Pan American Silver reports audited financial results for 2021 and provides 2022 guidance

2022-02-24

TSX - Toronto Stock Exchange · Gold · Canada · Corporate Finance

Canada NewsWire

Announces 20% increase to the declared dividend and a new dividend policy

VANCOUVER, BC , Feb. 23, 2022 /CNW/ - Pan American Silver Corp. (NASDAQ: PAAS) (TSX: PAAS) ("Pan American" or the "Company") today reported fourth quarter ("Q4 2021") financial results and audited financial results for the year ended December 31, 2021 ("FY 2021"). The Company also provided its outlook for 2022 production, costs and capital expenditures, and announced a new dividend policy with a 20% increase to the dividend declared today.

"Q4 2021 marked a clear improvement in production and Silver Segment costs over the first three quarters of the year, contributing to cash flow from operations in the quarter of $118.1 million ," said Michael Steinmann , President and Chief Executive Officer. "Our guidance for 2022 assumes the COVID-19 impact will diminish over the course of the year, while incorporating the effect of lower workforce deployment levels in January and February due to the Omicron variant. We are evaluating strategic alternatives for Morococha and have excluded the mine from our 2022 guidance while placing the operation on care and maintenance."

Added Mr. Steinmann: "Strong operational cash flows resulted in a $116.4 million increase to our cash balances in 2021. Pan American exited the year with cash and cash equivalents of $283.6 million and short term investments of $51.7 million , enabling us to increase the return to our shareholders through a new dividend policy announced today. At the same time, our strong financial position allows us to invest in growth by advancing our large La Colorada Skarn project. In 2022, we plan to complete 55,000 metres of infill and exploration drilling and commence development of the access ramp and ventilation shaft for the Skarn."

Q4 2021 and FY 2021 Highlights:

Preliminary production results were previously reported on January 19, 2022 . Consistent with that disclosure, consolidated silver production was 5.3 million ounces in Q4 2021 and 19.2 million ounces in FY 2021. Consolidated gold production was 156.7 thousand ounces in Q4 2021 and 579.3 thousand ounces in FY 2021. Silver and gold production in 2021 were both within the revised guidance ranges provided on November 9, 2021 . Revenue was $422.2 million in Q4 2021 and $1.6 billion for FY 2021. Revenue in Q4 2021 was impacted by timing of sales, with a 13.3 thousand ounce build in gold finished goods inventory. Net earnings were $14.7 million ( $0.07 basic earnings per share) and $98.6 million ( $0.46 basic earnings per share) in Q4 2021 and FY 2021, respectively. FY 2021 net earnings included mark-to-market losses on short-term investments of $59.7 million , primarily for our interest in New Pacific Metals Corp. and an income tax expense of $146.4 million . The high effective tax rate primarily reflects a significant number of expenses in the year with no corresponding tax benefit, largely the Escobal care and maintenance expenditures and the non-cash investment losses related to New Pacific. Adjusted earnings were $39.9 million ( $0.19 basic adjusted earnings per share) and $161.8 million ( $0.77 basic adjusted earnings per share) in Q4 2021 and FY 2021, respectively. Net cash generated from operating activities was $118.1 million and $392.1 million in Q4 2021 and FY 2021, respectively. FY 2021 Silver Segment Cash Costs and All-in Sustaining Costs ("AISC") of $11.51 and $15.62 per silver ounce sold, respectively, were slightly lower than the revised guidance provided on November 9, 2021 . FY 2021 Gold Segment Cash Costs and AISC of $899 and $1,214 per gold ounce sold, respectively, were within the guidance ranges provided throughout 2021. Capital expenditures totaled $254.1 million in 2021, comprised of $207.6 million of sustaining capital and $46.5 million of project capital. The project capital was largely invested in the La Colorada Skarn project for exploration drilling, development studies, and the start of construction of the concrete-lined ventilation shaft and refrigeration plant. Project capital was also invested at Timmins for the Wetmore exploration project. Sustaining capital was below and project capital was above the revised guidance provided on November 9, 2021 . At December 31, 2021, the Company had cash and short-term investment balances of $335.3 million , working capital of $613.5 million , and the full $500.0 million available under its sustainability-linked credit facility. Total debt of $45.9 million was related to lease liabilities and construction loans.

