Pan American Silver(PAAS) - 2022 Q1 - Quarterly Report

Introduction This MD&A explains Pan American Silver's performance and outlook, presented in USD under IFRS and utilizing non-GAAP measures - This MD&A provides an understanding of factors influencing Pan American Silver Corp's performance and future outlook, to be read with the 2021 Annual Financial Statements and Q1 2022 Financial Statements[3] - All amounts are in USD, and financial reporting adheres to IFRS[3] - The MD&A refers to non-GAAP measures like 'all-in sustaining costs per ounce sold', 'cash costs per ounce sold', 'adjusted earnings', and 'working capital', which are detailed in the 'Alternative Performance (Non-GAAP) Measures' section[4] Core Business and Strategy The company engages in silver and gold mining with a vision to be the premier silver mining company through sustainable growth - Pan American Silver Corp is engaged in silver and gold mining, including exploration, development, extraction, processing, refining, and reclamation, operating mines in Peru, Mexico, Argentina, Bolivia, and Canada[7] - The Company's vision is to be the world's premier silver mining company, focusing on sustainable profits, growing mineral reserves, fostering positive stakeholder relationships, and continuously improving asset quality[8][9] Q1 2022 Highlights Q1 2022 saw stable silver production, higher revenue and net earnings, but increased costs and slightly lower adjusted earnings Operations In Q1 2022, silver production was comparable to Q1 2021, while gold and base metal production saw slight decreases Q1 2022 Production Highlights (YoY) | Metal | Q1 2022 Production | Q1 2021 Production | Change (%) | | :---- | :------------------ | :------------------ | :--------- | | Silver | 4.62 million ounces | 4.58 million ounces | +0.9% | | Gold | 131.0 thousand ounces | 137.6 thousand ounces | -5% | | Zinc | 10.2 thousand tonnes | 13.1 thousand tonnes | -22.1% | | Lead | 4.7 thousand tonnes | 5.0 thousand tonnes | -6% | | Copper | 1.8 thousand tonnes | 2.1 thousand tonnes | -14.3% | - Silver production was comparable YoY, with increases at La Colorada and Manantial Espejo offsetting declines at San Vicente and Morococha[10][12][14] - Gold production decreased 5% due to lower output at La Arena and Dolores, partially offset by Shahuindo[10][12][14] - The Company reaffirms its 2022 operating outlook for silver, gold, zinc, lead, and copper production[11][13][15] Financial The company reported a significant increase in net earnings and cash flow, driven by higher sales and favorable adjustments Q1 2022 Financial Highlights (YoY) | Metric | Q1 2022 (USD millions) | Q1 2021 (USD millions) | Change (YoY) | | :----- | :--------------------- | :--------------------- | :----------- | | Revenue | $439.9 | $368.1 | +20% | | Net Earnings | $76.8 | ($7.6) | +$84.4 | | Basic EPS | $0.36 | ($0.04) | +$0.40 | | Cash Flow from Operations | $68.8 | $29.9 | +$38.9 | | Adjusted Earnings | $32.0 | $37.4 | -$5.4 | | Basic Adjusted EPS | $0.15 | $0.18 | -$0.03 | - Revenue increased 20% due to a 40% increase in silver ounces sold and a 9% increase in gold ounces sold, largely from inventory draw-downs[17][86] - Net earnings significantly improved to $76.8 million from a loss of $7.6 million, primarily due to a $44.6 million fair-value adjustment gain on the Maverix investment and a $26.5 million decrease in income tax expense[18][22] - Cash flow from operations increased by $38.9 million, reflecting an $8.8 million increase in cash mine operating earnings and a $32.3 million reduction in non-cash working capital build-up[16] - Adjusted earnings decreased to $32.0 million ($0.15 per share) from $37.4 million ($0.18 per share) in Q1 2021[19] Q1 2022 Cash Costs and AISC (YoY) | Segment | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :------ | :----- | :------ | :------ | :----------- | | Silver | Cash Costs/oz | $10.23 | $12.30 | -$2.07 | | Silver | AISC/oz | $13.41 | $16.99 | -$3.58 | | Gold | Cash Costs/oz | $1,069 | $846 | +$223 | | Gold | AISC/oz | $1,502 | $1,058 | +$444 | - Silver Segment Cash Costs per ounce decreased by $2.07, primarily due to higher base metal prices and lower costs at La Colorada, despite inflationary pressures[19][20][21][23] Environmental, Social, and