Pan American Silver Corp.

Good morning, ladies and gentlemen, and welcome to the PEN American Silver Third Quarter 2024 Unaudited 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 6, 2024. I would now like to turn the conference over to Soren Sesecki, VP Investor Relations. Please go ahead.

Thank you for joining us today for Pan American Silver's Q3 2024 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 2024 unaudited results, all of which are available online. on our website. I'll now turn the call over to Michael Steinman, Pan American's President and CEO.

Thanks, Erin, and thank you, everyone, for joining today's call. Pan American delivered strong financial performance in Q3. Revenue was a record $716.1 million, which, due to timing of sales, excluded the sale of finished goods and concentrated inventories with a value of approximately $30 million. Cash flow from operations before working capital changes was a record $235.8 million. Free cash flow also reached a record of $151.5 million. At the end of Q3, cash and short-term investments of $469.9 million had increased by $101.3 million compared to Q2 2024. Net debt decreased to $376.2 million. These record financial results further strengthened the balance sheet. At the end of Q3, we had $1.2 billion of available liquidity to invest in future growth and provide returns to shareholders. Yesterday, we announced the 10 cents per share dividend with respect to Q3. Year-to-date dividend payments totaled $109.1 million In addition, we also repurchased and canceled shares for $24.3 million under our share buyback plan. Net earnings in Q3 were $57.1 million, or 16 cents per share. This includes a one-time tax expense for a settlement with the Mexican tax authorities and an amendment of certain Argentine income tax filings, both of which relate to prior year's tax filings. Futury tax expense was partially offset by reversal of the inflation-driven tax expense in Argentina that we recorded in the first half of 2024. Adjusted earnings were $115.1 million, or 32 cents adjusted earnings per share. Yesterday, we announced that we have received regulatory approval from the Government of Canada for the sale of Lorena in Peru. We expect the transaction to close later in Q4. Proceeds from the sale of $245 million will further strengthen our balance sheet. The agreement also grants Pan American a life of mine gold net smelter return royalty of 1.5% for the Larena II project and an additional contingent payment of $50 million when commercial production starts from the project. Turning to the operations, we produced 5.5 million ounces of silver in Q3, led by La Colorado, where silver production was up 59% and cash costs down 26% compared with Q2. Since completing the new ventilation infrastructure in mid-July, we have seen substantial improvements in mine operations. Throughput rates have been rising, averaging over 1,800 tons per day in October, and we expect throughput to reach 2,000 tons per day by year end. Improving performance at La Corada will further increase silver production and lower cash costs. We produced 225,000 ounces of gold in Q3. Chacovinas' strong results led to gold operations delivering robust margins with production of 50,400 ounces of gold at an all-in sustaining cost of $1,195 per ounce at that mine. At Serra Moura, gold production was reduced by delayed development due to severe winter weather in Q2 that reduced access to the site and portals, and due to hired and planned dilution in the underground mines. Weather in Q2 also restricted access to the Natti Zone, which is 30 kilometers from the mill, resulting in delayed development thereby reducing mining and processing of gold ores from this zone. We are now catching up on production at Cerro Moro by increasing production from the Nati zone and increasing the development meters at the underground mines, focusing on higher grade areas. At Minera, Florida, surface access to some of the mine portals was affected by heavy rainfall, which delayed the development of higher gold grade zones, which is now underway. As planned, we completed mining at the lowest in Q3 and have been processing lower-grade stockpiles since July. Gold segment cash costs were within expectations in Q3. Cash costs for the gold segment in Q3 were $1,195 per ounce, and all in sustaining costs were $1,516 per ounce, excluding NRV adjustments. Silver segment cash costs in Q3 were $15.88 per ounce. All in-sustaining costs were $20.90 per ounce, excluding an not-realizable value inventory adjustment that decreased costs by $1.27 per ounce. Costs for silver segment in Q3 were higher than expected, largely due to lower gold byproduct credits from Cerro Moro, the catch-up of sustaining capital spending at La Clarada and Guarón, and high royalty costs at San Vicente from higher metal prices. We are on track to achieve our guidance for 2024. As indicated previously, we expect silver production to come in at the low end of the 21 to 23 million ounce range. We are very pleased with the progress we have made in our capital projects. The new filter plant and filter tailing storage facility at Varon is on schedule to be in full operation by the end of Q1 2025. At our Bell Creek Mine in Timmins, commissioning of the new PACE plant project is underway. At Jacobina, we are investing in upgrading the plant facility infrastructure and in a study to maximize Jacobina's long-term economic and growth potential. We expect to release this optimization study in the first half of 2025. We are excited by the potential of our Jacobin asset. In our most recent mineral resource update as of June 30, 2024, which we released in early September, we more than replaced mine production with new mineral reserves for the eighth year in a row. In addition, exploration added 1.2 million ounces of new gold-inferred mineral resource. This is a long-life mine with excellent exploration potential and we believe there's opportunity to capture more value from this high margin operation. Our reserve and resource update also highlighted the potential for LaGuardia's corn project. The estimate for indicated mineral resource increased by 53% to 265 million tons and grades improved by 10% for silver, 2% for zinc, and 4% for lead. An estimated 309 million ounces of silver are contained in the indicated mineral resource category in addition to 59 million ounces in inferred mineral resource. There is significant interest in this large, long-life silver and zinc project from potential partners, and we continue to evaluate future agreements. At Escobar, the Guatemalan Ministry of Energy and Mines appointed Mr. Luis Pacheco as Vice Minister of Sustainable Development in August. His position, responsible for overseeing the ILO 169 consultation process for the mine, had been vacant since April 29th, 2024. During Q3 2024, Mr. Pacheco visited the mine along with other members of MEM and held working meetings regarding the consultation process. The MEM has communicated to the company that the Schenker Parliament is in the process of conducting meetings in their communities, but no new timeline has been published yet for plenary consultation meetings. The Escobar mine remains on care and maintenance and there is no date for a restart of the operation. That completes my brief recap of Q3. I'm pleased with the progress we have made year to date, particularly at La Querada and and on our capital projects. We are focused on achieving our production targets and managing costs to deliver margin expansion. Current metal prices are improving profitability, and we are expecting a strong finish to the year from a back-end loaded production profile. I would now be happy to open the call for your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a three-tone prompt telling you a request. Questions will be taken in the order received. Should you wish to cancel a request, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Waze Habib from Scotiabank. Please go ahead.

