Cash Costs Decrease 25% While Silver and Gold Production Rise 7% and 48%
(Unaudited results - All amounts in US dollars unless otherwise stated and all production figures are approximate)
VANCOUVER, Nov. 14, 2013 /CNW/ - Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA) (the "Company", or "Pan American") reported net earnings of $14.2 million or $0.09 per share for the third quarter of 2013. Adjusted earnings for the same period were $12.2 million or $0.08 per share. Cash flow generated from operating activities was $40.7 million or $0.27 per share. Year-to-date silver and gold production are on track to meet the Company's full year 2013 production forecast, at significantly lower than forecast cash costs.
Third Quarter 2013 Highlights (unaudited)(1)
Geoff Burns, President & CEO, commented on the third quarter 2013 results, "Our quarterly results are a clear indication of the success of our focused efforts over the past 5 months to enhance our production and reduce our costs. Silver production rose and we achieved a new quarterly record for gold production. At the same time, we trimmed our mine site production costs by 9% or $12 million compared to the same period last year, which netted us a healthy 25% reduction in our cash costs per ounce." Burns continued, "This effort allowed Pan American to post respectable financial results, generate significant operating cash flows and return to bottom line profitability. We have successfully re-positioned the Company to prosper and grow in the current price environment."
Financial Results
Pan American generated revenue of $213.6 million during the third quarter of 2013, 15% lower year-on-year, due to lower precious metals prices, partially offset by greater quantities of all metals produced by the Company. On average, during the quarter Pan American realized a price of $20.52 per ounce of silver and $1,319, per ounce of gold, 30% and 19% lower than a year ago, respectively. Zinc and copper prices remained stable at $1,862 per tonne and $7,146 per tonne, respectively. In contrast, the lead price rose 9% from a year ago to $2,100 per tonne. Silver accounted for 61% of quarterly revenue while gold accounted for 23%. Zinc, lead and copper contributed only 9%, 3% and 4%, respectively, to consolidated quarterly revenue.
During the third quarter of 2013, Pan American generated net earnings of $14.2 million, or $0.09 per share, compared to net earnings of $22.6 million, or $0.15 per share, in the same quarter of 2012. Net earnings declined due to lower revenue, higher depreciation and amortization, and higher losses on commodity and foreign currency contracts, mainly associated with the previously announced cancellation of gold and silver forward contracts, partially offset by gains in foreign exchange.
Adjusted earnings for the quarter ended September 30, 2013 were $12.2 million or $0.08 per share. Adjusted earnings were calculated by adjusting for several non-recurring items, most notably an unrealized gain of $7.8 million in foreign exchange and $6.3 million in unrealized and realized losses for the cancellation of precious metals forward contracts. For a detailed reconciliation of adjusted earnings, please refer to the financial and operating highlights table at the end of this news release.
Mine operating earnings generated during the third quarter of 2013 were $33.9 million, compared to $65.4 million in the third quarter of 2012. The decline was directly attributable to significantly lower metal prices compared to a year ago and higher depreciation and amortization, partially offset by lower production costs and royalties; however, the present quarter's mine operating earnings improved vastly from the $3.8 million generated in the second quarter of 2013.
Operating cash flow generated during the third quarter of 2013 was $40.7 million, or $0.27 per share, compared to $79.5 million a year ago, and $0.5 million generated in the second quarter of 2013.
As a result of cost reduction measures implemented earlier this year, general and administration expenses for the third quarter of 2013 fell to $3.9 million from $4.6 million in both the third quarter of 2012 and in the preceding quarter of 2013. Additionally, exploration and project development expenses went down to $2.6 million, from $8.2 million during the third quarter of 2012 and $5.6 million during the preceding quarter.
Pan American remains in solid financial condition with $421.0 million in cash and short term investments, $63.7 million in debt, and working capital of $699.3 million at September 30, 2013.
In the third quarter of 2013, Pan American paid $18.9 million in cash dividends to holders of its common shares.
