valuable evidence for floor and farm. If you'd like to learn more about this, we have a video posted on Pan American's LinkedIn page where we regularly post updates on some of our company's initiatives and developments. In closing, we are pleased with our progress on the integration of the amount of assets which is delivering Pan American with significant production growth and reduced unit costs. We are currently preparing our plans for 2024, focusing on safe, reliable, cost-efficient operations and the development of additional value-enhancing future growth opportunities. We will continue to evaluate ways to streamline our overall portfolio with the aim of remaining the world's premier silver mining company. Together with the other members of our management team, we would now be happy to take your questions.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star, followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you would like to cancel your request, please press star two. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Your first question comes from the line of Cosmos 2. Your line is now open.

Thanks, Michael and team. Hey, good morning. Hey, good morning. Maybe if I can start off with El Pinyon first, and I guess you know what I'm going to ask in terms of the shortfall in grade. Am I reading it correctly? I guess, you know, in Q3, your head grade was 98 gram per ton and 2.7 gram per ton for gold. If I look at the proven and probable, it's closer to 213 gram per ton or probable is 148 gram per ton. So the grade in the quarter was about half for gold and silver compared to your reserve grade. Is that correct? And maybe if we can elaborate on kind of what happened.

Yeah, Cosmo Steve here. Hi Steve, how's it going? Yeah, basically if I can talk first about in Q3 we had anticipated mining and we've been developing for most of the year according to a mine plan that was developed previously in 2022 and we were planning to develop into these high grade structures that would be mined in the second half of this year. Three of those structures, and keep in mind El Pinyon is spatially quite vast. We're mining several faces across vast areas, about 12 kilometers by 5 kilometers, so it's spread out quite a bit. So there's a lot of development that goes into these areas all over the different mine. And there were three of these areas that were particularly high grade gold, not so much silver that we go into. So when you look at the reserves, that average is correct, but the distribution depends, the sequencing can affect that grade quite a bit. Now, when we mined into these areas, what we discovered is that looking back now and evaluating what happened there, three of those areas that were particularly high grade had very limited drilling information on it. It was spatially drilled quite a bit wider than the normal reserves that we would like to see. So we're reconfiguring our drill programs to target these higher grade areas in the future. If it was really a Q3 impact, it's going to carry us over into Q4 because they were scheduled to be mined this quarter. So we're going to be looking at those areas drilling more and kind of increase in the density of drilling, if you will, particularly in the higher grade zones of the reserves. We're just finding it's not. It's not to the level that that gives us the risk tolerance that we want to see, so that's going to work into our plans for next year. And depending on how that increased drilling goes, that'll kind of adjust those higher grade zones that we're seeing. I think we're going to see positive and negative surprises as we do that. Just the variability or deposit. But according to your question on was the silver grade really half of that, the answer is yes, and that's sequencing. We do have higher-grade silver zones, but the average grade is about 158 grams silver on the reserves when you put the P&P together. So, you know, we were 98. That's just sequencing, yes.

Just to add, Cosmos, uh as steve explained uh you know with an undercapitalized exploration project here that yamana was running uh with with you know not enough drill density as we would do it and in order to fix that we increase now drilling uh on site to about 10 000 meters a month uh we actually will spend uh quite a bit more i mean i was like pairing back you know green greenfield drilling like far far away and focusing really on further drilling on site so we'll further increase that drilling to kind of catch up with what should have been done in the past and then how they're Very confident here that, I mean, I was just at the mine a couple weeks ago, and, you know, I've seen some really interesting intercepts there. So that drilling, as I said, back now at 10 or more thousand meters a month and will increase further here in the coming month.

And, Cosmo, if I can kind of add a little bit more detail, too, as we mined into those high-grade zones and we didn't see the ores that we expected, At El Pinon, there's quite a bit of feed that goes to the plant that's low-grade, so when we're not producing off the mine, we supplement rather from the low-grade stockpiles, which are quite a bit lower silver grade, and that's what drives that.