Pan American introduces a new dividend policy

The Board of Directors has approved a new dividend policy , which adds a variable amount to a base dividend of $0.10 per common share paid on a quarterly basis. The variable quarterly dividend will be linked to the net cash on the balance sheet for the previous quarter, as illustrated in the following table:

Based on the new dividend policy, the Board of Directors has approved a 20% increase in the cash dividend to $0.12 per common share , or approximately $25.3 million in aggregate cash dividends, payable on or about March 21, 2022 , to holders of record of Pan American's common shares as of the close on March 7, 2022 . As at December 31, 2021 , the Net Cash Position of $237.7 million is calculated in the following table:

| | | | Cash and cash equivalents | 283,550 | | Short-term investments, other than equity securities (1) | — | | Total debt | (45,861) | | Net cash | 237,689 |

| | | (1) As at December 31, 2021, the Company's short-term investments are comprised entirely of equity investments and largely in exploration and development companies. |

ILO 169 Consultation for Escobal underway

The Company is pleased to report that the pre-consultation meetings for the court-mandated ILO 169 consultation process for the Escobal mine in Guatemala have resumed following delays due to COVID-19. Three pre-consultation meetings were held in 2021, and additional meetings were held in January and February of 2022. The Guatemalan Ministry of Energy and Mines is leading the consultation process with the Xinka People, and Pan American is a participant. Pan American looks forward to continuing its participation in a transparent, respectful and inclusive process during 2022.

Morococha operation transitions into care and maintenance

As previously disclosed, in June 2010 , we completed a framework agreement with Aluminum Corporation of China ("Chinalco"), which required the relocation of core Morococha facilities, including the Amistad processing plant, in stages to enable the gradual expansion of Chinalco's Toromocho open pit copper mine. In early 2022, we agreed with Chinalco to complete the closure of the Amistad plant and we will be placing the Morococha operation on care and maintenance as we evaluate alternative opportunities, including monetization, joint venture operation of the asset, or accelerating exploration of prospective areas that could enhance the attractiveness of allocating capital to build a new processing facility.

Mr. Ignacio Couturier appointed Chief Financial Officer of Pan American

Pan American is pleased to announce the appointment of Ignacio Couturier to succeed Rob Doyle , who is retiring as Chief Financial Officer (CFO) of Pan American. Ignacio has been with Pan American for 20 years in progressively more senior roles, most recently as VP Finance. He will assume the position of CFO effective March 1, 2022 , and will be based in our Head Office in Vancouver . Over the past six months, the Company has conducted a rigorous global selection process in which both external and internal candidates were assessed for the role. We are pleased that this process has resulted in the selection of an internal candidate with a detailed understanding of Pan American's business.

CONSOLIDATED RESULTS

| | | | December 31, 2021 | December 31, 2020 | | | | | | Weighted average shares during period (millions) | | | 210.3 | 210.1 | | | | | | Shares outstanding end of period (millions) | | | 210.5 | 210.3 | | | | | | | | | | | | | | | | | Three months ended