Income taxes for the third quarter of 2013 were $11.7 million, down from $16.1 million in the comparable quarter of 2012, and the Company's effective tax rate was 45%. Effective rates vary considerably between periods and from the amounts that would result from applying the Canadian statutory income tax rates to earnings before income taxes. Please refer to the Company's MD&A dated September 30, 2013 for a detailed reconciliation of Pan American's consolidated tax rate.
Production and Operations
Pan American produced 6.7 million ounces of silver during the third quarter of 2013, 7% more year-on-year, thanks to significant production gains at Dolores, Huaron, Morococha and San Vicente, slightly offset by small production declines at La Colorada and Manantial Espejo.
During the reporting quarter, the Company's Mexican operations produced a total of 3.3 million ounces of silver. La Colorada and Alamo Dorado maintained steady production levels compared to a year ago at 1.3 million ounces of silver and 1.1 million ounces of silver, respectively. Dolores recovered from a sluggish second quarter as a result of increasing grades and mining and processing rates to produce 1.0 million ounces of silver, a 25% increase year-on-year.
In Perú, both Huaron and Morococha achieved significant production improvements from last year, due to higher grades, throughput and recoveries. Huaron produced 0.9 million ounces of silver, 18% more year-on-year, while Morococha produced 0.7 million ounces of silver, 24% more year-on-year.
In Bolivia, San Vicente produced 1.1 million ounces of silver, 9% more than in the third quarter of 2012. The increase was attributable to higher grades, throughput and recoveries.
In Argentina, Manantial Espejo produced 0.8 million ounces of silver, which was 9% less than in the third quarter of 2012, but 17% higher than in the previous quarter. The decline was due to lower silver grades, primarily caused by mine sequencing and encountering more complex mineralized structures requiring additional ore control.
During the quarter Pan American produced 41,600 ounces of gold in total, 48% more than a year ago. The rise was due to production increases of 60% at Dolores and 56% at Manantial Espejo because of better grades and recoveries.
Pan American increased its quarterly base metals production substantially. Consolidated quarterly production was 10,600 tonnes of zinc, 24% more year-on-year, 3,400 tonnes of lead, 27% more year-on-year and 1,500 tonnes of copper, 52% more year-on-year.
Pan American's quarterly consolidated cash costs were $10.40 per ounce of silver, net of by-product credits, a decrease of 25% compared to the third quarter of 2012 and 14% lower than in the second quarter of 2013. The decrease resulted from the Company's cost control strategy implemented earlier this year and to higher quantities of by-product metals sold during the quarter, partially offset by lower by-product credits on lower metals prices, with the exception of lead.
Pan American has adopted the reporting of AISCSOS as a measure of the Company's consolidated operating performance and its ability to generate cash flow from all operations collectively. For the quarter ended September 30, 2013, AISCOS was $16.26, compared to $24.27 in the third quarter of 2012, or 33% lower.During the quarter, Pan American spent a total of $29.5 million in sustaining capital at its seven operations, 16% less than in the previous quarter. In addition, the Company spent $10.6 million at Dolores on the expansion of leach pad 2 and construction of leach pad 3, as well as $1.8 million at other expansion projects at Dolores. The expansion of leach pad 2 was completed at the end of last quarter, providing essential expanded stacking capacity until leach Pad 3 is completed. Construction of leach pad 3 progressed as planned despite heavy rains and the installation of the pad liner was completed in late September. The well risers, solution collection system and over liner material are currently being installed, and leach pad 3 is on track for the commencement of leaching operations. At the start of November, the operation began stacking lower grade coarse crushed ore and should see high grade ore stacked and under leach in the coming weeks.
Project Development - Organic Growth Opportunities
Significant progress has been made on an expansion study at the La Colorada mine to take advantage of the exploration success of recent years, which has led to an increase in proven and probable mineral reserves to 65 million ounces of silver at the beginning of 2013, from 18 million ounces of silver in 2009. The expansion study is nearing completion to the preliminary economic assessment level and is expected to include the development of a hoisting shaft to increase mine capacity and a subsequent expansion of the sulphide floatation plant.
