building
on experience
ANNUAL REPORT 2015
2015 Highlights
Pan American Silver is the second-largest
primary silver producer in the world
and our vision is to be the world’s pre-
eminent silver producer, with a reputation
for excellence in discovery, engineering,
innovation and sustainable development.
Pan American was founded in 1994 with the aim to provide
investors with a vehicle to gain exposure to rising silver prices.
In 2015, we broke records for consolidated annual silver, gold,
and copper production, while at the same time reducing our
cash costs per payable ounce of silver, net of by-product credits
(“cash costs”)(1) by 15%, and our all-in sustaining costs per silver
ounce sold (“AISCSOS”)(2) by 17% as compared to 2014.
During the year, we started work on the expansion of our Dolores
mine, which will include the construction of a pulp agglomeration
plant and an underground mine. We also continued to advance
the expansion of our La Colorada mine. Over the next two years,
we expect to complete these organic growth projects and then
see the benefits to our Company’s production and costs profile.
Our balance sheet provides us with the financial strength to
organically finance our growth projects. At December 31, 2015
we had over $226 million in cash and short term investments
and $392 million in working capital(4). These financial resources
provide us with the necessary funds to complete the expansions
of La Colorada and Dolores, two of the cornerstones of our high
quality asset base.
In 2016, we expect to produce between 24.0 and 25.0 million
ounces of silver and between 175,000 to 185,000 ounces of gold,
at cash costs of between $9.45 and $10.45 per ounce of silver,
net of by-product credits. Our AISCSOS for 2016 are expected to
be between $13.60 and $14.90.
In 2018, by which time the La Colorada and Dolores expansions
will have been completed, we expect to produce between 25.0
and 27.0 million ounces of silver and between 160,000 and
180,000 ounces of gold at cash costs of between $5.50 and
$7.50 per ounce of silver, net of by-product credits and AISCSOS
of between $10.00 and $12.20.
Environmental stewardship is everyone’s responsibility. In an effort
to reduce waste and carbon footprint, we encourage readers to
download a digital copy of this report or to read it online at:
www.panamericansilver.com/annualreport2015
All amounts in this report are expressed in US$, unless otherwise stated.
26.12
million silver
ounces produced
183.7
thousand gold
ounces produced
Reduced our cash costs by
15%
to $9.70 per
ounce of silver
Reduced our AISCSOS by
17%
down to $14.92
PRODUCTION
Silver (million ounces)
Gold (thousand ounces)
Zinc (thousand tonnes)
Lead (thousand tonnes)
Copper (thousand tonnes)
Cash costs(1) per silver ounce, net of by-product credits
AISCSOS(2) net of by-product credits ($ per ounce)
Average silver price ($ per ounce, London fix)
FINANCIAL (all amounts in million $)
Revenue
Net loss
Adjusted loss(3)
Net cash generated from operating activities
Dividends paid
Cash and short-term investments at December 31
Working capital(4) at December 31
STAKEHOLDERS
Common shares outstanding at December 31 (million)
Employees and contractors at December 31
2015
26.12
183.7
40.6
14.6
15.0
$9.70
$14.92
$15.68
$674.7
$(231.6)
$(58.0)
$88.7
$41.7
$226.6
$392.2
151.9
6,494
2014
26.11
161.5
43.5
15.0
9.0
$11.46
$17.88
$19.08
$751.9
$(544.8)
$(20.8)
$124.2
$75.8
$330.4
$522.7
151.6
6,983
(1) Cash costs per payable ounce of silver, net of by-product credits
(“cash costs”) is not a generally accepted accounting principle (a “non-
GAAP”) measure. Cash costs does not have a standardized meaning
prescribed by the International Financial Reporting Standards (“IFRS”)
as an indicator of performance. The Company’s method of calculating
cash costs may differ from the methods used by other entities and,
accordingly, the Company’s cash costs may not be comparable to
similarly titled measures used by other entities. Investors are cautioned
that cash costs per payable ounce of silver should not be construed
as an alternative to production costs, depreciation and amortization,
and royalties determined in accordance with IFRS as an indicator of
performance. Readers should refer to the “Alternative Performance (non-
GAAP) Measures” section on page 37 of this annual report for a more
detailed discussion of this measure and its calculation.
(2) AISCSOS is a non-GAAP measure. The Company has adopted
AISCSOS as a measure of its consolidated operating performance
and its ability to generate cash from all operations collectively, and
the Company believes it is a more comprehensive measure of the cost
of operating our consolidated business than traditional cash costs
per payable ounce as it includes the cost of replacing ounces through
exploration, the cost of ongoing capital investments (sustaining capital),
general and administrative expenses, as well as other items that affect
the Company’s consolidated earnings and cash flow. AISCSOS does not
have a standardized meaning prescribed by GAAP, and readers should
refer to the “Alternative Performance (non-GAAP) Measures” section
on page 37 of this annual report for a more detailed discussion of this
measure and its calculation.
(3) Adjusted (loss) is a non-GAAP measure that the Company considers
to better reflect normalized earnings as it eliminates items that may be
volatile from period to period relating to positions which will settle in
future periods, and items that are non-recurring. Readers should refer
to the “Alternative Performance (non-GAAP) Measures” on page 37 of
this annual report for a more detailed discussion of this measure and
its calculation.
(4) Working capital is a non-GAAP measure calculated as current assets
less current liabilities. The Company and certain investors use this
information to evaluate whether the Company is able to meet its current
obligations using its current assets.
1
2015 annual report Chairman’s Message
Record production of silver amidst very tough markets.
That was the tale of 2015 for Pan American Silver.
On one hand, our mines produced 26.12 million ounces
of silver and 183,700 ounces of gold during 2015 – the
highest levels for both metals in our 21 year history
since we began as a silver company in 1994. Production
records were set at five of the Company’s seven
operations. On the other hand, silver and gold prices
dropped profoundly, hitting $13.67 per ounce of silver
and $1,051 per ounce of gold in December – the lowest
prices since 2009.
In the face of such low metal prices, Pan American’s financial
results were disappointing and our share price hit its lowest
level in nearly thirteen years. We were obviously not alone in this
bear market, and in fact outperformed most of our peers due, in
part, to our industry-leading balance sheet strength. But we had
to make difficult adjustments during the year, including laying
off many good employees, cutting other costs across the board
and reducing our dividend. While these measures will make us
better able to realize strong results when precious metals prices
improve, they are always painful to implement.
The most significant thing we did in 2015, in my view, was to
put in place the building blocks that will allow Pan American to
further reduce its cost structure and thrive over the long term.
The main stories here are the expansions we are undertaking
at our La Colorada and Dolores mines in Mexico. Even though
our Alamo Dorado mine will cease production during 2016
as its reserves are mined out, the production loss there will
be more than made up as La Colorada and Dolores increase
their production levels, but at much lower operating costs. In
2018, after these expansions are complete at the end of 2017,
our all-in sustaining cost per ounce of silver sold will decline
from $14.92 in 2015 (itself a 15% reduction from 2014) to
between $10.00 and $12.20, while our total production of silver
is estimated to return to the record levels that we achieved
in 2015. This will make Pan American a powerful earnings
generator in the near future, even at current depressed
silver and gold prices. And we expect to fund all these capital
expenditures from our existing cash reserves and operating
earnings without the need for new debt.
While we drive down our costs of production at our existing
mines, our big growth story remains our giant 100% owned
Navidad silver deposit in Argentina. I was gratified to see a
change in Argentina’s federal government at year-end 2015. The
election of President Macri and his pro-investment policies give
us new hope that Navidad will be approved for development
in the foreseeable future. This deposit should boost Pan
American’s silver production profoundly, while providing
enormous benefits to the local communities and provincial and
federal governments in Argentina. I look forward to reporting on
positive developments at Navidad during the year.
We cannot control the silver price, but we can control how we
mine and how we interact with all of the stakeholders who
help us at our operations and who, in turn, benefit from our
success. Besides our solid operating base, strong balance
sheet, deep growth pipeline and declining cost curve over the
next few years, Pan American’s strongest asset is its people –
our operating, exploration, financial and administrative teams
that work day in and day out at our operating locations to
maintain our reputation for excellence. This reputation has
been hard earned over many years, and I am so thankful to all
of our employees and support personnel for their steadfast and
2
pan american silver corp. continuing attention to quality, safety, environmental protection
and operational integrity. It is our focus on those things that
keeps us so well respected in the silver mining industry. Safety
and environmental compliance remain the primary focus
at all of our operations; and our community engagement
meaningfully contributes to improving the lives of thousands
who live around our operations. To learn more about our safety,
environmental and community records, please have a look at
our annual Sustainability Report, a copy of which can be seen at
our website www.panamericansilver.com.
After the weakness in 2015 I am optimistic that we will continue
to see improved markets during the coming year, synchronous
with our efforts to drive down our operating costs. None of
this is possible without the steadfast efforts of our employees.
I thank each of them on behalf of all our shareholders. I want
to single out one especially – Geoff Burns, our CEO for the
last eleven years who retired in December. Geoff was a really
exceptional leader who gained the respect and admiration of
all our senior team. He will be greatly missed but he is being
succeeded by Michael Steinmann, who I have had the great
pleasure of watching for more than ten years as he progressed
from our exploration department into other areas of the
business. Michael will be a terrific CEO and I look forward to
watching him pilot the Company in the years ahead.
Respectfully submitted,
Ross Beaty, Chairman
OPEN PIT AT THE DOLORES MINE | CHIHUAHUA, MEXICO
2015 annual report
3
President’s Message
I am honoured to be the third President and CEO
in the 21-year history of Pan American Silver
and would like to take this opportunity to thank
our Board of Directors, our employees and our
investors for their vote of confidence.
I am proud to have been a part of Pan American Silver since
2004 and I am firmly committed to leading our Company on a
continued path of operational excellence and financial success
for the benefit of all our stakeholders. And, I begin my tenure
at the helm of our Company with two significant cost reduction
projects in progress: the expansions of our La Colorada and
Dolores mines.
As I started taking on more and greater responsibilities
throughout 2015, I was reminded of the incredible challenges
that our industry has faced in recent years and continues to
face today. Precious metals prices started declining some five
years ago and although they seem to have stabilized recently,
they are still far from the highs of 2011. In this environment, we
have worked tirelessly, harnessing our Company’s collective
knowledge to successfully re-engineer our business and
maintain positive margins at all of our operations.
2015 was one of the strongest production years in our
history. We maximized the performance of our operating
mines to produce a record 26.12 million ounces of silver and
183,700 ounces of gold. In the process, we also set 37 new
operational records, including record annual silver production
at La Colorada, Dolores and San Vicente, record annual gold
production at Dolores and Alamo Dorado, and record annual
consolidated copper production of 15,000 tonnes, to name
just a few.
However, I believe one of our most notable achievements in
2015 was the significant reduction of our consolidated cash
costs and all-in sustaining costs. We cut our annual cash costs
by 15% from 2014 to $9.70 per ounce of silver and our all-in
sustaining costs by 17% to $14.92 per ounce of silver sold, net
of by-product credits. Since 2013, we have diligently reduced
our costs through a combination of disciplined cost-cutting
initiatives across the entire Company and multi-year mine
mechanization programs at our Peruvian operations.
We curtailed all discretionary spending, rationalized exploration
costs and optimized our spending on sustaining capital. This
was all part of our long-term strategy to transform our current
assets into a portfolio of robust mines and development
projects even during the most difficult periods of the bear cycle
for precious metals.
Also key for our long-term strategy is the expansion of two of
our best assets, La Colorada and Dolores, where we continued
to make great progress. At La Colorada, in 2015, we advanced
50% of the construction of the new 617 metre-deep shaft
and we expect to commission this key component of the
expansion by the end of 2016. We also completed 70% of
the new sulphide plant construction, which should also be
completed and commissioned by year end 2016. Together with
the development of new mining zones and the addition of a new
power line, these projects will make La Colorada our largest
and lowest-cost silver producer by 2018, when we expect to
produce approximately 7.7 million ounces of silver per year at a
significantly lower cash cost.
At Dolores, last year we started construction of the new
underground decline and significantly advanced the
engineering and procurement work necessary for the new pulp
agglomeration plant. The underground ramp advanced 866
metres by the end of 2015. This year, we expect to intersect the
main ore zone in the underground mine, start construction of
the pulp agglomeration plant and to complete the new power
line, which will connect the mine to the national power grid and
help reduce energy costs further. When completed, we estimate
4
pan american silver corp. that the Dolores expansion will increase its annual silver
production to 6.3 million ounces and gold to approximately
200,000 ounces, while reducing cash costs through operational
efficiencies and higher by-product gold production.
Expanding our two best mines in today’s environment makes
perfect sense. The additional production will not only offset the
closure of our Alamo Dorado mine, which will reach the end of
its life in 2016, but it will also transform our cost profile to make
us a profitable silver miner at even lower silver prices. Most
importantly, these two crucial projects are entirely financed
from our industry leading balance sheet.
In February our Board of Directors decided to cut our quarterly
dividend to $0.0125 per share to direct our financial resources
towards the completion of our organic expansion projects,
and also to secure our longer-term sustainability by retaining
financial flexibility to look even further into the future. Our
option to acquire an interest in Kootenay Silver’s prospective
Promontorio silver belt in Mexico is a good example. These are
the kind of deals that built Pan American, from our first mine
in Peru back in 1995 to today, into the second-largest primary
silver producer in the world. We have an experienced and well-
respected management team and we are focused on continuing
to build on our success.
I would be remiss if I did not acknowledge that last year’s
accomplishments would not have been possible if it weren’t
for each of our employees and contractors, who contribute
their best efforts to our Company. We count on their continued
support to complete our projects and to successfully execute
on our long-term strategy. Because of them, Pan American is
a recognized leader in the mining industry and one of the best
vehicles to gain exposure to silver, throughout all parts of
the metals cycles.
On behalf of Pan American’s executive management, Thank You!
Sincerely,
Michael Steinmann, President &
Chief Executive Officer
MINERS UNDERGROUND AT THE LA COLORADA MINE | ZACATECAS, MEXICO
5
2015 annual report CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
MATERIALLY, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS NOT TO BE AS
CERTAIN OF THE STATEMENTS AND INFORMATION IN THIS ANNUAL REPORT CONSTITUTE
“FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND “FORWARD-LOOKING
INFORMATION” WITHIN THE MEANING OF APPLICABLE CANADIAN PROVINCIAL
SECURITIES LAWS. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL
FACT, ARE FORWARD-LOOKING STATEMENTS OR INFORMATION. FORWARD-LOOKING
STATEMENTS OR INFORMATION IN THIS ANNUAL REPORT RELATE TO, AMONG OTHER
THINGS: OUR ESTIMATED PRODUCTION OF SILVER, GOLD AND OTHER METALS IN 2016
AND FUTURE YEARS; OUR ESTIMATED CASH COSTS PER PAYABLE OUNCE OF SILVER AND
AISCSOS IN 2016 AND FUTURE YEARS; THE ABILITY OF THE COMPANY TO SUCCESSFULLY
ANTICIPATED, ESTIMATED, DESCRIBED OR INTENDED. INVESTORS ARE CAUTIONED
AGAINST UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS AND INFORMATION.
FORWARD-LOOKING STATEMENTS AND INFORMATION ARE DESIGNED TO HELP READERS
UNDERSTAND MANAGEMENT’S CURRENT VIEWS OF OUR NEAR AND LONGER TERM
PROSPECTS AND MAY NOT BE APPROPRIATE FOR OTHER PURPOSES. THE COMPANY
DOES NOT INTEND, NOR DOES IT ASSUME ANY OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS AND INFORMATION, WHETHER AS A RESULT OF NEW
INFORMATION, CHANGES IN ASSUMPTIONS, FUTURE EVENTS OR OTHERWISE, EXCEPT TO
THE EXTENT REQUIRED BY APPLICABLE LAW.
COMPLETE ANY CAPITAL INVESTMENT PROGRAMS AND PROJECTS AND THE IMPACTS OF
CAUTIONARY NOTE TO U.S. INVESTORS CONCERNING ESTIMATES OF MINERAL
ANY SUCH PROGRAMS AND PROJECTS ON THE COMPANY; AND ANY ANTICIPATED LEVEL
RESERVES AND RESOURCES
OF FINANCIAL AND OPERATIONAL SUCCESS IN 2016 AND FUTURE YEARS.
THIS ANNUAL REPORT HAS BEEN PREPARED IN ACCORDANCE WITH THE
THESE STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO
REQUIREMENTS OF CANADIAN PROVINCIAL SECURITIES LAWS, WHICH DIFFER FROM
FUTURE EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS
THE REQUIREMENTS OF U.S. SECURITIES LAWS. UNLESS OTHERWISE INDICATED,
THAT, WHILE CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY
ALL MINERAL RESERVE AND RESOURCE ESTIMATES INCLUDED IN THIS MD&A HAVE
SUBJECT TO SIGNIFICANT OPERATIONAL, BUSINESS, ECONOMIC AND REGULATORY
BEEN PREPARED IN ACCORDANCE WITH CANADIAN NATIONAL INSTRUMENT 43-101
UNCERTAINTIES AND CONTINGENCIES. THESE ASSUMPTIONS INCLUDE: TONNAGE
– STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS (‘‘NI 43-101’’) AND THE
OF ORE TO BE MINED AND PROCESSED; ORE GRADES AND RECOVERIES; PRICES
CANADIAN INSTITUTE OF MINING, METALLURGY AND PETROLEUM CLASSIFICATION
FOR SILVER, GOLD AND BASE METALS REMAINING AS ESTIMATED; CURRENCY
SYSTEM. NI 43-101 IS A RULE DEVELOPED BY THE CANADIAN SECURITIES
EXCHANGE RATES REMAINING AS ESTIMATED; CAPITAL, DECOMMISSIONING AND
ADMINISTRATORS THAT ESTABLISHES STANDARDS FOR ALL PUBLIC DISCLOSURE
RECLAMATION ESTIMATES; OUR MINERAL RESERVE AND RESOURCE ESTIMATES AND THE
AN ISSUER MAKES OF SCIENTIFIC AND TECHNICAL INFORMATION CONCERNING
ASSUMPTIONS UPON WHICH THEY ARE BASED; PRICES FOR ENERGY INPUTS, LABOUR,
MINERAL PROJECTS.
MATERIALS, SUPPLIES AND SERVICES (INCLUDING TRANSPORTATION); NO LABOUR-
RELATED DISRUPTIONS AT ANY OF OUR OPERATIONS: NO UNPLANNED DELAYS IN OR
INTERRUPTIONS IN SCHEDULED PRODUCTION; ALL NECESSARY PERMITS, LICENCES AND
REGULATORY APPROVALS FOR OUR OPERATIONS ARE RECEIVED IN A TIMELY MANNER;
AND OUR ABILITY TO COMPLY WITH ENVIRONMENTAL, HEALTH AND SAFETY LAWS. THE
FOREGOING LIST OF ASSUMPTIONS IS NOT EXHAUSTIVE.
CANADIAN STANDARDS, INCLUDING NI 43-101, DIFFER SIGNIFICANTLY FROM THE
REQUIREMENTS OF THE SEC, AND INFORMATION CONCERNING MINERALIZATION,
DEPOSITS, MINERAL RESERVE AND RESOURCE INFORMATION CONTAINED OR
REFERRED TO HEREIN MAY NOT BE COMPARABLE TO SIMILAR INFORMATION
DISCLOSED BY U.S. COMPANIES. IN PARTICULAR, AND WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THIS ANNUAL REPORT USES THE TERMS ‘‘MEASURED
THE COMPANY CAUTIONS THE READER THAT FORWARD-LOOKING STATEMENTS
RESOURCES’’, ‘‘INDICATED RESOURCES’’ AND ‘‘INFERRED RESOURCES’’. U.S. INVESTORS
AND INFORMATION INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
ARE ADVISED THAT, WHILE SUCH TERMS ARE RECOGNIZED AND REQUIRED BY
OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO DIFFER
CANADIAN SECURITIES LAWS, THE SEC DOES NOT RECOGNIZE THEM. UNDER U.S.
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STANDARDS, MINERALIZATION MAY NOT BE CLASSIFIED AS A ‘‘RESERVE’’ UNLESS
STATEMENTS OR INFORMATION CONTAINED IN THIS ANNUAL REPORT AND THE
THE DETERMINATION HAS BEEN MADE THAT THE MINERALIZATION COULD BE
COMPANY HAS MADE ASSUMPTIONS AND ESTIMATES BASED ON OR RELATED TO MANY
ECONOMICALLY AND LEGALLY PRODUCED OR EXTRACTED AT THE TIME THE RESERVE
OF THESE FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION: FLUCTUATIONS
DETERMINATION IS MADE. U.S. INVESTORS ARE CAUTIONED NOT TO ASSUME THAT
IN SILVER, GOLD AND BASE METALS PRICES; FLUCTUATIONS IN PRICES FOR ENERGY
ANY PART OF A “MEASURED RESOURCE” OR “INDICATED RESOURCE” WILL EVER BE
INPUTS, LABOUR, MATERIALS, SUPPLIES AND SERVICES (INCLUDING TRANSPORTATION);
CONVERTED INTO A “RESERVE”. U.S. INVESTORS SHOULD ALSO UNDERSTAND THAT
FLUCTUATIONS IN CURRENCY MARKETS (SUCH AS THE CANADIAN DOLLAR,
“INFERRED RESOURCES” HAVE A GREAT AMOUNT OF UNCERTAINTY AS TO THEIR
PERUVIAN SOL, MEXICAN PESO AND BOLIVIAN BOLIVIANO VERSUS THE U.S. DOLLAR);
EXISTENCE AND GREAT UNCERTAINTY AS TO THEIR ECONOMIC AND LEGAL FEASIBILITY.
OPERATIONAL RISKS AND HAZARDS INHERENT WITH THE BUSINESS OF MINING
IT CANNOT BE ASSUMED THAT ALL OR ANY PART OF “INFERRED RESOURCES” EXIST,
(INCLUDING ENVIRONMENTAL ACCIDENTS AND HAZARDS, INDUSTRIAL ACCIDENTS,
ARE ECONOMICALLY OR LEGALLY MINEABLE OR WILL EVER BE UPGRADED TO A HIGHER
EQUIPMENT BREAKDOWN, UNUSUAL OR UNEXPECTED GEOLOGICAL OR STRUCTURAL
CATEGORY. UNDER CANADIAN SECURITIES LAWS, ESTIMATED “INFERRED RESOURCES”
FORMATIONS, CAVE-INS, FLOODING AND SEVERE WEATHER); RISKS RELATING TO THE
MAY NOT FORM THE BASIS OF FEASIBILITY OR PRE-FEASIBILITY STUDIES EXCEPT IN
CREDIT WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS AND OTHER
RARE CASES. DISCLOSURE OF “CONTAINED OUNCES” IN A MINERAL RESOURCE IS
PARTIES WITH WHOM THE COMPANY DOES BUSINESS; INADEQUATE INSURANCE, OR
PERMITTED DISCLOSURE UNDER CANADIAN SECURITIES LAWS. HOWEVER, THE SEC
INABILITY TO OBTAIN INSURANCE, TO COVER THESE RISKS AND HAZARDS; EMPLOYEE
NORMALLY ONLY PERMITS ISSUERS TO REPORT MINERALIZATION THAT DOES NOT
RELATIONS; RELATIONSHIPS WITH, AND CLAIMS BY, LOCAL COMMUNITIES AND
CONSTITUTE “RESERVES” BY SEC STANDARDS AS IN PLACE TONNAGE AND GRADE,
INDIGENOUS POPULATIONS; OUR ABILITY TO OBTAIN ALL NECESSARY PERMITS,
WITHOUT REFERENCE TO UNIT MEASURES. THE REQUIREMENTS OF NI 43-101 FOR
LICENSES AND REGULATORY APPROVALS IN A TIMELY MANNER; CHANGES IN LAWS,
IDENTIFICATION OF “RESERVES” ARE ALSO NOT THE SAME AS THOSE OF THE SEC,
REGULATIONS AND GOVERNMENT PRACTICES IN THE JURISDICTIONS WHERE WE
AND RESERVES REPORTED BY THE COMPANY IN COMPLIANCE WITH NI 43-101 MAY
OPERATE, INCLUDING ENVIRONMENTAL, EXPORT AND IMPORT LAWS AND REGULATIONS;
NOT QUALIFY AS “RESERVES” UNDER SEC STANDARDS. ACCORDINGLY, INFORMATION
DIMINISHING QUANTITIES OR GRADES OF MINERAL RESERVES AS PROPERTIES ARE
CONCERNING MINERAL DEPOSITS SET FORTH HEREIN MAY NOT BE COMPARABLE WITH
MINED; INCREASED COMPETITION IN THE MINING INDUSTRY FOR EQUIPMENT AND
INFORMATION MADE PUBLIC BY COMPANIES THAT REPORT IN ACCORDANCE WITH
QUALIFIED PERSONNEL; AND THOSE FACTORS IDENTIFIED UNDER THE CAPTION
U.S. STANDARDS.
“RISKS RELATED TO PAN AMERICAN’S BUSINESS” IN THE COMPANY’S MOST RECENT
ANNUAL REPORT ON FORM 40-F AND ANNUAL INFORMATION FORM FILED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) AND CANADIAN
SECURITIES REGULATORY AUTHORITIES. ALTHOUGH THE COMPANY HAS ATTEMPTED
TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
Technical information contained in this Annual Report with respect to
Pan American has been reviewed by Martin Dupuis, P.Geo., Director
Geology, and Martin Wafforn, P.Eng., VP Technical Services, who are
Qualified Persons for the purposes of NI 43-101.
6
pan american silver corp. MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2015
TABLE OF CONTENTS
Introduction
Core Business and Strategy
2015 Highlights and Key Notes
2016 Operating Outlook
Mid-Term Outlook
2015 Operating Performance
2015 Project Development Update
Overview of 2015 Financial Results
Liquidity Position
Capital Resources
Financial Instruments
Closure and Decommissioning Cost Provision
Contractual Commitments and Contingencies
Related Party Transactions
Alternative Performance (non-GAAP) Measures
Risks and Uncertainties
Significant Judgments and Key Sources of Estimation
Uncertainty in the Application of Accounting Policies
Changes in Accounting Standards
Corporate Governance, Social Responsibility,
and Environmental Stewardship
Disclosure Controls and Procedures
Mineral Reserves and Resources
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7
2015 annual report
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 24, 2016
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) is
intended to help the reader understand the significant factors
that have affected the performance of Pan American Silver
Corp. and its subsidiaries (collectively “Pan American”, “we”,
“us”, “our” or the “Company”) and such factors that may
affect its future performance. This MD&A should be read in
conjunction with the Company’s Audited Consolidated Financial
Statements for the year ended December 31, 2015 (the “2015
Financial Statements”) and the related notes contained therein.
All amounts in this MD&A and in the 2015 Financial Statements
are expressed in United States dollars (“USD”), unless identified
otherwise. The Company reports its financial position, results
of operations and casflows in accordance with International
Financial Reporting Standards as issued by the International
Accounting Standards Board (“IFRS”). Pan American’s
significant accounting policies are set out in Note 2 of the 2015
Financial Statements.
This MD&A refers to various non-Generally Accepted
Accounting Principles (“non-GAAP”) measures, such as “all-in
sustaining cost per silver ounce sold”, “cash costs per ounce of
silver”, “working capital’, “general and administrative cost per
silver ounce produced”, “adjusted earnings” and “basic adjusted
earnings per share”, which are used by the Company to manage
and evaluate operating performance at each of the Company’s
mines and are widely reported in the mining industry as
benchmarks for performance, but do not have standardized
meaning. To facilitate a better understanding of these non-
GAAP measures as calculated by the Company, additional
information has been provided in this MD&A. Please refer to
the section of this MD&A entitled “Alternative Performance
(Non-GAAP) Measures” for a detailed description of “all-in
sustaining cost per silver ounce sold”, “cash costs per ounce of
silver”, “working capital”, “general and administrative cost per
silver ounce produced”, “adjusted earnings“ and “basic adjusted
earnings per share”, as well as details of the Company’s by-
product credits and a reconciliation of these measures to the
2015 Financial Statements.
Any reference to “cash costs” or “cash costs per ounce of silver”
in this MD&A should be understood to mean cash costs per
ounce of silver, net of by-product credits.
Except for historical information contained in this MD&A, the
following disclosures are forward-looking statements within
the meaning of the U.S. Private Securities Litigation Reform Act
of 1995 and forward-looking information within the meaning
of applicable Canadian provincial securities laws or are future
oriented financial information and as such are based on an
assumed set of economic conditions and courses of action.
Please refer to the cautionary note regarding forward-looking
statements and information at the back of this MD&A and
the “Risks Related to Pan American’s Business” contained in
the Company’s most recent Annual Information Form on file
with the Canadian provincial securities regulatory authorities
and Form 40-F on file with the U.S. Securities and Exchange
Commission (the “SEC”). Additional information about Pan
American and its business activities, including its Annual
Information Form, is available on SEDAR at www.sedar.com.
CORE BUSINESS AND STRATEGY
Pan American engages in silver mining and related activities,
including exploration, mine development, extraction,
processing, refining and reclamation. The Company owns and
operates silver mines located in Peru, Mexico, Argentina, and
Bolivia. In addition, the Company is exploring for new silver
deposits and opportunities throughout North and South
America. The Company is listed on the Toronto Stock Exchange
(“TSX”) (Symbol: PAA) and on the Nasdaq Global Select Market
(“NASDAQ”) in New York (Symbol: PAAS).
Pan American’s vision is to be the world’s pre-eminent silver
producer, with a reputation for excellence in discovery,
engineering, innovation and sustainable development.
To achieve this vision, we base our business on the
following strategy:
• Generate sustainable profits and superior returns on
investments through the safe, efficient and environmentally
sound development and operation of silver assets
• Constantly replace and grow our mineable silver reserves
and resources through targeted near-mine exploration and
global business development
• Foster positive long term relationships with our employees,
our shareholders, our communities and our local
governments through open and honest communication and
ethical and sustainable business practices
• Continually search for opportunities to upgrade and
improve the quality of our silver assets both internally and
through acquisition
• Encourage our employees to be innovative, responsive and
entrepreneurial throughout our entire organization
To execute this strategy, Pan American has assembled a sector
leading team of mining professionals with a depth of knowledge
and experience in all aspects of our business that allows the
Company to confidently advance early stage projects through
construction and into operation.
Pan American is determined to conduct its business in a
responsible and sustainable manner. Caring for the environment
in which we operate, contributing to the long-term development
of our host communities and ensuring that our employees
can work in a safe and secure manner are core values at Pan
American. We are committed to maintaining positive relations
with our employees, the local communities and the government
agencies, all of whom we view as partners in our enterprise.
8
pan american silver corp. 2015 HIGHLIGHTS AND KEY NOTES
FINANCIAL
OPERATIONS & PROJECT DEVELOPMENT
• Record Silver Production of 26.12 Million Ounces
Pan American produced a record 26.12 million ounces of silver
in 2015, compared to the 26.11 million ounces of silver produced
in 2014. The 2015 production was achieved through production
increases at La Colorada, Dolores, Huaron, and San Vicente,
which offset production declines at Alamo Dorado, Morococha
and Manantial Espejo.
• Record Gold Production of 183.7 Thousand Ounces
The Company set a new annual gold production record in
2015, producing 183.7 thousand ounces of gold, a 22.2
thousand or 14% increase from 2014. This was achieved
through record production levels at Dolores, Alamo Dorado
and Manantial Espejo.
• Reduced Annual Cash Costs Lower than Forecast
Despite substantially lower by-product metal prices, the
Company recorded consolidated cash costs, net of by-product
credits, of $9.70 per payable ounce of silver, a 15% reduction
from 2014 cash costs of $11.46 per payable ounce of silver,
lower than initial 2015 forecast of $10.80 to $11.80 per
ounce and lower than the November 12, 2015 revised 2015
full year forecast of $10.00 to $10.50 per payable ounce of
silver. The 2015 decrease was due to higher gold production,
record-breaking consolidated copper production, as well as
substantially lower unit operating costs per tonne at all of the
Company’s mines.
• Progress on the La Colorada & Dolores Expansion Projects
Substantial progress was made on the La Colorada mine
expansion project during 2015 with approximately 50% of the
new shaft, and 70% of the new sulphide processing plant being
completed at year-end 2015. Overall, the La Colorada expansion
is advancing on budget and remains on schedule to reach the
planned 1,800 tonnes-per-day ore production rate by the end
of 2017.
The Dolores mine expansion projects also advanced well in
2015, including: the commencement of engineering work on
the new agglomeration plant, with construction expected to
commence in the first half of 2016; advancing the underground
ramp a total of 866 metres; and advancing the new high voltage
power-line to the site to approximately 74% completion by
year-end 2015.
• Reduced Annual All-in Sustaining Costs per Silver Ounce
Sold Lower than Forecast
Consolidated annual all-in sustaining costs per silver ounce
sold net of by-product credits (“AISCSOS”) of $14.92 was lower
than the initial 2015 forecast of $15.50 to $16.50, lower than the
revised full year 2015 guidance issued on November 12, 2015 of
$15.00 to $15.50, and was 17% lower than 2014 AISCSOS. This
reduction in AISCSOS was achieved through lower sustaining
capital expenditures, lower net realizable value adjustments to
inventories, lower direct operating costs, and higher by-product
production offsetting lower by-product metal prices.
• Strong Liquidity and Working Capital Position, and
Continued Returns to Shareholders
The Company had cash and short-term investment balances
of $226.6 million and working capital of $392.2 million as at
December 31, 2015. The Company had total debt outstanding
of $59.8 million at the end of 2015. The Company’s $300.0
million revolving credit facility, established in the second quarter
of 2015, had a $263.8 million undrawn and available balance to
the Company as of December 31, 2015. The Company’s strong
balance sheet and positive operating cash flow facilitated the
continued return of value to shareholders in the three months
ended December 31, 2015 (“Q4 2015”) by way of $7.6 million in
dividend payments.
• Financial Results
A net loss of $231.6 million was recorded in 2015, which
corresponds to a basic loss per share of $1.49. The majority of
the net loss was due to non-cash impairment charges on certain
mineral properties, plant and equipment assets. Mine operating
losses incurred in 2015 were primarily attributable to lower
realized metal prices partially offset by increased sales volumes
and positive variances in production costs. Cash flow from
operations remained strong in 2015, generating $88.7 million.
• 2015 Impairment Charges to Mine Assets
As a result of further declines in metal prices in 2015, the
Company reduced its long-term reserve metal price outlooks
and triggered total after-tax impairment charges of $106.0
million in 2015 relating to the Company’s valuation of the
Morococha, Dolores, Manantial Espejo and Alamo
Dorado mines.
9
2015 annual report 2016 OPERATING OUTLOOK
These estimates are forward-looking statements and information that are subject to the cautionary
note associated with forward-looking statements and information at the end of this MD&A.
2016 Silver Production, Cash Costs and AISCSOS Forecasts:
La Colorada
Dolores
Alamo Dorado (2)
Huaron
Morococha (92.3%) (3)
San Vicente (95.0%) (3)
Manantial Espejo
Consolidated Total
Silver Production (million ounces)
Cash Costs per ounce (1)
AISCSOS(1)
5.60 – 5.70
3.40 – 3.60
1.00 – 1.20
3.65 – 3.80
2.45 – 2.60
4.30 – 4.35
3.60 – 3.75
$7.75 – $8.25
$5.00 – $6.50
$13.50 – $14.50
$12.25 – $13.25
$12.00 – $13.75
$11.25 – $11.75
$9.25 – $10.75
$9.25 – $10.30
$17.00– $18.90
$13.80 – $15.30
$14.40 – $16.00
$15.40 – $17.10
$12.00 – $13.30
$10.00 – $11.10
24.00 – 25.00
$9.45 – $10.45
$13.60 – $ 14.90
(1) Cash costs per ounce and AISCSOS are non-GAAP measurements. Please refer to section “Alternative Performance (Non-GAAP) Measures” for a
detailed reconciliation of how these measures are calculated. The cash cost forecasts assume by-product credit prices of $1,800/tonne ($0.82/lb) for
zinc, $1,800/tonne ($0.82/lb.) for lead, $5,000/tonne ($2.27/lb.) for copper, and $1,180/oz. for gold.
(2) Alamo Dorado production to be entirely sourced from previously mined stockpiles.
(3) Reflects Pan American’s ownership in the operation.
The Company expects its seven mines to deliver between 24.00
million and 25.00 million ounces of silver in 2016, lower than
2015 consolidated production of 26.12 million ounces, with year
over year production decreases at Alamo Dorado and Dolores
expected to be only partially offset by anticipated increases
at all other mines. The 2016 production at the Alamo Dorado
mine is expected to decrease 60% to 66% from 2015 as a result
of completing the last of the open pit mining during 2015 and
therefore only production from the processing of available lower
grade surface stockpiled ores will continue through the first half
of 2016.
Dolores’ 2016 silver production is expected to decrease by
15% to 20% from 2015, due to mine sequencing that will
result in higher gold grades and lower silver grades during the
year. It is expected that these production declines at Alamo
Dorado and Dolores will only be partially offset by production
increases at all other mines in 2016, with notable increases at
the Morococha and La Colorada mines. Silver production at
Morococha is expected to increase by 13% to 20% as the mine
sequences into higher silver grade ores from the Isabel and
Morro Solar zones. At La Colorada, the expected commissioning
of the new mineshaft in the fourth quarter of 2016 will lead to
an estimated 5% to 7% increase to annual silver production.
Silver production at Manantial Espejo for 2016 is expected to
be slightly higher than what was achieved in 2015, while the
final open pit mining phase of the operation will come to an end
during the year shifting towards underground and stockpiled
ore processing thereafter.
Consolidated cash costs for 2016 are forecasted to be between
$9.45 and $10.45 per payable ounce of silver, net of by-product
credits, similar to 2015 cash costs of $9.70 per ounce. The
Company expects cash costs to decrease at the Morococha
mine because of higher silver, zinc and lead production, and
at the Dolores mine due to higher gold production. These
decreases are expected to partially offset anticipated cash cost
increases at Manantial Espejo due to lower gold production and
lower gold prices for 2016. In addition, with the closure of the
Alamo Dorado mine anticipated in mid-2016, the percentage of
higher cost ounces attributable to the consolidated total will
be reduced.
Consolidated AISCSOS in 2016 is expected to be between
$13.60 and $14.90 per ounce, lower than the 2015 annual
consolidated AISCSOS of $14.92 per ounce. The expected year-
over-year AISCSOS decrease is primarily driven by the following
anticipated factors:
• A decrease in cost of sales due primarily to continued
operating costs reductions (including those achieved via
foreign currency devaluations), and to lower net realizable
value adjustments expected for 2016;
• A reduction in sustaining capital expenditures; and
• A decrease in royalty payments resulting from lower
metal prices.
10
pan american silver corp. 2016 By-product Production Forecasts:
La Colorada
Dolores
Alamo Dorado
Huaron
Morococha
San Vicente
Manantial Espejo
Consolidated Total
Gold (koz)
2.7 - 2.9
97.0 – 102.0
7.0 – 8.0
0.7 – 0.8
3.0 – 3.2
–
Zinc (kt)
Lead (kt)
Copper (kt)
9.50 – 10.00
4.80 – 4.90
–
–
13.00 – 13.50
16.10 – 17.00
7.40 – 7.50
–
–
6.70 – 6.90
2.70 – 2.80
0.80 – 0.90
–
–
–
0.01
5.50 – 5.70
7.49 – 7.79
–
–
64.6 – 68.1
–
175.0 –185.0
46.00 – 48.00
15.00 – 15.50
13.00 – 13.50
2016 gold production is expected to be between 175.0
thousand and 185.0 thousand ounces, reasonably similar to
the 183.7 thousand ounces produced in 2015. The potential
gold production decrease is due to anticipated production
decreases at Alamo Dorado and Manantial Espejo, as open pit
mining is completed at each of these mines. These decreases
are expected to be largely offset by increased production at
Dolores with the anticipation of improved grades as the mine
develops into the higher gold grade portion of the deposit.
Copper production is expected to decline between 10% to
14% as the Peruvian mines shift mine sequencing out of the
copper-rich zones targeted in 2015. Primarily as a result of
this mine sequencing at the Morococha mine, consolidated
zinc production is expected to increase between 13% to 18%
from 2015 production levels. For similar reasons, and with
an expected 2016 increase in throughput at La Colorada,
consolidated lead production in 2016 is expected to increase
between 4% and 8% from 2015 production levels.
2016 Capital Expenditure Forecasts
In 2016, Pan American expects sustaining capital investments
of between $65 and $75 million at its seven operating mines,
comparable to the $73.7 million of sustaining capital invested in
2015. Sustaining capital investments during 2016 are expected
to include: an estimated $12.0 million reduction in sustaining
capital investments at Manantial Espejo, largely driven by the
elimination of open pit pre-stripping; and an estimated $6.0
- $7.5 million reduction in sustaining capital investments at
Huaron, given the large advances completed on the tailings
storage expansion and powerline upgrade during 2015. These
decreases are expected to be partially offset by an expected
$13.8 million to $16.8 million increase in sustaining capital
investments at Dolores largely related to building of the next
phase of leach pads. Further details of planned sustaining
capital at each operation can be found in the “2016 Mine
Operations Forecasts” section of this MD&A.
Pan American also expects to invest between $135.0 million and
$140.0 million to advance on long-term development expansion
projects at La Colorada and Dolores which are already
underway. The following table details the forecast capital
investments at the Company’s operations and projects in 2016:
2016 Forecast Capital Investment
($ millions)
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Sustaining Capital Sub-Total
La Colorada Expansion Project
Dolores Projects
Project Capital Total
Consolidated Total
8.0 – 10.5
39.0 – 42.0
6.0 – 7.5
7.0 – 8.5
3.0 – 4.0
2.0 – 2.5
65.0 – 75.0
64.0 – 66.5
71.0 – 73.5
135.0 – 140.0
200.0 – 215.0
The primary objective of the $137 million La Colorada expansion
project approved in December 2013 continues to increase the
mine production rate from the 2013 level of 1,250 tonnes per
day (“tpd”) to the targeted rate of 1,800 tpd, which is expected
to be achieved by the end of 2017. Targeted La Colorada project
goals for 2016 include:
• Commissioning the new sulphide plant in mid 2016;
• Completion of the new shaft during the fourth quarter of
2016, which involves slashing the top 200 metres of the
shaft excavation from the 2.8 meter diameter opening to
5.1-meter and outfitting entire 617 meter deep excavated
shaft. Installation of the headframe and commissioning the
new hoist will occur in early 2016, with the excavations and
equipping of the 558 meter below surface loading pocket
level and equipment installation being completed in parallel
with shaft equipping during the year;
• A temporary power line service will be commissioned in time
for ramping-up production of the new sulphide plant during
the last half of 2016 with the expected completion of a new
115 kV supply powerline in early 2017; and
• The completion of approximately 3 kilometres of
underground development in support of the expanded
production in 2016 and beyond.
In May 2015, the Board of Directors of the Company approved
a $112.4 million expansion project at the Dolores mine for the
development of a 1,500 tpd underground mine and construction
of a 5,600 tpd pulp agglomeration plant to treat high-grade
ore supplementing the existing open pit mine and heap leach
operation. For 2016, the Company anticipates advancing
11
2015 annual report underground mine developments to intersect the main ore
body, installing the first ventilation raise, commencing lateral
developments, and performing initial stope definition drilling.
The Company also anticipates completing the engineering,
completing the procurement of all major equipment and
beginning ground-breaking excavations for the new pulp
agglomeration plant during the first half of 2016. It is expected
that substantial advancement of the construction of the pulp
agglomeration plant will be made during the second half of 2016
targeting the commissioning of the pulp agglomeration plant
in mid-2017 while ramping-up underground operations to the
full 1,500 tpd design capacity by the end of 2017. In addition to
the expansion project, the Company expects to complete and
energize a new 115 kV powerline by mid-year 2016.
• La Colorada mine
La Colorada’s 2016 silver production is expected to be
5.60 million to 5.70 million ounces which is higher than the
5.33 million ounces produced in 2015. The 2016 mine plan
contemplates a production rate of 1,350 tpd for the first nine
months, with an increase to 1,600 tpd for the fourth quarter as
the new sulphide plant and shaft are phased into production.
With a combination of greater sulphide tonnages mined
throughout the year and the additional capacity in the sulphide
plant coming in during the fourth quarter, it is expected that
base metal by-product production will also be increasing
relative to 2015, with zinc increasing 7% to 12% to between 9.50
and 10.00 thousand tonnes, and lead increasing 13% to 15% to
between 4.80 and 4.90 thousand tonnes.
2016 General and Administrative Cost Forecast
Our 2016 general and administrative costs (“G&A”), including
share based compensation, are expected to be approximately
$16.2 million, 10% lower than our 2015 G&A. This figure is
subject to fluctuations in the Canadian dollar (“CAD”) to USD
exchange rate, and the Company’s ability to allocate certain
costs incurred at head office that are directly attributable to
operating subsidiaries.
The following table compares our 2016 forecast G&A against
those incurred over the previous two years, as well as G&A
on a per ounce of silver produced basis, which is a
non-GAAP measure.
Forecast
Actual
2016
2015
2014
General and administrative
costs (in ‘000s of USD)
$ 16,179 $ 18,027 $ 17,908
Silver production
(in ‘000s of ounces) (1)
24,500
26,119
26,112
General and administra-
tive costs per silver ounce
produced (2)
$
0.66
$
0.69
$
0.69
(1) Forecast silver production at the mid-point of the guidance given in
this MD&A for the Company’s existing operations.
(2) G&A cost per silver ounce produced is a non-GAAP measure used by
the Company to assess G&A costs relative to production. It is calculated
as G&A costs divided by total ounces of silver production in the period.
2016 Exploration and Project Development
Expense Forecast
Exploration and project development expenses for Pan
American in 2016 are expected to total approximately $8.9
million, which is a $3.0 million decrease from 2015 exploration
and project development expenses of $11.9 million. These
expenses will continue to include advancing surface exploration
on targets defined for certain Mexican and Peruvian properties,
as well as holding costs for various exploration properties,
including Navidad.
2016 Mine Operation Forecasts
Management’s expectations of each mine’s operating
performance in 2016 are set out below, including discussion
on expected production, cash costs and AISCSOS, and
capital expenditures.
2016 cash costs per ounce of $7.75 to $8.25 are expected to
be slightly higher than the $7.41 per ounce 2015 cash costs,
primarily due to minor interferences expected from the
continued expansion project, and the decline in by-product
metal prices, which are expected to be partially offset by the
Mexican peso devaluation.
Sustaining capital expenditures at La Colorada in 2016 are
expected to be between $8.0 to $10.5 million, comparable to
the $9.9 million spent in 2015. The major elements making up
the expected 2016 sustaining capital include: (i) approximately
$4.3 million in mine capital, the largest components being a
ventilation raise and numerous equipment overhauls; (ii) $1.2
million in brownfield exploration; (iii) $1.8 million in tailings
storage expansion work; and (iv) $1.0 million in general capital
expenditures including access road improvements, and mine
rescue equipment.
AISCSOS at La Colorada for 2016 is expected to be between
$9.25 and $10.30, in-line with the $9.57 AISCSOS reported
in 2015.
In addition, capital expenditures relating to an expansion
project for the La Colorada mine are expected to require $64.0
million to $66.5 million in 2016. Please see the “2016 Capital
Expenditure Forecast” section for a detailed description of
these expenditures.
• Dolores mine
In 2016, the Company expects to stack an average of 16,200 tpd
onto leach pads at Dolores, approximately a 3% reduction from
2015 stacking due to extensive crushing plant rebuilds planned
for 2016. The ore processed at Dolores in 2016 is expected
to have higher gold and lower silver grades compared to 2015
according to the mine sequencing. In 2016, silver production at
Dolores is expected to be between 3.40 million and 3.60 million
ounces or 15% to 20% lower than the 4.25 million ounces
produced in 2015; and gold production is expected to increase
to 97.0 to 102.0 million ounces from the 79.14 million ounces
produced in 2015.
2016 cash costs per ounce are expected to be $5.00 to $6.50,
a $2.78 to $4.28 per ounce decrease from 2015 cash costs of
$9.28 per ounce. Despite relatively consistent operating costs
per tonne expected in 2016 cash costs are expected to decrease
as a result of higher gold credits, partially offset by lower silver
production and lower gold prices compared to 2015.
Sustaining capital expenditures at Dolores during 2016 are
expected to be between $39.0 million and $42.0 million, a
55% to 67% increase from the $25.2 million spent in 2015.
12
pan american silver corp. The increase is largely due to approximately $12.5 million
of sustaining capital required for a leach pad extension. The
other major components of 2016 anticipated sustaining
capital investment at Dolores include: approximately $17.0
million for open pit mine pre-stripping; approximately $9.0
million in mining and drilling equipment rehabilitations;
and approximately $1.5 million in various plant equipment
rehabilitations and replacements.
AISCSOS at Dolores for 2016 is expected to be between $17.00
and $18.90, higher than the $12.67 AISCSOS reported in 2015
due primarily to the increased sustaining capital investments
described above and decreased silver production, which
is expected to be partially offset by the positive impact of
increased gold production.
In addition, capital expenditures relating to Dolores expansion
projects are expected to require $71.0 million to $73.5 million
in 2016. Please see the section “2016 Capital Expenditure
Forecast” for a detailed description of these expenditures.
• Alamo Dorado mine
As planned with open pit mining completed by year-end 2015,
the Alamo Dorado mine will only process stockpiles during the
first half of 2016 resulting in an expected 45% to 50% decrease
in throughputs as well as declined silver and gold grades and
recoveries. The combination of the lower throughput grades
and recoveries is reflected in the expected 60% to 66%
reduction in both silver and gold production, which are expected
to be between 1.0 million to 1.2 million ounces and 7.0 thousand
to 8.0 thousand ounces, respectively.
The end of open pit activities at Alamo Dorado also results in
a significant reduction to mining and overhead costs, leading
to reduced unit costs per tonne. Despite the costs per tonne
reductions, cash costs per ounce are expected to increase from
$11.41 in 2015 to $13.50 to $14.50 per ounce in 2016 as result of
the lower production levels and lower gold prices.
As with 2015, no sustaining capital expenditure has been
planned for 2016 given the mine is at the end of its life.
AISCSOS at Alamo Dorado for 2016 is expected to be between
$13.80 and $15.30, up from $12.72 AISCSOS reported in 2015
due to anticipated decreases in silver sales from processing
lower grade mined ores and stockpiles.
• Huaron mine
In 2016, throughput at Huaron is expected to increase 3% to
the plant capacity of 920 thousand tonnes per year, given the
unscheduled mill breakdown that was reported during the third
quarter of 2015. The slightly improved throughput in 2016 is
expected to be coupled with a slight increase in silver grades
from mine sequencing resulting in a small increase in silver
production to between 3.65 million to 3.80 million ounces,
comparable to the 3.71 million ounces produced in 2015. Copper
production is expected to decrease between 15% and 18%, due
to mine sequencing away from the high-copper Travieso vein
system. Zinc and lead production are expected to be relatively
similar to 2015 levels.
