2019
Annual Report
celebr atin g ou r silver j u bilee:
25 years of responsible mining operations in the Americas
CORPORATE PROFILE
Pan American Silver
Pan American Silver is the world’s
TABLE OF CONTENTS
second largest primary silver producer,
providing enhanced exposure to silver
through a diversified portfolio of assets,
large reserves and growing production.
We own and operate mines in Mexico, Peru, Canada,
Argentina and Bolivia. In addition, we own the Escobal
mine in Guatemala that is currently not operating.
Pan American Silver has a 25-year history of operating
in Latin America, earning an industry-leading
reputation for operational excellence and corporate
social responsibility.
Our vision is to be the world’s premier silver producer,
with a reputation for excellence in discovery,
engineering, innovation, and sustainable development.
Our strategy to achieve this vision is to:
• Generate sustainable profits and superior
returns on investments through the safe, efficient
and environmentally sound development and
operation of our assets.
• Constantly replace and grow our reserves and
resources through targeted near-mine exploration
and business development.
• Foster positive long-term relationships with our
employees, shareholders, communities and
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 assets, both
internally and through acquisition.
• Encourage our employees to be innovative,
responsive and entrepreneurial throughout our
entire organization.
PAAS: NASDAQ AND TSX
PANAMERICANSILVER.COM
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2019 highlights
company at a glance
letter from the board chair
letter from the president
advisory
management’s discussion and analysis
consolidated financial statements
corporate information
2019 REVENUE GENERATED
BY METAL(1)
Zinc
11%
Lead
4%
Copper
3%
Silver
28%
Gold
54%
2019 RESERVES BY METAL(2)
Copper
2%
Lead
6%
Zinc
14%
Gold
32%
Silver
46%
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) Revenue by metal in 2019 is based on the average realized metal
prices for 2019 of: $16.34/oz for silver, $1,406/oz for gold, $2,535/
tonne for zinc, $1,997/tonne for lead, and $5,973/tonne for copper.
(2) The reserves by metal reflect the Company’s 2019 mineral
reserve estimates effective June 30, 2019. See the mineral reserves
and resources on page 77 of this report for more detailed information
on the Company’s reserves and resources.
CONSOLIDATED HIGHLIGHTS
For the year ended December 31,
Weighted average shares during period (millions)
Shares outstanding end of period (millions)
FINANCIAL (in millions USD, except per share amounts)
Revenue
Net Earnings
Basic earnings per share(1)
Adjusted Earnings(2)
Basic adjusted earnings per share(1)(2)
Net Cash Generated from Operating Activities
Sustaining capital expenditures
Project capital expenditures
Cash dividend per share
PRODUCTION (in thousands)
Silver production (ounces)
Gold production (ounces)
Zinc production (tonnes)
Lead production (tonnes)
Copper production (tonnes)
CASH COSTS(2) ($/ounce)
Silver Segment
Gold Segment
AISC(2) ($/ounce)
Silver Segment
Gold Segment
Consolidated Silver Basis
AVERAGE REALIZED PRICES
Silver ($/ounce)(3)
Gold ($/ounce)(3)
Zinc ($/tonne)(3)
Lead ($/tonne)(3)
Copper ($/tonne)(3)
2019
201.4
209.8
1,350.8
111.2
0.55
158.0
0.78
282.0
179.1
43.6
0.14
25,886
559.2
67.6
27.3
8.7
6.39
712
10.46
948
4.44
16.34
1,406
2,535
1,997
5,973
2018
153.3
153.4
784.5
12.0
0.07
59.4
0.39
155.0
106.9
44.7
0.14
24,776
178.9
64.8
22.4
9.8
3.36
n/a
9.48
n/a
10.77
15.61
1,272
2,846
2,189
6,519
(1) Per share amounts are based on basic weighted average common shares.
(2) Non- GAAP measures: Cash Costs, All-in Sustaining Costs (AISC), adjusted earnings, and basic adjusted earnings per share are non-GAAP financial
measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this annual report for further information on these measures.
(3) Metal prices stated are inclusive of final settlement adjustments on concentrate sales.
For historical financial and operating data, please see “Interactive Financials” at panamericansilver.com.
PAN AMERICAN SILVER // 1
Company at a Glance
Diversified Portfolio Across the Americas
OPERATING MINES
(all data as at December 31, 2019)
TIMMINS WEST
& BELL CREEK(1)
Location: Canada
Ownership: 100%
Mine Type: Underground
Gold Production: 143.8 koz
Cash Costs(2): $904
AISC(2): $998
DOLORES
Location: Mexico
Ownership: 100%
Mine Type: Open Pit/Underground
Silver Production: 5.1 Moz
Gold Production: 117.6 koz
Cash Costs(2): $3.09
AISC(2): $15.45
LA COLORADA
Location: Mexico
Ownership: 100%
Mine Type: Underground
Silver Production: 8.2 Moz
Cash Costs(2): $2.99
AISC(2): $4.54
SHAHUINDO(1)
Location: Peru
Ownership: 100%
Mine Type: Open Pit
Gold Production: 145.4 koz
Cash Costs(2): $570
AISC(2): $807
LA ARENA(1)
Location: Peru
Ownership: 100%
Mine Type: Open Pit
Gold Production: 122.5 koz
Cash Costs(2): $644
AISC(2): $1,042
HUARON
Location: Peru
Ownership: 100%
Mine Type: Underground
Silver Production: 3.8 Moz
Cash Costs(2): $4.15
AISC(2): $7.74
MOROCOCHA(3)
Location: Peru
Ownership: 92.3%
Mine Type: Underground
Silver Production: 2.5 Moz
Cash Costs(2): $4.35
AISC(2): $10.08
SAN VICENTE(4)
Location: Bolivia
Ownership: 95%
Mine Type: Underground
Silver Production: 3.5 Moz
Cash Costs(2): $11.77
AISC(2): $13.08
MANANTIAL ESPEJO /
COSE / JOAQUIN
Location: Argentina
Ownership: 100%
Mine Type: Underground
Silver Production: 2.6 Moz
Gold Production: 22.4 koz
Cash Costs(2): $19.59
AISC(2): $18.43
(1) Reflects production results subsequent to the February 22, 2019, closing date of the acquisition of Tahoe Resources Inc., as described in the
“Acquisition of Tahoe” section of Pan American’s management’s discussion and analysis (MD&A) for the period ended December 31, 2019.
(2) Cash Costs and AISC are non-GAAP financial measures that do not have any standardized meaning prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other companies. Pan American produces by-product metals incidentally to our
silver and gold mining activities. We have adopted the practice of calculating a performance measure with the net cost of producing an ounce
of silver and gold, our primary payable metals, after deducting revenues gained from incidental by-product production. Silver segment mines
(Dolores, La Colorada, Huaron, Morococha, San Vicente and Manantial Espejo/COSE/Joaquin) Cash Costs and AISC are calculated net of
credits for realized revenues from all metals other than silver, and are calculated per ounce of silver sold. Gold segment mines (Timmins West
& Bell Creek, Shahuindo and La Arena) Cash Costs and AISC are calculated net of credits for realized silver revenues, and are calculated per
ounce of gold sold.
(3) Morococha data represents Pan American’s 92.3% interest in the mine’s production.
(4) San Vicente data represents Pan American’s 95.0% interest in the mine’s production.
2 // 2019 ANNUAL REPORT
Bell Creek
Timmins West
Dolores
La Colorada
Skarn Deposit
Escobal
GROWTH CATALYSTS
La Colorada Skarn
Pan American owns 100% of the large polymetallic
deposit discovered in 2018 through brownfield
exploration near its La Colorada mine. The deposit
is estimated to contain 102 million ounces of silver
and a large volume of base metals, based on the
initial inferred mineral resource estimate of 72.5
million tonnes released on December 11, 2019.
Escobal
Pan American owns 100% of the Escobal mine in
Guatemala. Escobal is one of the world’s largest
primary silver deposits containing an estimated
264 million ounces of silver reserves. Operations
are currently suspended while the government
of Guatemala completes an International Labour
Organization (ILO) 169 consultation process.
Navidad
Pan American owns 100% of the Navidad project,
containing an estimated 632 million ounces of
measured and indicated silver resources. The
project is located in Chubut Province, Argentina,
and development is contingent on a change in the
province’s mining law.
*See the mineral reserves and resources on page 77 of this report for
more detailed information on the Company’s reserves and resources.
Shahuindo
La Arena
Huaron
Morococha
San Vicente
Navidad
COSE
Joaquin
Manantial Espejo
PAN AMERICAN SILVER // 3
Letter from the Board Chair
Pan American Silver had an excellent
year in 2019. We started the year with
the successful closing of the most
transformative acquisition in our
history – Tahoe Resources.
Acquiring Tahoe brought us four new gold mines: two
each in Canada and Peru, and the world-class Escobal
silver mine in Guatemala that has been on care and
maintenance since 2017 pending a government-
led consultation process. In May we celebrated our
silver anniversary – 25 years from when I founded the
company. You can imagine my pride in seeing how my
1994 vision of building the world’s foremost silver mining
company became a reality in 2019.
