ANNUAL
REPORT
2
Pan American Silver
Pan American Silver is the world’s second
table of contents
largest primary silver producer, providing
enhanced exposure to silver through a
diversified portfolio of assets, large silver
reserves and growing production.
We own and operate six mines in Mexico, Peru, Argentina
and Bolivia. Pan American Silver maintains a strong
balance sheet, has an established management team with
proven project development and operating expertise, and is
committed to sustainable development. Founded in 1994,
the Company is headquartered in Vancouver, B.C.
PAAS: NASDAQ AND TSX
WWW.PANAMERICANSILVER.COM
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. Please refer to the inside back cover
of this annual report for an important note to readers regarding forward-
looking statements and information.
All financial data in this report is stated in US dollars (“USD”) unless
otherwise noted.
1
2
4
8
10
12
13
| 2017 highlights
| our vision
| operating mines
| chairman’s message
| president’s message
| investor highlights
| management’s discussion
and analysis
76
| consolidated financial
statements
139
| glossary
ibc
| advisory
silver production and cash costs(1)
operating cash flow and silver price
)
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2013
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2015
2016
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2013
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2015
2016
2017
Silver Production
Cash Costs
Operating Cash Flow
Silver Price
2017 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
(In millions USD, except per share amounts)
Revenue
Net Cash Generated from Operating Activities
Net Earnings
Per share (Basic)
Adjusted Earnings(2)
Per share (Basic)(2)
Cash and Short-Term Investments
Total Debt(3)
Working Capital(4)
Dividends
Per share
OPERATIONAL HIGHLIGHTS
Performance Measure
Silver production (million ounces)
Gold production (thousand ounces)
Base metal production (thousand tonnes)
Zinc
Lead
Copper
Cash costs per ounce(1)
All-in sustaining costs per silver ounce sold (aiscsos)(5)
1
FOR THE YEAR ENDED DECEMBER 31
2017
816.8
224.6
123.5
0.79
77.7
0.51
227.5
10.6
410.8
15.3
0.10
2016
774.8
214.8
101.8
0.66
86.6
0.57
217.6
43.3
428.6
7.6
0.05
2017 Guidance(6)
2017 Actual
2018 Guidance(7)
24.5 – 26.0
155 – 165
56.5 – 58.5
19.0 – 20.0
8.8 – 9.3
$6.45 - $7.45
$11.50 - $12.90
25.0
160
55.3
21.5
13.4
$4.55
$10.79
25.0 – 26.5
175 – 185
60.0 – 62.0
21.0 – 22.0
12.0 – 12.5
$3.60 - $4.60
$9.30 - $10.80
CAPITAL EXPENDITURES
AVERAGE MARKET METAL PRICES
$ millions
2017 Actual
2018 Guidance
Sustaining capital(8)
Project capital(8)
Total
84.4
61.4
145.8
100 – 105
50
150 - 155
Silver ($/ounce)
Gold ($/ounce)
Zinc ($/tonne)
Lead ($/tonne)
Copper ($/tonne)
2017
17.05
1,257
2,896
2,317
6,166
2016
17.14
1,251
2,095
1,872
4,860
(1) Non-GAAP measure. Cash Costs is calculated as the net cost of
producing an ounce of silver, our primary payable metal, after deducting
revenues gained from incidental by-product metals production.
the Alternative Performance (Non-GAAP Measures) section in the
Management’s Discussion & Analysis for the period ended December 31,
2017 (the MD&A) for further information on these measures.
(2) Non-GAAP measure. The Company considers adjusting earnings to
better reflect normalized earnings, as it eliminates items that may be
volatile from period to period, or relate to positions that will settle in
future periods.
(3) Non-GAAP measure. Total debt is calculated as the total current and
non-current portions of long-term debt, finance lease liabilities, and
loans payable.
(4) Non-GAAP measure. Working capital is calculated as current assets
less current liabilities.
(5) Non-GAAP measure. All-in sustaining costs per silver ounce sold,
net of by-products, reflects 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 cash flow.
These non-GAAP measures do not have any standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable
to similar measures presented by other companies. Please refer to
(6) Original targets provided in the Company’s news release dated
January 12, 2017.
(7) Targets provided in the Company’s news release dated January 11,
2018. Cash costs and AISCSOS guidance for 2018 are based on the
following metal price and exchange rate assumptions: $16.50 per ounce
of silver, $1,250 per ounce of gold, $3,100 per tonne of zinc, $2,350 per
tonne of lead, and $6,500 per tonne of copper, 18.50 Mexican pesos per
USD, 3.23 Peruvian soles per USD, 19.59 Argentine pesos per USD, 7.0
Bolivian bolivianos per USD.
(8) The sustaining capital total amounts capitalized in 2017 were $0.2
million more than the $84.2 million of 2017 sustaining capital cash
outflows; project capital amounts capitalized in 2017 were $1.2 million less
than the $62.6 million of 2017 project capital cash outflows. The capital
cash outflows are included in the 2017 AISCSOS calculation shown in the
Alternative Performance (Non-GAAP) Measures section of the MD&A,
and are different from the capital amounts in the tables included in the
Individual Mine Operation Highlights section of the MD&A; this is due to
the timing difference between the cash payment of capital expenditures
compared with the period in which investments are capitalized.
For historial financial and operating data, please see “Interactive Financials” at www.panamericansilver.com.
PAN AMERICAN SILVER 2
Our Vision
To be the world’s pre-eminent silver producer, with a
reputation for excellence in discovery, engineering,
innovation and sustainable development.
To achieve our vision, we have identified the following strategic objectives.
Annually, we set specific goals and measure our performance against
these goals. The following table summarizes our 2017 results and the
goals we have set for 2018.
30.5-33.0 Moz
Targeted silver
production by 2020
2017 RESULT
2018 GOALS
GROW OUR SILVER PORTFOLIO THROUGH ACQUISITIONS OF LATE STAGE EXPLORATION
PROJECTS, DEVELOPMENT PROJECTS OR OPERATING MINES
Acquired the Cap-Oeste Sur Este (“COSE”)
property in Argentina and approved a $23.9 million
investment to construct an underground mine.
Construct an underground decline and encounter first
stoping area.
Begin development of the underground decline at
La Morocha.
Acquired the Joaquin property in Argentina;
completed a preliminary feasibility study on the
property’s La Morocha deposit and approved
a $37.8 million investment to construct an
underground mine.
Acquired an approximately 12% interest in New
Pacific Metals Corp. (approximately 16% fully
diluted), providing exposure to the Silver Sand
project in Bolivia.
GENERATE STRONG CASH FLOWS AND SUSTAINABLE PROFITS THROUGH
THE EFFICIENT OPERATION OF OUR PORTFOLIO OF MINING ASSETS
LA COLORADA MINE
Achieved expanded design processing capacity
rates of 1,800 tonnes per day in mid-2017,
approximately six months ahead of schedule.
Sustain throughput rates of 1,800 tonnes per day
or greater while implementing further productivity
enhancements, particularly in additional mine
mechanization and infrastructure upgrades.
Complete upgrades to the mine backfill plant to allow
for optimal mine scheduling.
Execute an innovative tailings storage facility
expansion for substantial savings in future tailings
management costs.
2017 ANNUAL REPORT 2017 RESULT
2018 GOALS
GENERATE STRONG CASH FLOWS AND SUSTAINABLE PROFITS THROUGH
THE EFFICIENT OPERATION OF OUR PORTFOLIO OF MINING ASSETS (CONTINUED)
3
DOLORES MINE
Completed construction and commenced operation
of the pulp agglomeration plant.
Commenced initial production from the new
underground mine.
Achieved targeted stacking rates on the heap leach
pad of 20,000 tonnes per day.
HUARON MINE
Completed upgrades to the flotation circuit,
resulting in improved mill recoveries.
Increase pulp agglomeration plant production to the
design rate of 5,600 tonnes per day.
Achieve underground mining rates of 1,500 tonnes
per day.
Sustain overall throughput rates to the heap leach pad
of 20,000 tonnes per day.
Expand the tailings storage facility to provide adequate
storage capacity for increased throughput rates.
Evaluate a project to develop a new production level 80
metres below the current deepest level.
MOROCOCHA MINE
Investigate further opportunities to enhance
productivities and efficiencies while designing for
the eventual mill relocation.
SAN VICENTE MINE
Continue to mechanize operations, enhance mine
dilution controls, and improve site infrastructure and
ancillary facilities.
REPLACE MINED SILVER MINERAL RESERVES AND RESOURCES THROUGH
SUCCESSFUL MINE-SITE EXPLORATION PROGRAMS
Added 33 million ounces of new silver mineral
reserves, more than replacing the ounces depleted
through mining.
Invested $18 million on near-mine exploration
drilling and completed eight kilometres of regional
exploration drilling.
Invest $19 million in 89 kilometres of near-mine
exploration drilling and 26 kilometres of regional
exploration drilling.
DEVELOP LEADING SUSTAINABILITY PROGRAMS
Transitioned Alamo Dorado mine to the reclamation
phase, and completed processing of residual ore
and circuit cleanout.
Substantially complete all physical reclamation
work at Alamo Dorado and transition to post-closure
monitoring and maintenance phase.
Began implementation of the Towards Sustainable
Mining (“TSM”) protocols and guidelines.
Continue implementation of TSM and complete self-
evaluations at all operations.
Continued implementation of the Serious Injury
Prevention program.
Deploy a behavior-based safety pilot program at one of
our operating mines.
Further information on Pan American Silver’s sustainability performance and goals is provided in the 2017 Sustainability Report.
PAN AMERICAN SILVER 4
Operating Mines
Pan American Silver has a diversified portfolio
of mining and exploration assets located in
the key silver producing jurisdictions.
25.0 Moz
total silver
production in 2017
160 koz
total gold
production in 2017
$10.79
all-in sustaining
costs in 2017(1)
We own and operate six mines
located in Mexico, Peru, Argentina
and Bolivia, and have interests in
several development and advanced
stage exploration projects.
To achieve our vision and provide
investors with enhanced exposure
to unhedged, low-cost silver
production, we leverage our
competitive advantages,
which include:
• 20 plus years of operating
experience in major silver
producing jurisdictions
• A portfolio of long-life producing
mines providing continuous
cash flow
• Large silver reserve base
• Strong financial capacity
2017 revenue
generated by metal
2017 silver
production by mine
Zinc
16%
Silver
47%
Manantial
Espejo
12%
La Colorada
28%
Lead
5%
Copper
9%
Gold
23%
San
Vicente
14%
Morococha
11%
Dolores
17%
Huaron
15%
Alamo
Dorado
3%
(1) All-in sustaining costs per silver ounce sold, net of by-products, is a non-GAAP measure. See the Alternative Performance (Non-GAAP) Measures
section in the Management’s Discussion & Analysis for the period ended December 31, 2017, for further information on this measure.
2017 ANNUAL REPORT 5
MOROCOCHA
Location: Yauli, Peru
Ownership: 92.3%(1)
Mine Type: Underground
Average Daily Plant Throughput:
~2,000 tonnes
2017 Silver Production (Moz)(2): 2.6
By-Products: Zinc, lead, copper, gold
Silver Reserves, Proven + Probable
(Contained Moz)(2): 30.3;
Proven 15.3; Probable 14.9
HUARON
Location: Pasco, Peru
Ownership: 100%
SAN VICENTE
Location: Potosí, Bolivia
Ownership: 95%(1)
Mine Type: Underground
Mine Type: Underground
Average Daily Plant Throughput:
~2,500 tonnes
Average Daily Plant Throughput:
950 tonnes per day
2017 Silver Production (Moz): 3.7
2017 Silver Production (Moz): 3.6
By-Products: Zinc, lead, copper, gold
By-Products: Zinc, lead, copper
Silver Reserves, Proven + Probable
(Contained Moz)(2): 52.4;
Proven 30.8; Probable 21.7
Silver Reserves, Proven + Probable
(Contained Moz)(2): 33.7;
Proven 25.6; Probable 8.1
(1) All figures reflect Pan American Silver’s ownership in the projects.
(2) For complete mineral reserve and resource information, refer to the Mineral Reserves and Resources and Technical Information section
in the Management’s Discussion & Analysis for the period ended December 31, 2017. Totals may not add due to rounding.
PAN AMERICAN SILVER 6
Operations Expanded in Mexico
Production is ramping up from
Pan American Silver’s La Colorada and
Dolores operations in Mexico following
completion of the expansions in 2017.
The expansion of the La
Colorada mine was approved
in 2013 at an estimated
capital cost of $137 million.
Construction of the 618-metre
deep mine shaft and a new
1,400 tonne per day sulphide
processing plant was completed
in late 2016.
At Dolores, a $132 million
investment was approved
in 2015 to develop a new
underground mine to
supplement the open pit
operations, construct a new
5,600 tonne per day pulp
agglomeration plant, and build a
new power line.
In 2017, we energized a new
power line and opened new
production areas in the
underground mine. By mid-2017,
we had achieved the targeted
design capacity of 1,800 tonnes
per day, comprised of 1,400
tonnes per day of sulphide
ore and 400 tonnes per day of
oxide ore. Silver production is
expected to rise 62% to 69%
in 2018 over 2013 levels, along
with significant increases in
zinc and lead production.
Following the startup of the new
pulp agglomeration plant in 2017,
leach pad stacking rates reached
the targeted expansion level of
20,000 tonnes per day. Over
the next three years, average
silver production is expected to
increase by approximately 27%
and gold by 69% compared with
2015 production levels.
DOLORES
Location: Chihuahua, Mexico
Ownership: 100%
Mine Type: Open Pit/Underground
Average Daily Plant Throughput:
~20,000 tonnes
2017 Silver Production (Moz): 4.2
By-Products: Gold
Silver Reserves, Proven + Probable
(Contained Moz)(1): 46.1;
Proven 33.0; Probable 13.1
LA COLORADA
Location: Zacatecas, Mexico
Ownership: 100%
Mine Type: Underground
Average Daily Plant Throughput:
~1,800 tonnes
2017 Silver Production (Moz): 7.1
By-Products: Zinc, lead, gold
Silver Reserves, Proven + Probable
(Contained Moz)(1): 98.2;
Proven 48.9; Probable 49.3
(1) For complete mineral reserve and resource information, refer to the Mineral Reserves and Resources and Technical Information section in the
Management’s Discussion & Analysis for the period ended December 31, 2017.
2017 ANNUAL REPORT 7
Growing Production in Argentina
In 2017, Pan American Silver added
two new, high-grade silver projects to
its portfolio: Joaquin and COSE.
MANANTIAL ESPEJO,
JOAQUIN, AND COSE
Location: Santa Cruz, Argentina
Ownership: 100%
Mine Type: Underground
Average Daily Plant Throughput:
~2,150 tonnes
2017 Silver Production (Moz): 3.1
By-Products: Gold
Silver Reserves, Proven + Probable Total
(Contained Moz)(1): 23.2
Manantial Espejo, Proven 4.4; Probable 5.6;
Joaquin, Probable 11.0;
COSE, Probable 2.2
The Joaquin and COSE
properties are located in the
same region as our Manantial
Espejo mine in the Santa
Cruz province of Argentina.
In 2018, we plan to construct
underground mines at COSE
and at La Morocha, a deposit
on the Joaquin property.
Ore mining is expected to
commence at both properties
in 2019.
Ore mined from COSE and
La Morocha will be trucked
to our Manantial Espejo plant
for processing, in addition
to the ore from Manantial
Espejo’s underground mine
and stockpiles. It’s a smart
strategy that enables us to
generate further value from
our Manantial Espejo mine
facilities. The combined
production from the Joaquin,
COSE and Manantial Espejo
mines is expected to add
21 million ounces to the
Company’s silver production
over the 2018 to 2021 period.
Extending the life of the
Manantial Espejo processing
plant allows us to continue
exploring across our large
mineral concessions in the area
and pursue opportunities to
potentially add other high-
grade deposits.
(1) For complete mineral reserve and resource information, refer to the Mineral Reserves and Resources and Technical Information section in the
Management’s Discussion & Analysis for the period ended December 31, 2017.
PAN AMERICAN SILVER 8
Chairman’s Message
MISSION, GROWTH, BOARD OF DIRECTORS,
CLEAN ENERGY AND OUR FUTURE
Pan American Silver had another
good year in 2017, characterized by
completion of our large expansion
projects in Mexico, stable production,
lower costs, new project acquisitions
and robust cash generation.
This strong performance enabled the Company to
double its dividend in 2017 and deliver modest share
price appreciation, despite generally soft prices for
precious metal commodities and equities.
Our mission is simple: to be the world’s pre-eminent
silver mining company. We continue to fulfill this
mission, and are now the second largest primary silver
producer in the world. Our six mines are operating
well and we have growth projects in-house that will
increase our annual silver production from today’s
25 million ounces to more than 30 million ounces by
2020. Significant silver production growth will also
happen if our world class Navidad project is advanced
to production in the coming years. This growth should
enable Pan American Silver to continue creating
shareholder value, regardless of whether or not the
silver price increases. And if the silver price does
increase, as I expect it will, Pan American Silver should
outperform other silver companies and broader
equity markets.
We strive to create value through excellence in
discovery, engineering, innovation and sustainable
development. I believe we delivered on all of these goals
in 2017. We continue to discover new silver ounces
and replace reserves. Our success at completing
the new mine shaft at La Colorada and the pulp
agglomeration plant at Dolores attests to the skills
of our engineering and project teams. We innovate
at all of our operations; I think this effort will gather
momentum in the coming years, as we take advantage
of the technological revolution underway with big data
$402 M
total cumulative cash
return to shareholders
(dividends and share
buybacks) since 2010
$227.5 M
in cash and short-
term investments at
december 31, 2017
SIX
consecutive years
of meeting silver
production and cash
costs guidance
2017 ANNUAL REPORT 9
and artificial intelligence. Finally, we work very
hard to be a good corporate citizen through our
sustainable development programs. Keeping
our workers healthy and satisfied in their jobs,
maintaining labour peace, working closely with
our communities and host countries to return to
them a fair share of the wealth from our mining
operations, and mitigating our impact on the
environment are core to how we do business.
Our Board of Directors has done well to keep
the Company focused on its mission. Our
Board members have deep expertise in mining,
capital markets, sustainable development
and finance. We focus on shareholder returns
in the large sense. For example, our Board
recognizes that financial and operating
performance is inextricably linked to corporate
social responsibility. The health and safety
of our workers is discussed at each meeting.
Our discussions of capital allocation include
community sustainability projects and
environmental impacts.
Our focus is on long-term growth, and this is
only possible by being a good corporate citizen
with a well-earned social license to operate.
We have achieved this at all of our operations
in Mexico, Peru, Bolivia and Argentina. We have
not yet achieved it at our biggest development
project – Navidad in Argentina, which remains
stalled due to a ban on open pit mining in the
province of Chubut. There are many good reasons
why Navidad could be a successful operation,
generating positive returns for our shareholders
and for the citizens and governments of Chubut
and Argentina. We are committed to responsible
mining, mitigating our environmental impacts
and restoring the land once mining has been
completed. Our operation and closure of our
Alamo Dorado mine in Mexico attest to that
commitment. I am hopeful that our efforts
to engage local residents and government
representatives around the project, as well as
other citizens of Chubut and Argentina, will
succeed during 2018 to allow the project
to proceed.
Silver is a wonderful metal
with thousands of monetary
and industrial uses. I
am pleased, as a strong
believer in our need to
confront global warming
with a dramatic reduction in
carbon emissions, that silver
has become a vital part of
today’s energy revolution in
clean energy. For example,
the fastest growing use for
silver is now in photovoltaic
panels for solar power
generation, accounting for
close to 100 million ounces
a year, or about 10% of the
annual demand for silver(1).
Our Board
recognizes
that financial
and operating
performance
is inextricably
linked to
corporate social
responsibility.
Pan American Silver ended 2017 in very
strong shape. We have a pristine balance
sheet, growing silver production, potential for
increasing net revenue and free cash flow(2), and
a sterling reputation for fair dealing and quality
management. Our future is promising, and I am
blessed to Chair such a fine company. I thank all
of our stakeholders - shareholders, management,
Board members, employees and contractors, and
communities - for their support of our enterprise.
Ross J. Beaty, Chairman
March 22, 2018
(1) The Silver Institute, January 18, 2018 news release.
(2) Free cash flow is a non-GAAP measure; see the alternative Performance (Non-GAAP Measures) section in the Management’s Discussion & Analysis for
the period ended December 31, 2017. Free cash flow is calculated as Net Cash from Operating Activities less sustaining and project capital expenditures.
PAN AMERICAN SILVER 10
President’s Message
Dear Shareholders,
Pan American Silver made significant
strides in 2017 advancing our strategy
to grow low-cost silver production. We
completed two mine expansions in
Mexico, acquired two new properties in
Argentina and invested in a promising
new project in Bolivia.
We are now seeing production ramp up from our
expansions at La Colorada and Dolores in Mexico, while
improved productivity is contributing to reduced costs.
The resulting increase in free cash flow(1) is bolstered
by the completion of our approximately $300 million
investment in these high-return projects.
Production from our current Argentine operations is
expected to total 21 million ounces of silver over 2018
to 2021 when our Joaquin and COSE projects come
on line. Both Joaquin and COSE are located close to
our mill at Manantial Espejo, enabling us to leverage
the mill’s excess capacity to process the high-grade
ore from Joaquin and COSE. As well, our mineral
concessions around Manantial Espejo and Joaquin
offer further exploration potential.
The development of our Navidad project in Argentina,
one of the world’s largest undeveloped silver
deposits, remains on hold pending the province of
Chubut allowing open pit mining. We continue to
engage government and community representatives
in Argentina to demonstrate our commitment to
sustainable development of the country’s
mineral resources.
While the potential of Navidad offers attractive
optionality for our shareholders, Pan American Silver’s
diversified portfolio of high-quality assets provides
opportunities to grow our low-cost silver production.
We have been successful in developing new mining
projects by recognizing that our success depends on
the support of the communities in which we work.
We are committed to respectful dialogue, fostering
sustainable growth and generating economic benefits
$224.6 M
operating cash flow
in 2017
28%
decrease in cash
costs(1) in 2017 from 2016
FOUR
of our six mines
had record annual
operating free cash
flow(1) in 2017
2017 ANNUAL REPORT 11
for local stakeholders while minimizing and
mitigating our environmental footprint.
On a consolidated basis, we achieved our 2017
guidance for silver production and beat our cost
guidance, producing 25 million ounces of silver at
an average cash cost(1) of $4.55 per ounce – our
lowest costs in a decade. We also beat our original
guidance for all-in sustaining costs(1), which were
$10.79 compared with original guidance of $11.50
to $12.90.
Pan American Silver generated strong operating
margins in 2017 at silver prices averaging $17.05
per ounce. Net cash generated from operating
activities of $224.6 million fully funded sustaining
and project capital, our acquisitions of COSE and
Joaquin, and the dividend. We also reduced debt
by about $33 million and increased our cash and
short term investment balance.
We ended 2017 debt free and with cash and
short-term investments totaling $227.5 million.
Our strong balance sheet reduces risk for our
shareholders, while providing Pan American
Silver with the capacity to pursue new
growth opportunities.
We continue to be selective and disciplined in
evaluating opportunities. Our objective is to
grow our silver portfolio through acquisitions
of late stage exploration projects, development
projects or operating mines. In addition to our
acquisitions of Joaquin and COSE, we acquired
about 12% (about 16% fully diluted) of New
Pacific Metals Corp in 2017. This interest provides
us with exposure to the Silver Sand Project in
Bolivia. We have been operating our San Vicente
mine in Bolivia since 1999, and we look forward to
applying this experience to help advance a new,
attractive mineral deposit.
We believe that new acquisition opportunities may
surface through 2018, and our aim is to execute
transactions that can deliver attractive returns to
our shareholders. We will remain focused on silver
assets. We believe silver is the metal of the future
because of its growing applications in renewable
energy production, the wide use in electronics and
its many applications within the medical field.
Demand for industrial applications represents
about 60% of the total supply of silver(2). Most of
that silver is consumed in electrical and industrial
electronic applications, given silver is the most
electrically conductive element. This area is
seeing significant demand growth because of the
dramatic global rise in photovoltaic installations.
Medical applications for silver are also growing
due to the metal’s antimicrobial properties.
Investment demand for silver,
however, has been relatively
soft over the past year, likely
reflecting buoyant equity
markets and increases in
interest rates.
On the supply side, world
mine production of silver
has been flat at around 870
million ounces annually
for the past five years(2).
Discovering new silver
resources has become
increasingly challenging.
Our strong
balance sheet
reduces risk for
our shareholders,
while providing Pan
American Silver
with the capacity to
pursue new growth
opportunities.
In closing, I would like
to express my gratitude
and appreciation to our
employees; their efforts delivered the solid
operating performance achieved in 2017. I am also
grateful to our experienced Board of Directors for
their invaluable guidance.
I would like to congratulate our Board Chair, Mr.
Ross Beaty, who in 2017 was appointed to The
Order of Canada and inducted to the Business
Laureates of British Columbia Hall of Fame. In
early 2018, Mr. Beaty was also inducted into
Canada’s Mining Hall of Fame.
Within the next three years, we expect our
annual silver production will rise to 30.5 to 33.0
million ounces and our operating costs to remain
very competitive, positioning the Company for
attractive profit margins and higher
shareholder returns.
Michael Steinmann, President and CEO
March 22, 2018
(1) Free cash flow, operating free cash flow, cash costs, and all-in sustaining costs are non-GAAP measures; see the alternative Performance (Non-GAAP
Measures) section in the Management’s Discussion & Analysis for the period ended December 31, 2017. Free cash flow is calculated as Net Cash from
Operating Activities less sustaining and project capital expenditures, while operating free cash is calculated as Net Cash from Operating Activities less
sustaining capital expenditures.
(2) The Silver Instutute. November 15, 2017, Thomson Reuters Interim Silver Market Review.
PAN AMERICAN SILVER 12
Investor Highlights
Why Pan American Silver is the leading
investment opportunity in silver:
a strong and diversified portfolio of assets
comprised of six operating mines across four countries.
We have an established presence in the world’s key
silver producing jurisdictions as a responsible, profitable
developer of silver resources. Our high-quality silver
assets provide a foundation for growth and potential
upside for investors.
a seasoned management team and dedicated
workforce. We have a decentralized organizational
structure, which fosters an empowered workforce and
efficient decision-making. Many of our employees have a
long tenure with us; this experience combined with their
technical expertise reduces development and operating
risk, while enabling us to capitalize on new opportunities.
a disciplined approach to capital management that
focuses on maintaining a strong balance sheet, investing
in profitable opportunities for growth, and generating
attractive returns for shareholders.
a proven track record. In 2017, we achieved our
guidance for cash costs and silver production for the
6th consecutive year. Over the last 14 years, we have
replaced 103% of our proven and probable silver
mineral reserves.
2017 ANNUAL REPORT Management’s Discussion
and Analysis
FOR THE YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
Introduction
Core Business and Strategy
2017 Highlights
2018 Operating Outlook
Mid-Term Outlook
Operating Performance
Project Development Update
Overview of 2017 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 and Technical
Information
Cautionary Note
14
15
16
18
23
23
37
38
51
51
52
53
54
54
55
61
66
67
68
69
71
74
PAN AMERICAN SILVER CORP.
13
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
March 22, 2018
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the significant factors
that influence 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, 2017
(the “2017 Financial Statements”) and the related notes contained therein. All amounts in this MD&A and the 2017
Financial Statements are expressed in United States dollars (“USD”), unless identified otherwise. The Company reports
its financial position, results of operations and cash flows in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting Standards Board. Pan American’s significant accounting
policies are set out in Note 2 of the 2017 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”, "total debt", “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 under
IFRS. 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 2017 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. Any reference to “AISCSOS” in this MD&A should be understood
to mean all-in sustaining costs per silver ounce sold, 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
PAN AMERICAN SILVER CORP.
14
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 (Symbol: PAAS) 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, which enables 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.
PAN AMERICAN SILVER CORP.
15
2017 HIGHLIGHTS
Operations & Project Development
• Silver production of 25.0 million ounces
Consolidated silver production of 25.0 million ounces was similar to the 25.4 million produced in 2016. Increases at
La Colorada and Dolores offset the expected decline from the conclusion of Alamo Dorado operations in 2017. Silver
production was within the guidance range of 24.5 million to 26.0 million ounces, as provided in the 2016 annual
MD&A dated March 22, 2017 (the "Original Guidance").
• Gold production of 160.0 thousand ounces
Consolidated gold production of 160.0 thousand ounces compared to 183.9 thousand ounces produced in 2016. The
decrease was due to lower ore grades at Manantial Espejo and the conclusion of Alamo Dorado operations. 2017
gold production was within the Original Guidance range of 155.0 thousand to 165.0 thousand ounces.
• Record annual base metal production
Zinc production was a record 55.3 thousand tonnes in 2017, 7% higher than in 2016, primarily reflecting the expansion
of La Colorada. 2017 consolidated zinc production was slightly below the Original Guidance range of 56.5 thousand
tonnes to 58.5 thousand tonnes, and was within the revised range provided on November 8, 2017 (the "Revised
Guidance").
Lead production was a record 21.5 thousand tonnes, up 6% from 2016, driven by La Colorada. Annual lead production
was higher than the Original Guidance range of 19.0 thousand to 20.0 thousand tonnes, and slightly higher than the
Revised Guidance range of 20.0 thousand tonnes to 21.0 thousand tonnes.
Copper production of 13.4 thousand tonnes was 7% lower than in 2016, largely due to mine sequencing at Morococha.
2017 annual copper production was higher than the Original Guidance range of 8.8 thousand to 9.3 thousand tonnes,
and was within the Revised Guidance range.
• Decade-low cash costs of $4.55 per ounce
Consolidated cash costs of $4.55 per ounce were $1.74 per ounce or 28% lower than in 2016, largely due to improved
productivity at our mines in Peru and Mexico, higher by-product credits, and lower treatment and refining charges.
The decade-low cash costs were 35% below the midpoint of the Original Guidance of $6.45 to $7.45, and at the low
end of the Revised Guidance. Annual cash costs records were set at La Colorada, Huaron, Morococha, and Dolores.
• Expansion projects completed
The La Colorada mine expansion was completed in 2017. Full design processing rates of 1,800 tonnes per day ("tpd")
were achieved in mid-2017, about six months ahead of schedule. Average throughput exceeded design rates by about
5% during the last six months of 2017.
At the Dolores expansion, we completed construction of the pulp agglomeration plant with commissioning activities
fully underway at year-end. We also advanced the underground mine development and reached the planned daily
stacking rate of 20,000 tonnes.
• New mine developments initiated
COSE and Joaquin projects. We obtained authorizations to initiate construction on the two mining projects located
within ore trucking distance from our Manantial Espejo mine. At the Cap-Oeste Sur Este project ("COSE"), we put a
team in place, purchased mining equipment, prepared the necessary project infrastructure, and started underground
development. By year end, we had advanced 148 metres on the COSE underground decline.
PAN AMERICAN SILVER CORP.
16
Financial
•
Increased revenue, net earnings, and operating cash flows.
Annual revenue in 2017 of $816.8 million was up 5% from 2016, mainly due to higher base metal prices and lower
treatment and refining charges.
Net earnings were $123.5 million ($0.79 basic earnings per share) compared with $101.8 million ($0.66 basic earnings
per share) in 2016, net earnings in 2017 included impairment reversals of $61.6 million ($53.4 million, net of tax
expense), primarily related to the reversal of the 2015 Morococha mine impairment.
Operating cash flows of $224.6 million were 5% higher than the $214.8 million generated in 2016, driven primarily
by increased revenue and positive working capital changes, partially offset by higher cash taxes.
Adjusted earnings in 2017 were $77.7 million ($0.51 basic adjusted earnings per share) compared with $86.6 million
($0.57 basic adjusted earnings per share) in 2016. Higher revenue in 2017 was offset by increases in production costs,
largely driven by increased non-cash net realizable value ("NRV") inventory adjustments, as well as higher depreciation
and income tax expense.
• Strong liquidity and working capital position
As at December 31, 2017, the Company had cash and short-term investment balances of $227.5 million, working
capital of $410.8 million, and $300.0 million available under its undrawn revolving credit facility. During 2017, debt
reduced by $32.7 million (including financial lease liabilities), resulting in year-end debt of $10.6 million, mostly related
to finance lease liabilities.
• All-In Sustaining Costs per Silver Ounce Sold (“AISCSOS”) lower than Original Guidance
2017 AISCSOS of $10.79 was $0.71 below the low end of the Original Guidance range of $11.50 to $12.90 and within
the Revised Guidance range of $10.50 to $11.50.
• Dividend increased
The quarterly dividend was increased to $0.025 per common share in 2017, double the quarterly dividend of $0.0125
per common share paid in 2016. On February 20, 2018, a quarterly dividend of $0.035 per common share was declared,
representing an additional 40% increase from the quarterly dividend paid in 2017.
PAN AMERICAN SILVER CORP.
17
2018 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.
2018 Silver Production, Cash Costs and AISCSOS Forecasts:
Silver Production
(million ounces)
La Colorada
Dolores
Huaron
Morococha (92.3%)(2)
San Vicente (95.0%)(2)
Manantial Espejo
Consolidated Total
(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 and AISCSOS forecasts assume: metal prices of $16.50/oz for silver, $3,100/tonne
($1.41/lb) for zinc, $2,350/tonne ($1.07/lb) for lead, $6,500/tonne ($2.95/lb) for copper, and $1,250/oz for gold; and, average annual exchange rates
relative to 1 USD of 18.50 for the Mexican peso ("MXN"), 3.23 of the Peruvian sol ("PEN"), 19.59 for the Argentine peso ("ARS"), and 7.00 for the Bolivian
boliviano ("BOL").