Cash costs per ounce of between $12.25 and $13.25 are
expected to increase from the 2015 level of $10.91 per ounce,
primarily driven by a decline in by-product credits which is only
partially offset by expected lower operating costs, and slightly
higher silver payable production expected for 2016.
We have forecasted sustaining capital expenditures of between
$6.0 million and $7.5 million for 2016, which are lower than the
$13.6 million spent in 2015. The 2016 capital budget is primarily
comprised of: $0.8 million for completion of the tailings storage
expansion; $1.4 million in brownfield diamond drilling; and $1.2
million in mining equipment refurbishments and replacements.
AISCSOS at Huaron for 2016 is expected to be between
$14.40 and $16.00, representing a 5% to 15% decrease from
the $16.89 AISCSOS reported in 2015 due primarily to lower
sustaining capital expenditures.
• Morococha mine
Significant changes in mine sequencing are expected at
Morococha during 2016, resulting in a change of the plant feed
composition towards higher grade zinc and silver zones. Silver
grades are expected to increase by up to 14% to 16%, while zinc
grades are expected to increase up to 27% to 28%. Increases
to both silver and zinc recoveries and grades are expected to
result in silver production of between 2.45 million to 2.60 million
ounces for the Company, a 13% to 20% increase from the 2.17
million ounces produced in 2015. Similarly, zinc production for
the Company is expected to increase 42% to 50% to between
16.10 thousand and 17.00 thousand tonnes, and 2016 lead
production is also expected to increase 5% to 9% to between
2.70 thousand to 2.80 thousand tonnes from 2015 production.
Copper production for the Company is expected to decrease
between 4% and 8% in 2016 to between 7.49 thousand and 7.79
thousand tonnes.
Cash costs are forecast to be between $12.00 and $13.75 per
ounce in 2016, comparable to 2015 cash costs of $13.03 per
ounce. The potential reduction to 2016 cash costs represented
by the low end of 2016 guidance could be achieved through
increased payable silver production and reduced operating
costs and by-product production more than offsetting lower
overall by-product metal prices and increased treatment and
refining charges due primarily to the higher tonnage of zinc and
lead concentrate production.
Morococha’s sustaining capital for 2016 is expected to be
between $7.0 million and $8.5 million, comparable to the 2015
capital spending of $7.7 million. The major components of
the 2016 capital expenditures include: $4.2 million in mine
development related to deepening the Manuelita shaft and
development level, and $0.9 million for brownfield exploration.
AISCSOS at Morococha for 2016 is expected to be between
$15.40 and $17.10, a 11% to 20% decrease from the $19.21
AISCSOS reported in 2015 primarily due to an expected
increase in silver and by-product production levels and an
expected decrease in operating costs more than offsetting the
lower by-product metal prices.
• San Vicente mine
Throughput rates at San Vicente are expected to increase up
to 4% in 2016 while silver grades and recoveries are expected
to be consistent with 2015 levels. The aggregate expected
effect to 2016 silver production for the Company is a 4% to
6% increase to between 4.30 million and 4.35 million ounces,
from the 4.12 million ounces produced in 2015. The increased
throughput, improved zinc recoveries, and improved zinc grades
are expected to drive increased zinc by-product production for
the Company by 8% to 10%.
13
2015 annual report $18.81 AISCSOS reported in 2015 due mainly to the lower
sustaining capital and lower net realizable value adjustments
than those incurred in 2015.
MID-TERM OUTLOOK
These estimates are forward-looking statements and
information that are subject to the cautionary note associated
with forward-looking statements and information at the end of
this MD&A.
• 2017 and 2018 Silver Production, Gold Production, Cash
Costs, Sustaining Capital and AISCSOS Forecasts:
As a result of the transformational nature of the Company’s
mine expansion projects at La Colorada and Dolores and the
contemporaneous completion of open pit mining at both Alamo
Dorado and Manantial Espejo, the following silver production,
gold production, cash costs, sustaining capital expenditures,
and AISCSOS are expected for fiscal 2017 and 2018:
Silver Production –
million ounces
Gold production –
thousand ounces
2017
2018
22.50 – 24.00
25.0 – 27.00
155.0 – 165.0
160.0 – 180.0
Cash costs (1)
$8.20 – $9.70
$5.50 – $7.50
Sustaining capital
(millions)
$75.0 – $85.0
$75.0 – $90.0
AISCSOS (1)
$13.20 – $14.80
$10.00 – $12.20
(1) 2017 and 2018 forecasted cash costs per silver ounce, net of by-
product credits, and AISCSOS were calculated using the following by-
product metal prices assumptions: Au $1,100/oz, Zn $1,700/tonne, Pb
$1,600/tonne, Cu $4,600/tonne. Exchange rates used relative to US$:
Mexican Peso 17:1, Peruvian Sol 3.3:1, Argentinean Peso 11:1, Bolivian
Boliviano 7:1. Cash costs and AISCSOS are non-GAAP measures, please
refer to the Alternative Performance (Non-GAAP) Measures section of
the MD&A for detailed descriptions of how these measures
are calculated.
Expected 2016 cash costs per ounce of between $11.25 and
$11.75 are comparable to the 2015 cash costs of $11.57 per
ounce, due primarily to the offsetting effects of expected
increased operating costs and lower by-product metal prices
by the positive effects of expected increased silver production,
improvement in zinc production, and reductions in royalties
from reduced metal prices.
The expected sustaining capital at San Vicente in 2016 is
between $3.0 million and $4.0 million, which is consistent with
the $3.3 million of sustaining capital in 2015. Major components
of 2016 sustaining capital budget include: $1.0 million on
brownfield exploration; $0.7 million on mine equipment
refurbishment and replacements; $0.4 million on a ventilation
raise; and $0.3 million on environmental related expenditures
including a water treatment plant.
AISCSOS at San Vicente for 2016 is expected to be between
$12.00 and $13.30, comparable to the $11.91 AISCSOS reported
in 2015. The same offsetting factors affecting cash costs along
with expected sustaining capital investments are expected to
result in a slight increase to AISCSOS.
• Manantial Espejo mine
The open pit operation is scheduled to end in mid-2016 and
will affect grades and production thereafter. Plant throughput
is expected to increase by 3% to 10% in early 2016, while
additional material from stockpiles will be processed to
compensate for the reduced open pit ore feed, along with
additional ore production from the underground mine. The
increased throughput is expected to offset the decline in open
pit mining and result in forecasted 2016 silver production
of between 3.60 million and 3.75 million ounces, which is
consistent with the 3.58 million ounces produced in 2015. The
increased tonnage, however, does not offset the expected 18%
to 19% decline in gold grades resulting in a forecasted decrease
in gold production of between 12% to 16% to between 64.60
thousand and 68.10 thousand ounces in 2016 from the 77.3
thousand ounces produced in 2015.
Under the assumption that the devaluation of the Argentine
peso will keep pace with local inflation rates during 2016, we
expect that production costs will decrease from productivity
improvements and the decommissioning of open pit mining
activities by mid-2016. The effect of these reductions is
expected to be offset by non-cash inventory variations from
the drawdown of stockpiles in the calculations of cash costs.
In 2015, stockpile inventory build-up reduced operating costs
by $8.7 million, while in 2016 we expect to process stockpiles
adding $9.1 million of non-cash charges to cash costs. The
aggregate expected effect of these net cost increases, along
with decreased gold production, is an increase in cash costs to
$9.25 to $10.75 per ounce from the $7.33 per ounce reported
for 2015.
Sustaining capital expenditure in 2016 is expected to be
between $2.0 million and $2.5 million, a significant decrease
from the $14.1 million spent in 2015. The majority of the
decrease is a result of no open pit pre-stripping activities in
2016. The majority of the 2016 sustaining capital budget is for
brownfield exploration.
AISCSOS at Manantial Espejo for 2016 is expected to be
between $10.00 and $11.10, a significant decrease from the
14
pan american silver corp. 2015 OPERATING PERFORMANCE
The following table compares silver production and cash costs, net of by-product credits, at each of Pan American’s
operations for the respective three and twelve month periods ended December 31, 2015 and 2014:
Silver Production (ounces ‘000s)
Cash Costs(1) ($ per ounce)
Three months ended
December 31,
Twelve months ended
December 31,
Three months ended
December 31,
Twelve months ended
December 31,
2015
1,423
947
818
987
524
1,081
1,005
6,785
2014
1,286
954
865
952
603
1,172
913
6,745
2015
5,327
4,250
2,970
3,705
2,165
4,118
3,583
2014
4,979
3,982
3,473
3,635
2,370
3,949
3,725
26,119
26,112
2015
7.28
11.64
5.49
11.35
12.99
11.12
6.48
9.09
2014
7.57
12.99
14.07
12.22
12.53
11.88
13.93
11.92
2015
7.41
9.28
11.41
10.91
13.03
11.57
7.33
9.70
2014
8.14
12.94
12.89
11.56
13.22
13.16
10.12
11.46
La Colorada
Dolores
Alamo Dorado
Huaron
Morococha (2)
San Vicente (3)
Manantial Espejo
Consolidated Total (4)
(1) Cash costs is a non-GAAP measure. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of this MD&A for a detailed description
of the cash cost calculation, details of the Company’s by-product credits and a reconciliation of this measure to the 2015 Financial Statements.
(2) Morococha data represents Pan American’s 92.3% interest in the mine’s production.
(3) San Vicente data represents Pan American’s 95.0% interest in the mine’s production.
(4) Totals may not add due to rounding.
• 2015 Silver Production
The chart below presents silver production by mine in 2015:
Manantial Espejo
14%
San Vicente
16%
Morococha
8%
La Colorada
21%
Alamo
Dorado
11%
Huaron
14%
Dolores
16%
Mexico
Peru
Bolivia
Argentina
Consolidated silver production of 6.79 million ounces in Q4
2015 was 0.04 million ounces higher than that produced in
the three months ended December 31, 2014 (“Q4 2014”).
Production increases at La Colorada, Huaron, and Manantial
Espejo resulted in a net 0.26 million ounce quarter over quarter
increase as they partially offset production declines at the
Company’s other operations. The largest quarter over quarter
increases came from the La Colorada and Manantial Espejo
mines with an additional 0.14 million ounces and 0.09 million
ounces produced, respectively. The largest decreases came
from the San Vicente and Morococha mines where 0.09
million and 0.08 million fewer ounces were produced for the
Company respectively.
Record consolidated silver production for 2015 of 26.12 million
ounces was similar to 2014 consolidated silver production
of 26.11 million ounces, with increases at the La Colorada,
Dolores, Huaron, and San Vicente mines resulting in additional
production of 0.86 million ounces, which offset a total 0.85
million ounce production decline from the Alamo Dorado,
Morococha and Manantial Espejo mines. The largest year over
year production increases came from La Colorada and Dolores,
which added 0.35 million ounces and 0.27 million ounces,
respectively. The most significant production decline was at
Alamo Dorado where 0.5 million fewer ounces were produced
in 2015.
• 2015 By-Product Production
The following tables set out the Company’s by-product
production for the three and twelve months ended December
31, 2015, together with amounts for the comparable periods
in 2014:
By-Product Production
Three months ended
December 31,
Twelve months ended
December 31,
2015
48.2
11.5
4.1
4.0
2014
43.9
10.2
3.9
3.0
2015
183.7
40.6
14.6
15.0
2014
161.5
43.5
15.0
9.0
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Gold production during Q4 2015 rose 10% from Q4 2014,
driven by increased production at Alamo Dorado, Manantial
Espejo, and Dolores, which was offset by slight decreases at
the Company’s other gold producing mines. Alamo Dorado
and Manantial Espejo production made up the majority of the
increase, with improved gold grades resulting in each mine
producing an additional 2.2 thousand ounces of gold compared
to the amount produced in Q4 2014.
In 2015 the Company produced 183.7 thousand ounces of gold,
22.2 thousand ounces or 14% more than in 2014. The 2015
15
2015 annual report record gold production was achieved by increased throughput
and improved gold grades at Dolores delivering an additional
12.3 thousand ounces, and improved gold grades at Manantial
Espejo and Alamo Dorado driving increased production of 6.9
thousand ounces and 2.8 thousand ounces, respectively.
During Q4 2015, Pan American also produced 11.5 thousand
tonnes of zinc, 4.1 thousand tonnes of lead and 4.0 thousand
tonnes of copper, 12%, 5% and 34% more than in Q4 2014,
respectively. Copper production rose significantly in 2015 due
to mine sequencing at the Company’s Peruvian mines, where
production continued to focus on copper-rich areas.
Pan American’s consolidated base metals production during
2015 was 40.6 thousand tonnes of zinc, 14.6 thousand tonnes
of lead and 15.0 thousand tonnes of copper. Zinc production
declined 7% and lead production declined 3% from 2014,
mainly due to lower production at Morococha due to a change in
mine sequencing targeting higher value ores from the copper-
rich Esperanza area that drove consolidated copper production
up 66% from 2014.
• 2015 Average Market Metal Prices
The following tables set out the average market price for
each metal produced for the three and twelve months ended
December 31, 2015 together with prices for the comparable
periods in 2014:
Average Market Metal Prices
Three months ended
December 31,
Twelve months ended
December 31,
2015
2014
2015
2014
14.77 $
16.50 $
15.68 $
19.08
• 2015 Cash Costs
Consolidated cash costs per ounce of silver for the three and
twelve months ended December 31, 2015, were $9.09 per
ounce and $9.70 per ounce, respectively, which compared to
$11.92 per ounce and $11.46 per ounce for the three and twelve
months ended December 31, 2014.
Despite substantially lower prices for all by-products,
consolidated cash costs during Q4 2015 declined 24% from
those in Q4 2014 due to higher production of all by-product
metals, and lower direct unit operating costs at all mines,
particularly at Huaron, Morococha, Manantial Espejo and Alamo
Dorado. The most significant contribution to the decrease to
consolidated cash costs came from the Alamo Dorado mine,
which had an $8.58 per ounce quarter over quarter cash
cost decrease from decreased mining rates and improved
by-product gold production. Each operation’s cash costs are
separately discussed in the ”Individual Mine Performance”
section of this MD&A.
Similarly, despite the substantially lower by-product metal
prices, the Company reduced annual consolidated cash costs
by 15% from 2014 due to record-breaking consolidated gold and
copper production, as well as substantially lower unit operating
costs per tonne at all of the Company’s mines due to improved
productivities, favorable currency exchange rates and lower
costs for certain consumables, especially diesel fuel. Each
mine contributed to the year over year decline in consolidated
cash costs, with the most significant impacts from the Dolores,
Manantial Espejo and Alamo Dorado operations, which all
experienced both decreased direct operating costs per ounce
and increased by-product credits on the back of increased
gold production.
Silver/ounce
Gold/ounce
Zinc/tonne
Lead/tonne
Copper/tonne
$
$
$
$
$
1,106 $
1,201 $
1,160 $
1,266
• 2015 AISCSOS
1,613 $
2,237 $
1,928 $
2,164
1,681 $
2,002 $
1,784 $
2,096
4,892 $
6,628 $
5,495 $
6,862
The following table reflects the quantities of payable silver
sold and AISCSOS at each of Pan American’s operations for
the three and twelve months ended December 31, 2015, as
compared to the same periods in 2014.
Payable Silver Sold (ounces ‘000s)
AISCSOS (1) ($ per ounce)
Three months ended
December 31,
Twelve months ended
December 31,
Three months ended
December 31,
Twelve months ended
December 31,
2015
1,263
1,048
726
774
483
1,448
978
6,719
2014
1,099
883
816
788
537
1,117
1,113
2015
5,109
4,448
2,944
3,009
1,995
4,019
3,655
6,353
25,180
2014
4,726
3,912
3,606
3,025
2,125
4,177
3,860
25,431
2015
9.75
21.55
7.93
18.74
21.02
11.00
10.96
14.76
2014
9.20
31.20
17.39
22.35
20.20
11.90
17.21
18.62
2015
9.57
12.67
12.72
16.89
19.21
11.91
18.81
14.92
2014
10.90
27.02
13.05
19.07
19.39
13.78
17.93
17.88
La Colorada
Dolores
Alamo Dorado
Huaron
Morococha
San Vicente
Manantial Espejo
Consolidated Total (2)
(1) AISCSOS is a non-GAAP measure. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this measure to the 2015 Financial Statements. “G&A” costs are included in the
consolidated AISCSOS, but not allocated in calculating AISCSOS for each operation.
(2) Totals may not add due to rounding.
16
pan american silver corp. Consolidated AISCSOS for the three and twelve months ended
December 31, 2015 was $14.76 and $14.92, respectively, a 21%
and 17% reduction, respectively from AISCSOS of $18.62 and
$17.88 for the respective 2014 comparable periods.
The $3.86 per ounce decline in quarter over quarter
consolidated AISCSOS resulted primarily from: (i) $15.6 million
lower direct operating costs; (ii) $8.0 million higher by-product
credits, particularly from more gold by-product production at
Dolores and Alamo Dorado; and (iii) a 6% or 0.37 million ounce
increase in the number of silver ounces sold. These factors
were partially offset by higher general and administrative
expenses and higher treatment and refining charges (“TCRCs”).
AISCSOS in Q4 2015 and Q4 2014 were adversely impacted by
negative net realizable value adjustments to inventories (“NRV
adjustments”), which increased production costs by $5.0
million and $2.0 million, respectively, which increased AISCSOS
by $0.75 per ounce and $0.35 per ounce, respectively.
The $2.96 per ounce decline in 2015 annual consolidated
AISCSOS from 2014 resulted primarily from: (i) $25.4 million
lower sustaining capital; (ii) $19.1 million less in negative NRV
adjustments; (iii) $17.1 million lower direct operating costs; and
(iv) $16.6 million higher by-product credits, particularly from
more gold by-product production at Dolores. These factors were
partially offset by a 0.25 million ounce decrease in the number
of silver ounces sold, and higher TCRCs. AISCSOS in 2015 and
2014 were adversely impacted by negative NRV adjustments to
inventories, which increased production costs by $10.9 million
and $30.0 million, respectively, increasing AISCSOS by $0.43
per ounce, and $1.17 per ounce, respectively.
•
Individual Mine Performance
The following tables summarize the 2015 metal production,
cash costs and AISCSOS achieved for each individual operation
compared to the amounts forecasted in the annual MD&A
for the fiscal year ended December 31, 2014. Following the
summary tables is an analysis of each operation’s 2015
operating performance as compared to 2014, as well as an
analysis of the 2015 operating performance compared to
management’s initial 2015 forecast guidance. Actual 2015
results that met or exceeded 2015 guidance have been noted
with a “√” in the following tables, 2015 results did not meet 2015
guidance have been noted with a “×”. Reported metal figures
included in tables in this section are volumes of metal produced.
La Colorada
Dolores
Alamo Dorado
Huaron
Morococha
San Vicente
Manantial Espejo
2015 Silver Production
(million ounces)
2015 Cash Costs (1)
($ per ounce)
2015 AISCSOS (1)
($ per ounce)
Forecast (2)
Actual
Forecast (2)
Actual
Forecast (2)
Actual
4.90 – 5.00
5.33 √
8.50 – 9.25
$7.41 √
10.95 – 11.70
$9.57 √
4.00 – 4.15
4.25 √
8.50 – 10.00
9.28 √
17.00 – 18.50
$12.67 √
2.95 – 3.20
2.97 √
14.00 – 14.50
11.41 √
14.30 – 14.80
$12.72 √
3.70 – 3.80
2.30 – 2.40
4.00 – 4.15
3.65 – 3.80
3.71 √
13.00 – 13.75
10.91 √
16.00 – 17.00
$16.89 √
2.17 ×
12.75 – 14.25
13.03 √
16.00 – 17.50
$19.21 ×
4.12 √
11.00 – 12.00
11.57 √
12.25 – 13.25
$11.91 √
3.58 ×
10.50 – 11.75
7.33 √
13.80 – $15.05
$18.81 ×
Consolidated Total (3)
25.50 – 26.50
26.12 √
10.80 – 11.80
$9.70 √
15.50 – 16.50
$14.92 √
(1) Cash costs and AISCSOS are non-GAAP measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this
MD&A for a detailed description of the AISCSOS calculation and a reconciliation of this measure to the 2015 Financial Statements.
(2) Forecasted amount per guidance included in the annual MD&A for fiscal 2014 dated March 26, 2015.
(3) Totals may not add due to rounding.
2015 Gold Production
(koz)
2015 Zinc Production
(kt)
2015 Lead Production
(kt)
2015 Copper
Production (kt)
Forecast (1) Actual
Forecast (1) Actual
Forecast (1) Actual
Forecast (1) Actual
Huaron
Morococha
San Vicente
Manantial
Espejo
Consolidated
Total (2)
La Colorada
2.5 – 2.7
Dolores
75.0 – 80.0
2.6
79.1
Alamo Dorado
15.5 – 16.6
20.3
1.0 – 1.2
1.1
√
√
√
√
7.00 – 7.50
8.91
–
–
–
–
13.50-14.00
13.55
2.0 – 2.5
3.2
√ 14.50 – 15.00
11.37
–
–
–
6.00 – 6.50
6.82
√
–
–
√
×
√
La Colorada
3.70 – 3.80
4.26
Dolores
Alamo Dorado
–
–
Huaron
6.10 – 6.20
Morococha
4.20 – 4.40
–
–
6.92
2.56
San Vicente
0.50 – 0.60
0.84
√
–
–
√
×
√
–
–
0.01 – 0.01
4.75 – 5.00
3.24 – 3.49
–
–
–
–
0.10
6.70
8.16
–
–
–
√
√
√
–
–
–
69.0 – 72.0
77.3
√
–
–
–
165.0 – 175.0
183.7
√ 41.00 – 43.00
40.65
×
Manantial
Espejo
Consolidated
Total (2)
–
–
–
14.50 – 15.00
14.58
√
8.00 – 8.50
14.96
√
(1) Forecasted amount per guidance included in the annual MD&A for fiscal 2014 dated March 26, 2015.
(2) Totals may not add due to rounding.
17
2015 annual report Capital Investment ($ millions)
Forecast (1)
Actual
La Colorada
Dolores
Huaron
Morococha
San Vicente
$11.0 – $12.0
$30.0 – $35.0
$8.0 – $10.0
$6.0 – $8.0
$4.0 – $5.0
Manantial Espejo
$12.0 – $14.0
Sustaining Capital
Sub-Total (2)
La Colorada Expansion
Project
$71.0 – $84.0
$75.0 – $80.0
$48.2
Dolores Project
$15.0 – $17.0
Project Sub-Total (2)
$90.0 – $97.0
2015 Total Capital (2)
$161.0 – $181.0
$28.0
$76.1
$149.8
$9.9
$25.2
$13.6
$7.7
$3.3
$14.1
$73.7
√
√
×
√
√
×
√
√
×
√
√
(1) Forecasted amount per guidance included in the annual MD&A for
fiscal 2014 dated March 26, 2015.
(2) Totals may not add due to rounding.
An analysis of each operation for the year ended December 31,
2015, as compared to the operating performance for the year
ended December 31, 2014, follows.
La Colorada mine
Twelve months ended
December 31,
Tonnes milled – kt
Average silver grade – grams
per tonne
Average silver recovery – %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Cash cost per ounce net
of by-products (1)
AISCSOS (2)
Payable silver sold – koz
Sustaining capital (‘000s) (3)
2015
485.4
379
90.1
5,327
2.63
8.91
4.26
$ 7.41
9.57
5,109
$
$
2014
471.3
366
89.8
4,979
2.57
7.70
3.74
8.14
10.90
4,726
$
$
9,869
$
13,476
(1) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(2) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
(3) Sustaining capital expenditures excludes $48.2 million of investing
activity cash outflow for the year ended December 31, 2015 (2014: $17.9
million) related to investment capital incurred on the expansion project
as disclosed in the “2015 Project Development Update” section of
this MD&A.
18
2015 versus 2014
La Colorada achieved record silver production in 2015, 7%
more than in 2014, due to increases in throughput, grades and
recoveries. Ore mining rates increased in 2015 with benefits
realized from the new mining equipment purchased as part of
the mine expansion project that allowed for the development
of new mining areas. During 2015, the mine produced 8.9
thousand tonnes of zinc and 4.3 thousand tonnes of lead, 16%
and 14% more than in 2014, respectively. The increased base
metal production was a function of the increased throughput in
2015 combined with improved zinc and lead grades of 13% and
10%, respectively.
La Colorada’s cash costs per ounce during 2015 declined $0.73,
or 9%, due to lower direct operating costs and a 7% increase in
payable silver ounces produced. The decrease in unit operating
costs per tonne primarily resulted from the devaluation of the
Mexican peso and lower costs of certain consumables. 2015 by-
product credits per ounce remained relatively consistent with
2014, as increased by-product metal production was largely
offset by lower metal prices.
2015 AISCSOS of $9.57 decreased 12% from $10.90 in the
previous year, primarily due to a $3.6 million decrease in
sustaining capital expenditures, a $1.2 million decrease in
production costs and an 8% increase in the amount of payable
silver ounces sold.
2015 versus 2015 Guidance
2015 silver production at La Colorada of 5.33 million ounces
exceeded the high end of management’s forecast range of 4.90
million to 5.00 million ounces primarily as a result of realizing
higher than expected throughput rates, and slightly higher
than expected silver grades and recoveries. Similarly, base
metal production benefited from the better than expected
throughput rates, grades and recoveries, resulting in zinc and
lead production which exceeded our guidance. The higher
throughput also resulted in 2015 gold production being on the
high end of the amount forecasted for 2015.
Actual cash costs of $7.41 per ounce were lower than
management’s forecast range of between $8.50 and $9.25
per ounce. Cash costs at La Colorada in 2015 were positively
influenced by better than expected silver production and the
previously discussed lower direct operating costs.
2015 AISCSOS of $9.57 was lower than management’s forecast
range of between $10.95 and $11.70. The positive influences to
2015 AISCSOS were higher than expected quantities of silver
sold, lower than forecasted sustaining capital expenditures
during the year, and low direct operating costs.
Sustaining capital expenditures at La Colorada during 2015
totalled $9.9 million, which is 27% lower than 2014 sustaining
capital, and lower than the 2015 forecast of $11.0 million -
$12.0 million. This is partially due to the devaluation of the
Mexican peso. Sustaining capital included expenditures on mine
infrastructure, exploration drilling, a mine dewatering treatment
plant, mine equipment replacement and rehabilitations, process
plant improvements, and access road upgrades. This sustaining
capital excludes $48.2 million spent on the La Colorada
expansion project during the year, which is further described in
the 2015 Project Development Update section of this MD&A.
pan american silver corp. Dolores mine
Twelve months ended
December 31,
2015
2014
Tonnes placed – kt
6,108.9
6,053.9
Average silver grade – grams
per tonne
Average gold grade – grams
per tonne
Average silver produced to placed
ratio - %
Average gold produced to placed
ratio - %
Production:
Silver – koz
Gold – koz
Cash cost per ounce net
of by-products (1)
AISCSOS (2)
Payable silver sold – koz
Sustaining capital (‘000s) (3)
$
$
$
44
0.57
49.7
70.9
4,250
79.14
9.28
12.67
4,448
$
$
40
0.44
51.8
78.3
3,982
66.82
12.94
27.02
3,912
25,162
$
27,632
(1) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(2) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
(3) Sustaining capital expenditures exclude $28.0 million of investing
activity cash outflow for the year ended December 31, 2015 (2014: $17.3
million) related to investment capital incurred on Dolores expansion
projects as disclosed in the “Project Development Update” section of
this MD&A.
2015 versus 2014
Dolores produced 4.25 million ounces of silver in 2015, which
is 7% higher than the 3.98 million ounces produced in 2014, a
result of record throughput and higher grades. Gold production
of 79.1 thousand ounces in 2015 was 18% higher than the 66.8
thousand ounces produced in 2014, and primarily a result of a
30% improvement to grades.
Despite lower gold prices, cash costs at the mine declined
28% due to higher gold by-product production, favourable
currency exchange rate movements, and lower costs for certain
consumables, particularly diesel fuel.
2015 AISCSOS of $12.67 decreased 53% from $27.02. The
decrease was primarily due to NRV adjustments, which reduced
production costs by $11.4 million in 2015 and increased 2014
production costs by $23.3 million, representing a $34.7 million
favorable year over year impact to 2015 AISCSOS. Other
significant positive impacts to 2015 AISCSOS included: a $14.7
million increase in by-product credits, with increased gold
production more than offsetting lower gold prices; a $2.5 million
decrease in sustaining capital expenditures; and a 14% increase
in the amount of silver sold.
stacking rates and silver grades. Gold production was within
management’s guidance range of 75.0 thousand to 80.0
thousand ounces.
Cash costs for 2015 of $9.28 per ounce of silver fell within
the $8.50 to $10.0 per ounce 2015 forecast range provided
by management.
2015 AISCSOS of $12.67 was lower than management’s
forecast range of between $17.00 and $18.50. The primarily
positive influences to 2015 AISCSOS were the positive net
NRV adjustments in the year, higher than expected quantities
of silver sold, and lower than forecasted sustaining capital
expenditures during the year.
Sustaining capital expenditures at Dolores in 2015 totalled
$25.2 million, which is 16% lower than the low end of
managements forecast of $30 million to $35.0 million, primarily
due to the timing of certain payments that were carried forward
to the first quarter of 2016. Similarly, 2015 sustaining capital
expenditures were 9% lower than the $27.6 million spent in
2014, again largely due to the timing of expenditures. The 2015
sustaining capital was mainly spent on pre-stripping activities,
investments in mine and process equipment replacement and
rehabilitations, exploration activities, surface water diversion
upgrades, as well as camp and site access improvements.
Sustaining capital excludes $28.0 million in project capital,
which is further described in the “2015 Project Development
Update” section of this MD&A.
Alamo Dorado mine
Tonnes milled – kt
Average silver grade – grams per
tonne
Average gold grade – grams per
tonne
Average silver recovery – %
Production
Silver – koz
Gold – koz
Copper – kt
Cash cost per ounce net of
by-products(1)
AISCSOS (2)
Payable silver – koz
Sustaining capital (‘000s)
$
$
$
Twelve months ended
December 31,
2015
1,798.6
2014
1,763.0
62
0.39
82.9
2,970
20.34
0.10
11.41
12.72
2,944
$
$
-
$
75
0.37
81.4
3,473
17.56
0.03
12.89
13.05
3,606
293
(1) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(2) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
2015 versus 2015 Guidance
2015 versus 2014
In 2015, silver production of 4.25 million ounces at Dolores
exceeded the top-end of management’s guidance range of 4.00
million to 4.15 million ounces, a result of better than anticipated
As expected, 2015 silver production of 3.0 million ounces
at Alamo Dorado was 14% less than the 3.5 million ounces
produced in 2014 as open pit mining ramped down and
concluded by year-end, which resulted in less throughput
19
2015 annual report tonnage of mined ore and switching to more from lower grade
stockpiled ores. Gold production rose 16% to a record high due
to higher grades and recoveries due to mining a high grade gold
zone in the final stages of the pit.
Despite lower gold prices, Alamo Dorado’s cash costs per ounce
declined by 11% due to the combined effect of higher gold
production and lower unit operating costs per tonne given the
reduced mining rates, the favorable depreciation of the Mexican
Peso, and the lower costs of certain consumables.
2015 AISCSOS of $12.72 decreased $0.33 from $13.05 in 2014.
The 3% year over year reduction was attributable to a 12%
decrease in production costs which benefited from the lower
operating costs and a $2.5 million decrease in negative NRV
adjustments, as well as a 5% increase in by-product credits on
account of improved gold production. These positive influences
more than offset the negative impact of an 18% reduction in the
amount of silver ounces sold.
2015 versus 2015 Guidance
Alamo Dorado’s silver production in 2015 of 2.97 million ounces
was consistent with management’s forecast range of 2.95
million to 3.20 million ounces. This was the result of better than
expected throughput rates and recoveries compensating for
lower than anticipated grade ore processed in the year. Gold
production of 20.3 thousand ounces was 22% higher than the
high end of management’s guidance range of 15.5 thousand
to 16.6 thousand ounces, resulting from the combined results
of superior grades and throughput rates being stronger than
expected.
Actual cash costs of $11.41 per ounce were lower than
management’s forecast range of $14.00 to $14.50, due to
the favorable impacts of the previously discussed lower than
expected direct operating costs, and superior by-product
credits from gold production.
2015 AISCSOS of $12.72 was lower than management’s forecast
range of $14.30 to $14.80 per ounce. The primarily positive
influences to 2015 AISCSOS were the lower than expected
production costs, and higher than expected by-product credits
from gold production.
There were no sustaining capital expenditures at Alamo Dorado
during 2015 as it approaches the end of mine life.
Huaron mine
Twelve months ended
December 31,
Tonnes milled – kt
Average silver grade – grams per
tonne
Average zinc grade – %
Average copper grade – %
Average lead grade – %
Average silver recovery – %
Average zinc recovery – %
Average copper recovery – %
Average lead recovery – %
Production
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash cost per ounce net of
by-products(1)
AISCSOS (2)
Payable silver – koz
Sustaining capital (‘000s)
$
$
$
2015
894.5
157
2.41
0.97
1.08
83.2
63.8
78.5
73.1
3,705
1.05
13.55
6.70
6.92
10.91
16.89
3,009
$
$
13,610
$
2014
892.8
154
2.41
0.86
0.97
83.2
68.1
77.5
71.5
3,635
1.16
14.20
5.88
6.03
11.56
19.07
3,025
17,327
(1) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(2) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
2015 versus 2014
With comparable year over year throughput rates, silver grades
and recoveries, silver production during 2015 was similar to that
in 2014. During 2015, Huaron produced 6.9 thousand tonnes
of lead and 6.7 thousand tonnes of copper, which was 15% and
14%, respectively, more than in 2014, while zinc production
of 13.6 tonnes was 5% less than 2014. The year over year
difference in base metal production was a function of grades
and recoveries on account of mine sequencing.
Huaron cash costs of $10.91 per ounce declined 6% as a result
of substantially lower unit operating costs per tonne driven by
benefits from the on-going mechanization efforts, while higher
by-product lead and copper production was more than offset by
lower base metal prices.
2015 AISCSOS of $16.89 was 11% lower than the $19.07 in the
previous year. The decrease was attributable to a reduction in
production costs, a $3.7 million decline in sustaining capital
expenditures, and a reduction in TCRCs, which more than
offset lower by-product credits driven by the decline in base
metal prices.
2015 versus 2015 Guidance
As 2015 throughput rates, silver grades and recoveries were
consistent with expectations, the 2015 silver production
of 3.71 million ounces at Huaron was within management’s
20
pan american silver corp. 2015 guidance of 3.70 million ounces to 3.80 million ounces.
Similarly, 2015 by-product metal production met or exceeded
management’s forecasted amounts with superior grades
leading to lead and copper production of 6.9 thousand tonnes
and 6.7 thousand tonnes, respectively, exceeding the high end
of management’s forecasted ranges of between 6.1 thousand
and 6.2 thousand tonnes and between 4.8 thousand and 5.0
thousand tonnes, respectively.
(1) Production figures are for Pan American’s 92.3% share only, unless
otherwise noted.
(2) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(3) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
Actual 2015 cash costs of $10.91 per ounce were 16% less than
the low end of our forecast range of $13.00 to $13.75 per ounce.
This positive performance was attributable to the lower than
expected operating costs which more than compensated for
lower than anticipated by-product credits that resulted from the
2015 decline in all base metal prices.
2015 AISCSOS of $16.89 was consistent with management’s
forecast range of $16.00 to $17.00 AISCSOS, a result of lower
than expected production costs compensating for higher than
planned sustaining capital and lower than expected by-product
credits from deteriorated base metal prices.
Capital expenditures at Huaron during 2015 totalled $13.6
million, which was higher than our forecasted range of $8.0
million to $10.0 million. The increase in sustaining capital
expenditure compared to guidance was primarily related to
additional mine equipment, increased costs for a power supply
upgrade, and a tailings storage expansion. Sustaining capital
expenditures in 2015 were significantly lower than the $17.3
million spent in 2014 as the multi-year mine mechanization
efforts were largely completed in the prior year. 2015 sustaining
capital was primarily related to equipment refurbishments and
replacements, the tailings storage expansion, site infrastructure
upgrades, as well as exploration drilling.
Morococha mine (1)
Twelve months ended
December 31,
Tonnes milled – kt
Average silver grade – grams
per tonne
Average zinc grade – %
Average lead grade – %
Average copper grade – %
Average silver recovery – %
Average zinc recovery – %
Average lead recovery – %
Average copper recovery – %
Production
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash cost per ounce net of
by-products(2)
AISCSOS (3)
$
$
Payable silver sold 100% – koz
2015
637.2
124
2.83
0.71
1.52
85.2
64.1
59.0
85.8
2,165
3.22
11.37
2.56
8.16
13.03
19.21
1,995
$
$
2014
566.3
152
3.60
1.12
0.75
86.4
77.3
74.0
72.0
2,370
2.92
15.80
4.74
3.08
13.22
19.39
2,125
Sustaining capital 100% (‘000s)
$
7,713
$
10,199
2015 versus 2014
In 2015, lower silver grades, partially offset by increased
throughput, led to a silver production decline of 9% as
compared to 2014, a result of a change in mine sequencing
made in early 2015 that targeted higher value higher copper
grade ore during the year. This increased throughput was
partially offset by the impact of intersecting unexpected water
in-flows in the high-value Esperanza copper-rich zones during
the last four months of 2015, an issue that has now been
resolved.
As a result of targeting the Esperanza copper-rich zones in 2015,
Morococha produced 8.2 thousand tonnes of copper, more than
twice that produced in 2014. The prioritization of copper-rich
zones negatively impacted 2015 production of lead and zinc
which were 46% and 28% less than in 2014, respectively, a
result of lower grades and recoveries.
Cash costs of $13.03 per ounce declined 1% as a result of
substantially lower unit operating costs per tonne driven by
benefits from the on-going mechanization efforts and increased
by-product credits per ounce from copper production. These
positive variances more than compensated for the 8% decline
in payable silver production and lower base metal prices.
2015 AISCSOS of $19.21 was $0.18 lower than $19.39 in 2014.
The slight year over year reduction was attributable to a 4%
decrease in production costs and a 24% reduction in sustaining
capital which more than offset the 6% decrease in the amount
of silver sold, and the 59% increase in TCRCs that resulted from
the higher treatment and refining costs associated with the
copper concentrate.
2015 versus 2015 Guidance
2015 silver production at Morococha was 6% lower than the
bottom end of management’s initial guidance range of 2.3
million to 2.4 million ounces. 2015 actual silver production
was the result of lower than initially planned silver grades due
to an early 2015 mine plan change to target a higher value
copper-rich zone in 2015. This in turn resulted in copper
production of 8.2 thousand tonnes, which was more than twice
the 3.5 thousand tonne high end of management’s initial 2015
forecast. This changed mine sequencing reduced lead and
zinc production below the low end of management’s original
forecasted ranges of between 4.2 thousand and 4.4 thousand
tonnes and between 14.5 thousand and 15.0 thousand
tonnes, respectively.
Actual 2015 cash costs of $13.03 per ounce were within our
forecast range of $12.75 to $14.25 per ounce. This positive
performance was attributable to the lower than expected
operating costs and high copper production more than
compensating for the lower than anticipated silver production
and deteriorated base metal prices that drove the decision to
change the mine sequencing early in the year.
21
2015 annual report 2015 AISCSOS of $19.21 was higher than management’s
forecast range of $16.00 to $17.50 AISCSOS, a result of lower
than anticipated quantities of silver sold, due to the change
in mine sequencing, and lower than expected base metal
prices which were only partially offset by lower than expected
production costs and higher copper production.
Sustaining capital expenditures at Morococha during 2015
totalled $7.7 million, which is consistent with management’s
guidance range of $6.0 to $8.0 million, and as expected 24%
lower than the $10.2 million spent in 2014. The planned year
over year reduction was the result of the vast majority of the
multi-year mine mechanization efforts being completed in
2014. The majority of the capital expenditures in 2015 were
on equipment refurbishments and replacements as well as
exploration drilling.
San Vicente mine (1)
Twelve months ended
December 31,
Tonnes milled – kt
Average silver grade – grams per
tonne
Average zinc grade – %
Average lead grade – %
Average silver recovery – %
Average zinc recovery – %
Average lead recovery – %
Production:
Silver – koz
Zinc – kt
Lead – kt
Cash cost per ounce net of
by-products(2)
AISCSOS (3)
$
$
Payable silver sold 100% - koz
2015
330.8
422
2.65
0.32
92.6
77.6
80.4
4,118
6.82
0.84
11.57
11.91
4,019
$
$
Sustaining capital 100%-(‘000s)
$
3,286
$
2014
316.0
417
2.37
0.19
93.2
78.2
81.9
3,949
5.84
0.50
13.16
13.78
4,177
3,415
(1) Production figures are for Pan American’s 95.0% share only, unless
otherwise noted.
(2) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(3) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
2015 versus 2014
San Vicente achieved record silver production in 2015, which
was 4%, higher than in 2014 due to higher throughputs which,
when combined with higher base metal grades also drove 17%
higher zinc production to 6.8 thousand tonnes, and 68% higher
lead production to 0.8 thousand tonnes.
2015 cash costs of $11.57 per ounce declined 12% aided by
lower royalties, due to lower metal prices, along with higher zinc
and lead by-product production, which were offset by the lower
by-product metal prices.
2015 AISCSOS decreased by 14% to $11.91 from $13.78 in 2014.
This decrease was primarily attributable to the lower royalty
costs and TCRCs that resulted from lower metal prices and
increased by-product credits, which more than offset a 4%
decrease in the number of silver ounces sold.
2015 versus 2015 Guidance
Attributable silver production in 2015 of 4.12 million ounces was
in line with management’s forecast range of 4.00 million to 4.15
million ounces with throughput rates, silver grades and recovery
rates all consistent with expectations. Higher than anticipated
base metal by-product grades resulted in 2015 zinc and lead
production both exceeding the high end of management’s
forecasted ranges between 6.0 thousand and 6.5 thousand
tonnes and between 0.5 thousand and 0.6 thousand tonnes,
respectively.
Actual cash costs of $11.57 per ounce of silver were consistent
with management’s forecasted range of $11.00 to $12.00 per
ounce with higher than expected base metal production and
lower than anticipated royalty costs compensating for the lower
than expected base metal prices.
2015 AISCSOS of $11.91 were lower than management’s
forecast range of between $12.25 and $13.25. The primarily
positive influences to 2015 AISCSOS were lower than expected
royalty costs, slightly higher than expected quantities of silver
sold, and slightly lower than forecasted sustaining capital
expenditures during the year.
Capital expenditures at San Vicente during 2015 totalled $3.3
million, which was $0.7 million lower than management’s
forecasted range of between $4.0 and $5.0 million, and
consistent with the $3.4 million incurred in 2014. Capital
spending in 2015 was primarily on mine infrastructure,
equipment overhauls, and mine site exploration.
Manantial Espejo mine
Tonnes milled – kt
Average silver grade – grams
per tonne
Average gold grade – grams
per tonne
Average silver recovery – %
Average gold recovery – %
Production:
Silver – koz
Gold – koz
Cash cost per ounce net
of by-products (1)
AISCSOS (2)
Payable silver sold – koz
Sustaining capital (‘000s)
$
$
$
Twelve months ended
December 31,
2015
774.9
158
3.31
91.6
95.1
3,583
77.32
7.33
18.81
3,655
$
$
2014
796.9
157
2.82
92.1
95.2
3,725
70.47
10.12
17.93
3,860
14,061
$
26,741
(1) Cash costs is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of this measure to our cost of sales.
(2) AISCSOS is a non-GAAP measure. Please refer to the “Alternative
Performance (non-GAAP) Measures” section of this MD&A for a detailed
description of the AISCSOS calculation and a reconciliation of this
measure to the 2015 Financial Statements.
22
pan american silver corp. 2015 versus 2014
Manantial Espejo produced 4% less silver in 2015 due to lower
throughput caused by a two-week shut-down of the open pit
operations in the second quarter of 2015. The mine achieved
record gold production during 2015 due to significantly higher
gold grades with the mine sequencing into the final mineralized
zone of the Maria open pit.
In 2015, cash costs at Manantial Espejo decreased by
28% compared to 2014 due to substantial productivity
improvements that drove unit operating costs per tonne lower,
while the 10% increase in gold production was mostly offset by
the 8% lower gold price.
2015 AISCSOS increased 5% to $18.81 from $17.93 in 2014,
due largely to production costs increases from an $18.0 million
increase in negative NRV adjustments to inventories, and a 5%
reduction in silver sales volumes which more than offset the
benefits of a 47% reduction in sustaining capital expenditures,
and a 5% increase in by-product credits with the significant
increase in gold production. Inventory NRV adjustments
increased production costs by $22.8 million in 2015 and
reduced production costs by $4.8 million in 2014.
2015 versus 2015 Guidance
2015 silver production at Manantial Espejo was 2% lower
than the bottom end of management’s forecasted range of
3.65 million to 3.80 million ounces due to throughput being
hampered by an unanticipated mid year two week shut down.
2015 gold production of 77.3 thousand ounces was 7% more
than the high end of management’s 2015 forecast of 69.0
thousand to 72.0 thousand ounces, a result of higher than
anticipated gold grades in the final ore zones of the Maria
open pit.
2015 cash costs of $7.33 per silver ounce were significantly
lower than the forecast range of $10.50 to $11.75 per ounce. The
main drivers for the lower than expected cash costs were higher
than expected by-product credits as higher than expected
gold production more than offset declining gold prices, and
lower than expected direct operating costs achieved from the
productivity improvements.
2015 AISCSOS of $18.81 was higher than management’s
forecast range of between $13.80 and $15.05, and this was
mainly due to an unexpected $22.8 million in negative NRV
adjustments which added $6.24 per ounce to 2015 AISCSOS,
and more than offset the benefits of reduced direct operating
costs and higher than planned gold production.
Sustaining capital expenditures at Manantial Espejo during
2015 totalled $14.1 million, consistent with the forecasted range
of $12.0 to $14.0 million and significantly lower than the $26.7
million spent in 2014. The year over year decrease was due to
the anticipated reduction in pre-stripping activities. The 2015
sustaining capital expenditures were primarily for open pit pre-
stripping and exploration drilling.
2015 PROJECT DEVELOPMENT UPDATE
The following table reflects the amounts spent at each of
Pan American’s significant projects in 2015 as compared to
2014. Our accounting policies determine which portion of the
amounts spent at our projects is capitalized and which portion
is expensed during the period.
Project Development Investment
(thousands of USD)
La Colorada Expansion (1)
Dolores Projects (1)
Navidad (2)
Total
2015
2014 (1)
$
$
$
$
48,601
25,093
6,827
80,521
$
$
$
$
19,615
20,607
4,437
44,659
(1) Previously reported Project Capital Spending amounts for the year
ended 2014 were $17.9 million for the La Colorada Expansion, and $17.3
million for the Dolores Projects, and represented outflows of cash relating
to the projects in 2014. The Project Development Investment amounts
presented in the table above represent total investments made on the
projects on an accrual basis during 2015 and 2014.
(2) Development spending at Navidad is expensed as incurred which will
continue until such time that a change in circumstances regarding the
project warrant project costs being capitalized.
• La Colorada Expansion Project
During 2015, $48.6 million was invested in the La Colorada
expansion project comprised primarily of: (i) purchasing
of new process equipment, engineering, and construction
of the new sulphide plant; (ii) raise boring of the new shaft,
commencement of shaft sinking, and installation of the new
hoist; (iii) initial permitting work related to a new 115 kV
powerline; (iv) underground mine development in support of
the future increased production levels; and (v) development of
project site infrastructure required for the expansion.
There were $0.4 million less in investing activity cash outflows
relating to the expansion project in 2015 resulting from changes
in accounts payable (2014, $1.7 million less).
The following progress on the La Colorada expansion project
was achieved during 2015:
• Construction of the new sulphide plant commenced in April
and progressed as scheduled.
• All of the major pieces of process equipment for the plant
arrived at site for installation by year-end, and mechanical
installation was well advanced with the construction of the
plant approximately 70% complete by year-end.
• Some challenging ground conditions were overcome in the
raise boring of the 617-meter shaft, which was completed
in early November, with the top portion of the shaft
subsequently being remotely shotcreted as a means of
temporary ground support.
• By the end of 2015, the top 30 metres of the shaft had been
sunk and partially concrete-lined, allowing the suspension of
the pre-fabricated Galloway work platform structure in the
shaft. As of year-end, the shaft and hoisting plant portion of
the project was approximately 50% complete.
• Fabrication of the headframe continued on schedule and
the headframe was delivered to the site. In addition, the
permanent double-drum hoist was installed in early 2015.
• Negotiations with the local power authorities and land
owners continued on schedule for the new 115 kV powerline.
• Construction of the new substation at Chalchihuites
commenced, with environmental approvals for the
construction of the powerline awaiting approval by the
regulatory authorities.
23
2015 annual report • 2,107 metres of underground mine development was
completed during the year.
The Company anticipates that the construction and
commissioning of the new headframe, sinking winches, and
hoist will begin in Q1 2016, which will be used to outfit the
remaining shaft length from the top down with concrete lining,
shaft steel and services. Pan American expects that the new
shaft will be fully commissioned by year-end 2016.
The Company will also advance the necessary underground
development during 2016 to prepare new areas for production
in order to ramp up ore production in late 2016 and beyond as
anticipated in the original schedule. In addition, the Company
is making provisions to provide necessary temporary power
supplies, with the anticipated completion of the new 115 kV
power line by early 2017.
Overall, the La Colorada expansion is advancing on-budget and
Pan American anticipates overcoming the three-month delay
in the shaft excavation that occurred during 2015 due to the
challenging ground conditions encountered in the shaft raise
boring. The project remains on schedule to reach the planned
1,800 tpd ore production rate by the end of 2017.
• Dolores Projects
During 2015, the Company invested $25.1 million in
Dolores projects comprised primarily of: (i) $11.5 million for
construction of a new power line; (ii) $5.3 million to advance the
new underground ramp decline; and (iii) $5.7 million on the new
pulp agglomeration plant. Additional capital work on the leach
pads, including the installation of a new permanent conveyor,
was completed in 2016 constituting the balance of the
capital expenditures.
There was an additional $2.9 million of investing activity cash
outflows relating to Dolores projects in 2015 resulting from
changes in accounts payable during the year (2014, $3.4
million less).
The Company successfully completed the right of way
agreements for the new 115 kV line in the first quarter of 2015,
and an agreement for the construction of the new line was
negotiated with a Chihuahua based company. The necessary
environmental permit relating to the line was obtained, and the
installation of the new 115 kV line advanced during 2015. The
powerline installation was approximately 74% complete by year-
end and remains on budget and on schedule for an anticipated
commissioning by mid-year 2016.
Underground ramp development advanced a total of 866
metres from the portal to the face as of year-end, with an
additional 110 metres developed on auxiliary headings during
2015. The Company anticipates advancing the underground
mine developments to intersect the main ore body, installing
the first ventilation raise, commencing lateral development,
and performing initial stope definition drilling during 2016 in
accordance with the project schedule.