Governance (ESG) The company is committed to sustainable practices and released its 2021 Sustainability Report in accordance with global standards - Pan American is committed to responsible and sustainable business practices, encompassing environmental care, community development, safe workplaces, and transparent operations[26] - The Company released its 2021 Sustainability Report on May 5, 2022, prepared in accordance with GRI Standards and aligned with SASB Standard[27] Operating Performance This section details Q1 2022 production volumes, costs, and individual mine performance across silver, gold, and base metals Silver and Gold Production Consolidated silver production in Q1 2022 was 4.62 million ounces, slightly up from Q1 2021, while gold production decreased by 5% Q1 2022 Silver and Gold Production by Operation (koz) | Operation | Silver Production (koz) | Gold Production (koz) | | :-------- | :---------------------- | :-------------------- | | La Colorada | 1,419 | 0.6 | | Huaron | 899 | 0.2 | | Morococha | 324 | 0.1 | | San Vicente | 476 | — | | Manantial Espejo | 903 | 6.1 | | Dolores | 518 | 34.6 | | Shahuindo | 66 | 34.3 | | La Arena | 11 | 23.3 | | Timmins | 4 | 31.8 | | Total | 4,619 | 131.0 | - Total silver production for Q1 2022 was 4,619 koz, slightly higher than Q1 2021 (4,583 koz)[30] - Total gold production was 131.0 koz, down from Q1 2021 (137.6 koz)[30] Base Metal Production Base metal production in Q1 2022 saw decreases across zinc, lead, and copper compared to Q1 2021 Q1 2022 Base Metal Production (kt) | Metal | Q1 2022 (kt) | Q1 2021 (kt) | | :---- | :----------- | :----------- | | Zinc | 10.2 | 13.1 | | Lead | 4.7 | 5.0 | | Copper | 1.8 | 2.1 | - Payable base metal production also decreased, with zinc at 8.5 kt (Q1 2021: 10.9 kt), lead at 4.4 kt (Q1 2021: 4.7 kt), and copper at 1.6 kt (Q1 2021: 1.7 kt)[31] Cash Costs and AISC Silver Segment costs decreased significantly due to by-product prices, while Gold Segment costs increased from lower grades and inflation Q1 2022 Consolidated Cash Costs and AISC (per ounce) | Segment | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :------ | :----- | :------ | :------ | :----------- | | Silver | Cash Costs | $10.23 | $12.30 | -$2.07 | | Silver | AISC | $13.41 | $16.99 | -$3.58 | | Gold | Cash Costs | $1,069 | $846 | +$223 | | Gold | AISC | $1,502 | $1,058 | +$444 | - Silver Segment Cash Costs decreased by $2.07/oz, primarily due to higher base metal prices and lower costs at La Colorada[20][22] - Gold Segment Cash Costs increased by $223/oz, mainly due to lower mined grades, inflationary pressures, and supply chain shortages[21][24] Individual Mine Performance Individual mine performance varied, with strong results at La Colorada and Manantial Espejo, while others faced cost and grade challenges La Colorada Operation Silver production increased 33% due to higher grades, leading to a significant decrease in both Cash Costs and AISC La Colorada Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Silver Production (koz) | 1,419 | 1,065 | +33% | | Cash Costs ($/oz) | $9.73 | $15.62 | -$5.89 | | AISC ($/oz) | $12.19 | $42.44 | -$30.25 | - Silver production increased 33% due to higher grades and throughput from improved ventilation[38][40] - AISC decreased by $30.25/oz, driven by higher silver grades, by-product metal prices, and lower sustaining capital[38][40] Huaron Operation Higher base metal prices drove down cash costs, offsetting inflationary pressures and lower zinc and copper production Huaron Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Silver Production (koz) | 899 | 884 | +2% | | Zinc Production (kt) | 4.05 | 5.13 | -21% | | Copper Production (kt) | 1.22 | 1.56 | -22% | | Lead Production (kt) | 2.58 | 2.30 | +12% | | Cash Costs ($/oz) | ($1.16) | $2.35 | -$3.51 | | AISC ($/oz) | $3.49 | $4.82 | -$1.33 | - Cash Costs decreased by $3.50/oz, primarily from higher base metal prices, offsetting inflationary pressures[43][44] Dolores Operation Lower grades from a reserve estimate shortfall led to decreased silver and gold production and significantly higher costs Dolores Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Silver Production (koz) | 518 | 634 | -18% | | Gold Production (koz) | 34.6 | 37.0 | -7% | | Cash Costs ($/gold oz) | $976 | $718 | +$258 | | AISC ($/gold oz) | $1,682 | $723 | +$959 | - Silver production decreased 18% and gold production decreased 7%, largely due to lower grades[46][47][48] - AISC increased by $959/oz, driven by lower grades, higher operating costs, and negative NRV inventory adjustments[46][47][48] Shahuindo Operation Gold production increased 16% due to higher throughput, though costs rose from a higher waste-to-ore ratio and inflation Shahuindo Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Gold Production (koz) | 34.26 | 29.54 | +16% | | Cash Costs ($/oz) | $915 | $751 | +$164 | | AISC ($/oz) | $1,152 | $844 | +$308 | - Gold production increased 16% due to higher tonnes stacked and improved recovery, despite lower grades[51][52] - AISC increased by $308/oz, primarily due to a higher waste-to-ore ratio, lower gold grades, and inflationary pressures[51][52] La Arena Operation Gold production decreased 30% due to lower grades, resulting in significantly higher cash costs and AISC La Arena Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Gold Production (koz) | 23.35 | 33.15 | -30% | | Cash Costs ($/oz) | $963 | $598 | +$365 | | AISC ($/oz) | $1,424 | $1,072 | +$352 | - Gold production decreased 30% due to lower grades and a decrease in the ratio of ounces recovered to stacked[55][56] - Cash Costs increased by $365/oz, mainly reflecting inflationary pressures and lower grades[55][56] Timmins Operation Gold production saw a slight increase from higher mining rates, but costs rose due to lower grades and inflation Timmins Q1 2022 Performance (YoY) | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Gold Production (koz) | 31.79 | 30.98 | +3% | | Cash Costs ($/oz) | $1,414 | $1,292 | +$122 | | AISC ($/oz) | $1,695 | $1,568 | +$127 | - Cash Costs increased by $122/oz, primarily from lower grades and higher operating costs due to inflationary pressures[60][61] Other Operations (Morococha, San Vicente, Manantial Espejo) Morococha was placed on care and maintenance, San Vicente saw lower grades, while Manantial Espejo's production increased Other Operations Q1 2022 Performance (YoY) | Operation | Metric | Q1 2022 | Q1 2021 | Change (YoY) | | :-------- | :----- | :------ | :------ | :----------- | | Morococha | Silver Production (koz) | 324 | 521 | -37.8% | | Morococha | Cash Costs ($/oz) | $5.68 | $13.89 | -$8.21 | | San Vicente | Silver Production (koz) | 476 | 701 | -32.1% | | San Vicente | Cash Costs ($/oz) | $19.39 | $13.35 | +$6.04 | | Manantial Espejo | Silver Production (koz) | 903 | 697 | +29.6% | | Manantial Espejo | Cash Costs ($/oz) | $15.42 | $19.78 | -$4.36 | - Morococha production decreased as the operation was placed on care and maintenance in February 2022[65][66] - Manantial Espejo saw increased production from higher tonnages and grades at COSE and Joaquin[65][66] 2022 Annual Operating Outlook The company reaffirms its 2022 annual outlook for metal production, costs, and capital expenditures based on Q1 performance Production Relative to Forecast Management reaffirms the 2022 annual consolidated metal production outlook based on Q1 2022 results and expected future production 2022 Operating Outlook vs. Q1 2022 Production | Metal | 2022 Operating Outlook | Q1 2022 Production | | :---- | :--------------------- | :----------------- | | Silver | 19.00 - 20.50 Moz | 4.62 Moz | | Gold | 550.0 - 605.0 koz | 131.0 koz | | Zinc | 35.0 - 40.0 kt | 10.2 kt | | Lead | 15.0 - 17.0 kt | 4.7 kt | | Copper | 5.5 - 6.5 kt | 1.8 kt | - The Company reaffirms its 2022 Operating Outlook for annual consolidated metal production[69] Cash Costs and AISC Compared to Forecast The overall 2022 Operating Outlook for consolidated Cash Costs and AISC is reaffirmed despite some Q1 2022 variances 2022 Operating Outlook vs. Q1 2022 Cash Costs and AISC (per ounce) | Segment | Metric | 2022 Operating Outlook | Q1 2022 | | :------ | :----- | :--------------------- | :------ | | Silver Segment | Cash Costs | $10.70 - $12.20 | $10.23 | | Silver Segment | AISC | $14.50 - $16.00 | $13.41 | | Gold Segment | Cash Costs | $970 - $1,070 | $1,069 | | Gold Segment | AISC | $1,240 - $1,365 | $1,502 | - Management reaffirms the 2022 Operating Outlook for