Pan American Silver Corp. (NASDAQ:PAAS) Q3 2023 Earnings Call Transcript

Pan American Silver Corp. (NASDAQ:PAAS) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good morning, ladies and gentlemen, and welcome to the Pan American Silver Third Quarter 2023 Unaudited Results Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Wednesday November 8, 2023. I would now like to turn the conference over to Siren Fisekci, Vice President of Investor Relations. Please go ahead.

Siren Fisekci: Thank you for joining us today for Pan American Silver’s Q3 2023 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 Q3 2023 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 our call today. Let me begin with an update on our progress integrating the assets we acquired through the Yamana transaction that closed on March 31st. I’m happy to report that we have integrated the four new operations into Pan American’s organization and advanced on streamlining the new company with the sale of non-core assets. We have also reorganized the Yamana Latin American regional offices in line with focusing support to the mine operations and continuing to enhance corporate oversight, leadership, systems policies and procedures by taking advantages of substantial synergies and business improvement opportunities. Working with the new teams, we are evaluating many optimizations and mine life extension opportunities.

We look forward to sharing more with you on that in the coming quarters as we advance detailed studies and near mine exploration programs and update the life of mine plans. We committed to rationalizing our portfolio following this transformative transaction and we have made significant progress on that objective earlier than I think most would have expected and with additional opportunities yet to come. In Q3, we completed the sale of our interest in the MARA project in Argentina and the Morococha mine in Peru. And on Monday, we completed the sale of our interest in Agua de la Falda project in Chile. In Q2, we divested certain non-controlling equity investments, which are largely inherited from Yamana. We increased our equity interest in New Pacific in Q3 to 11.6% of New Pacific’s outstanding common shares, helping to further advance interesting Bolivian silver projects by leveraging our long-standing operating success we have enjoyed at San Vicente over the past 24 years.

We also committed to paying down certain higher interest debt incurred for the Yamana transaction. We repaid the amounts drawn on the sustainability-linked credit facility and as at September 30th have the full $750 million available on our credit facility in addition to working capital of $832 million, which includes cash and short-term investments of $386 million. Total debt of $809 million is largely related to two senior notes, Pan American assumed to the Yamana transaction as well as lead and construction loans. These notes have attractive terms, $500 million with a coupon of 2.63% maturing in 2031, and $283 million with a coupon of 4.625% maturing in 2027. Pan American has mainly about strong balance sheet, which gives us the flexibility to manage business cycles and capitalize on growth opportunities.

The steps we have taken to divest non-core assets and repaid debt will also significantly reduce cost going forward. We expect to save approximately $90 million in cash annually primarily from the elimination of care maintenance, project development and reclamation costs associated with MARA and Morococha. In addition to interest expenses from having repaid the $280 million that was drawn on the credit facility at the end of June 30, 2023. We expect further savings from the Yaman acquisition and the former synergies which we continue to estimate will be about $40 million to $60 million annually. Finally, it is important to remember that we retain future upside on both the MARA and the Agua de la Falda projects to the precious and base metal royalties we retained with the strong counterparties in those projects.

With that let’s move on to our results for the third quarter. Acquisition of the four Yamana operating mines has provided a significant increase in production with reduced unit operating costs and enhanced diversification. We produced 5.7 million ounces of silver and 244,200 ounces of gold in Q3. All-in sustaining costs for the silver segment were $18.19 per ounce and $1,451 per ounce for the gold segment. While operating performance at most of our mines was in line with expectations two operations faced unique challenges, which weighted on Q3 results. In the silver segment La Colorada continued to be impacted by ventilation constraints. These constraints resulted in reduced throughput, limited access to higher grade zones of the mine and required intensive ground support innovations in areas where high heat and humidity have rendered older ground support methods ineffective.

We do not expect an improvement in La Colorada’s performance until the new ventilation infrastructure is completed around mid-2024 and were able to increase development of mining rates in the deep east part of the mine thereafter. We are making good progress on that work. The excavation of the concrete line shaft reached a depth of 522 meters by the end of Q3 2023 and is expected to be fully excavated to a depth of 593 meters by year-end. The expect installation of two large exhaust fans on the surface of the shaft will be completed by mid-2024. Commissioning of this large primary ventilation system will deliver the refrigerated fresh air we currently produce directly to the heat source in the deep eastern area work faces and immediately exhaust vertically to the 40 concrete line shaft.

This will avoid sending hot air back through the mine where it is damaging our ground support systems. In the gold segment mined gold grades were lower than we were expecting El Penon. Based on recent reconciliation data we have initiated a review of our mining sequence in certain sections of the mine to achieve a more stable gold production. Over the next several months, we will be adapting to the mine development schedule for El Penon that to provide more flexibility when encountering unexpected great shortfalls in this highly variable deposit. The delineation drilling strategy has been reviewed to reduce the grade variation of risk we are currently encountering. El Penon remains one of our core assets with excellent exploration potential and excess mill capacity, supporting that mine as being an important contributor to the company’s future cash flow.