Engineering and procurement for the pulp agglomeration
plant proceeded as planned. An environmental assessment
document relating to the new plant was prepared and submitted
to the authorities in December 2015. The Company anticipates
completing engineering, continuing with the procurement of all
major equipment, and beginning ground-breaking excavations for
the new pulp agglomeration plant during the first half of 2016.
Overall, the Dolores expansion project is on budget and the
Company anticipates meeting a scheduled start-up of the
pulp agglomeration plant by mid-2017, while ramping up
underground operations to the full 1,500 tpd design capacity by
the end of 2017.
Apart from the expansion project, the projects team has also
initiated the next phase of the leach pad sustaining capital
expansion at Dolores, which is scheduled for completion by mid-
year 2016 and will provide an additional 18 million tonnes of ore
stacking capacity on Leach Pad 3.
OVERVIEW OF 2015 FINANCIAL RESULTS
• Selected Annual and Quarterly Information
The following tables set out selected quarterly results for the
past twelve quarters as well as selected annual results for the
past three years, which are stated in thousands of USD, except
for the per share amounts. The dominant factors affecting
results in the quarters and years presented below are volatility
of metal prices realized, industry wide cost pressures, and the
timing of the sales of production which varies with the timing
of shipments. The fourth quarter of 2015 included impairment
charges to Morococha, Dolores, and Alamo Dorado, while the
third quarter of 2015 included impairment charges to Manantial
Espejo. The fourth quarter of 2014 included impairment charges
related to Dolores, Manantial Espejo, Alamo Dorado and certain
exploration and development properties, including Navidad. The
fourth quarter of 2013 included impairment charges to Dolores,
and the second quarter of 2013 included impairment charges to
Dolores and certain exploration and development properties.
24
pan american silver corp. 2015 (in thousands of USD, other
than per share amounts)
Revenue
Mine operating earnings (loss)
Attributable loss for the period
Basic loss per share
Diluted loss per share
Cash flow from operating activities (1)
Cash dividends paid per share
Other financial information
Total assets
Total long term financial liabilities
Total attributable shareholders’ equity
Quarters Ended (unaudited)
Year Ended
March 31 (1)
June 30
Sept 30
Dec 31
Dec 31
$
$
$
$
$
$
$
178,125
2,630
(19,371)
(0.13)
(0.13)
11,848
0.125
$
$
$
$
$
$
$
174,189 $
159,414
(952) $
(25,996)
(7,322) $
(67,048)
(0.05) $
(0.05) $
(0.44)
(0.44)
20,577 $
32,866
0.05 $
0.05
$
$
$
$
$
$
$
162,960 $
674,688
(7,771) $
(32,089)
(132,909) $
(226,650)
(0.88) $
(0.88) $
23,401 $
0.05 $
(1.49)
(1.49)
88,692
0.275
$
$
$
1,715,037
114,354
1,297,222
(1) During the second quarter of 2015 it was determined that certain unrealized gains and losses relating to outstanding commodity contracts were
incorrectly included in cash flow from operating activities for the three months ended March 31, 2015 (“Q1 2015”), as such Q1 2015 operating cash
flows have been revised from those previously reported. The effect of this correction was a $98 thousand decrease to the $11.9 million previously
reported Q1 2015 operating cash flows.
2014 (in thousands of USD, other
than per share amounts)
Revenue
Mine operating earnings (loss)
Attributable earnings (loss) for the period
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long term financial liabilities
Total attributable shareholders’ equity
2013 (in thousands of USD, other
than per share amounts)
Revenue
Mine operating earnings
Attributable earnings (loss) for the period
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long term financial liabilities
Total attributable shareholders’ equity
Quarters Ended (unaudited)
Year Ended
March 31
June 30
Sept 30
Dec 31
Dec 31
209,734
31,576
6,844
0.05
0.05
36,125
0.125
$
$
$
$
$
$
$
200,847 $
178,265
10,245 $
(12,378)
(5,472) $
(20,254)
(0.04) $
(0.04) $
(0.13)
(0.15)
48,895 $
38,345
0.125 $
0.125
$
$
$
$
$
$
$
163,096 $
751,942
(21,369) $
8,073
(526,706) $
(545,588)
(3.48) $
(3.48) $
(3.60)
(3.60)
823 $
124,188
0.125 $
0.50
$
$
$
2,017,873
79,823
1,563,092
Quarters Ended (unaudited)
Year Ended
March 31
June 30
Sept 30
Dec 31
Dec 31
243,012
74,816
$
$
175,576 $
213,556
3,814 $
33,934
20,148
$ (186,539) $
14,154
0.13
0.10
32,251
0.125
$
$
$
$
(1.23) $
(1.23) $
0.09
0.09
469 $
40,730
0.125 $
0.125
$
$
$
$
$
$
$
192,360 $
824,504
18,955 $
131,519
(293,615) $
(445,851)
(1.94) $
(1.94) $
(2.94)
(2.96)
46,156 $
119,606
0.125 $
0.50
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,767,456
110,088
2,182,334
25
2015 annual report •
Income Statement, 2015 annual vs. 2014 annual:
A net loss of $231.6 million was recorded in 2015 compared to
a net loss of $544.8 million in 2014, which corresponds to basic
losses per share of $1.49 and $3.60, respectively.
The following table highlights the key items that resulted in the
net loss for the year ended December 31, 2015, differing from
the net loss for the year ended December 31, 2014:
Net loss, year ended December 31, 2014 (in thousands of USD)
$
(544,823)
Decreased revenue:
Lower realized metal prices
Higher quantities of metal sold
Increased settlement adjustments
Increased treatment and refining charges
Total decrease in revenue
Decreased cost of sales:
Lower production costs and royalty charges
Higher depreciation and amortization
Total decrease in cost of sales
Decreased impairment charges
Decreased exploration and project development expense
Decreased interest and finance expense
Decreased foreign exchange loss
Decreased income tax recovery
Increased other expense and investment income, net
Increased net loss on commodity contracts, asset sales and derivatives
Increased general and administrative expense
Net loss, year ended December 31, 2015
The $313.3 million year over year decrease to net losses is
primarily attributable to the $392.7 million decrease in net
of tax impairment charges, which was partially offset by the
$77.3 million decline in revenue from 2014, both of which are
described in detail below.
Revenue for the year ended December 31, 2015 was $674.7
million, a 10% decrease from the $751.9 million of revenue
recognized in 2014. The major factors behind the revenue
decrease were: (i) a $128.9 million price variance from
lower metal prices realized for all metals; (ii) a $9.4 million
increase in negative settlement adjustments; and (iii) a $4.4
million increase in treatment and refining charges. Offsetting
these revenue effects was a positive $65.4 million variance
from higher quantities of gold and copper sold, net of lower
quantities of other metals sold.
$
(128,901)
65,442
(9,407)
(4,388)
$
40,227
(3,135)
$
(77,254)
37,092
445,994
1,285
287
271
(88,295)
(3,827)
(2,167)
(119)
$
(231,556)
The following table reflects the metal prices that the Company
realized, and the quantities of metal sold during each year.
During 2015, the Company sold 20% more ounces of gold and
73% more tonnes of copper than in 2014 due to record annual
gold and copper production. The Company’s 2015 average
realized prices for silver and gold declined 16% and 8% from
2014, respectively. Pan American received an average of $15.53
per ounce of silver and $1,162 per ounce of gold in 2015. The
Company received $1,889 per tonne of zinc in 2015, which is
13% less than in 2014, $1,745 per tonne of lead in 2015, which
is 16% less than in 2014, and $5,314 per tonne of copper in
2015, which is 22% less than in 2014. These realized prices are
inclusive of negative settlement adjustments on concentrate
sales totaling approximately $9.4 million.
Silver (1) – koz
Gold (1) – koz
Zinc (1) – kt
Lead (1) – kt
Copper (1) – kt
Realized Metal Prices
Year ended December 31,
Quantities of Metal Sold
Year ended December 31,
2015
15.53
1,162
1,889
1,745
5,314
$
$
$
$
$
$
$
$
$
$
2014
18.53
1,268
2,160
2,085
6,825
2015
25,180
190.2
34.7
13.5
12.8
2014
25,431
158.1
37.5
14.1
7.4
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper.
26
pan american silver corp. Mine operating losses for the year ended December 31, 2015
were $32.1 million, a $40.2 million deterioration from mine
operating earnings of $8.1 million earned in the year ended
December 31, 2014. Mine operating losses are equal to revenue
less cost of sales, which is considered to be substantially the
same as gross margin. The year over year decrease was largely
the result of the previously discussed $77.3 million decrease
in revenues.
Offsetting the decreased revenues was a $36.2 million decrease
in production costs, driven largely from reductions in labour
and consumable raw materials costs, particularly at the Huaron
and Alamo Dorado mines, aided by favorable exchange rate
changes; and lower negative NRV inventory adjustments in the
year. There was $19.1 million less of negative NRV adjustments
in 2015 compared to 2014, the combined impact of a $34.7
million positive variance at Dolores (which had positive
NRV adjustments of $11.4 million in 2015 and negative NRV
adjustments of $23.3 million in 2014), which is partially offset
by an $18.0 million negative variance at Manantial Espejo
(which had negative NRV adjustments of $22.8 million in 2015
and negative adjustments of $4.8 million in 2014). Offsetting
these reductions to production costs were increased production
costs at Dolores mine driven by year over year increases in
throughput and quantities of metals sold.
2015 royalties of $23.9 million were $4.1 million lower than
those in 2014, a result of the year over year declines in metal
prices discussed above. Depreciation and amortization of
$150.8 million and $147.7 million was comparable for the years
ended December 31, 2015 and 2014, respectively, changing 2%.
Impairments of mineral property plant and equipment assets
and goodwill of $150.3 million pre-tax ($106.0 million net of
tax) in 2015 compared to the pre-tax non-cash impairments of
$596.3 million ($498.7 million net of tax) recorded in 2014. As
described below, the impairments were determined in relation
to certain assets of the Company, and where applicable were
allocated pro-rata amongst: depletable and non-depletable
mineral property; exploration and evaluation property; and plant
and equipment assets. The total 2015 pre-tax impairment of
$150.3 million (2014, $596.3 million) was comprised of total
impairments of: $90.4 million to depletable mineral properties
(2014, $142.3 million); $14.6 million to non-depletable mineral
properties (2014, $72.0 million); $nil to exploration and
evaluation property (2014, $310.6 million); $45.3 million to
plant and equipment assets (2014, $67.3 million); and $nil to
goodwill (2014, $4.1 million).
The following table summarizes the before and after tax
impairment charges taken on the Company’s mineral property
assets in 2015 and 2014:
Mine assets:
Morococha mine
Dolores mine (1)
Manantial Espejo mine
Alamo Dorado mine
Total mine assets
Development properties:
Navidad property
Minefinders exploration properties (1)
Pico Machay property
Total development properties
Total
December 31, 2015
December 31, 2014
(millions)
(millions)
Pre-tax
Net of tax
Pre-tax
Net of tax
$
$
$
$
$
80.7
$
59.1
$
-
$
31.7
28.8
9.1
20.7
20.2
6.0
170.6
23.7
76.7
150.3
$
106.0
$
271.0
$
-
-
-
-
150.3
$
$
$
-
-
-
-
106.0
$
$
$
286.1
$
34.4
4.8
325.3
596.3
$
$
-
110.8
17.7
55.9
184.4
286.1
23.4
4.8
314.3
498.7
(1) The 2014 Exploration asset impairment includes a $4.1 million write-down to related goodwill.
The decrease in metal prices was most pronounced during
the second half of 2015 and led to the Company lowering its
price assumptions used to estimate long-term reserves at
year-end. As a result of the year-end reserve price reduction
and observed declines in near-term and mid-term consensus
metal prices referenced in the Company’s life of mine cash flow
models, management concluded that there was an indication of
impairment to certain assets in the third and fourth quarter of
2015. Based on the Company’s estimation of the recoverable
amounts of its mineral properties as at September 30, 2015,
and December 31, 2015, determined on a fair value less costs
to sell basis, the Company concluded that impairment charges
were required during the year in respect of the Dolores, Alamo
Dorado, Morococha, and Manantial Espejo mines.
The Company’s key assumptions for each impairment
test included the most current operating and capital costs
information and risk adjusted project specific discount rates.
The Company used a median of analysts’ consensus pricing for
the first four years of its economic modeling for impairment
purposes, and long-term reserve prices for the remainder
of each asset’s life. The prices used can be found in the key
assumptions and sensitivity section below.
As at December 31, 2015, the Company determined that
the $434.3 million net carrying amount of the Dolores mine,
including mineral properties, plant and equipment, and
stockpile inventories, net of associated deferred tax assets
and closure and decommissioning liabilities (the “Net Carrying
Amount”), was greater than its then estimated recoverable
amount of $413.6 million when using a 5.25% risk adjusted
discount rate. Based on the assessment at December 31, 2015,
the Company recorded a further impairment charge related to
the Dolores mine of $31.7 million before tax ($20.7 million net
of tax).
27
2015 annual report As at December 31, 2015, the Company determined that the
$12.9 million Net Carrying Amount of the Alamo Dorado mine,
was greater than its then estimated recoverable amount of $nil
when using a 4.00% risk adjusted discount rate. Based on this
assessment, the Company wrote–off the carrying value of the
Alamo Dorado mine’s mineral property, plant and equipment
assets included in the impairment charge of $9.1 million before
tax ($6.0 million net of tax).
As at December 31, 2015, the Company determined that the
$112.4 million Net Carrying Amount of the Morococha mine,
was greater than its then estimated recoverable amount of
$36.3 million when using a 6.50% risk adjusted discount rate.
Based on the assessment at December 31, 2015, the Company
recorded an impairment charge related to the Morococha mine
of $80.7 million before tax ($59.1 million net of tax).
As at September 30, 2015, the Company determined that
the Net Carrying Amount of the Manantial Espejo mine of
approximately $83.4 million was greater than its then estimated
recoverable amount of $29.9 million, when using an 8.25% risk
adjusted discount rate. Based on this assessment, the Company
recorded an impairment charge related to the Manantial Espejo
mineral property, plant and equipment assets of $28.8 million
before tax ($20.2 million net of tax).
Similarly, primarily due to the sustained decrease in metal
prices that began during the third quarter and continued
through the balance of 2014, the Company concluded that
impairment indicators existed and ultimately impairments were
required as of December 31, 2014.
Metal prices used at December 31, 2015
In the fourth quarter of 2014, the Company lowered the metal
prices assumed in its reserve and resource estimates and its life
of mine cash flow models which ultimately lead to a conclusion
that a total impairment charge of $596.3 million ($498.7
million, net of tax) was required, made up of impairments on the
Dolores, Alamo Dorado, Manantial Espejo and Navidad assets,
as well as certain other exploration properties and goodwill. The
pre and post-tax impairments relating to each of these assets
is summarized in the table above. Impairments were allocated
pro-rata amongst: depletable and non-depletable mineral
property; exploration and evaluation property; and, plant and
equipment assets. The total 2014 pre-tax impairment was
comprised of: $142.3 million to depletable mineral properties;
$72.0 million to non-depletable mineral properties; $310.6
million to exploration and evaluation property; and, $67.3
million to plant and equipment assets. For the purposes of
the December 31, 2014 impairment review, the Company’s
key assumptions included the most current information on
operating and capital costs, and the metal price assumptions
summarized in the “Key assumptions and sensitivity”
section below.
Key assumptions and sensitivity
The metal prices used to calculate the recoverable amounts
at December 31, 2015, September 30, 2015 and December
31, 2014 are based on analyst consensus prices and the
Company’s long-term reserve prices, and are summarized
in the following tables:
Commodity Prices
2016
2017
2018
2019
Consensus Prices
Silver - $/oz.
Gold - $/oz.
Zinc - $/tonne
Copper - $/tonne
Lead - $/tonne
$
$
$
$
$
16.01
1,156
2,026
5,219
1,836
Metal prices used at September 30, 2015
Commodity Prices
Silver - $/oz.
Gold - $/oz.
2015
16.17
1,183
$
$
Metal prices used at December 31, 2014
Commodity Prices
2015
Silver - $/oz.
Gold - $/oz.
Zinc - $/tonne
Copper - $/tonne
Lead - $/tonne
$
$
$
$
$
18.31
1,253
2,376
6,856
2,211
$
$
$
$
$
$
$
$
$
$
$
$
16.78
1,174
2,224
5,528
1,949
$
$
$
$
$
17.11
1,192
2,341
5,926
1,943
Consensus Prices
2016
16.35
1,183
2017
17.35
1,201
$
$
Consensus Prices
2016
2017
18.72
1,270
2,530
7,048
2,296
$
$
$
$
$
19.51
1,271
2,592
7,443
2,327
$
$
$
$
$
$
$
$
$
$
$
$
17.56
1,214
2,465
6,087
2,011
2018
18.06
1,227
2018
19.59
1,270
2,194
6,637
2,068
Long Term
Prices
17.00
1,180
1,800
5,000
1,800
Long Term
Prices
18.50
1,250
Long Term
Prices
18.50
1,250
2,000
6,800
2,000
$
$
$
$
$
$
$
$
$
$
$
$
28
pan american silver corp. The Company assesses impairment, when events or changes
in circumstances indicate that the related carrying value
may not be recoverable at the cash-generating unit level
(“CGU”), which is considered to be individual mine sites or
development properties. The discount rates used to present
value the Company’s life of mine cash flows are derived from
the Company’s weighted average cost of capital which was
calculated as 6.4% for 2015 (2014 – 7.5%), with rates applied to
the various mines and projects ranging from 4.00% to 10.00%
depending on the Company’s assessment of country risk,
project risk, and other potential risks specific to each CGU.
The key assumptions in determining the recoverable value of
the Company’s mineral properties are metal prices, operating
and capital costs, foreign exchange rates and discount rates.
At December 31, 2015, the Company performed a sensitivity
analysis on all key assumptions that assumed a negative 10%
change to each individual assumption while holding the other
assumptions constant.
At December 31, 2015, an adverse 10% movement in any of the
major assumptions in isolation did not cause the recoverable
amount to be equal to the CGU carrying value for any of La
Colorada, San Vicente and Huaron. At December 31, 2014,
some of these factors did affect the Huaron mine; however,
improvements in operating costs more than offset the decline
in metal prices experienced. In 2014, any of the following in
isolation would have caused the estimated recoverable amount
of the Huaron property to be equal to the December 31, 2014
CGU carrying value of $72.0 million: a 2% decrease in the long
term silver price, a 4% decrease in the long term zinc price; a
6% decrease in the long term lead price; a 9% decrease in the
long term copper price; a 1% increase in operating costs;
a 4% appreciation of the Peruvian sol; or an 8% increase in
capital expenditures.
In the case of the Dolores mine, the Alamo Dorado mine, the
Manantial Espejo mine, the Morococha mine, the Navidad
project and certain non-core exploration properties, which all
have had their carrying values adjusted to fair value less cost to
sell through impairment charges, a modest decrease in any one
key assumption would reduce the recoverable amount below
the carrying amount.
G&A expenses including share-based compensation expenses
for the years ended December 31, 2015 and 2014 were $18.0
million and $17.9 million, respectively. The comparable G&A
amounts in each year was the net result of increased year over
year CAD denominated corporate costs, particularly relating
to non-recurring termination of services payments, which was
offset by the devaluation of the Canadian dollar in the year.
Share-based compensation included in 2015 G&A totalled $2.6
million, comparable to the $2.5 million included in 2014 G&A.
Exploration and project development expenses for the year
ended December 31, 2015 were $11.9 million, which was a $1.3
million decrease compared to the $13.2 million expense in
2014. Both 2015 and 2014 exploration and project development
expenditures were primarily related to activities near the
Company’s existing mines, at select greenfield projects, and on
the holding and maintenance costs associated with the Navidad
project, where approximately $6.8 million was spent in 2015
compared to approximately $4.4 million in 2014.
Foreign exchange (“FX”) losses for the year ended December
31, 2015 were $13.0 million comparable to the $13.3 million of
losses incurred in 2014. The compared losses in each year is
largely the net result of FX losses on Mexican Peso (“MXN”) and
on CAD denominated treasury balances. The MXN devalued
approximately 24% during 2015 compared to an approximate
6% decline in 2014. Although the approximate 21% devaluation
of the CAD in 2015 was much higher than the approximate
11% devaluation in 2014, the 2015 losses were lower due to the
Company holding approximately 74% less CAD denominated
treasury balances in 2015 than in 2014.
Investment income for the year ended December 31, 2015
totalled $2.5 million, comparable to $2.8 million in 2014, and
continued to consist mainly of interest income and net gains
from the sale of securities within the Company’s short-term
investment portfolio.
Interest and finance expense for the year ended December
31, 2015 was $8.5 million, which was $0.2 million less than the
$8.7 million recorded for the year ended December 31, 2014.
The expenses were comprised of accretion of the Company’s
closure liabilities and interest and fees associated with the
revolving credit facility, short-term loans, leases and the
outstanding convertible notes. The comparable year over year
amounts were the net result of comparable accretion amounts
and decreased implied interest rate on loans payable, which
were offset by increased interest and finance fees attributable
to a new revolving credit facility that was established in
April 2015.
Income tax recovery for the year ended December 31, 2015
was $4.2 million, which was an $88.3 million decrease from
the $92.5 million annual recovery recorded in 2014. The 2015
and 2014 income tax recoveries were comprised of current and
deferred income taxes as follows:
29
2015 annual report 2015
2014
Current tax expense
Current tax expense in respect of the current year
$
18,079
$
Adjustments recognized in the current year with respect to prior years
Deferred tax recovery
Deferred tax recovery recognized in the current year
Adjustments recognized in the current year with respect to prior years
Adjustments to deferred tax attributable to changes in tax rates and laws
Reduction in deferred tax liabilities due to tax impact of impairment of
mineral property, plant, and equipment
Derecognition of previously recognized deferred tax assets
Reduction in deferred tax liabilities due to tax impact of net realizable
value charge to inventory
(2,225)
15,854
(14,241)
(1,747)
-
(44,512)
44,218
(3,771)
(20,053)
Income tax recovery
$
(4,199)
$
35,763
44
35,807
(20,199)
2,862
(2,876)
(97,541)
-
(10,547)
(128,301)
(92,494)
The decrease in income tax recovery from 2014 was primarily
a consequence of the decrease in the non-taxable portion
of impairment charges, and the derecognition of previously
recognized deferred tax assets, as well as the effects of
various temporary and permanent differences as shown in the
table below. These result in an effective tax rate that varies
considerably from the comparable period and from the amount
that would result from applying the Canadian federal and
provincial statutory income tax rates to earnings before income
taxes, as shown in the following table:
2015
2014
Loss before taxes
Statutory tax rate
Income tax recovery based on above rates
Increase (decrease) due to:
Non-deductible expenses
Foreign tax rate differences
Change in net deferred tax assets not recognized:
Argentina exploration expenses
Other deferred tax assets not recognized
Derecognition of deferred tax assets previously recognized
Non-taxable portion of net earnings of affiliates
Change to temporary differences
Non-taxable unrealized gains on derivative financial instruments
Effect of other taxes paid (mining and withholding)
Effect of foreign exchange on tax expense
Impact of Peruvian tax rate change
Effect of change in deferred tax resulting from prior asset purchase
accounting under IAS12
Impairment charges with no tax benefit
Other
Income Tax Recovery
Effective tax rate
$
$
(235,755)
26.00%
(61,296)
$
$
5,683
(17,626)
2,717
8,800
44,218
(4,915)
(1,767)
(72)
6,628
12,941
-
2,600
2,219
(4,329)
$
(4,199)
$
1.78%
(637,317)
26.00%
(165,702)
4,902
(61,445)
2,289
5,762
-
(4,915)
2,862
(350)
8,050
4,430
(2,876)
3,272
110,692
535
(92,494)
14.51%
In addition to the specific items noted below, the main factors
which affected the effective tax rate for the year ended
December 31, 2015 and the comparable period of 2014 were
the non-deductible foreign exchange losses, foreign tax rate
differences, mining taxes paid, and withholding tax on payments
from foreign subsidiaries.
As previously discussed in both 2015 and 2014, the Company
recorded non-cash impairment charges on several properties.
In 2015, the Company recorded impairment charges on non-
current assets at its Alamo Dorado, Manantial Espejo, Dolores,
and Morococha properties. A deferred tax benefit was recorded
on these impairment charges.
30
pan american silver corp.
In 2015, the Company determined that it could not support the
utilization of certain deferred tax assets related to the Alamo
Dorado, Manantial Espejo and Morococha properties. As a
result, a deferred tax expense of $44.2 million was recorded to
derecognize these assets.
In 2014, the Company recorded a non-cash impairment charge
on non-current assets on several properties, with no tax benefit
recognized on a substantial portion of the properties including
Navidad. A non-cash impairment charge was also recorded on
goodwill associated with the La Virginia property with no tax
benefit recognized.
The Company expects that these and other factors will continue
to cause volatility in effective tax rates in the future.
• Statement of Cash Flows, 2015 annual vs. 2014 annual:
Cash flow from operations for the year ended December 31,
2015 generated $88.7 million, which is $35.5 million less than
the $124.2 million generated in 2014. The operating cash
flow decrease was predominantly due to the decline in cash
revenue due to the previously discussed decline in metal prices.
Offsetting this decrease was a reduction of $19.2 million in
income taxes paid in 2015 compared to 2014, and an $8.2
million year over year increase in sources of cash from changes
in non-cash operating working capital accounts.
The net increase in sources of cash from non-cash working
capital movements arose on changes in trade and other
receivables balances (“Receivables”), accounts payable and
accrued liability balances (“Payables”), and inventory balances.
Receivables changes in 2015 resulted in a $27.5 million source
of cash, $20.1 million more than the $7.4 million source of
cash in 2014. Similarly, inventory balance changes resulted
in a $23.4 million cash flow source in 2015, $12.1 million more
than the $11.3 million source in 2014. The year over year cash
flow increases were partially offset by changes in Payables,
which were an $18.4 million increased cash flow used in 2015
compared to 2014.
Investing activities utilized $52.4 million for the year ended
December 31, 2015, inclusive of $91.3 million generated on
net sales of short-term investments. Other investing activities
for the period consisted primarily of $146.7 million on mineral
properties, plant and equipment investments. 2014 investing
activities used $143.2 million, inclusive of $13.5 million used on
net purchases of short-term investments, and $131.8 million
spent on mineral properties, plant and equipment at the
Company’s various operations and projects.
Financing activities in 2015 used $47.8 million, 43% less than
the $83.9 million for the year ended December 31, 2014. Cash
used in financing activities during 2015 consisted of $41.7
million paid as dividends, $34.1 million less than the $75.8
million paid in 2014. The $36.2 million repayment of convertible
debentures in the fourth quarter was offset by a corresponding
$36.2 million draw on the revolving credit facility. In 2015
there were $7.5 million of lease repayments and $2.0 million
generated from additional short-term debt proceeds, compared
to $5.3 million in lease payments and $2.4 million was spent on
short-term debt repayment (net of proceeds) in 2014.
•
Income Statement: Q4 2015 versus Q4 2014
A net loss of $137.0 million was recorded in Q4 2015 compared
to a net loss of $525.7 million in Q4 2014, which corresponds to
basic losses per share of $0.88 and $3.48 in Q4 2015 and Q4
2014, respectively.
The following table highlights the key items driving the
difference between the net loss in Q4 2015 as compared to the
net loss recorded in Q4 2014:
Net loss, three months ended December 31, 2014 (in thousands of USD)
$
(525,727)
Decreased revenue:
Lower realized metal prices
Higher quantities of metal sold
Increased settlement adjustments
Increased treatment and refining charges
Total change in revenue
Decreased cost of sales:
Lower production costs and royalty charges
Lower depreciation and amortization
Total decrease in cost of sales
Decreased impairment charges
Decreased exploration and project development expense
Increased investment income and other expense, net
Decreased foreign exchange loss
Decreased income tax recovery
Increased general and administrative expense
Increased net loss on commodity contracts, asset sales and derivatives
Increased interest and finance expense
Net loss, three months ended December 31, 2015
$
(24,237)
31,086
(6,149)
(836)
12,158
1,576
$
(136)
13,734
474,750
1,958
1,967
515
(97,278)
(2,839)
(2,650)
(1,252)
$
(136,958)
31
2015 annual report The $388.8 million quarter over quarter decrease to net losses
is primarily attributable to the $412.9 million decrease in
impairment charges, net of tax.
Revenue for Q4 2015 was $163.0 million, which is similar to the
$163.1 million of revenue recognized in Q4 2014. The consistent
quarter over quarter revenue was primarily the result of higher
quantities of all metals sold having a positive $31.1 million
variance on quarter over quarter revenue, offsetting both a
$24.2 million negative variance from lower metal prices realized
for all metals sold and a $6.1 million increase in negative
settlement adjustments.
The following table reflects the metal prices realized by the
Company and the quantities of metal sold during each quarter:
Silver (1) – koz
Gold (1) – koz
Zinc (1) – kt
Lead (1) – kt
Copper (1) – kt
Realized Metal Prices
Quantities of Metal Sold
Three months ended December 31,
Three months ended December 31,
2015
2014
2015
2014
$
$
$
$
$
14.66
1,109
1,672
1,684
4,871
$
$
$
$
$
15.70
1,205
2,233
1,960
6,621
6,719
47.3
10.2
3.7
3.4
6,353
35.7
8.5
3.5
2.3
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper,
inclusive of final settlement adjustments on concentrate sales.
Realized prices for all metals sold decreased from those
realized in Q4 2014. Copper, zinc and lead experienced the most
significant decreases, falling 26%, 25% and 14%, respectively,
while quarter over quarter gold and silver prices decreased 8%
and 7%, respectively. The decline in prices was also the primary
driver in the increased negative settlement adjustments.
The most significant sales volumes impact on quarter over
quarter revenues were from gold, copper, and silver sales which
increased 32%, 48% and 6%, respectively.
Mine operating losses of $7.8 million in Q4 2015 were $13.6
million lower than the $21.4 million of mine operating losses
recorded in Q4 2014. With comparable revenues in Q4 2014
and Q4 2015 the quarter over quarter decline in mine operating
losses was the result of decreases to cost of sales. Q4 2015
production costs of $127.9 million were $12.8 million lower
than the $140.7 million in Q4 2014. The production cost
decline was largely from quarter over quarter labour and
consumable raw materials cost reductions at certain mines,
particularly at Manantial Espejo and Alamo Dorado, which also
experienced lower quarter over quarter quantities of metal
sold. Mine operating results in both periods were adversely
impacted by negative NRV adjustments to inventories, which
increased production costs by $5.0 million and $2.2 million in
Q4 2015 and Q4 2014, respectively. Q4 2015 royalties remained
relatively consistent with those in Q4 2014, as did depreciation
and amortization of $36.9 million in Q4 2015 compared to
$38.5 million Q4 2014.
Exploration and project development expenses of $2.3 million
in Q4 2015 compared to the $4.3 million incurred in Q4 2014.
The expenses recorded in each quarter primarily related
to exploration and project development activities near the
Company’s existing mines, at select greenfield projects, and
on the holding and maintenance costs associated with the
Navidad project, where approximately $0.9 million was spent
in 2015 compared to approximately $1.7 million in 2014. During
Q4 2015 there were no significant developments affecting the
status of the Navidad project.
G&A expense, including share-based compensation expense,
was $5.9 million in Q4 2015 compared to a $3.1 million
expense recorded in Q4 2014. The $2.8 million increase was
driven largely by increased payroll and salary costs relating to
certain annual bonuses and non-recurring payments, which
were partially offset by the devaluation in the CAD from Q4
2014 to Q4 2015, as a large portion of G&A expenses are CAD
denominated. Share-based compensation was $0.1 million in
Q4 2015 compared to the $0.5 million in Q4 2014.
Impairments of mining assets during Q4 2015 were $121.5
million before tax ($85.4 million net of tax) compared to
Q4 2014 pre-tax impairments of $596.3 million ($498.7
million net of tax). The Q4 2015 impairments related to the
previously discussed 2015 impairments, with the exception
of the Manantial Espejo impairment which occurred in the
third quarter of the year. All of the previously discussed 2014
impairments occurred in the fourth quarter of 2014.
Foreign exchange losses for the quarter ended December 31,
2015 were $4.0 million, $0.5 million less than the $4.5 million
of losses incurred in Q4 2014. The decreased loss was primarily
the result of decreased quarter over quarter losses on CAD
denominated treasury balances. With similar CAD devaluation
in Q4 2015 and Q4 2014 of approximately 5%, the decreased
quarter over quarter loss was due to the Company holding
approximately 80% less CAD denominated treasury in Q4 2015
compared to Q4 2014.
Investment income for Q4 2015 totaled $1.4 million compared
to $0.6 million in Q4 2014 and continued to consist mainly of
interest income and net gains from the sale of securities within
the Company’s short-term investment portfolio.
Interest and finance expense for Q4 2015 was $2.5 million as
compared to $1.3 million in Q4 2014, and consisted of accretion
of the Company’s closure liabilities and interest expense
associated with the revolving credit facility, short-term loans,
leases and the outstanding convertible notes. The increase in
Q4 2015is attributable to the new revolving credit facility that
was established in April 2015.
Income tax recovery during Q4 2015 was $8.0 million compared
to $105.3 million in Q4 2014. The main factors which impacted
the effective tax rates for Q4 2015 versus the expected
statutory rate were similar to those described above for the full
year 2015. The primary reasons for the change in the quarter
over quarter recovery were the tax impact of impairment
charges and the derecognition of previously recognized
deferred tax assets.
32
pan american silver corp. • Statement of Cash Flows: Q4 2015 versus Q4 2014
Cash flow from operations in Q4 2015 generated $23.4 million,
significantly more than the $0.8 million generated in Q4 2014.
The $22.6 million increase in quarterly operating cash flows
was primarily the result of a $15.0 million quarter over quarter
increase in operating cash flows before payments on interest
and taxes, and working capital movements, which in turn were
largely due to reduced cash production costs. The increased Q4
operating cash flows were further benefited by a $4.5 million
reduction to income taxes paid, along with an additional $2.2
million quarter over quarter increase in sources of cash from
changes in non-cash operating working capital accounts.
The net increase in sources of cash from non-cash working
capital movements arose on changes to Receivables, Payables,
and inventory balances Receivables changes in Q4 2015
resulted in a $20.0 million source of cash, $19.3 million more
than the $0.8 million source of cash in Q4 2014. Similarly,
inventory balance changes resulted in a $6.6 million cash flow
source in 2015, $6.0 million more than the $0.6 million source in
Q4 2014. The year over year cash flow increases were partially
offset by changes in Payables, which were a $23.7 million
increased cash flow use in Q4 2015 compared to Q4 2014.
Investing activities utilized $35.0 million in Q4 2015, inclusive of
$18.2 million generated on the sale of short-term investments.
The balance of Q4 2015 investing activities consisted primarily
of spending $53.7 million on mineral property, plant and
equipment at the Company’s mines and projects as previously
described in the “Operating Performance” section of this MD&A.
In Q4 2014, investing activities generated $6.4 million inclusive
of $33.7 million generated on the net sale of short-term
investments, and $30.1 million spent on mineral property, plant
and equipment additions at the Company’s various operations
and projects.
Financing activities in Q4 2015 used $8.6 million compared
to $20.9 million in Q4 2014. Cash used in financing activities
in Q4 2015 consisted of $7.6 million paid as dividends to
shareholders, $0.4 million used for short-term debt repayment
(net of proceeds), and $0.6 million of lease repayments. In
Q4 2014 $18.9 million of dividends were paid, $0.4 million
used for short-term debt repayment (net of proceeds), and
$1.5 million of lease payments were made. The $36.2 million
repayment of convertible debentures in Q4 2015 was offset by a
corresponding $36.2 million draw on the revolving credit facility.
• 2015 Annual and Q4 Adjusted Earnings
Adjusted earnings and basic adjusted earnings per share are
non-GAAP measures that the Company considers to better
reflect normalized earnings as it eliminates items that may
be volatile from period to period, relating to positions which
will settle in future periods, and items that are non-recurring.
Neither adjusted earnings nor basic adjusted earnings per
share have any standardized meaning prescribed by GAAP and
are therefore unlikely to be comparable to similar measures
presented by other companies.
Please refer to the section of this MD&A entitled “Alternative
Performance (Non-GAAP) Measures” for a detailed description
of “adjusted earnings” and “basic adjusted earnings per
share”, and a reconciliation of these annual and fourth quarter
measures to the 2015 Financial Statements.
Annual Adjusted Net Loss in 2015 was $58.0 million,
representing a basic adjusted loss per share of $0.38, which
was $37.1 million, or $0.24 per share, higher than 2014 adjusted
net losses and basic losses per share of $20.8 million, and
$0.14, respectively. The year over year increased adjusted loss
was largely attributable to the previously discussed decline in
revenues, offset by reduced production costs and royalties and
lower income taxes.
The following chart illustrates the key factors leading to the
change from adjusted net loss for the year ended December 31,
2014 to the adjusted net loss incurred in 2015:
$0
-$20
-$40
-$60
s
n
o
i
l
l
i
M
-$80
-$100
-$120
-$140
-$160
-$180
Adjusted Net Loss – 2015 over 2014
($ millions)
($21)
($58)
$13
$4
$1
$25
$65
2014 loss
($138)
Decreased
metal prices
net of
adjustments
($4)
($3)
Increased
TCRCs
Increased
depreciation
Increased
sales
volume
Decreased
production
& royalty
costs
Decreased
income
taxes
Increased
other
income
Net other
2015 loss
Q4 Adjusted Net Loss in 2015 was $17.5 million, representing a
basic adjusted loss per share of $0.12, which was $3.7 million,
or $0.02 per share, lower than Q4 2014 adjusted net losses and
basic losses per share of $21.2 million, and $0.14, respectively.
The quarter over quarter decline in adjusted net loss was
primarily the result of the previously discussed decline in
production costs.
33
2015 annual report The following chart illustrates the key factors leading to the change from adjusted net loss
for the year ended December 31, 2014 to the adjusted net loss incurred in 2015:
Adjusted Net Loss – Q4 2015 over Q4 2014
($ millions)
($21)
($18)
$8
$4
$2
$31
$0
-$10
-$20
-$30
-$40
-$50
-$60
-$70
s
n
o
i
l
l
i
M
($30)
($9)
($1)
Q4 2014
Decreased
metal prices
net of
adjustments
Increased
income
taxes
Increased
TCRCs
($1)
Net other
LIQUIDITY POSITION
The Company’s cash balance at December 31, 2015 was
$134.0 million, which was a decrease of $12.2 million from the
balance at December 31, 2014. The balance of the Company’s
short-term investments at December 31, 2015, was $92.7
million, which was a decrease of $91.5 million from the $184.2
million balance at December 31, 2014. The combined liquidity
decrease in 2015 of $103.8 million resulted primarily from an
additional $146.7 million in capital expenditures used on mineral
properties, plant and equipment, and an additional $41.7 million
used for the payment of dividends, which were partially offset
by the $88.7 million in cash generated from operating activities.
Pan American’s investment objectives for its cash balances are
to preserve capital, to provide liquidity and to maximize returns.
The Company’s strategy to achieve these objectives is to invest
excess cash balances in a portfolio of primarily fixed income
instruments with specified credit rating targets established
by the Board of Directors, and by diversifying the currencies
in which it maintains its cash balances. The Company does
not own any asset-backed commercial paper or other similar,
known, at-risk investments in its investment portfolio.
Working capital at December 31, 2015, was $392.2 million,
which was a decrease of $130.5 million from December
31, 2014 working capital of $522.7 million. The decrease in
working capital was due to the previously described $103.8
million decrease in cash and short-term investments and a net
$26.6 million decrease in other working capital accounts that
arose primarily from: a $48.2 million decrease in inventories
(primarily associated with metal price declines and related
NRV adjustments); an $18.6 million decrease in trade and
other receivables; partially offset by a $48.1 million decrease in
current liabilities, which was largely due to the fourth quarter
settlement of the current convertible debenture liabilities.
On April 15, 2015, the Company entered into a senior secured
revolving credit facility (the “Facility”) with a syndicate of eight
lenders. The Facility is a $300.0 million secured revolving
line of credit that matures on April 15, 2019, and is available
34
Increased
sales
volumes
Decreased
production
& royalty
costs
Increased
other
income
Decreased
depreciation
Q4 2015
for general corporate purposes, including acquisitions. The
terms of the Facility provide the Company with the flexibility
of various borrowing and letter of credit options. With respect
to loans drawn based on the average annual rate of interest at
which major banks in the London interbank market are offering
deposits in US Dollars (“LIBOR”), the interest margin on such
loan is between 2.125% and 3.125% over LIBOR, depending
on the Company’s leverage ratio at the time of a specified
reporting period. On December 29, 2015 the Company made a
$36.2 million drawdown on the Facility by way of Libor loan at
an annual rate of 2.55%. Subsequent to December 31, 2015,
and at the date of this MD&A, $36.2 million remained drawn
on the Facility through LIBOR loans with an average annual
rate of 2.55%.
The Company’s financial position at December 31, 2015, and
the operating cash flows that are expected over the next twelve
months lead management to believe that the Company’s
liquid assets are sufficient to satisfy our 2016 working capital
requirements, fund currently planned capital expenditures
for existing operations, and to discharge liabilities as they
come due. The Company remains well positioned to take
advantage of further strategic opportunities as they become
available. Liquidity risks are discussed further in the “Risks and
Uncertainties” section of this MD&A.
The impact of inflation on the Company’s financial position,
operational performance, or cash flows over the next twelve
months cannot be determined with any degree of certainty.
CAPITAL RESOURCES
Total attributable shareholders’ equity at December 31,
2015, was $1,297.2 million, a decrease of $265.9 million from
December 31, 2014, primarily because of the $231.6 million net
loss for the year ended December 31, 2015 and $41.7 million in
dividends paid in 2015. As of December 31, 2015, the Company
had approximately 151.9 million common shares outstanding for
a share capital balance of $2,298.4 million (December 31, 2014,
151.6 million and $2,296.7 million). The basic weighted average
number of common shares outstanding was 151.7 million and
pan american silver corp. 151.5 million for the year ended December 31, 2015,
and 2014, respectively.
On December 17, 2014, the Company announced that the TSX
accepted the Company’s notice of its intention to make a
normal course issuer bid (“NCIB”) to purchase up to 7,575,290
of its common shares, representing up to 5% of Pan American’s
issued and outstanding shares. The period of the bid began
on December 22, 2014 and ended on December 21, 2015. No
shares were repurchased under that program, and the Company
has not made any subsequent NCIB. This was the Company’s
fourth consecutive NCIB program. Since initiating share
buy backs in 2011, the Company has acquired and cancelled
approximately 6.5 million of its shares.
Purchases pursuant to the historic NCIB were required to be
made on the open market through the facilities of the TSX and
the NASDAQ at the market price at the time of acquisition of
any common shares, and in accordance with the rules and
policies of the TSX and NASDAQ and applicable securities laws.
Pan American was not obligated to make any purchases under
the program. All common shares acquired by the Company
under the share buy back programs have been cancelled and
purchases were funded out of Pan American’s working capital.
A copy of the Company’s notice of its intention to make a NCIB
filed with the TSX can be obtained from the Corporate Secretary
of Pan American without charge.
As at December 31, 2015, the Company had approximately 1.6
million stock options outstanding, with exercise prices in the
range of CAD $9.76 to CAD $40.22 and a weighted average life
of 60 months. Approximately 1.0 million of the stock options
were vested and exercisable at December 31, 2015, with an
average weighted exercise price of CAD $19.23 per share.
The following table sets out the common shares and options
outstanding as at the date of this MD&A:
Common shares
Options
Total
Outstanding as at
March 24, 2016
152,008,083
1,505,764
153,513,847
FINANCIAL INSTRUMENTS
A part of the Company’s operating and capital expenditures
is denominated in local currencies other than USD. These
expenditures are exposed to fluctuations in USD exchange rates
relative to the local currencies. From time to time, the Company
mitigates part of this currency exposure by accumulating
local currencies, entering into contracts designed to fix or
limit the Company’s exposure to changes in the value of local
currencies relative to the USD, or assuming liability positions to
offset financial assets subject to currency risk. The Company
held cash and short-term investments of $13.0 million in
CAD, $9.2 million in MXN, $1.7 million in Peruvian Soles, and
$1.3 million in Bolivian Bolivianos (“BOB”) at December 31,
2015. At December 31, 2015, the Company has collared its
foreign currency exposure of MXN purchases with put and
call contracts which have a nominal value of $35.7 million and
have settlement dates between January, 2016 and December,
2016. The positions have a weighted average floor of $16.41 and
average cap of $18.49. The Company recorded losses of $nil
million and $0.2 million on the MXN forward contracts in the
three and twelve months ended December 31, 2015, respectively
(three and twelve months ended December 31, 2014 - $nil).
Risks relating to foreign exchange rates is discussed in the
“Risks and Uncertainties” section of this MD&A.
From time to time, Pan American mitigates the price risk
associated with its base metal production by committing some
of its future production under forward sales or option contracts.
Risks relating to metal prices and hedging activities undertaken
in relation to metal prices are discussed in the “Risks and
Uncertainties” section of this MD&A.
During Q2 2015, the Company entered into copper swap
contracts designed to fix or limit the Company’s exposure to
lower copper prices (the “Copper Swaps”). The Copper Swaps
were on 4,080 metric tonnes (“MT”) of copper at an average
fixed price of $6,044 USD/MT. As of December 31, 2015 none
of the Copper Swaps remained outstanding. The Company
recorded gains of $0.4 million and $3.0 million on the Copper
Swaps during the three and twelve months ended December 31,
2015. Of these gains, $1.8 million and $3.0 million were realized
in the three and twelve months ended December 31 2015. No
such gains or losses were recorded in the three and twelve
months ended December 31, 2014.
During Q1 2015, the Company entered into diesel swap
contracts designed to fix or limit the Company’s exposure to
higher fuel prices (the “Diesel Swaps”). The Diesel Swaps had
an initial notional value of $13.0 million. During Q4 2015, the
Company entered into additional Diesel Swaps with an initial
notional value of $12.5 million. A total of $14.7 million of the
notional amounts of the Diesel Swaps remained outstanding as
of December 31, 2015. The Company recorded losses of $2.4
million and $3.1 million on the Diesel Swaps during the three
and twelve months ended December 31, 2015, respectively. Of
these losses, $0.8 million and $0.4 million were realized in the
three and twelve months ended December 2015, respectively.
No such gains or losses were recorded in the three and twelve
months ended December 31, 2014.
Other than the Diesel Swaps, Copper Swaps and the MXN
forward contract positions there were no other gains or losses
on any commodity or foreign currency contracts in either the
three or twelve months ended December 31, 2015, and 2014.
The Company maintains short term bank loans in Argentina
and at December 31, 2015, had a balance outstanding of
$19.6 million (December 31, 2014: $17.6 million). These
loans were denominated in USD and Argentine pesos as at
December 31, 2015, were denominated in Argentine pesos at
December 31, 2014, and were drawn for the purposes of short-
term cash management and to partially offset the foreign
exchange exposure of holding local currency denominated
financial assets.
The carrying value of the conversion feature on convertible
notes assumed by the Company in the Minefinders transaction,
which was settled in December 2015, was at fair value; while
cash, accounts receivable, accounts payable and accrued
liabilities approximate their fair value due to the relatively short
periods to maturity of these financial instruments.
The Company had the right to pay all or part of the liability
associated with the Company’s previously outstanding
convertible notes in cash on the conversion date. Accordingly,
35
2015 annual report the Company classified the convertible notes as a financial
liability with an embedded derivative. The financial liability
and embedded derivative were recognized initially at their
respective fair values. The embedded derivative was recognized
at fair value with changes in fair value reflected in profit or loss
and the debt liability component is recognized as amortized
cost using the effective interest method. Interest gains and
losses related to the debt liability component or embedded
derivatives were recognized in profit or loss. On conversion,
the equity instrument is measured at the carrying value of
the liability component and the fair value of the derivative
component on the conversion date.
During the fourth quarter of 2015 and 2014, the Company
recorded a gain (loss) on the revaluation of the conversion
feature of the convertible notes of $nil and $(0.3) million,
respectively. For the years ended December 31, 2015, and
December 31, 2014, the Company recorded a gain on the
revaluation of the conversion feature of the convertible notes
of $0.3 million and $1.1 million, respectively.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgment
and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the
estimates. The classification of financial instruments and the
significant assumptions made in determining the fair value of
financial instruments is described in note 7 of the 2015
Financial Statements.
costs, the Company capitalizes these costs to the related
mine and amortizes such amounts over the life of each mine
on a unit-of-production basis except in the case of exploration
projects for which the offset to the liability is expensed.
The accretion of the discount due to the passage of time is
recognized as an increase in the liability and a finance expense.
The total inflated and undiscounted amount of estimated cash
flows required to settle the Company’s estimated future closure
and decommissioning costs is $107.2 million (2014 - $99.7
million) which has been inflated using inflation rates of between
1% and 17%. The inflated and discounted (using discount rates
between 1% and 20%) provision on the statement of financial
position as at December 31, 2015 is $50.5 million (2014 - $43.2
million). Spending with respect to decommissioning obligations
at the Alamo Dorado and Manantial Espejo mines is expected
to be begin in 2016, while the remainder of the obligations
are expected to be paid through 2035 or later if mine life is
extended. Revisions made to the reclamation obligations in
2015 were primarily a result of increased site disturbance
from the ordinary course of operations at the mines as well as
revisions to the estimates based on periodic reviews of closure
plans and related costs, actual expenditures incurred, and
concurrent closure activities completed. These obligations will
be funded from operating cash flows, reclamation deposits, and
cash on hand.
The accretion of the discount charged to 2015 earnings as
finance expense was $3.2 million, in line with $3.2 million in
2014. Reclamation expenditures incurred during the current
year were $2.8 million (2014 - $2.0 million).
CLOSURE AND DECOMMISSIONING COST
PROVISION
CONTRACTUAL COMMITMENTS AND
CONTINGENCIES
The estimated future closure and decommissioning costs are
based principally on the requirements of relevant authorities
and the Company’s environmental policies. The provision is
measured using management’s assumptions and estimates
for future cash outflows. The Company accrues these costs
initially at their fair value, which are determined by discounting
costs using rates specific to the underlying obligation. Upon
recognition of a liability for the closure and decommissioning
The Company does not have any off-balance sheet
arrangements or commitments that have a current or future
effect on its financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources, that are material. The
Company had the following contractual obligations at
December 31, 2015:
Payments due by period
Total
Within 1 year(2)
2 - 3 years
4- 5 years
After 5 years
Current liabilities
Credit facility
Loan obligation
Finance lease obligations (1)
Severance accrual
Employee compensation (3)
Loss on commodity contracts
Provisions (4)
Income taxes payable
$
111,700
$
111,700
$
-
$
-
$
39,400
19,680
4,124
3,811
3,178
2,835
4,419
13,481
960
19,680
2,319
720
1,707
2,835
2,962
13,481
1,920
-
1,805
1,444
1,471
-
405
-
36,520
-
-
975
-
-
733
-
Total contractual obligations (4)
$
202,628
$
156,364
$
7,045
$
38,228
$
-
-
-
-
672
-
-
319
-
991
(1) Includes lease obligations in the amount of $4.1 million (December 31, 2014 - $8.4 million) with a net present value of $4.0 million (December 31,
2014 - $8.0 million) discussed further in Note 16 of the 2015 Financial Statements.