Cash Costs and AISC, despite some Q1 2022 results being outside the forecast ranges[71][73] - Forecast estimates are influenced by assumptions for productivity, input costs, commodity prices (e.g., $22.50/oz silver, $1,750/oz gold), and currency exchange rates[70][72] Capital Expenditures Relative to Forecast The Company reaffirms its 2022 Operating Outlook for sustaining and project capital expenditures, with Q1 spending on track 2022 Capital Expenditures Outlook vs. Q1 2022 ($ millions) | Category | 2022 Operating Outlook | Q1 2022 | | :------- | :--------------------- | :------ | | Sustaining Capital Sub-total | $200.0 - $210.0 | $56.0 | | Project Capital Sub-total | $80.0 - $95.0 | $9.2 | | Total Capital | $280.0 - $305.0 | $65.2 | - Management reaffirms the 2022 Operating Outlook for sustaining and project capital[74] Project Development Update Project development capital in Q1 2022 totaled $9.1 million, primarily focused on the La Colorada Skarn project Q1 2022 Project Development Capital (thousands of USD) | Project | Q1 2022 | Q1 2021 | | :------ | :------ | :------ | | La Colorada projects | $8,560 | $4,082 | | Timmins projects | $401 | $644 | | Other projects | $163 | $225 | | Total | $9,124 | $4,951 | - Total project development capital in Q1 2022 was $9.1 million, primarily invested in the La Colorada Skarn project for exploration, development, and construction[75] Overview of Q1 2022 Financial Results This section provides a detailed analysis of Q1 2022 financial statements, including income, cash flow, and adjusted earnings Selected Annual and Quarterly Information Q1 2022 financial performance showed significant improvement in net earnings and cash flow compared to Q1 2021 Selected Quarterly Financial Results (thousands of USD) | Metric | Q1 2022 | Q1 2021 | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2020 | | :----- | :------ | :------ | :------ | :------ | :------ | :------ | | Revenue | $439,888 | $368,099 | $422,170 | $460,349 | $382,132 | $358,428 | | Mine operating earnings | $66,755 | $89,964 | $76,039 | $98,887 | $103,048 | $50,058 | | Earnings for the period attributable to equity holders | $76,517 | ($7,798) | $14,036 | $20,251 | $70,939 | ($76,807) | | Basic (loss) earnings per share | $0.36 | ($0.04) | $0.06 | $0.10 | $0.34 | ($0.37) | | Cash flow from operating activities | $68,758 | $29,850 | $118,098 | $157,017 | $87,143 | $114,051 | | Cash dividends paid per share | $0.12 | $0.07 | $0.10 | $0.10 | $0.07 | $0.05 | | Total assets | $3,540,297 | N/A | $3,518,584 | N/A | N/A | $3,433,875 | | Total long-term financial liabilities | $303,984 | N/A | $297,600 | N/A | N/A | $277,696 | | Total attributable shareholders' equity | $2,683,201 | N/A | $2,631,554 | N/A | N/A | $2,602,519 | - Q1 2022 revenue was $439.9 million, with net earnings of $76.5 million ($0.36 basic EPS)[78] - Cash flow from operating activities was $68.8 million, total assets stood at $3.54 billion, and shareholders' equity at $2.68 billion[78] Income Statement: Q1 2022 vs. Q1 2021 Net earnings improved significantly, driven by higher sales volumes, a gain on the Maverix investment, and reduced income tax expense Key Drivers of Net Earnings Change Q1 2022 vs. Q1 2021 (thousands of USD) | Factor | Impact on Net Earnings | | :----- | :--------------------- | | Net loss, Q1 2021 | ($7,562) | | Increased revenue (metal prices & quantities) | +$71,789 | | Increased cost of sales (production & D&A) | ($94,998) | | Increased gains/income from associates | +$44,835 | | Decreased investment loss | +$41,859 | | Decreased income tax expense | +$26,537 | | Other net changes | ($5,315) | | Net earnings, Q1 2022 | $76,831 | - Net earnings increased by $84.4 million, from a $7.6 million loss in Q1 2021 to $76.8 million earnings in Q1 2022, resulting in basic EPS of $0.36[18][85] - Revenue increased by $71.8 million, mainly due to higher quantities of silver (+40%) and gold (+9%) sold[86][87][89] - Cost of sales increased by $95.0 million, driven by higher sales volumes, NRV inventory adjustments, and Omicron/inflationary pressures[86][90][91] - A $44.6 million fair-value adjustment gain was recognized from changing the accounting treatment of the Maverix investment[22][91] - Income tax expense