Title

Presentation

Operator: Good morning, ladies and gentlemen, and welcome to the Pan American Silver’s First Quarter 2024 Unaudited Results Conference Call and Webcast. At this time, all lines in a listen-only mode. Following the presentation, we’ll conduct a question-and-answer session. [Operator Instructions] Also note that this call is being recorded on Thursday, May 9, 2024. And I would like to turn the conference over to Siren Fisekci, VP Investor Relations. Please go ahead.

Siren Fisekci: Thank you for joining us today for Pan American Silver’s Q1 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 Q1, 2024 unaudited results, all of which are available on our website. I’ll now turn the call over to Michael Steinmann, Pan American’s President and CEO.

Michael Steinmann: Thanks, Siren and thank you, everyone for joining us today. Our Q1 operating results were in line, or better than expected. Silver and gold production were within our guided ranges. And I am particularly pleased with our strong performance on controlling costs. Cash costs and all-in sustaining costs, excluding net realizable value inventory adjustments for both Silver and Gold segments were lower than quarterly guidance. Operations generated $133.2 million of cash flow before working capital changes in Q1. This includes $41.1 million in cash taxes paid, with Q1 typically being the quarter with the highest cash tax payments. We recorded a $30.8 million net loss or $0.08 loss per share in Q1, which includes a $34.4 million tax expense of which $15.2 million is related to an inflation adjustment in Argentina, $14.4 million of net realizable value inventory expense and a $10.8 million non-cash investment loss largely due to the decrease of the New Pacific Metals Corp share price.

Adjusted earnings were $4.7 million or $0.01 per share. We exited Q1 in a strong financial position. Cash and investments totaled $331.4 million, and we have the full $750 million available under our undrawn credit facility. Total available liquidity is $1.1 billion. This strong financial position allowed us to return $58 million of capital to shareholders in Q1, $36.5 million in total cash dividends paid, and $21.5 million in share buybacks. Following the approval of our share buyback program on March 4, 2024, we repurchased approximately 1.7 million shares at an average price of $14.16 per share for cancellation, inclusive of shares that settled in April. We intend to continue to take an opportunistic approach to future share buybacks. We maintained a dividend announcing yesterday, a cash dividend of $0.10 per common share.

In addition to maintaining a robust shareholder returns framework, we are investing in our operations for safe and efficient improvements in performance. Operations performed largely in line with expectations. Although Dolores was weaker than expected, due to lower grades and heavy rains that required us, to reduce irrigation rates, resulting in a lower ratio of ounces recovered to ounces stacked. NRV adjustments at Dolores also increased all-in sustaining costs by $838 per ounce. Excluding NRV adjustments, Dolores all-in sustaining costs were $1,529 per ounce. At La Colorada, the new ventilation infrastructure is on track for completion in mid-2024. We expect this will lead to significant improvement in the ventilation conditions in the mine, which will allow us to accelerate the development rates by opening more areas for production.

This is expected to lead to higher mining rates, returning to approximately 2,000 tonnes per day by the end of the year, from the roughly 1,300 to 1,400 tonnes per day rate currently. We are also advancing the La Colorada Skarn project. On April 7, 2024, we announced additional drill results from our ongoing exploration program at the Skarn. These drill results returned some of the highest grade intercepts to-date, including a stunning 22.5 meters at 1,435 grams per tonne silver, 31.9% lead, and 20.5% zinc. We will provide an updated mineral resource estimate for the Skarn in August, together with our mid-year corporate mineral reserve, and resource report. We continue to engage in discussions with parties who have expressed an interest in a potential partnership in the Skarn.

Ideally, we’d like to structure a partnership that would enable us to retain exposure to the silver with an estimated annual production of 17.2 million ounces in the first 10 years, and the partner would retain exposure to the zinc. We are also excited by the potential at Jacobina. A study is underway to evaluate alternative mining methods and upgrades to the processing facilities. The aim is to identify opportunities to optimize the long-term economics of the mine. At the Escobal Mine in Guatemala, the ILO 169 consultation process has experienced delays, since the new government took office in January 2024. During meetings held in Q1, 2024 between Pan American, the Ministry of Energy and Mines, or MEM, and other institutions, the government confirmed its commitment, to completing the Escobal ILO 169 consultation process, but has not provided an update on the timeline.