As 2019 came to a close, operating cash flow in the fourth
quarter was the highest in our history and we announced
an estimated 72.5 million tonne silver-lead-zinc inferred
resource at our new La Colorada skarn discovery. We
ended the year with the largest silver reserves among our
silver mining peers as well as very large gold reserves.
We now have over 12,000 employees and contractors at
our operations and a wonderful reputation for excellence
in mining, exploration, environmental stewardship,
governance, and social responsibility.
On the mining side, our teams at all our operations are
performing admirably. In exploration, we are finding
new reserves that will keep Pan American healthy for
many years to come. And in environmental and social
governance, we are well positioned to continue our
industry-leading work that is so important in protecting
our natural environment and sharing the benefits of
mining with so many of our stakeholders. Some examples
include our Global Human Rights Policy, which highlights
our commitment to respect human rights and Indigenous
rights; our independent safety reviews at all our
operating tailings facilities; our implementation of tailings
management and water stewardship protocols pursuant
to the guidelines of the Mining Association of Canada;
and our programs to conserve water at all our operations.
25 years
OF RESPONSIBLE
OPERATIONS
557 Moz
SILVER MINERAL
RESERVES*
5.1 Moz
GOLD MINERAL
RESERVES*
*See the mineral reserves and resources on page 77
of this report for more detailed information on the
Company's reserves and resources.
4 // 2019 ANNUAL REPORT
Responsible environmental management must
address the critical issue of climate change and the
need to reduce greenhouse gas (GHG) emissions.
Pan American is a member of the World Economic
Forum’s Alliance of CEO Climate Leaders, advocating
for a transition to a low carbon economy. We have
been reporting our scopes 1 and 2 GHG emissions
since 2010 and we began a rigorous process of setting
GHG emissions reduction targets in 2018. In 2019,
we commenced a study on our climate resilience
to potential climate change risks. In 2020, we plan
to provide our first disclosure of estimated scope 3
emissions and we will begin the process of aligning
our climate disclosure with the Task Force on Climate
Related Disclosure (TCFD) recommendations.
Silver has an important role to play in the transition
to a low carbon economy. Silver consumption in the
photovoltaics sector (solar panels) has become the
largest single use of silver for industrial applications.(1)
Due to silver being the most electrically conductive
metal, it is also playing an important role in electronics.
The growing renewable energy-based electrification
of our economy will further increase the demand for
silver as we transition away from fossil fuels.
Over its 25 years of operation, Pan American has
developed a culture of social responsibility and
environmental stewardship. That is a core strength for
us today. We believe creating respectful, collaborative
relationships with our stakeholders is achieved
through transparent communication and delivering
(1) Silver Institute’s World Silver Survey 2019.
on our commitments. We also believe responsible
environmental management is achieved by
minimizing and mitigating the environmental
impacts of our operations.
I would like to thank
Mr. Kevin McArthur for
his contributions to the
Board over the past
year. Mr. McArthur has
decided not to stand for
re-election as a director
at Pan American’s 2020
Annual General Meeting.
Over its 25 years
of operation,
Pan American
has developed a
culture of social
responsibility and
stewardship.
environmental
Pan American Silver is
in excellent condition
today, and I look forward
to another successful
year in 2020. This is
possible due to our strong management team, our
outstanding employees and contractors at all our
operations, the supportive communities and countries
where we work, and all our shareholders who reward
us with their long-term support. Thank you all for your
part in building our great company.
Respectfully submitted,
ROSS BEATY, Chair
march 12, 2020
PAN AMERICAN SILVER // 5
Letter from the President
2019 was a transformative year for Pan
American Silver. Today we are a larger
company in production, reserves and
market capitalization. We have a more
diversified portfolio of assets, and an
expanded suite of catalysts that have
the potential to materially increase
production and shareholder value.
This transformation is in large part due to the
acquisition of Tahoe Resources Inc., which closed in
February 2019. Pan American now owns 10 mining
operations, including the Escobal mine in Guatemala
that is currently on care and maintenance.
I am very pleased by the successful integration of the
Tahoe assets into Pan American’s business. We are
realizing annual general and administrative synergies of
$25 million to $30 million, and the acquired mines are
performing better than expected. The new shaft at the
Bell Creek mine in Canada has improved productivity,
resulting in sustainable cost efficiencies. At the
Shahuindo mine in Peru, mined ore grades have been
outperforming the reserve model.
The performance of these mines has re-affirmed our
view that we acquired the Escobal mine in Guatemala
as an attractive, low cost option to one of the best-
built silver mines in the world. The restart of that mine
requires the completion of an International Labour
Organization (ILO) 169 consultation process by the
Guatemalan government. As well, we are working to
better understand the local communities’ views on
mining and to demonstrate that we are committed to be
a respectful, responsible partner in the region.
Advancing Value Drivers
Pan American is in the unique position of having a
robust portfolio of cash producing assets, and several
large catalysts. One of those catalysts is the Escobal
mine, which has the potential to increase our silver
63.9%
TOTAL
SHAREHOLDER
RETURN IN 2019
$282 M
IN OPERATING
CASH FLOW
3
MAJOR CATALYSTS
FOR GROWTH
6 // 2019 ANNUAL REPORT
production by about 78% from 2019 levels at all-in
sustaining costs below our corporate average. The mine
was built to high technical and environmental standards.
With silver reserves of 264 million ounces, Escobal
offers long-term value for our shareholders and
host communities.
A second catalyst is our exploration discovery near our
La Colorada mine in Mexico. In late 2019, we released
an initial inferred mineral resource estimate of 72.5
million tonnes for the skarn deposit. The substantial
size and the grades indicate the value of the deposit.
We are continuing an extensive drilling program in 2020
to further define the deposit, which is open laterally
and at depth. As well, we plan to advance early stage
engineering and complete additional metallurgical
testing, with the aim of defining the future development
of a new, large mine for Pan American.
The third catalyst is our Navidad project in Argentina.
Navidad is one of the largest undeveloped primary
silver deposits in the world. High-grade mineralization
at surface would allow scalable open pit mining.
Development is contingent on a change to the
provincial mining law in Chubut, Argentina to allow
open pit mining.
Strong performance in 2019
In 2019, we celebrated our silver jubilee – 25 years of
responsible mining operations throughout the Americas.
Our share price closed at $23.69 at year end, and we
distributed $0.14 per share in dividends for a total return
of 63.9% in 2019.
In 2019 our operations generated cash flow of $282
million, reflecting the strong contribution from the
mines acquired with the Tahoe transaction. We retired
$60 million of debt, resulting in net debt of $78 million(1)
at year end. Our performance on costs was better than
forecasted, with all-in sustaining costs for the silver
segment of $10.46 per ounce and $948 per ounce
for the gold segment. We also achieved our revised
production forecast.(2)
performance of precious metal prices, particularly
silver. While market cycles are difficult to predict,
investment in precious metals can protect wealth and
provide upside during periods of economic downturn.
In 2020, we are expecting silver and gold production
growth of approximately 7% and 16%, respectively,
with all-in sustaining costs in the range of $10.25
to $11.75 for the silver segment of our business
and $1,090 to $1,170 for the gold segment. Our
consolidated all-in sustaining costs are expected to
be between $4.50 to $6.50 and include investment in
maintaining safe, responsible operations, brownfield
exploration to replace mined reserves, and G&A
expenses at our offices. Over the past 15 years, Pan
American has successfully replaced reserves at an
average cost of $0.49 per ounce of silver. Free cash
flow generated by the business will be prioritized
for investment in high-return growth projects, debt
repayment - in line with our preference to carry little
to no debt on our balance sheet - and returning cash
to shareholders through dividends. In 2020, we plan
to invest in projects to advance the La Colorada skarn
discovery and expand the Bell Creek mine.
Building a sustainable business is only possible if
we cultivate constructive relationships with all of
our stakeholders. We aim to achieve that through
transparent communication, respectful engagement,
and delivering on our commitments. Our annual
sustainability report provides information on our
performance and goals for social, environmental
and governance metrics. In 2020, we are planning to
strengthen our reporting of greenhouse gas emissions
and climate change mitigation efforts. Safety is a
priority for Pan American, and we will continue our
unrelenting focus on improving safety for the more
than 12,000 employees and contractors who work at
our sites.
Pan American is well-positioned as it enters the next
decade. We have a diversified portfolio of producing
mines, large reserves, a strong financial position, and
superior catalysts for future upside.
This performance reflects our strategic priorities:
efficient operations, disciplined capital allocation,
and advancing the value drivers in our portfolio.
Those are the same priorities that continue to guide
us going forward.
I would like to thank our shareholders and
communities for their continued support, and our
employees, contractors, and Board of Directors for
their efforts in making Pan American the premier
silver mining company.