For sure. And if I can follow up on that question, in terms of Q4, I don't know how much you can share with us, but, you know, you've maintained your guidance for the year, but how much of these high-grade stoats have you factored into your Q4 number and how much of hitting those Q4 numbers is dependent on getting some of these higher grades up. I'm just trying to figure out how much conservatism you've factored in in light of the great shortfall that you realized in Q4.

yeah so we're moving into q4 cosmo anticipating we're not going to see that high grade that we had anticipated in the original mine plant so where we say we're going to still make the gold guidance on the low end it's really looking at our other operations to kind of make up some of that difference of course okay great um maybe if i can switch gears a little bit um you know going to escobar and guatemala um thanks michael for the update uh

You know, on top of the conversation, I think we're all aware that there was a presidential election earlier on this year. There could be a there will be a presidential transition early next year. However, there seems to be a bit of noise in terms of the Supreme Court and validity of the of the runoff in terms of election. How much should we should we monitor that situation? How much of that situation could potentially impact the timing? Of of basketball.

Yeah, cause I hand you over to Sean McAleer is here who is running Guatemala for us in country. So please Sean.

Yeah, I think.

Yeah, good morning. It's hard to speculate, you know, what the outcome will be with some of that noise that you mentioned. The president of Guatemala has publicly stated his commitment to smooth transition. At the Ministry of Energy and Mines, the transition team from the newly elected party has met on several occasions with the MEM. And so they are moving forward to have a smooth transition in January to As well, we've met with members of the incoming team a few times. And, you know, it's hard to say what's going to be the timing and if there's going to be any delays. Certainly if there's a transition and the process isn't completed by the end of the year, we don't even expect that it would take some time to continue that on. But they're committed as well to the ILO 169 consultation process. And so we're looking forward to a government transition in January, and we'll continue working with the government as needed.

Great. Thanks, Michael, Sean, and Steve, and Sarid. Those are all the questions I have. Thanks again.

Thanks, Cosmos.

Your next question comes from the line of Obaiz Habib. Your line is now open.

Hi, Michael and Pan American team. Hi. Some of my questions have already been answered, and thanks for the color on opinion. But I did have two more questions. Just number one, post Yamana transactions, obviously one of the priorities was to sell non-core assets. It was really great to see the sale of Mara as well. Are you expecting to continue to monetize non-core assets, and are we expecting any sort of release or any sort of update on asset sales by the end of this year?

As you know, this is, you know, selling assets is a very dynamic process and doing deals, so I can't give you exact timing, but we're definitely working, as I mentioned in the preamble to this call that we are working on further optimization of our portfolio. So that's continuing. There is, you know, quite a few more assets that we have in our portfolio that you know don't really impact our operations or our production profile right now and we got some inbounds and interest so we definitely will continue that process you know i'm really really pleased what what the team has been able to achieve and really short like you know i think we announced in summer after only three months uh if you look at the at the big numbers uh that really allowed us to repay for the full year or for the last what is it now 10 months uh just about below just quickly about 398 million dollars in debt uh we also for the full year paid about 130.5 million dollars in dividend including the dividend payment that just has been announced yesterday so a huge change obviously to our already strong balance sheet before which uh you know was really supported by this asset sales and just let me mention again that I put it there in the press release we're looking at about the 90 million dollar annual saving in care maintenance cost project development costs from Mara and Morokocha and then plus as you saw we repaid have a line of credit fully. So there is savings, substantial savings on interest payment there as well. So these three things together amount to about $90 million. Now, you have to add on top of this synergies. You know, we talked in the past. We always guided somewhere around $40 million to $60 million synergies. I think we are pretty confident here that we're going to be at the upper end of that range on the synergy side. I think there's still a bit more to do on the optimization we're working on and some further synergies that are coming in. And we have to wait for the really end of the year when we, you know, have all the final tally and numbers. Early, I guess, early next year, we'll have the final number there on the synergy. So big changes from those dispositions of assets, and that theme will continue. Do we have something ready to share with you this year still or early next year? As I said, look, that's a very dynamic process, so I can't really pin the team down on one month here more or less, but we'll for sure try our best here to advance that theme and continue that theme that we started this year under this position.

Thanks for the comment on that, Mark. And just, you know, in regards to the synergies, you know, obviously you mentioned 40 to 60 million. Have you already started seeing those synergies kind of going into Q3, or I'm guessing we're expecting more kind of going into Q4 and more into 2024?

Yeah, some is in Q3, but very little. On the synergy side, for sure, not on the care and maintenance cost. I remember the closing of those deals happened really, especially Mara-Morogocha, which are the biggest ones on the car maintenance, closed like later in, I think like just a week before the end of Q3. So no advantage reading Q3 on that, but from Q4 on, we will see the full effect of those savings. And then, of course, that will go into the next year, 2024, together, as I said, with some additional synergies that we will be able to harvest as well.