On April 29, 2024, the MEM released the Vice Minister of Sustainable Development, who was responsible for overseeing and coordinating the Escobal ILO 169 consultation process. The MEM has not yet designated a replacement for this post. On May 1, 2024, we announced that we have agreed to sell the La Arena gold mine, as well as the La Arena 2 project in Peru, to subsidiaries of the Zijin Mining Group. Under the terms of the agreement, at closing, Zijin will pay $245 million in cash and will grant Pan American a life of mine gold, net smelterreturn royalty of 1.5% for the La Arena 2 project. Additionally, upon commencement of commercial production from the La Arena 2 project, the agreement provides for an additional payment from Zijin of $50 million in cash.

We expect the La Arena transaction to close in Q3, pending satisfaction of the customary conditions and regulatory approvals. The divestment is aligned with our commitment after the Yamana transaction to divest properties that are not aligned with our long-term strategy. While strengthening our financial position to invest in high-quality growth opportunities, to reduce debt, and to return capital to our shareholders. If you expect a close after the La Arena transaction, we will have generated $837 million in cash from asset sales following the acquisition of Yamana. In addition, we will have retained four high-quality royalties with industry-leading partners, as well as contingent payments of $50 million. Last but not least, the divestment also expects to reduce our annual care and maintenance costs by over $70 million.

In closing, Pan American delivered strong performance in Q1, and we are on track to achieve our operating outlook for the year. We expect free cash flow to increase through 2024, particularly in the second half of the year, based on our view of higher production and lower costs weighted towards the second half of 2024, and supportive metal prices. We look forward to providing our customary mid-year update on our mineral reserves and resources in August. And with that, I would like to open the call for questions.

Operator: Thank you. [Operator Instructions] And your first question will be from Ovais Habib at Scotiabank. Please go ahead.

Ovais Habib: Thank you, operator. Good morning, Michael and Pan American team. Really congrats to a strong start to the year. Just a couple of questions from me. Just starting off, we just had a great start to a quarter as costs, both of Silver and Gold segments, outperformed the quarterly guidance that was provided. At the Silver segment, particularly total cash costs and ASIC is down 34% and 40% respectively that’s quarter-over-quarter. Could you please give us or help us understand what, are the drivers here? Are you seeing these declining cost pressures across the board? Maybe some color there, Michael?

Michael Steinmann: Yes, I will start with that and then hand it over to Steve, to give a bit more color directly from the operations. It’s like always in our cost when you look at it, right? These are cost net of byproduct credit. So one part is obviously our production cost, which the team did a great job on cost control here. The second part that are the big impacts are base metal prices on the silver side and in the Gold segment, sometimes there’s a bit silver in it as well as a byproduct credit. So when metal prices go up, of course, that’s a tailwind for us as well on the cost side. And then the last one, as I often mention, is our currencies, right? We have a lot of expenses in local currencies, and it always depends where this currency is trade.

So in Mexico right now, very strong currency. Of course, that’s a headwind to our cost. In other places, like for example Canadian dollar, quite weak dollar right now. Of course, that helps us on the cost side as we report in U.S. dollars, even though we are based in Canada, that’s a foreign currency for us. But maybe Steve, you have some more details?

Steve Busby: Yes, I don’t have a lot to add, Ovais. I mean, the currencies did play a key role, particularly down in Argentina. We didn’t quite see the effective U.S. inflation quite, I mean, it was still heavy, but it wasn’t quite to the degree we anticipated in our planning. Likewise, in Chile was pretty good on the FX side. I would say our consumables were generally seeing a little bit better usage, lower usage of our consumables than what we had planned. We’re still evaluating that. So we don’t want to change – the full year guidance, or the future quarter guidance. We think those are still valid guidance going forward. But we are looking at, we did see some reductions in usages in Q1. And we’re just not sure, if that’s ore type related yet or not.

Ovais Habib: So you’re not changing guidance, but there could be some possible upside in terms of cost improvements?