Given year-to-date production and our outlook for the next two months, we are reaffirming our annual 2023 guidance ranges for silver and gold production with the expectation that production for both will come in at the low end of the ranges. We expect the gold segment cash costs and all-in sustaining costs to be within our guidance ranges from 2023. We expect silver segment cash costs and all-in sustaining costs to be marginally above our guidance range largely due to ventilation constraints at La Colorada I mentioned earlier, and the two weeks expansion of operations at that mine in early October to address security concerns as previously disclosed. We are maintaining our 2023 guidance for base metal production and sustaining and project capital expenditures as well.

We reported a net loss of $22.7 million in Q3 or a basic loss per share of $0.06. Adjusted earnings were $3.1 million or $0.01 per share. Operating cash flow was $114.6 million, net of $35.8 million taxes paid. Including the cash dividend of $0.10 per common share we declared yesterday, we will have paid $130.5 million in total dividends this year. Turning to the La Colorada Skarn project, we are on track to release the preliminary economic study by year-end. The study will be based on using a sublevel caving mining method, which we believe offer superior economic benefits given the size and geometry of the large silver bearing polymetallic deposit. We will carefully consider potential alternatives for the optimum funding structure for the current project once the preliminary economic studies released and all of the development details risks and opportunities can be thoroughly discussed and debated.

The ILO 169 consultation process for the Escobal mine in Guatemala continued to progress in Q3, Pan American has now hosted three visits to the mine for shrink and digital representatives and their advisers and several other meetings have been held. This included working meetings with Xinka representatives and Guatemala’s Ministry of Energy and Mines or MEM for short. I know many of you check MEM’s website for the Escobal consultation, which does provide very transparent reporting on the process. I noted that MEM had intended to complete the consultation by the end of October. Although, the schedule was not met all the participants continue to engage in a peaceful, comprehensive transparent and good faith consultation process. The next consultation meeting is scheduled for November 10th and as usual we are not providing a time frame for completion of the consultation or potential restart of the mine.

Other consultation process moves ahead, we are also continuing with our care maintenance activities for Escobal. I would like to congratulate the Pan American team in Guatemala for receiving first place in the environment category from Guatemala’s chamber of the industry for their work on reformation and conservation project. The project involves an innovative approach to reproduction of oak trees within the Escobal mine area with the primary objective of revitalizing forest regions in the mine property and transforming them into protected valuable habitats for flora and fauna. If you’d like to learn more about this, we have the video posted on Pan American’s LinkedIn page where we regularly post updates on some of our company’s initiatives and events.

In closing, we are pleased with our progress on integration of Yamana assets, which is delivering Pan American with significant production growth and reduced unit costs. We are currently preparing our plans for 2024 focusing on safe, reliable, cost-efficient operations and the development of additional value-enhancing future growth opportunities. We will continue to evaluate ways to streamline our overall portfolio with the aim of remaining the world’s premier silver mining company. Together with the other members of our management team, we would now be happy to take your questions.

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now conduct the Question-and-Answer Session. [Operator Instructions] Your first question comes from the line of Cosmos Chiu. Your line is now open.

Cosmos Chiu: Thanks, Michael and team.

Michael Steinmann: Hi. Good morning.

Cosmos Chiu: Hi. Good morning. Maybe if I can start off with El Penon, first. And I guess you know what I’m going to ask in terms of the shortfall in grade. Am I reading it correctly? I guess in Q3 your head grade was 98 gram per tonne and 2.7 gram per tonne for gold. If I look at the proven and probable, it’s closer to 213 grams per tonne or probable 148 grams per tonne. So the grade in the quarter was about half for gold and silver compared to your reserve grade. Is that correct? And maybe if you can elaborate on kind of what happened?

Steve Busby: Yes, Cosmos. Steve, here.

Cosmos Chiu: Hi, Steve.

Steve Busby: How is it going? Yes, basically, if I can talk first about in Q3, we had anticipated mining in we’ve been developing for most of the year according to a mine plan that was developed previously in 2022. And we were planning to develop into these high-grade structures that would be mined in the second half of this year. Three of those structures, and keep in mind, El Penon is spatially quite vast. We’re mining several faces across vast areas about 12 kilometers by 5 kilometers. So it’s spread out quite a bit. So there’s a lot of development that goes into these areas all over the different mine. And there were three of these areas that were particularly high-grade gold, not so much silver that we go into. So when you look at the reserves that average is correct, but the distribution depends — the sequencing can affect that grade quite a bit.