Okay, sounds good. And just switching gears a little bit, last question from me. We saw that you had increased your stake in New Pacific this quarter. How do we think about Pan American's position on the Silver Signs project and on Bolivia as well?

Yeah, look, we are in Bolivia since 1997. It's a long time with San Vicente. It has been a very successful place for us. And also this quarter, San Vicente did really, really well. So that's to continue. And it's a place that we are very happy doing business. Now you look at New Pacific and there are big discoveries there, there are exploration discoveries in still earlier stage, but they're all of the size that are absolutely, you know, would be of interest for Pan American if they come through as a, you know, as a mine. and with our experience in bolivia and as i said and combined with with that large size on the silver side uh of course that's that's of interest for us and that's really the reason why we continue we have been in new pacific from the beginning on we you know we liked the project very early stage and we did some of the first financing to to help bring in that exploration and drilling forward And when New Pacific looked for financing, we were happy to increase slightly our stake and continue to advance and help to advance those projects in Bolivia.

Perfect. And that's it for me in terms of questions. So thanks for taking my questions, Michael.

Thanks, Suhas.

Your next question comes from the line of Kerry Macruari from Canaccord Genuity. Your line is now open.

Hi, good morning guys. Just a question on Sarah Morrow. There was a big jump in the onsite direct operating cost this quarter versus last quarter. Just wondering if you can give any color on what drove that increase.

Yeah, so I think it's, it's, hi Kerry, this is Steve. overall i think the cost at cerro moral it's reflecting the development we have to do to get to some of these really high grade variable ore deposits so our development rates increased the mining widths have kind of decreased according to schedule so it was pretty much on plan relative to what we anticipated for overall spending there And then I think financially we have some impacts on the cost.

Yes, hi, this is Ignacio. In addition to what Steve just mentioned, it's worth mentioning that there was a buildup of inventory at the end of Q2. The production in Saramore was backloaded into Q2 the last couple weeks of June, and that inventory flushed out during Q3. So that was another factor contributing to the higher costs there. for Cerro Moro Q3 relative to Q2.

But just in general, I think we talk quite often about what are cost drivers on our side. So there's a big difference between our silver segment mines and the gold segment mines, because the silver segment mines in many cases come with base metals. As these are byproduct credits, our base metal prices have a big impact to our costs both ways. If they go up or down, it can be headwind or tailwind for us. And another big impact is exchange rates, so that depending on any given country, that impact, you know, can be quite big because we have quite a lot of spending in local currency. So you always have to keep that in mind. Of course, we look at it and not always at the per ounce base, but per ton base, which is, you know, more like a neutral way for us to track the cost. So there we see, obviously, that variability, which is often driven, as I said, up and down by other factors as well.

Maybe just to follow up to that, maybe for Ignacio, last quarter there was, yeah, last quarter there was, I think, 32 million of, you know, fair value adjustments relating to the amount of transaction. Like, I'm just wondering, are there still fair value adjustments flowing through these numbers this quarter or have those pretty much were stopped now?

Yeah, those were minor PPA adjustments. Just to keep in mind that our initial purchase price allocation, that's just preliminary. We have a year to finalize those numbers. We didn't see any more changes in Q3. So I'd say stay tuned. As I said, we have a year to finalize those numbers. But I think all those small changes were mostly flushed out in Q2. As I said, we have a year, and we'll see how those numbers end up when we finalize our analysis on the purchase price.

All right, great. That's information. Thanks, guys. Thank you.

Your next question comes from the line of Don DeMarco from National Bank Financial. Your line is now open.

Thank you, operator, and good morning, Michael and team. We'll start off with Escobol. You know, we're seeing a lot of activity in terms of the meetings here, a number of visits, but I think to the mine and other engagements with the Ministry of Mines and so on. I appreciate these details, but can you share what is discussed at these meetings? I mean, why would this person need to go to the mine three times? Are they impressed by the mine, or what's the nature of their visit, and what are they looking at when they go?

Obviously, I mean, this is a very open process, as we always described, and, you know, our doors are open to a lot of visitors. And we had those visits by the SINCA representatives as well, so where I see this very positive. And, yes, a lot of activity around the consultation and mine visits during this quarter. Maybe, Sean, you want to give some more color to that?