Thanks, operator. Good morning, Michael and Pan American team. Really congrats on a good quarter and congrats on getting Larina's sale deal approved. A couple of questions from me. My first question, staying with Larina, Michael, with the introduction of the offtake agreement, could we expect any sort of implications on the cash or contingent element of the consideration of the nsr royalty that's already been agreed upon um any additional color you can provide on this optic agreement i know this is this is just in addition so there is no changes on the under consideration at all neither on the cash nor on the nor on the nsr as we put that in the press release and uh

We assume to close the transaction later this quarter. And yeah, I think it's a great outcome. It's a good outcome for everyone. And I look forward to it. It was a great mine, Lorena. It's a great producer on the oxides. Obviously, as we made very clear, the sulfide part is not really what we are focusing on in this business. But I'm looking forward, and I think it's a great outcome for Peru.

uh for for the mind for the community and everybody around thanks thanks michael for uh clarifying that um and and just uh moving on to 2024 guidance um again great to see that you have really the gold guidance uh again with silver production on the lower end of guidance um michael on our numbers it would seem like consolidated gold production is kind of shaping up to also be at the low end of guidance Again, we might be a little bit conservative on our assumptions for Q4, but is that the right way to be thinking about this? Or maybe, you know, what assets could you expect to drive stronger Q4 finish?

