Tue May 15, 2001
Pan American Silver Reports First Quarter Results
Full quarterly results including Notes to Financial Statements and Management's Discussion and Analysis of Results are posted on Pan American's website (www.panamericansilver.com), and will be mailed to shareholders. Pan American will host a conference call on Wednesday May 16th at 9 a.m. Pacific time (12 noon Eastern time) to discuss quarterly results and give updates on projects. To access the call, dial (416) 695-5801. To listen to a playback within two weeks of the call, dial (416) 695-5800 and enter the code 773598. The conference call will also be broadcast live and archived for playback on the Internet at http://www.q1234.com.
HIGHLIGHTS
- Began production at Huaron silver-zinc mine on April 17, on budget and schedule, for annual production of 4.3 million ounces of silver. First concentrates shipped from mine on April 28.
- Began limited scale production at La Colorada mine on January 16, for annual production of about 700,000 ounces of silver.
- Conditionally arranged $28.6 million in debt financing through International Finance Corporation, a member of the World Bank Group, for full-scale La Colorada mine development. Construction decision on hold pending higher silver prices.
- Acquired new exploration property in Mexico with outstanding potential for high grade silver reserves.
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FINANCIAL
(all amounts are expressed in US dollars)
Lower revenue for the three months ended March 31, 2001 resulted in a net loss of $1.5 million compared to a net loss of $0.7 million for the same period of 2000. Timing differences in shipment of lead and zinc concentrates and much lower realized metal prices were responsible for revenue being $2.8 million lower in the first quarter of 2001 compared to the first quarter of last year.
No lead concentrate was shipped in the first quarter of 2001 compared to shipments of 3,260 tonnes in the corresponding quarter of 2000. Shipments planned for the first quarter were made in early April and will be accounted for as revenue in the second quarter. Zinc concentrate shipped in the three months ended March 31, 2001 amounted to 9,259 tonnes or 749 tonnes less than in 2000. First quarter copper concentrate shipments were slightly higher than in 2000.
Pan American realized (after refining charges) $4.16 per ounce of silver and $0.46 per pound of zinc in the quarter ended March 31, 2001, down 13 percent and 10 percent, respectively, from prices in the first quarter of 2000. Pan American has no outstanding hedge positions in any metal.
Investments of $5.1 million, mostly at Huaron, and debt repayments of $1.7 million more than offset the $2.9 million in cash generated by operations and resulted in a $4.0 million reduction in cash from $7.5 million at December 31, 2000 to $3.5 million at March 31, 2001. Huaron capital expenditures were nearly complete at the end of March and the mine reached commercial production on May 1.
QUIRUVILCA MINE, PERU
Production at Quiruvilca for the first quarter was approximately that of the first quarter of 2000, with 153,038 tonnes milled (2000 - 153,313 tonnes). In accordance with the mine plan, silver and zinc grades were slightly lower than in the first quarter of 2000 resulting in slightly lower metal production at 886,183 ounces of silver (2000 - 915,404) and 5,659 tonnes of zinc (2000 - 5,859 tonnes). Significantly lower zinc prices during the quarter generated much lower by-product revenues and resulted in higher cash and total production costs per ounce of silver produced (net of by-product credits) of $3.66 and $4.58, respectively (2000 - $3.41 and $4.21, respectively). No adverse effects on the mine's operations have resulted from Peru's recent political events. Power rates were renegotiated during the quarter resulting in a 5 percent reduction in power costs for the balance of the year. A program of additional cost-cutting measures is in progress at the mine and the Company's office in Lima.
HUARON MINE, PERU
We are very pleased to report to shareholders that our new Huaron silver-zinc mine in central Peru is now open. Mill production began on April 17 and first concentrates were shipped from the mine on April 28th. The mine's final capital cost was $11.0 million, compared to our original budget of $10.9 million. The mine started operations on a fast-track schedule only 13 months after Pan American acquired it in March 2000. Full-scale production of 50,000 tonnes per month should be achieved by mid-year resulting in annual output of 4.3 million ounces of silver and 18,000 tonnes of zinc metal to concentrates. Huaron has a large proven and probable reserve base and excellent potential to expand its production through further exploration of its large land position. We commend all our staff in Peru and Canada for the successful results of their hard work on Huaron mine development since its acquisition. We look forward to this being a successful, profitable, long-term producing asset for Pan American.