Yeah, well, the first visits we had in August – You know, that was over 40 members of Shinka Parliament came to the mine site. And it was the first time a lot of them that, well, first time all of them have been to the mine site. So just a general site tour, an overview of what the mining activity is, what the operation is, visits to the underground mine, to the processing plant and the tailings facility. So obviously... You can imagine a day-long tour and then lots of questions around those tours. And then there were two other visits where we talked about water and then another visit which focused on our filtered tailings facility and questions around the design of that facility and some of the other aspects of that facility. And during the meetings, we're going into some detail discussions about water quality, water quantity. And so it's always pretty dynamic meetings and lots of learning and Q&A. So it's been pretty productive and really good dialogue over the last quarter.

Yeah, exactly. Thanks, Sean. As I said, look, a very positive and open dialogue here, which is, of course, the way that the consultation has been held so far and the

uh you know we obviously support we obviously support that play okay well thank you for that michael and um so looking ahead at this consultation the process we have a judge that will a court or judge that will weigh on the the process and determine if it was carried out of you know to true ilo 169 standards but what happens beyond that i mean at that point the consultation would largely be concluded is it will you then be negotiating or having continuing your discussions with the Zinca or other members? What happens beyond that in your decision?

I think, you know, the process is outlined in our, on our slides as well on our website. Once the consultation is finalized, the report will be handed over about the consultation to the Supreme Court in Guatemala. And the Supreme Court will then determine, you know, if everything has been followed in the process. And I would assume in the court ruling that's, you know, But afterwards, after that position, ma'am can decide to reinstate our mining license. So it's pretty accurate.

I think we'll get some more color around that over the coming months, the coming weeks, and the future meetings.

Okay, fair enough. Because the court can say the process followed the ILO 129, but that doesn't necessarily mean that the market gets restarted. But anyway, we'll look for color. uh in the in the coming months but we're encouraged by this activity that took place this this quarter yeah definitely um so like a lot of you know some of the previous scholars touched on helping ventilation is going to be completed by mid next year so what should we be modeling for aisc in the next two or three quarters you know in the 25 to 30 range or or is that kind of yeah hi don steve here um

Yeah, I'd say we're going to be trending towards the upper $20. We are seeing some improvements. There has been some work done in reducing dilution. We're seeing better grades. It's really a tonnage play right now. We're trying to get air pumped into some areas so we can get some higher throughput. And I think we're going to see some marginal improvements in that, but until that new shaft comes on, I don't think we'll see a major change there.

OK, thank you Steve for that on that Colorado and then final question. Just company wide costs. Directly heading into the Q4 last quarter of the year. Are you expecting an improvement versus Q3?

Yeah, from an operation standpoint, when we look at all the operations, I'd say we're seeing pluses and minuses and they seem to be balancing out. So I think Q3 is probably a reasonable projection for the operation side.

Yeah, I mean, really a lot depends on when we see a higher oil price again. It's coming up again a bit. Always a big, big impact to our operations. Not only the cost, obviously, of diesel, but translating in higher cost across the board. There's definitely, you know, some more pressure on some inflation, but then there's some other costs that are also coming off. That's right. So, that just picks up. Probably pluses and minuses here for next quarter.

Okay. Thank you again. Good luck with the rest of the year. That's all from me.

Thank you. Your next question comes from the line of Craig Hatchison from TD Securities. Your line is now open.

Hi, guys. Good morning. Thanks for taking my question. Just on La Corral, a follow-up question. On the throughput, should we assume the throughputs that we saw in Q3 are representative of the throughputs we can expect until sort of mid-next year, until the ventilation is all up and running?

Yeah, thanks, Craig. Steve here. simple answer is yes i think that's correct i mean we are focused on advancing development rates which will generate a bit more ore we brought additional contractor on we are getting a little bit some of the areas with a little bit more air so i think you'll see some marginal improvement in overall tonnage but yeah once again until that chaff comes on we won't see a material change in troopa

But just to weigh in there, and I think Steve talked about there, we expect to Finalize the excavation of the shaft like later in December.

We're on track to finishing the excavation by year end and then we'll be installing the big ducting systems and the big fans. There are 2000 horsepower fans each that will be putting on the surface and commissioning by mid year next year.