Now, when we mined into these areas, what we discovered is that looking back now and evaluating what happened there, three of those areas that were particularly high grade had very limited drilling information on it. It was specially drilled quite a bit wider than the normal reserves that we’d like to see. So, we’re reconfiguring our drill programs to target these higher grade areas in the future. It was really a Q3 impact. It’s going to carry us over into Q4, because they were scheduled to be mined this quarter. So we’re going to be looking at those areas, drilling more and kind of increasing the density of drilling if you will, particularly in the higher grade zones of the reserves. We’re just finding it’s not to the level that gives us the risk tolerance that we want to see.

So that’s going to work into our plans for next year. And depending on how that increased drilling goes, that will kind of adjust those higher-grade zones that we’re seeing. I think we’re going to see positive and negative surprises as we do that just the variability of the ore deposit. But according to your question on was the silver grade really half of that? The answer is yes, and that’s sequencing. We do have higher grade silver zones. But the average grade is about 158 grams silver on the reserves when you put the P&P together. So we were 98. That’s just sequencing. Yes.

Michael Steinmann: Just to add Cosmos as Steve explained with an undercapitalized exploration project here at Yamana was running with not enough drill density, as we would do it. And in order to fix that we increased now drilling on site to about 10,000 meters a month. We actually will spend quite a bit more. I mean I was like paring back greenfield drilling went far, far away and focusing really on further drilling on site. So we’ll further increase that drilling to kind of catch up with what should have been done in the past and then now we’re very confident here that I mean houses at the mine a couple of weeks ago and we’ve seen some very interesting intercepts there. So that drilling, as I said back now at 10,000 or meters a month and we’ll increase further here in the coming months.

Steve Busby: And Cosmos, if I can kind of add a little bit more detail too, as we mind into those high-grade zones and we didn’t see the ores that we expected. At El Peñon, there’s quite a bit of feed that goes to the plant that’s low grade. So when we’re not producing off the mine, we supplement rather from the low-grade stockpiles, which are quite a bit lower silver grade and that’s what drives that.

Cosmos Chiu: Sure. And if I could follow-up on that question. In terms of Q4, I don’t know how much you can share with us but you’ve maintained your guidance for the year but how much of these higher-grade stopes have you factored into your Q4 number? And how much of hitting those Q4 numbers is dependent on getting some of these high grades up. I’m just trying to figure out how much conservatism you’ve factored in in light of what – in light of the great portfolio that you realized in Q4?

Steve Busby: Yes. So we’re moving into Q4, Cosmo anticipating we’re not going to see that high grade that we had anticipated in the original mine plan. So where we say we’re going to still make the gold guidance on the low end, it’s really looking at our other operations to kind of make up some of that difference.

Cosmos Chiu: Of course. Okay. Great. Maybe if I can switch gears a little bit going to Escobal and Guatemala. Thanks, Michael for the update. On top of the conversation I think we’re all where there was a presidential election earlier on this year. There could be a – or there will be a presidential transition early next year. However, there seems to be a bit of noise in terms of the Supreme Court and validity of the runoff in terms of election. How much should we monitor that situation? How much of that situation could potentially impact the time of Escobal?

Michael Steinmann: Of course I hand you over to Sean McAleer here, who is running Guatemala for us in countries. So please Sean.

Sean McAleer: Yeah. I think …

Cosmos Chiu: Hi Sean.

Sean McAleer: Yeah. Good morning. It’s hard to speculate what the outcome will be with some of that noise that you mentioned. The President of Guatemala has publicly stated his commitment to smooth transition at the Ministry of Energy and Mines, the transition team from the newly elected party has met on several occasions with the MEM. And so they are moving forward to have a smooth transition in January as well, we’ve met with members of the incoming team a few times. And it’s hard to say what’s going to be the timing. And if there’s going to be any delays. Certainly, if there’s a transition in the process isn’t completed by the end of the year, we would expect that would take some time to continue that on. But they are committed as well to the ILO 169 consultation process. And so we’re looking forward to a government transition in January. And we’ll continue working with the government as needed.

Cosmos Chiu: Great. Thanks Michael, Sean and Steve and Siren. Those are all the questions I have. Thanks again.

Michael Steinmann: Thanks Cosmos.

Operator: Your next question comes from the line of Ovais Habib from Scotiabank. Your line is open.

Ovais Habib: Hi Michael and Sean McAleer and team

Michael Steinmann: Good morning.

Sean McAleer: Hi. Good morning.

Ovais Habib: Hi. Some of my questions have already been answered and thanks for the color on El Penon. But I did have two more questions. Just number one post the amount of transactions obviously one of the priorities was to sell non-core assets. It was really great to see the sale of MARA as well. Are you expecting to continue to monetize non-core assets? And are we expecting any sort of release or any sort of update on asset sales by the end of this year?

Michael Steinmann: As you know this is — selling assets is a very dynamic process and doing deals. So I can’t give you exact timing, but we’re definitely working as I mentioned in preamble to this call that we are working on further optimization of our portfolio. So that’s continuing. There is quite a few more assets from — that we have in our portfolio that really impact our operations or our production profile right now. And we got some inbounds and interest. So we definitely will continue that process. I’m really very pleased what the team has been able to achieve in the really short like — I think we announced, in summer after only three months. If you look at the big numbers that really allowed us to repay for the full year or the last, but is it now 10 months.