Pan American plans to spend $3 million on an expansion study at the Dolores mine, where the installation of a new crushing, grinding and pulp agglomeration plant is being considered to improve silver and gold recoveries of high grade ores, and to increase overall processing capacity. In addition to confirmatory metallurgical test work currently in progress, the Company is constructing a small pilot plant at the mine in order to finalize the flow sheet of the proposed new plant.
Commenting on the Company's operating results, Steve Busby, Chief Operating Officer, said; "I am particularly pleased with our efforts to reduce costs in light of reduced silver and gold prices, while delivering solid outcomes essentially across all of our mines. I believe Dolores' quarterly performance begins to highlight the capabilities of this mine. We expect the operation will stabilize nicely after the capital-intensive pad 3 is commissioned into production this month. Our multi-year efforts and investments to mechanize our operations in Peru are beginning to deliver excellent results and I expect a steady trend of improvement over the next few years as we advance on some interesting underground developments at both of these mines. Our La Colorada, Alamo Dorado and San Vicente mines continue to deliver solid operating performances and I believe we are starting to see a positive turn-around at Manantial Espejo as we expose higher grade ore in the open pit." Busby continued, "Capital expenditures for 2013 are expected to be near $157 million. Looking forward into 2014, further efforts will be made to re-optimize our three Mexican mines under the scenario of the new royalty tax and expected diesel fuel cost increases; however, I do expect to see reduced sustaining capital in 2014 relative to the extensive investments of 2013. Our excellent quarterly operating performance would not have been possible without the dedicated effort of our experienced operating team and I would like to personally thank them for all their efforts."
Subsequent Events
In October 2013, the Mexican Senate approved a bill to introduce a deductible royalty of 7.5% on mine operating income, before certain deductions including amortization and depreciation, as well as a 0.5% royalty on revenues derived from silver, gold and platinum. In addition, the bill proposes a 10% withholding tax on dividends paid to non-resident shareholders (subject to tax treaty reductions). This could result in a significant non-cash adjustment to deferred taxes, which could run through our earnings in the fourth quarter of 2013. Although the bill still requires presidential approval prior to being enacted with an expected January 1, 2014 effective date, Pan American considers the bill substantially enacted and is in the process of evaluating its effect on future cash flows, earnings and growth opportunities in Mexico beyond 2013.
2013 Outlook
Year-to-date, Pan American produced 19.2 million ounces of silver and 103,600 ounces of gold at cash costs of $11.25 per ounce of silver, net of by-product credits and all-in sustaining costs of $18.86 per ounce of silver, net of by-product credits. The Company is confident that it will achieve its full-year 2013 guidance of 25 to 26 million ounces of silver and 125,000 to 135,000 ounces of gold at cash costs below the original forecast of $11.50 to $12.80, net of by-product credits.*
Pan American also expects to produce 38,500 to 41,500 tonnes of zinc, 12,500 to 13,500 tonnes of lead and 4,500 to 5,000 tonnes of copper.
* Cash costs estimations are based on assumed metals prices for H2 2013 of $1,200 per ounce of gold, $1,925 per tonne of zinc, $1,975 per tonne of lead and $7,800 per tonne of copper.
About Pan American
Pan American's mission is to be the world's pre-eminent silver producer, with a reputation for excellence in discovery, engineering, innovation and sustainable development. The Company has seven operating mines in Mexico, Peru, Argentina and Bolivia and several development projects in USA, Mexico, Peru and Argentina.
Technical information contained in this news release with respect to Pan American has been reviewed by Michael Steinmann, P.Geo., Executive VP Corporate Development & Geology, and Martin Wafforn, P.Eng., VP Technical Services, who are the Company's Qualified Persons for the purposes of NI 43-101.