Right, so all on all on time and as we as we indicated already like I think a couple quarters ago and on budget as well.

Yeah, yeah.

Okay, and maybe just a question with the Cerro Moro or maybe the Humana Assets in general. The lack of drilling density that impacted the grades, expected grades through El Pinyon, is that a concern in some of the other operations like Cerro Moro? Or do you have more confidence in terms of the drilling work that's been done to date and the grade profile there?

Yeah. Hi, Craig. Chris here. You know, certainly when we look at El Pinyon and we look at the spacing of 60 by 60 and going down to 30 by 30 meters for that initial gridding, and drilling when we look at Cerro Moro certainly see a higher ratio of drilling and certainly the all shoots have behaved more consistently even though very you know within the major structure of Escondida and Zoe so no we certainly don't have that feeling in Cerro Moro and really as Mike mentioned you know the increase in El Peñon drilling up to 10,000 meters on a monthly basis We're certainly trying to catch up with some losses at the beginning of the year due to a change in contractors, which was completed in January this year before we got onto site. So certainly we see that we're going to be catching up there.

And if I can add, Craig, I will say, reinforce that at Jacobina, absolutely no concern. We're seeing really good ore zones there and good continuity. And even Florida, to that matter, we're seeing, you know, we need to get drilling out ahead just to get some more tons into the reserve category, but... That one's looking really good, too, to just share what Chris was talking about.

And just to mention, I mean, El Peñon, we see some ice upside in the exploration, sort of more blue sky stuff, so it's certainly something we'll be concentrating on in 2024.

Okay, great. Great to hear. And maybe one last question from me. Just La Llorna, the Sustainable Cap Act is tracking well-level guidance. I think some of it has to do with the lack of development of the beach pad construction. some dump work preparation, but is that something that can impact production next year or something you guys need to catch up on?

Yeah, hi, Craig and Steve again. The main driver there is this pre-strip capital, and it's the way we account for pre-stripping of the open pit. And what's happened is a big chunk of that got shifted to operating costs this quarter, and probably we'll see that in Q4 as well. So I think Ace Coast, we're solid. It's just where we distribute that pre-strip, whether it's capital or expenses. There are some dollars, as you alluded to, being pushed out into 2024 for Pad 5 expansion, and it's, you know, we're working through that. Right now, we seem to be on schedule to where it won't disrupt production, but we're definitely, it's one of our key focus areas.

Okay, thanks, guys.

Thank you.

Our next question comes from the line of John Tomazos from Very Independent Research. Their line is now open.

Thank you very much for taking my question. Concerning new projects in general and the Colorado SCARN in particular, do you have a minimum hurdle rate threshold rate of return or do you rely on some qualitative instincts like exploration potential, size, synergies with the mine next door, et cetera. Tell us how the board approval eventually of the La Colorado SCARN project will go in the context of your approval process.

Sure, and just there's no board approval at this point. We're obviously on a kind of a late stage exploration phase here with La Coloradas Con, and as I said, we'll come out with our study at the end of the year. That will give us, you know, much more information and to the shareholders how big, well, we already know it. This was a very large discovery and how we think mining could look like over, you know, a very long time. When you look at hurdle rates, you mentioned a few things that play in this. There's a lot of factors that, of course, play into this. Long-term metal prices have a very, very big impact to that calculation. especially in a project like this CARN that goes over a very, very long time, you know, there's obviously some big impact on the capital number up front and then big impact on the metal price you use in your model for later on. So there's a lot of things that play in there, but of course, it's at the end, it's all about the quality of the asset, It's about my life. It's about the exploration potential. We already know at La Colorado SCAR that, you know, we keep drilling and we just keep finding more and more. So we know this asset is still growing. We, for the current study, obviously have a cutoff. I think it was like December 22. We drilled a lot of meters since then. since then actually Chris just tell me 50 000 meter additional drilling so that deposit is still to grow this is just a point in time that we're looking at it but as I said and as you mentioned a lot of factors to play into calculating an IRR for a project, and a lot of decisions to what we like to see, depending on country, jurisdiction, size, location to other mines, as you mentioned, synergies with other operations, et cetera, et cetera. So there's a lot of factors in there, and lots of them will be discussed in our study.

So for example, is 5% or 10% a minimum hurdle rate of return?