By focusing on our strategic priorities, our shareholders
are well-positioned to capture the upside in precious
metal prices. We do not hedge our precious metals
exposure, and our share price is strongly linked to the
MICHAEL STEINMANN, President & CEO
march 12, 2020
(1) Net debt is a non-GAAP financial measure, and calculated as the drawn portion of the Company’s Credit Facility and the financing of lease liabilities less
cash and short-term investments. Please refer to the “Alternative Performance (non-GAAP) Measures” section of this annual report for further information.
(2) Pan American initially provided its guidance for 2019 on January 21, 2019, and subsequently updated the guidance on May 8, 2019, to include certain fore-
cast amounts for the mines acquired from Tahoe Resources Inc. for the period February 22, 2019 to December 31, 2019. Pan American revised its guidance on
August 7, 2019, and again on November 6, 2019 to reflect reductions in select anticipated cost metrics as well as a delay in the COSE and Joaquin projects in
Argentina, which impacted our expected production of gold and silver. Please refer to the “Operating Performance” section of Pan American’s MD&A for the
period ended December 31, 2019, for further information.
PAN AMERICAN SILVER // 7
Non-GAAP Measures
This annual report of Pan American Silver Corp. and its subsidiaries
(collectively, “Pan American”, “Pan American Silver”, the “Company”, “we” or
“our”) refers to various non-GAAP measures, such as “all-in sustaining costs”,
“cash costs”, “adjusted earnings” and “basic adjusted earnings per share”, and
“net debt”. 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. Any reference to “Cash Costs” in this annual report should
be understood to mean cash costs per ounce of silver or gold sold, net of
by-product credits. Any reference to “AISC” in this annual report should be
understood to mean all-in sustaining costs per silver or gold ounce sold, net of
by-product credits.
Readers should refer to the “Alternative Performance (Non-GAAP) Measures”
section of the Company’s Management’s Discussion and Analysis (“MD&A”)
for the period ended December 31, 2019, 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.
Integration of Tahoe Resources Inc. (“Tahoe”)
On February 22, 2019, the Company completed the previously announced
transaction whereby it acquired all of the issued and outstanding shares of
Tahoe (“Acquisition”). Tahoe was a mid-tier publicly traded precious metals
mining company with ownership interests in a diverse portfolio of mines and
projects including the following principal mines: La Arena and Shahuindo
in Peru; Timmins West and Bell Creek in Canada (together “Timmins”); and
Escobal in Guatemala, where operations have been suspended since June 2017
(together the “Acquired Mines”). The Company now operates three gold mines
as a result of the Acquisition. Consequently, the Company’s operations have
been divided into silver and gold segments for the purposes of our financial
reporting. All production, operating and financial results of the Acquired Mines
(including Cash Costs and AISC amounts) and included in the Company’s
consolidated results and updated guidance, reflect only the results from
February 22, 2019 onwards. Further details of the Acquisition are provided
in the “Acquisition of Tahoe” section of the MD&A for the period ended
December 31, 2019.
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, anticipated accretion to
shareholder value from the Company’s future developments; future financial
and operational performance, including, but not limited to, revenue and
operation margins; future production of silver, gold and other metals produced
by the Company, including the Acquired Mines; our estimated all-in sustaining
costs in 2020; the anticipated amount and timing of production at each of the
Company’s properties and in the aggregate; our expectations with respect to
future metal prices and exchange rates; the anticipated capital expenditures
and the timing thereof and the results of any future exploration, development
or expansion programs, including, but not limited to, the La Colorada skarn
exploration project; the restart of the Escobal mine and the likelihood and
results thereof; the potential for increase in the Company’s silver production
and creation of value for shareholders and communities relating to the
restart of the Escobal mine; possible future development of a new mine at La
Colorada and development of the Navidad project; our anticipated disclosure of
emissions and the timing thereof; the Company’s plans and expectations for its
properties, operations and exploration projects; the potential mitigation of risks
through investment in precious metals; and future growth of the economy and
the impact on the overall demand for silver.
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 mineral 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 can be maintained; our ability to secure and
maintain title and ownership to properties and the surface rights necessary for
our operations; and our ability to comply with environmental, health and safety
laws, particularly given the potential for modifications and expansion of such
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; fluctuations in currency markets (such
as the Canadian dollar, Peruvian sol, Mexican peso, Argentine peso, Bolivian
boliviano, and Guatemalan quetzal versus the U.S. dollar); risks related to the
technological and operational nature of the Company’s business; changes in
national and local government, legislation, taxation, controls or regulations and
political, legal or economic developments in Canada, the United States, Mexico,
Peru, Argentina, Bolivia, Guatemala or other countries where the Company
may carry on business, including legal restrictions relating to mining, the risk
of expropriation related to certain of our operations, particularly in Argentina
and Bolivia, and risks related to the constitutional court-mandated ILO 169
consultation process in Guatemala; operational risks and hazards inherent
with the business of mineral exploration, development and mining (including
environmental accidents and hazards, industrial accidents, equipment
breakdown, unusual or unexpected geological or structural formations,
pressures, cave-ins and flooding); risks relating to claims and legal proceedings
involving or against the Company and our subsidiaries; 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 Company’s ability to secure our mine sites or maintain access
to our mine sites due to criminal activity, violence, or civil and labour unrest;
the speculative nature of mineral exploration and development; our ability to
obtain all necessary licenses, permits, and regulatory approvals in a timely
manner; risks of liability relating to our past sale of the Quiruvilca mine in
Peru; diminishing quantities or grades of mineral reserves as properties are
mined; global financial conditions; 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 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 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 Pan American’s
qualified persons for the purposes of National Instrument 43-101 (“NI 43-101”).
Mineral reserves in this annual report were prepared under the supervision of,
or were reviewed by, Martin Wafforn and Chris Emerson.
See Pan American’s Annual Information Form dated March 12, 2020, available
at www.sedar.com for further information on Pan American’s material mineral
properties as at December 31, 2018, including information concerning
associated QA/QC and data verification matters, the key assumptions,
parameters and methods used by the Pan American to estimate mineral
reserves and mineral resources, and for a detailed description of known
legal, political, environmental, and other risks that could materially affect Pan
American’s business and the potential development of Pan American’s mineral
reserves and resources. Please also refer to Pan American’s news release dated
December 11, 2019 with respect to Pan American’s initial mineral resource
estimate for the La Colorada skarn deposit, and our news releases dated
October 23, 2018, February 21, 2019, May 8, 2019, August 1, 2019,
October 1, 2019 and February 13, 2020 with respect to the La Colorada
skarn exploration results.
The mineral reserves and resources of Pan American in this annual report
reflect our mineral reserves and resources estimates as at June 30, 2019 as
announced in our news release dated September 4, 2019.
8 // 2019 ANNUAL REPORT
Management’s Discussion
and Analysis
FOR THE YEAR ENDED DECEMBER 31, 2019
TABLE OF CONTENTS
Introduction
Core Business and Strategy
Corporate Governance, Social Responsibility, and
Environmental Stewardship
Highlights
2020 Operating Outlook
Operating Performance
Project Development Update
Overview of Financial Results
Acquisition of Tahoe
Liquidity Position and Capital Resources
Closure and Decommissioning Cost Provision
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
Disclosure Controls and Procedures
Mineral Reserves and Resources and Technical
Information
Cautionary Note
10
11
11
13
15
21
36
37
47
50
53
53
54
62
74
74
76
77
81
PAN AMERICAN SILVER CORP.
9
Management Discussion and Analysis
For the years ended December 31, 2019 and 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, 2019
(the “2019 Financial Statements”) and the related notes contained therein. All amounts in this MD&A and the 2019
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 ("IASB"). Pan American’s significant
accounting policies are set out in Note 3 of the 2019 Financial Statements.
This MD&A refers to various non-Generally Accepted Accounting Principles (“non-GAAP”) measures, such as “all-in
sustaining cost", “cash costs”, "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”, “cash costs ”, “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 2019 Financial Statements.
Any reference to “cash costs” or “cash costs” in this MD&A should be understood to mean cash costs per ounce of
silver or gold, net of by-product credits. Any reference to “AISC” in this MD&A should be understood to mean all-in
sustaining costs per silver or gold 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.
10
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
CORE BUSINESS AND STRATEGY
Pan American engages in silver and gold mining and related activities, including exploration, mine development,
extraction, processing, refining and reclamation. The Company owns and operates silver and gold mines located in
Peru, Mexico, Argentina, Bolivia, and Canada. We also own the Escobal mine in Guatemala that is currently not
operating. In addition, the Company is exploring for new silver deposits and opportunities throughout the Americas.
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 premier silver mining company, 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 our assets.
• Constantly replace and grow our mineable reserves and resources through targeted near-mine exploration
and global business development.
• Foster positive long-term relationships with our employees, shareholders, communities and 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 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.
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 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 as at December 31, 2019. 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, 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.
PAN AMERICAN SILVER CORP.
