Pan American eyes strong H2 as COVID-19 impacts ease

Pan American Silver expects COVID-19 impacts on its Latin American mines to ease in H2 as vaccines are rolled out.

The Vancouver-based company was hit by pandemic-related suspensions across its operations in Mexico, Peru, Argentina and Bolivia last year, while new protocols and reduced workforce availability have continued to weigh on output and costs in 2021.

At the start of the year, Pan American assumed a gradual easing of COVID-19 restrictions in each quarter of 2021, with 1Q22 expected to be the first quarter in which restrictions are fully removed.

But so far that has not been the case, CEO Michael Steinmann told the company’s Q2 earnings call.

“Of course life is not going in straight lines, we know that. We saw a bit bigger impact than we had assumed in Q1 and maybe some at the beginning of Q2.”

But the miner has seen strong improvements with high vaccination rates in most of the places where it works, the CEO added.

“I think it will follow a similar trend to everywhere else in Latin America and it will get easier for us, but there are definitely still impacts there.”

Pan American saw high numbers of COVID-19 cases at its operations during H1, which impacted worker availability, COO Steve Busby told the call.

But the situation is clearly related to vaccination rates, which are improving, he added.

“Just like in North America, if we can get vaccination rates to 50-60% we can finally start to relax those COVID-19 protocols and restrictions, I think at that point.

“Right now, we’re roughly around 20% in our workforce in Mexico, perhaps as high at 40% down in Argentina.”

COVID-19 protocols are costing the company around US$7mn per quarter, Steinmann added, which is in line with its forecasts.

PRODUCTION RESULTS

Pan American produced 4.48Moz silver in Q2, up from 2.79Moz in the same quarter last year, with gold production at 142,300oz, up from 96,600oz.

The company reaffirmed revised 2021 production guidance of 20.5-22.0Moz silver and 605,000-655,100oz gold, which will require higher output during H2.

Output will be buoyed by the restoration of ventilation in the high-grade area of the La Colorada silver-gold mine in Mexico, after the firm cleared a blockage that formed in Q1.

Mine development is underway to enable throughput rates to increase and to mine higher grade zones, with production expected to rise through the remainder of the year.

“In our view, the table is set for a strong H2 with a number of operational timing issues benefitting Pan American,” Scotiabank analyst Trevor Turnbull said in a note.

These include the ramp-up of gold open pits at end-Q2 which pushed sales into the third quarter, along with the resolution to the La Colorada ventilation issues.

PROJECT UPDATES

At the La Colorada Skarn primary silver project in Mexico, the company continues to advance a PEA, due out late in 2021, which will include an updated resource model, Steinmann told the call.

At Escobal in Guatemala (in picture), Pan American is encouraged by the start of pre-consultation meetings in a court-ordered community consultation process required for a restart of operations.

A third meeting, planned for July, has been pushed back to August due to COVID-19 restrictions, the CEO added.

No timing estimate for the consultation can be given as details of the process have yet to be determined, Steinmann said.

The silver-lead-zinc mine has been suspended since 2017.

At the Navidad primary silver project in Argentina’s Chubut province, congress has yet to vote on a modification to the mining law to allow open pit mining operations in some zones of the province, and it is unclear when this debate will happen, Steinmann said.

The ban has held back progress at Navidad for a number of years.

EARNINGS

Pan American posted Q2 revenue of US$382mn, up from US$250mn a year ago, with net income at US$71.2mn, up from US$19.4mn.