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Thu Nov 8, 2001
Pan American Silver Reports Third Quarter Results
Pan American Silver Corp. (NASDAQ: PAAS; TSE: PAA) will host a conference call on Friday November 9th at 9:00 a.m. Pacific time (12 noon Eastern time) to discuss third quarter results and give project updates. To listen to the call live, dial 416-695-5806. To listen to a playback of the call after it has ended, dial 416-695-5800 and enter the pass code 959136. This option will be available for 2 weeks after the call. The conference call will also be broadcast live and archived for later playback on the Internet at http://www.q1234.com.
THIRD QUARTER REPORT TO SHAREHOLDERS ON RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(all amounts are expressed in US dollars)
HIGHLIGHTS
- Realized net income of $0.7 million or $0.02 per share (2000 - net loss of $38.0 million or $1.11 per share).
- Increased quarterly silver production to 2.1 million ounces, 138 percent higher than third quarter 2000.
- Made additional production and workforce cuts as a result of extremely weak silver, zinc and copper prices, which continue to negatively effect revenues.
- Retired $12 million loan and established longer-term $6.5 million credit facility, secured by Huaron assets.
- Generated $3.5 million gain and increased Huaron project interest to 100 percent through land swap.
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FINANCIAL
Net income was $0.7 million or $0.02 per share for the third quarter. This result included a non-operating gain of $3.5 million resulting from the sale of land in Peru, which generated total proceeds of $3.7 million. The net loss for the same period in 2000 was $38.0 million ($1.11 loss per share), which included a one-time write-off of the Company's $37.6 million investment in the Dukat project in Russia. Excluding the unusual items, the third quarter 2001 loss was $2.8 million compared to a loss of $0.4 million for the third quarter 2000. Excluding unusual items, the loss for the nine months ended September 30, 2001 was $7.2 million compared to $1.9 million for the first nine months of 2000. The increased losses in 2001 are directly attributable to lower metal prices.
Consolidated silver production for the third quarter totalled 2,140,802 ounces, a 24 percent increase from the second quarter this year (1,725,357 ounces) and a 138 percent increase from the third quarter of last year (899,350 ounces). Zinc metal production of 8,661 tonnes for the quarter was 20 percent higher than in the second quarter (7,197 tonnes) and 135 percent of production for the third quarter of 2000 (6,442 tonnes). Similarly, lead and copper production were higher in the third quarter when compared to the prior quarter or the corresponding quarter of the last year. The increases in metal production are due to starting production at the Huaron and La Colorada mines in early 2001.
The average metal sales prices (net of refining charges) realized for the third quarter of this year, compared with last year, were all lower - 13 percent for silver, 30 percent for zinc and 20 percent for copper. For the first nine months of the year, compared to last year, prices were lower by 14 percent for silver, 21 percent for zinc, and 12 percent for copper. On a consolidated basis a 10 percent decrease in the silver price reduces revenue by 8 percent. Corresponding values for zinc, lead and copper are revenue reductions of 4.5 percent, 2.2 percent and 0.7 percent, respectively.
Pan American is taking necessary actions to further reduce costs and conserve cash to withstand a prolonged metals price slump. The Company recently reduced 65 staff positions at its operations, in addition to those previously announced, which will reduce operating costs. Severance costs of approximately $0.6 million will be recognized in the fourth quarter. In October, the Huaron construction loan was repaid with the proceeds from a new four-year $6.5 million loan. The new loan will be repaid in monthly instalments of $0.135 million compared to monthly instalments of $0.571 million for the previous loan.
At September 30, working capital amounted to $2.0 million -- a $0.7 million deterioration from June 30. This was due to a $3.7 million reduction in cash, which was partially offset by increases in short-term investments of $0.5 million, and a reduction in current bank debt of $2.2 million and other net working capital improvements of $0.3 million. Cash was applied to reduce debt by $2.1 million, fund net investments in plant and equipment of $0.6 million and to operating activities of $1.6 million. With the Company's two new mines at Huaron and La Colorada now operating at budgeted levels, capital expenditures will be minimal for the foreseeable future.
Significantly lower zinc, lead and copper prices resulted in much lower by-product revenues. This resulted in higher consolidated total cash and total production costs per ounce of silver produced (net of by-product credits) for the quarter of $4.41 and $5.05, respectively (2000 -- $2.82 and $3.66, respectively). For the nine months ended September 30, 2001, consolidated total cash and total production costs per ounce of silver produced were $4.34 and $5.05, respectively compared to $3.12 and $3.94 for the first nine months of last year.