7.40 - 7.70
4.50 - 4.90
3.60 -3.80
2.50 -2.70
3.90 -4.10
3.20 - 3.30
25.00 -26.50
AISCSOS ($ per ounce) (1)
3.80 - 4.30
9.00 - 12.00
6.50 - 7.75
1.05 - 3.50
11.60 - 12.50
18.45 - 20.20
9.30 - 10.80
Cash Costs
($ per ounce) (1)
1.35 - 1.70
(1.25) - 0.45
0.75 - 1.50
(5.80) - (4.30)
10.00 -10.50
17.60 -19.00
3.60 - 4.60
(2) Reflects Pan American’s ownership in the operation.
The Company expects to produce between 25.00 million and 26.50 million ounces of silver in 2018, slightly more
than the 2017 consolidated production of 24.98 million ounces, with production increases expected at La Colorada,
Dolores and San Vicente more than offsetting the conclusion of production from Alamo Dorado in 2017. Production
at Morococha, Huaron, and Manantial Espejo is expected to be broadly consistent with 2017.
The increase in silver production at Dolores is expected to be driven by successful commissioning and ramping-up
throughput from the new pulp agglomeration plant to 5,600 tpd, ramping-up underground mining rates to 1,500
tpd, and sustaining total heap leach pad loading rates of 20,000 tpd, partially offset by lower grades from open pit
sequencing. The increase at La Colorada is expected to be achieved through sustaining the expanded throughput
rates while implementing further productivity enhancements with additional mine mechanizations and upgrading
the mine backfill plant to enable mine sequencing that reduces grade variability. At San Vicente, the increase reflects
a reduction in unplanned downtime, gradual productivity enhancements anticipated from additional mechanization
efforts, enhanced mine dilution controls and improvements in site infrastructure and ancillary facilities.
Consolidated cash costs for 2018 are forecast to be between $3.60 and $4.60 per payable ounce of silver, net of by-
product credits, compared with 2017 cash costs of $4.55 per ounce. The Company expects consolidated cash costs
to slightly decrease as a result of lower cash costs at La Colorada and San Vicente, driven primarily by increased silver
production. 2018 cash costs at the remaining operations are anticipated to be relatively steady compared to 2017.
Consolidated AISCSOS in 2018 is forecast to be between $9.30 and $10.80, similar to the $10.79 recorded in 2017
(which included NRV inventory adjustments that increased AISCSOS by $0.51 per ounce), as anticipated increases in
by-product credits and lower direct selling costs are expected to be largely offset by higher sustaining capital and
higher production costs, particularly at Dolores with the additions of full-year pulp agglomeration plant and
underground mining costs.
.
PAN AMERICAN SILVER CORP.
18
2018 By-product Production Forecasts:
Gold
(koz)
Zinc
(kt)
La Colorada
Dolores
Huaron
Morococha (1)
San Vicente (2)
Manantial Espejo
Consolidated Total
(1) Morococha data represents Pan American’s 92.3% interest in the mine's production.
(2) San Vicente data represents Pan American’s 95.0% interest in the mine's production.
4.2 - 4.3
138.9 - 147.7
1.0
2.2 - 2.3
0.2
28.5 - 29.5
175.0 -185.0
17.0 - 18.0
—
18.5 - 18.7
18.0 - 18.6
6.5 - 6.7
—
60.0 - 62.0
Lead
(kt)
9.2 - 9.4
—
7.3 - 7.6
4.3 - 4.7
0.2
—
21.0 - 22.0
Copper
(kt)
—
—
6.0 - 6.2
5.1 - 5.3
0.9
—
12.0 - 12.5
2018 gold production is expected to be between 175.0 and 185.0 thousand ounces, up from the 160.0 thousand
ounces produced in 2017. The increase reflects anticipated higher throughputs, recoveries and grades at Dolores,
driven by a full year of additional production attributable to pulp agglomeration and the underground mine, more
than offsetting a decline in production at Manantial Espejo.
Production of zinc and lead are expected to increase from 2017 levels, resulting from enhanced productivities and
sustained expanded throughput rates in the sulphide flotation plant at La Colorada, as well as from improving grades
and throughput rates at San Vicente. A decline in annual copper production is expected, primarily as a result of mine
sequencing at Morococha, where higher throughput from zinc and lead zones is expected.
2018 Capital Expenditure Forecasts
In 2018, Pan American expects sustaining capital investments of between $100.0 million and $105.0 million, an
increase from the $84.4 million invested in 2017. In addition, Pan American expects to invest approximately $50.0
million of project capital to complete the expansion at Dolores, and advance the Joaquin and COSE projects. The
following table details the forecast capital investments at the Company's operations and projects in 2018:
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Sustaining Capital Total
Morococha projects
Mexico projects
Joaquin & COSE projects
Project Capital Total
Consolidated Total
2018 Forecast Capital
Investment
($ millions)
16.5 - 17.0
47.5 - 49.0
17.0 - 17.5
12.0 - 12.5
6.0 - 7.0
1.0 - 2.0
100.0 - 105.0
2.0
13.0
35.0
50.0
150.0 - 155.0
Major components of forecast 2018 sustaining capital:
•
La Colorada - primarily related to approximately $12.0 million in equipment additions, replacements and
overhauls; $2.0 million for the backfill project; and $2.0 million for exploration.
• Dolores - primarily related to: approximately $26.0 million for pre-stripping activities; $15.0 million in leach
pad and pumping system expansions; $4.0 million for equipment additions, replacements and overhauls; and
$2.0 million for exploration.
PAN AMERICAN SILVER CORP.
19
• Huaron - primarily related to approximately $4.0 million in equipment additions, replacements and overhauls;
$5.0 million on a tailings facility expansion; $3.0 million on mine deepening; and $4.0 million for exploration.
• Morococha - approximately $7.0 million in equipment additions, replacements and overhauls; $2 million in
infrastructure and ancillary upgrades; and $3 million in exploration.
• San Vicente - approximately $2.0 million in mine equipment additions, replacements and overhauls; $2.0
million in infrastructure and ancillary upgrades; and $2.0 million for exploration.
• Manantial Espejo - approximately $1.0 million to $2.0 million mostly for exploration programs.
See the “2018 Mine Operations Forecasts” section of this MD&A for further details.
Forecast 2018 project capital consists of:
• Approximately $15.0 million and $20.0 million on the development of the COSE and Joaquin mine projects,
respectively.
• Approximately $8.0 million to complete and commission the pulp agglomeration plant and complete the
underground mine development at Dolores.
• Approximately $5.0 million to complete a tailings facility expansion project at La Colorada that will lead to
savings in future tailings facility expansions.
• Approximately $2.0 million to advance engineering and plant design for a plant relocation at Morococha.
2018 General and Administrative Cost Forecast
Our 2018 general and administrative (“G&A”) costs are expected to be approximately $25.6 million, an increase from
2017 G&A of $21.4 million. The increase is primarily due to higher costs anticipated particularly for insurance, travel,
legal and information technology costs. This figure is subject to fluctuations in the Canadian dollar (“CAD”) to USD
exchange rate, the Company’s share price performance, which impacts share based compensation expense, and the
Company’s ability to allocate certain costs incurred at head office that are directly attributable to operating
subsidiaries.
2018 Exploration and Project Development Expense Forecast
Exploration expenses, excluding near-mine exploration included in sustaining capital, in 2018 are expected to total
approximately $13.3 million, a decrease from the 2017 exploration expense of $19.8 million. The decrease is driven
by lower spending at the Joaquin project, and a 2017 project development write-down at La Colorada not expected
to occur in 2018. Non-mine-site exploration will continue to advance on targets defined at certain Mexican and
Peruvian properties. The exploration expenses also include holding costs for various exploration properties, including
Navidad.
2018 Mine Operation Forecasts
Expectations of management of the Company ("Management") for each mine’s operating performance in 2018 are
set out below, including a discussion on expected production, cash costs, capital expenditures and AISCSOS.
La Colorada mine
La Colorada 2018 forecast silver production of 7.4 million to 7.7 million ounces is 4% to 8% more than the 7.1 million
produced in 2017, driven by a full year of expanded throughput rates, additional mine mechanizations and the
implementation of a hydraulic backfill system. The 2018 mine plan contemplates the mining and milling rate to increase
from 1,800 tpd in January 2018 to 1,950 tpd by year-end 2018.
Forecast 2018 cash costs per ounce of between $1.35 and $1.70 represent reductions of 35% to 18%, respectively,
from the $2.08 per ounce recorded in 2017. The reduction in expected cash costs reflects the benefits from increased
silver production combined with higher by-product credits per ounce due to higher zinc and lead production and
PAN AMERICAN SILVER CORP.
20
higher base metal price expectations, partially offset by higher backfill, underground development and energy costs
as well as modest wage and supply cost escalations.
AISCSOS for 2018 is expected to be between $3.80 and $4.30, lower than the $4.44 AISCSOS reported in 2017. The
expected benefits of the increased production described above, along with higher by-product production and prices,
offset the increased production costs and sustaining capital leading to the net decrease.
A $5.0 million investment in a tailings storage facility expansion is included in 2018 project capital, which is expected
to reduce life-of-mine tailings related construction costs by approximately $15.0 million. Please see the “2018 Capital
Expenditure Forecast” section for a summary of project capital expenditures.
Dolores mine
Forecast silver production for 2018 of 4.5 to 4.9 million ounces is expected to be 0.3 million to 0.7 million ounces
higher than the 4.2 million ounces produced in 2017. The forecast increase is driven mainly by the successful
commissioning and ramp-up of the pulp agglomeration plant; increased underground mining rates; and sustained
heap leach pad loading rates of 20,000 tpd, partially offset by lower expected silver grades from the mine sequencing
into favorable gold zones.
Cash costs in 2018 are expected to be between negative $1.25 and positive $0.45 per ounce, slightly higher than the
2017 cash costs of negative $1.65 per ounce, due to increased costs largely associated with the commissioning of the
pulp agglomeration and underground mine, offset by increased silver and gold production.
AISCSOS for 2018 is expected to be between $9.00 and $12.00, compared to 2017 AISCSOS of $10.00 (which included
NRV inventory adjustments that increased AISCSOS by $1.67 per ounce). Excluding the effect of 2017 NRV
adjustments, AISCSOS is expected to increase from those in 2017 primarily due to increased sustaining capital
investments described above, partially offset by increased silver and gold production.
Expansion project capital in 2018 is expected to total $8.0 million and relates to completing the commissioning of
the pulp agglomeration circuit and underground mine project. Please see the “2018 Capital Expenditure Forecast”
section for a summary of project capital expenditures.
Huaron mine
In 2018, silver production is expected to be between 3.6 million to 3.8 million ounces, comparable to 3.7 million
ounces produced in 2017. The consistent production levels reflect slightly increased throughput rates offset by slightly
lower grades. Despite the higher throughput, base metal production is expected to decrease due to anticipated grade
and recovery declines. When compared to the mid-point guidance, lead and zinc production rates are expected to
reduce by approximately 15% and 4%, respectively, from 2017 production levels as a result of the planned mine
sequencing. 2018 copper production rates are expected to be comparable to 2017 levels.
2018 cash costs per ounce are forecast to be between $0.75 and $1.50, relatively consistent with 2017 cash costs of
$1.35 per ounce, which reflects higher base metal price assumptions being largely offset by expected increases in
production costs and lower by-product metal production.
AISCSOS for 2018 is expected to be between $6.50 and $7.75, representing a 24% to 48% increase from the $5.25
reported in 2017, primarily due to the previously discussed higher sustaining capital expenditures.
Morococha mine
Throughput rates in 2018 are expected to be consistent with those in 2017, as are silver grades and recoveries. As
such the forecast 2018 silver production of 2.5 million to 2.7 million ounces is consistent with the 2.6 million ounces
produced in 2017. However, planned changes in mine sequencing are expected to change the plant feed composition
towards zinc and lead-rich ore that contains less copper than previously mined zones. When compared to the mid-
point of 2018 guidance, lead and zinc production rates are expected to increase by approximately 30% and 13%,
respectively, from 2017 production levels as a result of the planned mine sequencing, while copper production rates
are expected to decrease by 22% relative to 2017 levels.
PAN AMERICAN SILVER CORP.
21
Forecast 2018 cash costs of between negative $5.80 and negative $4.30 per ounce compare to 2017 cash costs of
negative $5.34 per ounce. The consistent year-over-year cash costs reflect the anticipated higher by-product credits,
from increased zinc and lead production and metal prices, largely offsetting an expected production cost increase
from increased underground advances and modest wage and supply cost escalations.
AISCSOS for 2018 is expected to be between $1.05 and $3.50, roughly consistent with the $1.22 reported in 2017,
primarily due to the expected increase in by-product credits, being offset by higher operating costs.
San Vicente mine
Silver production for 2018 is forecast to be between 3.9 million and 4.1 million ounces, compared to 3.6 million ounces
in 2017. The increase is based on anticipated higher throughput rates, silver grades and recoveries driven by reductions
in unplanned downtime, additional mechanization efforts, and enhanced mine dilution controls. Similarly, forecast
zinc production in 2018 is anticipated to be between 49% to 54% higher as a result of the anticipated increased
throughput and higher expected zinc grades. Higher copper and lower lead grades in 2018 are expected to increase
copper production by 42% and decrease lead production by 58%, compared to 2017.
Cash costs in 2018 are expected to decline by up to $1.85 per ounce to be between $10.00 and $10.50 per ounce
compared with 2017 due to larger by-product credits from higher base metal price assumptions and increased zinc
and silver production, which more than offsets expected cost escalations, primarily from higher labor costs.
AISCSOS for 2018 is expected to be between $11.60 and $12.50, a significant decrease from the $14.40 reported in
2017, due to the expectation that increased silver production, lower sustaining capital investments, and increased
by-product credits will more than offset an anticipated escalation in production costs.
Manantial Espejo mine
Forecast 2018 silver production of 3.2 to 3.3 million ounces is roughly the same as the 3.1 million ounces produced
in 2017, reflecting consistent throughput and slightly increased grades offset by a decrease in recoveries. Forecast
2018 gold production of 28.5 thousand to 29.5 thousand ounces, however, is significantly less than the 45.3 thousand
ounces produced in 2017 due to planned processing of lower gold grade stockpiles.
Forecast 2018 cash costs of $17.60 to $19.00 per ounce are largely consistent with 2017 cash costs of $18.25 per
ounce, as a result of significantly lower by-product credits due to the reduction in gold grades, offset by the expected
decrease in production costs with the completion of open pit mining in 2017.
AISCSOS for 2018 is expected to be between $18.45 and $20.20, a decrease from the $23.42 reported in 2017 (which
included NRV inventory adjustments that increased AISCSOS by $2.54 per ounce) due mainly to lower production
costs and sustaining capital, partially offset by lower by-product credits from the decline in gold production.
PAN AMERICAN SILVER CORP.
22
MID-TERM OUTLOOK
The following table provides the Company’s estimates for metal production, gold production, cash costs, sustaining
capital expenditures, and AISCSOS for fiscal 2018 to 2020. The increase in production primarily reflects the impact
of the expanded operations at La Colorada and Dolores, and the additional production expected from the COSE and
Joaquin projects in Argentina.
These estimates are forward-looking and are subject to the cautionary note associated with forward-looking
statements and information at the end of this MD&A.
Production
Silver (million ounces)
Gold (thousand ounces)
Zinc (thousand tonnes)
Lead (thousand tonnes)
Copper (thousand tonnes)
Cash Costs(1) ($/ounce)
Sustaining capital ($ millions)
AISCSOS(1) ($/ounce)
2018
Guidance
2019
Outlook
2020
Outlook
25.0 - 26.5
27.7 - 29.7
30.5 - 33.0
175 - 185
183 - 193
165 - 179
60.0 - 62.0
55.5 - 59.5
60.5 - 64.5
21.0 - 22.0
21.0 - 23.0
23.0 - 26.0
12.0 - 12.5
10.5 - 12.5
11.5 - 13.5
3.60 - 4.60
4.50 - 6.00
4.75 - 6.75
100 - 105
100 - 110
75 - 90
9.30 - 10.80
9.50 - 11.50
8.50 - 11.00
(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 and AISCSOS forecasts assume: by-product credit prices of $3,100/tonne ($1.41/lb) for
zinc, $2,350/tonne ($1.07/lb.) for lead, $6,500/tonne ($2.95/lb.) for copper, and $1,250/oz. for gold; and, average annual exchange rates relative to 1 USD
of 18.50 for the MXN, 3.23 of the PEN, 19.59 for the ARS, and 7.00 for the BOL.
2017 OPERATING PERFORMANCE
The following table provides silver production and cash costs, net of by-product credits, at each of Pan American’s
operations for the respective three and twelve month periods ended December 31, 2017 and 2016:
Silver Production
(ounces ‘000s)
Cash Costs(1)
($ per ounce)
Three months ended
December 31,
Year ended
December 31,
Three months ended
December 31,
Year ended
December 31,
2017
2016
2017
2016
2017
2016
2017
2016
897
1,665
1,870
7,056
1,256
La Colorada
Dolores
Alamo Dorado
Huaron
Morococha(2)
San Vicente(3)
Manantial Espejo
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
1.35
(5.34)
2.08
(7.42)
3,684
2,634
951
721
24,979
25,419
(1.65)
(3.93)
(1.08)
(5.93)
26.52
18.25
16.49
11.85
4,232
6,579
1,102
3,610
3,123
22.80
16.02
11.22
14.61
11.95
1,864
3,838
5,795
1,050
2,541
3,136
6,306
4,433
3,812
2.09
0.43
2.08
9.04
4.55
3.18
6.15
4.28
6.29
4.21
5.79
4.38
5.52
6.66
4.54
401
641
646
578
779
935
33
of the cash cost calculation, details of the Company’s by-product credits and a reconciliation of this measure to the 2017 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.
PAN AMERICAN SILVER CORP.
23
2017 Silver Production
The chart below presents silver production by mine in 2017:
Consolidated silver production in the fourth quarter of 2017 ("Q4 2017 ") of 6.58 million ounces was 4% more than
the 6.31 million ounces produced in Q4 2016. The quarterly increase resulted from record quarterly production at
Dolores and La Colorada, as well as increased production at Morococha, all with higher throughput rates, which more
than offset the anticipated production decline from the conclusion of mining at Alamo Dorado along with lower silver
grades following the conclusion of open pit mining at Manantial Espejo.
Consolidated annual silver production of 25.0 million ounces was similar to the 25.4 million produced in 2016, as
record annual production at La Colorada and Dolores offset the expected decline at Alamo Dorado and shortfalls at
San Vicente. Each operation’s silver production variances are further discussed in the “Individual Mine Performance”
section of this MD&A.
2017 Cash Costs
Consolidated cash costs per ounce of silver for Q4 2017 and full year 2017 were $3.18 and a decade low $4.55,
respectively, representing a 52% and 28% reduction from Q4 2016 and 2016 cash costs, respectively. Record low
annual cash costs per ounce were achieved at La Colorada, Dolores, Huaron and Morococha during 2017.
The quarter-over-quarter reduction was the result of higher by-product credits, which increased by $2.52 per ounce
from higher metal prices for all by-products, increased silver sales volumes, mainly from increased production at
Dolores, La Colorada and Morococha and decreased direct selling costs from improved contract terms for concentrate
treatment and refining.
The year-over-year cash costs variances were driven by similar factors, with the exception of silver production, which
was slightly lower due to the higher production at La Colorada and Dolores, being offset by the declines at Alamo
Dorado and San Vicente.
Each operation’s cash costs variances are discussed in the “Individual Mine Performance” section of this MD&A.
PAN AMERICAN SILVER CORP.
24
2017 By-Product Production
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
By-Product Production
Three months ended
December 31,
Year ended
December 31,
2017
43.7
14.7
5.4
3.0
2016
43.9
13.2
5.5
3.1
2017
160.0
55.3
21.5
13.4
2016
183.9
51.9
20.2
14.4
Gold production during Q4 2017 was 43.7 thousand ounces, roughly consistent with the 43.9 thousand ounces
produced in Q4 2016. The comparable production reflects record quarterly production at Dolores offsetting the
anticipated decline in gold grades at Manantial Espejo.
2017 gold production of 160.0 thousand ounces was 13% lower than 2016 production on account of the anticipated
lower grades at Manantial Espejo, attributable to the completion of open pit mine production, and the conclusion
of mining at Alamo Dorado. These production declines were partially offset with the record annual gold production
achieved at Dolores.
Record quarterly zinc production in Q4 2017 was 11% higher than Q4 2016, driven by higher ore grades and throughput
at La Colorada, partially offset by lower grades at Huaron . Q4 2017 lead production was comparable with prior period
production. Q4 2017 copper production was 3% lower than in Q4 2016, primarily the result of anticipated lower
copper grades at Morococha.
Record annual zinc production of 55.3 thousand tonnes in 2017 was 7% more than in 2016, primarily reflecting the
expansion of La Colorada. 2017 consolidated lead production was a record 21.5 thousand tonnes, up 6% from
2016, also driven primarily by La Colorada. 2017 copper production of 13.4 thousand tonnes was 7% lower than in
2016, due largely to Morococha mine sequencing.
Each operation’s by-product production is discussed in the “Individual Mine Performance” section of this MD&A.
2017 Average Market Metal Prices
The following tables set out the average market price for each metal produced for 2017 and 2016:
Silver $/ounce
Gold $/ounce
Zinc $/tonne
Lead $/tonne
Copper $/tonne
Average Market Metal Prices(1)
Three months ended
December 31,
Year ended
December 31,
2017
16.73
1,275
3,236
2,492
6,808
2016
17.19
1,222
2,517
2,149
5,277
2017
17.05
1,257
2,896
2,317
6,166
2016
17.14
1,251
2,095
1,872
4,860
(1) Average market prices are for zinc, lead and copper are the London Metal Exchange cash prices for the three and twelve month periods ended December
31, 2017 and 2016, silver and gold prices are the London Bullion Metal Association prices for the same periods.
PAN AMERICAN SILVER CORP.
25
2017 AISCSOS
The following table reflects the quantities of payable silver sold and AISCSOS at each of Pan American’s operations
for the three and twelve months ended December 31, 2017, as compared to the same period in 2016:
Payable Silver Sold
(ounces ‘000s)
AISCSOS(1)
($ per ounce)
Three months ended
December 31,
Year ended
December 31,
Three months ended
December 31,
Year ended
December 31,
2017
1,847
1,225
133
813
2016
1,561
895
286
759
2017
6,853
4,089
867
3,181
2016
5,486
3,839
1,967
3,233
2017
2.81
13.62
17.45
7.00
2016
5.52
2.96
28.44
12.62
2017
4.44
10.00
17.69
5.25
2016
7.49
8.29
14.85
11.11
La Colorada
Dolores
Alamo Dorado
Huaron
526
658
Morococha
San Vicente
Manantial Espejo
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 2017 Financial Statements. G&A costs are included in the consolidated AISCSOS, but
not allocated in calculating AISCSOS for each operation.
24,212
24,200
(2.08)
(1.54)
28.63
23.42
10.86
12.31
14.40
10.79
1,218
6,659
3,603
3,171
2,448
10.38
10.17
14.30
15.02
12.43
3,033
1,332
6,138
4,264
2,377
1.22
9.32
3.77
766
779
(2) Totals may not add due to rounding.
Consolidated AISCSOS for Q4 2017 and annual 2017, were $10.86 and $10.79, respectively, representing increases
of 5% and 6%, from the comparable AISCSOS amounts in 2016.
The quarter-over-quarter increase largely reflects increased production costs, primarily from NRV inventory
adjustments that added $0.83 to AISCSOS in Q4 2017 (reduced Q4 2016 AISCSOS by $1.75), and higher operating
costs at Manantial Espejo. These AISCSOS increases were partially offset by: increased by-product credits from higher
metal prices for all by-products; increased silver sales volumes, mainly from increased production at Dolores, La
Colorada and Morococha; and decreased direct selling costs from improved contract terms for concentrate treatment
and refining.
The increase in annual AISCSOS was similarly driven by increased production costs, mainly from increased negative
NRV inventory adjustments, which added $0.51 to AISCSOS in 2017 (reduced 2016 AISCSOS by $1.77). The increased
production costs were partially offset by: higher by-product credits, mostly from stronger base metal prices partially
offset by lower quantities of gold and copper sold in the year; decreased direct selling costs; lower royalties, driven
by lower sales volumes at San Vicente; and lower sustaining capital expenditures, mainly due to the timing of sustaining
capital payments at Dolores.
PAN AMERICAN SILVER CORP.
26
Individual Mine Performance
The following tables summarize the 2017 metal production, cash costs and AISCSOS achieved for each individual
operation compared to the Original Guidance. Reported metal figures included in tables in this section are volumes
of metal produced.
For the purposes of these comparisons, the symbols have the following meanings:
Actual results were better than 2017 Original Guidance range
Actual results met 2017 Original Guidance range
Actual results fell short of 2017 Original Guidance range
2017 Silver Production
(million ounces)
Forecast (2)
6.40 - 6.90
4.00 - 4.50
0.25 - 0.30
Actual
7.06
4.23
0.64
2017 Cash Costs(1)
($ per ounce)
Forecast (2)
3.35 - 3.95
1.25 -2.25
18.00 -20.00
Actual
$2.08
(1.65)
16.49
2017 AISCSOS(1)
($ per ounce)
Forecast (2)
5.00 - 5.90
11.00 - 12.50
18.40 - 19.40
Actual
$4.44
$10.00
$17.69
La Colorada
Dolores
Alamo Dorado
3.68
3.65 -3.80
2.50 -2.60
Huaron
Morococha(3)
San Vicente(3)
Manantial Espejo
Total(4)
(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
11.50 - 12.90
16.90 - 18.10
13.80 - 14.80
24.50 -26.00
15.35 -16.25
10.90 -11.90
8.25 - 9.75
3.30 - 3.40
6.45 -7.45
4.40 -4.50
3.15 -4.15
9.25 - 10.50
5.95 -6.95
$10.79
$14.40
$23.42
(5.34)
$4.55
24.98
$1.22
$5.25
18.25
11.85
1.35
3.61
3.12
2.63
description of the AISCSOS calculation and a reconciliation of this measure to the 2017 Financial Statements.
(2) Forecast amount per guidance included in the annual MD&A for fiscal 2016 dated March 22, 2017.
(3) Production figures are only for Pan American’s ownership share of Morococha (92.3%), and San Vicente (95.0%).
(4) Totals may not add due to rounding.
2017 Gold Production
(koz)
2017 Zinc Production
(kt)
La Colorada
Dolores
Alamo Dorado
Forecast (1)
3.3 – 3.5
109.1 – 115.0
1.4 – 1.5
Actual
4.3
103.0
2.1
Forecast (1)
14.0 – 14.5
—
—
1.1
0.3 – 0.4
2.9 – 3.1
Huaron
Morococha(2)
San Vicente(2)
Manantial Espejo
Total(3)
(1) Forecast amount per guidance included in the annual MD&A for fiscal 2016 dated March 22, 2017.
(2) Production figures are only for Pan American’s ownership share of Morococha (92.3%), and San Vicente (95.0%).
(3) Totals may not add due to rounding.
155.0 – 165.0
37.5 – 41.0
0.5 – 0.55
160.0
45.3
3.5
0.5
—
16.0 – 16.5
20.2 – 21.0
56.5 - 58.5
6.3 – 6.5
Actual
15.4
—
—
19.4
16.1
4.4
—
55.3
PAN AMERICAN SILVER CORP.
27
2017 Lead Production
(kt)
2017 Copper Production
(kt)
La Colorada
Alamo Dorado
Forecast (1)
7.5 – 7.8
—
Actual
8.8
—
Forecast (1)
—
0.01
7.2 – 7.4
Huaron
Morococha(2)
San Vicente(2)
Total(3)
(1) Forecast amount per guidance included in the annual MD&A for fiscal 2016 dated March 22, 2017.
(2) Production figures are only for Pan American’s ownership share of Morococha (92.3%), and San Vicente (95.0%).
(3) Totals may not add due to rounding.
19.0 – 20.0
4.0 – 4.5
21.5
0.3
3.5
8.8
0.5
0.7
6.0 – 6.2
2.1 – 2.4
8.8 - 9.3
Actual
—
0.01
6.1
6.6
0.6
13.4
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Sustaining Capital Sub-total(2)
La Colorada Expansion Project
Dolores Expansion Projects
Joaquin and COSE projects (3)
Project Capital Sub-total(2)
Total Capital
2017 Capital Investment ($ millions)
Actual(2)
Forecast(1)
10.5 – 11.5
13.3
39.0 – 40.0
8.0 – 9.0
9.0 – 10.0
12.0 – 13.0
3.5 – 4.5
82.0 - 88.0
6.5 – 7.5
51.5 – 54.5
11.0 – 12.5
69.0 - 74.5
38.4
8.8
12.5
8.1
3.3
84.4
6.9
49.9
4.7
61.4
151.0 – 162.5
145.8
(1) Forecast amount per guidance included in the annual MD&A for fiscal 2016 dated March 22, 2017, except for Joaquin and COSE projects,
which were initially forecast in the MD&A for the second quarter of 2017.
(2) Total sustaining capital investments capitalized in 2017 2343 $0.2 million more than the $84.2 million of sustaining capital cash outflows
referenced in the individual mine tables and included in the 2017 AISCOS calculations, shown in the “Alternative Performance (Non-GAAP)
Measures” section of this MD&A. In addition, project capital investments in 2017 were $1.2 million less than the $62.6 million of 2017
project capital cash outflows. These differences are due to the timing difference between the cash payment of capital investments
compared with the period in which investments are capitalized.
(3) Total expenditures of $9.7 million were incurred in 2017 for the Joaquin and COSE projects, of which $5.0 million was expensed as part
of 2017 exploration and project development expenses, and the remaining $4.7 million was capitalized.
An analysis of each operation for the year ended December 31, 2017, as compared to the operating performance for
the year ended December 31, 2016, as well as an analysis of the 2017 operating performance compared to the 2017
Original Guidance follows. The project capital amounts invested in 2017 are further discussed in the 2017 Project
Development Update section of this MD&A.
PAN AMERICAN SILVER CORP.
28
La Colorada mine
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
Gold – koz
Zinc – kt
Lead – kt
Year ended
December 31,
2017
655.3
368
2.81
1.54
91.1
83.7
86.9
7,056
4.29
15.44
8.80
Cash cost per ounce net of by-products(1)
AISCSOS(2)
Payable silver sold - koz
$
$
2.08 $
4.44 $
6,853
2016
528.8
377
2.63
1.31
90.3
82.2
86.5
5,795
2.93
11.40
6.00
6.15
7.49
5,486
Sustaining capital - (’000s)(3)
(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
13,970 $
10,545
$
of this measure to 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 2017 Financial Statements.
(3) Sustaining capital expenditures exclude $8.0 million of investing activity cash outflow for 2017 (2016: $54.0 million) related to investment capital incurred
on the La Colorada expansion project as disclosed in the “Project Development Update” section of this MD&A.
2017 versus 2016
The La Colorada mine produced a record 7.1 million ounces of silver in 2017, 22% more than in 2016 due to a 24%
increase in throughput rates, partially offset by a 2% decline in silver grades. The improved throughput reflects the
benefits of the expansion project, which was largely completed in Q4 2016 and fully commissioned by mid-2017.
During 2017, the mine also produced a record 15.4 thousand tonnes of zinc and a record 8.8 thousand tonnes of
lead, 35% and 47% more than in 2016, respectively, due to increased throughput of sulphide ore, as well as improved
sulphide ore grades.
2017 cash costs of $2.08 per ounce of silver were a mine record and $4.07 lower than the $6.15 per ounce in 2016.
The 66% decrease was primarily the result of improved by-product credits from increased quantities of by-products
produced and higher by-product metal prices, as well as increased silver production, all partially offset by higher
operating costs due to the higher throughput.
2017 AISCSOS of $4.44 decreased 41% from $7.49 in 2016, as a result of improved production rates following the
completion of the expansion project and higher base metal prices.
Sustaining capital cash outflows totaled $14.0 million in 2017, an increase of $3.4 million from the $10.5 million in
2016. Sustaining capital in 2017 primarily related to a tailings storage facility expansion, exploration, underground
equipment, and underground development. Sustaining capital excludes $8.0 million spent on the La Colorada
expansion project during the year (2016 - $54.0 million), which is further described in the Project Development Update
section of this MD&A.
PAN AMERICAN SILVER CORP.
29
2017 versus Guidance
2017 silver production at La Colorada of 7.06 million ounces was 2% more than the high end of management’s Original
Guidance range of 6.40 million to 6.90 million ounces, resulting primarily from the higher than expected record
throughput rates achieved by reaching the expanded 1,800 tpd rate in mid-2017, six months ahead of schedule. Base
metal production also benefited from the higher throughput, resulting in zinc and lead production that exceeded the
high end of the Original Guidance by 6% and 13%, respectively. Gold production also exceeded the high end of the
2017 Original Guidance.
The record 2017 cash costs of $2.08 per ounce were under the low end of management’s Original Guidance range
of between $3.35 and $3.95 per ounce. 2017 cash costs were positively influenced by higher than expected by-product
credits driven by higher zinc and lead prices and production, and the higher than originally expected silver production.
2017 AISCSOS of $4.44 was also less than the low end of management’s Original Guidance range of between $5.00
and $5.90, due mainly to higher than expected zinc and lead by-product credits and greater quantities of silver sold.
Sustaining capital investments in 2017 totaled $13.3 million, which was $1.8 million more than the high-end of
management’s Original Guidance range of $10.5 million to $11.5 million as a result of additional investments in near-
mine exploration, and expanded investments in a tailings facility to generate capacity greater than that initially
planned. Sustaining capital cash outflows in 2017 of $14.0 million were higher than amounts capitalized in the year
due to the timing of cash payments for capital investments.
Dolores mine
Tonnes placed - kt
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
Year ended
December 31,
2017
6,604.9
38
0.66
51.7
70.7
4,232
103.0
(1.65)
10.00
4,089
2016
6,306.5
37
0.75
50.8
67.7
3,838
102.8
(1.08)
8.29
3,839
Sustaining capital - (’000s)(3)
(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
36,071 $
48,079
$
of this measure to 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 2017 Financial Statements.