(2) Includes all current liabilities as per the statement of financial position plus items presented separately in this table that are expected to be paid
but not accrued in the books of the Company. A reconciliation of the current liabilities balance per the statement of financial position to the total
contractual obligations within one year per the commitment schedule is shown in the table below.
36
pan american silver corp. December 31, 2015
Current portion of:
Accounts payable and other liabilities
Credit facility
Loan obligation
Current portion of finance lease
Current severance liability
Employee Compensation & Restricted Share Units
Unrealized loss on commodity contracts
Provisions (4)
Income tax payable
Total contractual obligations within one year
Future interest
component
Within 1 year
$
$
111,700
-
19,578
2,238
720
409
2,835
2,962
13,481
153,923
$
$
-
960
102
81
-
1,298
-
-
-
2,441
$
$
111,700
960
19,680
2,319
720
1,707
2,835
2,962
13,481
156,364
(3) Includes RSU obligation in the amount of $2.5 million (December 31, 2014 – $2.2 million) that will be settled in cash or shares. The restricted share
units vest in two instalments, 50% in December 2016, and 50% in December 2017.
(4) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation, the deferred credit arising
from the Aquiline acquisition discussed in Note 18 of the 2015 Financial Statements.
RELATED PARTY TRANSACTIONS
During the year ended December 31, 2015, a company indirectly
owned by a trust of which a director of the Company is a
beneficiary, was paid approximately $1.4 million (2014 - $0.4
million) for consulting services. These transactions are in the
normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and
agreed to by the parties. There are not any ongoing contractual
or other commitments associated with this arrangement or with
another related party.
ALTERNATIVE PERFORMANCE (NON-GAAP)
MEASURES
• AISCSOS
AISCSOS is a non-GAAP financial measure. AISCSOS does
not have any standardized meaning prescribed by GAAP and
is therefore unlikely to be comparable to similar measures
presented by other companies. We believe that AISCSOS
reflects a comprehensive measure of the full cost of operating
our consolidated business given it includes the cost of replacing
silver ounces through exploration, the cost of ongoing capital
investments (sustaining capital), general and administrative
expenses, as well as other items that affect the Company’s
consolidated earnings and cash flow. To facilitate a better
understanding of this measure as calculated by the Company,
the following table provides the detailed reconciliation of
this measure to the applicable cost items, as reported in the
consolidated income statements for the respective periods:
Three months ended
December 31,
Twelve months ended
December 31,
(in thousands USD, unless otherwise stated)
2015
2014
2015
2014
Direct Operating Costs
$
122,845 $
138,484 $
521,169 $
538,251
Net realizable value (“NRV”) inventory adjustments
Production costs
Royalties
Smelting, refining and transportation charges (1)
Less by-product credits (1)
Cash cost of sales net of by-products (2)
Sustaining capital (3)
Exploration and project development
Reclamation cost accretion
General & administrative expense
All-in sustaining costs (2)
Payable ounces sold (in koz)
All-in sustaining cost per silver ounce sold,
net of by-products
All-in sustaining cost per silver ounce sold,
net of by-products (Excludes NRV)
5,028
127,873
5,941
24,995
2,212
10,861
29,953
140,695
532,031
568,204
5,277
24,159
23,901
90,858
27,955
86,470
(92,138)
(84,141)
(377,954)
(361,309)
66,671
23,476
2,320
810
5,890
85,990
24,172
4,278
809
3,051
268,835
73,701
11,940
3,239
18,027
321,319
99,083
13,225
3,238
17,908
99,167 $
118,299 $
375,744 $
454,744
6,719.5
6,352.6
25,179.8
25,430.5
14.76 $
18.62 $
14.92 $
17.88
14.01 $
18.27 $
14.49 $
16.71
A
B
A/B
$
$
$
(1)Included in the revenue line of the unaudited condensed interim consolidated income statements and are
reflective of realized metal prices for the applicable periods.
(2) Totals may not add due to rounding.
(3) Please refer to the table below.
37
2015 annual report As part of the AISCSOS measure, sustaining capital is included
while expansionary or acquisition capital (referred to by the
Company as investment capital) is not. Inclusion of sustaining
capital only is a better measure of capital costs associated with
current ounces sold as opposed to investment capital, which
is expected to increase future production. For the periods
under review, the below noted items associated with the La
Colorada expansion project, and Dolores’ leach pad and other
expansionary expenditures are considered investment
capital projects.
Three months ended
December 31,
Twelve months ended
December 31,
2015
2014
2015
2014
131,761
Reconciliation of payments for mineral property, plant and
equipment and sustaining capital (in thousands of USD)
Payments for mineral property, plant and equipment (1)
$
53,705 $
30,131 $
146,735 $
Add/(Subtract)
Advances received for leases
2,571
636
3,491
3,230
Non-Sustaining capital (Dolores, La Colorada projects, and other)
(32,800)
(6,595)
(76,524)
(35,908)
Sustaining Capital (2)
$
23,476 $
24,172 $
73,701 $
99,083
(1) As presented on the unaudited condensed interim consolidated statements of cash flows.
(2) Totals may not add due to rounding.
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PAS
CORP
Consolidated
Three months ended December 31, 2015
$
$
11,454 $
29,065 $
14,034 $
16,999 $
14,707 $
11,747 $
24,837
-
3,132
684
-
-
-
1,212
11,454 $
32,198 $
14,718 $
16,999 $
14,707 $
11,747 $
26,049
73
1,225
97
-
-
3,542
1,004
3,009
(5,415)
31
252
7,451
7,711
4,615
1,926
(21,110)
(9,369)
(14,752)
(15,587)
(5,031)
(20,874)
Cash cost of sales net of by-products (1) $
9,121 $
12,344 $
5,698 $
9,698 $
6,831 $
14,873 $
Sustaining capital
2,965
10,064
172
59
-
86
90
-
-
-
58
-
4,599
2,516
53
150
-
722
96
-
996
-
56
-
8,105
2,337
-
274
-
12,317 $
22,585 $
5,756 $
14,500 $
10,165 $
15,925 $
10,716 $
7,202 $
1,262,660
1,048,000
726,214
773,799
483,481
1,447,582
977,754
-
6,719,489
9.57 $
21.55 $
7.93 $
18.74 $
21.02 $
11.00 $
10.96
- $
14.76
9.75 $
18.56 $
6.98 $
18.74 $
21.02 $
11.00 $
9.72
- $
14.01
(in thousands of USD,
except as noted)
Direct operating costs
NVR inventory adjustments
Production costs
Royalties
Smelting, refining and transportation
charges
Less by-product credits
Exploration and project development
Reclamation cost accretion
General & administrative expense
All-in sustaining costs (1)
Payable silver ounces sold
All-in Sustaining Costs per Silver
Ounce Sold, net of by products
All-in Sustaining Costs per Silver
Ounce Sold (Excludes NRV
Adjustments)
$
$
$
(1) Totals may not add due to rounding.
(in thousands of USD,
except as noted)
Direct operating costs
NVR inventory adjustments
Production costs
Royalties
Smelting, refining and transportation
charges
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PAS
CORP
Consolidated
Twelve months ended December 31, 2015
$
$
48,842 $
132,343 $
60,159 $
66,878 $
66,096 $
32,211 $
114,640
(11,417)
(522)
-
-
-
22,800
48,842 $
120,926 $
59,637 $
66,878 $
66,096 $
32,211 $
137,440
385
5,289
344
-
-
14,051
3,832
11,877
132
682
26,986
31,424
11,147
8,609
Less by-product credits
(22,585)
(96,066)
(23,446)
(58,027)
(68,480)
(13,047)
(96,302)
Cash cost of sales net of by-products (1) $
38,519 $
30,281 $
37,217 $
35,837 $
29,041 $
44,362 $
Sustaining capital
9,869
25,162
Exploration and project development
Reclamation cost accretion
General & administrative expense
254
237
-
544
362
-
-
-
232
-
13,610
765
600
-
7,713
1,202
384
-
3,286
-
226
-
53,579
14,061
-
1,096
-
9,175
103
-
18,027
All-in sustaining costs (1)
$
48,879 $
56,348 $
37,450 $
50,813 $
38,339 $
47,873 $
68,736 $ 27,305 $
375,744
Payable silver ounces sold
All-in Sustaining Costs per Silver
Ounce Sold, net of by products
All-in Sustaining Costs per Silver
Ounce Sold (Excludes NRV
Adjustments)
$
$
(1) Totals may not add due to rounding.
5,108,985
4,448,000
2,944,491
3,009,185
1,995,307
4,019,265
3,654,556
25,179,788
9.57 $
12.67 $
12.72 $
16.89 $
19.21 $
11.91 $
18.81
- $
14.92
9.57 $
15.24 $
12.90 $
16.89 $
19.21 $
11.91 $
12.57
- $
14.49
38
- $
-
- $
-
-
-
- $
-
1,287
26
5,890
122,845
5,028
127,873
5,941
24,995
(92,138)
66,671
23,476
2,320
810
5,890
99,167
- $
-
- $
-
-
-
521,169
10,861
532,031
23,901
90,858
(377,954)
- $
268,836
73,701
11,940
3,239
18,027
pan american silver corp.
(In thousands of USD,
except as noted)
Direct operating costs
NVR inventory adjustments
Production costs
Royalties
Smelting, refining and transportation
charges
Less by-product credits
Cash cost of sales net of by-products (1) $
Sustaining capital
Exploration and project development
Reclamation cost accretion
General & administrative expense
All-in sustaining costs (1)
Payable silver ounces sold
All-in Sustaining Costs per Silver
Ounce Sold, net of by products
All-in Sustaining Costs per Silver
Ounce Sold (Excludes NRV
Adjustments)
$
$
$
(1) Totals may not add due to rounding.
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PAS
CORP
Consolidated
Total
Three months ended December 31, 2014
$
$
11,676 $
29,668 $
18,309 $
20,589 $
16,583 $
8,353 $
-
6,341
1,248
-
-
-
11,676 $
36,009 $
19,557 $
20,589 $
16,583 $
8,353 $
95
1,023
96
-
-
3,112
33,307
(5,377)
27,929
951
2,775
(5,980)
49
149
10,363
5,163
3,471
2,188
(17,859)
(5,870)
(18,525)
(15,198)
(2,681)
(18,027)
8,565 $
19,222 $
13,931 $
12,428 $
6,549 $
12,254 $
1,488
1
59
-
7,962
264
90
-
67
135
58
-
4,970
59
150
-
3,149
1,056
96
-
992
-
56
-
13,041
5,543
294
274
-
2,469
25
3,051
10,113 $
27,538 $
14,191 $
17,607 $
10,849 $
13,302 $
19,152 $
5,545 $
118,299
1,098,949
882,500
816,061
787,616
537,071
1,117,385
1,112,980
6,352,562
9.20 $
31.20 $
17.39 $
22.35 $
20.20 $
11.90 $
17.21
N/A $
18.62
9.20
24.02 $
15.86 $
22.35 $
20.20 $
11.90 $
22.04
$
18.27
$
$
$
138,484
2,212
140,696
5,277
24,159
(84,141)
85,990
24,172
4,278
809
3,051
(In thousands of USD,
except as noted)
Direct operating costs
NVR inventory adjustments
Production costs
Royalties
Smelting, refining and transportation
charges
Sustaining capital
Exploration and project development
Reclamation cost accretion
General & administrative expense
All-in sustaining costs (1)
Payable silver ounces sold
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PAS
CORP
Consolidated
Total
Twelve months ended December 31, 2014
$
$
49,992 $
129,154 $
65,519 $
77,013 $
68,873 $
34,126 $
113,573
-
23,253
1,947
-
-
-
4,753
49,992 $
152,407 $
67,466 $
77,013 $
68,873 $
34,126 $
118,326
436
4,888
457
-
-
17,900
4,273
$
$
$
538,250
29,953
568,203
27,955
86,470
(361,309)
321,319
99,083
13,225
3,238
17,908
8,934
(91,838)
39,695
26,741
1,657
1,096
6,855
102
-
17,908
Less by-product credits
(23,761)
(81,377)
(22,370)
(70,723)
(59,487)
Cash cost of sales net of by-products (1) $
37,808 $ 76,097 $
46,187 $
38,437 $
29,185 $
53,911 $
11,142
178
633
32,146
19,799
13,638
(11,753)
13,476
9
237
-
27,632
1,602
362
-
293
336
232
-
17,327
1,312
600
-
10,199
1,453
384
-
3,415
-
226
-
$
51,530 $
105,693 $
47,048 $
57,676 $
41,221 $
57,552 $
69,189 $ 24,865 $
454,773
4,726,138
3,911,600
3,605,832
3,024,572
2,125,430
4,177,048
3,859,900
25,430,519
All-in Sustaining Costs per Silver Ounce
Sold, net of by products
All-in Sustaining Costs per Silver Ounce
Sold (Excludes NRV Adjustments)
$
$
(1) Totals may not add due to rounding.
10.90 $
27.02 $
13.05 $
19.07 $
19.39 $
13.78 $
17.93
N/A $
17.88
10.90
21.08 $
12.51 $
19.07 $
19.39 $
13.78 $
16.69
$
16.71
• Cash Costs per Ounce of Silver, net of by-product credits
Pan American produces by-product metals incidentally to
our silver mining activities. We have adopted the practice of
calculating the net cost of producing an ounce of silver, our
primary payable metal, after deducting revenues gained from
incidental by-product production, as a performance measure.
This performance measurement has been commonly used in
the mining industry for many years and was developed as a
relatively simple way of comparing the net production costs of
the primary metal for a specific period against the prevailing
market price of that metal.
Cash costs per ounce metrics, net of by-product credits, were
utilized extensively in our internal decision making processes.
We believe they are useful to investors as these metrics
facilitate comparison, on a mine by mine basis, notwithstanding
the unique mix of incidental by-product production at each
mine, of our operations’ relative performance on a period by
period basis, and against the operations of our peers in the
silver industry on a consistent basis. Cash costs per ounce
is conceptually understood and widely reported in the silver
mining industry. However, cash cost per ounce of silver is a
non-GAAP measure and does not have a standardized meaning
prescribed by GAAP and the Company’s method of calculating
cash costs may differ from the methods used by other entities.
To facilitate a better understanding of these measures as
calculated by the Company, the following table provides the
detailed reconciliation of these measures to the production
costs, as reported in the consolidated income statements for
the respective periods:
39
2015 annual report
Total Cash Costs per ounce of Payable Silver,
net of by-product credits
(in thousands of USD except as noted)
Production costs
Add/(Subtract)
Royalties
Smelting, refining, and transportation charges
Worker’s participation and voluntary payments
Change in inventories
Other
Non-controlling interests(1)
Metal inventories recovery (write-down)
Cash Operating Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
Three months ended
December 31,
Twelve months ended
December 31,
2015
2014
2015
2014
$
127,873 $
140,695 $
532,031 $
568,204
5,941
24,319
62
(3,115)
882
(1,072)
(5,028)
149,860
5,277
21,195
113
8,966
(1,461)
(1,204)
(2,212)
171,369
23,901
94,804
(147)
(19,114)
(6,537)
(4,331)
27,955
76,968
(484)
15,835
(5,653)
(4,746)
(10,861)
(29,953)
609,746
648,126
(52,562)
(51,794)
(208,800)
(201,317)
(15,855)
(19,676)
(66,831)
(81,357)
(6,477)
(7,412)
(24,488)
(29,903)
(17,030)
(16,935)
(71,635)
(52,856)
Cash Operating Costs net of by-product credits (2)
Payable Silver Production (koz)
A
B
57,936
6,370.8
75,554
6,340.4
237,992
282,693
24,530.8
24,663.4
Cash Costs per ounce net of by-product credits
(A*$1000)
/B
$
9.09 $
11.92 $
9.70 $
11.46
(1) Figures presented in the reconciliation table above are on a 100% basis as presented in the unaudited condensed interim consolidated financial
statements with an adjustment line item to account for the portion of the Morococha and San Vicente mines owned by non-controlling interests, an
expense item not included in operating cash costs. The associated tables below are for the Company’s share of ownership only.
(2) Figures in this table and in the associated tables below may not add due to rounding.
Three months ended December 31, 2015 (1)
(in thousands of USD except as noted)
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
La
Colorada
$
15,861 $
(595)
(3,420)
(1,956)
-
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidat-
ed Total
31,089 $
13,353 $
23,380 $
21,143 $
14,376 $
29,203 $
148, 405
(20,095)
(8,726)
-
-
-
(181)
(24)
(5,299)
(3,107)
(5,750)
(330)
(3,664)
(1,040)
(10,241)
(63)
(22,699)
(3,006)
(274)
-
-
-
-
(52,531)
(15,390)
(6,376)
(16,172)
A
b1
b2
b3
b4
Sub-total by-product credits(1)
B=(b1+ b2+
b3+ b4)
Cash Costs net of by-product credits (1)
C=(A+B)
Payable ounces of silver (thousand)
D
Cash cost per ounce net
of by-products
=C/D
$
$
$
(1) Totals may not add due to rounding.
(5,971) $
(20,095) $
(8,907) $
(14,179) $
(15,275) $
(3,343) $
(22,699) $
(90,469)
9,890 $
10,995 $
4,446 $
9,200 $
5,868 $
11,033 $
6,505 $
1,359
945
810
810
452
992
1,003
57,936
6,371
7.28 $
11.64 $
5.49 $
11.35 $
12.99 $
11.12 $
6.48 $
9.09
Twelve months ended December 31, 2015 (1)
(in thousands of USD except as noted)
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
La
Colorada
$
61,748 $
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidat-
ed Total
130,918 $
57,178 $
93,503 $
88,542 $
56,262 $
115,548 $
603,698
(2,586)
(14,429)
(7,049)
-
(91,551)
(23,187)
-
-
-
-
-
(439)
(174)
(21,416)
(11,586)
(27,189)
(1,594)
(17,973)
(4,261)
(40,606)
(241)
(89,320)
(208,654)
(10,932)
(1,173)
-
-
-
-
(64,750)
(24,069)
(68,233)
A
b1
b2
b3
b4
Sub-total by-product credits(1)
B=(b1+ b2+
b3+ b4)
$ (24,064) $
(91,551) $ (23,626) $
(60,365) $
(64,434) $
(12,346) $
(89,320) $ (365,706)
Cash Costs net of by-product credits (1)
C=(A+B)
$
37,683 $
39,367 $
33,553 $
33,137 $
24,107 $
43,916 $
26,228 $
237,992
Payable ounces of silver (thousand)
D
5,089
4,242
2,941
3,037
1,851
3,796
3,576
24.531
Cash cost per ounce net
of by-products
(1) Totals may not add due to rounding.
=C/D
$
7.41 $
9.28 $
11.41 $
10.91 $
13.03 $
11.57 $
7.33 $
9.70
40
pan american silver corp. Three months ended December 31, 2014 (1)
(in thousands of USD except as noted)
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
La
Colorada
$
15,824 $
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidat-
ed Total
33,909 $
18,896 $
29,001 $
22,046 $
15,736 $
34,500 $
169,913
(681)
(4,154)
(1,897)
-
(21,555)
(6,775)
-
-
-
-
-
(32)
(36)
(6,177)
(3,049)
(9,746)
(798)
(6,110)
(2,069)
(6,604)
(67)
(21,812)
(2,586)
(211)
-
-
-
-
(51,724)
(19,028)
(7,227)
(16,382)
A
b1
b2
b3
b4
Sub-total by-product credits(1)
B=(b1+ b2+
b3+ b4)
Cash Costs net of by-product credits (1)
C=(A+B)
Payable ounces of silver (thousand)
D
Cash cost per ounce net
of by-products
=C/D
$
$
$
(1) Totals may not add due to rounding.
(6,731) $
(21,555) $
(6,807) $
(19,009) $
(15,581) $
(2,684) $
(21,812) $
(94,360)
9,093 $
12,354 $
12,089 $
9,993 $
6,465 $
12,872 $
12,688 $
1,202
951
859
818
516
1,084
911
75,553
6,340
7.57 $
12.99 $
14.07 $
12.22 $
12.53 $
11.88 $
13.93 $
11.92
Twelve months ended December 31, 2014 (1)
(in thousands of USD except as noted)
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
La
Colorada
$
62,635 $
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidat-
ed Total
135,665 $
66,727 $
107,990 $
83,915 $
59,287 $
126,500 $
642,720
(2,534)
(14,128)
(7,265)
-
(84,317)
(22,048)
-
-
-
-
-
(164)
(295)
(25,414)
(11,817)
(34,394)
(2,730)
(28,381)
(9,340)
(16,884)
(254)
(88,898)
(10,504)
(663)
-
-
-
-
(201,075)
(78,426)
(29,086)
(51,442)
A
b1
b2
b3
b4
Sub-total by-product credits(1)
B=(b1+ b2+
b3+ b4)
$ (23,927) $
(84,317) $
(22,212) $
(71,920) $
(57,335) $
(11,420) $ (88,898) $ (360,028)
Cash Costs net of by-product credits (1)
C=(A+B)
$
38,708 $
51,347 $
44,516 $
36,070 $
26,581 $
47,867 $
37,602 $
282,692
Payable ounces of silver (thousand)
D
4,756
3,969
3,454
3,120
2,010
3,636
3,717
24,663
Cash cost per ounce net
of by-products
(1) Totals may not add due to rounding.
=C/D
$
8.14 $
12.94 $
12.89 $
11.56 $
13.22 $
13.16 $
10.12 $
11.46
• Adjusted Earnings and Basic Adjusted Earnings Per Share
Adjusted earnings and basic adjusted earnings per share are
non-GAAP measures that the Company considers to better
reflect normalized earnings as it eliminates items that may
be volatile from period to period, relating to positions which
will settle in future periods, and items that are non-recurring.
Certain items that become applicable in a period may be
adjusted for, with the Company retroactively presenting
comparable periods with an adjustment for such items and
conversely, items no longer applicable may be removed from
the calculation. The Company adjusts certain items in the
periods that they occurred but does not reverse or otherwise
unwind the effect of such items in future periods. Neither
adjusted earnings nor basic adjusted earnings per share
have any standardized meaning prescribed by GAAP and
are therefore unlikely to be comparable to similar measures
presented by other companies.
The following table shows a reconciliation of adjusted loss and
earnings for the three and twelve months ended December,
2015 and 2014, to the net (loss) earnings for each period.
(In thousands of USD, except as noted)
Net (loss) earnings for the period
Adjust derivative gain
Adjust impairment of mineral properties
Adjust write-down of other assets
Adjust unrealized foreign exchange (gain) losses
Adjust net realizable value of heap inventory
Adjust unrealized loss on commodity contracts
Adjust gain on sale of assets
Adjust for effect of taxes
Adjusted loss for the period
Weighted average shares for the period
Adjusted loss per share for the period
Three months ended
Twelve months ended
December 31,
December 31,
2015
2014
2015
2014
$ (136,958)
$
(525,727) $
(231,556)
$
(544,823)
(4)
121,512
2,678
(1,319)
6,366
2,989
(38)
252
(278)
(1,348)
596,262
150,268
596,262
-
22,812
(618)
10,982
-
(945)
860
6,401
2,835
(372)
-
4,034
36,578
-
(1,145)
(12,743)
(101,413)
(8,938)
(110,383)
$
$
(17,517)
$
(21,207) $
(57,968)
$
(20,825)
151,715
151,534
151,664
151,511
(0.12)
$
(0.14) $
(0.38)
$
(0.14)
41
2015 annual report • Working Capital
Working capital is a non-GAAP measure calculated as current
assets less current liabilities. Working capital does not have
any standardized meaning prescribed by GAAP and is therefore
unlikely to be comparable to similar measures presented by
other companies. The Company and certain investors use this
information to evaluate whether the Company is able to meet
its current obligations using its current assets.
• General and Administrative Costs per Silver Ounce
General and administrative costs per silver ounce produced
(“G&A per ounce”) is a non-GAAP measure that is calculated
by dividing G&A expense recorded in a period by the number
of silver ounces produced in the same period. G&A per ounce
does not have any standardized meaning prescribed by GAAP
and is therefore unlikely to be comparable to similar measures
presented by other companies. The Company and certain
investors use this information to evaluate corporate expenses
incurred in a period in relation to the amount of consolidated
silver produced during the same period.
RISKS AND UNCERTAINTIES
The Company is exposed to many risks in conducting its
business, including but not limited to: metal price risk as the
Company derives its revenue from the sale of silver, zinc, lead,
copper, and gold; credit risk in the normal course of dealing with
other companies; foreign exchange risk as the Company reports
its financial statements in USD whereas the Company operates
in jurisdictions that utilize other currencies; the inherent risk
of uncertainties in estimating mineral reserves and mineral
resources; political risks; and environmental risks and risks
related to its relations with employees. These and other risks
are described below and in Pan American’s Annual Information
Form (available on SEDAR at www.sedar.com), Form 40-F filed
with the SEC, and the 2015 Financial Statements. Readers are
encouraged to refer to these documents for a more detailed
description of some of the risks and uncertainties inherent to
Pan American’s business.
• Foreign Jurisdiction Risk
Pan American currently conducts operations in Peru, Mexico,
Argentina and Bolivia. All of these jurisdictions are potentially
subject to a number of political and economic risks, including
those described in the following section. The Company is unable
to determine the impact of these risks on its future financial
position or results of operations and the Company’s exploration,
development and production activities may be substantially
affected by factors outside of Pan American’s control. These
potential factors include, but are not limited to: royalty and
tax increases or claims by governmental bodies, expropriation
or nationalization, lack of an independent judiciary, foreign
exchange controls, import and export regulations, cancellation
or renegotiation of contracts and environmental and permitting
regulations. The Company currently has no political risk
insurance coverage against these risks.
All of Pan American’s current production and revenue is derived
from its operations in Peru, Mexico, Argentina and Bolivia. As
Pan American’s business is carried on in a number of developing
countries, it is exposed to a number of risks and uncertainties,
including the following: expropriation or nationalization without
adequate compensation, particularly in jurisdictions such as
Argentina and Bolivia who have a history of expropriation;
changing political and fiscal regimes, and economic and
regulatory instability; unanticipated changes to royalty and
tax regulations; unreliable or undeveloped infrastructure;
labour unrest and labour scarcity; difficulty obtaining key
equipment and components for equipment; regulations
and restrictions with respect to imports and exports; high
rates of inflation; extreme fluctuations in currency exchange
rates and the imposition of currency controls; the possible
unilateral cancellation or forced renegotiation of contracts,
and uncertainty regarding enforceability of contractual
rights; inability to obtain fair dispute resolution or judicial
determinations because of bias, corruption or abuse of power;
difficulties enforcing judgments generally, including judgments
obtained in Canadian or United States courts against assets
and entities located outside of those jurisdictions; difficulty
understanding and complying with the regulatory and legal
framework respecting the ownership and maintenance of
mineral properties, mines and mining operations, and with
respect to permitting; local opposition to mine development
projects, which include the potential for violence and property
damage; violence and more prevalent or stronger organized
crime groups; terrorism and hostage taking; military repression
and increased likelihood of international conflicts or aggression;
and increased public health concerns. Certain of these risks and
uncertainties are illustrated well by circumstances in Bolivia
and Argentina.
The Company’s Mexican operations, Alamo Dorado and La
Colorada, have suffered from armed robberies of doré in the
past. The Company has instituted a number of additional
security measures and a more frequent shipping schedule in
response to these incidents. The Company has subsequently
renewed its insurance policy to mitigate some of the financial
loss that would result from such criminal activities in the future,
however a substantial deductible amount would apply to any
such losses in Mexico.
Local opposition to mine development projects has arisen
periodically in some of the jurisdictions in which we operate,
and such opposition has at times been violent. There can be
no assurance that similar local opposition will not arise in the
future with respect to Pan American’s foreign operations. If Pan
American were to experience resistance or unrest in connection
with its foreign operations, it could have a material adverse
effect on Pan American’s operations or profitability.
In early 2009, a new constitution was enacted in Bolivia that
further entrenched the government’s ability to amend or
enact laws, including those that may affect mining, and which
enshrined the concept that all natural resources belong to
the Bolivian people and that the state was entrusted with
its administration.
On May 28, 2014, the Bolivian government enacted Mining
Law No. 535 (the “New Mining Law”). Among other things,
the New Mining Law established a new Bolivian mining
authority to provide principal mining oversight (varying the
role of COMIBOL) and set out a number of new economic and
operational requirements relating to state participation in
mining projects. Further, the New Mining Law provided that
all pre-existing contracts were to migrate to one of several
new forms of agreement within a prescribed period of time.
As a result, we anticipate that our current joint venture
agreement with COMIBOL relating to the San Vicente mine
will be subject to migration to a new form of agreement and
42
pan american silver corp. may require renegotiation of some terms in order to conform
to the New Mining Law requirements. We are assessing the
potential impacts of the New Mining Law on our business and
are awaiting further regulatory developments, but the primary
effects on the San Vicente operation and our interest therein
will not be known until such time as we have, if required to do
so, renegotiated the existing contract, and the full impact may
only be realized over time. In the meantime, we understand that
pre-existing agreements will be respected during the period of
migration and we will take appropriate steps to protect and, if
necessary, enforce our rights under our existing agreement with
COMIBOL. There is, however, no guarantee that governmental
actions, including possible expropriation or additional changes
in the law, and the migration of our contract will not impact our
involvement in the San Vicente operation in an adverse way and
such actions could have a material adverse effect on us and
our business.
On June 25, 2015, the Bolivian government enacted the
new Conciliation and Arbitration Law No. 708 (the “New
Conciliation and Arbitration Law”), which endeavors to set out
newly prescribed arbitral norms and procedures, including
for foreign investors. However, whether the New Conciliation
and Arbitration Law applies specifically to pre-existing
agreements between foreign investors and COMIBOL, and
how this new legislation interacts with the New Mining Law,
remains somewhat unclear. As a result, we await clarification by
regulatory authorities and will continue to assess the potential
impacts of the New Conciliation and Arbitration Law on
our business.
Meanwhile, under the previous political regime in Argentina,
the government intensified the use of price, foreign exchange,
and import controls in response to unfavourable domestic
economic trends. Among other the things, the Argentine
government has imposed restrictions on the importation of
goods and services and increased administrative procedures
required to import equipment, materials and services required
for operations at Manantial Espejo. In support of this policy, in
May 2012, the government mandated that mining companies
establish an internal function to be responsible for substituting
Argentinian-produced goods and materials for imported goods
and materials and required advance government review of plans
to import goods and materials. In addition, the government of
Argentina also tightened control over capital flows and foreign
2016 Revenue and Metal Price Sensitivity
exchange in an attempt to curtail the outflow of hard currencies
and protect its foreign currency reserves, including mandatory
repatriation and conversion of foreign currency funds in certain
circumstances, informal restrictions on dividend, interest,
and service payments abroad and limitations on the ability of
individuals and businesses to convert Argentine pesos into USD
or other hard currencies, exposing us to additional risks of Peso
devaluation and high domestic inflation. While a new federal
government was elected in Argentina in late 2015 and has since
taken steps to ease some of the previously instituted controls
and restrictions, particularly relaxing certain rules relating
to the inflow and outflow of foreign currencies, many of the
policies of the previous government continue to adversely affect
the Company’s Argentine operations. It is unknown whether
these recent changes will be lasting, what, if any, additional
steps will be taken by the new administration or what financial
and operational impacts these and any future changes might
have on the Company. As such, the Company continues to
monitor and assess the situation in Argentina.
In most cases, the effect of these risks and uncertainties cannot
be accurately predicted and, in many cases, their occurrence
is outside of our control. Although we are unable to determine
the impact of these risks on our future financial position or
results of operations, many of these risks and uncertainties
have the potential to substantially affect our exploration,
development and production activities and could therefore have
a material adverse impact on our operations and profitability.
Management and the Board of Directors continuously
assess risks that the Company is exposed to, and attempt to
mitigate these risks where practical through a range of risk
management strategies, including employing qualified and
experienced personnel.
• Metal Price Risk
Pan American derives its revenue from the sale of silver, zinc,
lead, copper, and gold. The Company’s sales are directly
dependent on metal prices that have shown significant
volatility and are beyond the Company’s control. The table
below illustrates the effect of changes in silver and gold
prices on anticipated revenues for 2016, expressed in
percentage terms. This analysis assumes that quantities of
silver and gold produced and sold remain constant under all
price scenarios presented.
Gold Price
$800
$900
$1,000
$1,100
$1,200
$1,300
$1,400
e
c
i
r
P
r
e
v
l
i
S
$11.50
$12.50
$13.50
$14.50
$15.50
$16.50
$17.50
$18.50
79%
83%
87%
91%
95%
99%
103%
106%
82%
86%
90%
94%
98%
102%
106%
109%
85%
89%
93%
97%
101%
105%
109%
112%
88%
92%
96%
100%
104%
108%
112%
115%
91%
95%
99%
103%
107%
111%
115%
118%
94%
98%
102%
106%
110%
114%
118%
121%
97%
101%
105%
109%
113%
117%
121%
124%
43
2015 annual report
Pan American Silver takes the view that its precious metals
production should not be hedged, thereby, allowing the
Company to maintain maximum exposure to precious metal
prices. From time to time, Pan American mitigates the price
risk associated with its base metal production by committing
some of its forecasted base metal production under forward
sales and option contracts, as described under the “Financial
Instruments” section of this MD&A. Decisions relating to
hedging may have material adverse effects upon our financial
performance, financial position, and results of operations.
Since base metal and gold revenue are treated as a by-product
credit for purposes of calculating cash costs per ounce of silver
and AISCSOS, these non-GAAP measures are highly sensitive
to base metal and gold prices. The table below illustrates this
point by plotting the expected cash cost per ounce according
to our 2016 forecast against various price assumptions for
the Company’s two main by-product credits, zinc and gold
expressed in percentage terms:
2016 Cash Cost and Metal Price Sensitivity
e
c
i
r
P
c
n
Z
i
$1,400
$1,500
$1,600
$1,700
$1,800
$1,900
$2,000
$2,100
$800
128%
127%
125%
123%
122%
120%
118%
117%
$900
$1,000
$1,100
$1,200
$1,300
$1,400
Gold Price
121%
119%
117%
115%
114%
112%
110%
109%
113%
111%
109%
108%
106%
104%
103%
101%
105%
103%
102%
100%
98%
97%
95%
93%
97%
96%
94%
92%
91%
89%
87%
86%
90%
88%
86%
85%
83%
81%
80%
78%
82%
80%
78%
77%
75%
73%
72%
70%
The Board of Directors continually assesses the Company’s
strategy towards its base metal exposure, depending on
market conditions. If metal prices decline significantly below
levels used in the Company’s most recent impairment tests,
for an extended period of time, the Company may need to
reassess its price assumptions, and a significant decrease
in the price assumptions could be an indicator of potential
impairment. A description of the impact of metal price changes
on certain Company assets is included in the Key Assumption
and Sensitivity sections included in both the 2015 Financial
Statements (included in Note 11), and in this MD&A (included in
the Income Statement analysis section).
• Trading and Credit Risk
The zinc, lead, and copper concentrates produced by us are
sold through long-term supply arrangements to metal traders
or integrated mining and smelting companies. The terms of the
concentrate contracts may require us to deliver concentrate
that has a value greater than the payment received at the time
of delivery, thereby introducing us to credit risk of the buyers
of our concentrates. Should any of these counterparties not
honour supply arrangements, or should any of them become
insolvent, we may incur losses for products already shipped
and be forced to sell our concentrates in the spot market or we
may not have a market for our concentrates and therefore our
future operating results may be materially adversely impacted.
For example, the Doe Run Peru smelter, a significant buyer of
our production in Peru, experienced financial difficulties in the
first quarter of 2009 and closed. We continued to sell copper
concentrates to other buyers but on inferior terms. The Doe Run
Peru smelter remains closed and we are owed approximately
$8.2 million under the terms of our contract with Doe Run Peru.
We continue to pursue all legal and commercial avenues to
collect the amount outstanding.
(2014 - $29.3 million). All of this receivable balance is owed by
eight well known concentrate buyers and the vast majority of
our concentrate is sold to those same counterparts.
Silver doré production is refined under long term agreements
with fixed refining terms at three separate refineries worldwide.
We generally retain the risk and title to the precious metals
throughout the process of refining and therefore are exposed
to the risk that the refineries will not be able to perform in
accordance with the refining contract and that we may not be
able to fully recover our precious metals in such circumstances.
As at December 31, 2015, we had approximately $21.4 million
contained in precious metal inventory at refineries (2014 - $44.7
million). We maintain insurance coverage against the loss of
precious metals at our mine sites, in-transit to refineries, and
while at the refineries.
Refined silver and gold is sold in the spot market to various
bullion traders and banks. Credit risk may arise from these
activities if we are not paid for metal at the time it is delivered,
as required by spot sale contracts.
We maintain trading facilities with several banks and bullion
dealers for the purposes of transacting our trading activities.
None of these facilities are subject to margin arrangements.
Our trading activities can expose us to the credit risk of our
counterparties to the extent that our trading positions have a
positive mark-to-market value.
Management constantly monitors and assesses the credit risk
resulting from our concentrate sales, refining arrangements,
and commodity contracts. Furthermore, management carefully
considers credit risk when allocating prospective sales and
refining business to counterparties. In making allocation
decisions, management attempts to avoid unacceptable
concentration of credit risk to any single counterparty.
As at December 31, 2015, we had receivable balances
associated with buyers of our concentrates of $21.3 million
From time to time, we may invest in equity securities of other
companies. Just as investing in Pan American is inherent with
44
pan american silver corp.
risks such as those set out in this AIF, by investing in other
companies we will be exposed to the risks associated with
owning equity securities and those risks inherent in the
investee companies.
We continually evaluate and review capital and operating
expenditures in order to identify, decrease, and limit all non-
essential expenditures.
• Exchange Rate Risk
• Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our
financial obligations as they come due. The volatility of the
metals markets can impact our ability to forecast cash flow
from operations.
We must maintain sufficient liquidity to meet our short-term
business requirements, taking into account our anticipated
cash flows from operations, our holdings of cash and cash
equivalents, and committed loan facilities.
We manage our liquidity risk by continuously monitoring
forecasted and actual cash flows. We have in place a
rigorous reporting, planning and budgeting process to help
determine the funds required to support our normal operating
requirements on an ongoing basis and our expansion plans.
2016 Cash Cost and Metal Price Sensitivity
Pan American reports its financial statements in USD;
however, the Company operates in jurisdictions that utilize
other currencies. As a consequence, the financial results of
the Company’s operations, as reported in USD, are subject to
changes in the value of the USD relative to local currencies.
Since the Company’s revenues are denominated in USD and a
portion of the Company’s operating costs and capital spending
are in local currencies, the Company is negatively impacted by
strengthening local currencies relative to the USD and positively
impacted by the inverse. The local currencies that the Company
has the most exposure to are the Peruvian soles (“PEN”),
Mexican pesos (“MXN”) and Argentine pesos (“ARS”). The
following table illustrates the effect of changes in the exchange
rate of PEN and MXN against the USD on anticipated cost of
sales for 2016, expressed in percentage terms:
MXN/USD
$16.00
$16.50
$17.00
$17.50
$18.00
$18.50
$19.00
D
S
U
/
N
E
P
$3.15
$3.20
$3.25
$3.30
$3.35
$3.40
$3.45
$3.50
101%
101%
101%
101%
101%
100%
100%
100%
101%
101%
101%
100%
100%
100%
100%
100%
101%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
99%
99%
99%
99%
100%
100%
99%
99%
99%
99%
99%
99%
100%
99%
99%
99%
99%
99%
99%
98%
99%
99%
99%
99%
99%
98%
98%
98%
In order to mitigate this exposure, the Company maintains a
portion of its cash balances in PEN, MXN and CAD and, from
time to time, enters into forward currency positions to match
anticipated spending as discussed in this in MD&A in the
“Financial Instruments” section.
USD, at the official exchange rate has had the effect of reducing
purchasing power and substantially increasing relative costs
in an already high inflationary market. Maintaining monetary
assets in ARS also exposes us to the risks of ARS devaluation
and high domestic inflation.
The Company’s balance sheet contains various monetary
assets and liabilities, some of which are denominated in
foreign currencies. Accounting convention dictates that these
balances are translated at the end of each period, with resulting
adjustments being reflected as foreign exchange gains or losses
on the Company’s income statement.
Our balance sheet contains various monetary assets and
liabilities, some of which are denominated in foreign currencies.
Accounting convention dictates that these balances are fair
valued at the end of each period, with resulting adjustments
being reflected as foreign exchange gains or losses on our
statement of operations.
In addition to the foregoing, governmental restrictions and
controls relating to exchange rates also impact our operations.
In Argentina, for example, the government has at times
established official exchanges rates that were significantly
different than the unofficial exchange rates more readily
utilized in the local economy to determine prices and value. Our
investments in Argentina are primarily funded from outside of
the country, and therefore conversion of foreign currencies, like
• Taxation Risks
Pan American is exposed to tax related risks, in assessing
the probability of realizing income tax assets recognized,
the Company makes estimates related to expectations of
future taxable income, applicable tax planning opportunities,
expected timing of reversals of existing temporary differences
and the likelihood that tax positions taken will be sustained
upon examination by applicable tax authorities. In making
its assessments, we give additional weight to positive and
negative evidence that can be objectively verified. Estimates
of future taxable income are based on forecasted cash flows
from operations and the application of existing tax laws in each
jurisdiction. We consider relevant tax planning opportunities
that are within the Company’s control, are feasible and within
management’s ability to implement. Examination by applicable
tax authorities is supported based on individual facts and
circumstances of the relevant tax position examined in light of
all available evidence. Where applicable tax laws and regulations
are either unclear or subject to ongoing varying interpretations,
it is reasonably possible that changes in these estimates can
occur that materially affect the amounts of income tax assets
45
2015 annual report recognized. Also, future changes in tax laws could limit the
Company from realizing the tax benefits from the deferred tax
assets. We reassess unrecognized income tax assets at each
reporting period.
• Claims and Legal Proceedings
Pan American is subject to various claims and legal proceedings
covering a wide range of matters that arise in the ordinary
course of business activities. Many of these claims relate to
current or ex-employees, some of which involve claims of
significant value, for matters ranging from workplace illnesses
such as silicosis to claims for additional profit-sharing and
bonuses in prior years. Furthermore, we are in some cases the
subject of claims by local communities, indigenous groups or
private land owners relating to land and mineral rights and such
claimants may seek sizeable monetary damages against us
and/or the return of surface or mineral rights that are valuable
to us and which may impact our operations and profitability if
lost. Each of these matters is subject to various uncertainties
and it is possible that some of these matters may be resolved
unfavourably to us. We carry liability insurance coverage and
establish provisions for matters that are probable and can
be reasonably estimated. In addition, we may be involved in
disputes with other parties in the future that may result in
litigation, which may result in a material adverse effect on our
financial position, cash flow and results of operations.
SIGNIFICANT JUDGMENTS AND KEY SOURCES
OF ESTIMATION UNCERTAINTY IN THE
APPLICATION OF ACCOUNTING POLICIES
In preparing financial statements in accordance with
International Financial Reporting Standards, management is
required to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements.
These critical accounting estimates represent management
estimates and judgments that are uncertain and any changes
in these could materially impact the Company’s financial
statements. Management continuously reviews its estimates,
judgments, and assumptions using the most current
information available.
Readers should also refer to Note 2 of the 2015 Financial
Statements, for the Company’s summary of significant
accounting policies.
Significant Judgments in the Application
of Accounting Policies
Judgments that have the most significant effect on the amounts
recognized in the Company’s consolidated financial statements
are as follows:
Capitalization of evaluation costs: The Company has
determined that evaluation costs capitalized during the year
relating to the operating mines and certain other exploration
interests have potential future economic benefits and are
potentially economically recoverable, subject to impairment
analysis. In making this judgement, the Company has assessed
various sources of information including but not limited to the
geologic and metallurgic information, history of conversion
of mineral deposits to proven and probable mineral reserves,
scoping and feasibility studies, proximity to existing ore bodies,
operating management expertise and required environmental,
operating and other permits.
Commencement of commercial production: During the
determination of whether a mine has reached an operating
level that is consistent with the use intended by management,
costs incurred are capitalized as mineral property, plant and
equipment and any consideration from commissioning sales
are offset against costs capitalized. The Company defines
commencement of commercial production as the date
that a mine has achieved a sustainable level of production
based on a percentage of design capacity along with various
qualitative factors including but not limited to the achievement
of mechanical completion, continuous nominated level
of production, the working effectiveness of the plant and
equipment at or near expected levels and whether there is a
sustainable level of production input available including power,
water and diesel.
Assets’ carrying values and impairment charges: In
determining carrying values and impairment charges, the
Company looks at recoverable amounts, defined as the higher
of value in use or fair value less cost to sell in the case of assets,
and at objective evidence that identifies significant or prolonged
decline of fair value on financial assets indicating impairment.
These determinations and their individual assumptions require
that management make a decision based on the best available
information at each reporting period.
Functional currency: The functional currency for the
Company and its subsidiaries is the currency of the primary
economic environment in which each operates. The Company
has determined that its functional currency and that of its
subsidiaries is the USD. The determination of functional
currency may require certain judgments to determine the
primary economic environment. The Company reconsiders
the functional currency used when there is a change in
events and conditions which determined the primary
economic environment.
Business combinations: Determination of whether a set of
assets acquired and liabilities assumed constitute a business
may require the Company to make certain judgments, taking
into account all facts and circumstances. A business consists of
inputs, including non-current assets and processes, including
operational processes, that when applied to those inputs
have the ability to create outputs that provide a return to the
Company and its shareholders.
Deferral of stripping costs: In determining whether stripping
costs incurred during the production phase of a mining property
relate to mineral reserves and mineral resources that will be
mined in a future period and therefore should be capitalized,
the Company treats the costs of removal of the waste material
during a mine’s production phase as deferred, where it gives
rise to future benefits. These capitalized costs are subsequently
amortized on a unit of production basis over the reserves
that directly benefit from the specific stripping activity. As at
December 31, 2015, the carrying amount of stripping costs
capitalized was $39.5 million comprised of Manantial - $3.2
million and Dolores - $36.3 million (2014 - $46.2 million was
capitalized comprised of Manantial Espejo $13.0 million, Dolores
$28.4 million, and Alamo Dorado $4.8 million).
Replacement convertible debenture: As part of the 2009
Aquiline transaction, the Company issued a replacement
convertible debenture that allowed the holder to convert the
debenture into either 363,854 Common Shares or a silver
stream contract. The holder subsequently selected the silver
46
pan american silver corp. stream contract. The convertible debenture is classified
and accounted for as a deferred credit. In determining the
appropriate classification of the convertible debenture as
a deferred credit, the Company evaluated the economics
underlying the contract as of the date the Company assumed
the obligation. As at December 31, 2015, the carrying amount
of the deferred credit arising from the Aquiline acquisition was
$20.8 million (2014 - $20.8 million).
is a subjective process, and the accuracy of any mineral reserve
or mineral resource estimate is a function of the quantity and
quality of available data and of the assumptions made and
judgments used in engineering and geological interpretation.
Differences between management’s assumptions including
economic assumptions such as metal prices and market
conditions could have a material effect in the future on the
Company’s financial position and results of operation.
Convertible Notes: The Company has the right to pay all or
part of the liability associated with the Company’s outstanding
convertible notes in cash on the conversion date. Accordingly,
the Company classifies the convertible notes as a financial
liability with an embedded derivative. The financial liability
and embedded derivative are recognized initially at their
respective fair values. The embedded derivative is subsequently
recognized at fair value with changes in fair value reflected in
profit or loss and the debt liability component is recognized at
amortized cost using the effective interest method. Interest
gains and losses related to the debt liability component or
embedded derivatives are recognized in profit or loss. On
conversion, the equity instrument is measured at the carrying
value of the liability component and the fair value of the
derivative component on the conversion date. The notes, were
settled in December 2015 along with all accrued interest.
Key Sources of Estimation Uncertainty in the
Application of Accounting Policies
Key sources of estimation uncertainty that have a significant
risk of causing a material adjustment to the carrying amounts
of assets and liabilities are:
Revenue recognition: Revenue from the sale of concentrate
to independent smelters is recorded at the time the risks and
rewards of ownership pass to the buyer using forward market
prices on the expected date that final sales prices will be fixed.
Variations between the prices set under the smelting contracts
may be caused by changes in market prices and result in an
embedded derivative in the accounts receivable. The embedded
derivative is recorded at fair value each period until final
settlement occurs, with changes in the fair value classified in
revenue. In a period of high price volatility, as experienced under
current economic conditions, the effect of mark to market price
adjustments related to the quantity of metal which remains to
be settled with independent smelters could be significant. For
changes in metal quantities upon receipt of new information
and assay, the provisional sales quantities are adjusted.
Estimated recoverable ounces: The carrying amounts of
the Company’s mining properties are depleted based on
recoverable ounces. Changes to estimates of recoverable
ounces and depletable costs including changes resulting from
revisions to the Company’s mine plans and changes in metal
price forecasts can result in a change to future depletion rates.
Mineral reserve estimates: The figures for mineral reserves
and mineral resources are determined in accordance with NI
43-101 issued by the Canadian Securities Administrators, and in
accordance with “Estimation of Mineral Resources and Mineral
Reserves Best Practice Guidelines – adopted November 23,
2003” prepared by the Canadian Institute of Mining, Metallurgy
and Petroleum (“CIM”) Standing Committee on Reserve
Definitions. There are numerous uncertainties inherent in
estimating mineral reserves and mineral resources, including
many factors beyond the Company’s control. Such estimation
Valuation of Inventory: In determining mine production
costs recognized in the consolidated income statement, the
Company makes estimates of quantities of ore stacked in
stockpiles, placed on the heap leach pad and in process and
the recoverable silver in this material to determine the average
costs of finished goods sold during the period. Changes in these
estimates can result in a change in mine operating costs of
future periods and carrying amounts of inventories.
Depreciation and amortization rates for mineral property,
plant and equipment and mineral interests: Depreciation and
amortization expenses are allocated based on assumed asset
lives and depreciation and amortization rates. Should the
asset life or depreciation rate differ from the initial estimate,
an adjustment would be made in the consolidated income
statement prospectively. A change in the mineral reserve
estimate for assets depreciated using the units of production
method would impact depreciation expense prospectively.
Impairment of mining interests: While assessing whether
any indications of impairment exist for mining interests,
consideration is given to both external and internal sources
of information. Information the Company considers include
changes in the market, economic and legal environment in
which the Company operates that are not within its control
and affect the recoverable amount of mining interests. Internal
sources of information include the manner in which mineral
property, plant and equipment are being used or are expected
to be used and indications of the economic performance of the
assets. Estimates include but are not limited to estimates of the
discounted future after-tax cash flows expected to be derived
from the Company’s mining properties, costs to sell the mining
properties and the appropriate discount rate. Reductions in
metal price forecasts, increases in estimated future costs
of production, increases in estimated future capital costs,
reductions in the amount of recoverable mineral reserves and
mineral resources and/or adverse current economics can result
in a write-down of the carrying amounts of the Company’s
mining interests. Impairments of mining interests are discussed
in Note 11 of the 2015 Financial Statements.