decreased by $26.5 million, mainly due to the appreciation of the Peruvian sol (PEN) on Peruvian tax attributes[22][92] Statement of Cash Flows: Q1 2022 vs. Q1 2021 Cash flow from operations increased significantly due to reduced working capital usage and higher cash mine operating earnings Cash Flow Summary Q1 2022 vs. Q1 2021 (thousands of USD) | Activity | Q1 2022 | Q1 2021 | Change (YoY) | | :------- | :------ | :------ | :----------- | | Operating Activities | $68,758 | $29,850 | +$38,908 | | Investing Activities | ($51,100) | ($44,500) | ($6,600) | | Financing Activities | ($29,200) | ($18,000) | ($11,200) | - Cash flow from operations increased by $38.9 million, driven by less cash used in working capital changes and increased cash mine operating earnings[93][94] - Investing activities used $51.1 million, primarily for $61.5 million in mineral properties, plant, and equipment[95] - Financing activities used $29.2 million, mainly for $25.3 million in dividends and $3.4 million in lease repayments[96] Adjusted Earnings: Q1 2022 vs Q1 2021 Adjusted earnings decreased in Q1 2022 compared to Q1 2021, primarily due to the exclusion of significant investment-related gains Adjusted Earnings Q1 2022 vs. Q1 2021 (thousands of USD) | Metric | Q1 2022 | Q1 2021 | | :----- | :------ | :------ | | Net earnings (loss) for the period | $76,831 | ($7,562) | | Total adjustments | ($44,854) | $44,995 | | Adjusted earnings for the period | $31,977 | $37,433 | | Adjusted earnings per share | $0.15 | $0.18 | - Adjusted earnings for Q1 2022 were $32.0 million ($0.15 per share), down from $37.4 million ($0.18 per share) in Q1 2021[98] - Key adjustments include unrealized foreign exchange losses, heap inventory net realizable value charge, and gains and income from associates[141] Liquidity Position and Capital Resources The company maintains a strong liquidity position with sufficient cash, an undrawn credit facility, and manageable debt levels Liquidity and Capital Resources Pan American Silver maintains a strong liquidity position with $326.3 million in cash and an undrawn $500.0 million credit facility Liquidity and Capital Measures (thousands of USD) | Metric | March 31, 2022 | Dec. 31, 2021 | Q1 2022 Change | | :----- | :------------- | :------------ | :------------- | | Cash and Short-term investments | $326,286 | $335,273 | ($8,987) | | Working Capital | $620,663 | $613,494 | $7,169 | | Credit Facility committed amount | $500,000 | $500,000 | — | | Credit Facility amounts drawn | — | — | — | | Total debt | $47,046 | $45,861 | $1,185 | | Capital | $2,403,961 | $2,342,142 | $61,819 | - Cash and short-term investments decreased by $9.0 million in Q1 2022 to $326.3 million, primarily due to capital additions and higher dividend payments[101] - Working capital increased by $7.2 million to $620.7 million at March 31, 2022[103] - The $500 million revolving Sustainability-Linked Credit Facility was undrawn as of March 31, 2022[104] - Management believes liquid assets are sufficient to satisfy 2022 working capital requirements, fund planned capital expenditures, and discharge liabilities[106] Outstanding Share Amounts As of May 11, 2022, Pan American Silver had 210.5 million common shares outstanding, plus options and Contingent Value Rights Outstanding Share Amounts as at May 11, 2022 | Instrument | Amount | | :--------- | :----- | | Common shares | 210,511,219 | | Options | 220,984 | | Total | 210,732,203 | - Approximately 0.2 million stock options were outstanding, with 0.2 million vested and exercisable[109][112] - Additionally, 313.9 million CVRs were outstanding, convertible into 15.6 million common shares upon the first commercial shipment from the Escobal mine[109][112] Closure and Decommissioning Cost Provision The provision for future closure and decommissioning costs increased to $252.8 million due to inflation and updated estimates - The total inflated and undiscounted amount was $451.7 million as of March 31, 2022 (up from $413.0 million at Dec 31, 2021)[113][114] - The inflated and discounted provision on the statement of financial position was $252.8 million (up from $242.9 million at Dec 31, 2021)[114] - Accretion of the discount charged as finance expense in Q1 2022 was $3.7 million (Q1 