Just about below — just quick number $398 million in debt also for the full year paid about $130.5 million in dividend including the dividend payment that just has been announced yesterday. So huge change obviously to our already strong balance sheet before which was really supported by these asset sales and just let me mention again that, I put it here in the press release we’re looking at about a $90 million annual saving in care maintenance costs, project development costs from MARA and Morococha and then plus as you saw we repaid our line of credit fully. So there is savings — substantial savings on interest payment there as well, so these three things together amount to about $90 million. Now you have to add on top of this synergies.

We talked in the past, we always guided somewhere around $40 million to $60 million synergies. I think we are pretty confident here that we’re going to be at the upper end of that range. On the synergy side, I think there’s still a bit more to do on the optimization we’re working on. And further synergies that are coming in. And we have to wait for the really end of the year, we have all the final tally and numbers and early, I guess, early next year we’ll have the final number there on the synergies. So big changes from those disposition of assets and that theme will continue — do we have something ready to share with you this year still or early next year as I said look that’s a very dynamic process side. I can’t really pin the team down on one month or more or less, but we’ll for sure try the best here to advance that theme and continue that theme that we started this year on the disposition.

Ovais Habib: Thanks for the color on that, Michael. And just in regards to the committee, obviously, you mentioned $40 million to $60 million. Have you already started seeing those synergies kind of going into Q3? Or I’m guessing, we are expecting more kind of going into Q4 and more into 2024.

Michael Steinmann: Yeah. Some is in Q3, but very little. On the synergy side for sure, not on the current maintenance cost, as you remember the closing of those deals happened really especially MARA Morococha which are the bigger biggest ones on the car maintenance close like later in and I think like just a week before the end Q3, so no advantage really in Q3 on that. But from Q4 on we will see the full effect of those savings. And then of course, that will go into the next year 2024 together, as I said with some additional synergies that we will be able to harvest there as well.

Ovais Habib: Okay. Sounds good. And just switching gears a little bit last question from me, we saw that you had increased your stake in New Pacific this quarter. How do we think about Pan American’s position on the silver signs project and on Bolivia as well?

Michael Steinmann: Yes. Look, we are in Bolivia since 1997 a long time it’s time with San Vicente, it has been a very successful place for us. And also this quarter, San Vicente did very, very well. So that’s to continue and it’s a place that we are very happy doing business. Now, you look at New Pacific, and there are big discoveries that are exploration discoveries. It’s still earlier stage, but they are all up the size that are absolutely would be of interest for Pan American, and if they come through as a mine. And with our experience in Bolivia and as I said, and combined with that large size on the silver side of course that’s of interest for us. And that’s really the reason why we continue — we have been in New Pacific from the beginning on.

We liked the projects very early stage and we did some of the first financing to help bring in that exploration and drilling forward. And when New Pacific look for financing we were happy to increase slightly our stake and continue to advance and help to advance those projects in Bolivia.

Ovais Habib: Perfect. And that’s it from me in terms of questions. So thanks for my questions, Michael.

Michael Steinmann: Thanks, Ovais.

Operator: Your next question comes from the line of Carey MacRury from Canaccord Genuity. Your line is now open.

Carey MacRury: Hi. Good morning, guys. Just a question on Cerro Moro. There was a big jump in the on-site direct operating cost this quarter versus last quarter. Just wondering if you can give any color on what drove that increase.

Steve Busby: Yeah. So I think it’s — hi, Carey this is Steve. Overall, I think the cost at Cerro Moro, it’s reflecting the development we have to do to get to some of these really high-grade variable ore deposits. So our development rates increased, the mining widths have kind of decreased according to schedule. So it was pretty much on plan relative to what we anticipated for overall spending there. And then I think financially, we had some impacts on the cost.

Ignacio Couturier: Yeah. This is Ignacio. In addition to what Steve just mentioned, it’s worth mentioning that there was a buildup of inventory at the end of Q2, the production in Cerro Moro was backloaded into Q2, the last couple of weeks of June and that inventory flushed out during Q3. So that was another factor contributing to the higher costs for Cerro Moro Q3 relative to Q2.

Michael Steinmann: But just in general, I think we talked quite often about what our cost drivers on our side. So there’s a big difference between our silver segment mines and the gold segment mines because the silver segment mines in many cases come with base metals. So as these are by-product credits, our base metal prices have a big impact to our costs both ways, if they go up or down, it can be a headwind or tailwind for us. And another big impact is exchange rate. So depending on any given country that impact can be quite big because we have a lot of spending in local currency. So we always have to keep that in mind. Of course, we look we look at it and not always at the per ounce base, but per tonne base which is more like a neutral way for us to track the cost. So there we see obviously that variability which is often driven as I said up and down by other factors as well.