(3) Sustaining capital expenditures excludes $49.3 million of investing activity cash outflow for 2017 (2016: $65.1 million) related to investment capital incurred
on Dolores expansion projects, as disclosed in the “Project Development Update” section of this MD&A.
2017 versus 2016
In 2017, Dolores produced a record 4.23 million ounces of silver, which was 10% higher than the 3.84 million ounces
produced in 2016. The increase was primarily the result of higher stacking rates, which increased by 5% and to a new
annual record, and 3% higher silver grades due to mine sequencing. Gold production of 103.0 thousand ounces in
2017 was consistent with the 102.8 thousand ounces produced in 2016, due to lower gold grades from mine
sequencing, offset by higher stacking rates and recoveries.
PAN AMERICAN SILVER CORP.
30
2017 cash costs were a record negative $1.65 per ounce of silver, a $0.57 per ounce decrease relative to 2016. The
lower cash costs were mainly the result of lower unit production costs per tonne benefiting from higher throughputs.
2017 AISCSOS of $10.00 was $1.71 higher than the $8.29 in 2016. The increase was primarily the result of a $29.3
million increase in production costs due to NRV adjustments, partially offset by $5.0 million lower direct operating
costs from increased ore stockpile and heap inventories, $12.0 million lower sustaining capital, and a $4.5 million
increase in by-product credits from higher gold prices and quantities sold.
Sustaining capital cash outflows of $36.1 million in 2017 were lower than the $48.1 million in 2016, primarily due to
the timing of payments and lower investments in leach pad expansions and equipment rehabilitations in 2017. Capital
expenditures primarily consisted of open pit pre-stripping, leach pad expansions, new mobile mining equipment
purchases, and exploration. 2017 sustaining capital excluded $49.3 million of cash outflows relating to Dolores
expansion projects (2016 - $65.1 million), which is further discussed in the "Project Development Update" section of
this MD&A.
2017 versus Guidance
2017 silver production of 4.23 million ounces was within management’s Original Guidance range of 4.00 million to
4.50 million ounces as higher silver grades from mine sequencing offset the slower than expected start-up of the pulp
agglomeration plant. Gold production of 103.0 thousand ounces was below the low end of the Original Guidance
range of 109.1 thousand to 115.0 thousand ounces, as a result of lower gold grades from mine sequencing and the
slower than expected start-up of the pulp agglomeration plant.
Record low negative cash costs of $1.65 per ounce of silver were significantly less than the low end of the Original
Guidance range of $1.25 to $2.25 per ounce. The better than expected cash costs were mainly the result of the record
throughput rates, as well as favorable Mexican government diesel credit incentives that were not forecast.
2017 AISCSOS of $10.00 was below the low end of management’s guidance range of between $11.00 and $12.50,
primarily due to the higher throughput rates and diesel credits.
Sustaining capital investments in 2017 totaled $38.4 million, which was slightly lower than the low end of the Original
Guidance range of $39.0 million to $40.0 million. Sustaining capital cash outflows of $36.1 million were $2.3 million
lower than the amounts capitalized in 2017 due to the timing of capital investment cash payments.
PAN AMERICAN SILVER CORP.
31
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 – tonnes
Cash cost per ounce net of by-products(1)
AISCSOS(2)
Payable silver sold - koz
Sustaining capital - (’000s)
Year ended
December 31,
2017
451.8
43
0.17
67.6
640.7
2.1
13
16.49
17.69
867
$
— $
2016
1,833.1
45
0.18
68.8
1,864.0
8.4
30
16.02
14.85
1,967
—
(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 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 2017 Financial Statements.
2017 versus 2016
2017 silver and gold production reflects the processing of the last ore stockpiles and the clean out of the processing
facility.
2017 cash costs were $16.49 per ounce of silver, consistent with 2016 cash costs. 2017 AISCSOS of $17.69 were $2.84
higher than 2016 AISCSOS of $14.85. The increase was largely attributable to the timing of final inventory processing.
No sustaining capital expenditures were incurred at Alamo Dorado during 2017 or 2016, as mining activities were
completed and the reclamation phase of the mine was underway.
2017 versus Guidance
Alamo Dorado’s silver production of 0.64 million ounces in 2017 was 113% more than the high end of management’s
Original Guidance range of 0.25 million to 0.30 million ounces due to the higher than expected quantity of silver
recovered during the clean out of the process plant.
Actual cash costs of $16.49 per ounce were lower than the low end of management’s Original Guidance range of
$18.00 to $20.00, due largely to the higher than expected gold and silver production.
2017 AISCSOS of $17.69 was lower than management’s Original Guidance range of $18.40 to $19.40 per ounce, also
benefiting from the higher than expected production.
As forecast, there were no sustaining capital expenditures at Alamo Dorado during 2017.
PAN AMERICAN SILVER CORP.
32
Huaron mine
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(1)
AISCSOS(2)
Payable silver sold – koz
Sustaining capital - (’000s)
$
$
$
Year ended
December 31,
2017
928.1
146
2.70
1.23
0.84
85.2
77.6
77.7
78.5
3,684
1.15
19.37
8.77
6.09
1.35 $
5.25 $
3,181
2016
904.4
157
3.01
1.51
0.90
84.1
74.3
79.4
75.5
3,812
0.81
19.94
10.72
6.07
5.79
11.11
3,233
10,267 $
11,994
(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 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 2017 Financial Statements.
2017 versus 2016
2017 silver production was 3% lower than 2016 due to 7% lower grades from mine sequencing, partially offset by
higher throughput rates and mill recoveries. By-product metal production was also lower due to mine sequencing.
2017 zinc and lead production decreased 3% and 18%, respectively, relative to 2016. Copper production in 2017 was
comparable to that in 2016. Mill recoveries improved for all metals, except lead, due to flotation circuit upgrades
completed in the year.
2017 cash costs of $1.35 per ounce declined 77% relative to 2016. The decrease resulted from higher by-product
credits from higher base metal prices, and favorable concentrate treatment and refining charges, which more than
offset the slightly lower base metal and silver production.
2017 AISCSOS of $5.25 were 53% lower than the $11.11 for 2016, primarily due to significantly higher by-product
credits realized from higher base metal prices, along with the improved concentrate refining terms.
Sustaining capital cash outflows during 2017 totaled $10.3 million, a decrease from the $12.0 million spent in
2016, and related primarily to equipment replacements and refurbishments, plant and infrastructure upgrades and
exploration drilling.
2017 versus Guidance
2017 record throughput rates and record recoveries were better than expected, while silver grades were lower than
expected, resulting in production of 3.68 million ounces, within management’s Original Guidance of 3.65 million
ounces to 3.80 million ounces.
Zinc and lead production were 17% and 19% above the high end of management’s Original Guidance ranges of
between 16.00 and 16.50 thousand tonnes, and 7.20 and 7.40 thousand tonnes, respectively. Copper production of
PAN AMERICAN SILVER CORP.
33
6.09 thousand tonnes was within management’s Original Guidance range of between 6.00 and 6.20 thousand tonnes.
Zinc and lead production exceeded management’s original forecast amounts due to better than expected grades and
recoveries.
2017 cash costs of $1.35 per ounce were 77% under the low end of the Original Guidance range of $5.95 to $6.95
per ounce, primarily the result of higher than anticipated by-product credits due to both higher prices and production.
2017 AISCSOS of $5.25 were 43% lower than the low end of the Original Guidance range of $9.25 to $10.50, also a
result of the higher than anticipated by-product credits.
Sustaining capital investments in 2017 totaled $8.8 million, which was within the Original Guidance range of $8.0
million to $9.0 million.
Morococha mine(1)
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
Year ended
December 31,
2017
676.9
137
3.01
0.78
1.20
89.2
79.6
66.6
83.9
2,634
3.53
16.13
3.46
6.64
Cash cost per ounce net of by-products (2)
AISCSOS(3)
Payable silver sold (100%) - koz
Sustaining capital (100%) - (’000s)
$
$
$
(5.34) $
1.22 $
2,448
12,428 $
2016
672.8
135
3.15
0.75
1.44
88.4
73.2
60.0
82.6
2,541
2.14
15.46
2.94
7.74
4.21
9.32
2,377
10,945
(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 2017 Financial Statements.
2017 versus 2016
2017 silver production at Morococha was 4% higher than in 2016 primarily due to higher throughput rates, grades
and record recoveries. As a result of mine sequencing, 2017 zinc and lead production was 4% and 18% higher,
respectively, while copper production decreased by 14% relative to 2016.
Cash costs of negative $5.34 per ounce in 2017 were $9.55 per ounce lower than 2016 cash costs of $4.21 per ounce.
The reduction was primarily the result of higher by-product prices and higher silver, lead, and zinc production, which
more than offset the lower copper production.
2017 AISCSOS of $1.22 were 87% lower than 2016 AISCSOS of $9.32. The decrease was primarily attributable to
significantly higher by-product credits from improved base metal prices, along with improved concentrate refining
terms, partially offset by higher exploration costs.
PAN AMERICAN SILVER CORP.
34
Sustaining capital cash outflows during 2017 totaled $12.4 million, an increase from $10.9 million in 2016, primarily
related to exploration and mine deepening projects.
2017 versus Guidance
2017 silver production was slightly above the high end of management’s Original Guidance range of 2.50 million to
2.60 million ounces as a result of better than expected throughputs and recoveries.
By-product metal production relative to Original Guidance was mixed, driven by mine sequencing decisions which
shifted production towards higher copper grade zones. Zinc and lead were below the Original Guidance ranges of
20.2 to 21.0 thousand tonnes and 4.0 to 4.5 thousand tonnes, by 20% and 14%, respectively. Copper production
exceeded the high end of the Original Guidance range of 2.1 to 2.4 thousand tonnes by 177%.
2017 cash costs of negative $5.34 per ounce were below the low end of our guidance range of $3.15 to $4.15 per
ounce due to higher by-product credits and lower than expected concentrate treatment and refining charges.
2017 AISCSOS of $1.22 was 85% under the low end of the Original Guidance range of $8.25 to $9.75. This was largely
the result of higher than anticipated by-product credits from higher metal prices and copper production, partially
offset by lower than forecast zinc and lead production.
Sustaining capital investments in 2017 totaled $12.5 million, which were higher than the Original Guidance range of
$9.0 million to $10.0 million, due to increased near mine exploration, additional mine equipment acquisitions and
maintenance, and better than expected advancements in the Manuelita mine deepening at Morococha.
San Vicente mine (1)
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
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash cost per ounce net of by-products (2)
AISCSOS(3)
Payable silver sold (100%) - koz
Sustaining capital (100%) - (’000s)
$
$
$
Year ended
December 31,
2017
328.1
374
1.94
0.29
92.6
68.7
80.1
3,610
0.51
4.36
0.47
0.63
11.85 $
14.40 $
3,603
8,146 $
2016
338.9
443
2.05
0.32
93.2
73.0
84.2
4,433
5.08
0.59
0.55
11.95
14.30
4,264
4,963
(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 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 2017 Financial Statements.
2017 versus 2016
2017 silver production decreased 19% relative to 2016, primarily due to unscheduled downtime and a 16% reduction
in head grades primarily due to higher than anticipated mining dilution. The downtime was required to address a
PAN AMERICAN SILVER CORP.
35
combination of plant maintenance, employee work stoppages, and safety matters. The decline in ore grades was
attributable to preparation delays of higher-grade stopes, as well as additional mining dilution experienced with the
transitioning of certain conventional mine areas into more mechanized mining methods. Zinc and lead production
decreased by 14% and 20%, respectively, which was partially offset by a 15% increase in copper production. The
variations in base metal production were also due to mine sequencing and mine development shortfalls.
The 2017 cash costs of $11.85 per ounce were consistent with 2016 cash costs of $11.95 per ounce, as a result of
decreased silver, lead and zinc production, offset by better base metal prices, lower royalties, and better concentrate
treatment and refining terms.
2017 AISCSOS of $14.40 were $0.10 higher than 2016 AISCSOS of $14.30, primarily the result of a $3.2 million increase
in capital expenditures and a 16% reduction in quantities of silver sold offsetting a decrease in royalties and concentrate
treatment and refining charges.
2017 sustaining capital cash outflows totaled $8.1 million, an increase from $5.0 million in 2016. The increase was
primarily related to additional investments in mining equipment to aid with the mechanization efforts.
2017 versus Guidance
Attributable silver production in 2017 of 3.61 million ounces was 18% below the low end of the Original Guidance
range of 4.40 million to 4.50 million ounces, primarily due to unscheduled downtime and delays in accessing higher
grade stopes. Similarly, zinc and copper production was 31% and 10% below the Original Guidance of between 6.3
to 6.5 thousand tonnes, and 0.7 thousand tonnes, respectively. Lead production was 57% more than the Original
Guidance of 0.3 thousand tonnes.
2017 cash costs of $11.85 per ounce of silver were within the Original Guidance range of between $10.90 to $11.90
per ounce, as a result of lower silver, zinc and copper production, offset by better by-product metal prices, lower
royalty costs, and favorable treatment and refining charges.
Similarly, 2017 AISCSOS of $14.40 were within the Original Guidance range of between $13.80 and $14.80.
Sustaining capital investments in 2017 totaled $8.1 million, which is lower than the Original Guidance range of $12.0
million to $13.0 million, primarily due to management's decision to defer a tailings storage facility expansion into
2018.
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
Year ended
December 31,
2017
793.5
134
1.88
90.6
93.8
3,123
45.34
18.25 $
23.42 $
3,171
2016
753.6
143
2.94
90.2
93.8
3,136
66.89
4.28
(2.08)
3,033
$
$
Sustaining capital - (’000s)
(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
3,333 $
2,868
$
of this measure to 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 2017 Financial Statements.
PAN AMERICAN SILVER CORP.
36
2017 versus 2016
2017 silver production of 3.12 million ounces was consistent with 2016, as a result of the higher throughput being
offset by lower grades from the completion of open pit mining in mid-2017. Gold production decreased by 32% due
to an expected 36% decrease in head grades from processing lower grade stockpiles.
2017 cash costs of $18.25 per ounce were a $13.97 increase from the $4.28 per ounce in 2016. The main factors
driving the increase were a 32% decrease in by-product credits, and a 17% increase in direct unit operating costs.
The increase in direct unit operating costs reflects severance payments associated with the culmination of open pit
mining activities in 2017, increased inflation, and the elimination of the Patagonian Port export credit in Q4 2016.
2017 AISCSOS of $23.42 were $25.50 higher than 2016 AISCSOS of negative $2.08. The increase was driven by higher
direct unit operating costs, a $29.6 million year-over-year variance in cost increasing NRV inventory adjustments, a
decline in gold production and sales volumes, and an increase in direct selling costs with the elimination of the
Patagonian Port export credit.
2017 sustaining capital cash outflows totaled $3.3 million, comparable with $2.9 million in 2016. The increase was
primarily the result of increased investments in underground mining equipment.
2017 versus Guidance
2017 silver production was 5% less than the low end of the Original Guidance range of 3.30 million to 3.40 million
ounces, due to lower than expected grades. Gold production of 45.34 thousand ounces in 2017 was 11% more than
the high end of the Original Guidance range of 37.5 thousand to 41.0 thousand ounces, as a result of higher than
anticipated gold grades.
2017 cash costs of $18.25 per silver ounce were 12% higher than the high end of the Original Guidance range of
$15.35 to $16.25 per ounce; the main drivers were higher than expected direct operating costs caused by inflation,
and the inclusion of severance costs in operating costs.
2017 AISCSOS of $23.42 were above the high end of the Original Guidance range of between $16.90 and $18.10. This
was due to unforeseen $8.1 million negative NRV adjustments that increased 2017 AISCSOS by $2.54 per ounce, in
addition to the previously described higher than expected production costs.
Sustaining capital investments in 2017 totaled $3.3 million, slightly below with the low end of the Original Guidance
range of $3.5 million to $4.5 million.
PROJECT DEVELOPMENT UPDATE
The following table reflects the amounts spent at each of Pan American’s major projects in 2017 as compared to 2016.
Project Development Investment
(thousands of USD)
Year ended
December 31,
2017
2016
Dolores Projects (1)
La Colorada Expansion (2)
Joaquin & COSE Projects (3)
Total
(1) As a result of periodic changes in accounts payable balances, the amounts capitalized for the projects during 2017 were $0.6 million less than the project
66,116
52,854
—
118,970
49,886
6,869
4,674
61,429
cash outflows (2016: $1.0 million more).
(2) As a result of periodic changes in accounts payable balances, the amounts capitalized for the project during 2017 were $1.1 million more than the project
cash outflows (2016: $1.1 million less).
(3) Total expenditures of $9.7 million were incurred in 2017 for the Joaquin and COSE projects, of which $5.0 million was expensed as part of 2017 exploration
and project development expenses, and the remaining $4.7 million was capitalized.
PAN AMERICAN SILVER CORP.
37
Dolores Projects
During 2017, the Company invested $49.9 million on the Dolores expansion projects, with efforts directed at:
• Completing construction and commencing commissioning of the new pulp agglomeration plant.
• Continuing development of the Dolores underground mine including completion of 4,720 metres of
underground advances and extensive in-fill diamond drilling of the central and south zones, and mining 54
thousand tonnes from the mineralized development headings.
• Expansion of the mine ventilation and electrical systems.
During 2018, the Company expects to invest an additional $8.0 million in project capital to complete several equipment
purchases for the underground mine and to complete commissioning of the pulp agglomeration plant. In early 2018,
initial production from the underground mine will focus predominantly on the central zone to allow the completion
of definition and mine planning in the south zone. Production from the mine is expected to ramp up throughout 2018,
and reach the design rate of 1,500 tpd by 2019. Commissioning of the pulp agglomeration plant is focused on resolving
issues with the performance of the filter presses, and increasing production to the design rate of 5,600 tpd.
The Dolores expansion project is expected to increase silver and gold production through a combination of greater
throughput and higher recoveries.
La Colorada Expansion Project
During 2017, the Company invested $6.9 million in the final stages of the La Colorada expansion project, with efforts
primarily relating to underground mine development and completing the construction of the 115 kilovolt power line.
Full design processing rates of 1,800 tpd were achieved in mid-2017, about six months ahead of schedule. Average
throughput exceeded design rates by about 5% during the last six months of 2017.
Joaquin and COSE Project Developments
During 2017, the Company invested $9.7 million on the Joaquin and COSE projects, $5.0 million of which was expensed
and $4.7 million of which was capitalized. At Joaquin, the Company focused its efforts on an exploration drill program
and engineering analysis to determine the quantity of potentially economic material that could be trucked to the
Manantial Espejo processing plant for treatment. In December 2017, the Company approved a $37.8 million investment
to construct an underground mine to exploit the La Morocha deposit at the Joaquin property.
At COSE, the Company is proceeding with a $23.9 million capital investment (excluding the final $7.5 million project
acquisition payment due on the earlier of May 31, 2018 or the commencement of commercial production).
Underground development began during Q4 2017, and most of the COSE infrastructure is now on site.
OVERVIEW OF 2017 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. The dominant factors affecting results in the quarters and years presented below are volatility
of realized metal prices, and the timing of the sales of production, which varies with the timing of shipments. The
fourth quarter of 2017 included an impairment reversal to Morococha and Calcatreu. 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.
PAN AMERICAN SILVER CORP.
38
Year
Ended
Dec 31
816,828
168,760
120,991
0.79
0.79
224,559
0.100
$
$
$
1,993,332
90,027
1,516,850
Year
Ended
Dec 31
774,775
198,879
100,085
0.66
0.66
214,804
0.0500
$
$
$
1,898,141
118,594
1,396,298
2017
Quarter Ended
(In thousands of USD, other than per share amounts)
March 31
June 30
Sept 30
Dec 31
$
$
$
$
$
$
$
198,687 $
201,319 $
190,791 $
226,031 $
32,875 $
19,371 $
0.13 $
0.13 $
44,782 $
35,472 $
0.23 $
0.23 $
47,818 $
17,256 $
0.11 $
0.11 $
43,285 $
48,892 $
0.32 $
0.32 $
38,569 $
42,906 $
63,793 $
79,291 $
0.025 $
0.025 $
0.025 $
0.025 $
Revenue
Mine operating earnings
Earnings for the period attributable to equity holders
Basic earnings per share
Diluted earnings per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long-term financial liabilities(1)
Total attributable shareholders’ equity
Revenue
Mine operating earnings
Earnings for the period attributable to equity holders
Basic earnings per share
Diluted earnings per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long-term financial liabilities(1)
Total attributable shareholders’ equity
(1) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant
liabilities.
2016
Quarter Ended
(In thousands of USD, other than per share amounts)
March 31
June 30
Sept 30
Dec 31
$
$
$
$
$
$
$
158,275 $
192,258 $
233,646 $
190,596 $
16,698 $
1,738 $
0.01 $
0.01 $
771 $
0.0125 $
44,730 $
33,804 $
0.22 $
0.22 $
66,019 $
0.0125 $
88,495 $
42,766 $
0.28 $
0.28 $
102,346 $
0.0125 $
48,956 $
21,777 $
0.14 $
0.14 $
45,668 $
0.0125 $
(1) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant
liabilities.
2015
Quarter Ended
(In thousands of USD, other than per share amounts)
March 31
June 30
Sept 30
Dec 31
Year
Ended
Dec 31
Revenue
Mine operating earnings (loss)
Loss for the period attributable to equity holders
Basic loss per share
Diluted loss per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long-term financial liabilities(1)
Total attributable shareholders’ equity
$
$
$
$
$
$
$
178,125 $
2,630 $
(19,371) $
(0.13) $
(0.13) $
11,848 $
0.1250 $
174,189 $
(952) $
(7,322) $
(0.05) $
(0.05) $
20,577 $
0.0500 $
159,414 $
(25,996) $
(67,048) $
(0.44) $
(0.44) $
32,866 $
0.0500 $
162,960 $
(7,771) $
674,688
(32,089)
(132,909) $
(226,650)
(0.88) $
(0.88) $
23,401 $
0.0500 $
(1.49)
(1.49)
88,692
0.2750
$
$
$
1,715,037
114,354
1,297,222
(1) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant
liabilities.
PAN AMERICAN SILVER CORP.
39
•
Income Statement: 2017 vs. 2016
Net earnings of $123.5 million were recorded in 2017 compared to $101.8 million in 2016, which corresponds to
basic earnings per share of $0.79 and $0.66, respectively.
The following table highlights the key items driving the difference between the net earnings in 2017 and 2016:
Net earnings, year ended December 31, 2016
(in thousands of USD)
Increased revenue:
Increased realized metal prices
Lower quantities of metal sold
Decreased direct selling costs
Increased positive settlement adjustments
Total increase in revenue
Increased cost of sales:
Increased production costs and decreased royalty charges
Increased depreciation and amortization
Total increase in cost of sales
Increased recovery on impairment reversal
Decreased income tax expense
Increased foreign exchange gain
Decreased interest and finance expense
Decreased general and administrative expense
Decreased net gain on asset sales, commodity contracts and derivatives
Increased exploration and project development expense
Decreased investment income and other expense
Decreased dilution gain, net of share of loss from associate
Net earnings, year ended December 31, 2017
$
101,825
$
$
56,662
(26,166)
10,975
582
(65,239)
(6,933)
$
$
42,053
(72,172)
61,554
15,412
10,877
2,366
2,266
(19,295)
(8,421)
(7,120)
(5,894)
$
123,451
Revenue for 2017 was $816.8 million, a $42.1 million increase from the $774.8 million of revenue recognized in 2016.
The major factor driving the increase was a $56.7 million price variance from higher realized prices for all by-product
metals sold, partially offset by an estimated $26.2 million negative variance from lower quantities of metal sold,
driven by 23.4 thousand fewer ounces of gold sold in 2017 compared to 2016. Revenue in 2017 was also impacted
by an $11.0 million positive variance from decreased selling costs, mainly from favorable changes in contract terms
relating to concentrate treatment and refining charges.
The following table reflects the metal prices realized by the Company and the quantities of metal sold during each
year:
Realized Metal Prices
Quantities of Metal Sold
Year ended
December 31,
Year ended
December 31,
2017
2016
2017
2016
Silver(1) – koz
24,212
Gold(1) – koz
156.6
Zinc(1) – kt
47.3
Lead(1) – kt
20.7
Copper(1) – kt
12.7
(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
16.99
1,257
2,929
2,351
6,174 $
24,200
180.0
45.8
18.8
13.5
17.35
1,251
2,133
1,892
4,816
$
$
$
$
$
concentrate sales.
Realized prices for zinc, copper and lead increased by 37% and 28%, and 24%, respectively, in 2017 compared to 2016.
The realized silver price decreased by 2%, while gold prices remained relatively consistent.
PAN AMERICAN SILVER CORP.
40
Gold and copper quantities sold in 2017 decreased by 13% and 6%, respectively, compared to 2016, while zinc and
lead quantities sold increased by 3% and 10%, respectively. Silver sales quantities were consistent year-over-year.
Mine operating earnings of $168.8 million in 2017 were $30.1 million lower than the $198.9 million recorded in
2016. The 15% decrease was the result of a $72.2 million increase in cost of sales partially offset by the previously
discussed $42.1 million increase in revenue.
The production cost variance was primarily driven by a net negative $55.1 million period-over-period change in NRV
inventory adjustments (at Manantial Espejo, Dolores and Alamo Dorado) which increased 2017 costs by $12.3 million
and decreased 2016 costs by $42.8 million. The remainder of the increased production costs were largely driven by
increased operating costs at Manantial Espejo, which were impacted by Argentina's inflation as well as severance
costs related to the conclusion of open pit mining, higher sales volumes at Dolores, La Colorada and Morococha,
partially offset by decreased production costs at Alamo Dorado.
Depreciation and amortization ("D&A") expense of $122.9 million in 2017 was $6.9 million more than the $116.0
million in 2016. The increase was mainly driven by higher D&A at La Colorada and Dolores, partially offset by lower
D&A at the other operations, most notably at Manantial Espejo, Alamo and San Vicente. The increased D&A at
Dolores and La Colorada were attributable to higher depreciable asset-bases from the recent expansions, and from
increased sales volumes. The lower D&A at Manantial Espejo, San Vicente and Alamo Dorado reflect lower sales
volumes and the closing of Alamo Dorado.
G&A expense was $21.4 million in 2017 compared to $23.7 million in 2016. The $2.3 million decrease was primarily
related to lower accrued bonuses for restricted share unit cash compensation that reference the Company’s share
price. The Share-based compensation of $3.1 million in 2017 was comparable to the $3.8 million in 2016.
Exploration and project development expenses were $19.8 million in 2017 compared to $11.3 million incurred in
2016. The year-over-year increase was primarily from exploration activities related to the COSE and Joaquin projects
in 2017, which amounted to $5.0 million. Other than the COSE and Joaquin exploration activities, the expenses
recorded in each year relate 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 $2.9 million was spent in 2017 compared to approximately $3.4 million in 2016.
Foreign exchange (“FX”) gains in 2017 were $1.8 million compared to FX losses of $9.1 million incurred in 2016. The
2017 gains were largely attributable to the appreciation of the Mexican Peso ("MXN"), where 2016 losses arose mainly
from the devaluation of the MXN and ARS on the Company’s monetary assets denominated in those currencies.
Impairment charge reversals of $61.6 million ($53.4 million, net of tax expense) were recorded in 2017, with no
impairment charges or reversals recorded in 2016. Non-current assets are tested for impairment, or reversal of
previous impairment charges, when events or changes in circumstance indicate that the carrying amount may not
be recoverable, or previous impairment charges against assets are 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 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 considers impairment, or if previous impairment charges
should be reversed, 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.
The Company’s key assumptions for determining the recoverable amounts of its various CGUs, for the purpose of
testing for impairment or impairment reversals, include the most current operating and capital costs information and
risk adjusted project specific discount rates. The Company uses an average of analysts’ consensus prices for the first
four years of its economic modeling, 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.
PAN AMERICAN SILVER CORP.
41
Based on the Company’s assessment with respect to possible indicators of either impairment or reversal of previous
impairments to its mineral properties, the Company concluded that as of December 31, 2017, based on certain
indicators, reversals of impairment were required on the following CGUs:
Morococha
Calcatreu
2017
2016
$
$
60,237 $
1,317
61,554 $
—
—
—
During the years ended December 2017 and 2016, Morococha generated significantly higher cash flows from
operations than the amount assumed in the recoverable value estimation at December 31, 2015, primarily the result
of continued costs performance and base metal prices being superior to prior expectations. Further, as of December
31, 2017, Morococha's estimated silver mineral reserve increased by 2.8 million ounces. As a result of this CGU's
continued strong performance, increased silver reserves and higher long-term metal prices, the Company recognized
a reversal of the remaining unamortized impairment of $60.2 million ($52.1 million, net of tax) related to its investment
in Morococha at December 31, 2017.
On January 31, 2018, the Company completed the sale of 100% of the shares of Minera Aquiline Argentina SA, which
owns the Calcatreu project ("Calcatreu"), for total consideration of $15.0 million in cash (the "Aquiline Acquisition").
Immediately prior to the classification to assets and liabilities held for sale, the carrying amount of Calcatreu was re-
measured to its recoverable amount, being its fair value less costs of disposal, based on the expected proceeds from
the sale. As a result, the Company recorded an impairment reversal of $1.3 million.
The Company used an average of analysts’ consensus pricing for the first four years of its economic modeling for the
purposes of the impairment and impairment reversal analysis, and the Company's reserve prices for the long-term
price assumptions for the remainder of each asset’s life. The net increase in base metal prices over 2017 led to the
Company increasing the price assumptions used to estimate mineral reserves at year-end. The prices used can be
found in the key assumptions section below.
Other than the previously discussed impairment reversals, and on the 2017 fourth quarter and year-end analysis
Management concluded that there were no indications of impairment, nor impairment reversals, at any of the
Company's other mineral property plant and equipment assets. As of December 31, 2016 management determined
that fourth quarter changes in operating assumptions for the Dolores and Manantial Espejo mines, including but not
limited to changes in year-end mineral reserves and resources and mine-life estimates, when considered together
with increases to the Company's reserve prices and to consensus prices, could be indicative of changes in the assets'
recoverable amounts significant enough to warrant either reversals of previous impairment charges, or additional
impairment charges. As a result, management estimated the recoverable amounts of these mines as at December
31, 2016, determined on a fair value less costs to sell basis, and concluded that the carrying values were supportable
and that no impairment charges or reversals were required.
Key assumptions:
The metal prices used to calculate the recoverable amounts at December 31, 2017 and December 31, 2016 are based
on analyst consensus prices and the Company’s long-term mineral reserve prices, and are summarized in the following
tables:
PAN AMERICAN SILVER CORP.
42
Metal prices used at December 31, 2017:
Metal Prices
Silver - $/oz
Gold - $/oz
Zinc - $/tonne
Lead - $/tonne
Copper - $/tonne
Metal prices used at December 31, 2016:
Metal Prices
Silver - $/oz
Gold - $/oz
Zinc - $/tonne
Lead - $/tonne
Copper - $/tonne
2018-2021 average
$18.57
$1,307
$2,818
$2,251
$6,742
2017-2020 average
$19.93
$1,327
$2,567
$2,142
$5,725
Long term
$18.50
$1,300
$2,600
$2,200
$5,500
Long term
$18.50
$1,300
$2,200
$2,000
$5,000
In 2017, the discount rates used to present value the Company’s life of mine cash flows were derived from the
Company’s weighted average cost of capital, which was calculated as 5.2% (2016 – 6.4%), with rates ranging from
4.0% to 9.0% (2016 - 5.0% to 9.0%) applied to the various mines and projects, 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, 2017, the Company performed
a sensitivity analysis on all key assumptions that assumed a 10% adverse change to each assumption while holding
the other assumptions constant.
At December 31, 2017, an adverse 10% movement in any of the major assumptions in isolation did not cause the
recoverable amount to be below the CGU carrying value for any of the La Colorada, San Vicente, Huaron, or Morococha
mines. For the Dolores mine, Manantial Espejo mine and Navidad project, which previously had their carrying values
adjusted to fair value less cost to sell through impairment charges, a 10% adverse change in any one key assumption
would reduce the recoverable amount below the carrying amount.
At December 31, 2016, an adverse 10% movement in any of the major assumptions in isolation did not cause the
recoverable amount to be below the CGU carrying value for any of La Colorada, Alamo Dorado, San Vicente, Huaron,
Morococha, or the Navidad project. For the Manantial Espejo mine, which in 2015 had its carrying values adjusted
to fair value less cost to sell through impairment charges, a modest increase in operating costs would reduce the
recoverable amount below the carrying amount. In the case of the Dolores mine, which in 2015 had its carrying
values adjusted to fair value less cost to sell through impairment charges, a modest adverse change in any one key
assumption would reduce the recoverable amount below the carrying amount.
Gain on sale of mineral properties, plant and equipment in 2017 was $0.2 million compared to $25.1 million in 2016.
The decrease is attributable to no significant asset sales and related gains or losses occurring in 2017 compared to
the 2016 gains, which were primarily comprised of an $18.3 million gain recognized on the sale of a portion of the
Company's interest in Compania Minera Shalipayco S.A.C. to Votorantim Metais - Cajamarquilla S.A., and a $6.6 million
gain recognized in relation to the Maverix Metals Inc. ("Maverix") transaction. In July 2016, the Company closed its
plan of arrangement with Maverix, whereby the Company transferred certain royalties and precious metals streams
and payment agreements to Maverix in exchange for an approximately sixty-three percent (63%) interest in Maverix
on a fully diluted basis.
Share of loss from associate and dilution gain for 2017 was $2.1 million, compared to $7.9 million in 2016 and related
largely to the Company's Maverix investment. During 2017, a $0.2 million loss was recognized for the Company's
portion of Maverix's estimated losses, compared to a loss of $3.0 million in 2016. Further, as a result of Maverix
PAN AMERICAN SILVER CORP.