Estimation of decommissioning and restoration costs
and the timing of expenditures: The cost estimates are
updated annually during the life of a mine to reflect known
developments, (e.g. revisions to cost estimates and to the
estimated lives of operations), and are subject to review at
regular intervals. Decommissioning, restoration and similar
liabilities are estimated based on the Company’s interpretation
of current regulatory requirements, constructive obligations
and are measured at the best estimate of expenditure required
to settle the present obligation of decommissioning, restoration
or similar liabilities that may occur upon decommissioning
of the mine at the end of the reporting period. The carrying
amount is determined based on the net present value of
estimated future cash expenditures for the settlement of
decommissioning, restoration or similar liabilities that may
occur upon decommissioning of the mine. Such estimates are
47
2015 annual report subject to change based on changes in laws and regulations and
negotiations with regulatory authorities. Refer to Note 15 of the
2015 Financial Statements for details on decommissioning and
restoration costs.
Income taxes and recoverability of deferred tax assets:
In assessing the probability of realizing income tax assets
recognized, the Company makes estimates related to
expectations of future taxable income, applicable tax planning
opportunities, expected timing of reversals of existing
temporary differences and the likelihood that tax positions
taken will be sustained upon examination by applicable tax
authorities. In making its assessments, the Company gives
additional weight to positive and negative evidence that can
be objectively verified. Estimates of future taxable income
are based on forecasted cash flows from operations and
the application of existing tax laws in each jurisdiction. The
Company considers relevant tax planning opportunities that
are within the Company’s control, are feasible and within
management’s ability to implement. Examination by applicable
tax authorities is supported based on individual facts and
circumstances of the relevant tax position examined in light of
all available evidence. Where applicable tax laws and regulations
are either unclear or subject to ongoing varying interpretations,
it is reasonably possible that changes in these estimates can
occur that materially affect the amounts of income tax assets
recognized. Also, future changes in tax laws could limit the
Company from realizing the tax benefits from the deferred tax
assets. The Company reassesses unrecognized income tax
assets at each reporting period.
Accounting for acquisitions: The provisional fair value of assets
acquired and liabilities assumed and the resulting goodwill, if
any, requires that management make certain judgments and
estimates taking into account information available at the time
of acquisition about future events, including, but not restricted
to, estimates of mineral reserves and mineral resources
required, exploration potential, future operating costs and
capital expenditures, future metal prices, long-term foreign
exchange rates and discount rates. Changes to the provisional
values of assets acquired and liabilities assumed, deferred
income taxes and resulting goodwill, if any, are retrospectively
adjusted when the final measurements are determined (within
one year of the acquisition date).
Contingencies: Due to the size, complexity and nature of
the Company’s operations, various legal and tax matters are
outstanding from time to time. In the event the Company’s
estimates of the future resolution of these matters changes,
the Company will recognize the effects of the changes in its
consolidated financial statements on the date such changes
occur. Refer to Note 28 of the 2015 Financial Statements for
further discussion on contingencies.
CHANGES IN ACCOUNTING STANDARDS
Effective January 1, 2015, the Company adopted the following
new and revised IFRSs that were issued by the International
Accounting Standards Board (“IASB”), effective for annual
periods beginning on or after July 1, 2014:
Amended standard IFRS 2 Share-based Payment, the
amendment to IFRS 2 re-defines the definition of “vesting
condition.” The application of this IFRS did not have a material
impact on the amounts reported for the current or prior years
but may affect the presentation of future transactions
or arrangements.
Amended standard IFRS 3 Business Combinations, the
amendment to IFRS 3 provides further clarification on the
accounting treatment for contingent consideration, and
provides a scope exception for joint ventures. The application
of this IFRS did not have a material impact on the amounts
reported for the current or prior years but may affect the
presentation of future transactions or arrangements.
Amended standard IFRS 8 Operating Segments, the
amendments to IFRS 8 provides further clarification on the
disclosure required for the aggregation of segments and the
reconciliation of segment assets. The application of this IFRS
did not have a material impact on the disclosure required for the
current or prior years but may affect the disclosure required in
the future.
Amended standard IFRS 13 Fair Value Measurement, the
amendment to IFRS 13 provides further details on the scope
of the portfolio exception. The application of this IFRS did
not have a material impact on the amounts reported for the
current or prior years but may affect the presentation of future
transactions or arrangements.
Amended standard IAS 16 Property, Plant and Equipment, the
amendment to IAS 16 deals with the proportionate restatement
of accumulated depreciation on revaluation. The application
of this IFRS did not have a material impact on the amounts
reported for the current or prior years but may affect the
presentation of future transactions or arrangements.
Amended standard IAS 24 Related Party Disclosures, the
amendment to IAS 24 deals with the disclosure required for
management entities. The application of this IFRS did not have
a material impact on the disclosure required for the current or
prior years but may affect the disclosure required in the future.
Amended standard IAS 38 Intangible Assets, the amendment
to IAS 38 deals with the proportionate restatement of
accumulated depreciation on revaluation. The application
of this IFRS did not have a material impact on the amounts
reported for the current or prior years but may affect the
presentation of future transactions or arrangements.
a. Accounting Standards Issued but Not Yet Effective
IFRS 9 Financial Instruments (“IFRS 9”) was issued by the
International Accounting Standards Board (“IASB”) on July 24,
2014 and will replace IAS 39 Financial Instruments: Recognition
and Measurement. IFRS 9 utilizes a single approach to
determine whether a financial asset is measured at amortized
cost or fair value and a new mixed measurement model for
debt instruments having only two categories: amortized cost
and fair value. The approach in IFRS 9 is based on how an
entity manages its financial instruments in the context of its
business model and the contractual cash flow characteristics
of the financial assets. Final amendments released on July 24,
2014 also introduce a new expected loss impairment model
and limited changes to the classification and measurement
requirements for financial assets. IFRS 9 is effective for annual
periods beginning on or after January 1, 2018. The Company
is currently evaluating the impact the final standard and
amendments on its consolidated financial statements.
48
pan american silver corp. IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB and the Financial Accounting Standards
Board (“FASB”) completed its joint project to clarify the
principles for recognizing revenue and to develop a common
revenue standard for IFRS and US GAAP. As a result of the
joint project, the IASB issued IFRS 15, Revenue from Contracts
with Customers, and will replace IAS 18, Revenue, IAS 11,
Construction Contracts, and related interpretations on revenue.
IFRS 15 establishes principles to address the nature, amount,
timing and uncertainty of revenue and cash flows arising from
an entity’s contracts with customers. Companies can elect
to use either a full or modified retrospective approach when
adopting this standard. On July 22, 2015, the IASB confirmed
a one-year deferral of the effective date of IFRS 15 to January 1,
2018. The Company is in the process of analyzing IFRS 15 and
determining the effect on our consolidated financial statements
as a result of adopting this standard.
IFRS 16, Leases (“IFRS 16”) In January 2016, the IASB issued
IFRS 16 – Leases which replaces IAS 17 – Leases and its
associated interpretative guidance. IFRS 16 applies a control
model to the identification of leases, distinguishing between
a lease and a service contract on the basis of whether the
customer controls the asset being leased. For those assets
determined to meet the definition of a lease, IFRS 16 introduces
significant changes to the accounting by lessees, introducing
a single, on-balance sheet accounting model that is similar
to current finance lease accounting, with limited exceptions
for short-term leases or leases of low value assets. Lessor
accounting remains similar to current accounting practice.
The standard is effective for annual periods beginning on or
after January 1, 2019, with early application permitted for
entities that apply IFRS 15. The Company is currently evaluating
the impact the final standard is expected to have on its
consolidated financial statements.
CORPORATE GOVERNANCE, SOCIAL
RESPONSIBILITY, AND ENVIRONMENTAL
STEWARDSHIP
Governance
Pan American adheres to high standards of corporate
governance and closely follows the requirements established
by both the Canadian Securities Administrators and the SEC
in the United States. We believe that our current corporate
governance systems meet or exceed these requirements.
Our Board of Directors oversees the direction and strategy
of the business and the affairs of the Company. The Board is
comprised of eight directors, six of whom are independent. The
Board’s wealth of experience allows it to effectively oversee
the development of corporate strategies, provide management
with long-term direction, consider and approve major decisions,
oversee the business generally and evaluate corporate
performance. The Health, Safety and Environment Committee,
appointed by the Board of Directors, provides oversight for the
corporate social initiatives of the Company and reports directly
to the Board.
We believe that good corporate governance is important to the
effective performance of the Company and plays a significant
role in protecting the interests of all stakeholders while helping
to maximize value.
Community relations
We are committed to creating sustainable value in the
communities where our people work and live. Guided by
research conducted by our local offices, we participate in, and
contribute to numerous community programs. They typically
center on education and health, nutrition, environmental
awareness, local infrastructure and alternative economic
activities. Some of our key initiatives are:
• Strengthening the production chain of livestock breeding.
• Value adding through the development of alpaca textiles
weaving workshops with product commercialization in
North America.
•
Improving nutrition, focusing on children and
pregnant women.
• Promoting community health with emphasis on
immunizations, optometry, and focusing on oral health.
• Promoting tourism and local areas of interest such as the
Stone Forest in Huayllay in Peru.
• Encouraging education for children and adults by
contributing to teacher’s salaries, and providing continuous
support through different scholarships at a local and
national level.
Environmental Stewardship
We are committed to operating our mines and developing
our new projects in an environmentally responsible manner.
Guided by our Corporate Environmental Policy, we take every
practical measure to minimize the environmental impacts of
our operations in each phase of the mining cycle, from early
exploration through development, construction and operation,
up to and after the mine’s closure.
We build and operate mines in varied environments across the
Americas. From the Patagonian plateau to the Sierra Madre in
Mexico, our mines are generally located in isolated places where
information about environmental and cultural values is often
limited. Our mines in Peru and Bolivia are situated in historic
mining districts where previous operations have left significant
environmental liabilities that have potential to impact on
surrounding habitats and communities.
We manage these challenges using best practice methods
in environmental impact assessment and teams of leading
local and international professionals who clearly determine
pre-existing environmental values at each location. These
extensive baseline studies often take years of work and cover
issues such as biodiversity and ecosystems, surface and
groundwater resources, air quality, soils, landscape, archeology
and paleontology, and the potential for acid rock drainage in the
natural rocks of each new mineral deposit or historic waste or
tailings dump. The data collected often significantly advances
scientific knowledge about the environments and regions where
we work.
The baseline information is then used interactively in the design
of each new mine or to develop management and closure plans
for historic environmental liabilities, in open consultation with
local communities and government authorities. We conduct
detailed modeling and simulation of the environmental effects
of each alternative design in order to determine the optimum
solution, always aiming for a net benefit.
49
2015 annual report Once construction and operations begin, we conduct regular
monitoring of all relevant environmental variables in order to
measure real impacts against baseline data and report to the
government and communities on our progress. Community
participation in environmental monitoring is encouraged across
all our mines. We implement management systems, work
procedures and regular staff training to ensure optimum day-to-
day management of issues like waste separation and disposal,
water conservation, spill prevention, and incident investigation
and analysis.
We conduct corporate environmental audits of our operations
to ensure optimum environmental performance. Environmental
staffs from all mines participate in the audits which improves
integration and consolidation of company-wide standards
across our operations. In 2015, audits were conducted on the La
Colorada, Dolores, Alamo Dorado, and Manantial Espejo mines.
In 2014, audits were conducted on the Morococha, San Vicente
and Huaron mines.
DISCLOSURE CONTROLS AND PROCEDURES
Pan American’s management considers the meaning of internal
control to be the processes established by management to
provide reasonable assurance about the achievement of the
Company’s objectives regarding operations, reporting and
compliance. Internal control is designed to address identified
risks that threaten any of these objectives.
As of December 31, 2015, the Company carried out an
evaluation, under the supervision and with the participation of
the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of the Company’s disclosure
controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded
that, as of December 31, 2015, the Company’s disclosure
controls and procedures were effective.
Changes in Internal Controls over Financial Reporting
There has been no change in the Company’s internal control
over financial reporting during the year ended December 31,
2015 that has materially affected or is reasonably likely to
materially affect, its internal control over financial reporting.
Management’s Report on Internal Control over Financial
Reporting
Management of Pan American is responsible for establishing
and maintaining an adequate system of internal control,
including internal controls over financial reporting. Internal
control over financial reporting is a process designed by, or
under the supervision of, the President and Chief Executive
Officer and the Chief Financial Officer and effected by the Board
of Directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with International Financial
Reporting Standards. It includes those policies and
procedures that:
a) pertain to the maintenance of records that in reasonable
detail accurately and fairly reflect the transactions and
dispositions of the assets of Pan American,
b) are designed to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with International Financial
Reporting Standards, and that receipts and expenditures
of Pan American are being made only in accordance with
authorizations of management and Pan American’s
directors, and
c) are designed to provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition,
use or disposition of Pan American’s assets that could have a
material effect on the annual financial statements or interim
financial reports.
The Company’s management, including its President and
Chief Executive Officer and Chief Financial Officer, believe that
due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements on a timely
basis. Also, projections of any evaluation of the effectiveness
of internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Pan American’s
internal control over financial reporting as at December 31,
2015, based on the criteria set forth in Internal Control –
Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, management concludes that, as
of December 31, 2015, Pan American’s internal control over
financial reporting is effective.
Management reviewed the results of management’s
assessment with the Audit Committee of the Company’s Board
of Directors. Deloitte LLP, an independent registered public
accounting firm, were engaged, as approved by a vote of the
Company’s shareholders, to audit and provide independent
opinions on the Company’s consolidated financial statements
and the effectiveness of the Company’s internal control over
financial reporting as of December 31, 2015. Deloitte LLP has
provided such opinions.
50
pan american silver corp. MINERAL RESERVES AND RESOURCES
MINERAL RESERVES - PROVEN AND PROBABLE
Location
Classification
(Mt)
Tonnes
Ag
(g/t)
Contained Ag
(Moz)
Au
(g/t)
Contained Au
(000’s oz)
Cu
(%)
Pb
(%)
Zn
(%)
Huaron
Peru
Proven
Probable
Morococha (92.3%) (1)
Peru
Proven
La Colorada
Dolores
Alamo Dorado
La Bolsa
Manantial Espejo
Probable
Mexico
Proven
Probable
Mexico
Proven
Probable
Mexico
Proven
Probable
Mexico
Proven
Probable
Argentina
Proven
Probable
San Vicente (95%) (1)
Bolivia
Proven
TOTALS (2)
Probable
Proven +
Probable
MINERAL RESOURCES - MEASURED AND INDICATED
6.1
3.7
2.3
1.9
3.3
3.7
23.0
29.2
1.6
0.0
9.5
6.2
2.5
0.3
2.0
0.4
95.7
172
167
176
202
474
346
28
34
55
0
10
7
120
262
482
511
91
33.6
19.9
13.0
12.6
49.6
41.6
20.7
32.4
2.9
0.0
3.1
1.4
9.4
2.4
30.4
6.9
N/A
N/A
N/A
N/A
0.35
0.30
0.96
0.92
0.23
0.00
0.67
0.57
1.60
3.90
N/A
N/A
N/A
N/A
N/A
N/A
36.2
35.9
706.0
864.0
12.2
0.0
203.0
113.1
126.4
35.6
N/A
N/A
0.41
0.27
0.78
0.53
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
280.1
0.84
2,132.4
0.45
Location
Classification
(Mt)
(g/t)
(Moz)
(g/t)
(000’s oz)
Tonnes
Ag
Contained Ag
Au
Contained Au
Huaron
Peru
Measured
Indicated
Morococha (92.3%) (1)
Peru
Measured
La Colorada
Dolores
Alamo Dorado
La Bolsa
Manantial Espejo
Indicated
Mexico
Measured
Indicated
Mexico
Measured
Indicated
Mexico
Measured
Indicated
Mexico
Measured
Indicated
Argentina Measured
Indicated
San Vicente (95%) (1)
Bolivia
Measured
Navidad
Pico Machay
Calcatreu
TOTALS (2)
Indicated
Argentina Measured
Indicated
Peru
Measured
Indicated
Argentina
Indicated
Measured +
Indicated
MINERAL RESOURCES - INFERRED
1.7
1.4
0.3
0.6
0.4
1.9
11.8
20.2
1.2
0.9
1.4
4.5
0.9
0.5
0.9
0.2
15.4
139.8
4.7
5.9
8.0
222.3
166
167
124
155
234
288
17
25
50
78
11
9
99
188
194
207
137
126
N/A
N/A
26
106
9.3
7.3
1.3
3.0
3.2
17.7
6.5
16.2
1.8
2.1
0.3
1.1
2.9
2.8
5.4
1.2
67.8
564.5
N/A
N/A
6.6
N/A
N/A
N/A
N/A
0.22
0.26
0.29
0.62
0.23
0.40
0.90
0.50
1.14
1.84
N/A
N/A
N/A
N/A
0.91
0.67
2.63
N/A
N/A
N/A
N/A
3.0
16.0
109.2
400.3
8.5
10.9
31.4
59.8
33.6
26.9
N/A
N/A
N/A
N/A
137.5
127.1
676.0
Cu
(%)
0.27
0.67
0.35
0.39
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.10
0.04
N/A
N/A
N/A
721.0
0.83
1,640.2
0.06
0.86
Huaron
Morococha (92.3%) (1)
La Colorada
Dolores
Alamo Dorado
La Bolsa
Manantial Espejo
San Vicente (95%) (1)
Navidad
Pico Machay
Calcatreu
TOTALS (2)
Location
Classification
(Mt)
(g/t)
(Moz)
(g/t)
(000’s oz)
Tonnes
Ag
Contained Ag
Au
Contained Au
Peru
Peru
Mexico
Mexico
Mexico
Mexico
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Argentina
Inferred
Bolivia
Inferred
Argentina
Inferred
Peru
Inferred
Argentina
Inferred
7.3
4.8
1.9
4.1
0.0
13.7
0.5
2.2
45.9
23.9
3.4
Inferred
107.8
153
239
374
30
39
8
208
318
81
N/A
17
93
36.2
37.1
23.3
4.0
0.0
3.3
3.2
22.1
119.4
N/A
1.8
250.5
N/A
N/A
0.39
1.17
0.54
0.51
2.64
N/A
N/A
0.58
2.06
0.73
N/A
N/A
24.4
155.7
0.0
222.4
41.0
N/A
N/A
445.7
226.0
1,115.3
Cu
(%)
0.32
0.33
N/A
N/A
N/A
N/A
N/A
N/A
0.02
N/A
N/A
0.08
Pb
(%)
1.48
1.25
2.27
N/A
N/A
N/A
N/A
0.30
0.57
N/A
N/A
0.77
1.40
1.58
1.18
1.35
1.69
1.18
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.35
0.48
1.30
Pb
(%)
1.66
1.58
0.96
1.00
0.47
0.64
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.15
0.16
1.44
0.79
N/A
N/A
N/A
2.99
3.17
3.57
3.70
3.15
2.06
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2.66
2.24
2.97
Zn
(%)
2.93
2.95
3.04
3.13
0.85
0.88
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2.12
2.57
N/A
N/A
N/A
N/A
N/A
2.21
Zn
(%)
2.75
3.14
4.02
N/A
N/A
N/A
N/A
2.33
N/A
N/A
N/A
2.36
51
2015 annual report
HISTORICAL ESTIMATES
Property
Location
Unclassified
Tonnes
(Mt)
Ag
(g/t)
Contained Ag
(Moz)
Au
(g/t)
Hog Heaven (3)
Hog Heaven (3)
Waterloo (4)
TOTAL (2)
USA
USA
USA
Historical (3)
Historical (3)
Historical
Historical
2.7
7.6
33.8
44.1
167
133
93
104
14.6
32.7
100.9
148.2
0.62
0.70
N/A
Pb
(%)
N/A
N/A
N/A
Contained Au
(000’s oz)
53.9
171.9
N/A
225.8
Zn
(%)
N/A
N/A
N/A
Cu
(%)
N/A
N/A
N/A
(1) This information represents the portion of mineral reserves and
resources attributable to Pan American based on its ownership interest
in the operating entity as indicated.
(2) Totals may not add-up due to rounding.
(3) The historical estimate for Hog Heaven was prepared by Gregory
Hahn, Chief Geological Engineer for CoCa Mines Inc., a previous owner
of the property, in a report titled “Hog Heaven Project Optimization
Study” dated May 1989, prior to implementation of NI 43-101. The
historical estimate was based on extensive diamond drilling, and was
estimated using a silver price of $6.50 per ounce and a gold price of
$400 per ounce (these were relevant prices at the time of the estimate).
Michael Steinmann, P.Geo, has reviewed the available data, including
drill sections, surface maps, and additional supporting information
sources, and believes that the historic estimate was conducted in a
professional and competent manner and is relevant for the purposes of
the Company’s decision to maintain its interest in this property. In the
study, the historic estimate was sub-categorized as follows:
Category
Tons
oz/ton
Ag
oz/ton
Au
Proven Reserves
2,981,690
Probable & Possible Reserves
904,200
Heap leach ore
Possible Resources
Inferred Resources
316,100
4,500,000
2,700,000
4.88
10.40
1.56
2.41
4.44
0.018
0.020
0.014
0.020
0.022
However, the Company has not completed the work necessary to verify
the historical estimate. Accordingly, the Company is not treating the
historical estimate as current, NI 43-101-compliant mineral resources
based on information prepared by or under the supervision of a QP.
These historical estimates should not be relied upon.
The Company believes that the historical estimate category of “proven
reserves” for Hog Heaven most closely corresponds to 2,705,000 tonnes
in the CIM definition category of “indicated mineral resources”.
The Company believes that the historical estimate categories of “proven
& possible reserves”, “heap leach ore stockpile”, “possible resources” and
“inferred resources” most closely correspond to 7,639,000 tonnes in the
CIM definition category of “inferred mineral resources”.
(4) The historical estimate for Waterloo was initially prepared by Asarco
Inc. in 1968. In September 1994 Robert J. Rodger, P.Eng., reviewed
the Asarco reports and prepared a Technical Evaluation Report on
the Waterloo property, prior to the implementation of NI 43-101. The
Technical Evaluation Report confirmed that the historical estimate
was based on reverse circulation drilling and underground sampling,
and concluded the estimate was based on sound methodology. The
historical estimate at Waterloo was prepared using a silver price of
$5.00 per ounce (the relevant price at the time of the estimate). Michael
Steinmann, P.Geo., has reviewed the Technical Evaluation Report and
believes the historic estimate was conducted in a professional and
competent manner and is relevant for purposes of the Company’s
decision to maintain its interest in the property. The Company believes
that the historical estimate category of 37,235,000 tons (at 2.71 ounces
per ton silver) of “measured and indicated reserves” most closely
corresponds to 33,758,000 tonnes in the CIM definition category of
“indicated mineral resource”. However, the Company has not completed
the work necessary to verify the historical estimate. Accordingly, the
Company is not treating the historical estimate as current, NI 43-101
compliant mineral resources based on information prepared by or under
the supervision of a QP. These historical estimates should not be
relied upon.
General Notes Applicable to the Foregoing Tables:
Mineral reserves and resources are as defined by the Canadian Institute
of Mining, Metallurgy and Petroleum.
Mineral resources that are not mineral reserves have no demonstrated
economic viability.
Pan American does not expect these mineral reserve and resource
estimates to be materially affected by metallurgical, environmental,
permitting, legal, taxation, socio-economic, political, and marketing or
other relevant issues.
See the Company’s Annual Information Form dated March 24, 2016,
available at www.sedar.com, for more information concerning associated
QA/QC and data verification matters, the key assumptions, parametres
and methods used by the Company to estimate mineral reserves
and mineral resources, and for a detailed description of known legal,
political, environmental, and other risks that could materially affect the
Company’s business and the potential development of the Company’s
mineral reserves and resources.
Grades are shown as contained metal before mill recoveries are applied.
Pan American reports mineral resources and mineral reserves separately.
Reported mineral resources do not include amounts identified as mineral
reserves.
Prices used to estimate mineral reserves for 2015 were $17.00 per ounce
of silver, $1,180 per ounce of gold, $1,800 per tonne of lead, $1,800
per tonne of zinc, and $5,000 per tonne of copper, except at Manantial
Espejo where $14.50 per ounce of silver and $1,100 per ounce of gold
was used for planned 2016 production, reverting to the previously stated
metal prices thereafter, and Alamo Dorado stockpiles where metal prices
of $15.00 per ounce of silver and $1,100 per ounce of gold were used due
to their planned processing in the short term.
Metal prices for Dolores, Manantial Espejo and Alamo Dorado resources
were $25 per ounce of silver and $1,400 per ounce of gold.
Metal prices used for Navidad were $12.52 per ounce of silver and $1,100
per tonne of lead.
Metal prices used for Calcatreu were $12.50 per ounce of silver and $650
per ounce of gold
Metal prices used for La Bolsa were $14.00 per ounce of silver and $825
per ounce of gold.
Mineral resource and reserve estimates for Huaron, Morococha, La
Colorada, Dolores, Alamo Dorado, Manantial Espejo, San Vicente, La
Bolsa, Pico Machay, and Calcatreu were prepared under the supervision
of, or were reviewed by Martin Dupuis, P. Geo., Director, Geology and
Martin G. Wafforn, P. Eng., Vice-President Technical Services, each
of whom are Qualified Persons as that term is defined in National
Instrument 43-101 (“NI 43-101”). Navidad mineral resource estimates
were prepared by Pamela De Mark, P. Geo., Director, Resources, formerly
Sr. Consultant of Snowden Mining Industry Consultants, also a Qualified
Person as that term is defined in NI 43-101. Mineral resource estimates
for Hog Heaven and Waterloo are based on historical third
party estimates.
TECHNICAL INFORMATION
Martin Wafforn and Martin Dupuis, each of whom are Qualified Persons,
as the term is defined in NI 43-101, have reviewed and approved the
contents of this MD&A.
For more detailed information regarding the Company’s material
mineral properties and technical information related thereto, including a
complete list of current technical reports applicable to such properties,
please refer to the Company’s Annual Information Form dated March 24,
2016 filed at www.sedar.com or the Company’s most recent Form 40-F
filed with the SEC.
52
pan american silver corp.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INFORMATION
CERTAIN OF THE STATEMENTS AND INFORMATION IN THIS MD&A
CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING
OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND “FORWARD-LOOKING INFORMATION” WITHIN THE
MEANING OF APPLICABLE CANADIAN PROVINCIAL SECURITIES LAWS
RELATING TO THE COMPANY AND ITS OPERATIONS. ALL STATEMENTS,
OTHER THAN STATEMENTS OF HISTORICAL FACT, ARE FORWARD-
LOOKING STATEMENTS. WHEN USED IN THIS MD&A THE WORDS,
“WILL”, “BELIEVES”, “EXPECTS”, “INTENDS”, “PLANS”, “FORECAST”,
“OBJECTIVE”, “GUIDANCE”, “OUTLOOK”, “POTENTIAL”, “ANTICIPATED”,
“BUDGET”, AND OTHER SIMILAR WORDS AND EXPRESSIONS, IDENTIFY
FORWARD-LOOKING STATEMENTS OR INFORMATION. THESE
FORWARD-LOOKING STATEMENTS OR INFORMATION RELATE TO,
AMONG OTHER THINGS: FUTURE PRODUCTION OF SILVER, GOLD
AND OTHER METALS PRODUCED BY THE COMPANY; FUTURE CASH
COSTS PER OUNCE OF SILVER AND ALL-IN SUSTAINING COSTS PER
SILVER OUNCE SOLD; THE PRICE OF SILVER AND OTHER METALS;
THE EFFECTS OF LAWS, REGULATIONS AND GOVERNMENT POLICIES
AFFECTING PAN AMERICAN’S OPERATIONS OR POTENTIAL FUTURE
OPERATIONS, INCLUDING BUT NOT LIMITED TO THE LAWS IN THE
PROVINCE OF CHUBUT, ARGENTINA, WHICH CURRENTLY HAVE
SIGNIFICANT RESTRICTIONS ON MINING, AND THE NEW MINING
LAW AND THE NEW CONCILIATION AND ARBITRATION LAW IN
BOLIVIA, EACH OF WHICH COULD PLACE ADDITIONAL FINANCIAL
OBLIGATIONS ON OUR SUBSIDIARIES; THE CONTINUING NATURE OF
HIGH INFLATION, RISING CAPITAL AND OPERATING COSTS, CAPITAL
RESTRICTIONS AND RISKS OF EXPROPRIATION RELATIVE TO CERTAIN
OF OUR OPERATIONS, PARTICULARLY IN ARGENTINA AND BOLIVIA,
AND THEIR EFFECTS ON OUR BUSINESS; THE SUFFICIENCY OF THE
COMPANY’S CURRENT WORKING CAPITAL, ANTICIPATED OPERATING
CASH FLOW OR ITS ABILITY TO RAISE NECESSARY FUNDS; TIMING OF
PRODUCTION AND THE CASH AND TOTAL COSTS OF PRODUCTION AT
EACH OF THE COMPANY’S PROPERTIES; THE ESTIMATED COST OF AND
AVAILABILITY OF FUNDING NECESSARY FOR SUSTAINING CAPITAL; THE
SUCCESSFUL IMPLEMENTATION AND EFFECTS OF ONGOING OR FUTURE
DEVELOPMENT AND EXPANSION PLANS AND CAPITAL REPLACEMENT,
IMPROVEMENT OR REMEDIATION PROGRAMS; FORECAST CAPITAL
AND NON-OPERATING SPENDING; FUTURE SALES OF THE METALS,
CONCENTRATES OR OTHER PRODUCTS PRODUCED BY THE COMPANY;
AND THE COMPANY’S PLANS AND EXPECTATIONS FOR ITS PROPERTIES
AND OPERATIONS; AND THE TIMING AND METHOD OF REPAYMENT OF
RESTRICTED SHARE UNITS AND PERFORMANCE SHARE UNITS.
THESE STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS
WITH RESPECT TO FUTURE EVENTS AND ARE NECESSARILY BASED
UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT, WHILE
CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY
SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE,
POLITICAL AND SOCIAL UNCERTAINTIES AND CONTINGENCIES. MANY
FACTORS, BOTH KNOWN AND UNKNOWN, COULD CAUSE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY
DIFFERENT FROM THE RESULTS, PERFORMANCE OR ACHIEVEMENTS
THAT ARE OR MAY BE EXPRESSED OR IMPLIED BY SUCH FORWARD-
LOOKING STATEMENTS OR INFORMATION CONTAINED IN THIS MD&A
AND THE COMPANY HAS MADE ASSUMPTIONS AND ESTIMATES
BASED ON OR RELATED TO MANY OF THESE FACTORS. SUCH
FACTORS INCLUDE, WITHOUT LIMITATION: FLUCTUATIONS IN SPOT
AND FORWARD MARKETS FOR SILVER, GOLD, BASE METALS AND
CERTAIN OTHER COMMODITIES (SUCH AS NATURAL GAS, FUEL OIL
AND ELECTRICITY); FLUCTUATIONS IN CURRENCY MARKETS (SUCH
AS THE PERUVIAN SOL, MEXICAN PESO, ARGENTINE PESO, BOLIVIAN
BOLIVIANO AND CANADIAN DOLLAR VERSUS THE U.S. DOLLAR);
RISKS RELATED TO THE TECHNOLOGICAL AND OPERATIONAL NATURE
OF THE COMPANY’S BUSINESS; CHANGES IN NATIONAL AND LOCAL
GOVERNMENT, LEGISLATION, TAXATION, CONTROLS OR REGULATIONS
AND POLITICAL OR ECONOMIC DEVELOPMENTS IN CANADA, THE
UNITED STATES, MEXICO, PERU, ARGENTINA, BOLIVIA OR OTHER
COUNTRIES WHERE THE COMPANY MAY CARRY ON BUSINESS IN THE
FUTURE; RISKS AND HAZARDS ASSOCIATED WITH THE BUSINESS OF
MINERAL EXPLORATION, DEVELOPMENT AND MINING (INCLUDING
ENVIRONMENTAL HAZARDS, INDUSTRIAL ACCIDENTS, UNUSUAL OR
UNEXPECTED GEOLOGICAL OR STRUCTURAL FORMATIONS, PRESSURES,
CAVE-INS AND FLOODING); RISKS RELATING TO THE CREDIT
WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS
AND OTHER PARTIES WITH WHOM THE COMPANY DOES BUSINESS;
INADEQUATE INSURANCE, OR INABILITY TO OBTAIN INSURANCE,
TO COVER THESE RISKS AND HAZARDS; EMPLOYEE RELATIONS;
RELATIONSHIPS WITH AND CLAIMS BY LOCAL COMMUNITIES AND
INDIGENOUS POPULATIONS; AVAILABILITY AND INCREASING COSTS
ASSOCIATED WITH MINING INPUTS AND LABOUR; THE SPECULATIVE
NATURE OF MINERAL EXPLORATION AND DEVELOPMENT, INCLUDING
THE RISKS OF OBTAINING NECESSARY LICENSES AND PERMITS AND
THE PRESENCE OF LAWS AND REGULATIONS THAT MAY IMPOSE
RESTRICTIONS ON MINING, INCLUDING THOSE CURRENTLY IN THE
PROVINCE OF CHUBUT, ARGENTINA; DIMINISHING QUANTITIES OR
GRADES OF MINERAL RESERVES AS PROPERTIES ARE MINED; GLOBAL
FINANCIAL CONDITIONS; THE COMPANY’S ABILITY TO COMPLETE
AND SUCCESSFULLY INTEGRATE ACQUISITIONS AND TO MITIGATE
OTHER BUSINESS COMBINATION RISKS; CHALLENGES TO, OR
DIFFICULTY IN MAINTAINING, THE COMPANY’S TITLE TO PROPERTIES
AND CONTINUED OWNERSHIP THEREOF; THE ACTUAL RESULTS OF
CURRENT EXPLORATION ACTIVITIES, CONCLUSIONS OF ECONOMIC
EVALUATIONS, AND CHANGES IN PROJECT PARAMETRES TO DEAL
WITH UNANTICIPATED ECONOMIC OR OTHER FACTORS; INCREASED
COMPETITION IN THE MINING INDUSTRY FOR PROPERTIES, EQUIPMENT,
QUALIFIED PERSONNEL, AND THEIR COSTS; HAVING SUFFICIENT
CASH TO PAY OBLIGATIONS AS THEY COME DUE AND THOSE FACTORS
IDENTIFIED UNDER THE CAPTION “RISKS RELATED TO PAN AMERICAN’S
BUSINESS” IN THE COMPANY’S MOST RECENT FORM 40-F AND ANNUAL
INFORMATION FORM FILED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION AND CANADIAN PROVINCIAL SECURITIES
REGULATORY AUTHORITIES. INVESTORS ARE CAUTIONED AGAINST
ATTRIBUTING UNDUE CERTAINTY OR RELIANCE ON FORWARD-
LOOKING STATEMENTS OR INFORMATION. ALTHOUGH THE COMPANY
HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, THERE MAY BE
OTHER FACTORS THAT CAUSE RESULTS NOT TO BE AS ANTICIPATED,
ESTIMATED, DESCRIBED OR INTENDED. THE COMPANY DOES NOT
INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE THESE
FORWARD-LOOKING STATEMENTS OR INFORMATION TO REFLECT
CHANGES IN ASSUMPTIONS OR CHANGES IN CIRCUMSTANCES OR
ANY OTHER EVENTS AFFECTING SUCH STATEMENTS OR INFORMATION,
OTHER THAN AS REQUIRED BY APPLICABLE LAW.
CAUTIONARY NOTE TO US INVESTORS CONCERNING ESTIMATES OF
MINERAL RESERVES AND RESOURCES
THIS MD&A HAS BEEN PREPARED IN ACCORDANCE WITH THE
REQUIREMENTS OF CANADIAN SECURITIES LAWS, WHICH DIFFER
FROM THE REQUIREMENTS OF U.S. SECURITIES LAWS. UNLESS
OTHERWISE INDICATED, ALL MINERAL RESERVE AND RESOURCE
ESTIMATES INCLUDED IN THIS NEWS RELEASE HAVE BEEN PREPARED
IN ACCORDANCE WITH CANADIAN NATIONAL INSTRUMENT 43-
101 – STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS (‘’NI
43-101’’) AND THE CANADIAN INSTITUTE OF MINING, METALLURGY
AND PETROLEUM CLASSIFICATION SYSTEM. NI 43-101 IS A RULE
DEVELOPED BY THE CANADIAN SECURITIES ADMINISTRATORS THAT
ESTABLISHES STANDARDS FOR ALL PUBLIC DISCLOSURE AN ISSUER
MAKES OF SCIENTIFIC AND TECHNICAL INFORMATION CONCERNING
MINERAL PROJECTS. CANADIAN STANDARDS, INCLUDING NI 43-101,
DIFFER SIGNIFICANTLY FROM THE REQUIREMENTS OF THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), AND
INFORMATION CONCERNING MINERALIZATION, DEPOSITS, MINERAL
RESERVE AND RESOURCE INFORMATION CONTAINED OR REFERRED
TO HEREIN MAY NOT BE COMPARABLE TO SIMILAR INFORMATION
DISCLOSED BY U.S. COMPANIES. IN PARTICULAR, AND WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, THIS MD&A USES
THE TERMS ‘’MEASURED RESOURCES’’, ‘’INDICATED RESOURCES’’
AND ‘’INFERRED RESOURCES’’. U.S. INVESTORS ARE ADVISED THAT,
WHILE SUCH TERMS ARE RECOGNIZED AND REQUIRED BY CANADIAN
SECURITIES LAWS, THE SEC DOES NOT RECOGNIZE THEM. THE
REQUIREMENTS OF NI 43-101 FOR IDENTIFICATION OF ‘’RESERVES’’
ARE NOT THE SAME AS THOSE OF THE SEC, AND RESERVES REPORTED
BY PAN AMERICAN IN COMPLIANCE WITH NI 43-101 MAY NOT QUALIFY
AS ‘’RESERVES’’ UNDER SEC STANDARDS. UNDER U.S. STANDARDS,
MINERALIZATION MAY NOT BE CLASSIFIED AS A ‘’RESERVE’’ UNLESS
THE DETERMINATION HAS BEEN MADE THAT THE MINERALIZATION
COULD BE ECONOMICALLY AND LEGALLY PRODUCED OR EXTRACTED
AT THE TIME THE RESERVE DETERMINATION IS MADE. U.S. INVESTORS
ARE CAUTIONED NOT TO ASSUME THAT ANY PART OF A “MEASURED
RESOURCE” OR “INDICATED RESOURCE” WILL EVER BE CONVERTED
INTO A “RESERVE”. U.S. INVESTORS SHOULD ALSO UNDERSTAND THAT
“INFERRED RESOURCES” HAVE A GREAT AMOUNT OF UNCERTAINTY
AS TO THEIR EXISTENCE AND GREAT UNCERTAINTY AS TO THEIR
ECONOMIC AND LEGAL FEASIBILITY. IT CANNOT BE ASSUMED THAT ALL
OR ANY PART OF “INFERRED RESOURCES” EXIST, ARE ECONOMICALLY
OR LEGALLY MINEABLE OR WILL EVER BE UPGRADED TO A HIGHER
CATEGORY. UNDER CANADIAN SECURITIES LAWS, ESTIMATED
“INFERRED RESOURCES” MAY NOT FORM THE BASIS OF FEASIBILITY
OR PRE-FEASIBILITY STUDIES EXCEPT IN RARE CASES.DISCLOSURE
OF “CONTAINED OUNCES” IN A MINERAL RESOURCE IS PERMITTED
DISCLOSURE UNDER CANADIAN SECURITIES LAWS. HOWEVER, THE SEC
NORMALLY ONLY PERMITS ISSUERS TO REPORT MINERALIZATION THAT
DOES NOT CONSTITUTE “RESERVES” BY SEC STANDARDS AS IN PLACE
TONNAGE AND GRADE, WITHOUT REFERENCE TO UNIT MEASURES.
ACCORDINGLY, INFORMATION CONCERNING MINERAL DEPOSITS SET
FORTH HEREIN MAY NOT BE COMPARABLE WITH INFORMATION MADE
PUBLIC BY COMPANIES THAT REPORT IN ACCORDANCE WITH
U.S. STANDARDS.
53
2015 annual report CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
FOR THE YEARS ENDED DECEMBER 31, 2015 AND DECEMBER 31, 2014
54
pan american silver corp. Management’s Responsibility For Financial Reporting
The accompanying Consolidated Financial Statements of Pan American Silver Corp. were prepared
by management, which is responsible for the integrity and fairness of the information presented,
including the many amounts that must of necessity be based on estimates and judgments. These
Consolidated Financial Statements were prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). Financial
information appearing throughout our management’s discussion and analysis is consistent with
these Consolidated Financial Statements.
In discharging our responsibility for the integrity and fairness of the consolidated financial
statements and for the accounting systems from which they are derived, we maintain the necessary
system of internal controls designed to ensure that transactions are authorized, assets are
safeguarded and proper records are maintained. These controls include quality standards in hiring
employees, policies and procedure manuals, a corporate code of conduct and accountability for
performance within appropriate and well-defined areas of responsibility.
The Board of Directors oversees management’s responsibilities for financial reporting through an
Audit Committee, which is composed entirely of directors who are neither officers nor employees
of Pan American Silver Corp. This Committee reviews our consolidated financial statements and
recommends them to the Board for approval. Other key responsibilities of the Audit Committee
include reviewing our existing internal control procedures and planned revisions to those
procedures, and advising the directors on auditing matters and financial reporting issues.
Deloitte LLP, Independent Registered Public Accounting Firm appointed by the shareholders of
Pan American Silver Corp. upon the recommendation of the Audit Committee and Board, have
performed an independent audit of the Consolidated Financial Statements and their report follows.
The auditors have full and unrestricted access to the Audit Committee to discuss their audit and
related findings.
“signed”
“signed”
Michael Steinmann
President & Chief Executive Officer
A. Robert Doyle
Chief Financial Officer
March 24, 2016
55
2015 annual report
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Pan American Silver Corp.
We have audited the accompanying consolidated financial statements of Pan American Silver Corp. and
subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at December
31, 2015 and December 31, 2014, and the consolidated income statements, consolidated statements of
comprehensive loss, consolidated statements of cash flows and consolidated statements of changes in equity for
the years then ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board, and for such internal control as management determines is necessary to enable the preparation of
consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with Canadian generally accepted auditing standards and the standards
of the Public Company Accounting Oversight Board (United States). Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis
for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of Pan American Silver Corp. and subsidiaries as at December 31, 2015 and December 31, 2014, and their financial
performance and their cash flows for the years then ended in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
Other Matter
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2015, based on the
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 24, 2016 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 24, 2016
56
pan american silver corp. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Pan American Silver Corp.
We have audited the internal control over financial reporting of Pan American Silver Corp. and subsidiaries
(the “Company”) as of December 31, 2015, based on the criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. A company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2015, based on the criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of
the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of
and for the year ended December 31, 2015 of the Company and our report dated March 24, 2016 expressed an
unmodified/unqualified opinion on those financial statements.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 24, 2016
57
2015 annual report Pan American Silver Corp.
Consolidated Statements of Financial Position
As at December 31, 2015 and 2014
(in thousands of U.S. dollars)
Assets
Current assets
Cash and cash equivalents (Note 24)
Short-term investments (Note 8)
Trade and other receivables (Note 7)
Income taxes receivable
Inventories (Note 9)
Prepaid and other current assets
Non-current assets
December 31, 2015
December 31, 2014
$
133,963
$
92,678
87,041
27,373
204,361
6,748
552,164
146,193
184,220
105,644
37,626
252,549
4,464
730,696
Mineral properties, plant and equipment (Note 10)
1,145,221
1,266,391
Long-term refundable tax
Deferred tax assets (Note 27)
Other assets (Note 12)
Goodwill (Note 11)
Total Assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 13)
Loans payable (Note 14)
Current portion of long term debt (Note 17)
Derivative financial instruments (Note 7)
Current portion of provisions (Note 15)
Current portion of finance lease (Note 16)
Current income tax liabilities
Non-current liabilities
Long-term portion of provisions (Note 15)
Deferred tax liabilities (Note 27)
Long-term portion of finance lease (Note 16)
Long-term debt (Note 17)
Other long-term liabilities (Note 18)
Total Liabilities
Equity
Capital and reserves (Note 19)
Issued capital
Share option reserve
Investment revaluation reserve
Deficit
Total Equity attributable to equity holders of the Company
Non-controlling interests
Total Equity
Total Liabilities and Equity
Commitments and Contingencies (Notes 7, 28)
See accompanying notes to the consolidated financial statements
APPROVED BY THE BOARD ON MARCH 24, 2016
8,994
3,730
1,871
3,057
1,715,037
112,829
19,578
-
2,835
8,979
2,238
13,481
159,940
45,892
142,127
1,759
36,200
30,503
416,421
2,298,390
22,829
(458)
(1,023,539)
1,297,222
1,394
1,298,616
1,715,037
$
$
$
$
$
$
7,698
2,584
7,447
3,057
2,017,873
126,209
17,600
34,797
-
3,121
3,993
22,321
208,041
45,063
160,072
4,044
-
30,716
447,936
2,296,672
22,091
(485)
(755,186)
1,563,092
6,845
1,569,937
2,017,873
“signed” Ross Beaty, Director
“signed” Michael Steinmann, Director
58
pan american silver corp.
Pan American Silver Corp.
Consolidated Income Statements
For the years ended December 31, 2015 and 2014
(in thousands of U.S. dollars, except per share amounts)
Revenue (Note 25)
Cost of sales
Production costs (Note 20)
Depreciation and amortization (Note 10)
Royalties
Mine operating (loss) earnings
General and administrative
Exploration and project development
Impairment charge (Note 11)
Foreign exchange losses
Losses on commodity and foreign currency contracts
Gain on sale of mineral properties, plant and equipment
Other expenses (Note 26)
Loss from operations
Gain on derivatives (Note 17)
Investment income
Interest and finance expense (Note 22)
Loss before income taxes
Income taxes recovery (Note 27)
Net loss for the year
See accompanying notes to the consolidated financial statements.
Attributable to:
Equity holders of the Company
Non-controlling interests
Loss per share attributable to common shareholders (Note 23)
Basic and Diluted loss per share
Weighted average shares outstanding (in 000’s) Basic and Diluted
Consolidated Statements of Comprehensive loss
For the years ended December 31, 2015 and 2014
(in thousands of U.S. dollars)
Net loss for the year
Items that may be reclassified subsequently to net earnings:
Unrealized net losses on available for sale securities
(net of zero dollars tax in 2015 and 2014)
Reclassification adjustment for net losses on available for sale securities
included in earnings (net of zero dollars tax in 2015 and 2014)
Total comprehensive loss for the year
Total comprehensive loss attributable to:
Equity holders of the Company
Non-controlling interests
See accompanying notes to the consolidated financial statements.
$
2015
674,688
$
2014
751,942
(532,031)
(150,845)
(23,901)
(706,777)
(32,089)
(18,027)
(11,940)
(150,268)
(13,004)
(324)
372
(4,762)
(230,042)
278
2,461
(8,452)
(235,755)
4,199
(231,556)
(226,650)
(4,906)
(231,556)
(1.49)
151,664
$
$
$
$
(568,204)
(147,710)
(27,955)
(743,869)
8,073
(17,908)
(13,225)
(596,262)
(13,275)
-
1,145
(1,314)
(632,766)
1,348
2,840
(8,739)
(637,317)
92,494
(544,823)
(545,588)
765
(544,823)
(3.60)
151,511
$
$
$
$
2015
2014
$
(231,556)
$
(544,823)
(1,459)
1,486
(231,529)
(226,623)
(4,906)
(231,529)
$
$
$
$
$
$
(1,429)
1,081
(545,171)
(545,936)
765
(545,171)
59
2015 annual report Pan American Silver Corp.
Consolidated Statements of Cash Flows
For the years ended December 31, 2015 and 2014
(in thousands of U.S. dollars)
Cash flow from operating activities
Net loss for the year
Current income tax expense (Note 27)
Deferred income tax recovery (Note 27)
Interest Expense (Note 22)
Depreciation and amortization (Note 10)
Impairment charge of mineral properties and goodwill (Note 11)
Accretion on closure and decommissioning provision (Note 15)
Unrealized losses on foreign exchange
Share-based compensation expense
Losses on commodity and foreign currency contracts
Gain on derivatives (Note 17)
Gain on sale of mineral properties, plant and equipment
Net realizable value adjustment for inventory
Changes in non-cash operating working capital (Note 24)
Operating cash flows before interest and income taxes
Interest paid
Interest received
Income taxes paid
Net cash generated from operating activities
Cash flow from investing activities
Payments for mineral properties, plant and equipment
Proceeds from sales (purchase) of short term investments
Proceeds from settlement of commodity contracts
Proceeds from sale of mineral property, plant and equipment
Net refundable tax and other asset expenditures
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of equity shares
Dividends paid
Payment of Convertible Debenture
Proceeds from credit facility
Proceeds from (payment of) short term loan (Note 14)
Payment of equipment leases
Distributions to non-controlling interests
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
See accompanying notes to the consolidated financial statements.
60
2015
2014
$
(231,556)
$
(544,823)
15,854
(20,053)
3,640
150,845
150,268
3,239
860
2,569
324
(278)
(372)
10,861
19,840
106,041
(4,472)
1,012
(13,889)
88,692
(146,735)
91,296
2,511
647
(111)
(52,392)
-
(41,703)
(36,235)
36,200
1,978
(7,531)
(545)
(47,836)
(694)
(12,230)
146,193
133,963
$
$
$
$
$
$
35,807
(128,301)
5,072
147,710
596,262
3,238
4,034
2,529
-
(1,348)
(1,145)
29,953
11,597
160,585
(5,051)
1,792
(33,138)
124,188
(131,761)
(13,524)
-
1,852
187
(143,246)
3
(75,751)
-
-
(2,438)
(5,347)
(375)
(83,908)
(778)
(103,744)
249,937
146,193
$
$
$
$
$
$
pan american silver corp. Pan American Silver Corp.