2021: $1.9 million)[115] Related Party Transactions No significant related party transactions occurred in Q1 2022, with Maverix being a related party until March 31, 2022 - Related parties include subsidiaries, associates, and key management, with Maverix remaining a related party until March 31, 2022[116] - No other related party transactions occurred in Q1 2022 or Q1 2021[116] Alternative Performance Measures (Non-GAAP) This section defines and provides reconciliations for non-GAAP measures like Cash Costs, AISC, and Adjusted Earnings Per Ounce Measures (Cash Costs and AISC) Cash Costs and AISC are non-GAAP measures used to evaluate operational performance, calculated net of by-product credits - Cash Costs and AISC are non-GAAP measures, not standardized under IFRS, used to evaluate operating performance and compare against industry benchmarks[117][122][123] - Silver segment costs are calculated net of credits from all metals other than silver, while gold segment costs are net of realized silver revenues[119][121] Consolidated Cash Costs and AISC Reconciliation Q1 2022 vs. Q1 2021 (thousands of USD) | Metric | Silver Segment Q1 2022 | Silver Segment Q1 2021 | Gold Segment Q1 2022 | Gold Segment Q1 2021 | | :----- | :--------------------- | :--------------------- | :------------------- | :------------------- | | Production costs | $97,589 | $80,601 | $174,383 | $112,580 | | On-site direct operating costs | $96,236 | $79,159 | $161,293 | $121,837 | | Cash Costs | $42,920 | $34,563 | $149,439 | $108,100 | | All-in sustaining costs | $56,263 | $47,744 | $209,957 | $135,189 | | Silver ounces sold (koz) | 4,197 | 2,810 | — | — | | Gold ounces sold (koz) | — | — | 140 | 128 | | Cash costs per ounce sold | $10.23 | $12.30 | $1,069 | $846 | | AISC per ounce sold | $13.41 | $16.99 | $1,502 | $1,058 | Reconciliation of Payments for MPP&E and Sustaining Capital (thousands of USD) | Item | Q1 2022 | Q1 2021 | | :--- | :------ | :------ | | Payments for mineral properties, plant and equipment | $61,453 | $47,971 | | Lease Payments | $3,419 | $2,982 | | Repayment of loans | $850 | — | | Investment (non-sustaining) capital | ($9,765) | ($5,743) | | Sustaining Capital | $55,957 | $45,210 | Adjusted Earnings Adjusted earnings, a non-GAAP measure, decreased to $32.0 million in Q1 2022 from $37.4 million in Q1 2021 - Adjusted earnings and basic adjusted earnings per share are non-GAAP measures designed to reflect normalized earnings by eliminating non-operational items[139] Adjusted Earnings Reconciliation Q1 2022 vs. Q1 2021 (thousands of USD) | Item | Q1 2022 | Q1 2021 | | :--- | :------ | :------ | | Net earnings (loss) for the period | $76,831 | ($7,562) | | Total adjustments | ($44,854) | $44,995 | | Adjusted earnings for the period | $31,977 | $37,433 | | Adjusted earnings per share | $0.15 | $0.18 | Total Debt Total debt is a non-GAAP measure representing current and non-current debt, lease liabilities, and loans payable - Total debt is a non-GAAP measure calculated as the sum of amounts drawn on the Credit Facility, finance lease liabilities, and loans payable[142] - As of March 31, 2022, total debt was $47.0 million, an increase of $1.2 million from December 31, 2021[100] Capital Capital is a non-GAAP measure calculated as total equity plus total debt less cash and short-term investments - Capital is a non-GAAP measure calculated as total equity plus total debt less cash and cash equivalents and short-term investments[143] - As of March 31, 2022, Capital was $2.40 billion, an increase of $61.8 million from December 31, 2021[100] Working Capital Working capital, a non-GAAP measure of short-term liquidity, was $620.7 million as of March 31, 2022 - Working capital is a non-GAAP measure calculated as current assets less current liabilities, used to evaluate the Company's ability to meet current obligations[144][145] - Working capital at March 31, 2022, was $620.7 million, an increase of $7.2 million from $613.5 million at December 31, 2021[100][103] Cash Mine Operating Earnings Cash mine operating earnings, a non-GAAP measure, increased to $165.7 million in Q1 2022 from $156.9 million in Q1 2021 - Cash mine operating earnings is a non-GAAP measure calculated by excluding depreciation, amortization, and