December 31, | Year ended

December 31, | | | | | | | | | 2021 | 2020 | 2021 | 2020 | | | | | | FINANCIAL | | | | | | | | | | Revenue | $ | 422,170 | $ | 430,461 | $ | 1,632,750 | $ | 1,338,812 | | Mine operating earnings | $ | 76,039 | $ | 137,172 | $ | 367,938 | $ | 360,177 | | Net earnings | $ | 14,664 | $ | 169,018 | $ | 98,562 | $ | 176,455 | | Basic earnings per share (1) | $ | 0.07 | $ | 0.80 | $ | 0.46 | $ | 0.85 | | Adjusted earnings (2) | $ | 39,943 | $ | 89,885 | $ | 161,782 | $ | 181,243 | | Basic adjusted earnings per share (1) | $ | 0.19 | $ | 0.43 | $ | 0.77 | $ | 0.86 | | Net cash generated from operating activities | $ | 118,098 | $ | 170,571 | $ | 392,108 | $ | 462,315 | | Net cash generated from operating activities before changes in working capital (2) | $ | 127,761 | $ | 151,995 | $ | 463,177 | $ | 365,333 | | Sustaining capital expenditures (2) | $ | 56,280 | $ | 52,007 | $ | 207,623 | $ | 162,047 | | Project capital expenditures (2) | $ | 16,899 | $ | 3,753 | $ | 46,476 | $ | 21,545 | | Cash dividend per share | $ | 0.10 | $ | 0.07 | $ | 0.34 | $ | 0.22 | | PRODUCTION | | | | | | | | | | Silver (thousand ounces) | 5,276 | 4,872 | 19,174 | 17,312 | | | | | | Gold (thousand ounces) | 156.7 | 152.9 | 579.3 | 522.4 | | | | | | Zinc (thousand tonnes) | 11.2 | 14.2 | 49.4 | 40.2 | | | | | | Lead (thousand tonnes) | 4.1 | 5.4 | 18.1 | 15.7 | | | | | | Copper (thousand tonnes) | 2.4 | 2.3 | 8.7 | 5.2 | | | | | | CASH COSTS (2) ($/ounce) | | | | | | | | | | Silver Segment (3) | 9.74 | 6.15 | 11.51 | 7.05 | | | | | | Gold Segment (4) | 963 | 763 | 899 | 797 | | | | | | AISC (2) ($/ounce) | | | | | | | | | | Silver Segment (3) | 13.57 | 10.37 | 15.62 | 11.38 | | | | | | Gold Segment (4) | 1,461 | 1,023 | 1,214 | 1,011 | | | | | | AVERAGE REALIZED PRICES (6) | | | | | | | | | | Silver ($/ounce) | 23.33 | 24.72 | 25.00 | 20.60 | | | | | | Gold ($/ounce) | 1,792 | 1,874 | 1,792 | 1,758 | | | | | | Zinc ($/tonne) | 3,352 | 2,566 | 2,997 | 2,288 | | | | | | Lead ($/tonne) | 2,333 | 1,922 | 2,206 | 1,851 | | | | | | Copper ($/tonne) | 9,545 | 7,234 | 9,297 | 6,412 | | | | | | (1) Per share amounts are based on basic weighted average common shares. | | | | | | | | | | (2) Non- GAAP measure; please refer to the "Alternative Performance (non-GAAP) Measures" section of this news release for further information on these measures. | | | | | | | | | | (3) As of Q1 2021, Dolores was moved from the Silver Segment to the Gold Segment due to the expected mine sequencing into a higher gold zone of the mine. 2021 Silver Segment is comprised of the following operations: La Colorada, Huaron, Morococha, San Vicente and Manantial Espejo. The 2020 Silver Segment metrics include Dolores. | | | | | | | | | | (4) 2021 Gold Segment is comprised of the following operations: Dolores, Shahuindo, La Arena and Timmins. The 2020 Gold Segment metrics exclude Dolores. | | | | | | | | | | (5) Consolidated per silver ounce sold is based on total silver ounces sold and are net of by-product credits, including gold revenues. Corporate general and administrative expense and exploration and project development expense are included in Consolidated AISC, but not allocated amongst the operations and thus are not included in either the silver or gold segment totals. | | | | | | | | | | (6) Metal prices stated are inclusive of final settlement adjustments on concentrate sales. | | | | | | | | |

2022 GUIDANCE

The following tables provide management's guidance for 2022, as at February 23, 2022 . The estimates below are forward-looking statements and information that are subject to the cautionary note associated with forward-looking statements and information at the end of this news release.