43
issuing common shares to acquire certain assets, dilution gains totaling $2.3 million were recognized in 2017,
compared to gains of $11.0 million recorded in 2016.
Interest and finance expense for 2017 was $7.2 million compared to $9.6 million in 2016. 2017 included a $2.8 million
reversal of a prior years' interest expense accrual. The remaining portion of interest and finance expense consisted
of accretion of the Company’s closure liabilities and interest expense associated with the revolving Credit Facility,
short-term loans and leases.
Income tax expense for the year ended December 31, 2017 decreased to $59.0 million compared to $74.4 million in
2016. The 2017 and 2016 income tax expense were comprised of current and deferred income taxes as follows:
(In thousands of USD, except as noted)
Current tax expense (recovery)
Recognized in profit or loss in current year
Adjustments recognized in the current year with respect to prior years
Deferred tax expense (recovery)
Deferred tax (recovery) expense 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
Increase in deferred tax liabilities due to tax impact of impairment charge reversals of mineral
properties, plant, and equipment
Recognition of previously unrecognized deferred tax assets
Benefit from previously unrecognized losses, and other temporary differences
Increase in deferred tax liabilities due to tax impact of net realizable value (charge) reversal to
inventory
Year ended
December 31,
2017
2016
$
$
66,345
(3,468)
62,877
(898)
(1,539)
—
17,770
(10,275)
(6,487)
(2,414)
(3,843)
44,751
(720)
44,031
27,942
1,124
1,302
—
—
(7,861)
7,908
30,415
74,446
Income tax expense
$
59,034
$
PAN AMERICAN SILVER CORP.
44
The $15.4 million year-over-year decrease in income tax expense was mainly due to the tax impact of foreign exchange
fluctuations. In 2016, tax expense was increased by approximately $14.3 million primarily due to the devaluation of
the MXN. In 2017, the tax impact of foreign exchange rate fluctuations was minimal, therefore, the 2017 income tax
expense was significantly lower than in 2016. In addition to the impact of foreign exchange fluctuations, other factors
resulted 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 provisional statutory income tax rates to earnings before tax expense
and non-controlling interests, as shown in the following table:
(In thousands of USD)
Earnings before taxes and non-controlling interest
Statutory Canadian income tax rate
Income tax expense based on above rates
Increase (decrease) due to:
Non-deductible expenditures
Foreign tax rate differences
Change in net deferred tax assets not recognized:
- Argentina exploration expenditures
- Other deferred tax assets
Non-taxable portion of net earnings of affiliates
Tax on sale of royalty
Changes to temporary differences
Effect of other taxes paid (mining and withholding)
Effect of foreign exchange on tax expense
Non-taxable impact of foreign exchange
Change in current tax expense estimated for prior years
Other
Income tax expense
Effective income tax rate
• Statement of Cash Flows: 2017 vs. 2016
Year ended
December 31,
2017
2016
$ 182,485
$ 176,271
26.00%
26.00%
$
47,446
$
45,830
4,618
3,644
5,082
9,729
2,051
(10,752)
(4,055)
1,400
—
20,065
(3,928)
2,937
(3,503)
(889)
1,794
(14,406)
(4,852)
—
1,429
13,678
10,462
3,861
—
1,839
$
59,034
$
74,446
32.35%
42.23%
Cash flow from operations in 2017 totaled $224.6 million, $9.8 million more than the $214.8 million generated in
2016. The increase was largely the result of increased cash mine operating earnings and a $17.3 million increase in
operating cash flows from working capital changes; partially offset by a $33.0 million increase in taxes paid.
The period-over-period increase in mine operating earnings, excluding non-cash D&A and inventory adjustments of
approximately $31.9 million, was driven by increased revenues and decreased royalty costs, partially offset by
increased production costs (excluding non-cash NRV inventory adjustments). Working capital changes in 2017 resulted
in an $11.7 million source of cash, comprised mainly of receivables and inventory draw downs, partially offset by
decreased provisions. This source of cash compared to a use of working capital of $5.5 million in 2016, and was driven
primarily by a build-up in receivables in the period.
Investing activities utilized $177.8 million in 2017, inclusive of $14.3 million used on the net purchase of short-term
investments. The balance of 2017 investing activities consisted primarily of spending $142.2 million on mineral
property, plant and equipment at the Company’s mines and projects, and $20.2 million used for the acquisition of
the COSE and Joaquin projects. In 2016, investing activities utilized $139.9 million inclusive of $56.9 million generated
on the net sale of short-term investments, $202.7 million spent on mineral property, plant and equipment additions
at the Company’s various operations and projects, and $15.0 million generated on the sale of Shalipayco.
Financing activities in 2017 used $51.5 million compared to $28.2 million in 2016. Cash used in 2017 consisted of a
$36.2 million repayment of the Company's revolving Credit Facility, $15.3 million paid as dividends to shareholders,
$3.0 million in short-term loan proceeds, $2.6 million in proceeds on share issuances from the exercise of stock
PAN AMERICAN SILVER CORP.
45
options, and $4.5 million of lease repayments. In 2016, $7.6 million of dividends were paid, $19.5 million was used
for short-term debt repayment (net of proceeds), $3.0 million of lease payments were made, and $2.4 million in
proceeds were generated on share issuances from the exercises of stock options.
• Adjusted Earnings: 2017 vs 2016
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 in management's judgment are subject to volatility as
a result of factors which are unrelated to operations in the period, and/or relate to items that will settle 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.
Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP) Measures” for a detailed
description, and a reconciliation of these measures to the 2017 Financial Statements.
Adjusted Earnings in 2017 were $77.7 million, representing a basic adjusted earnings per share of $0.51, which was
$8.9 million, or $0.06 per share, lower than 2016 adjusted earnings of $86.6 million, and basic adjusted earnings per
share of $0.57, respectively.
The following chart illustrates the key factors leading to the change in adjusted earnings from 2016 to 2017:
PAN AMERICAN SILVER CORP.
46
•
Income Statement: Q4 2017 vs. Q4 2016
Net earnings of $49.7 million were recorded in Q4 2017 compared to $22.3 million in Q4 2016, which corresponds
to basic earnings per share of $0.32 and $0.14, respectively.
The following table highlights the key items driving the difference between the net earnings in Q4 2017 as compared
to those recorded in Q4 2016:
Net earnings, three months ended December 31, 2016
(in thousands of USD)
Increased revenue:
Increased realized metal prices
Higher quantities of metal sold
Decreased direct selling costs
Increased positive settlement adjustments
Total increase in revenue
Increased cost of sales:
Increased production costs and increased royalty charges
Increased depreciation and amortization
Total increase in cost of sales
Increased recovery on impairment reversal
Increased foreign exchange gain
Decreased general and administrative expense
Decreased interest and finance expense
Increased income tax expense
Decreased net gain on asset sales, commodity contracts and derivatives
Decreased investment income and other expense
Increased exploration and project development expense
Decreased dilution gain, net of share of loss from associate
Net earnings, three months ended December 31, 2017
$
22,284
$
$
11,010
13,450
1,248
9,727
(29,898)
(11,208)
$
$
$
35,435
(41,106)
61,554
5,493
860
377
(18,349)
(7,656)
(6,978)
(1,201)
(1,049)
49,664
Revenue for Q4 2017 was $226.0 million, a $35.4 million increase from $190.6 million in Q4 2016. The major factors
for the increase were: a $13.5 million variance from higher quantities of metal sold, primarily from silver sales; an
$11.0 million price variance from higher realized metal prices for all metals except silver; a $9.7 million increase in
positive settlement adjustments on concentrate shipments; and a $1.2 million decrease in direct selling costs, primarily
from favorable changes in contract terms relating to concentrate treatment and refining charges.
The following table reflects the metal prices realized by the Company and the quantities of metal sold during each
quarter:
Realized Metal Prices
Quantities of Metal Sold
Three months ended
December 31,
Three months ended
December 31,
2017
2016
2017
2016
Silver(1) – koz
Gold(1) – koz
Zinc(1) – kt
Lead(1) – kt
Copper(1) – kt
(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
16.65 $
1,276 $
3,282 $
2,472 $
6,811 $
6,659
44.7
12.6
5.2
3.0
17.65
1,212
2,587
2,178
5,282
6,138
43.8
11.5
5.0
3.0
$
$
$
$
$
concentrate sales.
Increased quarter-over-quarter realized zinc and copper prices of 27% and 29%, respectively, had the most significant
impact on revenues. Gold and lead price increases of 5% and 13%, respectively, also benefited Q4 2017 revenue,
while the quarter over quarter silver price declined by 6%.
PAN AMERICAN SILVER CORP.
47
Sales volumes increased for all metals except copper. The quantity of silver sold in Q4 2017 was 8% higher than in
Q4 2016, largely from both increased production and the drawdown of inventories. Quarter-over-quarter zinc, gold
and lead sales volumes increased by 10%, 2%, and 4% respectively, while copper sales were consistent.
Mine operating earnings of $43.3 million in Q4 2017 were comparable to the $49.0 million recorded in Q4 2016. The
slightly lower Q4 2017 earnings were the result of the previously discussed $35.4 million increase in revenue being
more than offset by a net $41.1 million increase in the cost of sales.
Q4 2017 production costs of $139.7 million were $29.2 million higher than in Q4 2016. The quarter-over-quarter
variance included a negative $16.2 million NRV inventory movement, mainly from Manantial Espejo, which added
$5.5 million to production costs in Q4 2017, compared to reducing costs by $10.7 million in Q4 2016. The remaining
increase to production costs was driven by increased sales volumes at Dolores, La Colorada, Morococha, and Huaron
and increased operating costs at Manantial Espejo, partially offset by decreased production costs at Alamo Dorado.
D&A expense of $34.2 million in Q4 2017 was $11.2 million higher than in Q4 2016, largely the result of increased
D&A at La Colorada on account of the newly commissioned plant and mine shaft, as well as from increased sales
volumes. Royalty costs in Q4 2017 were $8.8 million, $0.7 million higher than in Q4 2016, which was largely attributable
to higher sales volumes from the San Vicente mine.
G&A expense was $4.7 million in Q4 2017 compared to $5.6 million in Q4 2016. The $0.9 million decrease was mainly
driven by lower accrued bonuses in the current quarter, principally in relation to restricted share unit cash
compensation that references the Company’s share price. Share-based compensation was $0.7 million in Q4 2017
compared to $0.6 million in Q4 2016.
Exploration and project development expenses were $4.3 million in Q4 2017 compared to $3.1 million in Q4 2016.
The increase was due to increased exploration activities as well as new Joaquin related exploration costs of $1.2
million incurred in Q4 2017. 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 $0.5 million was spent in Q4 2017
compared to approximately $0.4 million in Q4 2016.
Foreign exchange (“FX”) gains in Q4 2017 were $1.1 million compared to FX losses of $4.4 million in Q4 2016. Gains
in Q4 2017 resulted primarily from the favorable timing of cash flows amid volatility in MXN and ARS along with the
appreciation of the CAD on CAD denominated treasury balances. Losses in Q4 2016 were driven primarily by the
effect of a 6% devaluation of the MXN and 2% devaluation of ARS on local currency denominated treasury and MXN
and VAT receivables balances.
Impairments reversals of $61.6 million ($53.4 million, net of tax expense) were recorded in Q4 2017, with no
impairment charges or reversals recorded in Q4 2016. The Q4 2017 impairment reversals related to the previously
discussed reversals at Morococha and Calcatreu.
Loss on sale of mineral properties, plant and equipment in Q4 2017 was $0.8 million compared to a gain of $6.8
million in Q4 2016. No significant asset sales and related gains or losses occurred in Q4 2017 compared to the Q4
2016 presentation of gains related to the Maverix transaction.
Share of income from associate and dilution gain for Q4 2017 was $0.3 million, compared to $1.3 million in Q4 2016,
and related largely to the Company's investment in Maverix, accounted for using the equity method whereby the
Company records its portion of Maverix's income or loss based on Pan American's fully diluted ownership interest.
Interest and finance expense for Q4 2017 of $2.4 million, was comparable to the $2.7 million expense in Q4 2016
and consisted of accretion of the Company’s closure liabilities and interest expense associated with the revolving
Credit Facility, short-term loans and leases.
Income tax expense in Q4 2017 was $39.2 million compared to $20.9 million in Q4 2016. The $18.3 million increase
was mainly due to an increase in earnings before tax and non-controlling interest of $45.8 million. In addition, FX
rate fluctuations, most notably the devaluation of the MXN, and withholdings tax on distributions from foreign
PAN AMERICAN SILVER CORP.
48
subsidiaries also contributed to the increased tax expense. These factors resulted in an effective tax rate that varied
from the comparable period, as shown in the following table:
(In thousands of USD)
Earnings before taxes and non-controlling interest
Statutory Canadian income tax rate
Income tax expense based on above rates
Increase (decrease) due to:
Non-deductible expenditures
Foreign tax rate differences
Change in net deferred tax assets not recognized:
- Argentina exploration expenditures
- Other deferred tax assets
Non-taxable portion of net earnings of affiliates
Changes to temporary differences
Effect of other taxes paid (mining and withholding)
Effect of foreign exchange on tax expense
Non-taxable impact of foreign exchange
Other
Income tax expense
Effective income tax rate
Three months ended
December 31,
2017
2016
$ 88,872
$ 43,143
26.00%
26.00%
$ 23,107
$ 11,217
1,465
4,610
490
(8,454)
(303)
—
9,648
12,589
(4,625)
681
1,099
2,248
450
(7,933)
(1,166)
668
7,863
4,764
1,293
356
$ 39,208
$ 20,859
44.12%
48.35%
• Statement of Cash Flows: Q4 2017 vs. Q4 2016
Cash flow from operations in Q4 2017 totaled $79.3 million, $33.6 million more than the $45.7 million generated in
Q4 2016. The increase was largely the result of approximately $17.0 million higher cash mine operating earnings, a
$12.9 million increase in operating cash flows from working capital changes, and a $2.4 million decrease in taxes paid.
The period-over-period increase in mine operating earnings excluding non-cash D&A and inventory adjustments was
driven by increased revenues, partially offset by increased production costs (excluding non-cash NRV inventory
adjustments). Working capital changes in Q4 2017 resulted in a $15.2 million source of cash comprised mainly of
receivables and inventory draw-downs. Comparatively, working capital changes added $2.3 million to Q4 2016
operating cash flows.
Investing activities utilized $36.8 million in Q4 2017, inclusive of $0.7 million used on the net purchase of short-term
investments. The balance of Q4 2017 investing activities related primarily to $36.5 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 2016, investing activities utilized $66.5 million inclusive of $3.2 million used on the net purchase
of short-term investments. The majority of Q4 2016 investing activity cash flow reflected $56.5 million spent on
mineral property, plant and equipment additions at the Company’s various operations and projects.
Financing activities in Q4 2017 used $2.5 million compared to $7.8 million in Q4 2016. Cash used in Q4 2017 consisted
of $3.8 million paid as dividends to shareholders, $1.3 million of lease repayments net of $3.0 million obtained from
short-term loan proceeds. In Q4 2016 cash used in financing activities consisted of $1.9 million in dividends to
shareholders, $5.2 million for short-term debt repayments, and $0.7 million of lease repayments.
• Adjusted Earnings: Q4 2017 vs Q4 2016
Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP) Measures” for a detailed
description of “adjusted earnings”, and a reconciliation of these measures to the 2017 Financial Statements.
PAN AMERICAN SILVER CORP.
49
Adjusted Earnings in Q4 2017 were $19.2 million, representing a basic adjusted earnings per share of $0.13, which
was $0.2 million, or $0.01 per share, higher than Q4 2016 adjusted earnings of $19.0 million, and basic adjusted
earnings per share of $0.12, respectively.
The following chart illustrates the key factors leading to the change in adjusted earnings from Q4 2016 to Q4 2017:
PAN AMERICAN SILVER CORP.
50
LIQUIDITY POSITION
The Company’s cash and cash equivalents balance at December 31, 2017 was $176.0 million, which was a decrease
of $4.9 million from December 31, 2016, and an increase of $40.0 million from the balance at September 30, 2017.
The Company’s short-term investments balance at December 31, 2017 was $51.6 million, which was a $14.9 million
increase from the balance at December 31, 2016 and a $1.3 million increase from September 30, 2017.
The net $9.9 million increase in the Company's liquidity position in 2017 was primarily generated from residual
operating cash flows after funding: mineral property, plant and equipment additions of $142.2 million, relating to
the Company's project and sustaining capital; $36.2 million of credit facility repayments; $20.2 million towards the
acquisition of the COSE and Joaquin projects; and $15.3 million in dividend payments.
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 of the Company
(the "Board of Directors" or "Board"), 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, 2017 was $410.8 million, a decrease of $17.8 million from the December 31, 2016
working capital of $428.6 million. The decrease in working capital was mainly attributable to decreases in trade and
other receivables and inventories, partially offset by the previously increased cash and short-term investments.
On April 15, 2015, the Company entered into a $300.0 million secured revolving credit facility with a 4-year term (the
“Credit Facility”) and upfront costs of $3.0 million. On May 31, 2016, the Company amended its Credit Facility by
extending the term by one year, with additional upfront costs of $0.4 million. As part of the amendment, the financial
covenants were amended to require the Company to maintain a tangible net worth (exclusive of any prospective
write-downs of certain assets) of greater than $1,036.4 million plus 50% of the positive net earnings for each
subsequent fiscal quarter. In addition, the financial covenants continue to include the requirement for the Company
to maintain a leverage ratio less than or equal to 3.5:1 and an interest coverage ratio more than or equal to 3.0:1. As
of December 31, 2017, the Company was in compliance with all covenants required by the Credit Facility.
The terms of the Credit 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 loans 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 Credit Facility by way of LIBOR loan at an
annual rate of 2.55%. The $36.2 million was repaid on September 29, 2017 and as of December 31, 2017, and at the
date of this MD&A, the Credit Facility remained undrawn.
The Company’s financial position at December 31, 2017, 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 2018
working capital requirements, fund currently planned capital expenditures, 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, 2017, was $1,516.9 million, an increase of $120.6 million
from December 31, 2016, primarily because of the $121.0 million of net earnings attributable to shareholders for
2017, together with $8.7 million of equity value issued for the acquisition of mineral interests, offset by $15.3 million
in dividends paid. As of December 31, 2017, the Company had approximately 153.3 million common shares
PAN AMERICAN SILVER CORP.
51
outstanding for a share capital balance of $2,318.3 million (December 31, 2016, 152.3 million and $2,304.0 million,
respectively). The basic weighted average number of common shares outstanding were 153.1 million and 152.1 million
for the years ended December 31, 2017, and 2016, respectively.
As at December 31, 2017, the Company had approximately 0.94 million stock options outstanding (each exercisable
for one common share of the Company), with exercise prices in the range of CAD $9.76 to CAD $24.90 and a weighted
average life of 44 months. Approximately 0.8 million of the stock options were vested and exercisable at December 31,
2017, with an average weighted exercise price of CAD $16.13 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
FINANCIAL INSTRUMENTS
Outstanding as at
March 22, 2018
153,311,792
927,307
154,239,099
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 $25.1 million in CAD, $5.2 million in MXN, $2.3 million in PEN, $4.2 million in ARS, and $4.7 million in
BOB at December 31, 2017. Risks relating to FX rates are discussed in the “Risks and Uncertainties” section of this
MD&A.
At December 31, 2017, the Company had no outstanding positions on its foreign currency exposure of MXN purchases.
The Company recorded losses of $0.8 million and gains of $3.8 million on MXN derivative contracts for Q4 2017 and
2017, respectively (Q4 2016 and 2016 losses of $0.8 million and $1.5 million, respectively).
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.
At December 31, 2017, the Company had outstanding collars made up of put and call contracts on its zinc exposure
for 11,100 tonnes with settlement dates between January 2018 and December 2018. The outstanding contracts have
a weighted average floor and cap of $2,609 and $3,555, respectively. The Company recorded losses of $0.3 million
and 1.9 million in Q4 2017 and 2017, respectively (Q4 2016 and 2016 losses of $1.1 million and $4.3 million,
respectively).
At December 31, 2017, the Company had outstanding collars made up of put and call contracts on its lead exposure
for 6,450 tonnes with settlement dates between January 2018 and December 2018. The outstanding positions have
a weighted average floor of $2,200 and an average cap of $2,679. The Company recorded gains of $0.1 million and
losses of $0.4 million in Q4 2017 and 2017, respectively (Q4 2016 and 2016 gains of $0.1 million and losses of $0.2
million, respectively).
During the year ended December 31, 2017, in order to limit its exposure to lower copper prices on a portion of its
copper production, the Company entered into copper put and call contracts. The Company had contracts for 3,030
tonnes of copper outstanding, with a weighted average minimum price of $6,222 and a maximum price of $7,277
per tonne, at December 31, 2017. These remaining contracts have settlement dates between January 2018 and
December 2018. The Company recorded losses of $0.8 million and $0.9 million on the copper positions during the
three months and year ended December 31, 2017, respectively.
PAN AMERICAN SILVER CORP.
52
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 Company settled all Diesel fuel swaps
by December 31, 2016. The Company did not enter into any Diesel fuel swaps in 2017. In the three and twelve months
ended December 31, 2016, the Company recorded $nil and gains of $1.0 million on the Diesel Swaps, respectively.
Other than the contracts described above, there were no other material gains or losses on any commodity or foreign
currency contracts in either the three months or years ended December 31, 2017 and 2016.
Derivative financial assets and liabilities are measured at fair value. Cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the relatively short
periods to maturity of these financial instruments.
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 are described in Note 7 of the 2017 Financial Statements.
CLOSURE AND DECOMMISSIONING COST PROVISION
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, which are determined by discounting costs
using rates specific to the underlying obligation. Upon recognition of a liability for the closure and decommissioning
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 as of December 31, 2017 was $142.2 million (December 31, 2016 - $122.1
million) using inflation rates of between 2% and 25% (2016 - between 1% and 23%). The inflated and discounted
provision on the statement of financial position as at December 31, 2017, using discount rates between 2% and 24%
(December 31, 2016 - between 1% and 30%), was $65.4 million (December 31, 2016 - $55.6 million). Spending with
respect to decommissioning obligations at the Alamo Dorado and Manantial Espejo mines began in 2016, while the
remainder of the obligations are expected to be paid through 2040 or later if mine life is extended. Revisions made
to the reclamation obligations in Q4 2017 were primarily a result of increased site disturbance from the ordinary
course of operations at the mines, reclamation activities at the Alamo Dorado mine, as well as revisions to the
estimates based on periodic reviews of closure plans and related costs, actual expenditures incurred, and closure
activities completed. These obligations will be funded from operating cash flows, reclamation deposits, and cash on
hand.
The accretion of the discount charged in Q4 2017 and 2017 earnings as finance expense were $1.5 million and $6.0
million, respectively (Q4 2016 and 2016 - $1.1 million and $4.4 million, respectively). Reclamation expenditures
incurred during Q4 2017 and 2017 were $4.7 million and $8.7 million, respectively (Q4 2016 and 2016 - $2.7 million
and $6.1 million, respectively).
PAN AMERICAN SILVER CORP.
53
CONTRACTUAL COMMITMENTS AND CONTINGENCIES
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, 2017:
(In thousands of USD, except as noted)
Current liabilities
Credit facility
Loan obligation
Finance lease obligations(2)
Severance accrual
Employee compensation(3)
Loss on commodity contracts
Provisions(4)
Income taxes payable
Total contractual obligations(4)
(1)
Payments due by period
Total
Within 1
year(1)
2 - 3 years
4- 5 years
After 5
years
$
$
136,506
2,750
3,000
7,724
5,176
6,709
1,906
4,098
26,131
193,999
$
$
136,506
1,200
3,000
5,879
1,092
3,815
1,906
2,681
26,131
182,210
$
— $
1,550
—
1,845
2,273
2,894
—
546
—
9,108
$
$
— $
—
—
—
760
—
—
627
—
1,387
$
—
—
—
—
1,051
—
—
243
—
1,294
Includes all current liabilities in the statement of financial position at December 31, 2017 and December 31, 2016 plus items presented separately in this
table that are expected to be paid but not accrued. A reconciliation of the current liabilities balance in the statement of financial position to the total
contractual obligations within one year, per the contractual maturities schedule is shown in the table below.
December 31, 2017
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(4)
Income tax payable
Total contractual obligations within one year(4)
Future interest
component
Within 1 year
$
136,506
$
— $
136,506
—
3,000
5,734
1,092
2,100
1,906
2,681
26,131
1,200
—
145
—
1,715
—
—
—
$
179,150
$
3,060
$
1,200
3,000
5,879
1,092
3,815
1,906
2,681
26,131
182,210
(2)
(3)
Includes lease obligations in the amount of $7.7 million (December 31, 2016 - $7.3 million) with a net present value of $7.6 million (December 31, 2016 -
$7.1 million) discussed further in Note 17 of the 2017 Financial Statements.
Includes RSU obligation in the amount of $4.1 million (December 31, 2016 – $4.8 million) that will be settled in cash. The RSUs vest in two installments,
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 (current $5.6 million, long-term
$59.8 million) discussed in Note 16 of the 2017 Financial Statements (December 31, 2016 - current $5.2 million , long-term $50.4 million), the deferred
credit arising from the Aquiline Acquisition ($20.8 million) (December 31, 2016 - $20.8 million) discussed in Note 19 of the 2017 Financial Statements, and
deferred tax liabilities of $171.2 million (December 31, 2016 - $170.9 million).
RELATED PARTY TRANSACTIONS
The Company’s related parties include its subsidiaries, associates over which it exercises significant influence, and
key management personnel. During its normal course of operation, the Company enters into transactions with its
related parties for goods and services. A company owned by a former director of the Company was paid $0.1 million
for consulting services in the year ended December 31, 2016, there were no such payments in 2017. Related party
transactions with Maverix have been disclosed in Note 12 of the 2017 Financial Statements.
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.
PAN AMERICAN SILVER CORP.
54
ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES
• AISCSOS
AISCSOS is a non-GAAP financial measure. AISCSOS does not have any standardized meaning prescribed by IFRS 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 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:
(In thousands of USD, except as noted)
Direct operating costs
Inventory NRV adjustments
Production costs(1)
Royalties
Direct selling costs (2)
Less by-product credits (2)
Cash cost of sales net of by-products (3)
Sustaining capital (4)
Exploration and project development(5)
Reclamation cost accretion
General and administrative expense
All-in sustaining costs (3)
Payable ounces sold (in thousands)
A
B
C
All-in sustaining cost per silver ounce sold, net of by-products
B/C
All-in sustaining cost per silver ounce sold, net of by-products
(excludes NRV inventory adjustments)
(B-A)/C
Three months ended
December 31,
Year ended
December 31,
$
$
2017
134,202
5,495
139,697
8,809
19,408
2016
120,496
(10,715)
109,781
$
$
8,142
20,656
$
$
2017
488,363
12,307
500,670
24,510
69,344
2016
472,806
(42,815)
429,991
31,608
80,319
(131,679)
(109,571)
(462,663)
(424,442)
36,235
25,573
4,269
1,493
4,732
72,303
6,659
10.86
10.03
$
$
$
$
$
29,009
24,976
3,068
1,090
5,592
63,735
6,138
10.38
12.13
$
$
$
$
$
131,862
84,215
17,858
5,973
21,397
261,304
24,212
10.79
10.28
$
$
$
$
$
117,476
89,394
11,334
4,363
23,663
246,230
24,200
10.17
11.94
$
$
$
$
$
$
$
(1) For the purposes of AISCSOS, Alamo Dorado production costs for the three and twelve month periods ended December 31, 2016 have been decreased by
$0.6 million and increased by $1.7 million, respectively, to exclude non-cash adjustments to the closure and decommissioning liabilities that are included
in production costs as presented in the consolidated income statements.
Included in the revenue line of the consolidated income statements, and for by-product credits are reflective of realized metal prices for the applicable
periods.
(2)
(3) Totals may not add due to rounding.
(4) Please refer to the table below. Further, 2017 annual sustaining capital cash outflows included in this table were $0.2 million less than the $84.4 million
capitalized in 2017. The difference is due to the timing difference between the cash payment of capital investments compared with the period in which
investments are capitalized.
(5) The amounts for 2017 year-to-date exclude $1.9 million from non-cash project development write-downs.
As part of the AISCSOS measure, sustaining capital is included while expansionary or acquisition capital (referred to
by the Company as non-sustaining capital) is not. Inclusion of sustaining capital only is a 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 items noted below are associated with the La Colorada expansion project, the
Dolores leach pad and other expansionary expenditures considered to be investment capital projects.
PAN AMERICAN SILVER CORP.
55
Reconciliation of payments for mineral properties,
plant and equipment and sustaining capital
(in thousands of USD)
Payments for mineral properties, plant and equipment(1)
Add/(Subtract)
Advances received for leases
Non-Sustaining capital
Sustaining Capital(2)
(1)
(2)
As presented on the consolidated statements of cash flows.
Totals may not add due to rounding
Three months ended
December 31,
Year ended
December 31,
2017
2016
2017
2016
$
36,473
$
56,477
$
142,232
$
202,661
1,385
(12,284)
2,213
(33,714)
5,000
6,151
(63,017)
(119,418)
$
25,573
$
24,976
$
84,215
$
89,394
(In thousands of USD, except as noted)
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PASCORP Consolidated
Three months ended December 31, 2017
Direct operating costs
NRV inventory adjustments
Production costs
Royalties
Direct selling costs
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 ounces sold (thousand)
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
inventory adjustments)
(1)
Totals may not add due to rounding.
16,580
—
16,580
106
4,066
35,739
4,098
39,838
1,966
31
3,957
19,551
16,931
10,484
(1,916)
—
—
—
2,041
19,551
16,931
10,484
—
248
—
6,659
—
5,014
6,105
3,383
30,960
3,313
34,273
633
8
(18,316)
(39,317)
(61)
(24,653)
(26,767)
(6,969)
(15,595)
2,435
2,576
73
112
—
5,196
1,847
2,518
13,303
564
296
—
2,227
—
—
89
—
1,557
3,548
428
162
—
(4,823)
13,002
3,162
1,939
19,319
1,045
543
105
—
—
56
—
936
619
—
16,682
2,317
5,695
(1,013)
14,998
21,918
1,225
133
813
658
1,218
766
1,726
54
4,732
6,511
134,202
5,495
139,697
8,809
19,408
(131,679)
36,235
25,573
4,269
1,493
4,732
72,303
6,659
$
2.81 $
13.62 $
17.45 $
7.00 $
(1.54) $
12.31 $
28.63
$
10.86
2.81
10.27
31.89
7.00
(1.54)
12.31
24.30
10.03
(In thousands of USD, except as
noted)
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PASCORP Consolidated
Twelve months ended December 31, 2017
Direct operating costs
NRV inventory adjustments
Production costs
Royalties
Direct selling costs
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)
67,170
116,104
20,477
75,551
63,967
34,731
110,362
6,847
(2,598)
67,170
122,951
17,879
75,551
63,967
475
12,235
6,501
93
79
479
—
—
26,238
18,770
34,731
14,321
10,740
8,058
118,420
3,134
789
(64,133)
(128,351)
(3,467)
(97,715)
(94,233)
(16,278)
(58,485)
15,748
13,970
251
448
—
1,194
14,970
36,071
2,444
1,186
—
—
—
357
—
4,074
10,267
1,713
646
—
30,417
40,894
15,327
16,701
(11,496)
43,513
63,858
12,428
1,629
420
—
2,981
2,448
8,146
—
225
—
3,333
4,588
2,474
—
51,884
74,254
3,603
3,171
7,232
216
21,397
28,845
Payable ounces sold (thousand)
6,853
4,089
867
3,181
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
adjustments)
$
$
(1) Totals may not add due to rounding.
4.44 $
10.00 $
17.69 $
5.25 $
1.22 $
14.40 $
23.42
4.44 $
8.33 $
20.68 $
5.25 $
1.22 $
14.40 $
20.88
488,363
12,307
500,670
24,510
69,344
(462,663)
131,862
84,215
17,858
5,973
21,397
261,304
24,212
$
$
10.79
10.28
PAN AMERICAN SILVER CORP.
56
(In thousands of USD, except as
noted)
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PASCORP Consolidated
Three months ended December 31, 2016
Direct operating costs
NRV inventory adjustments
Production costs
Royalties
Direct selling costs
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 ounces sold (thousand)
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
adjustments)
$
$
(1) Totals may not add due to rounding.
14,674
28,664
—
(6,350)
14,674
135
3,712
22,314
1,604
23
7,266
2,224
9,490
33
125
17,991
15,547
10,016
26,336
—
—
—
(6,589)
17,991
15,547
10,016
19,747
—
7,735
—
5,643
5,598
4,634
772
(1,215)
(12,238)
(32,868)
(1,609)
(21,206)
(18,379)
(5,372)
(17,898)
6,283
2,229
31
72
—
8,615
1,561
(8,927)
8,039
10,772
628
179
—
—
—
104
—
4,520
4,355
576
126
—
2,812
4,892
109
86
—
14,876
1,631
—
54
—
2,652
8,144
9,576
7,899
16,561
895
286
759
526
1,332
1,406
1,097
—
433
—
2,935
779
5.52 $
2.96 $
28.44 $
12.62 $
15.02 $
12.43 $
3.77
5.52 $
10.06 $
20.68 $
12.62 $
15.02 $
12.43 $
12.22
120,496
(10,715)
109,781
8,142
20,656
(109,571)
29,009
24,976
3,068
1,090
5,592
63,735
6,138
10.38
12.13
1,723
37
5,592
7,352
$
$
Twelve months ended December 31, 2016
(In thousands of USD, except as
noted)
La
Colorada
Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
PASCORP Consolidated
Direct operating costs
NRV inventory adjustments
Production costs
Royalties
Direct selling costs
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)
50,879
121,162
40,172
67,911
58,868
34,959
98,856
(22,434)
1,173
50,879
98,728
41,345
67,911
58,868
401
13,554
6,224
107
235
376
—
—
32,443
25,702
34,959
20,929
15,697
(21,554)
77,302
3,818
(7,562)
(34,737)
(123,811)
(13,156)
(77,754)
(74,754)
(15,774)
(84,456)
30,098
10,545
186
287
—
(18,751)
28,800
48,079
1,792
714
—
—
—
416
—
22,600
11,994
837
505
—
9,817
10,945
1,053
345
—
55,811
(10,898)
4,963
—
218
—
2,868
—
1,731
7,465
148
—
23,663
472,806
(42,815)
429,991
31,608
80,319
(424,442)
117,476
89,394
11,334
4,363
23,663
41,116
31,834
29,216
35,935
22,159
60,991
(6,299)
31,276
246,230
Payable ounces sold (thousand)
5,486
3,839
1,967
3,233
2,377
4,264
3,033
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
adjustments)
$
$
(1) Totals may not add due to rounding.
