Pan American Silver Reports Record Quarterly Cash Flow from Operations of $129.5 Million in Q4 2019

2020-02-20

TSXV - TSX Venture Exchange · Canada

Canada NewsWire

VANCOUVER, Feb. 19, 2020

Quarterly Dividend Increased by 43%

All financial figures are in U.S. dollars unless otherwise indicated.

VANCOUVER, Feb. 19, 2020/CNW/ - Pan American Silver Corp.(NASDAQ: PAAS) (TSX: PAAS) today reported unaudited financial results for the year-ended December 31, 2019 ("FY 2019") and the fourth quarter ("Q4 2019"). These results are preliminary and could change based on final audited results. Preliminary production results were previously reported on January 15, 2020.

"Strong, low cost production generated operational cash flow of $282 millionin 2019, which allowed Pan American to retire $60 millionof debt, dividend approximately $29 millionto shareholders, invest in new projects such as our La Colorada skarn discovery, and increase our cash position," said Michael Steinmann, President and Chief Executive Officer of the Company. "In 2020, we are expecting silver and gold production growth of approximately 7% and 16%, respectively. Given our business outlook and strong financial position, Pan American's Board of Directors has increased the quarterly dividend by 43% to $0.05per common share."

Q4 2019 and FY 2019 Highlights:

Revenue in Q4 2019 and FY 2019 totaled $404.4 millionand $1,350.8 million, respectively. Net cash generated from operating activities in Q4 2019 of $129.5 millionwas the highest in the Company's history. Net cash generated from operating activities in FY 2019 was $282.0 million. Net earnings in Q4 2019 and FY 2019 were $51.7 million($0.25basic earnings per share) and $111.2 million($0.55basic earnings per share), respectively. Net earnings in Q4 2019 included a $40.1 millionimpairment charge related to the Manantial Espejo mine in Argentinadue to the increase in export taxes and the challenging business environment in Argentina; partially offset by $33.7 millionin investment income, largely related to our approximately 17% equity interest in New Pacific Metals Corp. Adjusted earnings in Q4 2019 and FY 2019 were $68.9 million($0.33basic adjusted earnings per share) and $158.0 million($0.78basic adjusted earnings per share), respectively. Consolidated annual silver and gold production was 25.9 million ounces and 559.2 thousand ounces, respectively, as previously disclosed on January 15, 2020. Silver Segment Cash Costs and All-in Sustaining Costs ("AISC") in FY 2019 were $6.39and $10.46per silver ounce sold, respectively, both of which were within the Company's 2019 annual guidance. Gold Segment Cash Costs and AISC in FY 2019 were $712and $948per gold ounce sold, respectively, both of which were below the Company's annual guidance for 2019. Consolidated Silver Basis AISC in FY 2019 was $4.44per silver ounce sold, which was well below the Company's 2019 annual guidance range of $6.00to $7.50per ounce. At December 31, 2019, the Company had a cash and short-term investment balance of $238.3 millionand $275.0 millionof bank debt. Working capital was $517.2 million. In 2019, Pan American paid $29.3 millionin dividends ($0.14per share). The Board of Directors has approved an increase in the cash dividend from $0.035to $0.05per common share, for approximately $10.5 millionin aggregate cash dividends, payable on or about March 12, 2020, to holders of record of Pan American's common shares as of the close on March 2, 2020. Pan American's dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada). As is standard practice, the amounts and specific distribution dates of any future dividends will be evaluated and determined by the Board of Directors on an ongoing basis.

Cash Costs, AISC, adjusted earnings, basic adjusted earnings per share, and working capital are not generally accepted accounting principle ("non-GAAP") financial measures. Please refer to the "Alternative Performance (non-GAAP) Measures" section of this news release for further information on these measures.

Fourth Quarter and Year End 2019 Unaudited Results Conference Call and Webcast

Callers should dial in 5 to 10 minutes prior to the scheduled start time. The live webcast and presentation slides will be available on the Company's website at panamericansilver.com. An archive of the webcast will also be available for three months.

All amounts expressed in U.S. dollars unless otherwise indicated.

Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted.