LA COLORADA MINE, MEXICO
On January 16, Pan American began limited production at the La Colorada mine in order to keep our operating team intact and generate operating cash flow to more than offset the $100,000 monthly maintenance cost of our Mexican activities. Ore is currently being sourced from surface stockpiles and from underground sulphide reserves. This small scale operation will not affect the main mine development which is currently suspended pending higher silver prices. Production scaled up during January and February, and in March the mill processed 3,506 tonnes grading 649 g/t silver. Concentrates from the mine are being treated at the Torreon smelter 300 km north of the mine. Monthly silver output now averages approximately 70,000 ounces. The net operating results of La Colorada's production are being credited to the carrying value of the property.
In mid-February, the International Finance Corporation, a member of the World Bank Group, conditionally approved a $28.6 million dollar loan package for construction of the 4.2 million ounce per year full-scale La Colorada mine and mill. This package included a $21 million syndicated senior loan, a $6 million subordinated loan and a $1.6 million cost overrun facility. Unfortunately, as a result of the dramatic decline in silver prices in February and March, Pan American elected to defer finalization of loan documentation and start-up of construction. In the meantime, La Colorada will produce positive cash flow for the foreseeable future and our fine operating team will be maintained at the mine ready to work on the full-scale mine development when silver prices return to higher levels.
EXPLORATION PROJECTS
At the San Vicente silver project in Bolivia, Pan American completed an in-house scoping/pre-feasibility study which will be presented to the Bolivian government during the second quarter. Further exploration work at San Vicente is on hold for the time being.
At the Los Angeles gold project near our Quiruvilca mine in Peru, Barrick Gold Corp. recently extended its option for an additional year by paying Pan American the $100,000 annual option fee. Barrick will carry out a drilling program on the property during the second quarter.
Also in Peru, Pan American has negotiated an exploration joint venture with one of the world's largest mining companies, where that company will explore 29,000 hectares of land held by our Huaron subsidiary and earn a 51 percent interest if $3 million is spent over four years.
In Mexico, Pan American is pleased to have recently acquired, subject to a third party consent, an outstanding new silver exploration project in Oaxaca State. This property contains a high grade silver-gold vein deposit on which a small mine has operated until recently. Pan American has negotiated an option to acquire 100 percent of this mine over a four year period and has now begun surface exploration work. Drilling is planned for later in 2001.
In Russia, Pan American signed during the first quarter a shareholders' agreement with Polymetal regarding rights and obligations of shareholders of the new company that holds all assets at the Dukat project. Pan American holds a 20 percent interest in the new company with no funding or management obligations. Polymetal has stated that it intends to place the Dukat mine into production in mid-2002.
SILVER MARKET
As our shareholders will know, silver prices trended significantly lower during the first quarter. They are currently at their lowest level since Pan American began as a silver company in 1994. In real terms, silver prices are at a 26 year low. Needless to say, this has been a surprising and disappointing trend. Pan American's Chairman and C.E.O., Ross Beaty, was recently elected President of The Silver Institute and will focus on enhancing the Institute's silver marketing programs to stimulate silver demand.
The annual world silver survey by Gold Fields Mineral Services on behalf of The Silver Institute will be released on May 16. Silver supply and demand fundamentals remain positive and we look forward to silver prices heading higher in the near future. Whether this price rise will be a function of a weaker US dollar, a return of silver investment demand, lower silver sales by Chinese and Indian governments, or other factors, is impossible to predict. We are certain, though, that when silver prices recover Pan American shareholders will be well rewarded due to our dramatically higher silver production from our new Huaron and La Colorada mines.