7.49 $
8.29 $
14.85 $
11.11 $
9.32 $
14.30 $
(2.08)
7.49 $
14.14 $
14.26 $
11.11 $
9.32 $
14.30 $
5.03
24,200
10.17
11.94
$
$
• 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.
PAN AMERICAN SILVER CORP.
57
Cash costs per ounce metrics, net of by-product credits, is used extensively in our internal decision making processes.
We believe the metric is also useful to investors because it facilitates 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:
Total Cash Costs per ounce of Payable Silver, net of
by-product credits
(in thousands of U.S. dollars 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)
Inventory NRV adjustments
Cash Operating Costs before by-product credits(2)
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
Cash Operating Costs net of by-product credits (2)
Payable Silver Production (koz)
A
B
Three months ended
December 31,
Year ended
December 31,
2017
2016
2017
2016
$
139,697 $
110,466 $
500,670 $
428,333
8,809
18,469
(1,374)
(12,776)
555
(64)
(5,495)
147,820
(54,648)
(40,826)
(12,687)
(20,026)
19,633
6,172
8,142
22,204
(876)
(3,473)
358
(811)
10,715
146,725
(52,888)
(28,486)
(11,226)
(14,667)
39,457
5,925
24,510
73,222
(5,067)
(16,011)
1,559
(1,126)
(12,307)
565,450
(196,649)
(137,826)
(46,948)
(77,348)
106,678
23,444
31,608
91,371
(3,397)
(11,937)
(5,660)
(3,358)
42,815
569,775
(227,196)
(93,428)
(35,890)
(63,404)
149,857
23,818
Cash Costs per ounce net of by-product credits
A/B
$
3.18 $
6.66 $
4.55 $
6.29
(1) Figures presented in the reconciliation table above are on a 100% basis as presented in the 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, 2017 (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
Sub-total by-product credits
A
b1
b2
b3
b4
B=( b1+
b2+ b3+
b4)
La
Colorada Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidated
Total
$ 18,708 $ 34,778 $
136 $ 26,440 $
20,276 $ 15,300 $
29,800 $
145,437
(1,377)
(39,708)
(90)
(9)
(625)
(79)
(12,704)
(11,337)
(5,232)
—
—
—
—
— (12,296)
(12,205)
(3,767)
—
—
(4,758)
(7,671)
(2,361)
(9,585)
(131)
(1,868)
—
—
—
(54,592)
(39,605)
(12,483)
(19,124)
$ (17,947) $ (39,708) $
(90) $ (24,733) $
(24,776) $
(5,845) $ (12,704) $
(125,804)
Cash Costs net of by-product credits
C=(A+B) $
761 $ (4,930) $
46 $
1,706 $
(4,500) $
9,455 $
17,095 $
19,633
Payable ounces of silver (thousand)
D
1,777
1,254
22
821
607
1,046
645
6,172
Cash cost per ounce net of by-products
C/D
$
0.43 $
(3.93) $
2.09 $
2.08 $
(7.42) $
9.04 $
26.52 $
3.18
(1) Totals may not add due to rounding.
PAN AMERICAN SILVER CORP.
58
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
Sub-total by-product credits
A
b1
b2
b3
b4
B=( b1+
b2+ b3+
b4)
Twelve months ended December 31, 2017(1)
(in thousands of USD except as noted)
La
Colorada Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidated
Total
$ 75,407 $ 122,532 $ 12,666 $ 101,588 $
76,085 $ 55,286 $ 113,726 $
557,291
(4,477)
(129,503)
(2,498)
(148)
(2,639)
(305)
(56,842)
(37,967)
(18,994)
—
—
—
—
— (46,080)
(39,402)
(10,522)
— (19,039)
(7,573)
(672)
(46)
(32,059)
(38,315)
(3,533)
—
—
—
(196,411)
(133,972)
(46,278)
(73,952)
$ (61,438) $(129,503) $ (2,544) $ (97,327) $
(87,929) $ (15,032) $ (56,842) $
(450,614)
Cash Costs net of by-product credits
C=(A+B) $ 13,970 $ (6,971) $ 10,123 $
4,261 $
(11,844) $
40,254 $
56,884 $
106,677
Payable ounces of silver (thousand)
D
6,709
4,225
614
3,164
2,219
3,396
3,117
23,444
Cash cost per ounce net of by-products
C/D
$
2.08 $
(1.65) $
16.49 $
1.35 $
(5.34) $
11.85 $
18.25 $
4.55
(1) Totals may not add due to rounding.
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
Sub-total by-product credits
A
b1
b2
b3
b4
B=( b1+
b2+ b3+
b4)
Three months ended December 31, 2016(1)
(in thousands of USD except as noted)
La
Colorada Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidated
Total
$ 19,118
29,875 $ 10,704 $ 25,766 $
19,496 $ 14,034 $
26,259 $
145,251
(841)
(35,183)
(1,690)
—
(7,801)
(3,513)
—
—
—
—
— (11,056)
—
31
(6,005)
(5,122)
(165)
(7,361)
(1,444)
(7,849)
(86)
(14,905)
(1,568)
(136)
(1,095)
—
—
—
(52,870)
(27,787)
(11,098)
(14,035)
$ (12,155) $ (35,183) $ (1,659) $ (22,183) $
(16,819) $
(2,885) $ (14,905) $
(105,790)
Cash Costs net of by-product credits
C=(A+B) $
6,962 $ (5,308) $
9,046 $
3,583 $
2,676 $
11,149 $
11,354 $
39,462
Payable ounces of silver (thousand)
D
1,588
895
397
789
485
994
777
5,925
Cash cost per ounce net of by-products
C/D
$
4.38 $
(5.93) $
22.80 $
4.54 $
5.52 $
11.22 $
14.61 $
6.66
(1) Totals may not add due to rounding.
Cash Costs before by-product credits
Less gold credit
Less zinc credit
Less lead credit
Less copper credit
Sub-total by-product credits
A
b1
b2
b3
b4
B=( b1+
b2+ b3+
b4)
Twelve months ended December 31, 2016(1)
(in thousands of USD except as noted)
La
Colorada Dolores
Alamo
Dorado
Huaron Morococha
San
Vicente
Manantial
Espejo
Consolidated
Total
$ 68,057
124,570 $ 39,891 $ 96,284 $
75,586 $ 61,779 $
97,388 $
563,555
(2,929)
(128,696)
(10,251)
(2)
(897)
(335)
(83,992)
(227,103)
(20,636)
(10,487)
—
—
—
—
— (34,638)
(26,841)
(8,611)
— (18,967)
(5,166)
(795)
(100)
(24,113)
(33,701)
(2,534)
—
—
—
(90,726)
(35,415)
(60,448)
$ (34,052) $(128,696) $ (10,351) $ (77,720) $
(66,605) $ (12,275) $ (83,992) $
(413,692)
Cash Costs net of by-product credits
C=(A+B) $ 34,004 $ (4,126) $ 29,539 $ 18,565 $
8,981 $
49,504 $
13,396 $
149,862
Payable ounces of silver (thousand)
D
5,531
3,831
1,844
3,208
2,132
4,143
3,130
23,818
Cash cost per ounce net of by-products
C/D
$
6.15 $
(1.08) $
16.02 $
5.79 $
4.21 $
11.95 $
4.28 $
6.29
(1) Totals may not add due to rounding.
PAN AMERICAN SILVER CORP.
59
• 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 in management's judgment are subject to volatility as
a result of factors which are unrelated to operations in the period, and/or relate to items that will settle in future
periods. 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 earnings for the three and twelve months ended December
31, 2017 and 2016, to the net earnings for each period.
(In thousands of USD, except as noted)
Net earnings for the period
Adjust for:
Derivative gains
Impairment reversals
Write-down of project development costs
Unrealized foreign exchange losses (gains)
Net realizable value adjustments to heap inventory
Unrealized losses (gains) on commodity contracts
Share of loss from associate and dilution gain
Mine operation severance costs
Reversal of previously accrued tax liabilities
Gain (loss) on sale of assets
Closure and decommissioning liability adjustment
Adjust for effect of taxes relating to the above(1)
Adjust for effect of foreign exchange on taxes(1)
Adjusted earnings for the period
Weighted average shares for the period
Adjusted earnings per share for the period
• Total Debt
$
$
$
$
$
Three Months Ended
December 31,
2017
49,664
$
2016
22,284
Year ended
December 31,
2017
123,451
$
2016
101,825
$
(64)
(61,554)
—
362
4,936
2,190
(259)
—
—
794
4,515
6,046
12,589
19,219
153,207
0.13
$
$
$
$
—
—
—
4,139
(6,619)
(435)
(8,484)
—
—
(157)
—
2,180
6,057
18,965
152,263
0.12
(64)
(61,554)
1,898
(383)
10,060
(909)
(2,052)
3,509
(2,793)
(191)
8,388
$
$
$
$
2,273
$
(3,928) $
77,705
153,070
0.51
$
$
—
—
—
5,759
(14,110)
(21)
(7,946)
—
—
(25,100)
—
11,870
14,323
86,600
152,118
0.57
Total debt is a non-GAAP measure calculated as the total current and non-current portions of: long-term debt, finance
lease liabilities, and loans payable. Total debt 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 the financial debt leverage of the Company.
• 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 Produced
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.
PAN AMERICAN SILVER CORP.
60
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 relative 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; 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 2017 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, property damage and frivolous or vexatious claims; violence and more prevalent or stronger organized crime
groups; terrorism and hostage taking; military repression and increased likelihood of international conflicts or
aggression; increased public health concerns; and potential practical restrictions on the ability of Pan American's
subsidiaries to transfer funds to Pan American. 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.
PAN AMERICAN SILVER CORP.
61
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 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.
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 things, the Argentine
government 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 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 ARS into USD or other hard currencies, exposing us to additional risks of ARS
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, some of the policies of the previous government continue
to adversely affect the Company’s Argentine operations. It is unknown whether these more recent changes will be
lasting, what, if any, additional steps will be taken by the current 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
PAN AMERICAN SILVER CORP.
62
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, and metal prices have historically 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 2017, expressed in percentage terms. This analysis assumes that quantities of silver and gold produced and sold
remain constant under all price scenarios presented.
2018 Revenue Metal Price Sensitivity
Silver
Price
$13.50
$14.50
$15.50
$16.50
$17.50
$18.50
$19.50
$20.50
$950
85%
88%
91%
94%
97%
99%
102%
105%
Gold Price
$1,050
$1,150
$1,250
$1,350
$1,450
$1,550
87%
90%
93%
96%
99%
102%
104%
107%
89%
92%
95%
98%
101%
104%
106%
109%
91%
94%
97%
100%
103%
106%
109%
111%
94%
96%
99%
102%
105%
108%
111%
113%
96%
98%
101%
104%
107%
110%
113%
116%
98%
101%
103%
106%
109%
112%
115%
118%
The Company 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 forecast 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 2017 forecast
against various price assumptions for the Company’s two main by-product credits, zinc and gold expressed in
percentage terms:
2018 Cash Cost Metal Price Sensitivity
Zinc
Price
$2,600
$2,700
$2,800
$2,900
$3,000
$3,100
$3,200
$3,300
$950
183%
178%
173%
168%
163%
158%
154%
150%
$1,050
$1,150
$1,250
Gold Price
164%
159%
153%
148%
143%
139%
135%
131%
144%
139%
134%
129%
124%
119%
115%
112%
125%
120%
115%
110%
105%
100%
96%
92%
$1,350
106%
101%
96%
90%
85%
81%
77%
73%
$1,450
$1,550
86%
81%
76%
71%
66%
61%
58%
54%
67%
62%
57%
52%
47%
42%
38%
34%
PAN AMERICAN SILVER CORP.
63
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 the
2017 Financial Statements (included in Note 11).
• Trading and Credit Risk
The zinc, lead, and copper concentrates produced by Pan American 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. The Doe Run Peru smelter
remains closed and we are owed approximately $7.6 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.
As at December 31, 2017, we had receivable balances associated with buyers of our concentrates of $52.0 million
(December 31, 2016 - $45.0 million). The vast majority of the receivable balance is owed by five well-known
concentrate buyers.
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, 2017,
we had approximately $21.9 million contained in precious metal inventory at refineries (December 31, 2016 - $28.5
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.
Supplier advances for products and services yet to be provided are a common practice in some jurisdictions in which
the Company operates. These advances represent a credit risk to the Company to the extent that suppliers do not
deliver products or perform services as expected. As at December 31, 2017, the Company had made $14.3 million
of supplier advances (December 31, 2016 - $28.8 million), which are reflected in “Trade and other receivables” on
the Company’s balance sheet.
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.
From time to time, we may invest in equity securities of other companies. Just as investing in Pan American is inherent
with risks such as those set out in this MD&A, 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.
PAN AMERICAN SILVER CORP.
64
•
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. We continually evaluate and review capital and operating
expenditures in order to identify, decrease, and limit all non-essential expenditures.
• Exchange Rate Risk
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 PEN, MXN and ARS. In order to mitigate this
exposure, the Company maintains a portion of its cash balances in PEN, MXN, ARS, BOB and CAD and, from time to
time, enters into forward currency positions to match anticipated spending, as discussed in this MD&A in the “Financial
Instruments” section. 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 2017, expressed in percentage terms:
2018 Cost of Sales Exchange Rate Sensitivity
MXN/USD
$17.00
$17.50
$18.00
$18.50
$19.00
$19.50
PEN/
USD
$3.08
$3.13
$3.18
$3.23
$3.28
$3.33
$3.38
$3.43
102%
102%
101%
101%
101%
101%
100%
100%
102%
101%
101%
101%
100%
100%
100%
100%
101%
101%
101%
100%
100%
100%
100%
99%
101%
101%
100%
100%
100%
100%
99%
99%
100%
100%
100%
100%
99%
99%
99%
99%
100%
100%
100%
99%
99%
99%
99%
98%
$20.00
100%
100%
99%
99%
99%
99%
98%
98%
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.
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 from the unofficial exchange rates more readily utilized in the local economy to determine
prices and value. Maintaining monetary assets in ARS also exposes us to the risks of ARS devaluation and high domestic
inflation.
• 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
PAN AMERICAN SILVER CORP.
65
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 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 sizable
monetary damages against us and/or the return of surface or mineral rights that are valuable to us and which may
significantly 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 establish provisions for matters
that are probable and can be reasonably estimated. We also carry liability insurance coverage, however such insurance
does not cover all risks to which we might be exposed and in other cases, may only partially cover losses incurred by
the Company. 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 IFRS, 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. The significant judgments and key sources of
estimation uncertainty in the application of accounting policies are described in Note 4 and Note 5 of the 2017
Financial Statements, respectively.
Readers should also refer to Note 2 of the 2017 Financial Statements, for the Company’s summary of significant
accounting policies.
PAN AMERICAN SILVER CORP.
66
CHANGES IN ACCOUNTING STANDARDS
The Company has adopted the narrow scope amendments to IFRS 12 - Disclosure of Interests in Other Entities, IAS
12 - Income Taxes, and IAS 7 - Statement of Cash Flows, which were effective for annual periods beginning on or after
January 1, 2017. The amendments did not have an impact on the Company’s consolidated financial statements.
Changes in accounting standards not yet effective
The Company has not early adopted any amendment, standard or interpretation that has been issued by the IASB
but is 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, with early adoption permitted. The Company will apply IFRS
9 at the date it becomes effective. Retrospective application is required, except for hedge accounting, which is not
applied by the Company and which requires prospective application.
IFRS 9 will result in the following significant changes compared to the current standards: The classification of financial
assets and liabilities are expected to remain consistent under IFRS except for equity securities. The Company will
designate its equity securities as financial assets at fair value through profit or loss, where they will be recorded
initially at fair value. Changes in fair value will be recorded in earnings (loss). Prior to adoption of this new standard
changes in fair value were recorded in other comprehensive income and subsequently transferred into earnings (loss)
upon disposition.
The introduction of the new "expected credit loss" impairment model under IFRS 9, as opposed to an incurred credit
loss model under IAS 39, does not have a significant impact on the Company's accounts receivable given the Company
sells its products exclusively to large international financial institutions and other organizations with strong credit
ratings, the negligible historical level of customer default, and the short term nature of the Company's receivables.
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) In May 2014, the IASB issued IFRS 15 Revenue from
Contracts with Customers, which covers principles that an entity shall apply to report useful information to users of
financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a
contract with a customer. IFRS 15 introduces a revenue recognition model under which an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual
reporting periods beginning on or after January 1, 2018, and requires either a modified retrospective application or
full retrospective application. The Company will adopt IFRS 15 using the modified retrospective transition approach,
whereby the cumulative impact of adoption is recognized in retained earnings as of January 1, 2018 and comparative
period balances are not restated.
Further, IFRS 15 introduces the concept of performance obligations that are defined as ‘distinct’ promised goods or
services, and requires entities to apportion revenue earned to the distinct performance obligations on a relative
standalone selling price basis. The Company may on time to time enter into concentrate contracts where the Company
is responsible for shipping and insurance costs necessary to bring the goods to a named destination after the date
on which control of the goods transferred to the customer. Accordingly, under IFRS 15, where material, a portion of
the revenue earned under such contracts, representing the obligation to fulfill the shipping and insurance services,
will be deferred and recognized over the time the obligations are fulfilled. As the amounts associated with any such
services are insignificant compared to the total value of contract, and the fact that many contracts would be completed
within a financial reporting period, the Company does not expect the impact of treating these services as separate
performance obligations to have a material impact on the Company’s consolidated financial statements.
PAN AMERICAN SILVER CORP.
67
The Company’s concentrate sales are subject to provisional pricing provisions, the Company has determined that the
recognition of revenue related to these sales will not be significantly affected by IFRS 15. However, separate
presentation of the provisional pricing adjustments will be required in the revenue note disclosure.
IFRS 16, Leases (“IFRS 16”) In January 2016, the IASB issued IFRS 16 - Leases which replaces IAS 17 - Leases and its
associated interpretative guidance, including IFRIC 4 and SIC 15. IFRS 16 applies a control model to the identification
of leases, distinguishing between a lease and a non-lease component on the basis of whether the customer controls
the specific asset. For those contracts that are or contain a lease, IFRS 16 introduces significant changes to the
accounting for contracts that are or contain a lease, 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 anticipates that the adoption of IFRS 16 will result in an increase in the recognition of right of use
assets and lease liabilities related to leases with terms greater than 12 months in our Statement of Financial Position
at January 1, 2019. IFRS 16 will further result in increased depreciation and amortization on these right of use assets
and increased interest on these additional lease liabilities. These lease payments will be recorded as financing
outflows in our Consolidated Statements of Cash Flows.
The Company expects to identify and collect data relating to existing lease agreements during 2018.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration ("IFRIC 22") On December 8,
2016, the IASB issued IFRIC 22, which addresses the exchange rate to use in transactions that involve advance
consideration paid or received in a foreign currency. The standard provides guidance on how to determine the date
of the transaction for the purpose of determining the spot exchange rate used to translate the asset, expense or
income on initial recognition that relates to, and is recognized on the de-recognition of, a non-monetary prepayment
asset or a non-monetary deferred income liability. It is effective January 1, 2018. The Company is currently assessing
the impact on the adoption of this interpretation.
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. 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 Nominating and
Governance Committee, appointed by the Board of Directors, oversees the effective functioning of the Board and
the implementation of governance best practices.
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.
Corporate Social Responsibility
The Health, Safety, Environment, and Communities Committee, appointed by the Board of Directors, provides
oversight for the corporate social initiatives of the Company and reports directly to the Board. 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.
PAN AMERICAN SILVER CORP.
68
• Value adding through the development of alpaca textiles weaving workshops with product
commercialization in North America.
•
Improving nutrition, focusing on children and women.
• Promoting community health with emphasis on immunizations, optometry, and 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 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 facilities. 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.
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 staff from all mines participate in the audits, which improves integration and consolidation of company-
wide standards across our operations. In 2017, audits were conducted on the Dolores, La Colorada and Manantial
Espejo mines. In 2016, audits were conducted on the Huaron, Morococha, and San Vicente mines. No material issues
were identified in either the 2017 or 2016 environmental audits.
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.
PAN AMERICAN SILVER CORP.
69
As of December 31, 2017, 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, 2017, the
Company’s disclosure controls and procedures were effective.
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 as issued by the International Accounting Standards Board. 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 of December 31,
2017, 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 concluded
that, as of December 31, 2017, Pan American’s internal control over financial reporting was effective.
Management reviewed the results of management’s assessment with the Audit Committee of the Board of Directors.
Deloitte LLP, an independent registered public accounting firm, was 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, 2017. Deloitte LLP
has provided such opinions.
Changes in Internal Controls over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the period ended
December 31, 2017 that has materially affected or is reasonably likely to materially affect, its internal control over
financial reporting.
PAN AMERICAN SILVER CORP.
70
MINERAL RESERVES AND RESOURCES
Pan American Silver Corporation Mineral Reserves as of December 31, 2017 (1,2)
Property
Location
Classification
Tonnes
(Mt)
Ag
(g/t)
Contained
Ag (Moz)
Au
(g/t)
Contained
Au (koz)
Huaron
Peru
Morococha(92.3%) (3) Peru
La Colorada
Mexico
Dolores
La Bolsa
Mexico
Mexico
Manantial Espejo
Argentina
San Vicente (95%) (3)
Bolivia
Joaquin
COSE
Totals (4)
Argentina
Argentina
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Probable
Probable
Proven +
Probable
5.7
4.0
3.0
2.9
3.7
4.1
34.7
16.3
9.5
6.2
1.5
0.6
1.9
0.6
0.5
0.1
167
169
160
159
413
378
30
25
10
7
91
305
416
449
721
918
30.8
21.7
15.3
14.9
48.9
49.3
33.0
13.1
3.1
1.4
4.4
5.6
25.6
8.1
11.0
2.2
N/A
N/A
N/A
N/A
0.33
0.31
0.93
0.69
0.67
0.57
0.77
3.37
N/A
N/A
0.41
17.7
N/A
N/A
N/A
N/A
38.8
39.8
1,040.8
360.3
202.9
113.1
37.5
61.6
N/A
N/A
6.2
43.3
Cu
(%)
0.47
0.47
0.53
0.36
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.43
0.50
N/A
N/A
Contained
Cu (kt)
27.1
19.0
15.8
10.6
8.3
2.8
Contained
Pb (kt)
81.8
62.0
31.7
44.7
60.8
50.1
6.8
2.6
Pb
(%)
1.43
1.55
1.06
1.53
1.65
1.23
N/A
N/A
N/A
N/A
N/A
N/A
0.36
0.46
N/A
N/A
Contained
Zn (kt)
169.0
116.5
107.3
106.6
109.6
86.7
57.3
16.3
Zn
(%)
2.95
2.91
3.59
3.64
2.97
2.14
N/A
N/A
N/A
N/A
N/A
N/A
3.00
2.92
N/A
N/A
95.1
94
288.4
0.79
1,944.4
0.46
83.4
1.32
340.5
2.98
769.3
(1) Prices used to estimate mineral reserves for 2017 were $18.50 per ounce of silver, $1,300 per ounce of gold, $2,600 per tonne of zinc, $2,200 per
tonne of lead, and $5,500 per tonne of copper, except at Manantial Espejo where $16.50 per ounce of silver and $1,250 per ounce of gold were
used for planned 2018 production, reverting to $18.50 per ounce of silver and $1,300 per ounce of gold thereafter. Metal prices used for La
Bolsa were $14.00 per ounce of silver and $825 per ounce of gold.
(2) Mineral reserve estimates were prepared under the supervision of, or were reviewed by, Christopher Emerson, FAusIMM, Vice President
Business Development and Geology and Martin G. Wafforn, P.Eng., Senior Vice President Technical Services and Process Optimization, each of
whom are Qualified Persons as that term is defined in National Instrument 43-101 (“NI 43-101").
(3) This information represents the portion of mineral reserves attributable to Pan American based on its ownership interest in the operating entity
as indicated.
(4) Totals may not add up due to rounding.
PAN AMERICAN SILVER CORP.
71
Pan American Silver Corporation Mineral Resources as of December 31, 2017 (1,2)
Location
Classification
Tonnes
(Mt)
Ag
(g/t)
Contained Ag
(Moz)
Au
(g/t)
Contained Au
(koz)
Cu (%)
Pb (%)
Zn (%)
Property
Huaron
Morococha (92.3%) (3)
La Colorada
Dolores
La Bolsa
Peru
Peru
Mexico
Mexico
Mexico
Manantial Espejo
Argentina
San Vicente (95%) (3)
Bolivia
Navidad
Argentina
Pico Machay
Peru
Joaquin
Totals (4)
Argentina
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Indicated
Measured
+Indicated
2.2
1.5
0.3
0.5
0.5
1.8
4.8
3.5
1.4
4.5
0.1
0.4
0.8
0.1
15.4
139.8
4.7
5.9
0.1
188.0
162
167
153
152
220
221
18
21
11
9
145
192
148
177
137
126
N/A
N/A
385
120
11.3
7.9
1.4
2.3
3.4
12.9
2.8
2.3
0.5
1.3
0.4
2.4
3.8
0.4
67.8
564.5
N/A
N/A
0.7
686.2
N/A
N/A
N/A
N/A
0.22
0.19
0.28
0.50
0.90
0.50
1.89
1.91
N/A
N/A
N/A
N/A
0.91
0.67
0.58
0.59
N/A
N/A
N/A
N/A
3.5
11.0
43.1
56.2
39.9
71.2
4.7
24.2
N/A
N/A
N/A
N/A
137.5
127.1
1.1
0.22
0.28
0.20
0.42
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.20
0.23
0.10
0.04
N/A
N/A
N/A
1.58
1.66
0.72
1.01
0.74
0.39
N/A
N/A
N/A
N/A
N/A
N/A
0.17
0.19
1.44
0.79
N/A
N/A
N/A
3.00
3.20
1.66
2.32
1.04
0.66
N/A
N/A
N/A
N/A
N/A
N/A
2.31
1.43
N/A
N/A
N/A
N/A
N/A
519.6
0.05
0.86
2.17
(1) Prices used to estimate mineral resources for 2017 were $18.50 per ounce of silver, $1,300 per ounce of gold, $2,600 per tonne of zinc, $2,200
per tonne of lead, and $5,500 per tonne of copper, except at Dolores, Manantial Espejo, and Joaquin, where $25.00 per ounce of silver and
$1,400 per ounce of gold were used. Metal prices used for La Bolsa were $14.00 per ounce of silver and $825 per ounce of gold. Metal prices
for Navidad were $12.52 per ounce of silver and $1,100 per tonne of lead.
(2) Mineral resource estimates were prepared under the supervision of, or were reviewed by, Christopher Emerson, FAusIMM, Vice President
Business Development and Geology and Martin G. Wafforn, P.Eng., Senior Vice President Technical Services and Process Optimization, each of
whom are Qualified Persons as that term is defined in NI 43-101.
(3) This information represents the portion of mineral resources attributable to Pan American based on its ownership interest in the operating
entity as indicated.
(4) Totals may not add up due to rounding.
Pan American Silver Corporation Mineral Resources as of December 31, 2017 (1,2)
Location
Classification
Tonnes
(Mt)
Ag (g/t)
Contained Ag
(Moz)
Au (g/t)
Contained Au
(koz)
Cu (%)
Pb (%)
Zn (%)
Property
Huaron
Morococha (92.3%) (3)
La Colorada
Dolores
La Bolsa
Navidad
Pico Machay
Joaquin
COSE
Totals (4)
Peru
Peru
Mexico
Mexico
Mexico
Inferred
Inferred
Inferred
Inferred
Inferred
Argentina
Inferred
Peru
Inferred
Argentina
Inferred
Argentina
Inferred
Manantial Espejo
Argentina
Inferred
San Vicente (95%) (3)
Bolivia
Inferred
6.6
4.4
3.7
1.7
13.7
0.4
3.3
45.9
23.9
0.01
0.03
163
148
247
60
8
187
295
81
N/A
389
382
96
34.5
21.0
29.4
3.3
3.3
2.3
31.6
119.4
N/A
0.1
0.3
245.3
N/A
N/A
0.25
1.44
0.51
2.69
N/A
N/A
0.58
1.29
7.10
0.59
N/A
N/A
30.3
79.6
224.6
33.4
N/A
N/A
445.7
0.2
6.3
0.41
0.62
N/A
N/A
N/A
N/A
0.27
0.02
N/A
N/A
N/A
1.51
1.12
2.11
N/A
N/A
N/A
0.35
0.57
N/A
N/A
N/A
2.76
3.31
3.39
N/A
N/A
N/A
2.92
N/A
N/A
N/A
N/A
820.2
0.12
0.78
2.79
Inferred
103.7
(1) Prices used to estimate mineral resources for 2017 were $18.50 per ounce of silver, $1,300 per ounce of gold, $2,600 per tonne of zinc, $2,200
per tonne of lead, and $5,500 per tonne of copper, except at Dolores, Manantial Espejo, and Joaquin, where $25.00 per ounce of silver and
$1,400 per ounce of gold were used. Metal prices used for La Bolsa were $14.00 per ounce of silver and $825 per ounce of gold. Metal prices for
Navidad were $12.52 per ounce of silver and $1,100 per tonne of lead.
(2) Mineral resource estimates were prepared under the supervision of, or were reviewed by, Christopher Emerson, FAusIMM, Vice President
Business Development and Geology and Martin G. Wafforn, P.Eng., Senior Vice President Technical Services and Process Optimization, each of
whom are Qualified Persons as that term is defined in NI 43-101.
(3) This information represents the portion of mineral resources attributable to Pan American based on its ownership interest in the operating entity
as indicated.
(4) Totals may not add up due to rounding.
PAN AMERICAN SILVER CORP.
72
Dolores, Mexico, as of December 31, 2017:
Location
Classification
Tonnes (Mt)
Ag ppm
Ag contained metal
(Moz)
Au ppm
Au contained metal
(koz)
Proven
Probable
Open pit
Proven + Probable
Proven
Probable
Underground
Proven + Probable
Proven
Probable
Stockpiles
Proven + Probable
Proven
Probable
All
Proven + Probable
27.7
14.7
42.5
2.4
1.6
4.0
4.5
0
4.5
34.7
16.3
51.0
28
21
25
71
59
66
20
0
20
30
25
28
24.6
10.0
34.7
5.5
3.0
8.6
2.8
0
2.8
33.0
13.1
46.1
0.98
0.55
0.83
1.53
1.93
1.69
0.32
0
0.32
0.93
0.69
0.85
875.0
260.6
1,135.6
119.9
99.7
219.6
45.9
0
45.9
1,040.8
360.3
1,401.1
Notes: Totals may not add up due to rounding. Mineral reserve estimates were prepared under the supervision of or were reviewed by Martin Wafforn, P.
Eng., Senior Vice President, Technical Services and Process Optimization of Pan American. Mineral reserves have been estimated using metal prices of
$18.50 per ounce of silver and $1,300 per ounce of gold.
General Notes Applicable to the Foregoing Tables:
Mineral reserves and resources are as defined by the Canadian Institute of Mining, Metallurgy and Petroleum.
Pan American reports mineral resources and mineral reserves separately. Reported mineral resources do not include
amounts identified as mineral reserves. 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 22, 2018, available at www.sedar.com for further
information on the Company's material mineral properties, including information concerning associated QA/QC and
data verification matters, the key assumptions, parameters 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.
TECHNICAL INFORMATION
Scientific and technical information contained in this MD&A has been reviewed and approved by Martin Wafforn,
P.Eng., Senior Vice President Technical Services and Processing Optimization, and Christopher Emerson, FAusIMM,
Vice President Business Development and Geology, each of whom are Qualified Persons, as the term is defined in NI
Canadian National Instrument 43-101 - Standards of Disclosure of Mineral Projects.
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 22, 2018, filed at www.sedar.com or the Company’s most recent
Form 40-F filed with the SEC.
PAN AMERICAN SILVER CORP.
73
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”, “intents”, “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 financial and operational
performance; 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 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 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,
including the development of the Joaquin and COSE projects, and the anticipated financial and operational results
of such projects; forecast capital and non-operating spending; the timing and method of payment of compensation;
anticipated volatility in effective tax rates and contributing factors; and the Company’s plans and expectations for its
properties and operations.
These forward-looking statements and information 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 operational, business, economic, competitive, political, regulatory, and
social uncertainties and contingencies. These assumptions include: tonnage of ore to be mined and processed; ore
grades and recoveries; prices for silver, gold and base metals remaining as estimated; currency exchange rates
remaining as estimated; capital, decommissioning and reclamation estimates; our mineral reserve and resource
estimates and the assumptions upon which they are based; prices for energy inputs, labour, materials, supplies and
services (including transportation); no labour-related disruptions at any of our operations; no unplanned delays or
interruptions in scheduled production; all necessary permits, licenses 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.