Annual Production Guidance, as at February 23, 2022

| Silver – Moz | | 19.0 - 20.5 | | Gold – koz | | 550.0 - 605.0 | | Zinc – kt | | 35.0 - 40.0 | | Lead – kt | | 15.0 - 17.0 | | Copper – kt | | 5.5 - 6.5 |

The 2022 silver production forecast assumes production at La Colorada increases to a range of 6.85 to 7.10 million ounces, and excludes Morococha because of the decision to place that operation on care and maintenance in early 2022. Relative to 2021, silver production at Dolores is expected to increase from an improvement in silver grades. The forecast also assumes lower than normal capacity throughput rates across the operations due to COVID-19 related impacts on workforce levels for the early part of the year, with the impact expected to diminish over the course of the year. Accordingly, production in 2022 is expected to be back loaded to the second half of the year.

The forecast for 2022 gold production incorporates increases at Dolores and Shahuindo, relative to 2021, from improvements in irrigation efficiencies, which allow for a higher ratio of ounces produced to stacked. Production is expected to be lower at La Arena and Manantial Espejo relative to 2021, largely from lower grades due to mine sequencing.

Base metal production is expected to decrease for zinc, lead and copper in 2022 compared to 2021. The expected decreases are largely driven by Morococha being placed on care and maintenance, which more than offsets the increased throughput and grades at La Colorada and Huaron.

Cash Costs and AISC Guidance, as at February 23, 2022

| | Cash Costs (1)(2)

($ per ounce) | AISC (1)(2)

($ per ounce) | | Silver Segment Total | 10.70 - 12.20 | 14.50 - 16.00 | | Gold Segment Total | 970 - 1,070 | 1,240 - 1,365 | | (1) Cash Costs and AISC are non-GAAP measures. Please refer to the "Alternative Performance (non-GAAP) Measures" section of this news release for further information on these measures. | | | | (2) The cash costs and AISC forecasts assume average metal prices of $22.50/oz for silver, $1,750/oz for gold, $3,000/tonne ($1.36/lb) for zinc, $2,200/tonne ($1.00/lb) for lead, and $9,200/tonne ($4.17/lb) for copper; and average annual exchange rates relative to 1 USD of 20.00 for the Mexican peso ("MXN"), 4.10 for the Peruvian sol ("PEN"), 122.17 for the Argentine peso ("ARS"), 7.00 for the Bolivian boliviano ("BOB"), and $1.25 for the Canadian dollar ("CAD"). | | |

Silver Segment cash costs and AISC are expected to benefit from improved throughput and production rates at La Colorada and the anticipated easing of COVID-19 related restrictions during the year. These improvements are expected to be largely offset by: inflationary pressures across the portfolio; the completion of mining activities at the high-grade COSE deposit at Manantial Espejo, resulting in lower gold by-product credits in 2022; and higher development rates at San Vicente.

Gold Segment cash costs in 2022 include inflationary pressures across the portfolio, higher community and environmental spending, higher waste mining rates at Shahuindo, increased depth and greater requirements for ground support and backfill at Timmins .

Capital Expenditures Guidance, as at February 23, 2022

| | (in millions of USD) | | Sustaining Capital (1) | 200.0 - 210.0 | | Project Capital | 80.0 - 95.0 | | Total Capital | 280.0 - 305.0 | | (1) Sustaining Capital includes $24.0 million for forecast lease and other payments, which include debt repayments on construction loan facilities classified as "Debt" as per Note 17 of the Company's 2021 Financial Statements. These facilities are for constructions of pads and other infrastructure in which the Company only makes cash payments upon completion of construction activities and on a scheduled basis. | |

Sustaining capital expenditures in 2022 are consistent with 2021. Sustaining capital in 2022 includes increased spending at La Colorada to advance development of the mine at depth using more mechanized long-hole stoping methods, aimed at increasing throughput and reducing unit costs over the next few years. Sustaining capital at La Colorada also includes further investment in underground ventilation infrastructure.