Carey MacRury: Maybe just a follow-up to that maybe for Ignacio, last quarter there was a $32 million of fair value adjustments relating to the Yamana transaction like, I’m just wondering are there still fair value adjustments flowing through these numbers this quarter? Or have those pretty much more stock now?

Ignacio Couturier: Yeah. Those were minor PPA adjustments. Just to keep in mind that our initial purchase price allocation that’s just preliminary. We have a year to finalize those numbers. We didn’t see any more changes in Q3. So I’d say stay tuned. As I said, we have a year to finalize those numbers. But I think all those small changes are mostly flushed out in Q2. And yeah, as I said we have a year and we’ll see how those numbers end up when we finalize our analysis on the purchase price.

Carey MacRury: Great. That’s it for me. Thanks guys.

Michael Steinmann: Thank you.

Operator: Your next question comes from the line of Don DeMarco from National Bank Financial. Your line is now open.

Don DeMarco: Thank you, operator. And good morning, Michael and team. We’ll start off with Escobal. We’re seeing some a lot of activity in terms of the meetings here a number of visits, but I think to the mine and other engagements with the Ministry of Mines and so on. Appreciate these details, but can you share what is discussed at these mines, I mean, why would there is a need to go to the mine three times? Are they impressed by the mine? Or what’s the nature of their visit and what are they looking at when they go?

Michael Steinmann: Obviously I mean this is a very open process as we always described and our doors are open to a lot of visitors. And we had those visits by the representatives as well. So, where I see it is very positive. And yes a lot of activity around the consultation and mine visits during this quarter. Maybe Sean do you want to give some more color to that?

Sean McAleer: Yes. The first visits we had in August that was over 40 members of [indiscernible] Parliament came to the mine site. It was the first time a lot of them had — well first in all of them have been to the mine site. So, just a general site tour and overview of what the mining activity is what the operation is visit to the underground mine to the processing plant and the tailings facility. So, obviously, you can imagine that day long tour and then lots of questions around those tours. And then there were two other visits where we talked about water and then another visit which focused on our filtered tailings facility and questions around the design of that facility and some of the aspects of that facility. So — and during the meetings we’re going into some detailed discussions about water quality water quantity.

And so it’s always pretty dynamic meetings and lots of learning and Q&A. So that’s been pretty productive and really good dialogue over the last quarter.

Michael Steinmann: Thanks Sean. As I said look a very positive and open dialogue here which it is of course the way that the consultation has been out so far and we obviously support that way.

Don DeMarco: Thank you for that Michael. And so looking ahead at this consultation the process we have I judge that will — a quarter judge that will weigh on the process and determine if it was carried out to true ILO 169 standards. But what happens beyond that? I mean at that point the consultation would largely be concluded. Is it — will you then be negotiating or having continuing your discussions with the zinc or other members? What happens beyond the decision?

Michael Steinmann: I think the process is outlined in our slides as well on our website. Once the consultation is finalized, the report will be handed over about the consultation to the Supreme Court in Guatemala and the Supreme Court will then determine if everything has been followed in the process. And I would assume in the court ruling that’s afterwards — after that decision can decide to reinstate our mining license.

Ignacio Couturier: That’s pretty accurate. I think yes and I think we’ll get some more color around that over the coming months and coming weeks in the future meetings. So.

Don DeMarco: Okay. Fair enough. And because the court can say the process followed the ILO 169 product, but that doesn’t necessarily mean that the model gets restarted. But anyway we’ll look for color in the coming months but we’re encouraged by this activity that took place this quarter.

Michael Steinmann: Yes. Definitely.

Don DeMarco: So, [indiscernible] ventilation is going to be completed by mid- next year. So what should we be modeling for AISC in the next two or three quarters in the $25 to $30 range or is that kind of in the pipeline?

Steve Busby: Yes, hi Don, Steve here. I’d say we’re going to be trending towards the upper $20. We are seeing some improvements. There has been some work done in reducing dilution. We’re seeing better grades. It’s really a tonnage play right now. We’re trying to get air, pumped into some areas so we can get some higher throughput. And I think we’re going to see some marginal improvements in that. But until that new shaft comes on, I don’t think we’ll see a major change there.

Q – Don DeMarco: Okay. Thanks, Steve for that — Colorado. And then final question, just company-wide cost directionally heading into the Q4 last quarter of the year. Are you expecting, an improvement versus Q3.

Steve Busby: Yes. From an operations standpoint, when we look at all the operations I’d say, we’re seeing pluses and minuses and they seem to be balancing out. So I think Q3, is probably a reasonable projection for the operations side.

Michael Steinmann: Yes. I mean really a lot depends on when we see a higher oil price again, it’s coming up again a bit. Always a big impact to our operations, not only the cost obviously of diesel, but translating in higher cost across the board. That is definitely some more pressure on some inflation, but then there’s some other costs that also coming off — so — but that just speaks up probably pluses and minuses here for next quarter.