One positive consequence of today's weak silver market is in the number of silver property submittals that we have received recently. We believe that opportunities for acquisition of good silver projects are better now than they have been for a long time and we hope to capitalize on this situation.
We would again like to extend our appreciation to the many employees and contractors responsible for the successful start-up of our Huaron and La Colorada mines this year and of course, to our shareholders for their ongoing support during this frustrating and challenging period.
Respectfully submitted,
(signed)
Ross Beaty
Chairman & C.E.O
(signed)
John Wright
President & C.O.O.
The statements that are not historical facts are forward-looking statements involving known and unknown risks and uncertainties that could cause actual results to vary materially from the targeted results. Such risks and uncertainties include those described in the Company's Form 40-F as amended. All amounts are expressed in U.S. dollars.
Three months ended March 31
2001 2000
Financial Highlights (in thousands of US dollars)
Net income ($1,541) ($737)
Earnings (loss) per share (0.04) (0.02)
Mining Contribution (353) 595
EBITDA (821) 1
Capital Spending 5,133 4,770
Exploration expense 152 383
Cash and Investments 3,596 9,668
Working capital ($2,380) $13,950
Production Highlights
Quiruvilca mine
Tonnes milled 153,038 153,313
Metals produced to concentrates:
Silver - ounces 886,183 915,404
Zinc - tonnes 5,659 5,859
Lead - tonnes 2,225 2,066
Copper - tonnes 306 304
Realized Metal Prices:
Silver - per ounce $4.16 $4.78
Zinc - per pound $0.46 $0.51
Lead - per pound $0.22 $0.21
Copper - per pound $0.71 $0.73
Costs per silver ounce produced, net of by-products: (Note)
Total cash cost $3.66 $3.41
Total production cost $4.58 $4.21
La Colorada mine
Silver production - ounces 100,294 na
Note: Costs per ounce produced are calculated using cash operating and total
production costs, as set out below, divided by ounces produced from
Quiruvilca (in thousands of US dollars)
Direct mining costs $6,864 $6,900
By-product credits (3,625) (3,776)
Cash operating costs $3,239 $3,124
Depreciation and amortization 708 621
Reclamation 115 111
Total production costs $4,062 $3,856
Results of Operations and Financial Condition
For the three-month period ended March 31, 2001 (or "Q1 2001") the net loss was $1.5 million ($0.04 per share) compared to a net loss of $0.7 million ($0.02 per share) for the three-month period ended March 31, 2000 (or "Q1 2000"). Revenue was $4.5 million for the first quarter of 2001, which was $2.8 million less than revenue for the corresponding period of last year due to lower realized metal prices and timing differences in concentrates shipments.
Quiruvilca's shipments or sales of concentrates, in dry metric tonnes, for the
three-month periods were:
| |
March 31, 2001 |
March 31, 2000 |
Difference |
| Zinc concentrate |
9,259 |
10,008 |
(749) |
| Lead concentrate |
0 |
3,260 |
(3,260) |
| Copper concentrate |
1,640 |
1,422 |
218 |
On April 2, 2001, 4,000 tonnes of lead were shipped. Revenue of $2.0 million from this sale will be recognized in the quarter ended June 30, 2001. The Company's policy is to recognize revenue when concentrates are shipped and collection of the associated accounts receivable is reasonably assured.
The average prices realized by Quiruvilca were:
| |
March 31, 2001 |
March 31, 2000 |
Difference |
| Silver per ounce |
$4.16 |
$4.78 |
($0.62) |
| Zinc per pound |
$0.46 |
$0.51 |
($0.05) |
| Lead per pound |
n/a |
$0.21 |
n/a |
| Copper per pound |
$0.71 |
$0.73 |
($0.02) |
The average realized prices are net of refining charges.