The Company cautions the reader that forward-looking statements and information involve known and unknown
risks, uncertainties and other factors that may cause actual results and developments to differ materially from those
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 silver, gold, and base metal prices; fluctuations in prices for energy inputs; fluctuations in
currency markets (such as the PEN, MXN, ARS, BOL and CAD versus the USD); 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, legal or economic developments in Canada, the United States, Mexico, Peru, Argentina,
Bolivia or other countries where the Company may carry on business, including the risk of expropriation relative to
certain of our operations, particularly in Argentina and Bolivia; 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 the 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 risk 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 parameters to deal with
PAN AMERICAN SILVER CORP.
74
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, respectively. 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. Investors are cautioned against attributing undue certainty or reliance on forward-
looking statements or 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, and does not assume any obligation, to update these forward-looking
statements or information to reflect changes in assumptions or in circumstances or any other events affecting such
statements or information, other than as required by applicable law.
Cautionary Note to U.S. 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 the MD&A have been disclosed in accordance with NI 43-101 and the Canadian Institute of Mining,
Metallurgy, and Petroleum Definition Standards. 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 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 resource”,
“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 Silver Corp.,
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 for 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 in
to 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 the “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 may not be comparable with information
made public companies that report in accordance with U.S. standards.
PAN AMERICAN SILVER CORP.
75
Consolidated Financial Statements and Notes
FOR THE YEARS ENDED DECEMBER 31, 2017 AND DECEMBER 31, 2016
PAN AMERICAN SILVER CORP.
76
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 ("IFRS") as issued by the International Accounting
Standards Board (“IASB”). 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"
Michael Steinmann
Chief Executive Officer
March 22, 2018
"signed"
A. Robert Doyle
Chief Financial Officer
PAN AMERICAN SILVER CORP.
77
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Pan American Silver Corp.
Opinion on the Consolidated Financial Statements
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, 2017 and December 31, 2016, the consolidated income statements, consolidated statements of
comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity
for the years then ended, and the related notes, including a summary of significant accounting policies and other
explanatory information (collectively referred to as the “financial statements”).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as at December 31, 2017 and December 31, 2016, and its financial performance and its cash flows for
the years then ended in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board.
Report on Internal Control over Financial Reporting
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based
on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 22, 2018 expressed an unqualified opinion
on the Company’s internal control over financial reporting.
Basis for Opinion
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these 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 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 financial statements based on our audits. We conducted our
audits in accordance with Canadian generally accepted auditing standards and the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement, whether due to fraud or error. Those standards also require that
we comply with ethical requirements. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. Further, we are
required to be independent of the Company in accordance with the ethical requirements that are relevant to our
PAN AMERICAN SILVER CORP.
78
audit of the financial statements in Canada and to fulfill our other ethical responsibilities in accordance with these
requirements.
An audit includes performing procedures to assess the risks of material misstatement of the financial statements,
whether due to fraud or error, and performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. The
procedures selected depend on our judgment, including the assessment of the risks of material misstatement of
the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal
control relevant to the Company’s preparation and fair presentation of the financial statements in order to design
audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness
of accounting policies and principles used and the reasonableness of accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
reasonable basis for our audit opinion.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 22, 2018
We have served as the Company's auditor since 1993.
PAN AMERICAN SILVER CORP.
79
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Pan American Silver Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Pan American Silver Corp. and subsidiaries (the
“Company”) as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by
COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB) and Canadian generally accepted auditing standards, the consolidated financial
statements as at and for the year ended December 31, 2017, of the Company and our report dated March 22,
2018, expressed an unmodified/unqualified opinion on those financial statements.
Basis for Opinion
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 are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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
PAN AMERICAN SILVER CORP.
80
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 its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 22, 2018
PAN AMERICAN SILVER CORP.
81
Assets
Current assets
Cash and cash equivalents (Note 25)
Short-term investments (Note 8)
Trade and other receivables (Note 7)
Income taxes receivable
Inventories (Note 9)
Derivative financial instruments (Note 7)
Assets held for sale (Note 10)
Prepaid expenses and other current assets
Non-current assets
Mineral properties, plant and equipment (Note 10)
Long-term refundable tax
Deferred tax assets (Note 28)
Investment in associates (Note 12)
Other assets (Note 13)
Goodwill (Note 11)
Total Assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 14)
Loans payable (Note 15)
Derivative financial instruments (Note 7)
Current portion of provisions (Note 16)
Current portion of finance lease (Note 17)
Income tax payable
Non-current liabilities
Long-term portion of provisions (Note 16)
Deferred tax liabilities (Note 28)
Long-term portion of finance lease (Note 17)
Long-term debt (Note 18)
Deferred revenue (Note 12)
Other long-term liabilities (Note 19)
Share purchase warrants (Note 12)
Total Liabilities
Equity
Capital and reserves (Note 20)
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, 29); subsequent events (Note 10)
See accompanying notes to the consolidated financial statements
APPROVED BY THE BOARD ON MARCH 22, 2018
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
December 31,
2017
December 31,
2016
$
$
$
$
$
$
$
175,953
51,590
109,746
16,991
218,715
1,092
7,949
13,434
595,470
1,336,683
80
2,679
55,017
346
3,057
1,993,332
139,698
3,000
1,906
8,245
5,734
26,131
184,714
61,248
171,228
1,825
—
12,017
26,954
14,295
472,281
180,881
36,729
130,117
17,460
237,329
—
—
10,337
612,853
1,222,727
7,664
1,727
49,734
379
3,057
1,898,141
143,502
—
2,815
8,499
3,559
25,911
184,286
51,444
170,863
3,542
36,200
11,561
27,408
13,833
499,137
2,318,252
22,463
1,605
(825,470)
1,516,850
4,201
1,521,051
1,993,332
$
2,303,978
22,946
434
(931,060)
1,396,298
2,706
1,399,004
1,898,141
"signed" Ross Beaty, Director
"signed" Michael Steinmann, Director
PAN AMERICAN SILVER CORP.
82
Consolidated Income Statements
(in thousands of U.S. dollars except per share amounts)
Revenue (Note 26)
Cost of sales
Production costs (Note 21)
Depreciation and amortization (Note 10)
Royalties
Mine operating earnings
General and administrative
Exploration and project development
Foreign exchange gains (losses)
Impairment reversals (Note 11)
Gains (losses) on commodity, diesel fuel swaps, and foreign currency contracts (Note 7)
Gain on sale of mineral properties, plant and equipment (Note 10)
Share of loss from associate and dilution gain (Note 12)
Other (expense) income (Note 27)
Earnings from operations
Gain on derivatives (Note 7)
Investment income
Interest and finance expense (Note 23)
Earnings before income taxes
Income tax expense (Note 28)
Net earnings for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share attributable to common shareholders (Note 24)
Basic earnings per share
Diluted earnings per share
Weighted average shares outstanding (in 000’s) Basic
Weighted average shares outstanding (in 000’s) Diluted
See accompanying notes to the consolidated financial statements.
2017
816,828
$
2016
774,775
$
(500,670)
(122,888)
(24,510)
(648,068)
168,760
(21,397)
(19,755)
1,823
61,554
606
191
2,052
(5,505)
188,329
64
1,277
(7,185)
182,485
(59,034)
123,451
120,991
2,460
123,451
0.79
0.79
153,070
153,353
$
$
$
$
$
(428,333)
(115,955)
(31,608)
(575,896)
198,879
(23,663)
(11,334)
(9,054)
—
(4,944)
25,100
7,946
1,542
184,472
—
1,350
(9,551)
176,271
(74,446)
101,825
100,085
1,740
101,825
0.66
0.66
152,118
152,504
$
$
$
$
$
PAN AMERICAN SILVER CORP.
83
Consolidated Statements of Comprehensive Income
(in thousands of U.S. dollars)
Net earnings for the year
Items that may be reclassified subsequently to net earnings:
Unrealized net gains on available for sale securities
(net of $nil tax in 2017 and 2016)
Reclassification adjustment for realized losses (gains) on equity securities to earnings (net of $nil tax in
2017 and 2016)
Total comprehensive earnings for the year
Total comprehensive earnings attributable to:
Equity holders of the Company
Non-controlling interests
See accompanying notes to the consolidated financial statements.
2017
123,451
$
2016
101,825
810
361
912
(20)
124,622
$
102,717
122,162
2,460
124,622
$
$
100,977
1,740
102,717
$
$
$
$
PAN AMERICAN SILVER CORP.
84
Cash flow from operating activities
Net earnings for the year
Current income tax expense (Note 28)
Deferred income tax (recovery) expense (Note 28)
Interest (recovery) expense (Note 23)
Depreciation and amortization (Note 10)
Impairment reversals (Note 11)
Accretion on closure and decommissioning provision (Note 16)
Unrealized (gains) losses on foreign exchange
(Gains) losses on commodity, diesel fuel swaps, and foreign currency contracts (Note 7)
Gain on sale of mineral properties, plant and equipment
Project development write-down
Other operating activities (Note 25)
Changes in non-cash operating working capital (Note 25)
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
Acquisition of mineral interests
Net (purchase) proceeds from sales of short-term investments
Proceeds from sale of mineral properties, plant and equipment
Purchase of shares in associate (Note 12)
Net payments from commodity, diesel fuel swaps, and foreign currency contracts
Exercise of warrants and other payments
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of equity shares
Distributions to non-controlling interests
Dividends paid
Repayment of credit facility
Proceeds from (payment of) short-term loans (Note 15)
Payment of equipment leases
Net cash used in financing activities
Effects of exchange rate changes on cash and cash equivalents
Net (decrease) increase 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
Supplemental cash flow information (Note 25).
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
2017
2016
$
123,451
$
101,825
62,877
(3,843)
(1,179)
122,888
(61,554)
5,973
(383)
(606)
(191)
1,898
13,269
11,709
274,309
(2,367)
1,462
(48,845)
224,559
$
$
(142,232) $
(20,219)
(14,267)
1,674
(2,473)
(304)
—
(177,821) $
$
2,606
(1,052)
(15,314)
(36,200)
3,000
(4,542)
(51,502) $
(164)
(4,928)
180,881
175,953
$
44,031
30,415
2,115
115,955
—
4,363
5,759
4,944
(25,100)
—
(46,935)
(5,545)
231,827
(2,553)
1,382
(15,852)
214,804
(202,661)
—
56,870
16,319
—
(4,965)
(5,460)
(139,897)
2,399
(428)
(7,606)
—
(19,536)
(3,047)
(28,218)
229
46,918
133,963
180,881
$
$
$
$
$
$
$
PAN AMERICAN SILVER CORP.
85
Consolidated Statements of Changes in Equity
(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
Deficit
Total
Non-
controlling
interests
Total
equity
Balance, December 31, 2015
151,883,734
$ 2,298,390
$
22,829
$
(458) $(1,023,539) $ 1,297,222
$
1,394
$ 1,298,616
Total comprehensive earnings
Net earnings for the year
Other comprehensive income
Shares issued on the exercise
of stock options
Shares issued as
compensation (Note 25)
Share-based compensation
on option grants
Distributions by subsidiaries
to non-controlling interests
Dividends paid
—
—
—
254,146
196,772
—
—
—
—
—
—
3,223
2,365
—
—
—
—
—
—
(824)
—
941
—
—
—
892
892
—
—
—
—
—
100,085
100,085
—
892
100,085
100,977
—
—
—
—
2,399
2,365
941
—
(7,606)
(7,606)
1,740
—
1,740
—
—
—
(428)
—
101,825
892
102,717
2,399
2,365
941
(428)
(7,606)
Balance, December 31, 2016
152,334,652
$ 2,303,978
$
22,946
$
434
$ (931,060) $ 1,396,298
$
2,706
$ 1,399,004
Total comprehensive earnings
Net earnings for the year
Other comprehensive income
Shares issued on the exercise
of stock options
Shares issued as
compensation (Note 25)
Share-based compensation
on option grants
Acquisition of mineral
interests
Distributions by subsidiaries
to non-controlling interests
Dividends paid
—
—
—
307,266
135,404
—
—
—
—
3,604
2,020
—
525,654
8,650
—
—
—
—
—
—
—
(998)
—
515
—
—
—
—
1,171
1,171
120,991
—
120,991
120,991
1,171
122,162
2,460
—
2,460
123,451
1,171
124,622
—
—
—
—
—
—
—
—
—
—
2,606
2,020
515
8,650
—
—
—
—
2,606
2,020
515
8,650
(87)
(87)
(15,314)
(15,314)
(965)
—
(1,052)
(15,314)
Balance, December 31, 2017
153,302,976
$ 2,318,252
$
22,463
$
1,605
$ (825,470) $ 1,516,850
$
4,201
$ 1,521,051
See accompanying notes to the consolidated financial statements.
PAN AMERICAN SILVER CORP.
86
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
1. NATURE OF OPERATIONS
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, and
Mexico.
At December 31, 2017, the Company’s principal producing properties comprised of the Huaron and Morococha mines
located in Peru, the 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 projects at December 31, 2017 were the Cap-Oeste Sur Este ("COSE"), Joaquin,
and Navidad projects 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 22, 2018.
b. Basis of Preparation
The Company’s accounting policies have been applied consistently in preparing these consolidated annual financial
statements for the year ended December 31, 2017, and the comparative statements as at December 31, 2016.
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 attributable to non-controlling shareholders are presented as "non-
controlling interests" in the consolidated statements of financial position and the net earnings attributable to non-
controlling shareholders are presented as “net earnings attributable to non-controlling interests” 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.
PAN AMERICAN SILVER CORP.
87
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The consolidated financial statements include the wholly-owned and partially-owned subsidiaries of the Company;
the most significant at December 31, 2017 and 2016 are presented in the following table:
Subsidiary
Location
Ownership
Interest
Accounting
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.
Peru
Peru
Mexico
Mexico
Mexico
Minera Tritón Argentina S.A.
Minera Joaquin S.R.L.
Pan American Silver (Bolivia) S.A.
Minera Argenta S.A.
Argentina
Argentina
Bolivia
Argentina
Huaron mine
100% Consolidated
92% Consolidated Morococha mine
100% Consolidated
100% Consolidated
100% Consolidated
Alamo Dorado mine
La Colorada mine
Dolores mine
Manantial Espejo mine &
COSE project
Joaquin project
San Vicente mine
Navidad Project
100% Consolidated
100% Consolidated
95% Consolidated
100% Consolidated
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 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 consolidated 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.
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
PAN AMERICAN SILVER CORP.
88
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
The Company recognizes deferred revenue in the event it receives payments from customers in consideration for
future commitments to deliver metals and before such sale meets the criteria for revenue recognition. The Company
recognizes amounts in revenue as the metals are delivered to the customer. Specifically, for the metal agreements
entered into with Maverix Metals Inc. ("Maverix"), the Company determines the amortization of deferred revenue
to the Consolidated Income Statement on a per unit basis using the estimated total quantity of metal expected to be
delivered to Maverix over the terms of the contract. The Company estimates the current portion of deferred revenue
based on quantities anticipated to be delivered over the next twelve months
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
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
PAN AMERICAN SILVER CORP.
89
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 and cash
equivalents’ 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 current assets. 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 securities.
The translation differences are recognized in the consolidated income statement. Any impairment charges are also
recognized in the consolidated income statement, while other changes in fair value are recognized in the investment
revaluation reserve. When financial assets classified as available-for-sale are sold, the accumulated fair value
adjustments previously recognized in the investment revaluation reserve are reclassified to the consolidated income
statement. Dividends on available-for-sale equity instruments are also recognized in the consolidated 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. Other long-term investments
that are intended to be held-to-maturity, 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.
PAN AMERICAN SILVER CORP.
90
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
(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 quoted 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.
(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
consolidated income statement is transferred from the investment revaluation reserve to the consolidated income
statement. Reversals in respect of equity instruments classified as available-for-sale are not recognized in the
consolidated income statement. Reversals of impairment losses on debt instruments are reversed through the
consolidated 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.
PAN AMERICAN SILVER CORP.
91
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
(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.
(ix) Share purchase warrant liabilities
Share purchase warrant liabilities are recognized initially at fair value and subsequently measured at amortized cost
using the effective interest rate 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 settled all of its outstanding convertible notes during the year ended December 31,
2016. Previously, the Company had the right to pay all or part of the liability associated with the Company’s convertible
notes in cash on the conversion date. Accordingly, the Company previously classified the convertible notes as a financial
liability with an embedded derivative. The financial liability and embedded derivative was recognized initially at their
respective fair values. The embedded derivative was subsequently recognized at fair value with changes in fair value
reflected in profit or loss and the debt liability component was recognized at amortized cost using the effective interest
method. Interest gains and losses related to the debt liability component or embedded derivatives was recognized
in profit or loss. On conversion, the equity instrument would have been 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 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
PAN AMERICAN SILVER CORP.
92
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 is 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 and trends in the levels of carried ounces depending on the circumstances
or cumulative pad recoveries.
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
PAN AMERICAN SILVER CORP.
93
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 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's 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.
PAN AMERICAN SILVER CORP.
94
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 units of
production basis.
In applying the units of production method, depreciation is normally calculated using the quantity of material extracted
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
PAN AMERICAN SILVER CORP.
95
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
• 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 expenditures arise 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 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 unrecoverable 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. A reversal of impairment test is
performed whenever there is an indication that impairment may have reversed. When an impairment loss reverses
in a subsequent period, the revised carrying amount shall not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset previously, less subsequent depreciation and
depletion. Impairments and reversals of impairment are recognized in net earnings in the period in which they occur.
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 expenditures
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.
PAN AMERICAN SILVER CORP.
96
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
Asset Impairment: Management reviews and evaluates its assets for impairment, or reversals of impairment, when
events or changes in circumstances indicate that the related carrying amounts may not be recoverable or when there
is an indication that impairment may have reversed. Impairment is normally assessed at the level of cash-generating
units which are identified as the smallest identifiable group of assets that generate 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 ("FVLCTS") 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 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 affecting 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
PAN AMERICAN SILVER CORP.
97
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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. Expenditures 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. 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 restricted share units ("RSUs),
performance share units ("PSUs"), 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.
PAN AMERICAN SILVER CORP.
98
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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). 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 vested 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
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
PAN AMERICAN SILVER CORP.
99
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 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
PAN AMERICAN SILVER CORP.
100
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
3. CHANGES IN ACCOUNTING STANDARDS
Application of new and revised accounting standards
The Company has adopted the narrow scope amendments to IFRS 12 - Disclosure of Interests in Other Entities, IAS
12 - Income Taxes, and IAS 7 - Statement of Cash Flows, which were effective for annual periods beginning on or
after January 1, 2017. The amendments did not have an impact on the Company’s consolidated financial
statements.
Changes in accounting standards not yet effective
The Company has not early adopted any amendment, standard or interpretation that has been issued by the IASB
but is 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 provides a revised model for recognition and measurement of
financial instruments and a single, forward-looking 'expected loss' impairment model. 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. IFRS 9 is effective for annual periods beginning on or after January
1, 2018, with early adoption permitted. The Company will apply IFRS 9 at the date it becomes effective. Retrospective
application is required, except for hedge accounting, which is not applied by the Company and which requires
prospective application.
IFRS 9 will result in the following significant changes compared to the current standards: The classification of
financial assets and liabilities are expected to remain consistent under IFRS except for equity securities. The
Company will designate its equity securities as financial assets at fair value through profit or loss ("FVTPL"), where
they will be recorded initially at fair value. Changes in fair value will be recorded in earnings (loss). Prior to
adoption of this new standard changes in fair value were recorded in other comprehensive income and
subsequently transferred into earnings (loss) upon disposition.
The introduction of the new "expected credit loss" impairment model under IFRS 9, as opposed to an incurred
credit loss model under IAS 39, does not have a significant impact on the Company's accounts receivable given the
Company sells its products exclusively to large international financial institutions and other organizations with
strong credit ratings, the negligible historical level of customer default, and the short term nature of the
Company's receivables
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) In May 2014, the IASB issued IFRS 15 Revenue from
Contracts with Customers, which covers principles that an entity shall apply to report useful information to users of
financial statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a
contract with a customer. IFRS 15 introduces a revenue recognition model under which an entity recognizes revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to
which the entity expects to be entitled in exchange for those goods or services. The standard is effective for annual
reporting periods beginning on or after January 1, 2018, and requires either a modified retrospective application or
full retrospective application. The Company will adopt IFRS 15 using the modified retrospective transition approach,
whereby the cumulative impact of adoption is recognized in retained earnings as of January 1, 2018 and comparative
period balances are not restated.
PAN AMERICAN SILVER CORP.
101
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Further, IFRS 15 introduces the concept of performance obligations that are defined as ‘distinct’ promised goods or
services, and requires entities to apportion revenue earned to the distinct performance obligations on a relative stand
alone selling price basis. The Company may from time to time enter into concentrate contracts where the Company
is responsible for shipping and insurance costs necessary to bring the goods to a named destination after the date
on which control of the goods is transferred to the customer. Accordingly, under IFRS 15, where material, a portion
of the revenue earned under such contracts, representing the obligation to fulfill the shipping and insurance services,
will be deferred and recognized over the time the obligations are fulfilled. As the amounts associated with any such
services are insignificant compared to the total value of contract, and the fact that many contracts would be completed
within a financial reporting period, the Company does not expect the impact of treating these services as separate
performance obligations to have a material impact on the Company’s consolidated financial statements.
The Company’s concentrate sales are subject to provisional pricing provisions, and the Company has determined that
the recognition of revenue related to these sales will not be significantly affected by IFRS 15. However, separate
presentation of the provisional pricing adjustments will be required in the revenue note disclosure.
IFRS 16, Leases (“IFRS 16”) In January 2016, the IASB issued IFRS 16 - Leases which replaces IAS 17 - Leases and its
associated interpretative guidance, including IFRIC 4 and SIC 15. IFRS 16 applies a control model to the identification
of leases, distinguishing between a lease and a non-lease component on the basis of whether the customer controls
the specific asset. For those contracts that are or contain a lease, IFRS 16 introduces significant changes to the
accounting for contracts that are or contain a lease, 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 anticipates that the adoption of IFRS 16 will result in an increase in the recognition of right of use
assets and lease liabilities related to leases with terms greater than 12 months in our Statement of Financial Position
at January 1, 2019. IFRS 16 will further result in increased depreciation and amortization on these right of use assets
and increased interest on these additional lease liabilities. These lease payments will be recorded as financing
outflows in our Consolidated Statements of Cash Flows.
The Company expects to identify and collect data relating to existing lease agreements during 2018.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration ("IFRIC 22") On December 8,
2016, the IASB issued IFRIC 22, which addresses the exchange rate to use in transactions that involve advance
consideration paid or received in a foreign currency. The standard provides guidance on how to determine the date
of the transaction for the purpose of determining the spot exchange rate used to translate the asset, expense or
income on initial recognition that relates to, and is recognized on the de-recognition of, a non-monetary prepayment
asset or a non-monetary deferred income liability. It is effective January 1, 2018. The Company is currently assessing
the impact on the adoption of this interpretation.
PAN AMERICAN SILVER CORP.
102
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 the 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 FVLCTS in the case of non-financial
assets, and at objective evidence that identifies significant or prolonged decline of fair value on financial assets
classified as available-for-sale 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.
• Determination of control of subsidiaries and joint arrangements: Determination of whether the Company has
control of subsidiaries or joint control of joint arrangements requires an assessment of the activities of the investee
that significantly affect the investee's returns, including strategic, operational and financing decision-making,
appointment, remuneration and termination of the key management personnel and when decisions related to
those activities are under the control of the Company or require unanimous consent from the investors. Based
on assessment of the relevant facts and circumstances, primarily, the Company's limited board representation
and restricted influence over operating, strategic and financing decisions, the Company concluded that it does
not control Maverix and as a result classified it as an investment in associate subject to significant influence (Note
12).
• 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,
PAN AMERICAN SILVER CORP.
103
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, 2017, the
carrying amount of stripping costs capitalized was $47.7 million comprised entirely of Dolores (December 31,
2016 - $40.3 million was capitalized comprised entirely of Dolores).
• 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 with Aquiline Resources Inc., a wholly owned subsidiary of the Company. The holder
subsequently selected the silver stream contract related to certain production from the Navidad project. The
silver stream contract is classified and accounted for as a deferred credit. In determining the appropriate
classification of the silver stream contract 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, 2017, the carrying amount
of the deferred credit arising from the Aquiline acquisition was $20.8 million (2016 - $20.8 million).
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 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 disclosed 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 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 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.
PAN AMERICAN SILVER CORP.
104
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
• Depreciation and amortization rates for mineral properties, 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, or impairment reversal, of mining interests: While assessing whether any indications of impairment,
or impairment reversal, 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 that 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. Changes
in metal price forecasts, increases or decreases in estimated future costs of production, increases or decreases
in estimated future capital costs, reductions or increases in the amount of recoverable mineral reserves and
mineral resources and/or adverse or favorable current economics can result in a write-down or write-up of the
carrying amounts of the Company’s mining interests. Impairments and impairment reversals of mining interests
are discussed in Note 11.
• Estimation of decommissioning and reclamation 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 expenditures required to settle the present
obligation of decommissioning, restoration or similar liabilities that may occur upon decommissioning of the mine
at the end of its productive life. 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 16 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 resources acquired, 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
PAN AMERICAN SILVER CORP.
105
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
acquired and liabilities assumed, deferred income taxes and resulting goodwill, if any, are retrospectively adjusted
when the final measurements are determined if related to conditions existing at the date of acquisition (within
one year of the acquisition date).
• Provisions and 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 change, the Company will recognize the effects of the changes in its consolidated financial
statements on the date such changes occur. Refer to Note 29 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 the 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 deficit, plus
investment revaluation reserve) with a balance of $1.5 billion as at December 31, 2017 (December 31, 2016 - $1.4
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, 2016. Refer to Note 18
for details of the Company’s revolving credit facility and related covenants.
7. FINANCIAL INSTRUMENTS
a) Financial assets and liabilities classified as at FVTPL
The Company’s financial assets and liabilities classified as at FVTPL are as follows:
Current derivative assets:
Warrants
Current derivative liabilities:
Zinc contracts
Lead Contracts
Copper contracts
Foreign currency contracts
December 31,
2017
December 31,
2016
$
$
1,092
1,092
$
$
—
—
December 31,
2017
December 31,
2016
$
$
716
243
891
56
1,906
$
$
1,769
54
—
992
2,815
PAN AMERICAN SILVER CORP.
106
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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:
Trade receivables from provisional concentrates sales
Advances to suppliers(1)
Not arising from sale of metal concentrates(2)
Trade and other receivables
(1)
(2)
Advances to suppliers are not classified as financial instruments.
Accounted for at amortized cost.
December 31,
2017
December 31,
2016
$
$
51,952
14,327
43,467
109,746
$
$
44,960
28,762
56,395
130,117
The net gains (losses) on derivatives for the year ended December 31, 2017 and 2016 were comprised of the
following:
Gains (losses) on commodity and diesel fuel swap and foreign currency contracts:
Realized losses on foreign currency, diesel fuel swap and commodity contracts
Unrealized gains on foreign currency, diesel fuel swap and commodity contracts
Gain on derivatives:
Gain on warrants
b. Normal purchase or sale exemption
Year ended
December 31,
2017
2016
(304) $
910
606
$
64
64
$
$
(4,965)
21
(4,944)
—
—
$
$
$
$
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”. These contracts and the host part of
the contracts containing embedded derivatives 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 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 net gains on available-
for-sale investments recognized in other comprehensive income for the year ended December 31, were as follows:
Unrealized net gains on available for sale securities
Reclassification adjustment for realized losses (gains) on equity securities to earnings
Year ended
December 31,
2017
810
361
1,171
$
$
2016
912
(20)
892
$
$
d. Risk
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.
PAN AMERICAN SILVER CORP.
107
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 as at December 31, 2017, would result in an increase of approximately $83.9 million
(2016 – $82.7 million) in the Company’s revenues. A 10% decrease in all metal prices as at the same period would
result in a decrease of approximately $85.3 million (2016 - $85.0 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 metals prices (zinc, lead, copper and silver)
on open positions for provisional concentrate contracts for the year ended December 31, 2017 would result in an
increase of approximately $7.4 million (2016 - $4.7 million) in the Company’s before tax earnings which would be
reflected in 2017 results. A 10% decrease in metal prices for the same period would result in a decrease of
approximately $7.4 million (2016 - $4.7 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
assesses the Company’s strategy towards its base metal exposure, depending on market conditions. At December 31,
2017, 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
trade receivables represents the maximum credit exposure.
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 honour 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, 2017, the Company had receivable balances associated
with buyers of its concentrates of $52.0 million (2016 - $45.0 million). The vast majority of the Company’s concentrate
is sold to five well-known concentrate buyers.
Silver doré production from La Colorada, 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, 2017, the Company had approximately $21.9 million (2016
- $28.5 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 the 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.
PAN AMERICAN SILVER CORP.
108
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
Supplier advances for products and services yet to be provided are a common practice in some jurisdictions in which
the Company operates. These advances represent a credit risk to the Company to the extent that suppliers do not
deliver products or perform services as expected. As at December 31, 2017, the Company had made $14.3 million
(2016 - $28.8 million) of supplier advances, which are reflected in “Trade and other receivables” on the Company’s
balance sheet.
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.
At December 31, 2017, the Company has recorded an allowance for doubtful accounts provision in the amount of
$7.6 million (2016 – $7.6 million). The $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, 2017, no additional provisions for doubtful accounts were recorded.
Cash and cash equivalents, trade accounts receivable and other receivables that represent the maximum credit risk
to the Company consist of the following:
Cash and cash equivalents
Short-term investments
Trade accounts receivable(1)
Royalty receivable(1)
Employee loans(1)
(1)
Included in Trade and other receivables.
December 31,
2017
December 31,
2016
$
$
175,953
51,590
51,952
60
491
180,881
36,729
44,960
20
1,048
The Company invests its cash and cash equivalents, 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, 2017, the Company has $7.6 million in lease obligations (2016 - $7.1 million),
that are subject to an annualized interest rate of 2.2% and an amount drawn on the credit facility of $nil (2016 - $36.2
million) at an annual interest rate of 2.125% to 3.125% over LIBOR. The interest paid by the Company for the year
ended December 31, 2017 on its lease obligations was $0.2 million (2016 – $0.1 million). At December 31, 2017, the
Company has short-term loans in Argentina of $3.0 million (2016 - $nil), that are subject to an annualized interest
rate of 1.8%. The interest paid by the Company for the year ended December 31, 2017 on the credit facility was $0.9
million (2016 – $1.0 million).
The average interest rate earned by the Company during the year ended December 31, 2017 on its cash and short-
term investments was 0.77% (2016 - 0.30%). 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 (2016 – $0.1 million).
Foreign Exchange Rate Risk
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
PAN AMERICAN SILVER CORP.
109
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
At December 31, 2017, the Company had no outstanding positions on its foreign currency exposure of MXN purchases.
The Company recorded gains of $3.8 million on MXN derivative contracts for the year ended December 31, 2017
(2016 - losses of $1.5 million).
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, 2017 non-USD net monetary liabilities were denominated would result
in an income before taxes change of about $17.4 million (2016 - $19.2 million).
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:
Cash and
short-term
investments
Other current
and
non-current
assets
Income taxes
receivable
(payable),
current and
non-
current
Accounts
payable
and accrued
liabilities and
non-
current
liabilities
Deferred tax
assets and
liabilities
$
$
25,062
5,188
4,239
4,659
24
2,274
41,446
$
$
529
22,809
19,720
495
—
1,026
44,579
$
$
(713) $
(242)
837
(3,840)
(780)
(4,402)
(9,140) $
(348) $
(26,013)
(28,685)
(13,954)
—
(13,478)
(82,478) $
—
(141,870)
—
(10,076)
—
(16,603)
(168,549)
Cash and
short-term
investments
Other current
and
non-current
assets
$
$
6,513
9,416
3,485
4,329
37
817
24,597
$
$
338
29,079
24,062
184
—
2,158
55,821
Income taxes
receivable
(payable),
current and
non-
current
Accounts
payable
and accrued
liabilities and
non-
current
liabilities
Deferred tax
assets and
liabilities
$
(45) $
5,884
367
(3,365)
(262)
(11,031)
$
(8,452) $
(142) $
(45,388)
(27,245)
(13,476)
—
(8,913)
(95,164) $
(356)
(150,394)
—
(8,464)
(53)
(9,867)
(169,134)
At December 31, 2017
Canadian Dollar
Mexican Peso
Argentinian Peso
Bolivian Boliviano
European Euro
Peruvian Nuevo Sol
At December 31, 2016
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.
PAN AMERICAN SILVER CORP.
110
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
e. Contractual Maturities
In the normal course of business, the Company enters into contracts that give rise to commitments for future
minimum payments. The following table summarizes the remaining contractual maturities of the Company's
financial and non-financial liabilities, shown in contractual undiscounted cash flow:
Current liabilities
Credit Facility
Loan obligation
Finance lease obligations(2)
Severance accrual
Employee compensation(3)
Loss on commodity contracts
Provisions(4)
Income taxes payable
Total contractual obligations(4)
Current liabilities
Credit Facility
Finance lease obligations(2)
Severance accrual
Employee compensation(3)
Loss on commodity contracts
Provisions(4)
Income taxes payable
Total contractual obligations(4)
Payments due by period 2017
Total
136,506
2,750
3,000
7,724
5,176
6,709
1,906
4,097
26,131
193,999
Within 1 year(1)
136,506
$
1,200
3,000
5,879
1,092
3,815
1,906
2,681
26,131
182,210
$
$
$
Payments due by period 2016
Total
141,002
38,440
7,321
3,986
6,918
2,815
4,719
25,911
231,112
Within 1 year(1)
141,002
$
960
3,720
689
3,996
2,815
3,262
25,911
182,355
$
$
$
2 - 3 years
4- 5 years
After 5
years
$
— $
1,550
—
1,845
2,273
2,894
—
546
—
9,108
$
$
— $
—
—
—
760
—
—
627
—
1,387
$
—
—
—
—
1,051
—
—
243
—
1,294
2 - 3 years
4- 5 years
$
— $
— $
1,280
3,601
658
2,922
—
562
—
9,023
$
36,200
—
365
—
—
629
—
37,194
$
$
After 5
years
—
—
—
2,274
—
—
266
—
2,540
(1)
Includes all current liabilities in the consolidated statement of financial position at December 31, 2017 and December 31, 2016 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 in the statement of financial position to the total contractual
obligations within one year, per the contractual maturities schedule is shown in the table below.