Q – Don DeMarco: Okay. Thank you again Good luck for the rest of the year. That’s all for me.

Steve Busby: Thank you.

Operator: Your next question comes from the line of Craig Hutchison from TD Securities. Your line is now open

Q – Craig Hutchison: Hi, guys. Good morning. Thanks for taking my question. Just on La Colorada as follow-up question. On the throughput, should we assume the throughputs that we saw in Q3, are representative of the throughput we can expect until sort of mid next year in term of ventilation is all of the running?

Steve Busby: Yes. Thanks, Craig. Steve, here. The simple answer is, yes I think that’s, correct. I mean we are focused on advancing development rates, which will generate a bit more ore. We brought additional contractor on, we are getting a little bit some of the areas with a little bit more error. So I think you’ll see some marginal improvement, in overall tonnage. But yes, once again, until that shaft comes on we won’t see a material change in throughput.

Michael Steinmann: Just a way in there and I think Steve talked about there. We expect to finalize the escalation of the shaft like later in…

Steve Busby: We’re on track to finishing the excavation by year-end, and then we’ll be installing the big ducting systems and the big fans or 2,000 horsepower fans each, that we’ll be putting on the surface and commissioning by midyear next year.

Michael Steinmann: Right. So all on time, and as we indicated already like I think a couple of quarters ago.

Steve Busby: And on budget as well.

Q – Craig Hutchison: Okay. And maybe just a question, with the Cerro Moro or maybe the EMAS [ph] in general. The lack of drilling density that impacted the grades — expected grades for El Penon, is that a concern at some of the other operations like Cerro Moro? Or do you have more confidence in terms of the drilling work that’s been done to date and the grade profile there?

Unidentified Company Representative : Yes. Craig, it’s Chris here. Certainly when we look at El Penon, and we look at the spacing of the 60 by 60 and going down at 30 by 30 meters for that initial gridding and drilling when we look at Cerro Moro certainly, see a higher ratio of drilling. And certainly the ore shoes have behaved more consistently. Even though very within the major structure of Escondida and Zoe [ph]. So no we certainly don’t have that feeling in Cerro Moro. And really as Mike mentioned, the increase in El Penon drilling up to 10,000 meters on a monthly basis, we’re certainly trying to catch up with some losses at the beginning the year due to a change in contractors, which was completed in January this year before we got on to site. So certainly, we see that we’re going to be catching up there.

Steve Busby : And if I can add Craig, I will say reinforce that Jacobina absolutely no concern. We’re seeing really good order zones there and good continuity. And even Florida to that matter we’re seeing — we need to get drilling out a hedge just to get some more tons into the reserve category. But that one is looking really good too to just share what Chris was talking about.

Michael Steinmann: And just to mention, I mean, El Penon, we see some nice upside in the exploration sort of more blue space up. So certainly something we’ll be concentrating on in 2024.

Craig Hutchison : Okay. Great to hear. And maybe one last question for me. Just La Arena, the sustaining CapEx is tracking well below guidance I think some of that has to do with the lack of development of the leach pad construction some dump work preparation. But is that something that’s going to impact production next year or something you guys need to catch up on?

Steve Busby : Yes. Hi, Craig, it’s Steve again. The main driver there is this pre-strip capital and it’s the way we account for pre-stripping of the open pit. And what’s happened is a big chunk of that got shifted to operating costs this quarter and probably we’ll see that in Q4 as well. So I think ACOs were solid. It’s just where we distribute that pre-strip whether it’s capital or expenses. There are some dollars as you alluded to being pushed out into 2024 for Pad V expansion. And it’s — we’re working through that. Right now we seem to be on schedule to where it won’t disrupt production, but we’re definitely — it’s one of our key focus areas.

Craig Hutchison : Okay. Thanks guys.

Steve Busby : Thank you.

Operator: Our next question comes from the line of John Tumazos from Very Independent Research. Your line is now open.

John Tumazos : Thank you very much for taking my question. Concerning new projects in general and the Colorado Skarn in particular, do you have a minimum hurdle rate threshold rate of return? Or do you revise on some qualitative and things like exploration potential size synergies with the next mine store, et cetera. Tell us how the Board approval eventually of the La Colorado Skarn project will go in the context of your approval process.

Michael Steinmann : Sure. And just there’s no board approval at this point. We’re obviously on a kind of a late-stage exploration phase here with La Colorada Skarn, and as I said will come out with our study at the end of the year that will give us much more information and to the shareholders how big — well we already know it. So it’s a very large discovery and how we think mining could look like over a very long time. When you look at the hurdle rates you mentioned a few things that play in this. There’s a lot of factors that of course play into this. Long-term metal prices have a very, very big impact to that calculation. So you — especially in a project like the Skarn that goes over a very, very long time there’s obviously some impact — a big, big impact on the capital number upfront and the big impact on the metal price you are using your model for later on.