CONSOLIDATED RESULTS

| | | | December 31, 2019 | December 31, 2018 | | | | | | Weighted average shares during period (millions) | | | 201.4 | 153.3 | | | | | | Shares outstanding end of period (millions) | | | 209.8 | 153.4 | | | | | | | | | | | | | | | | | Three months ended December 31, | Year ended December 31, | | | | | | | | | 2019 | 2018 | 2019 | 2018 | | | | | | FINANCIAL | | | | | | | | | | Revenue | $ | 404,379 | $ | 173,357 | $ | 1,350,759 | $ | 784,495 | | Mine operating earnings (loss) | $ | 98,610 | $ | (4,666) | $ | 229,288 | $ | 100,897 | | Net earnings (loss) | $ | 51,706 | $ | (63,577) | $ | 111,244 | $ | 12,041 | | Basic earnings (loss) per share (1) | $ | 0.25 | $ | (0.42) | $ | 0.55 | $ | 0.07 | | Adjusted earnings (loss) (2) | $ | 68,908 | $ | (2,022) | $ | 157,987 | $ | 59,434 | | Basic adjusted earnings (loss) per share (1) | $ | 0.33 | $ | (0.01) | $ | 0.78 | $ | 0.39 | | Net cash generated from operating activities | $ | 129,473 | $ | 11,930 | $ | 282,028 | $ | 154,978 | | Net cash generated from operating activities before changes in working capital (2) | $ | 124,727 | $ | 16,827 | $ | 309,972 | $ | 159,239 | | Sustaining capital expenditures | $ | 46,187 | $ | 31,150 | $ | 179,096 | $ | 106,913 | | Project capital expenditures | $ | 9,504 | $ | 13,151 | $ | 43,627 | $ | 44,702 | | Cash dividend per share | $ | 0.035 | $ | 0.035 | $ | 0.140 | $ | 0.140 | | PRODUCTION | | | | | | | | | | Silver (thousand ounces) | 6,622 | 6,127 | 25,886 | 24,775 | | | | | | Gold (thousand ounces) | 173.9 | 37.2 | 559.2 | 178.9 | | | | | | Zinc (thousand tonnes) | 16.6 | 18.5 | 67.6 | 64.8 | | | | | | Lead (thousand tonnes) | 7.2 | 6.3 | 27.3 | 22.4 | | | | | | Copper (thousand tonnes) | 2.3 | 2.2 | 8.7 | 9.8 | | | | | | CASH COSTS (2) ($/ounce) | | | | | | | | | | Silver Segment | 7.80 | 5.82 | 6.39 | 3.36 | | | | | | Gold Segment | 693 | n/a | 712 | n/a | | | | | | AISC (2) ($/ounce) | | | | | | | | | | Silver Segment | 11.37 | 14.69 | 10.46 | 9.48 | | | | | | Gold Segment | 901 | n/a | 948 | n/a | | | | | | Consolidated Silver Basis | 1.04 | 16.19 | 4.44 | 10.77 | | | | | | Average realized prices | | | | | | | | | | Silver ($/ounce)(3) | 17.84 | 14.35 | 16.34 | 15.61 | | | | | | Gold ($/ounce)(3) | 1,479 | 1,232 | 1,406 | 1,272 | | | | | | Zinc ($/tonne)(3) | 2,325 | 2,508 | 2,535 | 2,846 | | | | | | Lead ($/tonne)(3) | 2,078 | 1,914 | 1,997 | 2,189 | | | | | | Copper ($/tonne)(3) | 5,840 | 6,098 | 5,973 | 6,519 | | | | |

| (1) | Per share amounts are based on basic weighted average common shares. | | (2) | Non-GAAP measures: Cash Costs, All-in Sustaining Costs (AISC), adjusted earnings, basic adjusted earnings per share, and net cash generated from operating activities before changes in working capital are non-GAAP financial measures. Please refer to the "Alternative Performance (non-GAAP) Measures" section of this news release for further information on these measures. | | (3) | Metal prices stated are inclusive of final settlement adjustments on concentrate sales. |

2019 Annual Results Compared to 2019 Forecast

The Company's 2019 annual production, Cash Costs, AISC and capital expenditures compared to Management's most recent annual forecast amounts are as follows:

| | 2019 Actual | Forecast Range (1) | | Production | | | | Silver (million ounces) | 25.9 | 25.3 - 26.3 | | Gold (thousand ounces) | 559.2 | 550.0 - 600.0 | | Zinc (thousand tonnes) | 67.6 | 65.0 - 67.0 | | Lead (thousand tonnes) | 27.3 | 24.0 - 25.0 | | Copper (thousand tonnes) | 8.7 | 9.8 - 10.3 | | Cash Costs(2) ($/ounce) | | | | Silver Segment | 6.39 | 6.00 - 7.00 | | Gold Segment | 712 | 725 - 775 | | Consolidated Silver Basis | (4.89) | (5.50) - (3.80) | | AISC(2)($/ounce) | | | | Silver Segment | 10.46 | 9.50 - 11.00 | | Gold Segment | 948 | 1,000 - 1,100 | | Consolidated Silver Basis | 4.44 | 6.00 - 7.50 | | Capital Expenditures ($ millions) | | | | Sustaining Capital | 179.1 | 203.0 - 213.0 | | Project Capital | 43.6 | 45.0 | | Total Capital | 222.7 | 248.0 - 258.0 |