December 31, 2017
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(4)
Income tax payable
Total contractual obligations within one year(4)
Future interest
component
Within 1 year
$
136,506
$
— $
136,506
—
3,000
5,734
1,092
2,100
1,906
2,681
26,131
1,200
—
145
—
1,715
—
—
—
$
179,150
$
3,060
$
1,200
3,000
5,879
1,092
3,815
1,906
2,681
26,131
182,210
PAN AMERICAN SILVER CORP.
111
December 31, 2016
Current portion of:
Accounts payable and other liabilities
Credit facility
Current portion of finance lease
Current severance liability
Employee Compensation & RSU’s
Unrealized loss on commodity contracts
Provisions(4)
Income tax payable
Total contractual obligations within one year(4)
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Future interest
component
Within 1 year
$
141,002
$
— $
141,002
—
3,559
689
1,812
2,815
3,262
25,911
960
161
—
2,184
—
—
—
$
179,050
$
3,305
$
960
3,720
689
3,996
2,815
3,262
25,911
182,355
(2)
(3)
(4)
Includes lease obligations in the amount of $7.7 million (2016 - $7.3 million) with a net present value of $7.6 million (2016 - $7.1 million) discussed further in Note 17.
Includes RSU obligation in the amount of $4.1 million (2016 - $4.8 million) that will be settled in cash. The RSUs vest in two instalments, 50% in December 2017 and 50% in
December 2018.
Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current $5.6 million, long-term $59.8 million) discussed
in Note 16 (2016 - current $5.2 million, long-term $50.4 million), the deferred credit arising from the Aquiline acquisition ($20.8 million) (2016 - $20.8 million) discussed in Note
19, and deferred tax liabilities of $171.2 million (2016 - $170.9 million).
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, 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.
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.
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).
PAN AMERICAN SILVER CORP.
112
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
At December 31, 2017 and 2016, 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 receivables from provisional concentrate sales
Warrants
Zinc contracts
Lead contracts
Copper contracts
Foreign currency contracts
Assets and Liabilities:
Short-term investments
Trade receivables from provisional concentrate sales
Zinc contracts
Lead contracts
Foreign currency contracts
Fair Value at December 31, 2017
Total
Level 1
Level 2
Level 3
51,590
51,952
1,092
(716)
(243)
(891)
(56)
102,728
$
$
51,590
—
—
—
—
—
—
51,590
$
— $
51,952
1,092
(716)
(243)
(891)
(56)
51,138
$
$
Fair Value at December 31, 2016
Total
Level 1
Level 2
Level 3
36,729
44,960
(1,769)
(54)
(992)
78,874
$
$
36,729
—
—
—
36,729
$
$
— $
44,960
(1,769)
(54)
(992)
42,145
$
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
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, 2016.
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 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 value hierarchy. As of December 31, 2017, the unrealized
losses on foreign currency, diesel fuel swap and commodity contracts were $1.9 million (2016- losses of $2.8 million).
During the year ended December 31, 2016, the Company entered into collared positions for its foreign currency
exposure of MXN purchases with puts and call contracts (Note 7d, Foreign Exchange Rate Risk).
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 Company settled all Diesel fuel swaps
by December 31, 2016. The Company did not enter into any Diesel fuel swaps in 2017. The Company recorded gains
of $1.0 million on the Diesel fuel swaps in the year ended December 31, 2016.
PAN AMERICAN SILVER CORP.
113
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
During the years ended December 31, 2016 and 2017, in order to limit its exposure to lower zinc prices on a portion
of its zinc production, the Company entered into zinc put and call contracts. The Company had contracts for 11,100
tonnes of zinc outstanding, with a weighted average minimum price of $2,609 and a maximum price of $3,555 per
tonne, at December 31, 2017. The remaining contracts have settlement dates between January 2018 and December
2018. The Company recorded losses of $1.9 million on zinc positions during the year ended December 31, 2017 (2016
- losses of $4.3 million).
Further, during the years ended December 31, 2016 and 2017, in order to limit its exposure to lower lead prices on
a portion of its lead production, the Company entered into lead put and call contracts. The Company had contracts
for 6,450 tonnes of lead outstanding, with a weighted average minimum price of $2,200 and a maximum price of
$2,679 per tonne, at December 31, 2017. These remaining contracts have settlement dates between January 2018
and December 2018. The Company recorded losses of $0.4 million on the lead positions during the year ended
December 31, 2017 (2016 - losses of $0.2 million).
During the year ended December 31, 2017, in order to limit its exposure to lower copper prices on a portion of its
copper production, the Company entered into copper put and call contracts. The Company had contracts for 3,030
tonnes of copper outstanding, with a weighted average minimum price of $6,222 and a maximum price of $7,277
per tonne, at December 31, 2017. These remaining contracts have settlement dates between January 2018 and
December 2018. The Company recorded losses of $0.9 million on the copper positions during the year ended
December 31, 2017.
Receivables from Provisional Concentrate Sales
A portion of 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 for gold and silver.
8. SHORT-TERM INVESTMENTS
December 31, 2017
December 31, 2016
Fair
Value
Cost
Accumulated
unrealized
holding gains
Fair Value
Cost
Accumulated
unrealized
holding gains
$
51,590
$
49,985
$
1,605
$
36,729
$
36,295
$
434
Available for Sale
Short-term investments
9. INVENTORIES
Inventories consist of:
Concentrate inventory
Stockpile ore (1)
Heap leach inventory and in process (2)
Doré and finished inventory (3)
Materials and supplies
December 31,
2017
December 31,
2016
$
$
11,582
16,209
108,509
35,054
47,361
218,715
$
$
12,891
31,964
109,705
36,864
45,905
237,329
(1)
(2)
(3)
Includes an impairment charge of $10.0 million to reduce the cost basis of inventory to NRV at Manantial Espejo mine (December 31, 2016 – $6.0 million at Manantial Espejo
and Dolores mines).
Includes an impairment charge of $10.3 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines (December 31, 2016 - $1.5 million at Manantial
Espejo mine).
Includes an impairment charge of $2.9 million to reduce the cost basis of inventory to NRV at Manantial Espejo mine at December 31, 2017. (December 31, 2016 - $3.4 million
at Manantial Espejo and Alamo Dorado mines).
PAN AMERICAN SILVER CORP.
114
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Production costs, including depreciation and amortization, and royalties for the year ended December 31, 2017 were
$648.1 million (2016 - $575.9 million). Production costs represent cost of inventories sold during the year. During
2017 a $12.3 million (2016 - $42.8 million net realizable value recovery) net realizable value loss was recognized,
primarily driven by decreased metal prices, and included in production costs (Note 21). Inventories held at net
realizable value amounted to $125.5 million (2016 - $48.2 million).
A portion of the Stockpile ore amounting to $9.5 million (2016 - $18.4 million) and a portion of the heap leach inventory
amounting to $74.3 million (2016 - $65.2 million) are expected to be recovered or settled after more than twelve
months.
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 probable 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.
Mineral properties, plant and equipment consist of:
Carrying value
As at January 1, 2017
Net of accumulated depreciation
Additions
Acquisition of Argentine projects (1) (2)
Disposals
Depreciation and amortization
Depreciation charge captured in inventory
Impairment reversal
Transferred to assets held for sale
Transfers
Closure and decommissioning – changes in
estimate
As at December 31, 2017
Mining Properties
Depletable
Non-depletable
Reserves
and Resources
Reserves
and Resources
Exploration
and
Evaluation
Plant and
Equipment
Total
$
$
694,501
120,098
—
—
(53,124)
(4,104)
27,531
—
(22,400)
4,381
$
58,578
4,066
40,315
—
—
—
6,892
—
(38,042)
$
259,953
—
—
(195)
—
—
1,317
(7,947)
—
$
209,695
23,938
30
(2,710)
(69,764)
—
25,814
(2)
57,862
1,222,727
148,102
40,345
(2,905)
(122,888)
(4,104)
61,554
(7,949)
(2,580)
—
—
—
4,381
$
766,883
$
71,809
$
253,128
$
244,863
$
1,336,683
Cost as at December 31, 2017
Accumulated depreciation and impairments
Carrying value – December 31, 2017
2,018,937
(1,252,054)
766,883
$
$
77,242
(5,433)
71,809
$
653,216
(400,088)
253,128
$
889,655
(644,792)
244,863
$
3,639,050
(2,302,367)
1,336,683
PAN AMERICAN SILVER CORP.
115
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Mining Properties
Depletable
Non-depletable
Reserves
and Resources
Reserves
and Resources
Exploration
and
Evaluation
Plant and
Equipment
Total
$
$
620,035
88,331
—
(34,803)
(9,675)
21,976
8,637
$
120,351
—
—
—
—
(61,773)
$
276,307
—
—
—
—
(16,354)
$
128,528
112,506
(1,208)
(81,152)
—
51,021
1,145,221
200,837
(1,208)
(115,955)
(9,675)
(5,130)
—
—
—
8,637
$
694,501
$
58,578
$
259,953
$
209,695
$
1,222,727
Carrying value
As at January 1, 2016
Net of accumulated depreciation
Additions
Disposals
Depreciation and amortization
Depreciation charge captured in inventory
Transfers
Closure and decommissioning – changes in
estimate
As at December 31, 2016
Cost as at December 31, 2016
Accumulated depreciation and impairments
Carrying value – December 31, 2016
1,916,954
(1,222,453)
694,501
$
$
70,675
(12,097)
58,578
$
661,357
(401,404)
259,953
$
820,687
(610,992)
209,695
$
3,469,673
(2,246,946)
1,222,727
December 31, 2017
Accumulated
Depreciation
and
Impairment
Cost
196,111
230,932
194,023
279,541
1,485,200
367,573
131,038
24,174
2,908,592
$
(107,970) $
(135,868)
(194,023)
(100,970)
(908,651)
(353,322)
(79,595)
(16,447)
$ (1,896,846) $
88,141
95,064
—
178,571
576,549
14,251
51,443
7,727
1,011,746
4,990
566,577
73,956
9,674
44,376
30,885
730,458
$
(1,234) $
(376,101)
(16,929)
—
—
(11,257)
(405,521) $
$
3,756
190,476
57,027
9,674
44,376
19,628
324,937
3,639,050
$ (2,302,367) $
1,336,683
Huaron mine, Peru
Morococha mine, Peru
Alamo Dorado mine, Mexico
La Colorada mine, Mexico
Dolores mine, Mexico
Manantial Espejo mine, Argentina
San Vicente mine, Bolivia
Other
Total
Land and Non-Producing Properties:
Land
Navidad project, Argentina
Minefinders projects, Mexico
Morococha, Peru
Argentine projects (1) (2)
Other
Total non-producing properties
Total mineral properties, plant and
equipment
$
$
$
$
$
Carrying
Value
Cost
December 31, 2016
Accumulated
Depreciation
and
Impairment
Carrying
Value
$
$
$
$
$
185,850
222,517
197,199
262,516
1,358,923
361,553
124,618
24,465
2,737,641
$
(95,195) $
(183,289)
(197,199)
(81,888)
(837,478)
(347,855)
(74,251)
(16,290)
$ (1,833,445) $
4,900
566,572
112,029
9,674
—
38,857
732,032
$
(1,462) $
(376,101)
(16,929)
(6,436)
—
(12,573)
(413,501) $
$
90,655
39,228
—
180,628
521,445
13,698
50,367
8,175
904,196
3,438
190,471
95,100
3,238
—
26,284
318,531
3,469,673
$ (2,246,946) $
1,222,727
PAN AMERICAN SILVER CORP.
116
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
(1) On February 10, 2017, the Company completed the acquisition of 100% of Coeur Joaquin S.R.L., subsequently renamed Minera Joaquin S.R.L. (“Joaquin”). Joaquin’s
principal asset is the Joaquin project, located in the Santa Cruz province of southern Argentina. During the year ended December 31, 2017, The Company completed technical
studies to define the scope of economically recoverable mineralized material. The consideration for the acquisition was $25.0 million, comprised of $15.0 million in cash and
$10.0 million of the Company’s common shares valued as of January 13, 2017 (555,654 total common shares), plus a 2.0% net smelter returns royalty on the Joaquin project.
Transaction costs were $0.3 million.
(2) On May 31, 2017, the Company acquired 100% of Patagonia Gold Plc's ("Patagonia") COSE project in the Santa Cruz province of southern Argentina from Patagonia.
Consideration payable to Patagonia included $15 million, of which $7.5 million is deferred, plus a 1.5% net smelter returns ("NSR") royalty on the COSE project. On May 31,
2017, the Company made a payment of $7.5 million and granted a 1.5% NSR on production from COSE, and the title to COSE transferred to the Company. The remaining $7.5
million payment is due on the earlier of 12 months from the closing date, or the commencement of commercial production.
The assets acquired and liabilities assumed from both projects have been included in the table above under "Argentine projects", and in the "Manantial Espejo" reportable
operating segment of the segment note (Note 26). The Company concluded that the acquired assets and assumed liabilities did not constitute a business and accordingly the
transactions were accounted for as asset acquisitions. The Joaquin purchase price was allocated to the assets acquired and liabilities assumed on a relative fair value basis
with $25.4 million allocated to mineral properties, plant and equipment and the remaining allocated to working capital items ($0.04 million). The COSE purchase price of
$15.0 million was allocated to mineral properties, plant and equipment.
Project Development
Dolores Mine, Mexico
During the year ended December 31, 2017, the Company capitalized $88.5 million of mineral properties, plant and
equipment (2016 - $106.6 million) which included deferred stripping costs of $19.7 million, pulp agglomeration
construction costs of $20.5 million, underground development costs of $28.4 million, and pad 3 construction additions
of $1.0 million (2016 - deferred stripping costs of $18.5 million, pulp agglomeration construction costs of $40.5 million,
underground development costs of $17.2 million, powerline construction costs of $6.8 million and pad 3 construction
additions of $1.6 million).
During the year ended December 31, 2017, the Company transferred non-depletable mineral resources to depletable
mineral reserves as a result of a new mine plan at Dolores mine. The additional mineral reserves contemplated in
the new mine plan required the transfer of $38.1 million (2016 - $78.3 million) in carrying value from mineral resources
to mineral reserves.
La Colorada, Mexico
During the year ended December 31, 2017, the Company capitalized $20.3 million of mineral properties, plant and
equipment (2016 - $52.9 million) which included underground development costs of $1.8 million, and powerline
construction costs of $3.4 million (2016 - shaft construction costs of $19.3 million, sulfide plant construction costs of
$12.8 million, underground development of $2.9 million, and powerline construction costs of $6.1 million).
Disposals
On May 8, 2016, the Company recorded a gain on sale of assets of $18.3 million on the sale of a 75% interest in the
shares of Shalipayco S.A.C. (“Shalipayco”) for consideration of $15.0 million in cash and a one percent (1%) Net Smelter
Returns Royalty (the “NSR”) on the property, which was subsequently disposed, on July 11, 2016 (Note 12) for proceeds
of $3.3 million. Shalipayco is the owner of the Shalipayco zinc development project located in the provinces of Pasco
and Junin, Peru.
On July 11, 2016, the Company recorded a gain on sale of assets in the amount of $6.6 million ($0.6 million gain after
taxes) as a result of the disposition of certain royalties, precious metals streams, and payment arrangements (Note
12).
Held for Sale Assets
On January 31, 2018, the Company completed the sale of 100% of the shares of Minera Aquiline Argentina SA, which
owns the Calcatreu project ("Calcatreu"), to Patagonia for total consideration of $15 million in cash. The Company
received $5 million at the date of sale with the remaining $10 million due on May 18, 2018.
On December 31, 2017, all of the assets and liabilities of Minera Aquiline Argentina SA were classified as held for sale.
Immediately prior to the classification to assets and liabilities held for sale, the carrying amount of Calcatreu was re-
measured to its recoverable amount, being its fair value less costs of disposal, based on the expected proceeds from
PAN AMERICAN SILVER CORP.
117
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
the sale. As a result, the Company recorded an impairment reversal during the year ended December 31, 2017 of
$1.3 million (Note 11).
11. REVERSAL OF IMPAIRMENT AND GOODWILL
Non-current assets are tested for impairment, or reversal of previous impairment charges, when events or changes
in circumstance indicate that the carrying amount may not be recoverable, or previous impairment charges against
assets are 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 its internal discounted cash flow economic models as a proxy for the calculation of FVLCTS, given a willing
market participant would use such models in establishing a value for the properties. The Company considers
impairment, or if previous impairment charges should be reversed, 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 and goodwill less deferred tax liabilities
and closure and decommissioning liabilities related to each CGU.
The Company’s key assumptions for determining the recoverable amounts of its various CGUs, for the purpose of
testing for impairment or impairment reversals, include the most current operating and capital costs information and
risk adjusted project specific discount rates. The Company uses an average of analysts’ consensus prices for the first
four years of its economic modeling, 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.
2017 Reversals of Impairment
Based on the Company’s assessment with respect to possible indicators of either impairment or reversal of previous
impairments to its mineral properties, the Company concluded that as of December 31, 2017 reversals of impairment
totaling $61.6 million ($53.4 million, net of tax expense) were required on the following CGUs:
Morococha
Calcatreu (1)
2017
60,237
1,317
61,554
$
$
$
$
2016
—
—
—
(1)
Impairment reversal recognized on Calcatreu held for sale assets for the year ended December 31, 2017 (Note 10).
Morococha
During the years ended December 2017 and 2016, Morococha generated significantly higher cash flows from
operations than the amount assumed in the recoverable value estimation at December 31, 2015, primarily the results
of continued costs performance and base-metal prices being superior to prior expectations. Further, as of December
31, 2017, Morococha's estimated silver mineral reserve increased by 2.8 million ounces. As a result of the CGU's
continued strong performance, increased silver mineral reserves and higher long-term metal prices, the Company
recognized a reversal of the remaining unamortized impairment of $60.2 million ($52.1 million, net of tax) related to
its investment in Morococha at December 31, 2017.
PAN AMERICAN SILVER CORP.
118
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Key assumptions and sensitivity
The metal prices used to calculate the recoverable amounts at December 31, 2017, and December 31, 2016 are based
on analyst consensus prices and the Company’s long term reserve prices, and are summarized in the following tables:
Metal prices used at December 31, 2017:
Commodity Prices
Silver price - $/oz.
Gold price - $/oz.
Zinc price - $/tonne
Lead price - $/tonne
Copper price - $/tonne
Metal prices used at December 31, 2016:
Commodity Prices
Silver price - $/oz.
Gold price - $/oz.
Zinc price - $/tonne
Lead price - $/tonne
Copper price - $/tonne
2018-2021 average
$18.57
$1,307
$2,818
$2,251
$6,742
2017-2020 average
$19.93
$1,327
$2,567
$2,142
$5,725
Long term
$18.50
$1,300
$2,600
$2,200
$5,500
Long term
$18.50
$1,300
$2,200
$2,000
$5,000
In 2017, the discount rates used to present value the Company’s life of mine cash flows were derived from the
Company’s weighted average cost of capital which was calculated as 5.2% (2016 – 6.4%), with rates applied to the
various mines and projects ranging from 4.0% to 9.0% (2016 - 5.0% to 9.0%), 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 individual metal
prices, operating and capital costs, foreign exchange rates and discount rates. At December 31, 2017, the Company
performed a sensitivity analysis on all key assumptions that assumed a modest (10%) adverse change to each individual
assumption while holding the other assumptions constant.
At December 31, 2017, an adverse 10% movement in any of the major assumptions in isolation did not cause the
recoverable amount to be below the CGU carrying value for any of the La Colorada, San Vicente, Huaron, or Morococha
mines. For the Dolores mine, Manantial Espejo mine and Navidad project, which previously had their carrying values
adjusted to FVLCTS through impairment charges, a modest adverse change in any one key assumption would reduce
the recoverable amount below the carrying amount.
At December 31, 2016, an adverse 10% movement in any of the major assumptions in isolation did not cause the
recoverable amount to be below the CGU carrying value for any of La Colorada, Alamo Dorado, San Vicente, Huaron,
Morococha, or the Navidad project. For the Manantial Espejo mine, which in 2015 had its carrying values adjusted
to FVLCTS through impairment charges, a modest increase in operating costs would reduce the recoverable amount
below the carrying amount. In the case of the Dolores mine, which in 2015 had its carrying values adjusted to FVLCTS
through impairment charges, a modest adverse change in any one key assumption would reduce the recoverable
amount below the carrying amount.
Goodwill
Goodwill arose when the Company acquired Minefinders in 2012 and consists of:
Goodwill
December 31,
2017
December 31,
2016
$
3,057
$
3,057
PAN AMERICAN SILVER CORP.
119
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
12. INVESTMENT IN ASSOCIATES
Investment in associates consist of:
Investment in Maverix
Investment in other
The following table shows a continuity of the Company's investment in Maverix:
Balance of investment in Maverix, December 31,
Investment in associate
Dilution gain
Adjustment for change in ownership interest
Loss in associate
Balance of investment in Maverix, December 31,
Investment in Maverix:
December 31,
2017
December 31,
2016
$
$
$
$
53,567
1,450
55,017
2017
48,284
2,473
2,273
758
(221)
53,567
$
$
$
$
48,284
1,450
49,734
2016
29,371
—
10,979
10,967
(3,033)
48,284
The Company's warrant liability representing in substance ownership interest in Maverix was $14.3 million as at
December 31, 2017 (December 31, 2016 - $13.8 million). The Company's share of Maverix income or loss was
recorded, from January 1, 2017 to February 21, 2017 based on its 43% interest, and 41% for the period February 22,
2017 to April 20, 2017, and 40% for the period April 21, 2017 to December 31, 2017 representing the Company’s fully
diluted ownership.
On August 17, 2017, Maverix closed a transaction with CEF Limited ("CEF") where CEF provided Maverix with a
$20.0 million senior secured loan facility and Maverix issued 5.9 million common shares to CEF for gross proceeds
of $5.3 million. The Company exercised its anti-dilution rights in connection with the CEF transaction where
Maverix issued 2.3 million common shares to the Company for gross proceeds of $2.5 million.
On April 20, 2017, Maverix closed a transaction with a wholly owned subsidiary of Silvercorp Metals Inc. (Silvercorp”),
where Maverix acquired a net smelter return royalty on the Silvertip mine located in British Columbia Canada; and
Maverix issued to Silvercorp a total of 3.8 million common shares (the "Silvertip Transaction").
On February 21, 2017, Maverix closed a transaction with Auramet Trading LLC and certain of its affiliates (collectively
"Auramet"), where Maverix acquired a portfolio of two (2) royalties from Auramet; and Maverix issued to Auramet
a total of 8.5 million common shares and made a cash payment of $5 million (collectively, the "Auramet Transaction").
Deferred Revenue:
Deferred revenue relates to precious metal streams whereby the Company will sell 100% of the future gold production
from La Colorada and 5% of the future gold production from La Bolsa, which is in the exploration stage, to Maverix
for $650 and $450 per ounce, respectively (the "Streams"). The deferred revenue liability recognized by the Company
is the portion of the deferred revenue to be paid to Maverix owners other than Pan American through its ownership
in Maverix.
The deferred revenue related to the Streams will be recognized as revenue by Pan American as the gold ounces are
delivered to Maverix. On February 21, 2017, April 20, 2017 and July 12, 2017, the Company recorded an additional
$0.4 million, $0.2 million, and $0.1 million of deferred revenue, respectively, as a result of the diluted ownership in
Maverix that arose on the Auramet, Silvertip and CEF Transactions, respectively. As at December 31, 2017, the deferred
revenue liability was $12.0 million (December 31, 2016 - $11.6 million).
PAN AMERICAN SILVER CORP.
120
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
During the year ended December 31, 2017, $0.3 million (2016 - $0.2 million) was recognized for the delivery of 2,347
ounces of gold (2016 - 604 ounces) from La Colorada to Maverix. All transactions with Maverix were in the normal
course and measured at exchange amounts, which were the amounts of consideration established and agreed to by
the Company and Maverix.
Income Statement Impacts:
The Auramet, Silvertip, and CEF Transactions resulted in dilution gains of $2.3 million for the year ended December 31,
2017 (2016 - $11.0 million), respectively, recorded in share of loss from associate and dilution gain.
For the year ended December 31, 2017 the Company also recognized its share of loss from associate of $0.2 million
(2016 - $3.0 million loss) which represents the Company's proportionate share of Maverix's income (loss) during the
year.
13. OTHER ASSETS
Other assets consist of:
Reclamation bonds
Lease receivable
Other assets
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
Trade accounts payable(1)
Royalties payable
Other accounts payable and trade related accruals
Payroll and related benefits
Severance accruals
Other taxes payable
Advances on concentrate inventory
Other
December 31,
2017
December 31,
2016
$
$
199
81
66
346
$
$
199
91
89
379
December 31,
2017
December 31,
2016
$
$
47,138
4,896
29,690
29,329
1,092
3,439
—
24,114
139,698
$
$
45,344
4,612
48,767
24,971
688
1,791
33
17,296
143,502
(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.
15. LOANS PAYABLE
Loans Payable(1)
(1)
This $US loan bears interest at 1.8% per annum.
December 31,
2017
December 31,
2016
$
3,000
$
—
PAN AMERICAN SILVER CORP.
121
16. PROVISIONS
December 31, 2015
Revisions in estimates and obligations incurred
Charged (credited) to earnings:
-new provisions
-change in estimate
-exchange gains on provisions
Charged in the year
Reclamation expenditures
Accretion expense (Note 23)
December 31, 2016
Revisions in estimates and obligations incurred
Charged (credited) to earnings:
-new provisions
-change in estimate
-exchange gains on provisions
Charged in the year
Reclamation expenditures
Accretion expense (Note 23)
December 31, 2017
Maturity analysis of total provisions:
Current
Non-Current
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Closure and
Decommissioning
Litigation
$
$
$
$
50,453
6,875
$
4,418
—
—
—
—
—
(6,080)
4,363
55,611
12,561
—
—
—
—
(8,749)
5,973
65,396
$
$
347
(104)
(32)
(297)
—
—
4,332
—
767
(228)
93
(867)
—
—
4,097
$
$
Total
54,871
6,875
347
(104)
(32)
(297)
(6,080)
4,363
59,943
12,561
767
(228)
93
(867)
(8,749)
5,973
69,493
December 31,
2017
December 31,
2016
$
$
8,245
61,248
69,493
$
$
8,499
51,444
59,943
Closure and Decommissioning Cost Provision
The total inflated and undiscounted amount of estimated cash flows required to settle the Company’s estimated
future closure and decommissioning costs is $142.2 million (December 31, 2016 - $122.1 million) which has been
inflated using inflation rates of between 2% and 25% (2016 – between 1% and 23%). The total provision for closure
and decommissioning cost is calculated using discount rates of between 2% and 24% (2016 - between 1% and 30%).
Revisions made to the reclamation obligations in 2017 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 2017 earnings as finance expense was $6.0 million (2016 - $4.4 million). Reclamation
expenditures paid during the current year were $8.7 million (2016 - $6.1 million).
Litigation Provision
The litigation provision consists of amounts accrued for labour claims at several of the Company’s mine operations.
The balance of $4.1 million at December 31, 2017 (2016 - $4.3 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.
PAN AMERICAN SILVER CORP.
122
17. FINANCE LEASE OBLIGATIONS
Lease obligations(1)
Maturity analysis of finance leases:
Current
Non-Current
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
December 31,
2017
December 31,
2016
$
7,559
$
7,101
December 31,
2017
December 31,
2016
$
$
5,734
1,825
7,559
$
$
3,559
3,542
7,101
(1)
Represents equipment lease obligations at several of the Company’s subsidiaries. A reconciliation of the total future minimum lease payments at December 31, 2017 and
December 31, 2016 to their present value is presented in the table below.
Less than a year
2 years
3 years
4 years
5 years
Less future finance charges
Present value of minimum lease payments
18. LONG TERM DEBT
Long term debt consists of:
Credit Facility
Total long-term debt
Maturity analysis of Long Term debt:
December 31,
2017
December 31,
2016
$
$
5,879
1,845
—
—
—
7,724
(165)
7,559
$
$
3,720
3,242
359
—
—
7,321
(220)
7,101
December 31,
2017
December 31,
2016
$
$
— $
— $
36,200
36,200
Non-Current (1)
$
(1)
The Company repaid the outstanding balance of $36.2 million on September 28, 2017.
December 31,
2017
December 31,
2016
36,200
— $
On April 15, 2015, the Company entered into a $300.0 million secured revolving credit facility with a 4-year term (the
“Credit Facility”) and upfront costs of $3.0 million. On May 31, 2016, the Company amended its Credit Facility by
extending the term by 1 year, with additional upfront costs of $0.4 million. As part of the amendment, the financial
covenants were amended to require the Company to maintain a tangible net worth (exclusive of any prospective
write-downs of certain assets) of greater than $1,036.4 million plus 50% of the positive net income from and including
the fiscal quarter ended March 31, 2016. In addition, the financial covenants continue to include the requirement for
the Company to maintain: (i) a leverage ratio less than or equal to 3.5:1; and (ii) an interest coverage ratio more than
or equal to 3.0:1. As of December 31, 2017, the Company was in compliance with all covenants required by the Credit
Facility.
PAN AMERICAN SILVER CORP.
123
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The upfront costs have been recorded as an asset under the classification Prepaid expenses 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 Credit Facility are subject to a stand-by fee of 0.478% to 0.703% per
annum, dependent on the Company’s leverage ratio.
As at December 31, 2017 and December 31, 2016, $nil and $36.2 million, respectively, was drawn on the Credit Facility
under LIBOR loans at an average annual rate of 2.55%. During the year ended December 31, 2017, the Company has
incurred $1.3 million (2016 - $1.2 million) in standby charges on undrawn amounts and $0.9 million (2016 - $1.0
million) in interest on drawn amounts under this Facility.
19. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of:
Deferred credit(1)
Other income tax payable
Severance accruals
December 31,
2017
December 31,
2016
$
$
20,788
2,082
4,084
26,954
$
$
20,788
3,321
3,299
27,408
(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.
20. 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 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. In early 2014, the Board approved the adding of performance share units (“PSUs”) to the
Company’s LTIP, as described below.
The Compensation Committee oversees the LTIP on behalf of the Board of Directors. The LTIP 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.
PAN AMERICAN SILVER CORP.
124
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Transactions concerning stock options are summarized as follows in CAD:
As at December 31, 2015
Granted
Exercised
Expired
Forfeited
As at December 31, 2016
Granted
Exercised
Expired
Forfeited
As at December 31, 2017
Long Term Incentive Plan
Stock Options
Weighted
Average
Exercise
Price CAD$
15.98
23.61
12.30
24.70
21.07
16.81
18.64
11.24
40.22
23.60
16.56
Shares
$
1,552,923
45,705
$
(254,146) $
(9,352) $
(24,266) $
$
1,310,864
91,945
(307,266) $
(61,891)
(97,529) $
$
936,123
During the year ended December 31, 2017, the Company awarded 123,113 (2016 - 82,338) common shares with a
two year holding period and granted 91,945 (2016 – 45,705) options under this plan. The Company used as its
assumptions for calculating the fair value, a risk free interest rate of 2.0% - 2.4% (2016 – 1.2% - 1.3%), weighted
average volatility of 42% using a historical volatility (2016 – 54%), expected lives ranging from 3.5 to 4.5 (2016 – 3.5
to 4.5) years, expected dividend yield of 2.4% - 2.8% (2016 – 1.4% - 1.7%), and an exercise price of CAD $18.64 (2016
– CAD $23.61) per share. The weighted average fair value of each option was determined to be CAD $5.30 (2016 –
CAD $8.94).
During the year ended December 31, 2017, 307,266 common shares were issued in connection with the exercise of
options under the plan (2016 – 254,146 common shares), 61,891 options expired (2016 - 9,352) and 97,529 options
were forfeited (2016 – 24,266).
100,000 common shares were issued to a former employee of the Company during the year ended December 31,
2016, there were no such issuances in 2017.
During the year ended December 31, 2017, 12,291 common shares were issued to Directors in lieu of Directors fees
of $0.2 million (2016 - 14,434 common shares in lieu of fees of $0.2 million).
Share Option Plan
The following table summarizes information concerning stock options outstanding and options exercisable as at
December 31, 2017. The underlying option agreements are specified in Canadian dollar amounts.
Range of Exercise
Prices
CAD$
$9.76 - $11.57
$11.58 - $17.01
$17.02 - $18.53
$18.54 - $24.90
Options Outstanding
Weighted
Average
Remaining
Contractual
Life
(months)
Number
Outstanding as
at December
31, 2017
Options Exercisable
Weighted
Average
Exercise Price
CAD$
Number
Exercisable as
at December
31, 2017
Weighted
Average
Exercise
Price CAD$
340,305
99,742
124,188
371,888
936,123
55.63
50.99
26.42
36.44
43.64
$
$
$
$
$
10.03
11.81
18.38
23.19
16.56
340,305
99,742
124,188
257,093
821,328
$
$
$
$
$
10.03
11.81
18.38
24.79
16.13
PAN AMERICAN SILVER CORP.
125
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
For the year ended December 31, 2017 the total employee share-based compensation expense recognized in the
income statement was $3.1 million (2016 - $3.8 million).
Performance Share Units
In early 2014, the Board approved the adding of PSUs to the Company’s LTIP. PSUs are notional 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
54,962 PSUs for 2017 with a share price of CAD $19.04 (2016 - 38,119 PSUs approved at a share price of CAD $22.22).
Compensation expense for PSUs was $1.0 million for the year ended December 31, 2017 (2016 - $0.6 million) and is
presented as a component of general and administrative expense.