NRV inventory adjustments from mine operating earnings[146] Cash Mine Operating Earnings Reconciliation Q1 2022 vs. Q1 2021 (thousands of USD) | Item | Q1 2022 | Q1 2021 | | :--- | :------ | :------ | | Mine operating earnings | $66,755 | $89,964 | | Depreciation and amortization | $84,526 | $75,093 | | Net realizable value adjustment for inventories | $14,443 | ($8,143) | | Cash mine operating earnings | $165,724 | $156,914 | - Cash mine operating earnings in Q1 2022 totaled $165.7 million, an increase from $156.9 million in Q1 2021[101][147] Risks and Uncertainties The company faces various risks including financial market volatility, legal proceedings, COVID-19 impacts, and climate change Financial Risk Exposure Pan American Silver is exposed to various financial risks, with management of these risks remaining consistent in Q1 2022 - The Company is exposed to metal price risk, credit risk, interest rate risk, foreign currency exchange rate risk, and liquidity risk[150] - There were no significant changes to these financial risks or the Company's management of exposure to them during Q1 2022[150] Price Risk The Company faces price risk from commodity fluctuations and input costs, using derivatives to mitigate some exposures - Profitability is affected by decreases in metal prices and increases in consumable prices, with the Company using forward sales or option contracts to mitigate base metal price risk[152] - As of March 31, 2022, the Company had outstanding zinc collars (2,700 tonnes) and a zinc forward contract (2,700 tonnes), recording $1.1 million in losses in Q1 2022[153] - The Company had outstanding diesel swap contracts (2.7 million gallons) and recorded gains of $2.8 million in Q1 2022[155] Trading Activities and Credit Risk The Company faces credit risk from concentrate buyers, refineries, and suppliers, which management actively monitors - Credit risk arises from long-term supply arrangements for concentrates, refining agreements for doré, spot market sales, and supplier advances[156][158][159][161] - As of March 31, 2022, receivable balances from concentrate buyers were $48.2 million, and precious metal inventory at refineries was approximately $35.7 million[157][158][161] - Management monitors and assesses credit risk, avoiding unacceptable concentration to any single counterparty[162] Foreign currency exchange rate risk The Company is exposed to foreign currency risk as its financial statements are in USD but operations occur in various local currencies - Financial results are subject to changes in the USD value relative to local currencies (e.g., PEN, MXN, ARS, BOB, CAD)[164] - As of March 31, 2022, Pan American held $61.8 million in CAD, $1.1 million in MXN, $7.1 million in PEN, $12.8 million in ARS, $2.7 million in BOB, and $0.4 million in Guatemalan quetzales[165] - The Company had outstanding foreign currency hedging positions for MXN, PEN, and CAD, recording gains on these derivative contracts in Q1 2022[166] Claims and Legal Proceedings Pan American is involved in various legal proceedings whose outcomes are uncertain and could materially impact the Company - The Company is subject to various claims and legal proceedings, which could result in monetary damages or loss of permits/rights[167] - Legal proceedings against the Company's subsidiary in Guatemala claim damages near the Escobal mine and seek to prevent future mining activities[168][170] - The Company is appealing a dismissal related to a legal challenge concerning surface land ownership at the La Colorada mine in Mexico[171] - Ongoing class action lawsuits in the U.S. and Canada against Tahoe Resources Inc. (acquired by Pan American) allege misrepresentations[172] COVID-19 and Other Pandemics COVID-19 continues to pose significant risks to operations, with potential for increased costs and supply chain disruptions - COVID-19 has already caused temporary suspensions and reduced throughput at operations, impacting employees, contractors, and suppliers[174] - Future impacts are highly uncertain, and comprehensive COVID-19 protocols are expected to increase costs and restrict throughput in 2022[175] - The continued spread of COVID-19 could materially adversely affect global economies and the Company's