Five would be a very, very low number, of course. That's not something we are looking really for. But as I said, look, it really depends what the metal prices are that are used. And that's probably one of the most critical and also difficult decision when you look at very, very long mine life. uh way easier obviously to the kind of come up with the metal price if you look at a you know normal precious metal kind of project that normally run like let's call them 10 to 12 or 15 years uh very different when you look at long lives like this car and not only that but you're dealing with uh not only silver on this side but also lead and zinc and and of course concentrate uh contracts that play a lot into this as well. Just one side note here, which is really nice. Obviously, La Colorado, polymetallic, a lot of zinc in there, a lot of silver as well. Just as a side note, La Colorado is producing a really, really clean zinc and black concentrate already now from the veins, and The metallurgical testing we do shows that the scar will produce the same. So that's very attractive concentrates in this term. So again, a lot that plays in there, but we would expect quite favorable concentrate terms for that kind of quality.

So Michael, someone might be listening and reading between the lines in a way maybe you don't want to. Should someone infer from your explanation that the project requires higher lead and zinc prices than current prices, but because it's a many decade project, you might wait for lead and zinc to recover to $2 and go ahead assuming that lead and zinc recovers to $2?

No, my point, John, is that The beauty of long-life assets, like everywhere in the world, is that you don't have to kind of try to time for a sink price, a lab price, or precious metal price cycle. We all know that's very difficult to do because you have construction time up front, and none of us knows where the prices go exactly, but that's exactly the beauty when you look at this very, very long mine lives that are going to catch, you know, a few, quite a few of those cycles anyway. And that's the beauty. That's the reason why, you know, mining companies, especially large mining companies, look for very large, long-life assets because it takes that risk out of the equation.

Michael, one last one. I'm sorry to be so interested this morning. Some investors are impatient and their clients have quarterly performance pressures on them and stuff like that. And they don't understand that it takes a long time, you know, four or five years just to get to the PEA point here. And sometimes in the stock market, they love Briex that publishes 150 million ounces of gold that don't exist. and they disrespect meticulous engineers that take five years to plan the project. Do you think that it would be appropriate to buy back a little bit of your stock since some of these short-term investors might give up? Or think of a stale project that's like a junior stock that's going nowhere stale?

Let me first answer on the timing. You know, this has been incredibly fast. If you think it's like, what, five years since the first drill hole in the Skarn, you know, resourcing up to like a quarter billion tons of resources still to grow, as I said. If this will be a pure greenfield discovery, you know, we were talking probably about 15 or more years to bring a project to that place. The reason why it went so fast is obviously it sits below you know, La Colorado, one of our silver mines. So that, of course, helps with infrastructure and drilling way faster and get that work done. So, you know, the team has done an excellent job to advance that project that quickly to kind of, you know, an economic study here. So that's pretty impressive and would not be possible if it wouldn't be an on-site discovery, I may say it's, you know, very unusual to make that large of a discovery. Talking about share buyback that you mentioned there, look, I said this year the board opted to return capital to shareholders in form of dividends. It's over $130 million. We're still working and finalizing the new dividend policy. We will probably put that in place at the beginning of the year, which is the normal and logic place for us to to do that. And, you know, it will be at the board's discretion how we return further capital to shareholders. We're paying dividend uninterrupted since 2010. Of course, we disposed of quite a few assets, which had a very positive effect, as I mentioned, on our balance sheet. And our shareholders participated with that with the dividend payment. So we'll see next year what the board's decision will be, in what form and shape that return to shareholders will happen. So this year, you know, very strong dividend payments. And for sure, dividend will always be one part of it, and I will continue to do so.

Thank you.

Thank you, John.

As a reminder, if you have a question, please press star followed by the number one. Your next question comes from the line of Lawson Winder from Bank of America Securities. Your line is now open.

Yes, thank you, operator, for putting me in. Good morning, Michael, Steve, and team. Thanks for the time today. Hopefully, I can keep my questions pretty snappy. First of all, I wanted to ask about Jacobina. So you guys provided the RR update back in January. Back in late August in the preserve grade that Jacobine is for gold, the M&I and inferred grids, M&I in particular, declined quite materially. I wanted to ask the question of some of the drill spacing issues that you experienced at El Peno, and what are some of the potential other factors? Thank you.