Consolidated Statements of Changes in Equity
For the years ended December 31, 2015 and 2014
(in thousands of U.S. dollars, except for number of shares)
Attributable to equity holders of the Company
Issued
shares
Issued
capital
Share
option
reserve
Investment
revaluation
reserve
Retained
deficit
Total
Non-
controlling
interests
Total equity
151,500,294 $ 2,295,208 $
21,110 $
(137) $
(133,847) $ 2,182,334 $
6,455 $
2,188,789
Balance, December 31, 2013
Total comprehensive income
Net loss for the year
Other comprehensive loss
Shares issued as compensation
142,986
Shares repurchased and cancelled
92
Distributions by subsidiaries to
non-controlling interests
Share-based compensation on
option grants
Dividends paid
-
-
-
-
-
-
-
-
-
-
-
1,461
3
-
-
-
-
-
-
-
-
-
-
981
-
-
-
(348)
(348)
-
(545,588)
(545,588)
-
(348)
(545,588)
(545,936)
-
-
-
-
-
-
-
-
-
1,461
3
-
981
(75,751)
(75,751)
-
765
-
765
-
-
(544,823)
(348)
(545,171)
1,461
3
(375)
(375)
-
-
981
(75,751)
Balance, December 31, 2014
151,643,372 $
2,296,672 $ 22,091 $
(485) $
(755,186) $ 1,563,092 $
6,845 $
1,569,937
Total comprehensive loss
Net loss for the year
Other comprehensive loss
-
-
-
-
Shares issued as compensation
240,362
1,718
Distributions by subsidiaries to
non-controlling interests
Share-based compensation
on option grants
Dividends paid
-
-
-
-
-
-
-
-
-
-
738
-
-
27
27
-
-
-
-
(226,650)
(226,650)
(4,906)
(231,556)
-
27
-
27
(226,650)
(226,623)
(4,906)
(231,529)
1,718
-
1,718
-
(545)
(545)
738
(41,703)
(41,703)
-
-
738
(41,703)
-
-
-
Balance, December 31, 2015
151,883,734 $ 2,298,390 $ 22,829 $
(458) $ (1,023,539) $ 1,297,222 $
1,394 $
1,298,616
See accompanying notes to the consolidated financial statements.
61
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
1. NATURE OF OPERATIONS
b. Basis of Preparation
Pan American Silver Corp. is the ultimate parent company
of its subsidiary group (collectively, the “Company”, or “Pan
American”). Pan American Silver Corp is incorporated and
domiciled in Canada, and its office is at Suite 1500 – 625 Howe
Street, Vancouver, British Columbia, V6C 2T6.
The Company is engaged in the production and sale of silver,
gold and base metals including copper, lead and zinc as well
as other related activities, including exploration, extraction,
processing, refining and reclamation. The Company’s primary
product (silver) is produced in Peru, Mexico, Argentina and
Bolivia. Additionally, the Company has project development
activities in Peru, Mexico and Argentina, and exploration
activities throughout South America, Mexico, and the United
States.
At December 31, 2015 the Company’s principal producing
properties were comprised of the Huaron and Morococha mines
located in Peru, the Alamo Dorado, La Colorada and Dolores
mines located in Mexico, the San Vicente mine located in Bolivia
and the Manantial Espejo mine located in Argentina.
The Company’s significant development project at December
31, 2015 was the Navidad project in Argentina.
2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Statement of Compliance
These consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards
Board (“IASB”). IFRS comprises IFRSs, International Accounting
Standards (“IAS”), and interpretations issued by the IFRS
Interpretations Committee (“IFRICs”) and the former Standing
Interpretations Committee (“SIC”).
These consolidated financial statements were approved for
issuance by the Board of Directors on March 24, 2016.
The Company’s accounting policies have been applied
consistently in preparing these consolidated annual financial
statements for the year ended December 31, 2015, and the
comparative information as at December 31, 2014.
c. Significant Accounting Policies
Principles of Consolidation: The financial statements
consolidate the financial statements of Pan American and
its subsidiaries. All intercompany balances, transactions,
unrealized profits and losses arising from intra-company
transactions, have been eliminated in full. The results of
subsidiaries acquired or sold are consolidated for the periods
from or to the date on which control passes. Control is achieved
where the Company is exposed, or has rights, to variable
returns from its involvement with an investee and has the ability
to affect those returns through its power over the investee.
This occurs when the Company has existing rights that give it
the current ability to direct the relevant activities, is exposed,
or has rights, to variable returns from its involvement with the
investee when the investor’s returns from its involvement have
the potential to vary as a result of the investee’s performance
and the ability to use its power over the investee to affect the
amount of the investor’s returns. Where there is a loss of control
of a subsidiary, the consolidated financial statements include
the results for the part of the reporting period during which
the Company has control. Subsidiaries use the same reporting
period and same accounting policies as the Company.
For partly owned subsidiaries, the net assets and net earnings
attributable to non-controlling shareholders are presented
as “net earnings attributable to non-controlling interests” in
the consolidated statements of financial position, and in the
consolidated income statements. Total comprehensive income
is attributable to the owners of the Company and to the non-
controlling interests even if this results in the non-controlling
interest having a deficit balance.
The consolidated financial statements include the wholly-
owned and partially-owned subsidiaries of the Company; the
most significant at December 31, 2015 and 2014 are presented
in the following table:
Subsidiary
Location
Ownership
Interest
Status
Operations and Development
Projects Owned
Pan American Silver Huaron S.A.
Compañía Minera Argentum S.A.
Minera Corner Bay S.A. de C.V.
Plata Panamericana S.A. de C.V.
Compañía Minera Dolores S.A. de C.V.
Minera Tritón Argentina S.A.
Pan American Silver (Bolivia) S.A.
Minera Argenta S.A.
Peru
Peru
Mexico
Mexico
Mexico
Argentina
Bolivia
Argentina
100%
92%
100%
100%
100%
100%
95%
100%
Consolidated
Huaron mine
Consolidated
Morococha mine
Consolidated
Alamo Dorado mine
Consolidated
La Colorada mine
Consolidated
Dolores mine
Consolidated
Manantial Espejo mine
Consolidated
San Vicente mine
Consolidated
Navidad Project
62
pan american silver corp. Investments in associates: An associate is an entity over which
the investor has significant influence but not control and that is
neither a subsidiary nor an interest in a joint venture. Significant
influence is presumed to exist where the Company has between
20% and 50% of the voting rights, but can also arise where the
Company has less than 20%, if the Company has the power
to participate in the financial and operating policy decisions
affecting the entity. The Company’s share of the net assets
and net earnings or loss is accounted for in the consolidated
financial statements using the equity method of accounting.
Basis of measurement: These consolidated financial statements
have been prepared on a historical cost basis except for
derivative financial instruments, share purchase warrants
and assets classified as at fair value through profit or loss or
available-for-sale which are measured at fair value. Additionally,
these consolidated financial statements have been prepared
using the accrual basis of accounting, except for cash
flow information.
Currency of presentation: The consolidated financial
statements are presented in United States dollars (“USD”),
which is the Company’s and each of the subsidiaries functional
and presentation currency, and all values are rounded to the
nearest thousand except where otherwise indicated.
Business combinations: Upon the acquisition of a business, the
acquisition method of accounting is used, whereby the purchase
consideration is allocated to the identifiable assets, liabilities
and contingent liabilities (identifiable net assets) acquired on
the basis of fair value at the date of acquisition. When the cost
of the acquisition exceeds the fair value attributable to the
Company’s share of the identifiable net assets, the difference
is treated as purchased goodwill, which is not amortized and
is reviewed for impairment annually or more frequently when
there is an indication of impairment. If the fair value attributable
to the Company’s share of the identifiable net assets exceeds
the cost of acquisition, the difference is immediately recognized
in the income statement. Acquisition related costs, other than
costs to issue debt or equity securities of the acquirer, including
investment banking fees, legal fees, accounting fees, valuation
fees, and other professional or consulting fees are expensed as
incurred. The costs to issue equity securities of the Company as
consideration for the acquisition are reduced from share capital
as share issuance costs. The costs to issue debt securities are
capitalized and amortized using the effective interest method.
Non-controlling interests are measured either at fair value or
at the non-controlling interests’ proportionate share of the
recognized amounts of the acquirers’ identifiable net assets as
at the date of acquisition. The choice of measurement basis is
made on a transaction by transaction basis.
Control of a business may be achieved in stages. Upon the
acquisition of control, any previously held interest is re-
measured to fair value at the date control is obtained resulting
in a gain or loss upon the acquisition of control. Additionally,
any change relating to interest previously recognized in other
comprehensive income is reclassified to the income statement
upon the acquisition of control.
If the initial accounting for a business combination is
incomplete by the end of the reporting period in which the
combination occurs, the Company reports provisional amounts
for the items for which the accounting is incomplete. These
provisional amounts are adjusted during the measurement
period, or additional assets or liabilities are recognized, to
reflect new information obtained about facts and circumstances
that existed at the acquisition date that, if known, would have
affected the amounts recognized at that date.
Revenue recognition: Revenue associated with the sale of
commodities is recognized when all significant risks and
rewards of ownership of the asset sold are transferred to the
customer, usually when insurance risk and title has passed
to the customer and the commodity has been delivered
to the shipping agent. At this point the Company retains
neither continuing managerial involvement to the degree
usually associated with ownership nor effective control over
the commodities and the costs incurred, or to be incurred,
in respect of the sale, can be reliably measured. Revenue is
recognized at the fair value of the consideration receivable, to
the extent that it is probable that economic benefits will flow to
the Company and the revenue can be reliably measured. Sales
revenue is recognized at the fair value of consideration received,
which in most cases is based on invoiced amounts.
The Company’s concentrate sales contracts with third-party
smelters, in general, provide for a provisional payment based
upon provisional assays and quoted metal prices. Final
settlement is based on applicable commodity prices set on
specified quotational periods, typically ranging from one month
prior to shipment, and can extend to three months after the
shipment arrives at the smelter and is based on average market
metal prices. For this purpose, the selling price can be measured
reliably for those products, such as silver, gold, zinc, lead and
copper, for which there exists an active and freely traded
commodity market such as the London Metals Exchange and
the value of product sold by the Company is directly linked to
the form in which it is traded on that market.
Sales revenue is commonly subject to adjustments based on
an inspection of the product by the customer. In such cases,
sales revenue is initially recognized on a provisional basis
using the Company’s best estimate of contained metal, and
adjusted subsequently. Revenues are recorded under these
contracts at the time title passes to the buyer based on the
expected settlement period. Revenue on provisionally priced
sales is recognized based on estimates of the fair value of the
consideration receivable based on forward market prices. At
each reporting date provisionally priced metal is marked to
market based on the forward selling price for the quotational
period stipulated in the contract. Variations between the price
recorded at the shipment date and the actual final price set
under the smelting contracts are caused by changes in metal
prices and result in an embedded derivative in the accounts
receivable. The embedded derivative is recorded at fair value
each period until final settlement occurs, with the fair value
adjustments recognized in revenue.
Refining and treatment charges under the sales contract with
third-party smelters are netted against revenue for sales of
metal concentrate.
Financial instruments: A financial instrument is any contract
that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
(i) Financial assets
The Company classifies its financial assets in the following
categories: at fair value through profit or loss, loans and
63
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
receivables, available-for-sale and held-to-maturity investments.
The classification depends on the purpose for which the
financial assets were acquired. Management determines the
classification of financial assets at initial recognition.
(a) Financial assets at fair value through profit or loss
Financial assets are classified as at fair value through profit or
loss when the financial asset is either held for trading or it is
designated as at fair value through profit and loss. Derivatives
are included in this category and are classified as current
assets or non-current assets based on their maturity date. The
Company does not acquire financial assets for the purpose of
selling in the short term. Financial assets carried at fair value
through profit or loss are initially recognized at fair value. The
directly attributable transaction costs are expensed in the
income statement in the period in which they are incurred.
Subsequent changes in fair value are recognized in net earnings.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market. Loans and receivables comprise ‘trade and
other receivables’, ‘other assets’ and ‘cash’ in the statement
of financial position. Loans and receivables are carried at
amortized cost less any impairment.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that
are either specifically designated as available-for- sale or not
classified in any of the other categories. They are included in
non-current assets unless the Company intends to dispose
of the investment within 12 months of the statement of
financial position date. Changes in the fair value of available-
for-sale financial assets denominated in a currency other
than the functional currency of the holder, other than equity
investments, are analyzed between translation differences
and other changes in the carrying amount of the security.
The translation differences are recognized in the income
statement. Any impairment charges are also recognized in
the income statement, while other changes in fair value are
recognized in other comprehensive income. When financial
assets classified as available-for-sale are sold, the accumulated
fair value adjustments previously recognized in accumulated
other comprehensive income are reclassified to the income
statement. Dividends on available-for-sale equity instruments
are also recognized in the income statement within investment
income when the Company’s right to receive payments
is established.
(d) Held-to-maturity investments
Non-derivative financial assets with fixed or determinable
payments and fixed maturity are classified as held-to-maturity
when the Company has the positive intention and ability
to hold to maturity. Investments intended to be held for an
undefined period are not included in this classification. Other
long-term investments that are intended to be held-to-maturity,
64
such as bonds, are measured at amortized cost. This cost is
computed as the amount initially recognized minus principal
repayments, plus or minus the cumulative amortization using
the effective interest method of any difference between the
initially recognized amount and the maturity amount. This
calculation includes all fees paid or received between parties
to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums and discounts.
For investments carried at amortized cost, gains and losses are
recognized in income when the investments are derecognized
or impaired, as well as through the amortization process.
ii) Financial liabilities
Borrowings and other financial liabilities are classified as other
financial liabilities and are recognized initially at fair value, net
of transaction costs incurred and are subsequently stated at
amortized cost. Any difference between the amounts originally
received (net of transaction costs) and the redemption value is
recognized in the income statement over the period to maturity
using the effective interest method.
Borrowings and other financial liabilities are classified as
current liabilities unless the Company has an unconditional
right to defer settlement of the liability for at least 12 months
after the statement of financial position date.
(iii) Derivative financial instruments
When the Company enters into derivative contracts these
transactions are designed to reduce exposures related to assets
and liabilities, firm commitments or anticipated transactions. All
derivatives are initially recognized at their fair value on the date
the derivative contract is entered into and are subsequently
re-measured at their fair value at each statement of financial
position date.
Embedded derivatives: Derivatives embedded in other financial
instruments or other host contracts are treated as separate
derivatives when their risks and characteristics are not closely
related to their host contracts.
(iv) Fair value
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Where relevant
market prices are available, these are used to determine
fair values. In other cases, fair values are calculated using
quotations from independent financial institutions, or by using
valuation techniques consistent with general market practice
applicable to the instrument.
• The fair values of cash, and short term borrowings
approximate their carrying values, as a result of their short
maturity or because they carry floating rates of interest.
• Derivative financial assets and liabilities are measured at fair
value based on published price quotations for the period for
which a liquid active market exists.
pan american silver corp. (v) Impairment of financial assets
Available-for-sale financial assets
The Company assesses at each statement of financial position
date whether there is objective evidence that a financial asset
or a group of financial assets is impaired. In the case of equity
securities classified as available for sale, an evaluation is made
as to whether a decline in fair value is ‘significant’ or ‘prolonged’
based on an analysis of indicators such as significant adverse
changes in the technological, market, economic or legal
environment in which the investee operates.
If an available-for-sale financial asset is impaired, an amount
comprising the difference between its cost (net of any principal
payment and amortization) and its current fair value, less any
impairment loss previously recognized in the income statement
is transferred from equity to the income statement. Reversals
in respect of equity instruments classified as available-for-
sale are not recognized in the income statement. Reversals of
impairment losses on debt instruments are reversed through
the income statement; if the increase in fair value of the
instrument can be objectively related to an event occurring
after the impairment loss was recognized.
(vi) Derecognition of financial assets and liabilities
Financial assets
A financial asset is derecognized when its contractual rights
to the cash flows that comprise the financial asset expire
or substantially all the risks and rewards of the asset are
transferred.
Financial liabilities
Gains and losses on discharge, cancellation or expiry of a
financial liability are recognized within finance income and
finance costs, respectively.
Where an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange
or modification is treated as a settlement of the original liability
and the recognition of a new liability, and any difference
in the respective carrying amounts is recognized in the
income statement.
(vii) Trade receivables
Trade receivables are recognized initially at fair value and are
subsequently measured at amortized cost reduced by any
provision for impairment. A provision for impairment of trade
receivables is established when there is objective evidence
that the Company will not be able to collect all amounts due.
Indicators of impairment would include financial difficulties
of the debtor, likelihood of the debtor’s insolvency, default in
payment or a significant deterioration in credit worthiness.
Any impairment is recognized in the income statement
within ‘doubtful accounts provision’. When a trade receivable
is uncollectable, it is written off against the provision for
impairment. Subsequent recoveries of amounts previously
written off are credited against ‘doubtful accounts provision’ in
the income statement.
(viii) Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are recognized initially
at fair value and subsequently measured at amortized cost
using the effective interest method.
Derivative Financial Instruments: The Company utilizes metals
and currency contracts, including forward contracts to manage
exposure to fluctuations in metal prices and foreign currency
exchange rates. For metals production, these contracts are
intended to reduce the risk of falling prices on the Company’s
future sales. Foreign currency derivative financial instruments,
such as forward contracts are used to manage the effects of
exchange rate changes on foreign currency cost exposures.
Such derivative financial instruments are initially recognized
at fair value on the date on which a derivative contract is
entered into and are subsequently re-measured at fair value.
Derivatives are carried as assets when the fair value is positive
and as liabilities when the fair value is negative and any gains
or losses arising from changes in fair value on derivatives are
taken directly to earnings for the year. The fair value of forward
currency and commodity contracts is calculated by reference
to current forward exchange rates and prices for contracts with
similar maturity profiles.
Derivatives, including certain conversion options and warrants
with exercise prices in a currency other than the functional
currency, are recognized at fair value with changes in fair value
recognized in profit or loss.
Normal purchase or sale exemption: Contracts that were
entered into and continue to be held for the purpose of the
receipt or delivery of a nonfinancial item in accordance with the
Company’s expected purchase, sale or usage requirements fall
under the exemption from IAS 32 and IAS 39, which is known
as the “normal purchase or sale exemption” (with the exception
of those with quotational period clauses, which result in the
recognition of an embedded derivative. Refer to note 7b for
more information). For these contracts and the host part of the
contracts containing embedded derivatives, they are accounted
for as executory contracts. The Company recognizes such
contracts in its statement of financial position only when one
of the parties meets its obligation under the contract to deliver
either cash or a non-financial asset.
Convertible Notes: The Company has the right to pay all or
part of the liability associated with the Company’s outstanding
convertible notes in cash on the conversion date. Accordingly,
the Company classifies the convertible notes as a financial
liability with an embedded derivative. The financial liability
and embedded derivative are recognized initially at their
respective fair values. The embedded derivative is subsequently
recognized at fair value with changes in fair value reflected in
profit or loss and the debt liability component is recognized at
amortized cost using the effective interest method. Interest
gains and losses related to the debt liability component or
embedded derivatives are recognized in profit or loss. On
conversion, the equity instrument is measured at the carrying
value of the liability component and the fair value of the
derivative component on the conversion date.
Cash and cash equivalents: Cash and cash equivalents include
cash on hand and cash in banks. It also includes short-term
money market investments that are readily convertible to cash
with original terms of three months or less. Cash and cash
equivalents are classified as loans and receivables and therefore
are stated at amortized cost, less any impairment.
Short-term investments: Short-term investments are classified
as “available-for-sale”, and consist of highly-liquid debt
securities with original maturities in excess of three months and
equity securities. These debt and equity securities are initially
65
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
recorded at fair value, which upon their initial measurement is
equal to their cost. Subsequent measurements and changes
in the market value of these debt and equity securities
are recorded as changes to other comprehensive income.
Investments are assessed quarterly for potential impairment.
Inventories: Inventories include work in progress, concentrate
ore, doré, processed silver and gold, heap leach inventory, and
operating materials, and supplies. Work in progress inventory
includes ore stockpiles and other partly processed material.
Stockpiles represent ore that has been extracted and is
available for further processing. The classification of inventory
is determined by the stage at which the ore is in the production
process. Inventories of ore are sampled for metal content and
are valued based on the lower of cost or estimated net realizable
value based upon the period ending prices of contained metal.
Cost is determined on a weighted average basis or using a first-
in-first-out basis and includes all costs incurred in the normal
course of business including direct material and direct labour
costs and an allocation of production overheads, depreciation
and amortization, and other costs, based on normal production
capacity, incurred in bringing each product to its present
location and condition. Material that does not contain a
minimum quantity of metal to cover estimated processing
expenses to recover the contained metal is not classified
as inventory and is assigned no value. The work in progress
inventory is considered part of the operating cycle which the
Company classifies as current inventory and hence heap leach
and stockpiles are included in current inventory. Quantities are
assessed primarily through surveys and assays.
The costs incurred in the construction of the heap leach pad
are capitalized. Heap leach inventory represents silver and
gold contained in ore that has been placed on the leach pad
for cyanide irrigation. The heap leach process is a process of
extracting silver and gold by placing ore on an impermeable pad
and applying a diluted cyanide solution that dissolves a portion
of the contained silver and gold, which are then recovered
during the metallurgical process. When the ore is placed on the
pad, an estimate of the recoverable ounces is made based on
tonnage, ore grade and estimated recoveries of the ore type
placed on the pad. The estimated recoverable ounces on the
pad are used to compile the inventory cost.
The Company uses several integrated steps to scientifically
measure the metal content of the ore placed on the leach pads.
The tonnage, grade, and ore type to be mined in a period was
first estimated using the Mineral Reserve model. As the ore
body is drilled in preparation for the blasting process, samples
are taken of the drill residue which is assayed to determine their
metal content and quantities of contained metal. The estimated
recoverable ounces carried in the leach pad inventory are
adjusted based on actual recoveries being experienced. Actual
and estimated recoveries achieved are measured to the extent
possible using various indicators including, but not limited to,
individual cell recoveries, the use of leach curve recovery, trends
in the levels of carried ounces depending on the circumstances
or cumulative pad recoveries.
66
The Company then processes the ore through the crushing
facility where the output is again weighed and sampled for
assaying. A metallurgical reconciliation with the data collected
from the mining operation is completed with appropriate
adjustments made to previous estimates. The crushed ore is
then transported to the leach pad for application of the leaching
solution. The samples from the automated sampler are assayed
each shift and used for process control. The quantity of leach
solution is measured by flow meters throughout the leaching
and precipitation process. The pregnant solution from the heap
leach is collected and passed through the processing circuit
to produce precipitate which is retorted and then smelted to
produce doré bars.
The Company allocates direct and indirect production costs to
by-products on a systematic and rational basis. With respect to
concentrate and doré inventory, production costs are allocated
based on the silver equivalent ounces contained within the
respective concentrate and doré.
The inventory is stated at lower of cost or net realizable value,
with cost being determined using a weighted average cost
method. The ending inventory value of ounces associated with
the leach pad is equal to opening recoverable ounces plus
recoverable ounces placed less ounces produced plus or minus
ounce adjustments.
The estimate of both the ultimate recovery expected over time
and the quantity of metal that may be extracted relative to the
time the leach process occurs requires the use of estimates
which rely upon laboratory test work and estimated models of
the leaching kinetics in the heap leach pads. Test work consists
of leach columns of up to 400 days duration with 150 days
being the average, from which the Company projects metal
recoveries up to three years in the future. The quantities of
metal contained in the ore are based upon actual weights and
assay analysis. The rate at which the leach process extracts
gold and silver from the crushed ore is based upon laboratory
column tests and actual experience. The assumptions used
by the Company to measure metal content during each
stage of the inventory conversion process include estimated
recovery rates based on laboratory testing and assaying.
The Company periodically reviews its estimates compared to
actual experience and revises its estimates when appropriate.
The ultimate recovery will not be known until the leaching
operations cease.
Supplies inventories are valued at the lower of average cost and
net realizable value using replacement cost plus cost to dispose,
net of obsolescence. Concentrate and doré inventory includes
product at the mine site, the port warehouse and product held
by refineries. At times, the Company has a limited amount of
finished silver at a minting operation where coins depicting Pan
American’s emblem are stamped.
Mineral Properties, Plant, and Equipment: On initial acquisition,
mineral properties, plant and equipment are valued at cost,
being the purchase price and the directly attributable costs of
acquisition or construction required to bring the asset to the
pan american silver corp. location and condition necessary for the asset to be capable of
operating in the manner intended by management.
When provisions for closure and decommissioning are
recognized, the corresponding cost is capitalized as part of
the cost of the related assets, representing part of the cost of
acquiring the future economic benefits of the operation. The
capitalized cost of closure and decommissioning activities is
recognized in mineral property, plant and equipment and
depreciated accordingly.
In subsequent periods, buildings, plant and equipment
are stated at cost less accumulated depreciation and any
impairment in value, whilst land is stated at cost less any
impairment in value and is not depreciated.
Each asset or part’s estimated useful life has due regard to both
its own physical life limitations and the present assessment
of economically recoverable reserves of the mine property at
which the item is located, and to possible future variations in
those assessments. Estimates of remaining useful lives and
residual values are reviewed annually. Changes in estimates are
accounted for prospectively.
The expected useful lives are included below in the accounting
policy for depreciation of property, plant, and equipment. The
net carrying amounts of mineral property, land, buildings, plant
and equipment are reviewed for impairment either individually
or at the cash-generating unit level when events and changes
in circumstances indicate that the carrying amounts may not
be recoverable. To the extent that these values exceed their
recoverable amounts, that excess is recorded as an impairment
provision in the financial year in which this is determined.
In countries where the Company paid Value Added Tax (“VAT”)
and where there is uncertainty of its recoverability, the VAT
payments have either been deferred with mineral property
costs relating to the property or expensed if it relates to mineral
exploration. If the Company ultimately recovers previously
deferred amounts, the amount received will be applied to
reduce mineral property costs or taken as a credit against
current expenses depending on the prior treatment.
Expenditure on major maintenance or repairs includes the
cost of the replacement of parts of assets and overhaul costs.
Where an asset or part of an asset is replaced and it is probable
that future economic benefits associated with the item will
be available to the Company, the expenditure is capitalized
and the carrying amount of the item replaced derecognized.
Similarly, overhaul costs associated with major maintenance
are capitalized and depreciated over their useful lives where it is
probable that future economic benefits will be available and any
remaining carrying amounts of the cost of previous overhauls
are derecognized. All other costs are expensed as incurred.
Where an item of mineral property, plant and equipment is
disposed of, it is derecognized and the difference between its
carrying value and net sales proceeds is disclosed as earnings
or loss on disposal in the income statement. Any items of
mineral property, plant or equipment that cease to have future
economic benefits are derecognized with any gain or loss
included in the financial year in which the item is derecognized.
Operational Mining Properties and Mine Development:
When it has been determined that a mineral property can be
economically developed as a result of establishing proven and
probable reserves (which occurs upon completion of a positive
economic analysis of the mineral deposit), the costs incurred to
develop such property including costs to further delineate the
ore body and remove overburden to initially expose the ore body
prior to the start of mining operations, are also capitalized. Such
costs are amortized using the units-of-production method over
the estimated life of the ore body based on proven and
probable reserves.
Costs associated with commissioning activities on constructed
plants are deferred from the date of mechanical completion of
the facilities until the date the Company is ready to commence
commercial production. Any revenues earned during this
period are recorded as a reduction in deferred commissioning
costs. These costs are amortized using the units-of-
production method (described below) over the life of the mine,
commencing on the date of commercial production.
Acquisition costs related to the acquisition of land and mineral
rights are capitalized as incurred. Prior to acquiring such land
or mineral rights the Company makes a preliminary evaluation
to determine that the property has significant potential to
economically develop the deposit. The time between initial
acquisition and full evaluation of a property’s potential is
dependent on many factors including: location relative to
existing infrastructure, the property’s stage of development,
geological controls and metal prices. If a mineable deposit is
discovered, such costs are amortized when production begins.
If no mineable deposit is discovered, such costs are expensed
in the period in which it is determined the property has no
future economic value. In countries where the Company has
paid VAT and where there is uncertainty of its recoverability, the
VAT payments have either been deferred with mineral property
costs relating to the property or expensed if it relates to mineral
exploration. If the Company ultimately makes recoveries of
the VAT, the amount received will be applied to reduce mineral
property costs or taken as a credit against current expenses
depending on the prior treatment.
Major development expenditures on producing properties
incurred to increase production or extend the life of the mine
are capitalized while ongoing mining expenditures on producing
properties are charged against earnings as incurred. Gains or
losses from sales or retirements of assets are included in gain or
loss on sale of assets.
Depreciation of Mineral Property, Plant and Equipment: The
carrying amounts of mineral property, plant and equipment
(including initial and any subsequent capital expenditure) are
depreciated to their estimated residual value over the estimated
useful lives of the specific assets concerned, or the estimated
life of the associated mine or mineral lease, if shorter. Estimates
of residual values and useful lives are reviewed annually and any
change in estimate is taken into account in the determination
of remaining depreciation charges, and adjusted if appropriate,
at each statement of financial position date. Changes to the
estimated residual values or useful lives are accounted for
prospectively. Depreciation commences on the date when the
asset is available for use as intended by management.
Units of production basis
For mining properties and leases and certain mining equipment,
the economic benefits from the asset are consumed in a pattern
which is linked to the production level. Except as noted below,
such assets are depreciated on a unit of production basis.
In applying the units of production method, depreciation is
normally calculated using the quantity of material extracted
67
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
from the mine in the period as a percentage of the total quantity
of material to be extracted in current and future periods based
on proven and probable reserves.
Straight line basis
Assets within operations for which production is not expected
to fluctuate significantly from one year to another or which have
a physical life shorter than the related mine are depreciated on
a straight line basis.
Mineral properties, plant and equipment are depreciated over
their useful life, or over the remaining life of the mine if shorter.
The major categories of property, plant and equipment are
depreciated on a unit of production and/or straight-line basis
as follows:
• Land – not depreciated
• Mobile equipment – 3 to 7 years
• Buildings and plant facilities – 25 to 50 years
• Mining properties and leases – based on reserves on a unit
of production basis. Capitalized evaluation and development
expenditure – based on applicable reserves on a unit of
production basis
• Exploration and evaluation – not depreciated until mine
goes into production
• Assets under construction – not depreciated until assets are
ready for their intended use
Exploration and Evaluation Expenditure: relates to costs
incurred on the exploration and evaluation of potential mineral
reserves and resources and includes costs such as exploratory
drilling and sample testing and the costs of pre-feasibility
studies. Exploration expenditures relates to the initial search for
deposits with economic potential. Evaluation expenditure arises
from a detailed assessment of deposits or other projects that
have been identified as having economic potential.
Expenditures on exploration activity are not capitalized.
Capitalization of evaluation expenditures commences when
there is a high degree of confidence in the project’s viability and
hence it is probable that future economic benefits will flow to
the Company.
Evaluation expenditures, other than that acquired from the
purchase of another mining company, is carried forward as an
asset provided that such costs are expected to be recovered in
full through successful development and exploration of the area
of interest or alternatively, by its sale.
Purchased exploration and evaluation assets are recognized as
assets at their cost of acquisition or at fair value if purchased as
part of a business combination.
In the case of undeveloped projects there may be only inferred
resources to form a basis for the impairment review. The review
is based on a status report regarding the Company’s intentions
for the development of the undeveloped project. In some cases,
the undeveloped projects are regarded as successors to ore
68
bodies, smelters or refineries currently in production. Where
this is the case, it is intended that these will be developed and
go into production when the current source of ore is exhausted
or to replace the reduced output, which results where existing
smelters and/or refineries are closed. It is often the case that
technological and other improvements will allow successor
smelters and/or refineries to more than replace the capacity
of their predecessors. Subsequent recovery of the resulting
carrying value depends on successful development or sale
of the undeveloped project. If a project does not prove viable,
all irrecoverable costs associated with the project, net of any
related impairment provisions, are written off.
An impairment review is performed, either individually or at the
cash generating unit level, when there are indicators that the
carrying amount of the assets may exceed their recoverable
amounts. To the extent that this occurs, the excess is expensed
in the financial year in which this is determined. Capitalized
exploration and evaluation assets are reassessed on a regular
basis and these costs are carried forward provided that the
conditions discussed above for expenditure on exploration
activity and evaluation expenditure are met.
Expenditures are transferred to mining properties and leases
or assets under construction once the technical feasibility
and commercial viability of extracting a mineral resource are
demonstrable and the work completed to date supports the
future development of the property. In order to demonstrate
technical feasibility and commercial viability, the Company
evaluates the individual project and its established mineral
reserves, assesses the relevant findings and conclusions from
the Company’s activities and in applicable technical or other
studies relating to the project, and considers whether and
how any additional factors and circumstances might impact
the project, particularly in light of the Company’s capabilities,
risk tolerance and desired economic returns. The Company
conducts its managerial evaluation for commercial
viability by assessing the factors it considers relevant to
the commercial development of the project, taking into
consideration the exploration and technical evaluation
activities and work undertaken in relation to the project. If
the asset demonstrates technical feasibility and commercial
viability, the asset is reclassified to mineral properties, plant
and equipment. Assessment for impairment is conducted
before reclassification.
Deferred Stripping Costs: In open pit mining operations, it is
necessary to remove overburden and other waste in order to
access the ore body. During the preproduction phase, these
costs are capitalized as part of the cost of the mine property
and subsequently amortized over the life of the mine (or pit) on
a units of production basis.
The costs of removal of the waste material during a mine’s
production phase are deferred, where they give rise to future
benefits. These capitalized costs are subsequently amortized on
a unit of production basis over the reserves that directly benefit
from the specific stripping activity.
pan american silver corp. Asset Impairment: Management reviews and evaluates
its assets for impairment when events or changes in
circumstances indicate that the related carrying amounts
may not be recoverable. Impairment is normally assessed
at the level of cash-generating units which are identified as
the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from
other assets. In addition, an impairment loss is recognized for
any excess of carrying amount over the fair value less costs
to sell of a non-current asset or disposal group held for sale.
When an impairment review is undertaken, recoverable amount
is assessed by reference to the higher of value in use (being
the net present value of expected future cash flows of the
relevant cash generating unit) and fair value less costs to sell
(“FVLCTS”). The best evidence of FVLCTS is the value obtained
from an active market or binding sale agreement. Where neither
exists, FVLCTS is based on the best information available to
reflect the amount the Company could receive for the cash
generating unit in an arm’s length transaction. This is often
estimated using discounted cash flow techniques.
Where the recoverable amount is assessed using discounted
cash flow techniques, the resulting estimates are based on
detailed mine and/or production plans. For value in use, recent
cost levels are considered, together with expected changes
in costs that are compatible with the current condition of
the business and which meet the requirements of IAS 36
“Impairment of Assets.” The cash flow forecasts are based on
best estimates of expected future revenues and costs, including
the future cash costs of production, capital expenditure, close
down, restoration and environmental clean-up. These may
include net cash flows expected to be realized from extraction,
processing and sale of mineral resources that do not currently
qualify for inclusion in proven or probable ore reserves. Such
non reserve material is included where there is a high degree
of confidence in its economic extraction. This expectation is
usually based on preliminary drilling and sampling of areas
of mineralization that are contiguous with existing reserves.
Typically, the additional evaluation to achieve reserve status for
such material has not yet been done because this would involve
incurring costs earlier than is required for the efficient planning
and operation of the mine.
Where the recoverable amount of a cash generating unit is
dependent on the life of its associated ore, expected future cash
flows reflect long term mine plans, which are based on detailed
research, analysis and iterative modeling to optimize the level
of return from investment, output and sequence of extraction.
The mine plan takes account of all relevant characteristics of
the ore, including waste to ore ratios, ore grades, haul distances,
chemical and metallurgical properties of the ore impacting on
process recoveries and capacities of processing equipment that
can be used. The mine plan is therefore the basis for forecasting
production output in each future year and for forecasting
production costs.
The Company’s cash flow forecasts are based on estimates
of future commodity prices, which assume market prices will
revert to the Company’s assessment of the long term average
price, generally over a period of three to five years. These
assessments often differ from current price levels and are
updated periodically.
The discount rates applied to the future cash flow forecasts
represent an estimate of the rate the market would apply having
regard to the time value of money and the risks specific to the
asset for which the future cash flow estimates have not been
adjusted, including appropriate adjustments for the risk profile
of the countries in which the individual cash generating units
operate. The great majority of the Company’s sales are based
on prices denominated in USD. To the extent that the currencies
of countries in which the Company produces commodities
strengthen against the USD without commodity price offset,
cash flows and, therefore, net present values are reduced.
Non-financial assets other than goodwill that have suffered
impairment are tested for possible reversal of the impairment
whenever events or changes in circumstances indicate that the
impairment may have reversed.
Closure and Decommissioning Costs: The mining, extraction
and processing activities of the Company normally give rise
to obligations for site closure or rehabilitation. Closure and
decommissioning works can include facility decommissioning
and dismantling; removal or treatment of waste materials;
site and land rehabilitation. The extent of work required and
the associated costs are dependent on the requirements of
relevant authorities and the Company’s environmental policies.
Provisions for the cost of each closure and rehabilitation
program are recognized at the time that environmental
disturbance occurs. When the extent of disturbance increases
over the life of an operation, the provision is increased
accordingly. Costs included in the provision encompass all
closure and decommissioning activity expected to occur
progressively over the life of the operation and at the time
of closure in connection with disturbances at the reporting
date. Routine operating costs that may impact the ultimate
closure and decommissioning activities, such as waste material
handling conducted as an integral part of a mining or production
process, are not included in the provision. Costs arising from
unforeseen circumstances, such as the contamination caused
by unplanned discharges, are recognized as an expense and
liability when the event gives rise to an obligation which is
probable and capable of reliable estimation. The timing of the
actual closure and decommissioning expenditure is dependent
upon a number of factors such as the life and nature of the
asset, the operating license conditions, and the environment
in which the mine operates. Expenditure may occur before and
after closure and can continue for an extended period of time
dependent on closure and decommissioning requirements.
Closure and decommissioning provisions are measured at the
expected value of future cash flows, discounted to their present
value and determined according to the probability of alternative
estimates of cash flows occurring for each operation. Discount
rates used are specific to the underlying obligation. Significant
judgements and estimates are involved in forming expectations
of future activities and the amount and timing of the associated
cash flows. Those expectations are formed based on existing
environmental and regulatory requirements which give rise to a
constructive or legal obligation.
When provisions for closure and decommissioning are
initially recognized, the corresponding cost is capitalized as a
component of the cost of the related asset, representing part
of the cost of acquiring the future economic benefits of the
operation. The capitalized cost of closure and decommissioning
activities is recognized in Property, plant and equipment
and depreciated accordingly. The value of the provision is
progressively increased over time as the effect of discounting
unwinds, creating an expense recognized in finance expenses.
69
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
Closure and decommissioning provisions are also adjusted for
changes in estimates. Those adjustments are accounted for as
a change in the corresponding capitalized cost, except where
a reduction in the provision is greater than the un-depreciated
capitalized cost of the related assets, in which case the
capitalized cost is reduced to nil and the remaining adjustment
is recognized in the income statement. In the case of closed
sites, changes to estimated costs are recognized immediately
in the income statement. Changes to the capitalized cost
result in an adjustment to future depreciation and finance
charges. Adjustments to the estimated amount and timing of
future closure and decommissioning cash flows are a normal
occurrence in light of the significant judgements and
estimates involved.
The provision is reviewed at the end of each reporting period
for changes to obligations, legislation or discount rates that
impact estimated costs or lives of operations and adjusted to
reflect current best estimate. The cost of the related asset is
adjusted for changes in the provision resulting from changes in
the estimated cash flows or discount rate and the adjusted cost
of the asset is depreciated prospectively.
Foreign Currency Translation: The Company’s functional
currency and that of its subsidiaries is the USD as this is the
principal currency of the economic environments in which
they operate. Transaction amounts denominated in foreign
currencies (currencies other than USD) are translated into USD
at exchange rates prevailing at the transaction dates. Carrying
values of foreign currency monetary assets and liabilities are re-
translated at each statement of financial position date to reflect
the U.S. exchange rate prevailing at that date.
Gains and losses arising from translation of foreign currency
monetary assets and liabilities at each period end are included
in earnings except for differences arising on decommissioning
provisions which are capitalized for operating mines.
Share-based Payments: The Company makes share-based
awards, including free shares and options, to certain employees.
For equity-settled awards, the fair value is charged to the
income statement and credited to equity, on a straight-line
basis over the vesting period, after adjusting for the estimated
number of awards that are expected to vest. The fair value of
the equity-settled awards is determined at the date of grant.
Non-vesting conditions and market conditions, such as target
share price upon which vesting is conditioned, are factored into
the determination of fair value at the date of grant. All other
vesting conditions are excluded from the determination of fair
value and included in management’s estimate of the number of
awards ultimately expected to vest.
The fair value is determined by using option pricing models.
At each statement of financial position date prior to vesting,
the cumulative expense representing the extent to which the
vesting period has expired and management’s best estimate
of the awards that are ultimately expected to vest is computed
(after adjusting for non-market performance conditions).
70
The movement in cumulative expense is recognized in the
income statement with a corresponding entry within equity. No
expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether
or not the market condition is satisfied, provided that all other
performance conditions are satisfied.
Where the terms of an equity-settled award are modified, as
a minimum an expense is recognized as if the terms had not
been modified over the original vesting period. In addition, an
expense is recognized for any modification, which increases the
total fair value of the share-based payment arrangement, or is
otherwise beneficial to the employee as measured at the date of
modification, over the remainder of the new vesting period.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any expense not
yet recognized for the award is recognized immediately. Any
compensation paid up to the fair value of the awards at the
cancellation or settlement date is deducted from equity, with
any excess over fair value being treated as an expense in the
income statement. However, if a new award is substituted for
the cancelled award, and designated as a replacement award
on the date that it is granted, the new awards are treated as if
they are a modification of the original award, as described in the
previous paragraph.
Leases: The determination of whether an arrangement is, or
contains a lease is based in the substance of the arrangement
at the inception date, including whether the fulfillment of the
arrangement is dependent on the use of a specific asset or
assets or whether the arrangement conveys a right to use
the asset. A reassessment after inception is only made in
specific circumstances.
Assets held under finance leases, where substantially all the
risks and rewards of ownership of the asset have passed to
the Company, are capitalized in the statement of financial
position at the lower of the fair value of the leased property or
the present value of the minimum lease payments during the
lease term calculated using the interest rate implicit in the lease
agreement. These amounts are determined at the inception
of the lease and are depreciated over the shorter of their
estimated useful lives or the lease term. The capital elements
of future obligations under leases and hire purchase contracts
are included as liabilities in the statement of financial position.
The interest elements of the lease or hire purchase obligations
are charged to the income statement over the periods of the
leases and hire purchase contracts and represent a constant
proportion of the balance of capital repayments outstanding.
Leases where substantially all the risks and rewards of
ownership have not passed to the Company are classified as
operating leases. Rentals payable under operating leases are
charged to the income statement on a straight-line basis over
the lease term.
Income Taxes: Taxation on the earnings or loss for the year
comprises current and deferred tax. Taxation is recognized
pan american silver corp. in the income statement except to the extent that it relates
to items recognized in other comprehensive income or
directly in equity, in which case the tax is recognized in other
comprehensive income or equity.
Current tax is the expected tax payable on the taxable income
for the year using rates enacted or substantively enacted at the
year end, and includes any adjustment to tax payable in respect
of previous years.
Deferred tax is provided using the statement of financial
position liability method, providing for the tax effect of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the amounts
used for tax assessment or deduction purposes. Where an
asset has no deductible or depreciable amount for income tax
purposes, but has a deductible amount on sale or abandonment
for capital gains tax purposes, that amount is included in the
determination of temporary differences.
The tax effect of certain temporary differences is not
recognized, principally with respect to goodwill; temporary
differences arising on the initial recognition of assets or
liabilities (other than those arising in a business combination
or in a manner that initially impacted accounting or taxable
earnings); and temporary differences relating to investments
in subsidiaries, jointly controlled entities and associates to
the extent that the Company is able to control the reversal of
the temporary difference and the temporary difference is not
expected to reverse in the foreseeable future. The amount of
deferred tax recognized is based on the expected manner and
timing of realization or settlement of the carrying amount of
assets and liabilities, with the exception of items that have a tax
base solely derived under capital gains tax legislation, using tax
rates enacted or substantively enacted at period end. To the
extent that an item’s tax base is solely derived from the amount
deductible under capital gains tax legislation, deferred tax is
determined as if such amounts are deductible in determining
future assessable income.
The carrying amount of deferred income tax assets is reviewed
at each statement of financial position date and reduced to
the extent that it is no longer probable that sufficient taxable
earnings will be available to allow all or part of the deferred
income tax asset to be utilized. To the extent that an asset
not previously recognized fulfils the criteria for recognition, a
deferred income tax asset is recorded.
Deferred tax is measured on an undiscounted basis at the tax
rates that are expected to apply in the periods in which the
asset is realized or the liability is settled, based on tax rates and
tax laws enacted or substantively enacted at the statement of
financial position date.
Current and deferred taxes relating to items recognized in other
comprehensive income or directly in equity are recognized in
other comprehensive income or equity and not in the income
statement. Mining taxes and royalties are treated and disclosed
as current and deferred taxes if they have the characteristics of
an income tax. Judgements are required about the application
of income tax legislation. These judgements and assumptions
are subject to risk and uncertainty, hence there is a possibility
that changes in circumstances will alter expectations, which
may impact the amount of deferred tax assets and deferred
tax liabilities recognized on the statement of financial position
and the amount of other tax losses and temporary differences
not yet recognized. In such circumstances, some or the entire
carrying amount of recognized deferred tax assets and liabilities
may require adjustment, resulting in a corresponding credit or
charge to the income statement.
Deferred tax assets, including those arising from tax losses,
capital losses and temporary differences, are recognized only
where it is probable that taxable earnings will be available
against which the losses or deductible temporary differences
can be utilized. Assumptions about the generation of future
taxable earnings and repatriation of retained earnings depend
on management’s estimates of future cash flows. These
depend on estimates of future production and sales volumes,
commodity prices, reserves, operating costs, closure and
decommissioning costs, capital expenditures, dividends and
other capital management transactions.
Earnings (loss) Per Share: Basic earnings (loss) per share is
calculated by dividing earnings attributable to ordinary equity
holders of the parent entity by the weighted average number of
ordinary shares outstanding during the period.
The diluted earnings per share calculation is based on the
earnings attributable to ordinary equity holders and the
weighted average number of shares outstanding after adjusting
for the effects of all potential ordinary shares. This method
requires that the number of shares used in the calculation be
the weighted average number of shares that would be issued
on the conversion of all the dilutive potential ordinary shares
into ordinary shares. This method assumes that the potential
ordinary shares converted into ordinary shares at the beginning
of the period (or at the time of issuance, if not in existence
at beginning of the period). The number of dilutive potential
ordinary shares is determined independently for each
period presented.
For convertible securities that may be settled in cash or shares
at the holder’s option, returns to preference shareholders and
income charges are added back to net earnings used for basic
EPS and the maximum number of ordinary shares that could be
issued on conversion is used in the computing diluted earnings
per share.
Borrowing Costs and Upfront Costs: Borrowing costs that
are directly attributable to the acquisition, construction or
production of qualifying assets are capitalized. Qualifying assets
are assets that require a substantial amount of time to prepare
for their intended use, including mineral properties in the
evaluation stage where there is a high likelihood of commercial
exploitation. Qualifying assets also include significant expansion
projects at the operating mines. Borrowing costs are considered
an element of the historical cost of the qualifying asset.
Capitalization ceases when the asset is substantially complete
or if construction is interrupted for an extended period. Where
the funds used to finance a qualifying asset form part of general
borrowings, the amount capitalized is calculated using a
weighted average of rates applicable to the relevant borrowings
during the period. Where funds borrowed are directly
attributable to a qualifying asset, the amount capitalized
represents the borrowing costs specific to those borrowings.
Where surplus funds available out of money borrowed
specifically to finance a project are temporarily invested, the
total borrowing cost is reduced by income generated from
short-term investments of such funds.
Upfront costs incurred in connection with entering new credit
facilities are recorded as Other assets and are amortized over
the life of the respective credit facilities.
71
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
3. CHANGES IN ACCOUNTING STANDARDS
Changes in Accounting Policies
Effective January 1, 2015, the Company adopted the following
new and revised IFRSs that were issued by the International
Accounting Standards Board (“IASB”).
Effective for annual periods beginning on or after July 1, 2014
(i) Amended standard IFRS 2 Share-based Payment
The amendment to IFRS 2 re-defines the definition of
“vesting condition.” The application of this IFRS did not have
a material impact on the amounts reported for the current
or prior years but may affect the presentation of future
transactions or arrangements.
(ii) Amended standard IFRS 3 Business Combinations
The amendment to IFRS 3 provides further clarification on
the accounting treatment for contingent consideration, and
provides a scope exception for joint ventures. The application
of this IFRS did not have a material impact on the amounts
reported for the current or prior years but may affect the
presentation of future transactions or arrangements.
(iii) Amended standard IFRS 8 Operating Segments
The amendments to IFRS 8 provides further clarification
on the disclosure required for the aggregation of segments
and the reconciliation of segment assets. The application of
this IFRS did not have a material impact on the disclosure
required for the current or prior years but may affect the
disclosure required in the future.
(iv) Amended standard IFRS 13 Fair Value Measurement
The amendment to IFRS 13 provides further details on the
scope of the portfolio exception. The application of this IFRS
did not have a material impact on the amounts reported for
the current or prior years but may affect the presentation of
future transactions or arrangements.
(v) Amended standard IAS 16 Property, Plant and Equipment
The amendment to IAS 16 deals with the proportionate
restatement of accumulated depreciation on revaluation.
The application of this IFRS did not have a material impact
on the amounts reported for the current or prior years
but may affect the presentation of future transactions or
arrangements.
(vi) Amended standard IAS 24 Related Party Disclosures
The amendment to IAS 24 deals with the disclosure required
for management entities. The application of this IFRS did
not have a material impact on the disclosure required for the
current or prior years but may affect the disclosure required
in the future.
(vii) Amended standard IAS 38 Intangible Assets
The amendment to IAS 38 deals with the proportionate
restatement of accumulated depreciation on revaluation. The
application of this IFRS did not have a material impact on
the amounts reported for the current or prior years but may
72
affect the presentation of future transactions
or arrangements.
Accounting standards issued but not yet effective
IFRS 9 Financial Instruments (“IFRS 9”) was issued by
the IASB on July 24, 2014 and will replace IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 utilizes
a single approach to determine whether a financial asset is
measured at amortized cost or fair value and a new mixed
measurement model for debt instruments having only two
categories: amortized cost and fair value. The approach in IFRS
9 is based on how an entity manages its financial instruments
in the context of its business model and the contractual cash
flow characteristics of the financial assets. Final amendments
released on July 24, 2014 also introduce a new expected loss
impairment model and limited changes to the classification
and measurement requirements for financial assets. IFRS 9
is effective for annual periods beginning on or after January
1, 2018. The Company is currently evaluating the impact the
final standard and amendments on its consolidated
financial statements.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB and the Financial Accounting Standards
Board (“FASB”) completed its joint project to clarify the
principles for recognizing revenue and to develop a common
revenue standard for IFRS and US GAAP. As a result of the
joint project, the IASB issued IFRS 15, Revenue from Contracts
with Customers, and will replace IAS 18, Revenue, IAS 11,
Construction Contracts, and related interpretations on revenue.
IFRS 15 establishes principles to address the nature, amount,
timing and uncertainty of revenue and cash flows arising from
an entity’s contracts with customers. On July 22, 2015, the IASB
confirmed a one-year deferral of the effective date of IFRS 15
to January 1, 2018. Companies can elect to use either a full or
modified retrospective approach when adopting this standard.
The Company will apply IFRS 15 beginning on January 1,
2018. The Company is in the process of analyzing IFRS 15 and
determining the effect on our consolidated financial statements
as a result of adopting this standard.