QUIRUVILCA MINE, PERU
The Quiruvilca mill treated 137,766 tonnes during the quarter (2000 -- 158,401 tonnes) for production of 792,619 ounces of silver and 5,059 tonnes of zinc (2000 -- 899,350 ounces of silver and 6,442, tonnes of zinc). The total cash cost per ounce of silver produced was $5.31 for the third quarter (2000 -- $2.82 per ounce) and for the nine months the total cash cost per ounce was $4.64 (2000 -- $3.12 per ounce). The increased total cash cost per ounce was due both to reduced silver production and to by-product credits that were 44 percent lower for the quarter and 26 percent lower for the nine months ended September 30 when compared to the corresponding periods of 2000. For the nine months to September 30, Quiruvilca milled 431,858 tonnes at a cost of $44.52 per tonne to produce 2,487,501 ounces of silver and 15,991 tonnes of zinc. In April, production from lower grade stopes at Quiruvilca was eliminated and the overall production rate was reduced. This allowed a reduction in overall operating costs in the April through September period. Additional savings will be realized during the fourth quarter and throughout next year.
HUARON MINE, PERU
Huaron maintained full production during the third quarter and treated 142,254 tonnes of ore to produce 1,122,715 ounces of silver, and 3,473 tonnes of zinc. The Huaron mill is performing better than planned -- recoveries for all metals except zinc have been higher than the feasibility study estimates. Initial costs for mine development and ground support requirements have been slightly higher than originally planned and, consequently, operating costs to the end of September were $40.44 per tonne. September's costs were $38.82 per tonne and the trend since start up, as anticipated, is one of steady improvement. Total cash costs per ounce of silver produced were $3.89 for the third quarter and averaged $4.06 since start up.
During the quarter, Pan American increased its interest in Huaron to effectively 100 percent and realized a gain of $3.5 million upon the sale of a portion of Huaron land. The land sold consisted of 48 hectares adjacent to Volcan's mine and two parcels of distal exploration ground. Pan American's sale proceeds included the remaining 27 percent project interest in Huaron, $200,000 in cash, $500,000 of Volcan B shares (traded on the Lima Exchange) and other consideration.
LA COLORADA MINE, MEXICO
For the quarter, La Colorada processed 13,045 tonnes and produced 225,468 ounces of silver. For the nine-month period, La Colorada produced 555,372 ounces of silver. Total cash costs per ounce of silver produced were $3.86 in the third quarter and averaged $3.61 since commercial production was achieved in May. Discussions continue with various parties regarding financing the expansion of La Colorada to 750 tonnes per day. In addition, a small expansion of the existing operation is planned in December, which will boost output to 200 tonnes per day from the current 150 tonnes and result in annual silver production of 1.2 million ounces.
EXPLORATION PROJECTS
Barrick Gold Corporation continues exploration of Pan American's Los Angeles gold project in Peru and Anglo American is exploring Pan American's northern Huaron property in Peru. Pan American completed a first phase drilling program on the high-grade Ocotlan silver-gold vein deposit during the quarter and awaits results of this program.
SAN VICENTE PROJECT, BOLIVIA
Pan American recently signed a two year contract to allow a Bolivian company to extract, at the Bolivian company's cost, up to 250 tonnes per day from the San Vicente silver mine in southern Bolivia on which Pan American holds an option to earn a 100% working interest. Mine permitting is now in progress. The new operation will mine high-grade ore for processing at an existing nearby facility to produce approximately one million ounces of silver per year. Pan American will derive a gross revenue royalty, which is expected to more than offset the project's holding costs until the next phase of exploration is initiated. San Vicente will be the fourth of Pan American's properties to enter production.
SILVER AND ZINC MARKETS
Silver prices in the quarter were volatile, reaching a low of $4.16 on August 7 and a high of $4.62 on September 20. This volatility stems partly from silver's role as both an industrial and a monetary metal. Industrial silver demand has been negatively affected by economic weakness in major world markets, offset by positive investment demand after September 11th. Mine supply of silver in 2001 and 2002 is expected to decrease which will improve the silver demand-supply situation leading it to an upward correction in silver prices in due course.
It is important to remind our shareholders that two of our three primary silver mines produce significant by-product zinc. The price of zinc has declined by 39 percent since September 2000 to about $750 /tonne ($0.34 /pound) and our revenues have been dramatically reduced as a result. This impact is particularly apparent in our cost-per-ounce statistics, since these are calculated after zinc, copper, and lead by-product revenues are deducted. In the past month several zinc mining companies have announced closures of eight zinc mines globally. This will result in a reduction of 500,000 tonnes of zinc supply (and about 10 million ounces of by-product silver) in 2002.
Respectfully submitted,
(signed)
Ross J. Beaty
Chairman & C.E.O
(signed)
John Wright
President & C.O.O.
For further information, contact:
Ross J. Beaty, Chairman/CEO or
Rosie Moore, VP Corporate Relations
Phone: (604) 684-1175
Email: info@panamericansilver.com
Website: http://www.panamericansilver.com
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.
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