Yeah. Hi, Lawson. It's Martin Wathman here. Pretty much the change that you saw in the reserve grade at Jacobina was related to looking at the metal prices and the cutoff grade, the operating costs going forward. We have a slightly different approach than the way that the Amana was doing it. They were using a a lower gold price than we used. We bumped up the gold price, but we were also looking at the cutoff grade and how that works. And we were able to use a lower cutoff grade for our reserve estimation. It's based on our sort of methodology, and that brought in quite a lot of ounces.

and took the overall grade down and my belief was it was being mined anyway um and so so that's what happened there that's what you see lawson if i could add from an operating point of view i think from my perspective the operation is much more comfortable with this lower grade cutoff at higher grade cutoff there was a lot of piecemealing if you will in the deposits and it wasn't It opens up the mining. It opens up some opportunities for us to lower that cutoff to where we can look at more bulk mining even above what they're doing now that could drive costs lower again yet. So that's really where we're trying to drive to is looking for efficiencies, and it may come at a little bit less grade, but that's what this whole optimization study that we're talking about is for Jacobina, is where is that best sweet spot, and can we mine more volume at a lower cost per ton and withstand a bit lower grades? You know, that's going to be many months of study, but we're pretty optimistic walking into this, and I think that's kind of the taste. What you're describing is kind of the taste of where we see we'd like to take optimization, if you will, at Jacobino.

And just drilling at Jacobino, I mean, it's by far our most productive mine in terms of drill meters per ounce is added, and, you know, it's definitely an excellent asset.

Now, what were the implications? for potential production growth?

Great question. I get that a lot. Yeah, Lawson, Steve here. I don't want to speculate on what that's going to be. You know, I just look at the ounces and reserves, the tons of grades. I look at the ounces and resource tons of grades. And it makes me excited. There's some opportunities here, but I don't want to speculate how big that could happen. It's going to take us months to get through this stuff.

Well, I can definitely hear the excitement in your voice. That's great. I just wanted to ask a question on that. You know, maybe you could just share with us today what the base case is for throughput. And then as a follow-up question to that, with respect to financing its construction, I mean, you've mentioned that as potential consumers of funding going forward and have even sort of, you know, suggested some cautiousness with respect to, you know, potentially more aggressive capital returns. What are the prospects for a partnership help alleviate some of that some of those funding demands.

I can start and sorry you're cutting in and out there, but I I think I I got the question on this Karn. So let me know if if you need more details there, but. Look, we we we need to finish the study, of course, and it will will be out and then we have a lot of numbers and details to discuss how this is going forward. We are very, very open to, you know, uh way to to look at this project later on i think there is a lot of way to optimize return for our shareholders that can be in different different form and shape and can go from you know from finding a partner or focusing on the silver to many other ways how to do that and I really don't want to you know fix that yet because there will be a lot of a lot of details that need into that need to go into that decision but I think you know a large deposit like this Karn opens up huge opportunity for us to optimize that return to our shareholders. So I think you should not just think in, you know, the normal case, just building the mine and mining it out over the next, whatever, 30, 40 years and doing it all ourselves. That could be one outcome for sure, but there can be many different outcomes to optimize that return. So it's a little bit early, Lawson, once we have to study out there. I'm sure there will be a lot of activity going on How we can optimize that and a lot of ideas. We already have a lot of ideas how to do that. And we'll start sharing those ideas, of course, with everyone, I think, once we come out with the study and early into next year.

And if I can add, Lawson, this is Steve. Relative to throughput on the SCARN, that is one of the most debated subjects we have here internally right now. And we are going to have to pick a base case, as I understand it, to present a base case. But I think we're going to open that debate even beyond ourselves and show some alternatives because it's very interesting to look at throughput on this project. It's such a massive project. There's so many opportunities Michael alluded to. And the more people we get, the more ideas we get, the better right now. So we're going to open that up a bit when you see the study coming up.

Yeah. Great. I apologize for the sound quality on my end, but I think you guys captured the nature of my question very well with your response. Thank you very much. Thank you.

There are no further questions at this time. I will now hand over the call back to Michael. Please continue.

Thank you everyone for calling in today. Like usual, we will provide early 2024 our outlook for the new year. I know it was later this year because of the transaction, but normally we do that in January and we'll do that in January 2024 when we'll share all those details with you. Until then, have a great end of the year and talk to you in January. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.