11
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Corporate Social Responsibility
The Health, Safety, Environment, and Communities Committee, appointed by the Board, 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:
•
Supporting education for children and adults by contributing to teacher’s salaries, and offering
scholarships at local and national levels.
Improving nutrition, focusing on children and women.
• Promoting community health with an emphasis on immunizations, optometry, and oral health.
•
• Promoting tourism and local areas of interest.
• Encouraging economic activity by strengthening the production chain of livestock breeding, and the
development of alpaca textiles for product commercialization in North America.
Climate Action
We recognize that climate change is a threat to the global environment, society, our stakeholders and our business.
We are committed to doing our part to ensure an orderly transition to a prosperous low-carbon world.
As one of the largest primary producers of silver in the world, sustainable solutions to climate change are embedded
in our purpose as a company. The silver we produce is a key material in solar energy and electrical applications,
thereby supporting the transition to a lower carbon economy. Our silver and other products can contribute to
displacing a much greater amount of fossil fuel carbon emissions than the direct carbon emissions our operations
generate.
We are committed to reducing our carbon footprint by setting realistic short and medium term targets, and supporting
research and conservation efforts both near our operations and globally. We are also improving our existing public
disclosure regarding our greenhouse gas emissions, ensuring that recognition of climate risks are part of our business
plan and stakeholder development strategies.
We support the recommendations from the Task Force on Climate Related Financial Disclosure ("TCFD"), and we are
working towards implementing those TCFD recommendations, targeting 2021 for the release of our first report aligned
with the TCFD recommendations. We will also continue to report on our emissions, targeted emission reductions,
climate risks and other climate-related actions in our annual Sustainability Reports.
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 and mitigate 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 are actively implementing the
Mining Association of Canada’s Towards Sustainable Mining program at all our mines.
In 2019 our efforts were centered around integrating our new assets from the Tahoe acquisition within our existing
environmental management strategy and teams. This included a specific focus on environmental stewardship and
communication at the Escobal mine in Guatemala, incorporating the new operations into the Towards Sustainable
Mining program, environmental auditing of the La Arena and Shahuindo mines, and changing the Closure and
Decommissioning Liability calculation methods for La Arena and Shahuindo to our standard methodology.
We build and operate mines in varied environments across the Americas. From the Patagonian plateau in Argentina,
to the Sierra Madre in Mexico, to Northern Ontario in Canada our mines are generally located in isolated places
PAN AMERICAN SILVER CORP.
12
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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 the
potential to impact surrounding habitats and communities.
We manage environmental 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 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 to 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 ; such as: 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 2019, audits were conducted on the Manantial Espejo, La Arena, and
Shahuindo mines. In 2018, audits were conducted on the San Vicente, Huaron and Morococha mines . No material
issues were identified in either the 2019 or 2018 environmental audits.
2019 HIGHLIGHTS
Integration of Tahoe Resources Inc. ("Tahoe")
On February 22, 2019, the Company completed the previously announced transaction whereby Pan American acquired
all of the issued and outstanding shares of Tahoe (the "Tahoe Acquisition"). Tahoe was a publicly traded precious
metals mining company with a diverse portfolio of mines and projects including the following principal mines: La
Arena and Shahuindo in Peru; Timmins West and Bell Creek in Canada (together "Timmins"); and Escobal in Guatemala,
where operations have been suspended since June 2017 (together the "Acquired Mines"). The Company now operates
three gold mines as a result of the Tahoe Acquisition. Consequently, the Company's operations have been divided
into silver and gold segments for the purposes of reporting in this MD&A.
All production, operating and financial results of the Acquired Mines (including cash costs and AISC amounts) reported
in this MD&A and included in the Company's consolidated results, reflect only the results from February 22, 2019
onwards. Further details of the Tahoe Acquisition are provided in the "Acquisition of Tahoe" section of this MD&A.
Operations & Project Development
• Silver production of 25.9 million ounces
Consolidated silver production for 2019 of 25.9 million ounces was 1.1 million ounces more than in 2018, mainly
reflecting additional production at Dolores, La Colorada, Huaron, and the Acquired Mines, partially offset by lower
production from Manantial Espejo and Morococha. 2019 silver production was in-line with the most recent 2019
forecast range of 25.3 million ounces to 26.3 million ounces, as provided in the Company’s Q3 2019 MD&A dated
November 6, 2019 (the "November 2019 Forecast").
PAN AMERICAN SILVER CORP.
13
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
• Gold production of 559.2 thousand ounces
Consolidated gold production for 2019 of 559.2 thousand ounces was 380.3 thousand ounces more than in 2018,
reflecting additional production from the Acquired Mines, and was in-line with the November 2019 Forecast range
of 550.0 thousand ounces to 600.0 thousand ounces.
• Base metal production
Zinc production in 2019 was 67.6 thousand tonnes, slightly higher than both the 2018 zinc production and
management's November 2019 Forecast production of 65.0 thousand tonnes to 67.0 thousand tonnes.
Lead production in 2019 was 27.3 thousand tonnes, 22% higher than 2018 lead production and higher than
management's November 2019 Forecast production of 24.0 thousand tonnes to 25.0 thousand tonnes.
Copper production in 2019 was 8.7 thousand tonnes, 11% lower than 2018 copper production and lower than
management's November 2019 Forecast production of 9.8 thousand tonnes to 10.3 thousand tonnes.
Financial
• Revenue, net earnings, and operating cash flows
Revenue in 2019 of $1,350.8 million was up 72% from 2018, driven mainly by increased quantities of gold sold from
the Acquired Mines' gold production, and from increased precious metals prices.
Net earnings in 2019 were $111.2 million ($0.55 basic earnings per share), which was a $99.2 million increase from
2018 net earnings of $12.0 million ($0.07 basic earnings per share). The increase was primarily driven by: a $128.4
million increase in mine operating earnings, largely from the Acquired Mines; an $85.0 million increase in investment
income, mainly related to the appreciation of the Company's approximately 17% equity interest in New Pacific Metals
Corp ("New Pacific"). The increase was partially offset by: increased income taxes, mine care and maintenance costs
primarily related to the suspended Escobal mine, and higher interest costs related to amounts drawn on the Company's
revolving credit facility (the "Credit Facility"). Net earnings in 2019 included impairment charges of $40.1 million
compared to impairments of $27.8 million in 2018, the impairment charges in each year were on the Company's
Argentine operating assets.
Adjusted earnings in 2019 were $158.0 million ($0.78 basic adjusted earnings per share), which was $98.6 million
higher than 2018 adjusted earnings of $59.4 million ($0.39 basic adjusted earnings per share).
Net cash generated from operating activities in 2019 was $282.0 million, $127.1 million higher than 2018. The increase
was driven by higher income and related cash-flows.
•
Liquidity and working capital
As at December 31, 2019, the Company had cash and short-term investment balances of $238.2 million, working
capital of $517.2 million, and $225.0 million available under its $500.0 million revolving credit facility. Total debt of
$316.2 million was related to the drawn portion of the Credit Facility and the financing of lease liabilities, which were
partially attributable to the new lease accounting standard (IFRS-16) adopted on January 1, 2019, as discussed in the
"Changes in Accounting Standards" section of this MD&A.
• Cash costs per ounce sold
Silver Segment 2019 cash costs were $6.39 per silver ounce sold, in-line with the November 2019 Forecast range of
$6.00 to $7.00 per silver ounce sold.
Gold Segment 2019 cash costs related to the Acquired Mines were $712 per gold ounce sold, which was lower than
the November 2019 Forecast range of $725 to $775 per gold ounce sold.
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 the 2019 Financial Statements.
PAN AMERICAN SILVER CORP.
14
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
• All-in Sustaining Costs per ounce sold (“AISC”)
Silver Segment 2019 AISC were $10.46 per silver ounce sold, in-line with the November 2019 Forecast range of $9.50
to $11.00 per silver ounce sold.
Gold Segment 2019 AISC were $948 per gold ounce sold, which was lower than the November 2019 Forecast of $1,000
to $1,100 per gold ounce sold.
Consolidated 2019 AISC per silver ounce sold, including by-product credits from the Acquired Mines' gold production,
were $4.44 per silver ounce sold, which was lower than the November 2019 Forecast range of $6.00 to $7.50 per
silver ounce sold.
AISC is a non-GAAP measure. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
MD&A for a detailed reconciliation of this measure to the 2019 Financial Statements.
2020 OPERATING OUTLOOK
These estimates are forward-looking statements and information that are subject to the cautionary note associated
with forward-looking statements and information at the end of this MD&A. We may revise forecasts during the year
to reflect actual results to date and those anticipated for the remainder of the year. The 2020 production, cash costs
and AISC outlooks for each mine are further discussed in the "2020 Mine Operation Forecasts" section of this MD&A.
