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Pan American Silver misses earnings, costs surge

Toronto-listed Pan American Silver missed second-quarter earnings estimates, took a pre-tax $99 million impairment charge at its Dolares operation in Mexico and saw surging costs at its gold operations.
Pan American Silver misses earnings, costs surge Pan American Silver misses earnings, costs surge Pan American Silver misses earnings, costs surge Pan American Silver misses earnings, costs surge Pan American Silver misses earnings, costs surge

Pan American Silver hit by costs

The firm posted adjusted earnings per share (EPS) of minus $0.03 in the second quarter, lower than the market consensus of $0.15, mainly due to lower than expected second quarter production and higher costs, including higher income taxes.  

The firm made a net loss of $173.6 million, down from a year-on-year profit of $71.24 million in the same period. 

"We ascribe a negative bias on a financial miss, elevated costs at Dolores and La Arena, negative free cash flow, an increase in AISC guidance in the gold segment, and a pre-tax $99 million impairment at Dolores where management believes ounces within phase 9B of the open pit were overestimated," said analysts at National Bank of Canada. 

Operating cash flow of $21 million missed BMO Capital Markets' forecast of $112 million, owing to lower production, inventory build and cash taxes. 

Silver all-in sustaining costs (AISC) in the second quarter was $17.30 an ounce, up 5.7% from $16.36 an ounce a year earlier.  

Gold AISC surged 76% to $2,051 an ounce from $1,163 an ounce following operational problems and a 11% drop in year-on-year production. 

The impairment at Dolores followed previously expected high grades that were not fully realized during mining, leading to a localized overestimation of the contained ounces within Phase 9B.  

The impairment charge was also taken because of inflationary pressures, which have particularly affected the shorter-life asset where most of the mining will be completed in the next two years, the firm said.

The suspension of underground mining operations in the second quarter due to inflationary cost pressures, and the subsequent reclassification of underground mineral reserves to mineral resources were also factors, it said.

The firm revised its reserves estimates to 515 million ounces of silver and 3.6 million ounces of gold as of June, 2022, down from 529 million ounces and 4.2 million ounces respectively. 

A partial offset to the below market consensus results was provided for its Escobal project in Guatemala graduating to the ILO 169 consultation phase from the pre-consultation phase, though a restart of the mine is unconfirmed. 

Project capital expenditure fell to $55 million-$60 million, from $80 million-$95 million, based on expected delays in spending at both the La Colorada Skarn and Timmins projects.  

Sustaining capital expenditure increased to $240 million-$250 million from $200 million-$210 million due to a change in the financing of certain planned sustaining capital investments, which will decrease future expected cash outflows and loan obligations, National Bank of Canada said. 

Production guidance for the year was unchanged but expected at the low end of the ranges for silver and gold, primarily due to the production shortfall at Dolores. 

The firm produced 4.53 million ounces of silver in the second quarter, from 4.48 million ounces year on year.  

Gold production dipped to 128,300 ounces from 142,300 ounces over the same period.  

"Silver production missed our expectations by 5% while gold missed by 10%. In addition to lower production, a build-up of 34,000 ounces of silver and 8,500 of gold contributed to lower revenue," said analysts at BMO Capital Markets. 

The firm has a net cash surplus of $132 million at the end of the quarter. 

Shares in the firm were 0.1% higher at C$27.00, giving the firm a market capitalisation of C$5.6 billion.