At December 31, 2017, the following PSU’s were outstanding:
PSU
As at December 31, 2015
Granted
Paid out
Forfeited
Change in value
As at December 31, 2016
Granted
Paid out
Forfeited
Change in value
As at December 31, 2017
Restricted Share Units
Number
Outstanding
103,671
38,119
—
—
—
141,790
54,962
(30,408)
—
—
166,344
$
$
$
Fair Value
683
638
—
—
831
2,152
823
(875)
—
511
2,611
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 installments, 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 $2.0 million for the year ended December 31, 2017 (2016 – $3.5 million) and
is presented as a component of general and administrative expense.
PAN AMERICAN SILVER CORP.
126
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
At December 31, 2017, the following RSU’s were outstanding:
RSU
As at December 31, 2015
Granted
Paid out
Forfeited
Change in value
As at December 31, 2016
Granted
Paid out
Forfeited
Change in value
As at December 31, 2017
Issued share capital
Number
Outstanding
380,144
164,132
(224,805)
(4,048)
—
315,423
184,187
(222,006)
(15,591)
—
262,013
$
$
$
Fair Value
2,495
2,919
(3,769)
(61)
3,180
4,764
2,698
(3,257)
(243)
136
4,098
The Company is authorized to issue 200,000,000 common shares of no par value.
Dividends
The Company declared the following dividends for the period starting January 1, 2016 until March 22, 2018:
Declaration Date
February 20, 2018 (1)
November 8, 2017
August 9, 2017
May 9, 2017
February 14, 2017
November 14, 2016
August 11, 2016
May 11, 2016
February 17, 2016
Ex-dividend date
March 5, 2018
November 20, 2017
August 21, 2017
May 23, 2017
February 27, 2017
November 25, 2016
August 23, 2016
May 24, 2016
February 29, 2016
Dividend per
common share
$
$
$
$
$
$
$
$
$
0.0350
0.0250
0.0250
0.0250
0.0250
0.0125
0.0125
0.0125
0.0125
(1)
These dividends were declared subsequent to the year end and have not been recognized as distributions to owners during the period presented.
21. PRODUCTION COSTS
Production costs are comprised of the following:
Consumption of raw materials and consumables
Employee compensation and benefits expense (Note 22)
Contractors and outside services
Utilities
Severance costs related to mine operations
Other expenses (1)
Changes in inventories (2)
2017
160,224
169,109
83,012
24,764
3,509
34,339
25,713
500,670
$
$
2016
163,675
148,256
81,241
20,335
—
43,400
(28,574)
428,333
$
$
(1)
(2)
Includes closure and decommissioning liability adjustments to reduce production costs by $1.2 million (2016 - reduce by $1.7 million).
Includes NRV adjustments to inventory to increase production costs by $12.3 million for the year ended December 31, 2017 (2016 - reduce by $42.8 million).
PAN AMERICAN SILVER CORP.
127
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
22. EMPLOYEE COMPENSATION AND BENEFITS EXPENSE
Wages, salaries and bonuses
Share-based compensation
Total employee compensation and benefit expenses
Less: Expensed within General and Administrative expenses
Less: Expensed within Exploration expenses
Employee compensation and benefits expenses included in production costs (Note 21)
23. INTEREST AND FINANCE EXPENSE
Interest (recovery) expense
Finance fees
Accretion expense (Note 16)
24. EARNINGS PER SHARE (BASIC AND DILUTED)
2017
184,225
3,077
187,302
(14,023)
(4,170)
169,109
$
$
2016
166,595
3,826
170,421
(18,243)
(3,922)
148,256
2017
(1,179) $
2,391
5,973
7,185
$
2016
2,115
3,073
4,363
9,551
$
$
$
$
For the year ended December
31,
2017
2016
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
Net earnings (1)
Basic EPS
Effect of Dilutive Securities:
Stock Options
Diluted EPS
$
$
$
120,991
120,991
—
120,991
(1) Net earnings attributable to equity holders of the Company.
153,070
$
283
153,353
$
$
$
0.79
100,085
100,085
152,118
$
0.66
0.79
$
—
100,085
386
152,504
$
0.66
Potentially dilutive securities excluded in the diluted earnings per share calculation for the year ended December 31,
2017 were 279,943 out-of-the-money options (2016 – 418,151).
PAN AMERICAN SILVER CORP.
128
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
25. SUPPLEMENTAL CASH FLOW INFORMATION
The following tables summarize other adjustments for non-cash income statement items, changes in operating
working capital items and significant non-cash items:
Other operating activities
Adjustments for non-cash income statement items:
Share-based compensation expense
Gain on derivatives (Note 7)
Share of loss from associate and dilution gain (Note 12)
Net realizable value adjustment for inventories (Note 21)
Changes in non-cash operating working capital items:
Trade and other receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Provisions
Significant non-cash items:
Assets acquired by finance lease
Share-based compensation issued to employees and directors
Shares issued as consideration for Joaquin (Note 10)
Cash and Cash Equivalents
Cash in banks
Short-term money markets investments
Cash and cash equivalents
26. SEGMENTED INFORMATION
2017
2016
3,077
(64)
(2,052)
12,308
13,269
2017
9,852
10,898
(3,096)
2,569
(8,514)
11,709
2017
5,000
2,020
8,650
$
$
$
$
$
$
$
3,826
—
(7,946)
(42,815)
(46,935)
2016
(29,125)
19,527
(3,675)
13,722
(5,994)
(5,545)
2016
6,151
2,365
—
$
$
$
$
$
$
$
December 31,
2017
December 31,
2016
$
$
160,001
15,952
175,953
$
$
157,778
23,103
180,881
All of the Company’s operations are within the mining sector, conducted through operations in four 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 to 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.
PAN AMERICAN SILVER CORP.
129
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Significant information relating to the Company’s reportable operating segments is summarized in the table below:
Peru
Mexico
Argentina
Bolivia
Canada
Year ended, December 31, 2017
Huaron
Morococha
Dolores
Alamo
Dorado
La
Colorada
Manantial
Espejo
Navidad
San
Vicente
Pas Corp
Other
Total
$ 129,085
$
120,244
$ 197,748
$ 17,958
$ 171,654
$ 111,642
$
— $ 68,497
$
— $
— $ 816,828
$ (13,464) $
(9,693) $ (67,515) $
(23) $ (19,381) $
(5,236) $
(88) $
(7,181) $
(108) $
(199) $ (122,888)
(1,713) $
(1,629) $
(2,316) $
— $
(2,149) $
(4,588) $
(2,894) $
— $
(2,659) $
(1,807) $
(19,755)
63
$
58
$
— $
4
$
— $
525
$
— $
— $
472
$
340
$
1,462
(855) $
(578) $
1,613
$
(359) $
(467) $
(2,969) $
(99) $
(232) $
(3,101) $
(138) $
(7,185)
(154) $
(117) $
(291) $
540
$
(319) $
— $
— $
(455) $
361
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
2,052
— $
64
(92) $
(38) $
642
$
(29) $
(143) $
(1,373) $
(644) $
1,045
$
1,493
$
$
$
$
626
$
191
— $
2,052
— $
64
962
$
1,823
— $
— $
— $
42,112
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
606
$
— $
606
— $ 19,442
$
61,554
(503) $
(8,474) $ 79,307
$ (24,404) $
(3,570) $ 14,592
$ (22,567) $ 24,978
$ 182,485
$
$
$ 36,650
$
86,476
$ (12,818) $
(16,663) $ 11,719
$ 23,832
$
8,412
$
$
69,813
$ 11,216
9,283
$ 85,379
$
$
$
1,033
$ (20,843) $
(1,108) $
(85) $
(5,305) $
(6,360) $
(8,604) $
(59,034)
(7,441) $ 58,464
$ (25,512) $
(3,655) $
9,287
$ (28,927) $ 16,374
$ 123,451
— $ 21,963
$
8,590
$
27
$
8,146
$
2
$
430
$ 142,232
$
$
$
$
$
$
$
$
$
Revenue
Depreciation and
amortization
Exploration and project
development
Interest income
Interest and financing
expenses
(Loss) gain on disposition of
assets
Share of loss from associate
and dilution gain
Gain on derivatives
Foreign exchange (losses)
gains
Gain on commodity, fuel
swaps and foreign currency
contracts
Impairment reversals
Earnings (loss) before
income taxes
Income tax (expense)
recovery
Net earnings (loss) for the
period
Capital expenditures
Huaron
Morococha
Dolores
Alamo
Dorado
La
Colorada
Manantial
Espejo
Navidad
San
Vicente
Pas Corp
Other
Total
Total assets
Total liabilities
$ 116,138
$ 46,184
$
$
131,180
$ 833,397
$ 17,125
$ 231,205
$ 125,088
$ 194,225
$ 85,869
$ 210,286
$ 48,819
$ 1,993,332
36,058
$ 176,464
$
8,163
$ 65,145
$ 43,408
$
1,296
$ 30,819
$ 28,939
$ 35,805
$ 472,281
As at December 31, 2017
Peru
Huaron
Morococha
Dolores
Mexico
Alamo
Dorado
Argentina
La
Colorada
Manantial
Espejo
Navidad
Bolivia
San
Vicente
Other
Total
Year ended, December 31, 2016
Revenue
$ 105,707
$
92,889
$ 189,288
$ 45,843
$ 118,292
$ 144,048
$
— $ 78,708
$
— $
774,775
Depreciation and amortization
$ (12,668) $
(11,225) $ (60,414) $
(2,336) $
(9,999) $
(9,190) $
(120) $
(9,474) $
(529) $ (115,955)
Exploration and project development
Interest income
Interest and financing expenses
Gain (loss) on disposition of assets
Share of loss from associate and
dilution gain
Foreign exchange (loss) gain
Loss on commodity, fuel swaps and
foreign currency contracts
$
$
$
$
$
$
$
(837) $
(1,053) $
(1,685) $
— $
(186) $
— $
(3,377) $
— $
(4,196) $
(11,334)
27
$
67
$
— $
— $
— $
389
$
19
$
1
$
879
$
1,382
(673) $
(436) $
(630) $
(420) $
(307) $
(3,069) $
(66) $
(218) $
(3,732) $
(9,551)
5
$
— $
144
$
(22) $
136
$ 16,525
$
— $
— $
— $
— $
(8) $
— $
— $
— $
23
$
8,297
— $
7,946
$
$
25,100
7,946
(64) $
(57) $
1,539
$
(393) $ 13,887
$
(2,780) $
208
$
1,511
$ (22,905) $
(9,054)
— $
— $
— $
— $
— $
— $
— $
— $
(4,944) $
(4,944)
Earnings (loss) before income taxes
$ 24,062
$
21,497
$
8,222
$
3,269
$ 61,178
$ 42,097
$
(4,536) $ 17,687
$
2,795
$
176,271
Income tax (expense) recovery
$ (10,021) $
(4,351) $ (10,697) $
(3,495) $ (21,860) $
(431) $
(33) $
(8,379) $ (15,179) $
(74,446)
Net earnings (loss) for the period
Capital expenditures
$ 14,041
$
8,854
$
$
17,146
$
(2,475) $
(226) $ 39,318
$ 41,666
8,034
$ 113,227
$
— $ 64,519
$
2,868
$
$
(4,569) $
9,308
$ (12,384) $
101,825
5
$
4,864
$
290
$
202,661
PAN AMERICAN SILVER CORP.
130
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Huaron
Morococha
Dolores
Alamo
Dorado
La
Colorada
Manantial
Espejo
Navidad
San
Vicente
Other
Total
As at December 31, 2016
Total assets
Total liabilities
$ 134,579
$ 45,986
$
$
65,386
$ 827,858
$ 35,853
$ 227,923
$ 111,260
$ 193,195
$ 91,893
$ 210,194
$ 1,898,141
23,171
$ 199,127
$
8,880
$ 52,636
$ 40,788
$
1,112
$ 27,161
$ 100,276
$
499,137
Product Revenue
Refined silver and gold
Zinc concentrate
Lead concentrate
Copper concentrate
Silver concentrate
Total
2017
345,756
140,315
161,981
114,564
54,212
816,828
2016
399,339
93,237
125,123
95,123
61,953
774,775
The Company has 16 customers that account for 100% of the concentrate and silver and gold sales revenue. The
Company has 7 customers that accounted for 23%, 16%, 15%, 14%, 8%, 6%, and 5% of total sales in 2017, and 7
customers that accounted for 18%, 16%, 14%, 10%, 10%, 9%, and 7% of total sales in 2016. 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.
27. OTHER INCOME AND (EXPENSES)
Change in closure and decommissioning estimates
Royalties income
Other income
Total
28. INCOME TAXES
Components of Income Tax Expense
Current tax expense (recovery)
Recognized in profit or loss in current year
Adjustments recognized in the current year with respect to prior years
Deferred tax expense (recovery)
Deferred tax (recovery) expense 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
Increase in deferred tax liabilities due to tax impact of reversals of mineral properties, plant, and
equipment impairments (Note 10,11)
Recognition of previously unrecognized deferred tax assets
Benefit from previously unrecognized losses, and other temporary differences
Increase in deferred tax liabilities due to tax impact of net realizable value (charge) reversal to
inventory (Note 21)
Income tax expense
2017
(8,388) $
574
$
2,309
(5,505) $
2016
—
204
1,338
1,542
2017
2016
$
66,345
(3,468)
62,877
(898)
(1,539)
—
17,770
(10,275)
(6,487)
(2,414)
(3,843)
59,034
$
44,751
(720)
44,031
27,942
1,124
1,302
—
—
(7,861)
7,908
30,415
74,446
$
$
$
$
$
PAN AMERICAN SILVER CORP.
131
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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. The main factors that
affected the effective tax rate for the year ended December 31, 2017 and the comparable period of 2016 were foreign
exchange fluctuations, changes in the non-recognition of certain deferred tax assets, mining taxes paid, and
withholding taxes on payments from foreign subsidiaries. The Company continues to expect that these and other
factors will continue to cause volatility in effective tax rates in the future.
Reconciliation of Effective Income Tax Rate
Earnings before taxes and non-controlling interest
Statutory Canadian income tax rate
Income tax expense based on above rates
Increase (decrease) due to:
Non-deductible expenditures
Foreign tax rate differences
Change in net deferred tax assets not recognized:
- Argentina exploration expenditures
- Other deferred tax assets
Non-taxable portion of net earnings of affiliates
Changes to temporary differences
Tax on sale of royalty
Effect of other taxes paid (mining and withholding)
Effect of foreign exchange on tax expense
Non-taxable impact of foreign exchange
Change in current tax expense estimated for prior years
Other
Income tax expense
Effective income tax rate
Deferred tax assets and liabilities
2017
182,485
26.00%
47,446
$
$
2016
176,271
26.00%
45,830
$
$
4,618
3,644
2,051
(10,752)
(4,055)
—
1,400
20,065
(3,928)
2,937
(3,503)
(889)
59,034
32.35%
$
5,082
9,729
1,794
(14,406)
(4,852)
1,429
—
13,678
10,462
3,861
—
1,839
74,446
42.23%
$
The following is the analysis of the deferred tax assets (liabilities) presented in the consolidated financial
statements:
Net deferred tax liability, beginning of year
Recognized in net earnings for the year
Reduction due to Mexican de-consolidation payments applied to current tax
Other
Net deferred liability, end of year
Deferred tax assets
Deferred tax liabilities
Net deferred tax liability
2017
(169,136) $
3,843
(3,231)
(25)
(168,549) $
2,679
(171,228)
(168,549) $
2016
(138,397)
(30,415)
(383)
59
(169,136)
1,727
(170,863)
(169,136)
$
$
$
PAN AMERICAN SILVER CORP.
132
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Components of deferred tax assets and liabilities
The deferred tax assets (liabilities) are comprised of the various temporary differences as detailed
below:
Deferred tax assets (liabilities) arising from:
Closure and decommissioning costs
Tax losses and mining tax credits
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
Other temporary differences and provisions
Net deferred tax liability
2017
2016
$
$
$
7,019
24,014
2,792
1,385
3,047
21,527
(14,517)
(186,641)
(28,726)
1,551
(168,549) $
7,133
26,646
2,344
4,790
2,373
10,526
(16,261)
(192,046)
(14,907)
266
(169,136)
At December 31, 2017, the net deferred tax liability above included the deferred tax benefit of $24.0 million related
to tax losses of approximately $80.6 million. These losses will begin to expire after the 2024 year end, if unused.
At December 31, 2016, the net deferred tax liability above included the deferred tax benefit of $26.6 million related
to tax losses of approximately $89.0 million. These losses will begin to expire after the 2024 year end, if unused.
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:
Tax loss (revenue in nature)
Net tax loss (capital in nature)
Resource pools and other tax credits
Financing fees
Mineral properties, plant, and equipment
Closure and decommissioning costs
Exploration and other expenses not currently deductible
Intercompany debt
Doubtful debt and inventory
Deferred income and estimated sales
Deductible Mexican mining taxes
Payroll and vacation accruals
Other temporary differences
2017
165,180
15,423
18,609
1,464
20,441
42,484
54,672
8,061
16,602
—
77
2,015
2,601
347,629
$
$
$
$
2016
171,077
18,759
20,116
1,803
34,268
34,809
62,503
34,769
13,997
924
335
3,174
2,532
399,066
PAN AMERICAN SILVER CORP.
133
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Included in the above amounts are operating losses, which if not utilized will expire as follows:
At December 31, 2017,
2018
2019
2020 – and after
Total tax losses
At December 31, 2016,
2017
2018
2019 – and after
Total tax losses
Canada
US
Peru
Mexico
Barbados
Argentina
—
—
120
86
122,853
13,289
—
—
—
—
—
20,925
6
4
93
$
122,853
$
13,495
$
— $
20,925
$
103
$
50
90
7,664
7,804
Canada
US
Peru
Mexico
Barbados
Argentina
—
—
—
120
—
—
—
—
116,009
13,642
39,057
2,160
$
116,009
$
13,762
$
39,057
$
2,160
$
5
6
47
58
$
—
7
24
31
Total
176
180
164,824
165,180
Total
5
133
170,939
$
171,077
Taxable temporary differences associated with investment in subsidiaries
As at December 31, 2017, taxable temporary differences of $88.3 million (2016 – $60.4 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 and does not expect them to reverse in the foreseeable future.
29. 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. 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.
Estimated future reclamation costs are based on 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, 2017,
$65.4 million (December 31, 2016 - $55.6 million) was accrued for reclamation costs relating to mineral properties.
See also Note 16.
c. Credit Facility
On April 15, 2015 the Company entered into a $300.0 million secured revolving credit facility with a 4-year term
(Note 18).
PAN AMERICAN SILVER CORP.
134
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
d.
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 2013, the Mexican President passed a bill that increased the effective tax rate applicable to the Company’s
Mexican operations. The law was effective January 1, 2014 and increased the future corporate income tax rate to
30%, creating a 10% withholding tax on dividends paid to non-resident shareholders (subject to any reduction by an
Income Tax Treaty) and created 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 is tax deductible for income tax purposes. The
Special Mining Duty is generally applicable to earnings before income tax, depreciation, depletion, amortization, and
interest. In calculating the Special Mining Duty there are no deductions related to development type costs but
exploration and prospecting costs are deductible when incurred.
e. Finance Leases
The present value of future minimum lease payments classified as finance leases at December 31, 2017 is $7.6 million
(December 31, 2016 - $7.1 million) and the schedule of timing of payments for this obligation is found in Note 17.
f.
Law changes in Argentina
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. Historically, the Argentine government 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 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 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.
PAN AMERICAN SILVER CORP.
135
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
g. 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.
h. 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.
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.
i. 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.
j. 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 the mineral property while royalties that become payable upon production are expensed
at the time of sale of the production.
As part of the arrangement closed with Maverix on July 11, 2016 (Note 12), Maverix acquired from the Company a
portfolio of royalties, precious metals streams and payment agreements, in exchange for a 54% interest in Maverix
(40% fully diluted as at December 31, 2017). The key portfolio assets included the economic equivalent of one hundred
percent (100%) of the gold produced from Pan American’s operating La Colorada silver mine, less a fixed price of US
$650 per ounce for the life of the mine, as well as an agreement to purchase five percent (5%) of future gold production
at a fixed price of US$450 per ounce from the feasibility stage La Bolsa project. The portfolio also included, among
others, the equivalent of a net smelter returns royalty of one and one-quarter percent (1¼%) on all metals produced
from the Calcatreu project (Note 10) and a net smelter returns royalty of one percent (1%) on the Pico Machay project
that is currently owned by Pan American.
PAN AMERICAN SILVER CORP.
136
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 with Aquiline
Resources Inc., a wholly owned subsidiary of the Company. The holder subsequently selected the silver stream contract
related to certain production from the Navidad project. The final contract for the alternative is being discussed and
pending the final resolution to this alternative, the Company continues to classify the fair value calculated at the
acquisition of this alternative, as a deferred credit as disclosed in Note 19.
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 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, 2017, the Company incurred
approximately $8.5 million in COMIBOL royalties (2016 - incurred $14.3 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. For the
year ended December 31, 2017 the royalties paid to EMUSA amounted to approximately $0.9 million (2016 - $1.0
million).
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%
PAN AMERICAN SILVER CORP.
137
Notes to the Consolidated Financial Statements
As at December 31, 2017 and 2016 and for the
years ended December 31, 2017 and 2016
(Tabular amounts are in thousands of U.S. dollars except number of shares,
options, warrants, and per share amounts, unless otherwise noted)
for zinc and copper metal value of sales. The royalty is income tax deductible. For the year ended December 31, 2017
the royalty amounted to $5.0 million (2016 - $5.6 million).
Dolores mine
Production from the Dolores mine is subject to underlying net smelter return royalties comprised of 2% on silver
production and 3.25% on gold production. These royalties are payable to Royal Gold Inc. and were effective in full as
of May 1, 2009, on the commencement of commercial production at the Dolores mine. The royalties to Royal Gold
amounted to approximately $5.5 million for the year ended December 31, 2017 (2016 – $5.3 million).
Navidad project
As a result of uncertainty over the zoning, regulatory and tax laws which will ultimately apply, the Company has
temporarily suspended 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.
30. RELATED PARTY TRANSACTIONS
The Company’s related parties include its subsidiaries, associates over which it exercises significant influence, and
key management personnel. During its normal course of operation, the Company enters into transactions with its
related parties for goods and services. A company owned by a former director of the Company was paid $0.1 million
for consulting services in the year ended December 31, 2016, there were no such payments in 2017. Related party
transactions with Maverix have been disclosed in Note 12 of these consolidated financial statements.
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
2017
10,175
2,235
12,410
$
$
2016
10,052
2,172
12,224
$
$
PAN AMERICAN SILVER CORP.
138
139
GLOSSARY
All-in sustaining costs per silver ounce sold, net of
by-products (AISCSOS) – The Company believes that
AISCSOS reflects a comprehensive measure of the full cost
of operating its 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 cash flow.
Backfill – Waste material used to fill the void created
by mining.
By-products – A secondary metal or mineral product
recovered in the milling process. Pan American Silver
considers its by-product metals to be gold, zinc, lead and
copper.
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.
Decline – A sloping underground opening for access from
level to level or from surface.
Flotation circuit – A milling process in which valuable
mineral particles are induced to become attached to
bubbles and float as others sink.
Heap Leach - Low-cost method of processing ore whereby
crushed ore is heaped onto a liner (thick polyethylene
sheet) and then dilute cyanide solution is sprinkled on
top of the heap. As the solution trickles through the ore,
valuable minerals are dissolved and ultimately recovered.
Mill – A plant in which ore is treated and metals are
recovered or prepared for smelting; also a revolving drum
used for the grinding of ores in preparation for treatment.
Stoping area – An underground excavation in a mine from
which ore is, or has been, extracted.
Tailings – Material rejected from a mill after most of the
recoverable valuable minerals have been extracted.
RESERVE AND RESOURCE DEFINITIONS
Mineral resource – A mineral resource is a concentration or
occurrence of diamonds, natural solid inorganic material,
or natural solid fossilized organic material including base
and precious metals, coal, and industrial minerals in or
on the Earth’s crust in such form and quantity and of
such a grade or quality that it has reasonable prospects
for economic extraction. The location, quantity, grade,
geological characteristics and continuity of a mineral
resource are known, estimated or interpreted from specific
geological evidence and knowledge.
Inferred mineral resource – That part of a mineral resource
for which quantity and grade or quality can be estimated
on the basis of geological evidence and limited sampling
and reasonably assumed, but not verified, geological
and grade continuity. The estimate is based on limited
information and sampling gathered through appropriate
techniques from locations such as outcrops, trenches, pits,
workings and drill holes.
Indicated mineral resource – That part of a mineral
resource for which quantity, grade or quality, densities,
shape, and physical characteristics can be estimated with
a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to
support mine planning and evaluation of the economic
viability of the deposit. The estimate is based on detailed
and reliable exploration and testing information gathered
through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes that are
spaced closely enough for geological and grade continuity
to be reasonably assumed.
Measured mineral resource – That part of a mineral
resource for which quantity, grade or quality, densities,
shape, and physical characteristics are so well established
that they can be estimated with confidence sufficient
to allow the appropriate application of technical and
economic parameters, to support production planning
and evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration,
sampling and testing information gathered through
appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and
grade continuity.
Mineral reserve – A mineral reserve is the economically
mineable part of a measured or indicated mineral resource
demonstrated by at least a preliminary feasibility study.
This study must include adequate information on mining,
processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that
economic extraction can be justified. A mineral reserve
includes diluting materials and allowances for losses that
may occur when the material is mined.
Probable mineral reserve – The economically mineable
part of an indicated, and in some circumstances, a
measured mineral resource demonstrated by at least
a preliminary feasibility study. This study must include
adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate,
at the time of reporting, that economic extraction can
be justified.
Proven mineral reserve – The economically mineable part
of a measured mineral resource demonstrated by at least
a preliminary feasibility study. This study must include
adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at
the time of reporting, that economic extraction is justified.
ABBREVIATIONS
koz – thousand ounces
kt – thousand tonnes
Tpd – tonnes per day
M – millions
Moz – million ounces
ARS – Argentine peso
BOB – Bolivian boliviano
CAD – Canadian dollar
MXN – Mexican peso
PEN – Peruvian neuvo sol
USD – United States dollar
2017 ANNUAL REPORT Non-GAAP Measures
This annual report of Pan American Silver Corp. and its subsidiaries
(collectively, “Pan American Silver”, the “Company”, “we” or “our”) refers
to various non-GAAP measures, such as: cash costs per payable ounce
of silver, net of by-product credits (“cash costs”); all-in sustaining cost
per silver ounce sold (“AISCSOS”); total debt; adjusted earnings; and
adjusted earnings per share. These measures do not have a standardized
meaning prescribed by IFRS as an indicator of performance, and may
differ from methods used by other companies. Readers should refer to the
Alternative Performance (non-GAAP) Measures section of Pan American’s
Management’s Discussion and Analysis for the period ended December 31,
2017, available at www.sedar.com.
Reporting Currency and Financial Information
Unless we have specified otherwise, all references to dollar amounts or $ are
to United States dollars.
Cautionary Note Regarding Forward-Looking Statements and Information
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: future
financial or operational performance, including our estimated production of
silver, gold and other metals in 2018 and with respect to future production,
including anticipated production from the Cap-Oeste Sur Este (“COSE”)
and Joaquin projects; our expectations with respect to future free cash
flow; our estimated cash costs and AISCSOS in future years; our estimated
capital investments, including with respect to the Joaquin and the COSE
projects, and sustaining capital in future years; the ability of the Company
to successfully complete any capital investment programs and projects,
and the impacts of any such programs and projects on the Company;
timing of production and the cash costs of production at the Company’s
properties, including the anticipated timing of production and results of
developments and operations; the ability of the Company to realize value
from transactions, including with respect to its Joaquin and the COSE
projects, or its investment in New Pacific Metals Corp.; the Company’s plans
and expectations for its properties and operations, our expectations with
respect to future prices of silver or other precious metals, world-wide silver
production, or global demand on silver, or other similar metrics relating
to silver, and exchange rates; and any anticipated level of financial and
operational success in 2018.
These forward-looking statements and information reflect the Company’s
current views with respect to future events and are necessarily based upon a
number of assumptions that, while considered reasonable by the Company,
are inherently subject to significant operational, business, economic and
regulatory uncertainties and contingencies. These assumptions include:
tonnage of ore to be mined and processed; ore grades and recoveries; prices
for silver, gold and base metals remaining as estimated; currency exchange
rates remaining as estimated; capital, decommissioning and reclamation
estimates; our mineral reserve and resource estimates and the assumptions
upon which they are based; prices for energy inputs, labour, materials,
supplies and services (including transportation); no labour-related
disruptions at any of our operations; no unplanned delays or interruptions
in scheduled production; all necessary permits, licenses 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.
The Company cautions the reader that forward-looking statements and
information involve known and unknown risks, uncertainties and other
factors that may cause actual results and developments to differ materially
from those expressed or implied by such forward-looking statements or
information contained in this annual report and the Company has made
assumptions and estimates based on or related to many of these factors.
Such factors include, without limitation: fluctuations in silver, gold and base
metal prices; fluctuations in prices for energy inputs, labour, materials,
supplies and services (including transportation); fluctuations in currency
markets (such as the Canadian dollar, Peruvian sol, Mexican peso, Argentine
peso and Bolivian boliviano versus the U.S. dollar); operational risks of the
Company’s business and hazards inherent with the business of mining
(including environmental accidents and hazards, industrial accidents,
equipment breakdown, unusual or unexpected geological or structural
formations, cave-ins, flooding and severe weather); 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, including relationships with unions; relationships with, and
claims by, local communities and indigenous populations; availability and
increasing costs associated with mining inputs and labour; our ability
to obtain all necessary permits, licenses and regulatory approvals in a
timely manner; changes in laws, regulations and government practices in
the jurisdictions where we operate, including environmental, export and
import laws and regulations; legal restrictions on mining; risks relating
to expropriation; diminishing quantities or grades of mineral reserves
as properties are mined; actual results of current exploration activities,
conclusions of economic evaluations, and changes in project parameters to
deal with unanticipated economic and other factors; increased competition
in the mining industry for equipment and qualified personnel; and those
factors identified under the caption “Risks Related to Our Business” in the
Company’s most recent form 40-F and Annual Information Form filed with
the United States Securities and Exchange Commission (the “SEC”) and
Canadian provincial securities regulatory authorities, respectively. 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. Investors
are cautioned against undue reliance on forward-looking statements or
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 or information, whether as a result of new
information, changes in assumptions, future events or otherwise, except to
the extent required by applicable law.
Technical Information
Technical information contained in this annual report with respect to
Pan American Silver Corp. has been reviewed and approved by Martin
Wafforn, P.Eng., SVP Technical Services and Process Optimization, and
Chris Emerson, FAusIMM, VP Business Development and Geology, who are
the Company’s qualified persons for the purposes of Canadian National
Instrument 43-101 – Standards of Disclosure for Mineral Projects (‘‘NI
43-101’’). Mineral reserves and mineral resources in this annual report were
prepared under the supervision of, or were reviewed by, Martin Wafforn and
Chris Emerson.
Technical disclosure in this annual report for the Company’s material
mineral properties is based on technical reports prepared for those
properties, which are filed at www.sedar.com. For additional information
about the Company’s material mineral properties, other than the Joaquin
property, please refer to the Company’s Annual Information Form dated
March 22, 2018, and technical reports with respect to material mineral
properties and the Joaquin property, each filed at www.sedar.com.
Cautionary Note to U.S. Investors Regarding References to Mineral
Reserves and Resources
This annual report 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 mineral
resource estimates included in this annual report have been disclosed
in accordance with Canadian NI 43-101) and the Canadian Institute of
Mining, Metallurgy and Petroleum Definition Standards. 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 public disclosure 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
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 Silver 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.
Corporate Information
CORPORATE OFFICE
1440 - 625 Howe Street
Vancouver, British Columbia
Canada V6C 2T6
604-684-1175
info@panamericansilver.com
BOARD OF DIRECTORS
Ross J. Beaty – Chairman
Michael Carroll
Neil de Gelder
Noel Dunn
David Press
Walter Segsworth
Michael Steinmann
Gillian Winckler
EXECUTIVE TEAM
Michael Steinmann – President & Chief
Executive Officer
Steve Busby – Chief Operating Officer
Robert Doyle – Chief Financial Officer
Andres Dasso – Senior Vice President, Mining
Operations
George Greer – Senior Vice President,
Project Development
Martin Wafform – Senior Vice President,
Technical Services & Process Optimization
Christopher Emerson – Vice President,
Business Development & Geology
Christopher Lemon – General Counsel
Sean McAleer – Vice President, Human
Resources & Security
For biographies of Pan American Silver’s Directors
and Management, please visit
www.panamericansilver.com.
AUDITORS
Deloitte LLP, Chartered
Professional Accountants
2800 – 1055 Dunsmuir Street
Vancouver, British Columbia
Canada V7X 1P4
REGISTRAR AND
TRANSFER AGENT
Computershare Investor Services Inc.
100 University Ave. 9th Floor
Toronto, Ontario
Canada M5J 2Y1
1-800-564-6253
service@computershare.com
EXTERNAL LEGAL COUNSEL
Borden Ladner Gervais LLP
1200 – 200 Burrard Street
Vancouver, British Columbia
Canada V7X 1T2
SHARE INFORMATION
NASDAQ: PAAS
TSX: PAAS
Common shares outstanding
at Dec. 31, 2017: 153.3 million
INVESTOR CONTACT
Siren Fisekci
Vice President, Investor Relations
and Corporate Communications
T: (604) 684-1175
E: ir@panamericansilver.com
ANNUAL MEETING
Wednesday, May 9th, 2018 – 3:00pm (PST)
Fairmont Waterfront Hotel, Malaspina Room
900 Canada Place Way
Vancouver, British Columbia
Canada V6C 3L5