Pan American bets on Mexico's La Colorada and maintains guidance

Pan American Silver increased production at its La Colorada mine in Mexico, the company’s biggest, by 52% to 1.68Moz in 2Q22 over a year before. 

In this first half, La Colorada was responsible for 34% of the total silver output of the Canadian company, which has operations in Mexico, Peru, Argentina and Bolivia. 

According to Pan American, the good performance was supported by restored ventilation, which increased productivity and allowed access to high-grade areas. According to executives, the refrigeration plant that started operations at the beginning of the third quarter will further benefit conditions. "So it is allowing us to catch up, if you will, on ground control and development into the areas that were originally scheduled to mine a couple of years back … We see this as a very long-term asset, and we'd like to mine it consistently at reserve periods as we go forward," Steve Busby, Pan American's chief operating officer, told the company’s latest earnings call.

THE PAINS OF DOLORES

An important factor in the results was the low performance of the Dolores gold and silver mine, and the suspension of underground mining at the Mexican operation due to the increase in costs.

Despite the suspension, the situation was within the contemplated scenario. "So there was some sequencing challenges we had as we are mining the depth of phase 8 and phase 9 that we're in now that we didn't really want to have any kind of interference between the underground mining and the open pit. So we always kind of backed away from that development over the last few quarters,” Busby said. “And now with these increased costs as we look at it and what it takes to develop back in there, at these current cost levels, we just didn't feel the margins were worth pursuing. So if cost structure changes, if metal prices change, by all means that would open back up and we can get in there." 

The impact translated into a pre-tax impairment charge of US$99.1mn, and US$62.8mn in net realizable value adjustments.

PRODUCTION 

Pan American produced 4.54Moz of silver in 2Q22, compared to 4.48Moz in the same quarter last year. Gold production fell from 142,300oz to 128,300oz.

Despite the Dolores suspension, the company maintained its revised 2022 production forecast of 19-20.5Moz silver and 550,000-605,000oz gold. However, the results are expected to be closer to the lower range, according to CEO Michael Steinmann.

The company expects to produce 4.89-5.27Moz and 4.94-5.30Moz of silver in Q3 and Q4, respectively. For gold, production guidance is 135,200-148,800oz and 157,000-172,200oz.

NOVELTIES 

At Escobal in Guatemala, the ILO 169 process finally advanced to the consultation phase and the first meeting is scheduled for August 21. According to the company, a dialogue table will be established between the Xinka community, the energy and mines ministry, and Pan American. "We look forward to participating in the next phase of the consultation process, and to listening to the Xinka people regarding their perceptions about Escobal in an open, inclusive and respectful process," said Steinmann.

On the Huarón silver-copper-zinc-lead mine in Peru, Pan American said production is expected to remain within projections. "I'd say it's hard for us to predict exactly what's going to happen in the second half, but I think generally we will probably not see the same degree of lead, maybe a little bit more copper," Busby said.

At the La Arena project in Peru the company expects to continue taking advantage of the gold. "We assumed that La Arena will be mined out, the offsets will be mined out, I believe it was mid-2021. With the new reserve update, I think we go well into 2026 which still quite some update," Steinmann said.

PROFITS

The company recorded Q2 revenues of US$340mn, down 11% compared to the same period last year.

Pan American posted a net loss of US$174mn compared to earnings of US$71.2mn due to the “Dolores effect.”