Yeah, this is Steve. Great question. I mean, we do have several of our assets, particularly Cerro Moro, and actually, and this will play a role depending on closing. law arena those two assets particularly have a strong finish to the year um so those are what we're looking for um we're we're we're cautiously optimistic you know that we're we'll come closer to midpoint maybe um assuming all those assets carry through towards the end of the year um and we get we capture all that production

Obviously, just to make that clear again, what Steve mentioned, obviously depends on closure. The closing of the La Reina deal happens as a last quarter in the year of last month of La Reina due to the cycles of the lead cycles and the climate and weather that we have around our mind is always the strongest month of the year. So it really depends when closure happens. Therefore, for the other details, and I don't have that date yet, so we have to wait for that.

Sounds good. Okay, thanks for that as well. And just helping you on silver grades, the decrease going into Q3, there appeared to be about a 12% decline in gold rates. You know, can we just comment on how should we be thinking about the gold and silver grades in this asset going into Q4?

Yeah, great question. We're seeing some really interesting exploration opportunities on the silver side at El Pinon. Won't so much affect this year, but looking out into the future, we see opportunities to see some interesting silver production increases there going forward. The gold side, you know, as we've mentioned during 2023, this deposit's pretty variable, pretty spotty in terms of the high-grade distribution of gold. And we're in and out of it quite a bit. So we do expect a little bit stronger gold grade going into Q4 than we saw in Q3. But it is uncertain. There are some variables there in terms of when we're in and when we're out. Overall, the average, we feel good with the reserve average. And we are running a bit of low-grade stock power right now to –

overall come in a little bit lower than the reserve grade on gold but we're comfortable with that reserve green okay thanks for that steve and and my last question um any sort of updates on the uh how the partnership discussions are progressing at the lacrosse karn should we be expecting any sort of news by the end of the year uh look there's several very large companies that are going or have been going through the data room are already completed

a large part of the technical review. There's a lot of interest in a project like that. As you can imagine, it's a very large, very long life asset. They're hard to find. One of the very, very few discoveries over the last five to ten years in the world. And so I'm feeling very optimistic, very happy of the group of companies that are looking at this and are interested in this. As you can imagine, this will take a while to structure a partnership agreement for it. So I don't think that we can have something ready to make public by the end of the year, but it will definitely continue to work on this and continue. But as I said, I'm very happy how this is shaping up.

Excellent. That's it for me, guys. Thanks for taking my questions.

Thank you. And your next question comes from the line of Don DeMarco from National Bank. Please go ahead.

Thank you, operator. And good morning, Michael and team. Thanks for taking my question. Congratulations on a great quarter. And really good to see the operations back on track with read-through for a strong Q4. Now, first question on LAC Colorado. Michael, so the ASIC is significantly lower quarter to quarter. What kind of ASIC range might we expect once you're up and running at 2K ton per day?

Yeah, Don, this is Steve. We're still working on next year's budget, so I can't really forecast yet what the ASIC is going to look like in the 2025 when we're at this kind of 2,000 ton a day running rate. You know, we're evaluating our cost structure and, you know, kind of predicting where the escalation inflation may go next year exchange rates, things like that. So, you know, there's quite an intensive process of budgeting going on right now. And I can't really forecast out ahead. Yeah.

Okay. Just to make clear again here, exchange rates have a huge impact to our cost structure across the globe. And obviously, with the U.S. elections now behind us, we need a little bit of time, obviously, to see how that falls out and where exchange rates will fall out for next year.

Okay. Okay. Thank you. Yeah. We see the pace of weakening recently, so keep an eye on that. Now, a couple of questions on Timmons. You know, can you quantify the potential favorable cost impact from the new Pace Hill plant? And then secondly, I see it's been averaging ASIC around $2,000 an ounce this year. You know, previously this might flag as a concern, but have higher gold prices reduced concerns and extended the life of this asset?