So there’s a lot of things that play in there. But of course it’s — at the end, it’s all about the quality of the asset. It’s about mine life. It’s about the exploration potential. We already know at La Colorada Skarn we keep drilling and we just keep finding more and more. So we know this asset is still growing. We — for the current study obviously have a cutoff, I think it was like December ’22, we drilled a lot of meters since then actually, it’s Chris just told me it’s 50,000 meter additional drilling. So that deposit is still to grow. This is just a point in time that we’re looking at it. But as I said, and as you mentioned a lot of factors to play into calculating an IRR for a project and a lot of decisions to what we like to see depending on country jurisdiction size location to other mines as you mentioned synergies with other operations et cetera, et cetera.

So there’s a lot of factors in there. And a lot of time, will be discussed in our study.

John Tumazos: So for example is 5% or 10% a minimum hurdle rate of return.

Michael Steinmann: 5% would be a very, very low number of courts. That’s not something we are looking ready for. But as I said look, it depends but the metal prices are that use and that’s probably one of the most critical and also difficult decision when you look at a very, very long mine life — way easier obviously to kind of come up with the metal price. If we look at a normal precious metal kind of projects that normally run like let’s not call them 10 to 12 or 15 years. Very different when you look at long lives like the can not only that, but you’re dealing with not only silver on this side, but also lead and zinc saying. And of course, concentrate contracts that play a lot of into this as well. Just one side note here which is really nice.

Obviously La Colorado polymetallic, a lot of zinc in there, a lot of silver as well. Just as a side note, La Colorado is producing a really, really clean zinc and black concentrate already now from the veins, and the metallurgical testing we do shows that the scar will produce the same. So that’s very attractive concentrates in this term. So again, a lot that plays in there, but we would expect quite favorable concentrate terms for that kind of quality.

John Tumazos: So Michael, someone might be listening and reading between the lines in a way maybe you don’t want to. Should someone infer from your explanation that the project requires higher lead and zinc prices than current prices, but because it’s a many decade project, you’re going to, you might wait for lead and zinc to recovers to $2 and go ahead, assuming that it was a zinc recovers the $2.

Michael Steinmann: No, my point John is that the beauty of long life assets like everywhere in the world is that you don’t have to kind of try to time for a sink price or lab price or precious metal price cycle. We all know that this is very difficult to do because you have construction time upfront and none of us knows where the prices go exactly, but that’s exactly the beauty. When you look at this very, very long mine lives that are going to catch, , a few, quite a few of those cycles anyway. And that’s the beauty. That’s the reason why, mining companies, especially large mining companies look for very large, large, long life assets, because it takes that risk out of the equation.

John Tumazos: Michael, one last one. I’m sorry to be so interested this morning. Some investors are impatient and their clients have quarterly performance pressures on stuff like that. And they don’t understand that it takes a long time, four or five years just to get to the PEA point here. And sometimes in the stock market they love Bre-X that publishes 150 million ounces of gold that don’t exist, and they disrespect meticulous engineers that take five years to plan the project. Do you think that it would be appropriate to buy back a little bit of your stock since some of these short-term investors might give up, sale project that’s like a junior stock that’s going nowhere stale.

Michael Steinmann: Let me first answer on the timing. This has been incredibly fast. If you think it’s like what five years since the first drill hole in this Skarn, resourcing up to 9.25 billion tonnes of resource still to grow as I said. If this will be pure greenfield discovery, we were talking probably about 15 or more years to bring a project to that place. The reason why it went so fast is obviously it sits below in La Colorada, one of our silver mines. So that, of course, helps with infrastructure and drilling way faster and get that work done. So the team has done an excellent job to advance the project that quickly to an economic study here. So that’s pretty impressive and would not be possible if it wouldn’t be on-site discovery, which — and it’s very unusual to make that large of a discovery.

Talking about share buyback that you mentioned, look, as I said this year the Board opted to return capital to shareholders in form of dividends. It’s over $130 million. We’re still working and finalizing the new dividend policy. We will probably put that in place at the beginning of the year, which is the normal and logic place for us to do that. And it will be at the Boards discretion, how we return further capital to shareholders, we’re paying dividend uninterrupted since 2010. Of course, we disposed of quite a few assets, which are a very positive effect as I mentioned on our balance sheet and our shareholders participated with that with the dividend payment. So we’ll see next year, but the Board’s decision will be in what form and shape that return to shareholders will happen.

As I said this year, very strong dividend payments and for sure dividend will always be one part of it and I will continue to do so.

John Tumazos: Thank you.

Michael Steinmann: Thank you, John.

Operator: [Operator Instructions] Your next question comes from the line of Lawson Winder from Bank of America Securities. Your line is now open.