Michael Steinmann: You don’t hold me to that, yes.

Steve Busby: Everything, as we mentioned, stays the same, then I think that’s fair to say yes, Ovais.

Ovais Habib: Okay. Sounds good. And just in terms of selling of the non-core assets, I mean, Michael, you and your team have done a fantastic job, over the last couple of months in terms of selling these assets. Is there more to come? Any color that you can provide on some other assets that might also be non-core that you’re looking to sell down the road?

Michael Steinmann: Yes, I really want to congratulate the team here. And that’s amazing, right, to do four transactions in one year after the big Yamana transaction and really selling some of those assets that are just really not core to us. And I would say selling them for a good, good price, and not only good price, but for cash, mostly cash and some royalties. So when you look at the quality of the royalties that we retained on each of them, with very high quality in mining, big, large mining companies, that’s a very valuable royalty portfolio that we have in our ownership now again. So, I’m very happy about that. That will allow us to participate, obviously, in future increased metal prices when that happens and those projects get developed.

We still have a lot of ground, a lot of exploration ground, a lot of some advanced exploration projects, I would say, that don’t really fit that came in from Yamana, some we had before. I think in Argentina, we returned the [COSI] project. So there’s a lot of smaller things that not big dollar numbers, but it’s, you know, it all takes time for management and cleaning that up, and streamlining that portfolio, just as everybody way more focused and helps a lot for the future. So, we’ll continue to go with the smaller assets from now on and still streamline that portfolio. But at the moment, like large, large scales, like we’ve seen last year the MARA’s and the Lorena’s of the world, those were really the big ones that we wanted to diverse.

Ovais Habib: Okay. Thanks for that color, Michael. And I’ve got some questions on Escobal, but maybe I’m going to come back into the queue, and let some other people ask some questions as well. Thank you.

Michael Steinmann: Okay. Thank you.

Operator: [Operator Instructions] And your next question will be from Don DeMarco at National Bank Financial. Please go ahead.

Don DeMarco: Thank you, operator. And good morning, Michael and team. I think I’ll just pick up where Ovais left off. I’ll ask some questions on Escobal. So I see the ILO process is experiencing delays. I guess we take it as encouraging that MEM confirmed commitment to complete the process. But three questions here. Did they provide a time line to complete? And is a replacement for that vacant post required to get the process back on track? And is the next meeting scheduled at this point?

Michael Steinmann: Yes. Yes. Don, I’ll start and hand it over afterwards to Sean McAleer, who is running our affairs in Guatemala. Sorry, I just lost my track of the first question.

Don DeMarco: Yes the time line….

Michael Steinmann: Sorry. No, as we said, look, that transaction, the transition, sorry, of the new government took really longer, I think, longer than expected. You’re right, it’s encouraging, obviously, that the government is committed to complete the ILO 169, but I also would like to remind everyone that’s a court-ordered process that, we all have to go through. So that’s just part of ILO 169 that has ordered that, it has to be finished. It does no choice really, I think. And there’s just no time line to it. So the process is very prescribed and the government is working on it with the former government with good strides forward last year, definitely a slowdown with the change of the government here. And as you said, this vacant post that in the past, that was really another person that was running for the Ministry of Mines that process.

Just to remind everyone, this is a process between Ministry of Mines and [Shingha] Group, and we are just a party to it. So we have no control over time line. So, the post was very important in the past. I come speak for MEM to see if in the future when they reassign a new person, if that will be the person in charge of the process, or if they want to use another person for the process. And I think with that, I hand it over to Sean. Sean, you’re way closer to it.

Sean McAleer: Yes. So not a lot to add, Michael. We’re obviously waiting for the new appointment there. And that will be key for us, and we’re in regular contact with the government, and with MEM specifically to get updates. But there’s no updated time line, the published time line on the MEM website was tentatively for March 31, and that’s come and gone. But we’re hoping to hear some news in the next few weeks and months as things develop. But unfortunately, we don’t have any anything, to provide as an update and no future meeting dates.

Don DeMarco: Okay. Thanks for the latter point, then. What about some of the key issues that had been raised over the previous sessions. I think there might have been some discussion on water, maybe noise, maybe others. What’s the status of those – the dialogue on those items at this point?