2020 Silver and Gold Production, Cash Costs and AISC Forecasts:
Silver Production
(million ounces)
Gold Production
(thousand ounces)
Cash Costs
($ per ounce)(1)
AISC
($ per ounce)(1)
Silver Segment:
La Colorada
Dolores
Huaron
Morococha (92.3%)(2)
San Vicente (95.0%)(3)
Manantial Espejo/COSE/Joaquin
Total(4,5)
Gold Segment:
Shahuindo
La Arena
Timmins
Total(4,5)
Total Production(5)
Consolidated Silver Basis(4)
4.0 -5.0
3.00 - 4.00
133.5 - 143.5
(8.50) - (5.50)
8.5 - 8.7
4.5 - 5.0
3.8 - 3.9
2.6 - 2.8
3.5 -3.6
4.0 - 4.3
0.5
1.3 - 1.5
0.5
33.2 - 36.5
26.8 - 28.3
173.0 - 187.5
0.2
—
—
0.2
27.0 - 28.5
162.0 - 172.5
125.0 - 135.0
165.0 - 180.0
452.0 - 487.5
625.0 - 675.0
5.50 - 6.50
4.25 - 6.25
12.50 - 14.25
13.50 - 15.50
16.00 - 17.00
18.50 - 19.50
10.25 - 11.75
1,070 - 1,150
1,120 - 1,200
1,090 - 1,170
1,090 - 1,170
9.25 - 11.00
9.50 - 11.75
14.00 - 15.00
16.75 - 17.75
5.75 - 7.50
700 - 750
800 - 850
950 - 1,000
820 - 870
n/a(6)
4.50 - 6.50
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for further
information on these measures. The cash costs and AISC forecasts assume average metal prices of $17.50/oz for silver, $1,525/oz for gold, $2,350/tonne
($1.07/lb) for zinc, $2,000/tonne ($0.91/lb) for lead, and $6,150/tonne ($2.79/lb) for copper; and average annual exchange rates relative to 1 USD of 19.50
for the Mexican peso ("MXN"), 3.34 for the Peruvian sol ("PEN"), 73.64 for the Argentine peso ("ARS"), 6.91 for the Bolivian boliviano ("BOB"), and $1.30
for the Canadian dollar ("CAD").
(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) As shown in the detailed quantification of consolidated AISC, included in the “Alternative Performance (Non-GAAP) Measures” section of this MD&A,
corporate general and administrative costs, and exploration and project development expenses are included in Consolidated Silver Basis AISC, but are not
allocated in calculating AISC for the Silver and Gold Segments.
(5) Totals may not add due to rounding.
PAN AMERICAN SILVER CORP.
15
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
(6) Pan American will no longer be providing guidance for cash costs on a Consolidated Silver Basis, determining that AISC guidance is a more
appropriate measure of reflecting costs on a Consolidated Silver Basis.
The Company expects 2020 silver production of between 27.0 million and 28.5 million ounces, representing between
a 4% and 10% increase over the 2019 consolidated production of 25.9 million ounces. Production increases are
expected at La Colorada, Manantial Espejo, and Morococha. Production at San Vicente and Huaron is expected to be
generally consistent with 2019, while production at Dolores is expected to be slightly lower than 2019. The increase
in silver production at La Colorada is expected to be achieved by increasing throughput rates through mine
mechanizations, debottlenecking efforts, and infrastructure upgrades. At Manantial Espejo, the expected increase
reflects the COSE and Joaquin mine projects coming into production in 2020, and thereby increasing feed grades. At
Morococha, the increase is due to mine sequencing into higher silver grade zones. The expected decrease in silver
production at Dolores is driven by open pit sequencing into lower silver grade ore zones partially offset by leach
sequencing that is expected to draw-down heap silver inventories.
Gold production in 2020 is expected to be between 625 thousand and 675 thousand ounces, which is an increase of
between 12% and 21%. The increase is expected primarily from production from a full calendar year of the Acquired
Mines, higher gold grades at Dolores due to open pit sequencing, and the addition of COSE production at the Manantial
Espejo operation, and partially offset by lower ore tonnages at La Arena from mine sequencing.
Silver Segment cash costs for 2020 are forecast to be between $5.75 and $7.50 per payable ounce of silver, while
Silver Segment AISC are expected to be between $10.25 and $11.75 per ounce, which compare to 2019 Silver Segment
Cash costs and AISC of $6.39 and $10.46, respectively. Silver Segment per ounce cost metrics are expected to be
similar to 2019, based on assumptions for modest escalation in wages and certain consumables as well as higher
concentrate treatment and refining charges, offset by higher by-product gold production at Dolores, higher
throughputs at La Colorada and higher by-product gold prices. An increase in sustaining capital expenditures is also
expected to impact the 2020 AISC, as further described in the following sections.
Gold Segment cash costs for 2020 are forecast to be between $820 and $870 per payable ounce of gold, while Gold
Segment AISC are expected to be between $1,090 and $1,170 per ounce, which compare to 2019 Gold Segment cash
costs and AISC of $712 and $948, respectively. The expected increase in the Gold Segment per ounce cost metrics is
primarily due to increased capital spending on waste dumps and leach pads at Shahuindo and La Arena and equipment
replacements at Timmins, which partly reflects the deferral of major projects from 2019 into 2020. In addition, the
cost increase reflects a modest increase in operating costs, as further described in the following sections, and
assumptions for modest escalation in wages and certain consumables.
Consolidated AISC (on a silver basis, net of by-product credits) in 2020 is forecast to be between $4.50 and $6.50
compared to the $4.44 per ounce recorded in 2019. The expected increase in AISC is largely driven by the same factors
expected to increase the Gold Segment AISC discussed above.
2020 Consolidated Base Metal Production Forecasts:
Consolidated Production
67.5 - 70.5
27.5 - 29.5
Zinc
(kt)
Lead
(kt)
Copper
(kt)
9.3 - 10.3
Base metal production is expected to increase for zinc, lead and copper in 2020 compared to 2019. The expected
increase in zinc and lead production reflects higher sulphide ore throughput at La Colorada, partially offset by mine
sequencing into lower grades at Huaron, Morococha, and San Vicente. Copper production is expected to increase at
Morococha and San Vicente as a result of mine sequencing.
PAN AMERICAN SILVER CORP.
16
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
2020 Capital Expenditure Forecasts
In 2020, Pan American expects sustaining capital investments of between $225.0 million and $240.0 million, which
is an increase from the $179.1 million invested in 2019. In addition, Pan American expects to invest between $22.0
million and $27.0 million in project capital, primarily to advance the skarn deposit at La Colorada. The following table
details the forecast capital investments at the Company's operations and projects in 2020:
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo/COSE/Joaquin
Shahuindo
La Arena
Timmins
Sustaining Capital Total
La Colorada Skarn project
Timmins Expansion
Other
Project Capital Total
Total Capital
2020 Forecast Capital
Investment
($ millions)
15.5 - 16.5
55.0 - 58.0
9.0 - 10.0
7.5 - 9.0
6.0 - 7.0
4.0 - 5.5
63.0 - 65.0
42.0 - 44.0
23.0 - 25.0
225.0 - 240.0
16.0 - 18.0
4.0 - 5.0
2.0 - 4.0
22.0 - 27.0
247.0 - 267.0
The forecast 2020 sustaining capital is related primarily to the following activities:
•
La Colorada - underground mechanization equipment additions, mine equipment refurbishments and
replacements, underground ventilation infrastructure improvements, tailing storage facility expansions and
near-mine exploration;
• Dolores - heap leach pad and pond expansions, open pit mine waste pre-stripping activities and mine
equipment refurbishments;
• Huaron - mine equipment replacements, mine deepening and near-mine exploration;
• Morococha - near-mine exploration and underground mine equipment additions and replacements;
• San Vicente - underground mine equipment refurbishments and replacements and near-mine exploration;
• Manantial Espejo - near-mine exploration and mill upgrades to accept the COSE and Joaquin ores;
• Shahuindo - heap leach pad expansions, waste rock storage facility expansions, lease payments from a fleet
•
expansion initiated in 2019, land purchases and near-mine exploration;
La Arena - open pit mine waste pre-stripping activities, waste rock storage facility expansions and land
purchases; and,
• Timmins - tailings storage facility expansions, underground mine equipment replacements and
refurbishments and near-mine exploration.
Forecast 2020 project capital consists of:
•
La Colorada - continued exploration drilling and early stage engineering and metallurgical testing for the skarn
discovery;
PAN AMERICAN SILVER CORP.
17
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
• Timmins - an approximate 20% expansion of the Bell Creek mine, including the purchase of additional mine
equipment and debottlenecking and upgrading certain components of the plant to maximize the benefits of
the improved efficiencies resulting from the commissioning of the Bell Creek shaft in February 2019; and,
• Other - includes remaining payments for the COSE and Joaquin mine developments in Argentina, and
advancements in the engineering and permitting for a future plant relocation at Morococha.
2020 Care & Maintenance and General & Administrative Expense Forecast
Forecast care and maintenance expense for 2020 is $21.5 million to $23.0 million, and is made up of $19.0 million to
$20.0 million on the Escobal mine and $2.5 million to $3.0 million related to the Navidad project. Annual corporate
general and administrative expense, including share-based compensation, is forecast to be between $35.0 million
and $37.0 million in 2020.