| (1) | Forecast amounts represent Management's most recent annual forecasts made or reaffirmed in the Company's Management Discussion and Analysis (MD&A) for the third quarter of 2019, dated November 6, 2019. | | (2) | Cash Costs and AISC are non-GAAP measures. Please refer to the section "Alternative Performance (Non-GAAP) Measures" of this news release for a detailed description of these measures and where appropriate a reconciliation. |

Consolidated Statements of Financial Position (Unaudited in thousands of U.S. dollars)

| | December 31, 2019 | December 31, 2018 | | | | Assets | | | | | | Current assets | | | | | | Cash and cash equivalents | $ | 120,564 | $ | 138,510 | | Short-term investments | 117,776 | 74,004 | | | | Trade and other receivables | 168,753 | 96,091 | | | | Income taxes receivable | 17,209 | 13,108 | | | | Inventories | 346,507 | 214,465 | | | | Derivative financial instruments | 1,272 | 640 | | | | Prepaid expenses and other current assets | 16,838 | 11,556 | | | | | 788,919 | 548,374 | | | | Non-current assets | | | | | | Mineral properties, plant and equipment | 2,504,901 | 1,301,002 | | | | Inventories | 24,209 | — | | | | Long-term refundable tax | 17,900 | 70 | | | | Deferred tax assets | 36,447 | 12,244 | | | | Investment in associates | 84,319 | 70,566 | | | | Goodwill & other assets | 4,987 | 5,220 | | | | Total Assets | $ | 3,461,682 | $ | 1,937,476 | | | | | | | | Liabilities | | | | | | Current liabilities | | | | | | Accounts payable and accrued liabilities | $ | 225,330 | $ | 131,743 | | Derivative financial instruments | — | 51 | | | | Current portion of provisions | 7,372 | 5,072 | | | | Current portion of lease obligations | 14,198 | 5,356 | | | | Income tax payable | 24,770 | 8,306 | | | | | 271,670 | 150,528 | | | | Non-current liabilities | | | | | | Long-term portion of provisions | 188,012 | 70,083 | | | | Deferred tax liabilities | 176,808 | 148,819 | | | | Long-term portion of lease obligations | 27,010 | 1,320 | | | | Debt | 275,000 | — | | | | Deferred revenue | 12,542 | 13,288 | | | | Other long-term liabilities | 27,754 | 25,425 | | | | Share purchase warrants | 15,040 | 14,664 | | | | Total Liabilities | 993,836 | 424,127 | | | | | | | | | | Equity | | | | | | Capital and reserves | | | | | | Issued capital | 3,123,514 | 2,321,498 | | | | Reserves | 94,274 | 22,573 | | | | Investment revaluation reserve | — | 208 | | | | Deficit | (754,689) | (836,067) | | | | Total Equity attributable to equity holders of the Company | 2,463,099 | 1,508,212 | | | | Non-controlling interests | 4,747 | 5,137 | | | | Total Equity | 2,467,846 | 1,513,349 | | | | Total Liabilities and Equity | $ | 3,461,682 | $ | 1,937,476 |

Consolidated Income Statements (Unaudited in thousands of U.S. dollars except per share amounts)