Yeah, great question. The simple answer is yes. Higher prices are extending the life of that asset. Absolutely. Cut off grade, you know, as we can lower that cut off grade, it definitely has an effect on our life there. I will say, you know, the the $2,000 race that we're seeing there, a large part of that is is as we've extended the life of that asset, we've extended it quite a bit further than where we thought we would be already. when we bought Tahoe back in 2018. And one of the things that we're seeing increased cost is on tailings disposal. We're having to build, you know, quite a bit larger tailings facilities than we anticipated, and that's driving a significant amount of sustaining capital each year. We're looking at some opportunities there that kind of fold in and couple. bit of a double benefit with the Pace plant that maybe there's some opportunities we can go to a little bit more of a filtered approach or other approaches on the tailings. The tailings are quite useful at both Timmins West and Bell Creek now for the Pace backfill. So that allows us more and more. So it does, there's an offset with the cost of Pace and the cost of cement that we add to the Pace, which is an added cost. We get a benefit for less costs on the tailings facility. But the other big benefit, as you mentioned, is we get to mine more tons of ore resources for every meter of development. So net-net, we don't see a significant cost decrease, but bringing in the pace, we see a similar cost with much more reserve recovery than what we saw before.

Okay. That's helpful. Thanks for that. And then as a final question, Michael, do you have any comments on the recent M&A in the silver space? Of course, referring to Gatos and Silvercrest, you're the dominant player in the sector. Are you comfortable with your level of silver production as a percent of revenue? Or are you looking at M&A from a different perspective now that these acquisitions have occurred?

Well, look, we are a completely different sized company, obviously. And when you look at our M&A strategy, We are always looking around, of course. We are always interested in buying high-quality, long-life assets that fit into our cost structures. Those are really some absolutely important parameters that an asset we look at or go after has to fulfill. We're looking at accretive transactions, and I think we have shown that very clearly with the Tahoe and very clearly with the Yamana transaction lately. what we are looking for, and that's really in our focus. So, of course, it's nice to find silver assets. As you know, we already have most of the very large silver assets in our portfolio, either in our reserves or in our resources. There still has obviously some work needs to be done to bring them either back or bring them into production. But, you know, we hold the biggest reserve and biggest resource of silver. And as I always say, the current picture of silver and gold production is just a picture in time. This will obviously change. And if you add to that the scarn with a very, very large silver production as well, you can very clearly see where this is going. So we are not, obviously not interested in looking at smaller assets. As you noticed over the last, since the transaction with Yamana, we divested a lot of the smaller assets, simplified and improved the quality and simplified our portfolio. I think you see the result this quarter, very, very strong financials. And that was really the path we wanted to do. So, of course, continue looking around for opportunity. I think we're in an incredibly strong position We have an incredibly strong balance sheet, especially after we closed the Lorena transaction. And, you know, we are ready. We did the integration very successfully. And I think we'll be ready for the next transaction. But as I said, it has to be very disciplined in that. So it has to be accretive. It has to be of size and cost structure that fits into our company.

Okay. Thank you very much for that. That's all for me. Good luck with Q4. Thank you.

Thank you. Once again, should you have a question, please press star and 1 on your telephone keypad.

Once again, that is star and 1 to ask a question.

No further questions at this time. I will now hand the call back to Mr. Michael Simon for any closing remarks.

Yeah, thanks everyone for calling in and a very busy day for everybody for the whole world. Obviously looking at looking at political events in the US, but you know Q3 has been a great quarter for us. Very, very strong cash flow, free cash flow, operational class flow, production, cost control just across the board. Very strong quarter and I'm really looking forward to Q4, which is historically always our strongest quarter as well. This is a great time to be in precious metals. It's a great time to be in silver and gold. And we are the dominant player in this space. Really looking forward to next quarter and looking forward to sharing January our annual production. Looking backwards and looking forward with our forecast for 2025 with our budget numbers. Until then, have a great time. Thank you, everyone.

Thank you. And that concludes our conference today. Thank you for participating. You may all disconnect.