2020 Exploration Expenditures Forecast
Exploration expenditures in 2020, including both amounts that will be expensed and capitalized, are expected to
total $37.5 million to $39.5 million, comprised of: (1) $18.5 million to $19.5 million for 186,000 metres of near-mine
brownfield exploration drilling for reserve replacement, which is included in the forecast for 2020 sustaining capital
expenditures, (2) $11.5 million to $12.5 million in regional, greenfield exploration in Peru, Mexico and Canada; and
(3) $7.5 million for 44,000 metres of drilling on the La Colorada skarn discovery, which is included in the forecast for
2020 project capital expenditures.
2020 Mine Operation Forecasts
Management's expectations for each mine’s 2020 operating performance, including production, cash costs, and AISC,
are provided below:
La Colorada mine
Silver production is forecast to be between 8.5 million ounces and 8.7 million ounces in 2020 which is 4% to 6% more
than the 8.2 million ounces produced in 2019. The increase is driven by an expected 4% increase in throughput from
additional debottlenecking, mine mechanizations, and better backfill availability.
Cash costs per silver ounce in 2020 are forecast to be between $3.00 and $4.00 compared to the $2.99 achieved in
2019. The increase is primarily related to higher treatment and refining charges due to deteriorating concentrate
treatment terms and lower average zinc price assumptions.
AISC in 2020 is forecast to be between $5.50 and $6.50 per silver ounce, which is 21% to 43% higher than the $4.54
achieved in 2019. The increase is largely driven by the higher treatment and refining charges, as well as an expected
$5.8 million to $6.8 million increase in sustaining capital, as previously described.
Dolores mine
Silver production is forecast to be between 4.5 million ounces and 5.0 million ounces in 2020, which is 0.1 million
ounces to 0.6 million ounces lower than the 5.1 million ounces produced in 2019. The decrease is primarily driven
by planned mine sequencing into lower silver grade zones, partially offset by leach sequencing that is expected to
reduce the heap silver inventory. Conversely, the mine sequencing is also expected to increase gold production. Gold
production in 2020 is forecast to be between 133.5 thousand ounces and 143.5 thousand ounces, which is between
15.8 thousand ounces to 25.8 thousand ounces higher than the 117.6 thousand ounces produced in 2019.
Cash costs per silver ounce in 2020 are forecast to be between negative $8.50 and negative $5.50, which is a decrease
from 2019 cash costs of $3.09, due primarily to increased gold credits from higher gold production and price
assumptions.
AISC in 2020 is forecast to be between $4.25 and $6.25 per silver ounce, compared to 2019 AISC of $15.45 (inclusive
of net realizable value ("NRV") inventory adjustments that increased AISC by $1.60 in 2019). Excluding the effect of
PAN AMERICAN SILVER CORP.
18
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
2019 NRV adjustments, AISC is expected to decrease from 2019 due to the same factors affecting year-over-year cash
costs, partially offset by a $5.3 million to $8.3 million expected increase in sustaining capital expenditures, as described
previously.
Huaron mine
Silver production is forecast to be between 3.8 million ounces to 3.9 million ounces in 2020, comparable to the 3.8
million ounces produced in 2019. Base metal production is expected to decrease slightly as a result of lower grades
from mine sequencing.
Cash costs per silver ounce in 2020 are forecast to be between $9.25 and $11.00, which is higher than the 2019 cash
costs of $4.15 per ounce. The increase reflects higher treatment and refining charges, decreased base metal credits
due to a combination of a lower zinc price assumption and lower by-product base metal grades, and assumptions for
modest escalation in wages and consumables.
AISC for 2020 is forecast to between $12.50 and $14.25 per silver ounce, which is higher than the $7.74 per ounce
achieved in 2019 as a result of the increase in cash costs mentioned previously.
Morococha mine
Silver production is forecast to be between 2.6 million ounces to 2.8 million ounces in 2020 which is higher than the
2.5 million ounces produced in 2019, as a result of slight increases to throughput, grades and recoveries. Zinc and
lead production are expected to be consistent with 2019, while copper production is expected to increase considerably
as a result of mine sequencing.
Cash costs per silver ounce in 2020 are forecast to be between $9.50 and $11.75, which is $5.15 to $7.40 higher than
2019 cash costs of $4.35 per ounce. The increase reflects higher treatment and refining charges, lower zinc price
assumptions, and assumptions for modest escalation in wages and certain consumable costs, partially offset by
increased copper and silver production.
AISC is forecast to be between $13.50 and $15.50 per silver ounce, which is $3.42 to $5.42 higher than the $10.08
per ounce reported in 2019. The increase is due to the same factors affecting year-over-year cash costs, partially offset
by an expected decrease in sustaining capital expenditures, as previously described.
San Vicente mine
Silver production is forecast to be between 3.5 million ounces and 3.6 million ounces in 2020, which is in-line with
2019 production, with anticipated throughput increases being partially offset by lower grades from mine sequencing.
Zinc production is expected to decrease by 15% and copper is expected to increase by 18%, both due to mine
sequencing.
Cash costs per silver ounce in 2020 are forecast to be between $14.00 and $15.00, which is between $2.23 and $3.23
per ounce higher than 2019 cash costs of $11.77 per ounce due to: operating cost increases from government
mandated wage increases; cost escalation for certain consumables; higher treatment and refining charges; and, lower
overall base metal credits due to lower zinc production and prices; partially offset by lower royalties and increased
copper production.
AISC for 2020 is forecast to be between $16.00 and $17.00 per silver ounce, which is between $2.92 to $3.92 per
ounce higher than the $13.08 per ounce recorded in 2019, due to the same factors impacting cash costs previously
mentioned.
PAN AMERICAN SILVER CORP.
19
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Manantial Espejo mine
Silver production is forecast to be between 4.0 million ounces to 4.3 million ounces in 2020, which is between 54%
and 65% higher than the 2.6 million ounces produced in 2019. Gold production in 2020 is forecast to be between
33.2 thousand ounces and 36.5 thousand ounces, which is between 48% and 63% higher than the 22.4 thousand
ounces produced in 2019. The expected increase in production is attributable to the addition of higher-grade COSE
and Joaquin ore processed at the Manantial Espejo plant as these projects ramp-up to production following their
development in 2019.
Cash costs per silver ounce in 2020 are forecast to be between $16.75 to $17.75, which is below 2019 cash costs of
$19.59, primarily as a result of higher grade ore production from COSE and Joaquin displacing low-grade stockpile
ores, particularly in the second half of 2020 as these mines ramp up production rates.
AISC for 2020 is forecast to be between $18.50 and $19.50 per silver ounce, which is a slight increase from the $18.43
per ounce reported in 2019. AISC in 2019 benefited from a $3.35 per ounce cost-decreasing NRV adjustment.
Shahuindo mine
Gold production is forecast to be between 162.0 thousand to 172.5 thousand ounces in 2020, which is higher than
the 145.4 thousand ounces produced in 2019, primarily the result of additional production from a full year of
operations.
Cash costs per gold ounce in 2020 are forecast to be between $700 and $750, which is higher than 2019 cash costs
of $570 due to increases in operating costs from higher expected employee profit participation payments, greater
leach reagent consumption aimed at optimizing recovery rates, and higher community expenses.
AISC for 2020 is forecast to be between $1,070 and $1,150 per gold ounce, which is higher than the 2019 AISC of
$807 per ounce as a result of the increase in cash costs mentioned previously, as well as higher sustaining capital as
previously described.
La Arena mine
Gold production is forecast to be between 125.0 thousand ounces to 135.0 thousand ounces in 2020, which is higher
than the 122.5 thousand ounces produced in 2019. Higher gold grades and recoveries and additional production from
a full year of operations are expected to offset lower throughput as a result of higher waste mining anticipated in
2020.
Cash costs per gold ounce in 2020 are forecast to be between $800 and $850, which is higher than 2019 cash costs
of $644 due to higher leach pumping costs from an increase in heap heights, the introduction of geotechnical pre-
split drilling to optimize the ultimate open pit layback sequencing, which also encounters lower ore production at a
higher waste strip ratio.
AISC for 2020 is forecast to be between $1,120 and $1,200 per gold ounce, which is $78 to $158 higher than the
$1,042 per ounce reported in 2019 due to the increase in cash costs previously mentioned, partially offset by
anticipated lower sustaining capital expenditures, as previously described.
Timmins mine
Gold production is forecast to be between 165.0 thousand ounces to 180.0 thousand ounces in 2020, which is higher
than the 143.8 thousand ounces produced in 2019 due to additional production from a full year of operations and
increased daily throughput from an approximately 20% mill expansion, largely offset by lower gold grades to optimize
the mineral reserve cut-off grade to maximize life of mine profitability.
Cash costs per gold ounce in 2020 are forecast to be between $950 and $1,000, slightly higher than the 2019 cash
costs of $904 as increases in operating costs from higher mining and milling rates are expected to be largely offset
by higher gold production.