| | Three months ended December 31, | Year ended December 31, | | | | | | | | | 2019 | 2018 | 2019(1) | 2018 | | | | | | Revenue | $ | 404,379 | $ | 173,357 | $ | 1,350,759 | $ | 784,495 | | Cost of sales | | | | | | | | | | Production costs | (229,594) | (136,177) | (841,297) | (515,636) | | | | | | Depreciation and amortization | (68,239) | (37,245) | (253,453) | (147,289) | | | | | | Royalties | (7,936) | (4,601) | (26,721) | (20,673) | | | | | | | (305,769) | (178,023) | (1,121,471) | (683,598) | | | | | | Mine operating earnings (loss) | 98,610 | (4,666) | 229,288 | 100,897 | | | | | | | | | | | | | | | | General and administrative | (10,009) | (5,450) | (31,752) | (22,649) | | | | | | Exploration and project development | (2,562) | (3,509) | (11,684) | (11,138) | | | | | | Mine care and maintenance | (8,008) | — | (23,662) | — | | | | | | Foreign exchange gains (losses) | 2,970 | 406 | (5,003) | (9,326) | | | | | | Impairment charges | (40,050) | (27,789) | (40,050) | (27,789) | | | | | | Gains on commodity and foreign currency contracts | 1,564 | 524 | 3,315 | 4,930 | | | | | | Gains (losses) on sale of mineral properties, plant and equipment | 1,040 | (56) | 3,858 | 7,973 | | | | | | Share of income (loss) from associate and dilution gain | 14,246 | (182) | 15,245 | 13,679 | | | | | | Transaction and integration costs | 197 | (10,229) | (7,515) | (10,229) | | | | | | Other expense | (5,754) | (2,795) | (4,936) | (3,659) | | | | | | Earnings (loss) from operations | 52,244 | (53,746) | 127,104 | 42,689 | | | | | | | | | | | | | | | | Loss on derivatives | — | (60) | (14) | (1,078) | | | | | | Investment income (loss) | 33,741 | (1,428) | 84,704 | (284) | | | | | | Interest and finance expense | (8,327) | (2,305) | (29,282) | (8,139) | | | | | | Earnings (loss) before income taxes | 77,658 | (57,539) | 182,512 | 33,188 | | | | | | Income tax expense | (25,952) | (6,038) | (71,268) | (21,147) | | | | | | Net earnings (loss) for the period | $ | 51,706 | $ | (63,577) | $ | 111,244 | $ | 12,041 | | | | | | | | | | | | Attributable to: | | | | | | | | | | Equity holders of the Company | 51,927 | (63,809) | 110,738 | 10,294 | | | | | | Non-controlling interests | (221) | 232 | 506 | 1,747 | | | | | | | $ | 51,706 | $ | (63,577) | $ | 111,244 | $ | 12,041 | | | | | | | | | | | | Earnings (loss) per share attributable to common shareholders | | | | | | | | | | Basic earnings (loss) per share | $ | 0.25 | $ | (0.42) | $ | 0.55 | $ | 0.07 | | Diluted earnings (loss) per share | $ | 0.25 | $ | (0.42) | $ | 0.55 | $ | 0.07 | | Weighted average shares outstanding (in 000's) Basic | 209,671 | 153,352 | 201,397 | 153,315 | | | | | | Weighted average shares outstanding (in 000's) Diluted | 209,873 | 153,504 | 201,571 | 153,522 | | | | |

| | | | (1) | The purchase price allocation ("PPA") for the Tahoe acquisition was finalized in Q4 2019, and the previously reported $30.5 million bargain purchase gain was removed from 2019 net income; as such, net income for the three months ended March 31, 2019 ("Q1 2019") will be restated to reflect this $30.5 million reduction to previously reported Q1 2019 net income. |

Consolidated Statements of Comprehensive Income (Unaudited in thousands of U.S. dollars)

| | Three months ended December 31, | Year ended December 31, | | | | | | | | | 2019 | 2018 | 2019 | 2018 | | | | | | Net earnings (loss) for the period | $ | 51,706 | $ | (63,577) | $ | 111,244 | $ | 12,041 | | Items that may be reclassified subsequently to net earnings: | | | | | | | | | | Unrealized net gains on short-term investments (net of $nil tax in 2019 and 2018) | — | 332 | — | 993 | | | | | | Reclassification adjustment for realized gains on short-term investments to earnings | — | (294) | (208) | (788) | | | | | | Total comprehensive earnings (loss) for the period | $ | 51,706 | $ | (63,539) | $ | 111,036 | $ | 12,246 | | | | | | | | | | | | Total comprehensive earnings (loss) attributable to: | | | | | | | | | | Equity holders of the Company | $ | 51,927 | $ | (63,771) | $ | 110,530 | $ | 10,499 | | Non-controlling interests | (221) | 232 | 506 | 1,747 | | | | | | | $ | 51,706 | $ | (63,539) | $ | 111,036 | $ | 12,246 |