Substantially all the production for Q1 2001 was from the Quiruvilca mine and was essentially the same as that for Q1 2000. Quiruvilca's production was:
| |
March 31, 2001 |
March 31, 2000 |
Difference |
| Tonnes milled |
153,038 |
153,313 |
(275) |
| Silver ounces |
886,183 |
915,404 |
(29,221) |
| Zinc tonnes |
5,659 |
5,859 |
(200) |
| Lead tonnes |
2,225 |
2,066 |
159 |
| Copper tonnes |
306 |
304 |
2 |
The silver production difference between Q1 2001 and Q1 2000 is due to lower silver grades in the Quiruvilca 2001 mine plan. The actual silver grade was slightly higher than budgeted for the quarter.
Based on a limited production plan, the La Colorada mine started production in January. It processed 7,981 tonnes of ore and produced 100,294 ounces of silver and minor amounts of lead and gold. La Colorada's production should be higher in the second quarter.
The Huaron mine started production in mid-April. The second quarter of 2001 will include the results of operations for the Huaron mine.
Cash on-hand was $3.5 million compared to $7.5 million at December 31, 2000 -- a decrease of $4 million. During Q1 2001, operating activities generated cash of $2.9 million. This positive result was more than offset by $1.7 million spent for the repayment of debt and investments in plant and equipment amounting to $5.1 million, nearly all of which were made at Huaron. With the start of operations at Huaron the requirement for further investments in plant and equipment will be reduced significantly. The principal reasons for a working capital deficiency of $2.4 million at March 31, 2001 compared to a working capital balance of $1.8 million at December 31, 2000 were the expenditures at Huaron and delays in metals shipments. Accounts payable and accrued liabilities include $3.7 million of payments received for concentrates not shipped. Under the terms of Pan American's smelter contracts, if a buyer of concentrates does not take delivery as expected, the Company is entitled to receive advance payment for a portion of the expected sales value of the metal in concentrate. Pan American accounts for such advances as a liability until the corresponding concentrates are shipped.
Consolidated Balance Sheets
Notes to Unaudited Interim Consolidated Financial Statements
As at March 31, 2001 and 2000 and for the three month periods then ended
1. Basis of and Responsibility for Presentation
These unaudited interim consolidated financial statements are expressed in United States dollars and are prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), which are more fully described in the annual audited consolidated financial statements for the year ended December 31, 2000 included in the Company's 2000 Annual Report. These interim financial statements do not include all of the disclosures required by Canadian GAAP for annual financial statements.
In management's opinion, all adjustments necessary for fair presentation have been included in these statements. Readers are advised that the operating results for the three months ended March 31, 2001 may not be indicative of the results that might be expected for the full year ended December 31, 2001.
2. Revenue Recognition and Current Liabilities
Revenue is recognized when title to metals in concentrate is transferred and when collection is reasonably assured. Included in accounts payable and accrued liabilities is $3,657,000 representing partial advance payments from customers for delayed shipments of concentrate.
3. Mineral Properties
In Peru, Pan American operates the Quiruvilca mine and starting in April 2001 the Huaron mine. Pan American's La Colorada mine in Mexico is operating under a limited production plan pending completion of financing arrangements to develop the mine to full-scale production. Financing arrangements are substantially complete, but conclusion of negotiations has been postponed in anticipation of higher silver prices. The net operating results of La Colorada's limited production are being credited to the carrying value of the property.
4. Segment Information
The Company operates in one industry, has three operating segments and has activities in seven countries. Segmented disclosures and enterprise-wide information are as follows:
5. Subsequent Events
On April 17, the Huaron mine, in Peru, was placed in production and as of May 1, this mine was in commercial production. Effective May 1, Huaron's production results will be included in the consolidated statement of operations. From January 1 until March 31, 2001 interest costs amounting to $241,000 were capitalized as part of the carrying value of the Huaron mine. As of May 1, interest on the Huaron pre-production loan will be expensed. The results of Huaron's operations from April 17 to April 30 will be credited to the carrying value of the mine.
In May 2001 Pan American Silver Corp. entered into an agreement with National Bank Financial Inc., whereby National Bank Financial Inc. will act as exclusive agent to offer up to 3.0 million common shares of the Company to the public. The proceeds of this share offering will be used for general corporate purposes and working capital.
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