Lawson Winder: Yeah. Thank you, operator for fitting me in. Good morning, Michael, Steve and Sean. Hopefully I can keep my questions pretty snappy. I wanted to ask about Jacobina. So you guys provided the IRR update back in late August and the reserve grade that Jacobina for gold the M&I and inferred grades — M&I and inferred grades material. I wanted to ask a question like example of some of the drill spacing issues that you experienced at El Penon and what are some of the potential other factors? Thank you.

Martin Wafforn: Yes. Hi Lawson, it’s Martin Wafforn here. Pretty much the change that you saw in the reserve grade at Jacobina was related to looking at the metal prices and the cutoff grade, the operating costs going forward. We have a slightly different approach than the way that the Yamana was doing it. They were using a lower gold price than we use. We bumped up the gold price, but we were also looking at the cutoff grade and how that works. And we were able to use a lower cutoff grade for our reserve estimation. It’s based on our sort of methodology and that’s — that brought in quite a lot of ounces and took the overall grade down. And my belief is being mined anyway. And so that’s what happened there. That’s what you see.

Steve Busby: Lawson, if I could add from an operating point of view, I think from my perspective, the operation is much more comfortable with a lower grade cutoff at higher grade cutoff there was a lot of piecemealing if you will on the deposits. And it wasn’t — it opens up the mining. It opens up some opportunities for us to lower that cutoff to where we can look at more bulk mining even above what they’re doing now that could drive costs lower again yes. So that’s really where we’re trying to drive to is looking for efficiencies and it may come at a little bit less grade, but it’s — that’s what we’re trying to — that’s what this whole optimization study that we’re talking about is for Jacobina is where is that best sweet spot and can we mine more volume at a lower cost per tonne and withstand a bit lower grades.

That’s going to be many months of study, but we’re pretty optimistic walking into this. And I think that’s kind of the taste. What you’re describing is kind of the taste of where we see. We’d like to take optimization if you will at Jacobina.

Martin Wafforn: And just drilling at Jacobina, I mean it’s by far our most productive mine in terms of drill meters per ounce is added and it’s definitely [indiscernible].

Lawson Winder: No, what would the implication of [indiscernible] then for potential production growth? Like with all those…

Steve Busby: Great question. I get that a lot. Yes Lawson, Steve here. I don’t want to speculate on what that’s going to be. I just look at the ounces in reserves, the tonnes of grades I look at the ounces in resource tonnes grades and it makes me excited that there are some opportunities here, but I don’t want to speculate how big that could happen. It’s going to take us months to get through this done.

Lawson Winder: Well, I can definitely hear the excitement in your voice that’s great. Just wanted to [indiscernible] on that, but just maybe you could just share with us what the base case is for throughput? And then as a follow-up question to that, with respect to financing, it’s construction, I think you’ve mentioned that as potential consumers of funding going forward and have even sort of suggested some cautiousness with respect to potentially more aggressive capital return. What are the prospects for a – to help alleviate some of those funding demands?

Michael Steinmann: I can start and sorry, you’re cutting in and out there but I think I got the question on the Skarn. So let me know if you need any more details there. But look we need to finish the study of course and it will be out and then we have a lot of numbers and details to discuss how this is going forward. We are very, very open to any way to look at this project later on. I think there is a lot of way to optimize return for our shareholders that can be in different form and shape and can go from finding a partner or focusing on the silver to many other ways how to do that. And I really don’t want to fix that yet because there will be a lot of a lot of details that need to go into that decision. But I think a large deposit like the Skarn opens up huge opportunity for us to optimize that return to our shareholders.

So I think you should not just think in the normal case just building the mine and mining it out over the next whatever 30, 40 years and doing it all ourselves. That could be one outcome for sure but there can be many different outcomes to optimize that return. So it’s a little bit early Lawson, once we have the study out there, we should hope a lot of activity going on on how we can optimize that in a lot of ideas. So we already have a lot of ideas how to do that. And I will start sharing those ideas of course with everyone I think once we come out with the study and early into next year.

Steve Busby: And if I can add Lawson, this is Steve, relative to throughput on the Skarn that is one of the most debated subjects we have here internally right now and we are going to have to pick a base case, as I understand it to present a base case. But I think we’re going to open that debate even beyond ourselves and show some alternatives because it’s very interesting to look at throughput on this project. It’s such a massive project. There are so many opportunities Michael alluded to and the more people we get the more ideas we get, the better right now. So we’re going to open that up a bit when you see the study coming up.

Lawson Winder: Great. I apologies for the down quality on my end but I think guys captured the nature of my question very well with due response. Thank you very much.

Michael Steinmann: Thank you.

Operator: There are no further questions at this time. I will now hand over the call back to Michael. Please continue.

Michael Steinmann: Thank you, everyone for calling in today. Like – also we will provide early 2024 our outlook for the New Year. I know it was later this year because of the transaction. But normally we do that in January and we’ll do that in January 2024, when we’ll share all those details with you. And until then have a great end of the year and talk to you in January. Thank you very much.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.