IFRS 16, Leases (“IFRS 16”) In January 2016, the IASB issued
IFRS 16 – Leases which replaces IAS 17 – Leases and its
associated interpretative guidance. IFRS 16 applies a control
model to the identification of leases, distinguishing between
a lease and a service contract on the basis of whether the
customer controls the asset being leased. For those assets
determined to meet the definition of a lease, IFRS 16 introduces
significant changes to the accounting by lessees, introducing
a single, on-balance sheet accounting model that is similar
to current finance lease accounting, with limited exceptions
for short-term leases or leases of low value assets. Lessor
accounting remains similar to current accounting practice.
The standard is effective for annual periods beginning on or
after January 1, 2019, with early application permitted for
entities that apply IFRS 15. The Company is currently evaluating
the impact the final standard is expected to have on its
consolidated financial statements.
pan american silver corp. 4. SIGNIFICANT JUDGEMENTS IN APPLYING
ACCOUNTING POLICIES
Judgements that have the most significant effect on the
amounts recognized in the Company’s consolidated financial
statements are as follows:
• Capitalization of evaluation costs: The Company has
determined that evaluation costs capitalized during the year
relating to the operating mines and certain other exploration
interests have potential future economic benefits and are
potentially economically recoverable, subject to impairment
analysis as discussed in Note 11. In making this judgement,
the Company has assessed various sources of information
including but not limited to the geologic and metallurgic
information, history of conversion of mineral deposits
to proven and probable mineral reserves, scoping and
feasibility studies, proximity to existing ore bodies, operating
management expertise and required environmental,
operating and other permits.
• Commencement of commercial production: During
the determination of whether a mine has reached an
operating level that is consistent with the use intended by
management, costs incurred are capitalized as mineral
property, plant and equipment and any consideration from
commissioning sales are offset against costs capitalized.
The Company defines commencement of commercial
production as the date that a mine has achieved a
sustainable level of production based on a percentage
of design capacity along with various qualitative factors
including but not limited to the achievement of mechanical
completion, continuous nominated level of production, the
working effectiveness of the plant and equipment at or near
expected levels and whether there is a sustainable level of
production input available including power, water and diesel.
• Assets’ carrying values and impairment charges: In
determining carrying values and impairment charges the
Company looks at recoverable amounts, defined as the
higher of value in use or fair value less cost to sell in the
case of assets, and at objective evidence that identifies
significant or prolonged decline of fair value on financial
assets indicating impairment. These determinations and
their individual assumptions require that management make
a decision based on the best available information at each
reporting period.
• Functional currency: The functional currency for the
Company and its subsidiaries is the currency of the
primary economic environment in which each operates.
The Company has determined that its functional currency
and that of its subsidiaries is the USD. The determination
of functional currency may require certain judgements
to determine the primary economic environment. The
Company reconsiders the functional currency used when
there is a change in events and conditions which determined
the primary economic environment.
• Business combinations: Determination of whether a set
of assets acquired and liabilities assumed constitute
a business may require the Company to make certain
judgments, taking into account all facts and circumstances.
A business consists of inputs, including non-current assets
and processes, including operational processes, that when
applied to those inputs have the ability to create outputs
that provide a return to the Company and its shareholders.
• Deferral of stripping costs: In determining whether stripping
costs incurred during the production phase of a mining
property relate to mineral reserves that will be mined in
a future period and therefore should be capitalized, the
Company treats the costs of removal of the waste material
during a mine’s production phase as deferred, where it
gives rise to future benefits. These capitalized costs are
subsequently amortized on a unit of production basis over
the reserves that directly benefit from the specific stripping
activity. As at December 31, 2015, the carrying amount of
stripping costs capitalized was $39.5 million comprised
of Manantial Espejo - $3.2 million and Dolores - $36.3
million (2014 - $46.2 million was capitalized comprised of
Manantial Espejo $13.0 million, Dolores $28.4 million, and
Alamo Dorado $4.8 million).
• Replacement convertible debenture: As part of the 2009
Aquiline transaction the Company issued a replacement
convertible debenture that allowed the holder to convert
the debenture into either 363,854 Pan American shares or
a Silver Stream contract. The holder subsequently selected
the Silver Stream contract. The convertible debenture
is classified and accounted for as a deferred credit. In
determining the appropriate classification of the convertible
debenture as a deferred credit, the Company evaluated
the economics underlying the contract as of the date the
Company assumed the obligation. As at December 31, 2015,
the carrying amount of the deferred credit arising from the
Aquiline acquisition was $20.8 million (2014 - $20.8 million).
• Convertible Notes: The Company has the right to pay
all or part of the liability associated with the Company’s
outstanding convertible notes in cash on the conversion
date. Accordingly, the Company classifies the convertible
notes as a financial liability with an embedded derivative.
The financial liability and embedded derivative are
recognized initially at their respective fair values. The
embedded derivative is subsequently recognized at fair
value with changes in fair value reflected in profit or loss
and the debt liability component is recognized at amortized
cost using the effective interest method. Interest gains and
losses related to the debt liability component or embedded
derivatives are recognized in profit or loss. On conversion,
the equity instrument is measured at the carrying value of
the liability component and the fair value of the derivative
component on the conversion date. The notes, were settled
in December 2015 along with all accrued interest.
5. KEY SOURCES OF ESTIMATION
UNCERTAINTY IN THE APPLICATION OF
ACCOUNTING POLICIES
Key sources of estimation uncertainty that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities are:
• Revenue recognition: Revenue from the sale of concentrate
to independent smelters is recorded at the time the risks
and rewards of ownership pass to the buyer using forward
market prices on the expected date that final sales prices
will be fixed. Variations between the prices set under the
smelting contracts may be caused by changes in market
prices and result in an embedded derivative in the accounts
receivable. The embedded derivative is recorded at fair value
73
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
each period until final settlement occurs, with changes
in the fair value classified in revenue. In a period of high
price volatility, as experienced under current economic
conditions, the effect of mark-to-market price adjustments
related to the quantity of metal which remains to be settled
with independent smelters could be significant. For changes
in metal quantities upon receipt of new information and
assay, the provisional sales quantities are adjusted.
•
• Estimated recoverable ounces: The carrying amounts of
the Company’s mining properties are depleted based on
recoverable ounces. Changes to estimates of recoverable
ounces and depletable costs including changes resulting
from revisions to the Company’s mine plans and changes
in metal price forecasts can result in a change to future
depletion rates.
• Mineral reserve estimates: The figures for mineral reserves
and mineral resources are determined in accordance with
National Instrument 43 -101, “Standards of Disclosure
for Mineral Projects”, issued by the Canadian Securities
Administrators and in accordance with “Estimation of
Mineral Resources and Mineral Reserves Best Practice
Guidelines – adopted November 23, 2003”, prepared by
the CIM Standing Committee on Reserve Definitions.
There are numerous uncertainties inherent in estimating
mineral reserves and mineral resources, including many
factors beyond the Company’s control. Such estimation is a
subjective process, and the accuracy of any mineral reserve
or mineral resource estimate is a function of the quantity
and quality of available data and of the assumptions
made and judgments used in engineering and geological
interpretation. Differences between management’s
assumptions including economic assumptions such as
metal prices and market conditions could have a material
effect in the future on the Company’s financial position and
results of operation.
• Valuation of Inventory: In determining mine production
costs recognized in the consolidated income statement,
the Company makes estimates of quantities of ore stacked
in stockpiles, placed on the heap leach pad and in process
and the recoverable silver in this material to determine
the average costs of finished goods sold during the period.
Changes in these estimates can result in a change in mine
operating costs of future periods and carrying amounts of
inventories. Refer to Note 9 for details.
• Depreciation and amortization rates for mineral property,
plant and equipment and mineral interests: Depreciation
and amortization expenses are allocated based on assumed
asset lives and depreciation and amortization rates. Should
the asset life or depreciation rate differ from the initial
estimate, an adjustment would be made in the consolidated
income statement prospectively. A change in the mineral
reserve estimate for assets depreciated using the units
of production method would impact depreciation
expense prospectively.
74
Impairment of mining interests: While assessing whether
any indications of impairment exist for mining interests,
consideration is given to both external and internal sources
of information. Information the Company considers include
changes in the market, economic and legal environment in
which the Company operates that are not within its control
and affect the recoverable amount of mining interests.
Internal sources of information include the manner in which
mineral property, plant and equipment are being used or
are expected to be used and indications of the economic
performance of the assets. Estimates include but are not
limited to estimates of the discounted future after-tax
cash flows expected to be derived from the Company’s
mining properties, costs to sell the mining properties and
the appropriate discount rate. Reductions in metal price
forecasts, increases in estimated future costs of production,
increases in estimated future capital costs, reductions in
the amount of recoverable mineral reserves and mineral
resources and/or adverse current economics can result in
a write-down of the carrying amounts of the Company’s
mining interests. Impairments of mining interests are
discussed in Note 11.
• Estimation of decommissioning and restoration costs
and the timing of expenditures: The cost estimates are
updated annually during the life of a mine to reflect known
developments, (e.g. revisions to cost estimates and to the
estimated lives of operations), and are subject to review
at regular intervals. Decommissioning, restoration and
similar liabilities are estimated based on the Company’s
interpretation of current regulatory requirements,
constructive obligations and are measured at the best
estimate of expenditure required to settle the present
obligation of decommissioning, restoration or similar
liabilities that may occur upon decommissioning of the
mine at the end of the reporting period. The carrying
amount is determined based on the net present value of
estimated future cash expenditures for the settlement of
decommissioning, restoration or similar liabilities that may
occur upon decommissioning of the mine. Such estimates
are subject to change based on changes in laws and
regulations and negotiations with regulatory authorities.
Refer to Note 15 for details on decommissioning and
restoration costs.
•
Income taxes and recoverability of deferred tax assets: In
assessing the probability of realizing income tax assets
recognized, the Company makes estimates related to
expectations of future taxable income, applicable tax
planning opportunities, expected timing of reversals of
existing temporary differences and the likelihood that tax
positions taken will be sustained upon examination by
applicable tax authorities. In making its assessments, the
Company gives additional weight to positive and negative
evidence that can be objectively verified. Estimates of
future taxable income are based on forecasted cash flows
from operations and the application of existing tax laws
pan american silver corp. in each jurisdiction. The Company considers relevant tax
planning opportunities that are within the Company’s
control, are feasible and within management’s ability to
implement. Examination by applicable tax authorities is
supported based on individual facts and circumstances of
the relevant tax position examined in light of all available
evidence. Where applicable tax laws and regulations are
either unclear or subject to ongoing varying interpretations,
it is reasonably possible that changes in these estimates
can occur that materially affect the amounts of income tax
assets recognized. Also, future changes in tax laws could
limit the Company from realizing the tax benefits from the
deferred tax assets. The Company reassesses unrecognized
income tax assets at each reporting period.
• Accounting for acquisitions: The provisional fair value of
assets acquired and liabilities assumed and the resulting
goodwill, if any, requires that management make certain
judgments and estimates taking into account information
available at the time of acquisition about future events,
including, but not restricted to, estimates of mineral
reserves and resources required, exploration potential,
future operating costs and capital expenditures, future
metal prices, long-term foreign exchange rates and discount
rates. Changes to the provisional values of assets acquired
and liabilities assumed, deferred income taxes and resulting
goodwill, if any, are retrospectively adjusted when the final
measurements are determined (within one year of the
acquisition date).
• Contingencies: Due to the size, complexity and nature of the
Company’s operations, various legal and tax matters are
outstanding from time to time. In the event the Company’s
estimates of the future resolution of these matters changes,
the Company will recognize the effects of the changes in
its consolidated financial statements on the date such
changes occur. Refer to Note 28 for further discussion
on contingencies.
6. MANAGEMENT OF CAPITAL
The Company’s objective when managing its capital is to
maintain its ability to continue as a going concern while at the
same time maximizing growth of its business and providing
returns to its shareholders. The Company’s capital structure
consists of shareholders’ equity (comprising issued capital
plus share option reserve plus retained deficit, plus investment
revaluation reserve) with a balance of $1.3 billion as at
December 31, 2015 (2014 - $1.6 billion). The Company manages
its capital structure and makes adjustments based on changes
to its economic environment and the risk characteristics of the
Company’s assets. The Company’s capital requirements are
effectively managed based on the Company having a thorough
reporting, planning and forecasting process to help identify
the funds required to ensure the Company is able to meet its
operating and growth objectives.
The Company is not subject to externally imposed capital
requirements and the Company’s overall strategy with respect
to capital risk management remains unchanged from the year
ended December 31, 2014. Refer to note 17 for details of the
Company’s revolving credit facility and related covenants.
7. FINANCIAL INSTRUMENTS
a) Financial assets and liabilities classified as at fair value
through profit or loss (“FVTPL”)
The Company’s financial assets and liabilities classified as at
FVTPL are as follows:
Current derivative liability
Diesel fuel swaps and foreign
currency contracts
Conversion feature on
convertible notes (Note 17)
December 31,
December 31,
2015
2014
$
$
2,835
$ -
-
2,835
$
278
278
In addition, trade and other receivables include accounts
receivable arising from sales of metal concentrates and have
been designated and classified as at FVTPL. The total trade and
other receivables are as follows:
December 31,
December 31,
2015
2014
Trade receivables from provisional
concentrates sales
Not arising from sale of metal
concentrates
Trade and other receivables
$
$
21,272
$
29,288
65,769
76,356
87,041
$
105,644
b) Normal purchase or sale exemption
Contracts that were entered into and continue to be held for
the purpose of the receipt or delivery of a nonfinancial item in
accordance with the Company’s expected purchase, sale or
usage requirements fall in the exemption from IAS 32 and IAS
39, which is known as the ”normal purchase or sale exemption”.
For these contracts and the host part of the contracts
containing embedded derivatives, they are accounted for as
executory contracts. The Company recognizes such contracts in
its statement of financial position only when one of the parties
meets its obligation under the contract to deliver either cash or
a non-financial asset.
c) Financial assets designated as available-for-sale
The Company’s short term investments are designated as
available-for-sale. The unrealized losses on available-for-sale
investments recognized in other comprehensive loss for the
years ended December 31, were as follows:
Twelve months ended
December 31,
2015
2014
Unrealized net losses on available
for sale securities
$
(1,459) $
(1,429)
Reclassification adjustment for net
losses on available for sale securities
included in earnings
1,486
$
27 $
1,081
(348)
75
2015 annual report
Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
d) Risk
Overview
The Company has exposure to risks of varying degrees of
significance which could affect its ability to achieve its strategic
objectives for growth and shareholder returns. The principle
financial risks to which the Company is exposed are metal
price risk, credit risk, interest rate risk, foreign exchange rate
risk, and liquidity risk. The Company’s Board of Directors has
overall responsibility for the establishment and oversight of
the Company’s risk management framework and reviews the
Company’s policies on an ongoing basis.
Metal Price Risk
Metal price risk is the risk that changes in metal prices will
affect the Company’s income or the value of its related financial
instruments. The Company derives its revenue from the sale
of silver, gold, lead, copper, and zinc. The Company’s sales are
directly dependent on metal prices that have shown significant
volatility and are beyond the Company’s control. Consistent
with the Company’s mission to provide equity investors with
exposure to changes in silver prices, the Company’s current
policy is to not hedge the price of silver. A 10% increase in all
metal prices for the year ended December 31, 2015, would
result in an increase of approximately $72.8 million (2014 –
$79.4 million) in the Company’s revenues. A 10% decrease
in all metal prices for the same period would result in a
decrease of approximately $76.5 million (2014 - $83.8 million)
in the Company’s revenues. The Company also enters into
provisional concentrate contracts to sell the zinc, lead and
copper concentrates produced by the Huaron, Morococha, San
Vicente and La Colorada mines. A 10% increase in metal prices
(zinc, lead, copper and silver) on open positions for provisional
concentrate contracts for the year ended December 31, 2015
would result in an increase of approximately $6.2 million (2014 -
$6.3 million) in the Company’s before tax earnings which would
be reflected in 2015 results. A 10% decrease in metal prices for
the same period would result in a decrease of approximately
$6.2 million (2014 - $6.5 million) in the Company’s before
tax earnings.
The Company mitigates the price risk associated with its base
metal production by committing some of its forecasted base
metal production from time to time under forward sales and
option contracts. The Board of Directors continually assess
the Company’s strategy towards its base metal exposure,
depending on market conditions. At December 31, 2015, the
Company had outstanding contracts to sell some of its base
metals production.
Credit Risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to
meet its contractual obligations and arises principally from the
Company’s trade receivables. The carrying value of financial
assets represents the maximum credit exposure.
76
The Company has long-term concentrate contracts to sell
the zinc, lead and copper concentrates produced by the
Huaron, Morococha, San Vicente and La Colorada mines.
Concentrate contracts are common business practice in the
mining industry. The terms of the concentrate contracts may
require the Company to deliver concentrate that has a value
greater than the payment received at the time of delivery,
thereby introducing the Company to credit risk of the buyers
of concentrates. Should any of these counterparties not honor
supply arrangements, or should any of them become insolvent,
the Company may incur losses for products already shipped
and be forced to sell its concentrates on the spot market or it
may not have a market for its concentrates and therefore its
future operating results may be materially adversely impacted.
At December 31, 2015 the Company had receivable balances
associated with buyers of its concentrates of $21.3 million
(2014 - $29.3 million). The vast majority of the Company’s
concentrate is sold to eight well known concentrate buyers.
Silver doré production from La Colorada, Alamo Dorado, Dolores
and Manantial Espejo is refined under long term agreements
with fixed refining terms at three separate refineries worldwide.
The Company generally retains the risk and title to the precious
metals throughout the process of refining and therefore
is exposed to the risk that the refineries will not be able to
perform in accordance with the refining contract and that the
Company may not be able to fully recover precious metals
in such circumstances. At December 31, 2015 the Company
had approximately $21.4 million (2014 - $44.7 million) of
value contained in precious metal inventory at refineries. The
Company maintains insurance coverage against the loss of
precious metals at the Company’s mine sites, in-transit to
refineries and whilst at the refineries.
The Company maintains trading facilities with several banks and
bullion dealers for the purposes of transacting the Company’s
trading activities. None of these facilities are subject to margin
arrangements. The Company’s trading activities can expose the
Company to the credit risk of its counterparties to the extent
that our trading positions have a positive mark-to-market value.
However, the Company minimizes this risk by ensuring there
is no excessive concentration of credit risk with any single
counterparty, by active credit management and monitoring.
Refined silver and gold is sold in the spot market to various
bullion traders and banks. Credit risk may arise from these
activities if the Company is not paid for metal at the time it is
delivered, as required by spot sale contracts.
Management constantly monitors and assesses the credit risk
resulting from its refining arrangements, concentrate sales and
commodity contracts with its refiners, trading counterparties
and customers. Furthermore, management carefully considers
credit risk when allocating prospective sales and refining
business to counterparties. In making allocation decisions,
Management attempts to avoid unacceptable concentration of
credit risk to any single counterparty.
pan american silver corp. At December 31, 2015, the Company has recorded an allowance
for doubtful accounts provision in the amount of $7.6 million
(2014 – $7.6 million). $7.6 million relates to amounts owing
from Doe Run Peru (“DRP”), one of the buyers of concentrates
from the Company’s Peruvian operations, for deliveries of
concentrates that occurred in early 2009. The Company
will continue to pursue every possible avenue to recover the
amounts owed by DRP. At December 31, 2015, no additional
provisions for doubtful accounts were recorded other than
those described above.
Cash, trade accounts receivable and other receivables that
represent the maximum credit risk to the Company consist of
the following:
December 31,
2015
2014
rate of 4%. In addition, the Company has also drawn on an
available line of credit in Argentina for $89.1 million Argentinean
Pesos (USD $6.7 million) at an interest rate of 30.0%. $113.5
million Argentinean Pesos are due in January 2016, and USD
$5.1 million are due in January 2016, USD$3.2 million is due in
February 2016 and USD$4.0 million is due in March 2016.
The interest paid by the Company for the year ended December
31, 2015 on the convertible notes was $1.6 million (2014 –
$1.6 million).
The average interest rate earned by the Company during the
year ended December 31, 2015 on its cash and short term
investments was 0.88% (2014 - 0.54%). A 10% increase or
decrease in the interest earned from financial institutions on
cash and short term investments would result in a $0.2 million
increase or decrease in the Company’s before tax earnings
(2014 – $0.3 million).
Cash and cash equivalents
$
133,963
$
146,193
Foreign Exchange Rate Risk
Trade accounts receivable
21,272
29,288
Advances to suppliers and
contractors
12,502
22,766
Export tax receivable
Insurance receivable
Royalty receivable
Employee loans
Other
5,182
3,713
61
1,140
4,919
5,182
4,447
4,274
1,107
3,731
Total accounts receivable (1)
48,789
70,795
Total cash and cash equivalents,
and accounts receivable
$
182,752
$
216,988
(1) Excludes Value added taxes receivable of $38.3 million
(2014 - $34.8 million).
The Company invests its cash which also has credit risk, with
the objective of maintaining safety of principal and providing
adequate liquidity to meet all current payment obligations.
Interest Rate Risk
Interest rate risk is the risk that the fair values and future
cash flows of the Company will fluctuate because of changes
in market interest rates. At December 31, 2015, the Company
has $4.0 million in lease obligations (2014 - $8.0 million),
that are subject to an annualized interest rate of 2.2% and an
amount drawn on the credit facility of $36.2 million (2014 - $nil)
at an annual interest rate of 2.125% to 3.125% over LIBOR.
At December 31, 2014 the Company had $36.2 million of
unsecured convertible notes that bore interest at 4.5%, payable
semi-annually on June 15 and December 15. The interest paid
by the Company for the year ended December 31, 2015 on its
lease obligations was $0.4 million (2014 – $0.4 million). The
Company has received short term loans in Argentina totaling
$5.3 million Argentinean Pesos (USD $0.6 million) at an annual
interest rate of 40% and USD $12.3 million at an annual interest
The Company reports its financial statements in USD;
however, the Company operates in jurisdictions that utilize
other currencies. As a consequence, the financial results of
the Company’s operations as reported in USD are subject to
changes in the value of the USD relative to local currencies.
Since the Company’s sales are denominated in USD and a
portion of the Company’s operating costs and capital spending
are in local currencies, the Company is negatively impacted by
strengthening local currencies relative to the USD and positively
impacted by the inverse.
In order to mitigate this exposure, from time to time the
Company has purchased Peruvian Nuevo Sol (“PEN”), Mexican
Peso (“MXN”) and CAD to match anticipated spending. At
December 31, 2015, the Company had no outstanding contracts
to purchase CAD or PEN. At December 31, 2015, the Company
has collared its foreign currency exposure of MXN purchases
with puts and call contracts which have a nominal value of
$35.7 million and have settlement dates between January and
December, 2016. The positions have a weighted average floor of
$16.42 and average cap of $18.49. The Company’s net earnings
are affected by the revaluation of its monetary assets and
monetary liabilities at each balance sheet date. The Company
has reviewed its monetary assets and monetary liabilities and
is exposed to foreign exchange risk through financial assets
and liabilities and deferred income tax liabilities denominated
in currencies other than USD as shown in the table below. The
Company estimates that a 10% change in the exchange rate of
the foreign currencies in which its December 31, 2015 non-USD
net monetary liabilities were denominated would result in an
income before taxes change of about $12.7 million (2014 -
$5.3 million).
77
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
The Company is exposed to currency risk through the following financial assets and liabilities, and
deferred income tax assets and liabilities denominated in foreign currencies:
At December 31, 2015
investments
assets
current
current liabilities
liabilities
Cash and
Other current
receivable (payable),
and accrued
Deferred income
short-term
and non-current
current and non-
liabilities and non-
tax assets and
Income taxes
Accounts payable
Canadian Dollar
Mexican Peso
Argentinian Peso
Bolivian Boliviano
European Euro
Peruvian Nuevo Sol
$
12,999
$
229
$
-
$
(549)
$
(238)
9,202
46
1,334
8
1,692
29,309
25,961
10,077
-
2,158
7,074
2,294
(556)
(373)
5,454
(34,000)
(38,817)
(13,171)
(19)
(8,913)
(124,375)
-
(4,144)
(183)
(9,457)
$
25,281
$
67,734
$
13,893
$
(95,469)
$
(138,397)
At December 31, 2014
investments
assets
current
current liabilities
liabilities
Cash and
Other current
receivable (payable),
and accrued
Deferred income
short-term
and non-current
current and non-
liabilities and non-
tax assets and
Income taxes
Accounts payable
$
74,262
$
232
$
(243)
$
(259)
$
(180)
18,735
157
401
41
4,844
11,389
31,301
10,777
-
2,593
12,592
1,767
(4,077)
-
5,266
(136)
(53,600)
-
(95)
(135,421)
(1,914)
(2,453)
-
(11,145)
(17,520)
$
98,440
$
56,292
$
15,305
$
(65,235)
$
(157,488)
Canadian Dollar
Mexican Peso
Argentinian Peso
Bolivian Boliviano
European Euro
Peruvian Nuevo Sol
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they come due. The Company
manages its liquidity risk by continuously monitoring forecasted
and actual cash flows. The Company has in place a rigorous
planning and budgeting process to help determine the
funds required to support the Company’s normal operating
requirements on an ongoing basis and its expansion plans.
The Company strives to maintain sufficient liquidity to meet
its short-term business requirements, taking into account its
anticipated cash flows from operations, its holdings of cash and
short-term investments, and its committed loan facilities.
e) Commitments
The Company’s commitments have contractual maturities
which are summarized below:
Payments due by period 2015
Total
Within 1
year (2)
2 - 3 years
4- 5 years
After 5 years
Current liabilities
Credit Facility
Loan obligation (Note 14)
Finance lease obligations (1)
Severance accrual
Employee compensation (3)
Loss on commodity contracts
Provisions (5)
Income taxes payable
$
111,700 $
111,700 $
-
$
-
$
39,400
19,680
4,124
3,811
3,178
2,835
4,419
13,481
960
19,680
2,319
720
1,707
2,835
2,962
13,481
1,920
36,520
-
1,805
1,444
1,471
-
405
-
-
-
975
-
-
733
-
Total contractual obligations (5)
$
202,628 $
156,364 $
7,045 $
38,228
$
-
-
-
-
672
-
-
319
-
991
78
pan american silver corp. Current liabilities
Loan obligation (Note 14)
Finance lease obligations (1)
Severance accrual
Employee compensation
Current portion of long term debt (4)
Provisions
Income taxes payable
Payments due by period 2014
Total
Within 1
year(2)
2 - 3 years
4- 5 years
After 5 years
$
125,031 $
125,031 $
17,600
8,425
4,135
2,542
37,867
3,121
17,600
4,238
749
1,498
37,867
3,121
22,321
22,321
$
-
-
4,187
469
1,044
-
-
-
$
-
-
-
-
-
-
2,053
864
-
-
-
-
-
-
Total contractual obligations (5)
$
221,042 $
212,425 $
5,700 $
2,053
$
864
(1) Includes lease obligations in the amount of $4.1 million (December 31, 2014 - $8.4 million) with a net present value of $4.0 million (December 31,
2014 - $8.0 million) discussed further in Note 16.
(2) Includes all current liabilities as per the statement of financial position plus items presented separately in this table that are expected to be paid
but not accrued in the books of the Company. A reconciliation of the current liabilities balance per the statement of financial position to the total
contractual obligations within one year per the commitment schedule is shown in the table below.
December 31, 2015
Current portion of:
Accounts payable and other liabilities
Credit Facility
Loan obligation
Current portion of finance lease
Current severance liability
Employee Compensation & RSU’s
Unrealized loss on commodity contracts
Provisions (5)
Income tax payable
Total contractual obligations within one year (5)
December 31, 2014
Current portion of:
Accounts payable and other liabilities
Loan obligation
Current portion of finance lease
Current severance liability
Employee Compensation PSU’s & RSU’s
Convertible note
Provisions
Income tax payable
$
$
$
Total contractual obligations within one year
$
Future interest
component
Within 1 year
-
960
102
81
-
1,298
-
-
-
2,441
Future interest
component
-
-
245
-
1,069
3,070
-
-
4,384
$
$
$
$
111,700
960
19,680
2,319
720
1,707
2,835
2,962
13,481
156,364
Within 1 year
125,031
17,600
4,238
749
1,498
37,867
3,121
22,321
212,425
111,700
-
19,578
2,238
720
409
2,835
2,962
13,481
153,923
125,031
17,600
3,993
749
429
34,797
3,121
22,321
208,041
$
$
$
$
(3) Includes RSU obligation in the amount of $2.5 million (2014 – $2.2 million) that will be settled in cash. The RSUs vest in two instalments, 50% in
December 2016 and 50% in December 2017.
(4) Represents the face value of the replacement convertible note and future interest payments related to the Minefinders acquisition. Refer to Note 17
for further details.
(5) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current of $6.0 million,
long-term $44.5 million), the deferred credit arising from the Aquiline acquisition ($20.8 million) discussed in Note 18, and deferred tax liabilities
($142.1 million).
Fair Value of Financial Instruments
The carrying value of share purchase warrants and the
conversion feature on the convertible notes are stated at fair
value and the carrying value of cash, short-term investments,
trade and other receivables, accounts payable and accrued
liabilities approximate their fair value due to the relatively
short periods to maturity of these financial instruments. Share
purchase warrants with an exercise price denominated in a
currency other than the Company’s functional currency are
classified and accounted for as financial liabilities and, as such,
are measured at their fair values with changes in fair values
included in net earnings.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates are subjective in nature
and involve uncertainties and matters of significant judgement
and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
79
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
The following table sets forth the Company’s financial assets
and liabilities measured at fair value, grouped into Levels 1 to
3 based on the degree to which the fair value is observable.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurements). The three levels of the fair value
hierarchy are described as follows:
Level 1: Unadjusted quoted prices in active markets that are
accessible at the measurement date for identical, unrestricted
assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs
that are observable, either directly or indirectly, for substantially
the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs
that are both significant to the fair value measurement
and unobservable (supported by little or no observable
market data).
At December 31, 2015, the levels in the fair value hierarchy
into which the Company’s financial assets and liabilities are
measured and recognized on the Consolidated Statements of
Financial Position at fair value are categorized as follows:
Assets and Liabilities:
Short-term investments
Trade receivable from provisional concentrate sales
Foreign currency contracts
Diesel swap contracts
Assets and Liabilities:
Short-term investments
Trade receivable from provisional concentrate sales
Conversion feature of convertible notes
Fair Value at December 31, 2015
Total
Level 1
Level 2
Level 3
$
92,678
$
92,678
$
-
$
21,272
(168)
(2,667)
-
-
-
21,272
(168)
(2,667)
$
111,115
$
92,678
$
18,437
$
Fair Value at December 31, 2014
Total
Level 1
Level 2
Level 3
$
184,220
$
184,220
$
-
$
29,288
(278)
-
-
29,288
(278)
$
213,230
$
184,220
$
29,010
$
-
-
-
-
-
-
-
-
The methodology and assessment of inputs for determining
the fair value of financial assets and liabilities as well as the
levels of hierarchy for the Company’s financial assets and
liabilities measured at fair value remains unchanged from that
at December 31, 2014.
Valuation Techniques
Short-term investments and other investments
The Company’s short-term investments and other investments
are valued using quoted market prices in active markets and
as such are classified within Level 1 of the fair value hierarchy
and are primarily money market securities and U.S. Treasury
securities. The fair value of the investment securities is
calculated as the quoted market price of the investment and in
the case of equity securities, the quoted market price multiplied
by the quantity of shares held by the Company.
Derivative Financial Instruments
The Company’s unrealized gains and losses on commodity
swaps, diesel fuel swaps and foreign currency contracts
are valued using observable market prices and as such are
classified as Level 2 of the fair market value hierarchy. As
of December 31, 2015, the unrealized gains and losses on
commodity and foreign currency contracts was $2.8
(2014 - $nil).
During the year ended December 31, 2015 the Company
entered into diesel swap contracts designated to fix or limit
the Company’s exposure to higher fuel prices (the “Diesel fuel
swaps”). The Diesel fuel swaps had an initial notional value of
$25.5 million of which $14.7 million remained outstanding as
at December 31, 2015. The Company recorded losses of $3.1
million on the Diesel fuel swaps in the year ended December 31,
2015 (2014 - $nil).
During the year ended December 31, 2015 the Company
entered into copper swap contracts designated to fix or limit
the Company’s exposure to lower copper prices (the “Copper
swaps”). The copper swaps were on 4,080 metric tonnes
(“MT”) of copper at an average price of $6,044 USD/MT.
The Company recorded gains of $3.0 million on the copper
contracts in the year ended December 31, 2015 (2014 - $nil).
As at December 31, 2015 there were no Copper Swap
contracts outstanding.
During the year ended December 31, 2015 the Company
entered into collared positions for its foreign currency exposure
of MXN purchases with puts and call contracts which have
a nominal value of $35.7 million and have settlement dates
between January and December, 2016. The positions have a
weighted average floor of $16.42 and average cap of $18.49. The
Company recorded losses of $0.2 million on the MXN forward
contracts in the year ended December 31, 2015 (2014 - $nil).
80
pan american silver corp. Share purchase warrants
These warrants expired December 7th, 2014. During the
year ended December 31, 2014, the unrealized gain on share
purchase warrants was $0.2 million.
Convertible notes
The Company’s unrealized gains and losses on conversion
feature of the convertible notes are valued using observable
inputs and as such are classified as Level 2 of the fair market
value hierarchy. The conversion feature on the convertible
notes is considered an embedded derivative and re-measured
at fair value each reporting period. The fair value of the
conversion feature of the convertible notes is determined using
a model that includes the volatility and price of the Company’s
8. Short Term Investments
common shares and a credit spread structure with reference
to the corresponding fair value of the debt component of the
convertible notes. During the year ended December 31, 2015,
the unrealized gain on the convertible notes was $0.3 million
(2014 – $1.1 million). The notes, were settled in December 2015
along with all accrued interest.
Receivables from Provisional Concentrate Sales
The Company’s trade receivables arose from provisional
concentrate sales and are valued using quoted market prices
based on the forward London Metal Exchange (“LME”)
for copper, zinc and lead and the London Bullion Market
Association P.M. fix (“London P.M. fix”) for gold and silver.
Available for Sale
Fair Value
Cost
ized holding losses
Fair Value
Cost
ized holding gains
Short term investments
$
92,678 $
93,136 $
(458) $
184,220 $
184,705 $
(485)
December 31, 2015
December 31, 2014
Accumulated unreal-
Accumulated unreal-
10. MINERAL PROPERTIES, PLANT AND
EQUIPMENT
Acquisition costs of investment and non-producing properties
together with costs directly related to mine development
expenditures are capitalized. Exploration expenditures on
investment and non-producing properties are charged to
expense in the period they are incurred.
Capitalization of evaluation expenditures commences when
there is a high degree of confidence in the project’s viability and
hence it is potential that future economic benefits will flow to
the Company. Evaluation expenditures, other than that acquired
from the purchase of another mining company, are carried
forward as an asset provided that such costs are expected
to be recovered in full through successful development and
exploration of the area of interest or alternatively, by its
sale. Evaluation expenditures include delineation drilling,
metallurgical evaluations, and geotechnical evaluations
amongst others.
9. Inventories
Inventories consist of:
December 31,
December 31,
2015
2014
Concentrate inventory
$
17,216
$
16,679
Stockpile ore (1)
18,988
44,236
Heap leach inventory and
in process (2)
Doré and finished inventory (3)
Materials and supplies
82,846
33,981
51,330
78,564
57,175
55,895
$
204,361
$
252,549
(1) Includes an impairment charge of $28.8 million to reduce the cost of
inventory to NRV at Manantial Espejo, Alamo Dorado and Dolores mines
(December 31, 2014 – $0.9 at Manantial Espejo Mine).
(2) Includes an impairment charge of $21.3 million to reduce the cost of
inventory to NRV at Dolores and Manantial Espejo mines (December 31,
2014 - $32.3 million at Dolores and Alamo Dorado mines).
(3) Includes an impairment charge of $3.7 million to reduce the cost of
inventory to NRV at Dolores and Manantial Espejo mines (December 31,
2014 - $9.7 at Dolores, Alamo Dorado and Manantial Espejo mines).
Production costs, including depreciation and amortization, and
royalties for the year ended December 31, 2015 were $706.8
million (2014 - $743.9 million). Production costs represent
cost of inventories sold during the year. During 2015, a $10.9
million (2014 - $30.0 million) net realizable value adjustment
was recognized and included in production costs (Note 20).
Inventories held at net realizable value amounted to $119.0
million (2014 – $156.9 million). The Stockpile ore of $4.5 million
(2014 – $32.7 million) and a portion of the heap leach inventory
amounting to $57.6 million (2014 - $54.0 million) are expected
to be recovered or settled after more than twelve months.
81
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
Mineral properties, plant and equipment consist of:
Mining Properties
Depletable
Non-depletable
Reserves and
Resources
Reserves and
Resources
Exploration
and
Evaluation
Plant and
Equipment
Total
Carrying value
As at January 1, 2015
Net of accumulated depreciation
$
646,374 $
129,944 $
281,401
$
208,672 $
1,266,391
Additions
Disposals
Depreciation and amortization
Depreciation charge captured in inventory
Impairment charges
Transfers (1)
Capitalized borrowing costs
Closure and decommissioning – changes in estimate
114,092
-
(69,479)
15,661
(90,431)
(5,249)
1,994
7,073
-
-
-
-
(14,571)
-
-
-
-
-
42,461
(255)
156,553
(255)
(81,366)
(150,845)
-
15,661
(45,266)
(150,268)
4,978
(5,094)
4,282
(1,083)
-
-
-
-
-
-
1,994
7,073
As at December 31, 2015
$
620,035 $
129,944 $
276,307
$
128,528 $
1,145,221
Cost as at December 31, 2015
$
1,502,411 $
341,331 $
677,846
$
720,786 $
3,242,374
Accumulated depreciation and impairments
(882,376)
(220,980)
(401,539)
(592,258)
(2,097,153)
Carrying value – December 31, 2015
$
620,035 $
120,351 $
276,307
$
128,528 $
1,145,221
(1) Includes reclassification to Supply inventory and supplier advances.
Mining Properties
Depletable
Non-depletable
Reserves and
Resources
Reserves and
Resources
Exploration
and
Evaluation
Plant and
Equipment
Total
Carrying value
As at January 1, 2014
Net of accumulated depreciation
$
706,831 $
226,415 $
602,816
$
334,616 $
1,870,678
Additions
Disposals
Depreciation
Depreciation charge captured in inventory
Impairment charges
Transfers (1)
Capitalized borrowing costs
Closure and decommissioning – changes in estimate
107,650
-
(70,749)
(9,418)
-
-
-
-
17
(377)
-
-
(142,269)
(72,038)
(310,593)
51,297
2,338
694
(24,433)
(10,411)
-
-
-
(51)
33,911
(267)
141,578
(644)
(76,961)
(147,710)
-
(9,418)
(67,286)
(15,341)
-
-
(592,186)
1,112
2,338
643
As at December 31, 2014
$
646,374 $
129,944 $
281,401
$
208,672 $
1,266,391
Cost as at December 31, 2014
$
1,373,338 $
336,353 $
682,940
$
690,368 $
3,082,999
Accumulated depreciation and impairments
(726,964)
(206,409)
(401,539)
(481,696)
(1,816,608)
Carrying value – December 31, 2014
$
646,374 $
129,944 $
281,401
$
208,672 $
1,266,391
(1) Includes amounts transferred from Accounts Receivable for advances.
82
pan american silver corp. December 31, 2015
Accumulated
Depreciation and
Impairment
Cost
Carrying
Value
Cost
December 31, 2014
Accumulated
Depreciation
and Impairment
Carrying
Value
Huaron mine, Peru
$
171,574 $
(82,896) $
88,678 $
158,750 $
(71,351) $
87,399
Morococha mine, Peru
Alamo Dorado mine, Mexico
La Colorada mine, Mexico
Dolores mine, Mexico
Manantial Espejo mine, Argentina
San Vicente mine, Bolivia
Other
Total
214,855
198,950
200,083
921,169
360,735
130,595
25,237
(177,621)
37,234
(198,950)
-
(72,732)
127,351
(512,308)
408,861
(341,457)
(72,230)
(16,441)
19,278
58,365
8,796
211,545
193,715
140,784
859,655
346,498
128,014
24,745
(86,936)
(179,274)
(61,650)
124,609
14,441
79,134
(452,645)
407,010
(277,296)
(63,812)
(15,696)
69,202
64,202
9,049
$
2,223,198 $
(1,474,635) $
748,563 $ 2,063,706 $
(1,208,660) $
855,046
Land and Exploration and Evaluation:
Land
Navidad project, Argentina
Minefinders exploration projects, Mexico
Morococha, Peru
Other
Total non-producing properties
Total mineral properties, plant and equipment
$
3,515
$
4,977
190,471
173,401
3,238
26,033
$
$
396,658
1,145,221
190,471
180,074
9,674
26,149
411,345
1,266,391
$
$
Navidad Project, Argentina
During the year ended December 31, 2015 the Company
capitalized $nil of evaluation costs and mineral properties, plant
and equipment at the Navidad Project in Argentina (2014 - $nil).
At December 31, 2014, it was determined that the estimated
realizable value of the Navidad project was below its carrying
value and an impairment charge of $286.1 million was recorded.
Refer to Note 11 for further details.
totaling $40.0 million, of which, to December 31, 2015, the
Company received $23.8 million (2014 - $23.8 million) which
has been recognized as other income.
At December 31, 2015, it was determined that the estimated
realizable value of the Morococha mine was below its carrying
value and an impairment charge of $80.7 million (net of tax of
$59.1million) was recorded. Refer to Note 11 for further details.
Dolores Mine, Mexico
Morococha Mine, Peru
During the second quarter of 2010, the Company’s subsidiary
Compañia Minera Argentum S.A. (“Argentum”), reached an
agreement with Minera Chinalco Perú (“MCP” or “Chinalco”), a
subsidiary of the Aluminum Corporation of China which clearly
defines each party’s long term surface rights in the area of the
Morococha mine. The primary focus of the agreement is on
the lands and concessions around the Morococha mine and
MCP’s Toromocho copper project. MCP requires certain lands
and concessions in order to proceed with the development of
Toromocho, including the surface lands within the planned open
pit mining area of the Toromocho project. While Argentum does
not own this land, much of the Morococha mine infrastructure
and facilities are located on this ground.
Under the terms of the agreement, Argentum would relocate
the core Morococha facilities over a 5 year period and transfer
certain mineral concessions and access rights to MCP. In
exchange, Argentum will receive a package of surface rights,
easements and other rights that are sufficient to relocate the
facilities and to continue uninterrupted operations. Lastly,
Argentum will receive periodic cash payments from MCP
On March 30, 2012, the Company acquired all of the issued
and outstanding common shares of Minefinders. Minefinders’
primary mining property was its 100% owned Dolores gold and
silver mine located in Chihuahua, Mexico.
During the year ended December 31, 2015 the Company
capitalized $53.1 million of mineral properties, plant and
equipment (2014 - $49.7 million) which included deferred
stripping costs of $18.1, powerline construction costs of $11.5
and pad 3 construction additions of $2.2 million (2014 - $17.5
million). For the year ended December 31, 2015, the Company
capitalized $2.0 million in interest related to the capital
expenditures (2014 - $2.3 million) at a capitalization rate of
8.7% (2014 - 8.7%).
At December 31, 2015, it was determined that the estimated
realizable value of the Dolores mine was below its carrying value
and a further impairment charge of $31.8 million (net of tax of
$20.7 million) was recorded. Refer to Note 11 for further details.
At December 31, 2014, it was determined that the estimated
realizable value of the Dolores mine was below its carrying value
and an impairment charge of $170.6 million (net of tax of $110.8
million) was recorded. Refer to Note 11 for further details.
83
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
11. IMPAIRMENT OF NON-CURRENT ASSETS
AND GOODWILL
Non-current assets are tested for impairment when events or
changes in circumstance indicate that the carrying amount
may not be recoverable. The Company performs an impairment
test for goodwill at each financial year end and when events or
changes in circumstances indicate that the related carrying
value may not be recoverable. The Company considers use of
its internal discounted cash flow economic models as a proxy
for the calculation of fair value less cost to sell, given a willing
market participant would use such models in establishing a
value for the properties. The Company considered impairment
at the cash generating unit (“CGU”) level, which is considered
to be an individual mine or a development property. The
CGU carrying amount for purposes of this test includes the
carrying value of the mineral properties plant and equipment
less deferred tax liabilities and closure and decommissioning
liabilities related to each CGU.
Impairment at December 31, 2015
The sustained decrease in metal prices, that was most
pronounced during the second half of 2015, led to the Company
lowering its long term reserve prices at year-end. The year-end
reserve price reduction and observed declines in near-term
and mid-term period consensus metal prices referenced in the
Company’s life of mine cash flow models, led management to
conclude that there was an indication of impairment to certain
assets in the third and fourth quarter of 2015. Based on the
Company’s estimation of the recoverable amounts of its mineral
properties as at September 30, 2015 and December 31, 2015,
determined on a fair value less costs to sell basis, the Company
concluded that impairment charges were required during the
year on the Dolores, Manantial Espejo, Morococha, and Alamo
Dorado mines.
The Company’s key assumptions for each impairment
test included the most current operating and capital costs
information and risk adjusted project specific discount rates.
The Company used a median of analysts’ consensus pricing for
the first four years of its economic modeling for impairment
purposes, and long term reserve prices for the remainder
of each asset’s life. The prices used can be found in the key
assumptions and sensitivity section below.
As at December 31, 2015, the Company determined the carrying
value of the Dolores mine, including mineral properties, plant
and equipment, and stockpile inventories, net of associated
deferred tax liabilities and closure and decommissioning
liabilities of $434.3 million (the “Net Carrying Amount”), was
greater than its then estimated recoverable amount of $413.6
million when using a 5.25% risk adjusted discount rate. Based
on the assessment at December 31, 2015, the Company
recorded a further impairment charge related to the Dolores
mine of $31.7 million before tax ($20.7 million net of tax).
As at December 31, 2015, the Company determined that the
$12.9 million Net Carrying Amount of the Alamo Dorado mine,
was greater than its then estimated recoverable amount of $nil
84
when using a 4.00% risk adjusted discount rate. Based on this
assessment the Company wrote–off the carrying value of the
Alamo Dorado mine’s mineral properties, plant and equipment
assets of $9.1 million before tax ($6.0 million net of tax).
As at December 31, 2015, the Company determined that the
$112.4 million Net Carrying Amount of the Morococha mine,
was greater than its then estimated recoverable amount of
$36.3 million when using a 6.50% risk adjusted discount rate.
Based on the assessment at December 31, 2015, the Company
recorded an impairment charge related to the Morococha mine
of $80.7 million before tax ($59.1 million net of tax).
As at September 30, 2015, the Company determined that
the Net Carrying Amount of the Manantial Espejo mine of
approximately $83.4 million was greater than its then estimated
recoverable amount of $29.9 million, when using an 8.25% risk
adjusted discount rate. Based on this assessment the Company
recorded an impairment charge related to the Manantial Espejo
mineral properties, plant and equipment of $28.8 million before
tax ($20.2 million net of tax).
Impairment at December 31, 2014
Similarly, as at December 2014 primarily due to the sustained
decrease in metal prices that began during the third quarter and
continued through the balance of 2014, the Company concluded
that impairment indicators existed and ultimately impairments
were required as of December 31, 2014.
In the fourth quarter of 2014 the Company lowered the metal
prices assumed in its reserve and resource estimates and its life
of mine cash flow models which ultimately led to a conclusion
that a total impairment charge of $596.3 million ($498.7 million,
net of tax), made up of impairments required on the Dolores,
Alamo Dorado, and Manantial Espejo mines in addition to
imparment charges on Navidad assets and other exploration
properties including $4.1 million of goodwill. The pre and post-
tax impairments relating to each of these assets is summarized
in the table above. Impairments were allocated pro-rata
amongst: depletable and non-depletable mineral property;
exploration and evaluation property; and, plant and equipment
assets. The total 2014 pre-tax impairment was comprised
of total impairments of: $142.2 million to depletable mineral
properties; $72.1 million to non-depletable mineral properties;
$310.5 million to exploration and evaluation property; and,
$67.3 million to plant and equipment assets. For the purposes
of the December 31, 2014 impairment review, the Company’s
key assumptions included the most current information on
operating and capital costs, and the metal price assumptions
summarized in the “Key assumptions and sensitivity”
section below.
Key assumptions and sensitivity
The metal prices used to calculate the recoverable amounts at
December 31, 2015, September 30, 2015 and December
31, 2014 are based on analyst consensus prices and the
Company’s long term reserve prices, and are summarized in
the following tables:
pan american silver corp. Metal prices used at December 31, 2015:
Goodwill
Commodity Prices
Silver Price - $/oz.
Gold Price - $/oz.
Zinc Price - $/tonne
Copper price - $/tonne
Lead Price - $/tonne
2016-2019
average
Long term
Goodwill arose when the Company acquired Minefinders in 2012
and consists of:
$16.87
$1,184
$2,264
$5,690
$1,935
$17.00
$1,180
$1,800
$5,000
$1,800
As at December 31, 2013
Impairments (1)
As at December 31, 2014
Impairments
As at December 31, 2015
$
$
7,134
(4,077)
3,057
-
3,057
Metal prices used at September 30, 2015:
(1) Impairment of exploration properties; La Virginia and other.
December, 2014
Commodity Prices
Silver Price - $/oz.
Gold Price - $/oz.
2015-2018
average
$16.98
$1,199
Long term
$18.50
$1,250
12. OTHER ASSETS
Other assets consist of:
Metal prices used at December 31, 2014:
December 31,
2015
December 31,
2014
Long-term receivable (1)
$
- $
Commodity Prices
Silver Price - $/oz.
Gold Price - $/oz.
Zinc Price - $/tonne
Copper price - $/tonne
Lead Price - $/tonne
2015-2018
average
Long term
Investments in Associates
$19.03
$1,266
$2,423
$6,996
$2,225
$18.50
$1,250
$2,000
$6,800
$2,000
Reclamation bonds
Lease receivable
Other assets
1,450
199
185
37
5,461
1,450
91
408
37
The Company assesses impairment, when events or changes
in circumstances indicate that the related carrying value
may not be recoverable, at the cash-generating unit level
(“CGU”), which is considered to be individual mine sites or
development properties. The discount rates used to present
value the Company’s life of mine cash flows are derived from
the Company’s weighted average cost of capital which was
calculated as 6.4% for 2015 (2014 – 7.5%), with rates applied to
the various mines and projects ranging from 4.00% to 10.00%
depending on the Company’s assessment of country risk,
project risk, and other potential risks specific to each CGU.
The key assumptions in determining the recoverable value of
the Company’s mineral properties are metal prices, operating
and capital costs, foreign exchange rates and discount rates.
At December 31, 2015, an adverse 10% movement in any of the
major assumptions in isolation did not cause the recoverable
amount to be equal to the CGU carrying value for any of La
Colorada, San Vicente and Huaron.