Project capital in 2022 is directed towards the La Colorada Skarn project for further exploration and infill drilling, and engineering studies to determine the optimal project design. On November 9, 2021 , Pan American released further drill results for the Skarn, which indicated the potential for Mineral Resource expansion. At La Colorada , the Company is also investing in site infrastructure upgrades, notably the commencement of ramp development in mid-2022 to eventually access the Skarn deposit, the advancement of the concrete-lined ventilation shaft, and completion and commissioning of a refrigeration plant. These infrastructure upgrades are expected to benefit both the long-term development of the Skarn and the current vein system operation.

In addition, 2022 project capital is directed at the Timmins operation for the construction of a paste fill plant at Bell Creek to improve backfill quality and availability for more effective ground support systems, and to increase mineral resource recovery. Timmins' project capital also includes exploration expenditures related to the Wetmore and Whitney projects.

2022 Exploration Expenditures Forecast

Exploration expenditures in 2022, including amounts that will be expensed and capitalized, are expected to total between $42.0 million and $46.0 million , comprised of: (1) $12.0 million to $13.0 million for 95,000 metres of near-mine brownfield exploration drilling targeting reserve replacement, which is included in the forecast for 2022 sustaining capital expenditures for each mine; (2) $8.0 million to $9.0 million in regional, greenfield exploration in Peru, Mexico and Canada and corporate overhead; and (3) $22.0 million to $24.0 million for drilling the La Colorada Skarn and adjacent vein systems, as well as exploring the Wetmore and Whitney projects adjacent to the Bell Creek mine in Timmins , which is included in the forecast for 2022 project capital expenditures.

Fourth Quarter Consolidated Income Statements (unaudited)

| | Three months ended December 31, | | | | | | 2021 | 2020 | | | | Revenue | $ | 422,170 | $ | 430,461 | | Cost of sales | | | | | | Production costs | (263,442) | (206,702) | | | | Depreciation and amortization | (76,141) | (77,464) | | | | Royalties | (6,548) | (9,123) | | | | | (346,131) | (293,289) | | | | Mine operating earnings | 76,039 | 137,172 | | | | | | | | | | General and administrative | (8,255) | (10,681) | | | | Exploration and project development | (4,076) | (1,091) | | | | Mine care and maintenance | (9,266) | (6,755) | | | | Foreign exchange losses | (5,646) | (1,206) | | | | Gains on derivatives | 1,638 | 7,289 | | | | (Losses) gains on sale of mineral properties, plant and equipment | (551) | 9,832 | | | | Income from equity investees | 289 | 12,340 | | | | Other income (expense) | 2,530 | (13,517) | | | | Earnings from operations | 52,702 | 133,383 | | | | | | | | | | Investment (loss) income | (6,083) | 30,603 | | | | Interest and finance expense | (3,484) | (4,483) | | | | Earnings before income taxes | 43,135 | 159,503 | | | | Income tax (expense) recovery | (28,471) | 9,515 | | | | Net earnings and comprehensive earnings | $ | 14,664 | $ | 169,018 | | | | | | | | Net earnings and comprehensive earnings attributable to: | | | | | | Equity holders of the Company | 14,036 | 168,885 | | | | Non-controlling interests | 628 | 133 | | | | | $ | 14,664 | $ | 169,018 | | | | | | | | Earnings per share attributable to common shareholders | | | | | | Basic earnings per share | $ | 0.07 | $ | 0.80 | | Diluted earnings per share | $ | 0.07 | $ | 0.80 | | Weighted average shares outstanding (in 000's) Basic | 210,348 | 210,193 | | | | Weighted average shares outstanding (in 000's) Diluted | 210,450 | 210,370 | | |

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