Sean McAleer: Yes. And that was the meeting on February 21. There hasn’t been any follow-up in any working meetings around and those concerns, but they’re consistent with what we’ve heard, during the visits and during the interactions that we had last year. So, not a lot of new developments there. But again, the dialogue and the process is awaiting the MEM, to take charge and set the next meeting dates and the time line.

Don DeMarco: Okay. And are those issues or others, are they viewed as resolvable? Like do you see a path toward parties agreeing on whatever topics discussions might be underway at the last meeting?

Sean McAleer: Yes. It’s hard to say. I mean, for us, I mean, we’re just continuing the dialogue and when we sit at the table, and discuss in more detail the issues. I feel confident that we’ve got mitigations, or other things we could do to alleviate the concerns. But I think that’s just part of the process, and so we’ll wait and see how that develops.

Don DeMarco: Okay. Great. And maybe just one other question. Michael, you mentioned your growing royalty portfolio. But perhaps you could share with us, what are your intentions with this portfolio? Do you see it as a long-term hold? Or would you potentially divest it to fund development in your pipeline?

Michael Steinmann: Well, if you recall, last time, we created a sizable royalty portfolio that when I was in charge of business development before I was CEO, generate most of those royalties. We spun those out into Maverick’s at that point. And no, we got a really handsome return on those royalties through the sale of Mavericks to triple flag at the end I think that has a lot changed since then. When we started that, I think it was 2015. There were not many royalty companies I think there’s a large group of very strong royalty companies now available in the world. And I’m pretty sure if we ever decide to sell these royalties, we will find very competitive bids from different companies. So, there’s now no need to basically start our own royalty company again.

That’s my point. I think if we decide to divest those royalties we should, for sure, have enough offers from very sizable royalty companies here. So, it’s a big amount of potential cash sitting there for us. But at the moment, I think we are in no hurry, to divest those right away.

Don DeMarco: Okay. Okay. Good to hear. That’s all for me and good luck with the rest of Q2. Thank you.

Michael Steinmann: Thank you, Don.

Operator: Next question will be from Gary Chiu at Cosmos (sic) CIBC. Please go ahead.

Cosmos Chiu: It’s Cosmos here. But maybe I should call myself, Gary, would be more successful in life. Well, maybe my first question is on the La Colorada, Michael and Steve, as you mentioned, it’s almost complete by mid-2024. We’re almost there. So could you maybe remind us in terms of what still needs to get done? And then Michael, as you mentioned, on the ventilation completed, throughput is going to go up since you’re going to open up more mining areas, but is great also to go up as well. And if that’s the case, would it happen pretty much right away when the ventilation shaft is commissioned? Or is there going to be a lag of like a month or two?

Steve Busby: Yes. Thanks, Cosmos. Steve here or Gary if you prefer. Just to give an update of where we’re at, we are currently putting the ducking on for the fans. We got the main duck in the top of the shaft that does a 90-degree elbow and we’re starting to put the horizontal sections in. We got the bases poured. We’re starting to put the mechanical equipment for the fans, the base spans in. These are quite large fans. Each – there’s two of them. They’re 2,000 horsepower each. So our intention is to have the first one operational by the start of Q3, and we’re on track for that. It looks really good. There was a lot of effort, a lot of logistical expediting going on, particularly around some of the electrical components, VFDs and things like that.

So that’s coming our way. It looks good. That’s all coming together well. In the meantime, we’re laying out our plans for when we get that ventilation going. We do know we’ve got rehabilitation works to do in the area of Candelaria East and the Deeps. We got to get back in there and rehabilitate some of the ground control systems that were there that were eroded or damaged through the years of this hot humid air going through those areas. So we’re starting to see some of that already because we do have a bit of flow going through the shaft now. So it is getting us into that area. We can see it. There is a lot of rehabilitation work that has to be done. There is a lot of development work that we have to start advancing. So as that error comes on, we’ll start advancing the development and you’ll slowly see the tonnages creep up.