In the case of the Dolores mine, the Alamo Dorado mine, the
Manantial Espejo mine, the Morococha mine, and the Navidad
project, which all have had their carrying values adjusted
to fair value less cost to sell through impairment charges, a
modest decrease in any one key assumption would reduce the
recoverable amount below the carrying amount.
$
1,871 $
7,447
(1) Represents a deposit related to the Gas Line Project at the
Manantial Espejo mine.
13. ACCOUNTS PAYABLE AND ACCRUED
LIABILITIES
Accounts payable and accrued liabilities consist of:
Trade accounts payable (1)
$
53,570 $
52,985
December 31,
2015
December 31,
2014
Royalties payable
Other accounts payable and
trade related accruals
Payroll and related benefits
Severance accruals
Other taxes payable
Advances on concentrate
inventory
Other
1,947
28,796
17,366
720
1,220
-
9,210
6,019
33,780
18,808
749
1,541
2,345
9,982
$
112,829
$
126,209
(1) No interest is charged on the trade accounts payable ranging from 30
to 60 days from the invoice date. The Company has policies in place to
ensure that all payables are paid within the credit terms.
14. Loans payable
December
31, 2015
December
31, 2014
Loan payable
$
19,578
$
17,658
Unrealized gain on foreign exchange
-
(58)
Net loan payable (1)
$
19,578
$
17,600
85
2015 annual report
Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
(1)
As at December 31, 2015
Due
January 6, 2016
January 15, 2016
January 23, 2016
January 29, 2016
January 29, 2016
February 28, 2016
March 9, 2016
March 9, 2016
Argentine
Peso
$
5,291 $
89,065
-
-
-
-
-
-
US$
Int.
Rate
- 40.00% $
- 30.00%
2,305 3.90%
300 5.30%
2,500 3.82%
3,195 4.25%
3,200 3.35%
800 3.85%
$
94,356 $
12,300
$
As at December 31, 2014
Due
Argentine
Peso
US$
Int.
Rate
October 31, 2015 $
January 15, 2015
February 11, 2015
60,000 $
49,500
-
$ 109,500 $
- 32.90% $
- 25.00%
4,713 3.20%
4,713
$
Total
US$
406
6,872
2,305
300
2,500
3,195
3,200
800
19,578
Total
US$
7,017
5,870
4,713
17,600
15. Provisions
Closure and
Decommis-
Litigation
Total
sioning
41,469
5,520
46,989
Closure and Decommissioning Cost Provision
The total inflated and undiscounted amount of estimated
cash flows required to settle the Company’s closure and
decommissioning provision is $107.2 million (2014 - $99.7
million) which has been discounted using discount rates
between 1% and 20% (2014 – 1% and 21%). Revisions made
to the reclamation obligations in 2015 were primarily a result
of increased site disturbance at the mines as well as revisions
to the estimate based on periodic reviews of closure plans,
actual expenditures incurred and concurrent closure activities
completed. These obligations will be funded from operating
cash flows, reclamation deposits and cash on hand.
The accretion expense charged to 2015 earnings as finance
expense was $3.2 million (2014 - $3.2 million). Reclamation
expenditures paid during the current year were $2.8 million
(2014 - $2.0 million).
Litigation Provision
The litigation provision consists of amounts accrued for
labour claims at several of the Company’s mine operations.
The balance of $4.4 million at December 31, 2015 (2014 - $5.0
million) represents the Company’s best estimate for all known
and anticipated future obligations related to the above claims.
The amount and timing of any expected payments are uncertain
as their determination is outside the control of the Company.
December 31, 2013
Revisions in estimates and
obligations incurred
$
$
Charged (credited) to earnings:
-new provisions
-unused amounts reversed
-exchange gains on
provisions
Charged in the year
Accretion expense (Note 22)
December 31, 2014
Revisions in estimates and
obligations incurred
$
$
Charged (credited) to
earnings:
-new provisions
-unused amounts reversed
-exchange gains on
provisions
Charged in the year
Accretion expense (Note 22)
421
-
421
16. Finance Lease Obligations
-
-
-
(1,955)
3,238
375
(91)
(284)
(509)
-
43,173 $
5,011
375
(91)
(284)
(2,464)
3,238
48,184
6,859
-
6,859
-
-
-
(2,818)
3,239
125
(86)
(377)
(255)
-
125
(86)
(377)
(3,073)
3,239
Lease obligations(1)
$
3,997 $
8,037
December 31,
2015
December 31,
2014
Maturity analysis of finance leases:
Current
Non-Current
December 31,
2014
December 31,
2013
$
$
2,238 $
1,759
3,997 $
3,993
4,044
8,037
(1) Represents equipment lease obligations at several of the Company’s
subsidiaries. A reconciliation of the total future minimum lease payments
at December 31 to their present value is presented in the table below.
December 31,
2015
December 31,
2014
December 31, 2015
$
50,453 $
4,418 $
54,871
Less than a year
$
2,319
$
Maturity analysis of total provisions:
December 31,
2015
December 31,
2014
$
$
8,979
$
3,121
45,892
45,063
54,871
$
48,184
Current
Non-Current
86
2 years
3 years
4 years
5 years
Less future finance charges
Present value of minimum lease
payments
$
1,030
775
-
-
4,124
(127)
4,238
2,697
1,490
-
-
8,425
(388)
3,997
$
8,037
pan american silver corp.
17. Long Term Debt
Credit Facility
Convertible notes
Conversion feature on the
convertible notes
December 31,
2015
December 31,
2014
During the year ended December 31, 2015, the Company
recorded a $0.3 million gain on the revaluation of the embedded
derivative on the convertible notes (2014 – $1.1 million).
$
36,200
$
-
18. Other Long Term Liabilities
-
-
34,519
278
Other long term liabilities consist of:
Deferred credit(1)
$
20,788
$
20,788
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
Other income tax payable
Severance accruals
6,624
3,091
6,542
3,386
$
30,503
$
30,716
Total long-term debt
$
36,200
$
34,797
Maturity analysis of Long Term Debt
Current
Non-Current
$
$
- $
34,797
36,200
-
36,200 $
34,797
On April 15, 2015 the Company entered into a new $300.0
million secured revolving credit facility with a 4-year term (the
“Credit Facility”). In connection with the Credit Facility the
Company paid upfront costs of $3.0 million which have been
recorded as an asset under the classification Prepaids and
other current assets and are being amortized over the life of
the Credit Facility. The Credit Facility can be drawn down at any
time to finance the Company’s working capital requirements,
acquisitions, investments and for general corporate purposes.
At the option of the Company, amounts can be drawn under the
Credit Facility and will incur interest based on the Company’s
leverage ratio at either (i) LIBOR plus 2.125% to 3.125% or; (ii)
the Bank of Nova Scotia’s Base Rate plus 1.125% to 2.125%.
Undrawn amounts under the Revolving Facility are subject to
a stand-by fee of 0.478% to 0.703% per annum, dependent on
the Company’s leverage ratio.
Under the Credit Facility, the Company is subject to various
general and financial covenants, the financial covenants include
the requirement for the Company to maintain: (i) a leverage
ratio less than or equal to 3.5:1; (ii) an interest coverage ratio
more than or equal to 3.0:1; and (iii) a tangible net worth
(exclusive of any prospective write-downs of certain assets)
of greater than $1,248.0 million plus 50% of the positive net
earnings for each subsequent fiscal quarter. As of December
31, 2015 the Company was in compliance with all covenants
required by the Credit Facility.
On December 29, 2015 the Company made a $36.2 million
drawdown on the Credit Facility by way of 1-month LIBOR loan
at an annual rate of 2.55%. Subsequent to December 31, 2015
the $36.2 million remained drawn under LIBOR loans at an
average annual rate of 2.55%
As part of the Minefinders acquisition and pursuant to the
First Supplemental Indenture Agreement, the Company
issued replacement unsecured convertible senior notes with
an aggregate principal amount of $36.2 million (the “Notes”).
Until such time as the earlier of December 15, 2015 and the
date the Notes are converted, each Note shall bear interest at
4.5% payable semi-annually on June 15 and December 15 of
each year. The principal outstanding on the Notes were due and
settled on December 15, 2015.
1) As part of the 2009 Aquiline transaction the Company issued a
replacement convertible debenture that allowed the holder to convert
the debenture into either 363,854 Pan American Shares or a Silver
Stream contract related to certain production from the Navidad project.
Regarding the replacement convertible debenture, it was concluded
that the deferred credit presentation was the most appropriate and best
representation of the economics underlying the contract as of the date
the Company assumed the obligation as part of the Aquiline acquisition.
Subsequent to the acquisition, the counterparty to the replacement
debenture selected the silver stream alternative. The final contract for
the alternative is being discussed and pending the final resolution of this
discussion, the Company continues to classify the fair value calculated at
the acquisition of this alternative, as a deferred credit.
19. SHARE CAPITAL AND EMPLOYEE
COMPENSATION PLANS
The Company has a comprehensive stock option and
compensation share plan for its employees, directors and
officers (the “Compensation Plan”). The Compensation Plan
provides for the issuance of common shares and stock options,
as incentives. The maximum number of shares which may be
issued pursuant to options granted or bonus shares issued
under the Compensation Plan may be equal to, but will not
exceed 6,461,470 shares. The exercise price of each option shall
be the weighted average trading price of the Company’s stock
for the five trading days prior to the award date. The options
can be granted for a maximum term of 10 years with vesting
provisions determined by the Company’s Board of Directors.
Subject to certain exceptions, any modifications to the
Compensation Plan require shareholders’ approval.
The Board has developed long term incentive plan (“LTIP”)
guidelines, which provide annual compensation to the senior
managers of the Company based on the long term performance
of both the Company and the individuals that participate in the
plan. The LTIP consists of an annual grant of options to buy
shares of the Company and a grant of the Company’s common
shares with a two year no trading legend. The options are seven
year options which vest evenly in two annual instalments.
Options and common shares granted under the LTIP plan are
based on employee salary levels, individual performance and
their future potential. In addition, the restricted share units
(“RSUs”) plan described below is part of the LTIP plan. In early
2014, the Board approved the adding of performance share
units (“PSUs”) to the Company’s LTIP, plan described below.
The Compensation Committee oversees the LTIP on behalf
of the Board of Directors. The LTIP plan guidelines can be
modified or suspended, at the discretion of the Board of
Directors. Additionally, from time to time, the Company issues
replacement awards and warrants related to acquisitions.
87
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
Transactions concerning stock options and share purchase warrants are summarized as follows in CAD:
Stock Options
Share Purchase Warrants
Shares
Weighted
Average Exercise
Price CAD$
Warrants
Weighted
Average Exercise
Price CAD$
Total
As at December 31, 2013
Granted
Exercised
Expired
Forfeited
As at December 31, 2014
Granted
Exercised
Expired
Forfeited
As at December 31, 2015
Long Term Incentive Plan
1,397,370
212,869
-
(195,562)
(20,162)
1,394,515
446,279
-
(190,862)
(97,009)
1,552,923
$
$
$
$
$
$
$
$
$
$
$
20.76
7,814,605
11.58
-
-
(92)
17.73
(7,814,513)
23.02
19.74
9.76
-
25.19
23.21
15.98
$
$
$
$
$
$
$
$
$
$
-
-
-
-
-
-
- $
35.00
9,211,975
-
212,869
35.00
(92)
35.00
(8,010,075)
-
-
-
-
-
-
-
(20,162)
1,394,515
446,279
-
(190,862)
(97,009)
1,552,923
During the year ended December 31, 2015, the Company
awarded 215,234 (2014 - 137,465) shares of common stock
with a two year holding period and granted 446,279 (2014 –
212,869) options under this plan. During 2015, 25,128 common
shares were issued to Directors in lieu of Directors fees of $0.2
million (2014 - 5,521 of $0.1 million). The Company used as its
assumptions for calculating the fair value a risk free interest
rate of 1.5%-2.2% (2014 – 1.2%), weighted average volatility
of 54% using a historical volatility (2014 – 50%), expected
lives ranging from 3.5 to 4.5 (2014 – 3.5 to 4.5) years, expected
dividend yield of 5.4%-6.4% (2014 – 3.4%), and an exercise
price of CAD $9.76 (2014 – CAD $11.58) per share. The weighted
average fair value of each option was determined to be CAD
$3.30 (2014 – CAD $3.51).
During the year ended December 31, 2015, nil common shares
were issued in connection with the exercise of options under the
plan (December 31, 2014 – nil common shares) 190,862 options
expired (2014 - 195,562) and 97,009 options were forfeited
(2014 – 20,162).
Share Option Plan
The following table summarizes information concerning stock
options outstanding and options exercisable as at December
31, 2015. The underlying option agreements are specified in
Canadian dollar amounts.
Range of Exercise
Prices CAD$
$9.76 - $11.57
$11.58 - $17.01
$17.02 - $18.53
$18.54 - $24.90
$24.91 - $40.22
Options Outstanding
Options Exercisable
Number
Outstanding as at
December 31, 2015
Weighted Average
Remaining Contractual
Life (months)
Weighted Average
Exercise Price
CAD$
Number Exercisable
as at December 31,
2015
Weighted Average
Exercise Price
CAD$
743,826
233,511
184,130
314,520
76,936
1,552,923
73.78
72.93
49.38
34.50
23.33
60.31
$
$
$
$
$
$
10.45
11.68
18.43
24.90
40.22
15.98
297,547
127,079
184,130
314,520
76,936
1,000,212
$
$
$
$
$
$
11.49
11.76
18.43
24.89
40.22
19.23
For the year ended December 31, 2015, the total employee
stock-based compensation expense recognized in the income
statement was $2.6 million (2014 - $2.5 million).
Share Purchase Warrants
During 2014, 92 warrants were exercised for common shares
for proceeds of $0.003 million. The outstanding warrants of
7,814,513 expired on December 7, 2014 as per the agreement.
The Company’s share purchase warrants are classified and
accounted for as a financial liability at fair value with changes
in fair value included in net earnings. During the year ended
December 31, 2014, there was a derivative gain of $0.2 million.
Performance Shares Units
In early 2014, the Board approved the adding of performance
share units (“PSUs”) to the Company’s LTIP. PSUs are notional
88
pan american silver corp. share units that mirror the market value of the Company’s
common shares (the “Shares”). Each vested PSU entitles
the participant to a cash payment equal to the value of an
underlying share, less applicable taxes, at the end of the term,
plus the cash equivalent of any dividends distributed by the
Company during the three-year performance period. PSU grants
will vest on the date that is three years from the date of grant
subject to certain exceptions. Performance results at the end of
the performance period relative to predetermined performance
criteria and the application of the corresponding performance
multiplier determine how many PSUs vest for each participant.
The Board approved the issuance of 73,263 PSUs (2014 –
30,408) with a share price of CAD $9.33 (2014 – CAD$11.51)
as of December 31, 2015. Compensation expense for PSUs was
$0.08 million in 2015 (2014 - $0.005 million) and is presented
as a component of general and administrative expense.
At December 31, 2015, the following PSU’s were outstanding:
PSU
As at December 31, 2013
Granted
Paid out
Forfeited
Change in value
As at December 31, 2014
Granted
Paid out
Forfeited
Change in value
Number
Outstanding
Fair Value
-
30,408
$
-
-
-
30,408
$
73,263
-
-
-
-
305
-
-
(24)
281
503
-
-
(101)
683
As at December 31, 2015
103,671
$
Restricted Share Units
Under the Company’s RSU plan, selected employees are
granted RSUs where each RSU has a value equivalent to one
Pan American common share. The RSUs are settled in cash or
Common Shares at the discretion of the Board and vest in two
instalments, the first 50% vest on the first anniversary date of
the grant and a further 50% vest on the second anniversary
date of the grant. Additionally, RSU value is adjusted to reflect
dividends paid on Pan American common share over the
vesting period.
Compensation expense for RSU’s was $0.6 million in 2015
(2014 – $0.9 million) and is presented as a component of
general and administrative expense.
At December 31, 2015, the following RSU’s were outstanding:
RSU
Number
Outstanding
Fair Value
As at December 31, 2013
196,102
$
2,288
Granted
Paid out
Forfeited
Change in value
As at December 31, 2014
Granted
Paid out
Forfeited
Change in value
165,240
(116,381)
(4,204)
-
240,757
$
305,455
1,670
(1,224)
(44)
(429)
2,261
2,192
(148,891)
(1,068)
(17,177)
-
(112)
(778)
As at December 31, 2015
380,144
$
2,495
Issued share capital
The Company is authorized to issue 200,000,000 common
shares of no par value.
Normal Course Issuer Bid
On December 17, 2014 the Company received regulatory
approval for a normal course issuer bid to purchase up to
7,575,290 of its common shares, during one-year period from
December 22, 2014 and December 21, 2015.
No common shares were purchased during the years ended
December 31, 2015 or 2014.
Dividends
On February 19, 2015, the Company declared a quarterly
dividend of $0.125 per common share paid to holders of
record of its common share as of the close of business on
March 2, 2015.
On May 11, 2015, the Company declared a quarterly dividend
of $0.05 per common share paid to holders of record of its
common share as of the close of business on May 22, 2015.
On August 13, 2015, the Company declared a quarterly dividend
of $0.05 per common share paid to holders of record of its
common shares as of the close of business on August 25, 2015.
On November 12, 2015, the Company declared a quarterly
dividend of $0.05 per common share paid to holders of
record of its common shares as of the close of business on
November 23, 2015.
On February 18, 2016, the Company declared a quarterly
dividend of $0.0125 per common share paid to holders of
record of its common shares as of the close of business day on
February 29, 2016. These dividends were declared subsequent
to the year end and have not been recognized as distributions to
owners during the period presented.
89
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
20. PRODUCTION COSTS
Production costs are comprised of the following:
21. EMPLOYEE COMPENSATION AND BENEFIT
EXPENSE
Consumption of raw materials
and consumables
Employee compensation and
benefits expense (Note 21)
Contractors and outside services
Utilities
Other expenses
Changes in inventories (1)
2015
2014
$
202,909
$
223,238
158,952
172,558
84,474
20,656
37,034
28,006
87,023
25,229
25,360
34,796
$
532,031
$
568,204
Wages, salaries and bonuses
$
175,242
$
189,656
Share-based payments
2,569
2,529
2015
2014
Total employee compensation and
benefit expenses
Less: Expensed within General and
Administrative expenses
Less: Expensed Exploration
expenses
Employee compensation and
benefits expenses included in
production costs (Note 20)
177,811
192,185
(15,134)
(16,086)
(3,725)
(3,541)
$
158,952
$
172,558
(1) Includes NRV charge $10.9 million (2014 - $30.0 million)
22. INTEREST AND FINANCE EXPENSE
Interest expense
Finance fees
Accretion expense (Note 15)
2015
2014
$
3,640
$
1,573
3,239
$
8,452
$
5,072
429
3,238
8,739
23. LOSS PER SHARE (“LPS”) (BASIC AND DILUTED)
For the year ended December 31,
2015
2014
Net loss (1)
Basic LPS
Effect of Dilutive Securities:
Stock Options
Convertible notes
Diluted LPS
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
$
$
(226,650)
(226,650)
151,664 $
(1.49) $
(545,588)
151,511
$
(3.60)
$
(545,588)
-
-
-
-
-
-
-
-
$
(226,650)
151,664 $
(1.49) $
(545,588)
151,511
$
(3.60)
(1) Net loss attributable to equity holders of the Company.
Potentially dilutive securities excluded in the diluted
earnings per share calculation for the twelve months ended
December 31, 2015 were 1,552,923 out-of-money options
(2014 – 1,394,515).
24. SUPPLEMENTAL CASH FLOW
INFORMATION
The following tables summarize the changes in operating
working capital items and significant non-cash items:
Changes in non-cash operating
working capital items:
2015
2014
Trade and other receivables
$
27,514
$
Inventories
Prepaid expenditures
Accounts payable and accrued
liabilities
Provisions
23,412
(2,111)
(26,750)
(2,225)
7,373
11,267
4,659
(8,398)
(3,304)
$
19,840
$
11,597
Significant non-cash items:
2015
2014
Advances received for equipment leases
Share-based compensation issued to
employees and directors
$
$
3,491 $
3,230
1,718 $
1,461
90
pan american silver corp. Cash and Cash Equivalents
2015
2014
Cash in banks
Short term money markets
Cash and cash equivalents
$
$
123,144 $
118,099
10,819
28,094
133,963
$
146,193
25. SEGMENTED INFORMATION
All of the Company’s operations are within the mining
sector, conducted through operations in six countries. Due
to geographic and political diversity, the Company’s mining
operations are decentralized in nature whereby Mine General
Managers are responsible for achieving specified business
results within a framework of global policies and standards.
We have determined that each producing mine and significant
development property represents an operating segment.
Country corporate offices provide support infrastructure to
the mines in addressing local and country issues including
financial, human resources, and exploration support. The
Company has a separate budgeting process and measures the
results of operations and exploration activities independently.
Operating results of operating segments are reviewed by the
Company’s chief operating decision maker to make decisions
about resources to be allocated to the segments and assess
their performance. The Corporate office provides support to
the mining and exploration activities with respect to financial,
human resources and technical support. Major products are
silver, gold, zinc, lead and copper produced from mines located
in Mexico, Peru, Argentina and Bolivia. Significant information
relating to the Company’s reportable operating segments is
summarized in the table below:
Revenue from external customers
Depreciation and amortization
Exploration and project development
Interest income
Interest and financing expenses
Gain (loss) on disposition of assets
Gain on derivatives
Foreign exchange gain (loss)
Loss on commodity, fuel swaps and foreign
currency contracts
Impairment charge
$
$
$
$
$
$
$
$
$
$
Peru
Huaron Morococha
Dolores
For the year ended December 31, 2015
Mexico
Alamo
Dorado
Argentina
La
Colorada
Manantial
Espejo
Navidad
Bolivia
San
Vicente
Other
Total
75,678 $
64,761 $
166,125 $
69,206 $
89,575 $
145,014 $
- $
64,329 $
- $
674,688
(11,537)
$ (20,398) $
(48,626) $
(11,567) $ (10,918)
$ (38,453) $
(175) $ (8,565) $
(606) $
(150,845)
(765)
$
(1,202) $
(400) $
- $ (254)
$
- $
(6,827) $
- $ (2,492) $
(11,940)
75 $
13 $
3 $
345 $
3 $
525 $
11 $
- $
37 $
1,012
(709)
$
(565) $
853 $
(239) $
(258)
$
(4,432) $
(45) $
(226) $ (2,831) $
(8,452)
5 $
283 $
40 $
3 $
61 $
(62) $
- $
- $
- $
- $
- $
- $
- $
- $
23 $
19 $
- $
278 $
372
278
250 $
59 $ (2,267) $
(2,728) $
(1,488)
-
$
- $
- $
- $
-
$
$
- $
2,939 $
1,324 $
921 $ (12,014) $
(13,004)
- $
- $
- $
(324) $
(324)
- $ (18,125) $
(150,268)
- $ (62,534) $ (31,750) $
(9,104) $
- $
(28,755) $
(Loss) earnings before income taxes
$ (3,393)
$ (88,214) $ (53,968) $ (14,735) $
4,745 $ (75,040) $
(8,422) $
9,559 $ (6,287) $
(235,755)
Income tax (expense) recovery
$ (2,353)
$
$
7,687 $
12,602 $
(7,892) $
(37)
$
1,502 $
(38) $ (2,209) $ (5,063) $
4,199
(80,527) $ (41,366) $ (22,627) $
4,708 $ (73,538) $
(8,460) $
7,350 $ (11,350) $
(231,556)
(5,746)
Net (loss) earnings for the period
Capital expenditures
Total assets
Total liabilities
Revenue from external customers
Depreciation and amortization
Exploration and project development
Interest income
Interest and financing expenses
Gain (loss) on disposition of assets
Gain on derivatives
Foreign exchange gain (loss)
Impairment charge
Earnings (loss) before income taxes
Income tax (expense) recovery
Net earnings (loss) for the period
Capital expenditures
Total assets
Total liabilities
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
11,074 $
6,758 $
53,118 $
- $
58,037 $
14,061 $
111 $
3,286 $
290 $
146,735
111,999 $
62,012 $ 721,926 $
68,575 $
167,836 $
95,866 $
193,213 $
81,981 $
211,629 $
1,715,037
33,576
$
19,235 $
164,900 $
16,909 $
25,305
$
63,020 $
1,379 $
17,974 $
74,123 $
416,421
Peru
Huaron Morococha
Dolores
For the year ended December 31, 2014
Mexico
Alamo
Dorado
Argentina
La
Colorada
Manantial
Espejo
Navidad
Bolivia
San
Vicente
Other
Total
94,985
(11,877)
(1,312)
291
(751)
17
-
190
-
3,631
(1,494)
2,137
14,948
125,071
34,162
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
79,070 $
156,559 $
90,477 $
98,024
(18,745) $
(47,776) $
(12,693) $
(8,784)
(1,453) $
(1,242) $
(336) $
22 $
9 $
299 $
(9)
251
(778) $
(1,353) $
(241) $
(256)
404 $
- $
2 $
- $
- $
- $
-
-
(364) $
1,322 $
(1,494) $
(1,143)
- $ (170,579) $
(23,721) $
-
(13,345) $
(251,621) $
(17,517) $
14,611
3,565 $
87,350 $
(1,566) $
(4,477)
(9,780) $
(164,271) $
(19,083) $
10,134
9,348 $
44,887 $
293 $
31,400
167,862 $
744,498 $
99,334 $
117,219
35,954 $
175,195 $
15,596 $
30,382
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
156,076 $
- $
76,751 $
- $
751,942
(38,031) $
(166) $
(8,986) $
(652) $
(147,710)
(1,657) $
(4,437) $
723 $
15 $
- $
- $
(2,779) $
(13,225)
182 $
1,792
(4,087) $
(45) $
(226) $
(1,002) $
(8,739)
(102) $
- $
- $
- $
(6) $
830 $
- $
1,348 $
1,145
1,348
4,818 $
(388) $
290 $ (16,506) $
(13,275)
(76,697) $ (286,076) $
- $ (39,189) $
(596,262)
(87,183) $ (292,397) $
15,091 $
(8,587) $
(637,317)
23,078 $
(77) $
(7,544) $
(6,341) $
92,494
(64,105) $ (292,474) $
7,547 $ (14,928) $
(544,823)
26,741 $
50 $
3,415 $
679 $
131,761
183,402 $
192,651 $
91,712 $ 296,124 $
2,017,873
79,648 $
1,632 $
24,589 $
50,778 $
447,936
Product Revenue
2015
2014
Refined silver and gold
$
400,790 $
424,591
Twelve Months ended Dec 31,
Zinc concentrate
Lead concentrate
Copper concentrate
54,239
135,926
83,733
73,487
163,854
90,010
Total
$
674,688 $
751,942
The Company has 20 customers that account for 100% of the
concentrate and silver and gold sales revenue. The Company
has 7 customers that accounted for 25%, 14%, 11%, 10%,
9%, 8%, and 8% of total sales in 2015, and 7 customers that
accounted for 30%, 16%, 13%, 10%, 9%, 8%, and 6% of
total sales in 2014. The loss of certain of these customers or
curtailment of purchases by such customers could have a
material adverse effect on the Company’s results of operations,
financial condition, and cash flows.
91
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
26. OTHER INCOME AND (EXPENSES)
Royalties income
Other (expenses)
Total
27. INCOME TAXES
Current tax expense
Current tax expense in respect
of the current year
Adjustments recognized in the
current year with respect to
prior years
Deferred tax expense (recovery)
Deferred tax recovery recognized
in the current year
Adjustments recognized in the
current year with respect to
prior years
Adjustments to deferred tax
attributable to changes in tax rates
and laws
Reduction in deferred tax liabilities
due to tax impact of impairment
of mineral property, plant, and
equipment (Note 10, 11)
Derecognition of previously
recognized deferred tax assets
Reduction in deferred tax liabilities
due to tax impact of net realizable
value charge to inventory (Note 20)
(2,225)
15,854
44
35,807
(14,241)
(20,199)
(1,747)
2,862
-
(2,876)
(44,512)
(97,541)
44,218
-
(3,771)
(20,053)
(10,547)
(128,301)
Provision for income tax recovery)
$
(4,199) $
(92,494)
Income tax expense differs from the amount that would result
from applying the Canadian federal and provincial income tax
rates to earnings before income taxes. These differences result
from the items shown on the following table which results in an
effective tax rate that varies considerably from the comparable
period. In addition to the specific items noted below, the main
factors which have affected the effective tax rate for the year
ended December 31, 2015 and the comparable period of 2014
were the non-deductible foreign exchange losses, foreign tax
rate differences, mining taxes paid, and withholding tax on
payments from foreign subsidiaries.
In 2015, the Company determined that it could not support the
utilization of certain deferred tax assets related to the Alamo
Dorado, Manantial Espejo and Morococha properties. As a
result, a deferred tax expense of $44.2 million was recorded to
de-recognize these assets.
In 2014, the Company recorded a non-cash impairment charge
on non-current assets on several properties, with no tax benefit
recognized on a substantial portion of the properties including
92
2015
2014
$
$
161 $
(4,923)
(4,762) $
144
(1,458)
(1,314)
Navidad. A non-cash impairment charge was also recorded on
goodwill associated with the La Virginia property with no tax
benefit recognized.
The Company continues to expect that these and other factors
will continue to cause volatility in effective tax rates in
the future.
2015
2014
Statutory tax rate
26.00%
26.00%
Loss taxes
$
(235,755) $
(637,317)
$
18,079 $
35,763
Income tax recovery based on
above rates
Increase (decrease) due to:
$
(61,296) $
(165,702)
2015
2014
Non-deductible expenses
5,683
4,902
Foreign tax rate differences
(17,626)
(61,445)
Change in net deferred tax assets
not recognized:
- Argentina exploration
expenses
- Other deferred tax assets
not recognized
Derecognition of deferred tax
assets previously recognized
Non-taxable portion of net
earnings of affiliates
Change to temporary differences
Non-taxable unrealized gains on
derivative financial instruments
Effect of other taxes paid (mining
and withholding)
Effect of foreign exchange on tax
expense
Impact of Peruvian tax rate
change
Effect of change in deferred
tax resulting from prior asset
purchase accounting under IAS12
Impairment charges with no tax
benefit
Other
2,717
2,289
8,800
5,762
44,218
(4,915)
(1,767)
-
(4,915)
2,862
(72)
(350)
6,628
8,050
12,941
4,430
-
(2,876)
2,600
3,272
2,219
(4,329)
110,692
535
Income tax recovery
$
(4,199) $
(92,494)
Effective tax rate
1.78%
14.51%
Deferred tax assets and liabilities
The following is the analysis of the deferred tax assets
(liabilities) presented in the consolidated financial statements:
pan american silver corp.
Net deferred assets (liabilities)
beginning of year
Recognized in net (loss) earnings
in year
Devaluation of tax credits on
the Mexican de-consolidation
payments
Other
2015
2014
$ (157,488) $
(285,782)
20,053
128,301
(1,009)
47
-
(7)
Net deferred liabilities end of year
$ (138,397) $
(157,488)
Deferred tax assets
3,730
2,584
Deferred tax liabilities
(142,127)
(160,072)
Net deferred tax liability
$ (138,397) $
(157,488)
Components of deferred tax assets and liabilities
The deferred tax assets (liabilities) are comprised of the various
temporary differences as detailed below:
At December 31, 2015, the net deferred tax liability above,
included the benefit of tax losses of $30.0 million of which
$99.5 million of tax losses (deferred tax impact of $29.4 million)
will expire after the 2024 year-end if unused. The remaining tax
losses of $1.5 million (deferred tax impact of $0.6 million) are
expected to be used against taxable income in 2016.
At December 31, 2014 the net deferred tax liability above,
included the benefit of tax losses of $20.9 million of which
$39.4 million of tax losses (deferred tax impact of $11.8 million)
will expire after the 2024 year-end if unused, and $34.8 million
of tax losses (deferred tax impact of $9.0 million) that have
no expiry.
Unrecognized deductible temporary differences, unused tax
losses and unused tax credits
Deductible temporary differences, unused tax losses and
unused tax credits for which no deferred tax assets have been
recognized are attributable to the following:
2015
2014
Tax loss (revenue in nature)
$
190,464 $
144,287
2015
2014
Deferred tax assets (liabilities)
arising from:
Closure and decommissioning
costs
Tax losses
Deductible Mexican mining taxes
Tax credit resulting from Mexican
de-consolidation
Accounts payable and accrued
liabilities
Trade and other receivables
Provision for doubtful debts and
inventory adjustments
Mineral properties, plant, and
equipment
Estimated sales provisions
Prepaids and other current assets
Other temporary differences and
provisions
$
5,657 $
6,273
Net tax loss (capital in nature)
Resource pools
Financing fees
30,039
1,223
20,866
1,633
Property plant and equipment
Closure and decommissioning costs
Exploration expenses
Expense not deductible until paid
Doubtful debt and inventory
Deferred income and estimated sales
Deductible Mexican mining taxes
Payroll and vacation accruals
Other temporary differences
6,671
8,337
2,311
4,641
5,081
7,806
(4,802)
(2,778)
(176,861)
(197,108)
(7,675)
(429)
(7,573)
(959)
828
934
10,732
22,653
47
45,344
33,788
52,288
7,284
48,485
4,072
946
1,257
827
-
22,675
-
27,113
23,435
49,783
-
-
-
-
1,158
286
$
418,187 $
268,737
Included in the above amount are losses, which if not utilized
will expire as follows:
Net deferred tax asset (liability)
$ (138,397) $
(157,488)
At December 31, 2015
Canada
US
Spain
Peru
Mexico
Barbados
Argentina
Total
2016
2017
$
- $
-
- $
-
- $
104 $
- $
8 $
-
506
-
2018 – and after
95,054
13,732
17,520
51,476
1,752
- $
-
112
511
10,268
189,841
5
39
Total tax losses
$
95,054 $
13,732 $
17,520 $
52,086 $
1,752 $
52 $ 10,268 $
190,464
At December 31, 2014
Canada
US
Spain
Peru
Mexico
Barbados
Argentina
Total
2015
2016
2017 – and after
Total tax losses
$
20,572 $
-
- $
-
- $
-
90,036
13,471
17,398
31 $
- $
13 $
- $
20,616
71
1,101
-
1,403
7
99
-
85
78
123,593
$
110,608 $
13,471 $
17,398 $
1,203 $ 1,403 $
119 $
85 $
144,287
93
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
Taxable temporary differences associated with investment
in subsidiaries
As at December 31, 2015, taxable temporary differences of
$55.4 million (2014 – $144.0 million) associated with the
investments in subsidiaries have not been recognized as the
Company is able to control the timing of the reversal of these
differences which are not expected to reverse in the
foreseeable future.
28. COMMITMENTS AND CONTINGENCIES
a. General
The Company is subject to various investigations, claims
and legal and tax proceedings covering matters that arise
in the ordinary course of business activities. Each of these
matters is subject to various uncertainties and it is possible
that some of these matters may be resolved unfavorably to
the Company. Certain conditions may exist as of the date the
financial statements are issued, which may result in a loss to
the Company. In the opinion of management none of these
matters are expected to have a material effect on the results of
operations or financial conditions of the Company.
b. Purchase Commitments
The Company had no purchase commitments other than those
commitments described in Note 7.
c. Credit Facility
On April 15, 2015, Pan American entered into a $300 million
secured revolving line of credit facility (“the Facility”) with a
syndicate of eight lenders (“the Lenders”). The purpose of the
Facility is for general corporate purposes, capital expenditures,
investments or potential acquisitions. The Facility, which
is principally secured by a pledge of Pan American’s equity
interests in its material subsidiaries, has a term of four years.
The interest margin on the Facility ranges from 2.125% to
3.125% over LIBOR, based on the Company’s leverage ratio
at the time of a specified reporting period. Pan American
has agreed to pay a commitment fee of between 0.47% and
0.703% on undrawn amounts under the Facility, depending on
the Company’s leverage ratio. As at December 31, 2015, the
Company has drawn $36.2 million under this Facility.
d. Environmental Matters
The Company’s mining and exploration activities are subject
to various laws and regulations governing the protection of
the environment. These laws and regulations are continually
changing and are generally becoming more restrictive. The
Company conducts its operations so as to protect the public
health and environment and believes its operations are in
compliance with applicable laws and regulations in all material
respects. The Company has made, and expects to make in the
future, expenditures to comply with such laws and regulations,
but cannot predict the full amount of such future expenditures.
94
Estimated future reclamation costs are based the extent of
work required and the associated costs are dependent on
the requirements of relevant authorities and the Company’s
environmental policies. As of December 31, 2015 and December
31, 2014 $50.5 million and $43.2 million, respectively, were
accrued for reclamation costs relating to mineral properties.
See also Note 15.
e. Income Taxes
The Company operates in numerous countries around the
world and accordingly it is subject to, and pays annual income
taxes under the various income tax regimes in the countries
in which it operates. Some of these tax regimes are defined
by contractual agreements with the local government, and
others are defined by the general corporate income tax
laws of the country. The Company has historically filed, and
continues to file, all required income tax returns and to pay
the taxes reasonably determined to be due. The tax rules and
regulations in many countries are highly complex and subject
to interpretation. From time to time the Company is subject
to a review of its historic income tax filings and in connection
with such reviews, disputes can arise with the taxing authorities
over the interpretation or application of certain rules to the
Company’s business conducted within the country involved.
In December 2014, the Peruvian Parliament approved a bill that
decreases the effective tax rate applicable to the Company’s
Peruvian operations. The law is effective January 1, 2015 and
decreases the future corporate income tax rate from 30% in
2014, to 28% in 2015 and 2016, 27% in 2017 and 2018, and
to 26% in 2019 and future years. In addition, this new law
increased withholding tax on dividends paid to non-resident
shareholders from 4.1% in 2014, to 6.8% in 2015 and 2016, 8%
in 2017 and 2018, and to 9.3% in 2019 and future years.
As a result of this law becoming enacted in the fourth quarter
of 2014, the Company recognized a non-cash recovery of $2.9
million related to the deferred tax impacts of the above
tax changes.
In December 2013, the Mexican President passed a bill that
increases the effective tax rate applicable to the Company’s
Mexican operations. The law is effective January 1, 2014 and
increases the future corporate income tax rate to 30%, creates
a 10% withholding tax on dividends paid to non-resident
shareholders (subject to any reduction by an Income Tax Treaty)
and creates a new Extraordinary Mining Duty equal to 0.5% of
gross revenues from the sale of gold, silver, and platinum. In
addition, the law requires taxpayers with mining concessions
to pay a new 7.5% Special Mining Duty. The Extraordinary
Mining Duty and Special Mining Duty will be tax deductible for
income tax purposes. The Special Mining Duty will generally
be applicable to earnings before income tax, depreciation,
depletion, amortization, and interest. In calculating the Special
Mining Duty there will be no deductions related to development
type costs but exploration and prospecting costs are deductible
when incurred.
pan american silver corp. f. Finance Leases
The present value of future minimum lease payments classified
as finance leases at December 31, 2015 is $4.0 million (2014 -
$8.0 million) and the schedule of timing of payments for this
obligation is found in Note 16.
g. Law changes in Argentina
Government regulation in Argentina related to the economy has
increased substantially over the past few years. In particular,
the government has intensified the use of price, foreign
exchange, and import controls in response to unfavourable
domestic economic trends. During 2012, an Argentinean
Ministry of Economy and Public Finance resolution reduced
the time within which exporters were required to repatriate net
proceeds from export sales from 180 days to 15 days after the
date of export. As a result of this change, the Manantial Espejo
operation temporarily suspended doré shipments while local
management reviewed how the new resolution would be applied
by the government. In response to petitions from numerous
exporters for relief from the new resolution, on July 17, 2012 the
Ministry issued a revised resolution which extended the 15-day
limit to 120 days.
The Argentine government has also imposed restrictions on the
importation of goods and services and increased administrative
procedures required to import equipment, materials and
services required for operations at Manantial Espejo. In addition,
in May 2012, the government mandated that mining companies
establish an internal function to be responsible for substituting
Argentinian-produced goods and materials for imported goods
and materials. Under this mandate, the Company is required to
submit its plans to import goods and materials for government
review 120 days in advance of the desired date of importation.
The government of Argentina has also tightened control
over capital flows and foreign exchange, including informal
restrictions on dividend, interest, and service payments abroad
and limitations on the ability of individuals and businesses to
convert Argentine pesos into United States dollars or other hard
currencies. These measures, which are intended to curtail the
outflow of hard currency and protect Argentina’s international
currency reserves, may adversely affect the Company’s ability
to convert dividends paid by current operations or revenues
generated by future operations into hard currency and to
distribute those revenues to offshore shareholders. Maintaining
operating revenues in Argentine pesos could expose the
Company to the risks of peso devaluation and high
domestic inflation.
In September 2013, the provincial government of Santa Cruz,
Argentina passed amendments to its tax code that introduced
a new mining property tax with a rate of 1% to be charged
annually on published “measured” reserves, which has the
potential to affect the Manantial Espejo mine as well as other
companies operating in the province. In December 2015,
the legislature of the Province of Santa Cruz passed a bill
abrogating this mining property tax and the bill became law and
was published in the Official Gazette on December 30, 2015,
as Law 3,462. Law 3,462 was promulgated through a decree
that confirmed that the tax was unconstitutional because: (i) it
contravened the contents of Federal Mining Investments Law,
and (ii) it attempted to regulate matters reserved to Federal
legislation. It is unclear on whether any or all of the subject
taxes already paid will be refunded or credited.
On September 23, 2013, Argentina’s federal Income Tax Statute
was amended to include a 10% income tax withholding on
dividend distributions by Argentine corporations and branch
profit distributions by foreign corporations.
h. Labour law change in Mexico
In December 2012, the Mexican government introduced
changes to the Federal labour law which made certain
amendments to the law relating to the use of service companies
and subcontractors and the obligations with respect to
employee benefits. These amendments may have an effect on
the distribution of profits to workers and this could result in
additional financial obligations to the Company. At this time,
the Company is evaluating these amendments in detail, but
currently believes that it continues to be in compliance with the
federal labour law and that these amendments will not result
in any new material obligations for the Company. Based on this
assessment, the Company did not accrue any amounts. The
Company will continue to monitor developments in Mexico and
to assess the potential impact of these amendments.
i. Political changes in Bolivia
On May 28, 2014, the Bolivian government enacted Mining
Law No. 535 (the “New Mining Law”). Among other things,
the New Mining Law has established a new Bolivian mining
authority to provide principal mining oversight (varying the
role of COMIBOL) and sets out a number of new economic
and operational requirements relating to state participation
in mining projects. Further, the New Mining Law provides that
all pre-existing contracts are to migrate to one of several new
forms of agreement within a prescribed period of time. As a
result, we anticipate that our current joint venture agreement
with COMIBOL relating to the San Vicente mine will be subject
to migration to a new form of agreement and may require
renegotiation of some terms in order to conform to the New
Mining Law requirements. We are assessing the potential
impacts of the New Mining Law on our business and are
awaiting further regulatory developments, but the primary
effects on the San Vicente operation and our interest therein
will not be known until such time as we have, if required to do
so, renegotiated the existing contract, and the full impact may
only be realized over time. In the meantime, we understand that
pre-existing agreements will be respected during the period of
migration and we will take appropriate steps to protect and, if
necessary, enforce our rights under our existing agreement with
COMIBOL. There is, however, no guarantee that governmental
actions, including possible expropriation or additional changes
in the law, and the migration of our contract will not impact our
involvement in the San Vicente operation in an adverse way and
such actions could have a material adverse effect on us and
our business.
j. Other Legal Matters
The Company is subject to various claims and legal proceedings
covering a wide range of matters that arise in the ordinary
course of business activities, many of them relating to ex-
employees. Each of these matters is subject to various
uncertainties and it is possible that some of these matters
may be resolved unfavorably to the Company. The Company
establishes provisions for matters that are probable and can
be reasonably estimated, included within current liabilities, and
amounts are not considered material.
95
2015 annual report Pan American Silver Corp.
Notes to the Consolidated Financial Statements
As at December 31, 2015 and 2014
(Tabular amounts are in thousands of U.S. dollars except number
of shares. options, warrants and per share amounts)
In assessing loss contingencies related to legal proceedings
that are pending against the Company or un-asserted claims
that may result in such proceedings, the Company and its legal
counsel evaluate the perceived merits of any legal proceedings
or un-asserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought. In the opinion
of management there are no claims expected to have a material
effect on the results of operations or financial condition of
the Company.
k. Title Risk
Although the Company has taken steps to verify title to
properties in which it has an interest, these procedures do not
guarantee the Company’s title. Property title may be subject to,
among other things, unregistered prior agreements or transfers
and may be affected by undetected defects.
l. Royalty Agreements and Participation Agreements
The Company has various royalty agreements on certain
mineral properties entitling the counterparties to the
agreements to receive payments per terms as summarized
below. Royalty liabilities incurred on acquisitions of properties
are netted against mineral property while royalties that become
payable upon production are expensed at the time of sale of
the production.
On September 22, 2011, Peru’s Parliament approved a law that
increased mining taxes to fund anti-poverty infrastructure
projects in the country, effective October 1, 2011. The law
changed the scheme for royalty payments, so that mining
companies that had not signed legal stability agreements with
the government had to pay royalties of 1% to 12% on operating
profit; royalties under the previous rules were 1% to 3% on
net sales. In addition to these royalties, such companies were
subject to a “special tax” at a rate ranging from 2% to 8.4% of
operating profit. Companies that had concluded legal stability
agreements (under the General Mining Law) will be required
to pay a “special contribution” of between 4% and 13.12% of
operating profits. The change in the royalty and the new tax
had no material impact on the results of the Company’s
Peruvian operations.
In the province of Chubut, Argentina which is the location of
the Company’s Navidad property, there is a provincial royalty of
3% of the “Operating Income”. Operating income is defined as
revenue minus production costs (not including mining costs),
treatment and transportation charges. Refer below to the
Navidad project section below for further details.
As part of the 2009 Aquiline transaction the Company issued
a replacement convertible debenture that allowed the holder
to convert the debenture into either 363,854 Pan American
shares or a silver stream contract related to certain production
from the Navidad project. Subsequent to the acquisition, the
counterparty to the replacement debenture has indicated its
intention to elect the silver stream alternative. The final contract
for the alternative is being discussed and pending the final
resolution to this alternative, the Company continues to classify
96
the fair value calculated at the acquisition of this alternative, as
a deferred credit as disclosed in Note 18.
Huaron and Morococha mines
In June 2004, Peru’s Congress approved a bill that allows
royalties to be charged on mining projects. These royalties
are payable on Peruvian mine production at the following
progressive rates: (i) 1.0% for companies with sales up to $60.0
million; (ii) 2.0% for companies with sales between $60.0
million and $120.0 million; and (iii) 3.0% for companies with
sales greater than $120.0 million. This royalty is a net smelter
returns royalty, the cost of which is deductible for income
tax purposes.
Manantial Espejo mine
Production from the Manantial Espejo property is subject to
royalties to be paid to Barrick Gold Corp. according to the
following: (i) $0.60 per metric tonne of ore mined from the
property and fed to process at a mill or leaching facility to a
maximum of 1.0 million tonnes; and (ii) one-half of one percent
(0.5%) of net smelter returns derived from the production
of minerals from the property. In addition, the Company has
negotiated a royalty equal to 3.0% of operating cash flow
payable to the Province of Santa Cruz.
San Vicente mine
Pursuant to an option agreement entered into with COMIBOL, a
Bolivian state mining company, with respect to the development
of the San Vicente property, the Company is obligated to pay
COMIBOL a participation fee of 37.5% (the “Participation Fee”)
of the operation’s cash flow. Once full commercial production of
San Vicente began, the Participation Fee was reduced by 75%
until the Company recovered its investment in the property.
The Participation Fee has now reverted back to the original
percentage. For the year ended December 31, 2015, the royalties
to COMIBOL amounted to approximately $8.1 million (2014 -
$10.4 million).
A royalty is also payable to EMUSA, a former partner of the
Company on the project. The royalty is a 2% net smelter return
royalty (as per the Agreement) payable only after the Company
has recovered its capital investment in the project and only
when the average price of silver in a given financial quarter is
$9.00 per ounce or greater. In December 2007, the Bolivian
government introduced a new mining royalty that affects the
San Vicente project. The royalty is applied to gross metal value
of sales (before smelting and refining deductions) and the
royalty percentage is a sliding scale depending on metal prices.
At current metal prices, the royalty is 6% for silver metal value
and 5% for zinc and copper metal value of sales. The royalty is
income tax deductible.
Dolores mine
Production from the Dolores mine is subject to underlying net
smelter return royalties comprised of 2% on gold and silver
production and 1.25% on gold production. These royalties are
payable to Royal Gold Inc. and were effective in full as of
pan american silver corp. May 1, 2009, on the commencement of commercial production
at the Dolores mine. For the year ended December 31, 2015, the
royalties to Royal Gold amounted to approximately $4.3 million
(2014 – $4.9 million).
Navidad project
In late June 2012 the governor of the province of Chubut
submitted to the provincial legislature a draft law which,
if passed, would regulate all future oil and gas and mining
activities in the province. The draft legislation incorporated
the expected re-zoning of the province, allowing for the
development of Navidad as an open pit mine. However, the
draft legislation also introduced a series of new regulations that
would have greatly increased provincial royalties and imposed
the province’s direct participation in all mining projects,
including Navidad.
In October 2012, the proposed bill was withdrawn for further
study; however, as a result of uncertainty over the zoning,
regulatory and tax laws which will ultimately apply, the
Company has been forced to temporarily suspend project
development activities at Navidad.
The Company remains committed to the development of
Navidad and to contributing to the positive economic and social
development of the province of Chubut upon the adoption of a
favorable legislative framework.
29. RELATED PARTY TRANSACTIONS
During the year ended December 31, 2015, a company indirectly
owned by a trust of which a director of the Company is a
beneficiary, was paid approximately $1.4 million (2014 - $0.4
million) for consulting services. These transactions are in the
normal course of operations and are measured at the exchange
amount, which is the amount of consideration established and
agreed to by the parties.
Compensation of key management personnel
The remuneration of directors and other members of key
management personnel during the year were as follows:
Short-term benefits
Share-based payments
2015
2014
$
$
9,069
$
3,161
9,648
2,487
12,230
$
12,135
CORPORATE OFFICE, VANCOUVER
Pan American Silver Corp.
Suite 1440 – 625 Howe Street
Vancouver, British Columbia
Canada, V6C 2T6
Tel. 604-684-1175
Fax. 604-684-0147
info@panamericansilver.com
www.panamericansilver.com
ARGENTINA OFFICE
Pan American Silver Argentina
Tel. 54-11-5533-8700
Fax .54-11-5533-8768
Country Manager – Bret Boster
BOLIVIA OFFICE
Pan American Silver (Bolivia) S.A.
Tel. 59-12-279-6990
Fax. 59-12-215-4216
Country Manager – Luis Collarte
MEXICO OFFICE
Pan American Silver Mexico
Tel. 52-618-128-0709
Fax. 52-618-128-0692 x 102
Country Manager – Chris Warwick
PERU OFFICE
Pan American Silver Peru S.A.C.
Tel. 51-1-618-9700
Fax. 51-1-618-9729
Country Manager – Jorge Ugarte
100%