Consolidated Statements of Cash Flows (Unaudited in thousands of U.S. dollars)

| | Three months ended December 31, | Year ended December 31, | | | | | | | | | 2019 | 2018 | 2019 | 2018 | | | | | | Cash flow from operating activities | | | | | | | | | | Net earnings (loss) for the period | $ | 51,706 | $ | (63,577) | $ | 111,244 | $ | 12,041 | | | | | | | | | | | | Current income tax expense | 36,433 | 9,999 | 92,129 | 53,901 | | | | | | Deferred income tax recovery | (10,481) | (3,961) | (20,861) | (32,754) | | | | | | Interest expense (recovery) | 4,762 | 117 | 16,879 | (678) | | | | | | Depreciation and amortization | 68,239 | 37,245 | 253,453 | 147,289 | | | | | | Impairment charges | 40,050 | 27,789 | 40,050 | 27,789 | | | | | | Accretion on closure and decommissioning provision | 2,583 | 1,631 | 9,903 | 6,524 | | | | | | Unrealized foreign exchange (gains) losses | (1,395) | (348) | 6,057 | 10,337 | | | | | | (Gain) loss on sale of mineral properties, plant and equipment | (1,040) | 56 | (3,858) | (7,973) | | | | | | Other operating activities | (47,630) | 19,824 | (96,277) | 17,724 | | | | | | Changes in non-cash operating working capital | 4,746 | (4,897) | (27,944) | (4,261) | | | | | | Operating cash flows before interest and income taxes | $ | 147,973 | $ | 23,878 | $ | 380,775 | $ | 229,939 | | | | | | | | | | | | Interest paid | (4,038) | (417) | (16,944) | (1,684) | | | | | | Interest received | 75 | 561 | 776 | 1,944 | | | | | | Income taxes paid | (14,537) | (12,092) | (82,579) | (75,221) | | | | | | Net cash generated from operating activities | $ | 129,473 | $ | 11,930 | $ | 282,028 | $ | 154,978 | | | | | | | | | | | | Cash flow from investing activities | | | | | | | | | | Payments for mineral properties, plant and equipment | $ | (50,319) | $ | (42,302) | $ | (205,807) | $ | (144,348) | | Tahoe acquisition(1) | — | — | (247,479) | — | | | | | | Acquisition of mineral interests | — | — | (1,545) | (7,500) | | | | | | Net (purchase of) proceeds from sale of short-term investments | (1,849) | (10,020) | 39,727 | (25,554) | | | | | | Proceeds from sale of mineral properties, plant and equipment | 103 | 4 | 10,267 | 15,781 | | | | | | Net proceeds from commodity, diesel fuel swaps, and foreign currency contracts | 518 | 1,289 | 2,669 | 2,449 | | | | | | Net cash used in investing activities | $ | (51,547) | $ | (51,029) | $ | (402,168) | $ | (159,172) | | | | | | | | | | | | Cash flow from financing activities | | | | | | | | | | Proceeds from issue of equity shares | $ | 1,171 | $ | — | $ | 2,781 | $ | 1,081 | | Distributions to non-controlling interests | (10) | (1,158) | (924) | (2,020) | | | | | | Dividends paid | (7,337) | (5,366) | (29,332) | (21,284) | | | | | | Proceeds from credit facility | — | — | 335,000 | — | | | | | | Repayment of credit facility | (40,000) | — | (185,000) | — | | | | | | Repayment of short-term loans | — | — | — | (3,000) | | | | | | Payment of lease obligations | (5,726) | (2,223) | (19,270) | (7,911) | | | | | | Net cash (used in) generated from financing activities | $ | (51,902) | $ | (8,747) | $ | 103,255 | $ | (33,134) | | Effects of exchange rate changes on cash and cash equivalents | (173) | (68) | (1,061) | (115) | | | | | | Net increase (decrease) in cash and cash equivalents | 25,851 | (47,914) | (17,946) | (37,443) | | | | | | Cash and cash equivalents at the beginning of the period | 94,713 | 186,424 | 138,510 | 175,953 | | | | | | Cash and cash equivalents at the end of the period | $ | 120,564 | $ | 138,510 | $ | 120,564 | $ | 138,510 |

| | | | (1) | On February 22, 2019, the Company completed the acquisition of 100% of the issued and outstanding shares of Tahoe Resources Inc. ("Tahoe"). The cash invested represents consideration paid to Tahoe shareholders of $275 million net of cash received. |

INDIVIDUAL MINE OPERATION RESULTS

The operating metrics, Cash Costs, AISC, and sustaining capital cash outflows for each of the Company's operating mines for the three and twelve months ending December 31, 2019, and 2018, are included in the following tables. Cash Costs and AISC are non-GAAP financial measures that do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. A detailed description and reconciliation of these measures to cost of sales is included in the "Alternative Performance (Non-GAAP) Measures" section of this news release.