Our goal is to get back to the 2,000-plus tonnes a day by year-end. So it will be a slow gradual increase from our kind of 1,300, 1,400 tonne a day they currently have. In reality, we don’t — we’re not forecasting an increase in grade as that happens. We’re Q1 was a pretty decent grade, I’d say, a 300-plus gram per tonne. We might see a little bit of tweak upwards on that as we start that development work. But we do want to balance that. Again, what we do – what we’d like to do is mine lock Colorado at its reserve grade. So that’s really our objective. We’re not going to go in and try to high-grade it. We want to get the tonnage up and we want to run at reserve grades in the steady-state condition for as long as we can. So that’s kind of — we stand behind our quarterly guidance of ramping that up.

That’s a big driver into our increased production in the latter half of the year. Things are, we have our challenges. We got rehabilitation challenges. We got development advanced challenges. But we’re getting the air there and things are looking good. So, we’re feeling good about the project. And we’re on schedule to get that fan running, and start this effort to start ramping the tonnage up.

Cosmos Chiu: That sounds great, Steve. Maybe switching gears a little bit at El Peñon, I noticed that grades also improved in Q1 quarter-over-quarter by a little bit. Gold went up 3.24% in the last quarter to 3.38%, kind of same degree for silver. I know there’s been some issues in the past in terms of grades at El Peñon, are we trending in the right direction? I understand that you’re drilling it. You’re still waiting on some of the drilling results. But could you maybe comment on El Peñon as well?

Unidentified Company Representative: Yes. Cosmos, Okay Gary. This is Chris. Yes, we’ve really hit the ground running this year. Last year, we had a – we did have an issue with the drilling. Getting a new drill contractor, it took a while to ramp up. But certainly hit the Q1 running, and we certainly see a lot of that drilling now coming into the information for the midyear reserve and resources update for El Peñon. I would certainly like to believe that we would be keeping these grades. And there’s – as you drill through these blocks, you get some good results. But generally, we’re seeing that reserve grade panning out in the drilling. Like I said, there’s going to be ebbs and flows as to how this turns out in that midyear update, and we’re looking forward to updating everyone in August.

Cosmos Chiu: Great. And maybe one last question on Heron [ph]. As you mentioned, the dry stack tailings project is well underway and should be completed in 2024. Could you remind us in terms of the benefits of this dry stack tailing project? Is it extension of mine life? Is there going to be more sort of capacity in terms of tailings what are some of the key benefits to it.

Steve Busby: Yes, Cosmos, Steve here. Yes. Our tailings dam five are conventional tailings we’re currently using will reach its ultimate capacity in kind of mid — in Q1 of 2025 is the current schedule. So this is the next stage of tailings for the current reserves and life of mine that we see are on is moving away from conventional tails gives us an ability to open up new areas for tailings depositions that are easier to manage that don’t require quite the extensive dam development and empowerment development. So it allows us to open up more areas that we need for the life of mine reserves and resources that we intend to mine that we’re on. So it’s really just a shift from methodologies to something more robust and more capacity as we look into the future.

Cosmos Chiu: Great. Thanks, Michael, Steve, Christian, Sean. Those are all the questions I have. Congrats on a very strong Q1.

Michael Steinmann: Thanks, Cosmos.

Operator: Thank you [Operator Instructions]. And at this time, we have no questions registered. Please proceed.

Michael Steinmann: Yes. Thanks, operator, and thanks, everyone, on the call today. That was a great quarter. I think we delivered across the board. We delivered on production and cost and further divestment of assets, as we indicated last year, and I think that advanced at a very high speed and very good results. And we returned – increased our returns to shareholders. As you saw there, it was a combination of share buybacks and dividends. Strong balance sheet, and there’s a lot of very positive and looking forward to this year in combination with what we see now at the moment, way higher metal prices than what we experienced as an average in Q1. So really looking forward to update everybody in August again. But just to remind everyone, we have a hosting Investor Day on June 18.

So please, if we want to participate and call in there, let us know reach out to ir@panamericansilver.com please. And we’ll make sure that you can participate and call in to that Investor Day. And if we don’t speak then, then looking forward to talk in August when we discuss our Q2 results. Thank you, everyone. Have a good weekend.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.