PAN AMERICAN SILVER CORP.
20
AISC for 2020 is forecast to be between $1,090 and $1,170 per gold ounce, which is higher than 2019 AISC of $998
per ounce as a result of higher sustaining capital, as previously described.
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
2019 OPERATING PERFORMANCE
Consolidated 2019 Operating Results
Silver and Gold Production
The following table provides silver and gold production at each of Pan American’s operations for the three and twelve
month periods ended December 31, 2019 and 2018, except for the Acquired Mines, which for the twelve months
ended December 31, 2019 only include production from the February 22, 2019 acquisition date:
Silver Production
(ounces ‘000s)
Gold Production
(ounces ‘000s)
Three months ended
December 31,
Year ended
December 31,
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
2019
2018
2019
2018
2,080
1,287
2,074
824
935
554
877
817
54
11
6
965
740
937
587
—
—
—
8,206
5,122
3,796
2,456
3,528
2,599
137
26
18
6,622
6,128
25,886
7,617
4,081
3,561
2,881
3,544
3,092
—
—
—
24,776
1.3
26.1
0.2
0.2
0.1
6.7
43.5
48.4
47.3
173.9
1.2
29.4
0.2
0.2
0.1
6.2
—
—
—
37.2
4.6
117.6
1.0
1.4
0.5
22.4
145.4
122.5
143.8
559.2
4.4
136.6
0.8
2.1
0.5
34.6
—
—
—
178.9
La Colorada
Dolores
Huaron
Morococha(1)
San Vicente(2)
Manantial Espejo
Shahuindo
La Arena
Timmins
Total (3)
(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.
(3) Totals may not add due to rounding.
Silver Production
2019 consolidated silver production of 25.89 million ounces was 4% higher than the 24.78 million ounces produced
in 2018. Dolores, Huaron, and La Colorada drove the increases, primarily due to increased grades and a higher ratio
of ounces produced to placed on the heap at Dolores given higher pulp agglomeration plant throughput and increased
throughput at the other two operations. The increase was partially offset by lower production at Morococha and
Manantial Espejo, primarily due to lower grades at both operations, while Manantial Espejo was also affected by
lower throughput. Consolidated silver production in Q4 2019 of 6.62 million ounces was 8% higher than the 6.13
million ounces produced in the fourth quarter of 2018 ("Q4 2018"). Dolores and Manantial Espejo drove the increase,
primarily due to increased grades due from mine sequencing at both operations partially offset by heap sequencing
that lead to a lower ratio of ounces produced to placed at Dolores. The increase was partially offset by lower production
at Morococha, primarily due to lower grades from mine sequencing.
Gold Production
Consolidated gold production in 2019 of 559.2 thousand ounces was more than three times the 178.9 thousand
ounces produced in 2018. The increase was attributable to gold production from the Acquired Mines, which totaled
411.7 thousand ounces, partially offset by lower production at Manantial Espejo as a result of higher throughput
from low grade stockpiles due to a delay in the COSE and Joaquin mine developments, and at Dolores due to mine
PAN AMERICAN SILVER CORP.
21
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
sequencing. Similarly, consolidated gold production in Q4 2019 of 173.9 thousand ounces was more than four times
the 37.2 thousand ounces produced in Q4 2018. Q4 2019 production from the Acquired Mines totaled 139.3 thousand
ounces of gold.
Each operation’s production variances are further discussed in the “Individual Mine Performance” section of this
MD&A.
Base Metal Production
The following table provides the Company’s base metal production for the three-month and twelve-month periods
ended December 31, 2019 and 2018:
Zinc - kt
Lead - kt
Copper - kt
Base Metal Production
Three months ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
16.6
7.2
2.3
18.5
6.3
2.2
67.6
27.3
8.7
64.8
22.4
9.8
Zinc production in 2019 was consistent with 2018 production, driven by higher sulphide ore throughput at La Colorada,
which was partially offset by lower grades at San Vicente.
Lead production in 2019 was 22% higher than 2018, resulting primarily from higher sulphide ore throughput at La
Colorada and higher grades at Morococha from mine sequencing.
Copper production in 2019 was 11% lower than 2018, driven by lower grades and recoveries at Morococha from mine
sequencing. Each operation’s by-product production variances are further discussed in the “Individual Mine
Performance” section of this MD&A.
Per Ounce Measures
The Company currently operates three gold mines as a result of the Tahoe Acquisition. Consequently, the Company's
operations have been divided into silver and gold segments for the purposes of reporting cash costs and AISC, as set
out in the table below. Based on the changed production profile of the Company and increased gold production
following the Tahoe Acquisition, the Company has determined it necessary to expand the calculating and reporting
of operating production, cash costs, and AISC metrics into two segments. The quantification of both the current cash
costs and AISC measures is described in detail, and where appropriate reconciled to the 2019 financial statements,
in the "Alternative (Non-GAAP) Performance Measures" section of this MD&A.
PAN AMERICAN SILVER CORP.
22
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
The following table reflects the cash costs and AISC net of by-product credits at each of Pan American’s operations
for the three and twelve months ended December 31, 2019, as compared to the same periods in 2018 for the Silver
Segment mines and since February 22, 2019 for the newly acquired Gold Segment mines:
Cash Costs(1)
($ per ounce)
AISC(1)
($ per ounce)
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Silver Segment Consolidated
Shahuindo
La Arena
Timmins
Gold Segment Consolidated
Consolidated per silver ounce sold(4):
All Operations
All Operations before NRV inventory
adjustments
Three months
ended
December 31,
2018(2)
2.46
4.30
2019
Year ended
December 31,
2018(2)
2.26
2.99
2019
Three months
ended
December 31,
2018(3)
5.93
5.80
2019
Year ended
December 31,
2018(3)
4.63
4.54
2019
2.64
5.34
10.85
14.38
15.47
7.80
605
580
884
693
6.30
2.42
(0.58)
10.20
23.03
5.82
—
—
—
—
3.09
4.15
4.35
11.77
19.59
6.39
570
644
904
712
(1.81)
1.79
(4.43)
9.83
14.83
3.36
—
—
—
—
9.33
9.44
18.83
16.50
16.94
11.37
970
764
984
901
35.36
9.71
6.19
13.59
27.94
14.69
—
—
—
—
15.45
7.74
10.08
13.08
18.43
10.46
807
1,042
998
948
16.36
7.95
1.59
12.20
16.83
9.48
—
—
—
—
(8.63)
5.82
(4.89)
3.36
1.04
16.19
4.44
10.77
(8.63)
5.82
(4.89)
3.36
0.96
13.69
4.45
9.72
(1) Cash costs and AISC are non-GAAP measures. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of this MD&A for a detailed
description of these measures and where appropriate a reconciliation of the measure to the 2019 Financial Statements.
(2) Silver Segment cash costs per ounce sold are calculated based on cash costs, net of by-product credits divided by per ounce of silver sold and they are
therefore different from previously reported 2018 "cash costs" which were calculated based on cash costs net of by-product credits divided by payable silver
ounces produced. The 2018 cash costs per ounce sold included in the table above have been calculated and presented as comparative amounts to conform
to the methodology used by the Company to calculate the 2019 cash cost per ounce sold.
(3) 2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by
the Company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the adoption
of IFRS 16, and sustaining capital now includes lease payments. Previously, leased assets were included as sustaining capital in the period of acquisition,
while future related lease payments were excluded.
(4) Consolidated silver basis total is calculated per silver ounce sold with total gold revenues included within by-product credits. G&A costs are included in the
consolidated AISC, but not allocated in calculating AISC for each operation.
Cash Costs
Consolidated silver basis cash costs were negative $4.89 per ounce and negative $8.63 per ounce for 2019 and Q4
2019, down $8.25 and $14.45 from the comparable 2018 periods, respectively, primarily as a result of the increase
in gold by-product credits from the newly acquired Gold Segment mines. These decreases were partially offset by
increased Silver Segment cash costs due to a combination of lower base metal prices, higher treatment and refining
charges and higher cost per ounce at Morococha and higher annual operating costs per ounce at San Vicente and
Manantial Espejo. Consolidated silver basis cash costs reflect the cash costs at both the silver and gold segments of
the Company's operations, and are based on total silver ounces sold net of by-product credits from all metals other
than silver.
PAN AMERICAN SILVER CORP.
23
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
AISC
Consolidated silver basis AISC for 2019 and Q4 2019 were $4.44 per ounce and $1.04 per ounce, respectively,
representing decreases of $6.33 and $15.15 per ounce, respectively, from the corresponding 2018 periods. The
decreases were primarily the result of the same factors driving the decreased cash costs, as well as a reduction in
cost-increasing NRV adjustments. Sustaining capital expenditures decreased for the Silver Segment mines, but
increased as a whole due to the addition of the newly Acquired Mines. Consolidated AISC are based on total silver
ounces sold and are net of by-product credits from all metals other than silver.