business, stock price, and ability to raise capital[176] Climate Change Climate change presents significant risks, including increased regulatory costs, negative public perception, and physical operational risks - The Company is impacted by evolving policies and regulations related to greenhouse gas emissions, which may result in additional transition costs[177] - Public perception and investor sentiment regarding environmental impacts could negatively affect the Company's reputation and share price[178] - Physical risks of climate change, such as extreme weather and water shortages, could damage facilities and disrupt operations[179] Summary of Significant Accounting Policies, Standards and Judgements Accounting policies remain consistent with 2021, and financial statement preparation involves significant management estimates - Accounting policies applied in Q1 2022 are consistent with those in the 2021 audited consolidated financial statements[180][181] - Preparation of financial statements requires significant management estimates and assumptions, which are continuously reviewed[182] Disclosure Controls and Procedures and Technical Information Management confirms the effectiveness of disclosure controls and internal controls, with technical information approved by Qualified Persons Disclosure Controls and Procedures (DC&P) The CEO and CFO concluded that the Company's Disclosure Controls and Procedures were effective as of December 31, 2021 - The CEO and CFO are responsible for establishing and maintaining adequate DC&P and concluded they were effective as of December 31, 2021[185][186] Internal Control Over Financial Reporting (ICFR) The CEO and CFO assessed Internal Control Over Financial Reporting as effective as of December 31, 2021 - The CEO and CFO are responsible for establishing and maintaining adequate ICFR and concluded it was effective as of December 31, 2021, based on the COSO framework[187] - The effectiveness of the Company's ICFR as of December 31, 2021, was audited by Deloitte LLP[188] Changes in ICFR There have been no material changes to the Company's Internal Control Over Financial Reporting during Q1 2022 - No material changes to the Company's ICFR occurred during the three and twelve months ended March 31, 2022[189] Inherent limitations of controls and procedures All internal control systems have inherent limitations and can only provide reasonable, not absolute, assurance - Internal control systems have inherent limitations, providing only reasonable assurance and may not prevent or detect all misstatements timely[190] Technical Information Scientific and technical information in this MD&A has been reviewed and approved by Qualified Persons under NI 43-101 - Scientific and technical information has been reviewed and approved by Martin Wafforn, P.Eng., and Christopher Emerson, FAusIMM, both Qualified Persons[191] - More detailed technical information is available in the Company's Annual Information Form and Form 40-F[192] Cautionary Note This report contains forward-looking statements subject to risks and discloses mineral estimates under Canadian standards Cautionary Note Regarding Forward-Looking Statements and Information This MD&A contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ - The MD&A contains forward-looking statements regarding future financial/operational performance, 2022 forecasts, metal prices, and project development[193] - These statements are based on assumptions and are subject to significant operational, business, economic, political, and social uncertainties[194][197] - Known and unknown risks may cause actual results to differ materially, and investors are cautioned against undue reliance on these statements[198] Cautionary Note to U.S. Investors Concerning Estimates of Mineral Reserves and Mineral Resources Mineral reserve and resource estimates are disclosed according to Canadian NI 43-101 standards, which differ from U.S. SEC requirements - Mineral reserve and resource estimates are disclosed in accordance with Canadian NI 43-101 standards, which differ significantly from U.S. SEC requirements[199] - Information concerning mineralization and resources may not be comparable to similar information disclosed by U.S. companies[199]