2019 Operating Results versus 2019 Guidance
The following table sets out the various 2019 annual metal production, cash costs, AISC and capital expenditures
guidance provided by Management. The Original Guidance was provided in our Annual 2018 MD&A dated March 12,
2019, and was based on Pan American's assets prior to the closing of the Tahoe Transaction. The May Guidance was
provided in the Company's MD&A dated May 8, 2019, and incorporated forecasts for the newly Acquired Mines. "NC"
in the table below denotes no changes to the previously provided guidance. Guidance was updated in the Company's
MD&A dated August 7, 2019 and again in the Company's MD&A dated November 6, 2019 to reflect reductions in
select anticipated cost metrics as well as a delay in the COSE and Joaquin projects in Argentina, which impacted our
expected production of gold and silver.
Silver Production - Moz
Gold Production - koz
Zinc Production - kt
Lead Production - kt
Copper Production - kt
Silver Segment Cash Costs ($ per ounce)
Gold Segment Cash Costs ($ per ounce)
Consolidated Silver Basis Cash Costs ($ per ounce)
Silver Segment AISC ($ per ounce)
Gold Segment AISC ($ per ounce)
Consolidated Silver Basis AISC ($ per ounce)
Sustaining Capital ($ millions)
Project Capital ($ millions)
65.0 - 67.0
24.0 - 25.0
9.8 - 10.3
-
-
6.50 - 7.50
-
-
10.80 - 12.30
Original
Guidance
26.5 - 27.5
May
Guidance
26.6 - 27.6
August
Guidance
25.3 - 26.3
162.5 - 172.5 570.0 - 620.0 550.0 - 600.0
NC
NC
NC
6.50 - 7.50
740 - 810
NC
NC
NC
NC
NC
November
Guidance
NC
NC
NC
NC
NC
6.00 - 7.00
725 - 775
(2.25) - 0.50 (3.30) - (1.80)
(5.50) - (3.80)
9.75 - 11.25
1,025 - 1,125
7.75 - 10.75
NC
NC
7.00 - 9.00
9.50 - 11.00
1,000 - 1,100
6.00 - 7.50
85 - 90
203 - 213
30
40
NC
45
NC
NC
2019
Actual
25.9
559.2
67.6
27.3
8.7
6.39
712
(4.89)
10.46
948
4.44
179.1
43.6
The following section compares our guidance following the Tahoe acquisition (the "May Guidance") to actual results
achieved in 2019.
PAN AMERICAN SILVER CORP.
24
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Silver and Gold Production versus May Guidance
Metal figures presented are in ounces or tonnes of metal produced.
2019 Silver Production
(million ounces)
2019 Gold Production
(thousand ounces)
Guidance (1)
Actual
Guidance (1)
Actual
Silver Segment:
La Colorada
Dolores
Huaron
Morococha(2)
San Vicente(2)
Manantial Espejo
Silver Segment Total(3)
Gold Segment:
Shahuindo
La Arena
8.0 - 8.2
5.2 - 5.5
3.6 -3.7
2.8 -2.9
3.5 - 3.7
3.4 - 3.6
8.2
5.1
3.8
2.5
3.5
2.6
4.1 - 4.8
114.5 - 120.0
0.5
1.2 - 1.5
0.3
42.0 - 45.0
26.5 - 27.5
25.7
162.5 - 172.5
0.1
—
0.1
—
135.0 - 165.0
117.5 - 122.5
Timmins
Gold Segment Total(3)
Total(3)
(1) Guidance amount per the May Guidance.
(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.
26.6 - 27.6
25.9
0.2
0.1
—
—
407.5 - 447.5
570.0 - 620.0
155.0 - 160.0
4.6
117.6
1.0
1.4
0.5
22.4
147.5
145.4
122.5
143.8
411.7
559.2
Silver Production
Consolidated 2019 silver production was 25.9 million ounces, which was 3% lower than the 26.6 million ounces at
the low-end of the May Guidance range. The slight production shortfall was primarily the result of the postponement
of commercial production from the COSE and Joaquin projects following the ground fall accident reported in June,
2019, deferring start-up of these projects into 2020, as communicated in previous MD&A reports.
Gold Production
Consolidated 2019 gold production was 559.2 thousand ounces which is 2% lower than the 570.0 thousand ounce
low-end of the May Guidance range. Similarly, the gold production shortfall was primarily due to the postponement
of COSE production into 2020.
PAN AMERICAN SILVER CORP.
25
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Base Metal Production versus May Guidance
Metal figures presented are in ounces or tonnes of metal produced.
2019 Zinc Production
(thousand tonnes)
Actual
Guidance (1)
2019 Lead Production
(thousand tonnes)
Actual
Guidance (1)
2019 Copper Production
(thousand tonnes)
Actual
Guidance (1)
11.1
18.1
21.0
9.5 - 9.8
8.5 - 8.8
22.6 - 23.0
18.7 - 19.5
17.7 - 18.0
La Colorada
Huaron
Morococha(2)
San Vicente(2)
Total(3)
(1) Guidance amount per the May Guidance.
(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.
2019 based metal production was largely in-line with Management's guidance, the differences being attributable to
a combination of grade differentials from mine sequencing and throughputs.
24.0 - 25.0
65.0 - 67.0
9.8 - 10.3
6.0 - 6.5
5.7 - 5.9
2.8 - 3.1
5.3 - 5.7
67.6
27.3
22.5
8.7
6.0
1.8
0.8
9.2
6.0
0.4
1.3
6.6
0.7
-
-
Cash Costs and AISC versus May Guidance:
The following table summarizes 2019 cash costs and AISC compared to the May Guidance on a per ounce basis, net
of by-product credits.
Silver Segment:
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Total(3)
Gold Segment:
Shahuindo
La Arena
2019 Cash Costs(1)
($ per ounce)
2019 AISC(1)
($ per ounce)
Guidance (2)
Actual
Guidance (2)
Actual
2.50 - 3.50
4.50 - 5.50
6.00 - 7.00
3.10 - 4.00
10.60 - 11.50
17.00 - 18.50
6.50 - 7.50
550 - 625
800 - 850
2.99
3.09
4.15
4.35
11.77
19.59
6.39
570
644
3.50 - 4.50
14.00 - 16.00
7.50 - 9.25
7.00 - 9.00
12.25 - 13.50
17.75 - 19.50
9.75 - 11.25
875 - 1,000
1,275 - 1,325
4.54
15.45
7.74
10.08
13.08
18.43
10.46
807
1,042
890 - 940
Timmins
Total(3)
Consolidated Silver Basis(3,4)
(1) Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A
for a detailed description of these calculations and a reconciliation of these measures to the 2019 Financial Statements. The cash costs
and AISC Forecasts assumed the following 2019 average metal prices: $14.50/oz for silver, $1,250/oz for gold, $2,600/tonne ($1.18/lb)
for zinc, $1,950/tonne ($0.88/lb) for lead, and $6,150/tonne ($2.79/lb) for copper; and average annual exchange rates relative to 1 USD
of 19.50 for the MXN, 3.33 for the PEN, 41.80 for the ARS, 6.91 for the BOB, and $1.30 for the CAD.
1,025 - 1,125
(2.25) - 0.50
7.75 - 10.75
740 - 810
1,025 - 1,075
(4.89)
4.44
948
998
712
904
(2) Guidance amount per the May Guidance.
(3) As shown in the detailed quantification of consolidated AISC, included in the “Alternative Performance (Non-GAAP) Measures” section of
this MD&A, corporate general and administrative expense, and exploration and project development expense are included in consolidated
(silver basis) AISC, but are not allocated amongst the operations and thus are not included in either the silver or gold segment totals.
(4) Consolidated silver basis is calculated by treating all revenues from metals other than silver, including gold, as a by-product credit.
PAN AMERICAN SILVER CORP.
26
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Cash Costs
Silver segment cash costs of $6.39 per ounce were below Management's May Guidance range of $6.50 to $7.50 per
ounce, primarily as a result of lower than expected cash costs at Dolores and Huaron being partly offset by higher
than expected cash costs at Morococha, San Vicente and Manantial Espejo. Lower cash costs at Dolores were mainly
the result of increased gold production, as expected, and higher than assumed gold prices. Lower cash costs at Huaron
were mainly due to higher than guidance silver production and lower than expected treatment and refining charges.
Manantial Espejo's cash costs were higher than guidance due to the production shortfall previously discussed, partially
offset by lower costs from currency devaluation and higher gold prices. Morococha and San Vicente's higher cash
costs reflect lower by-product credits from lower than expected base metal prices, increased costs, and lower
production than guidance.
Gold segment cash costs of $712 per ounce were below the lower end of the May Guidance due largely to lower
direct operating costs at La Arena and Timmins. At La Arena, lower operating costs were primarily related to
administrative costs, whereas at Timmins the lower costs were related to a weaker Canadian dollar than assumed
and better than expected efficiencies from the new shaft at Bell Creek.
Consolidated cash costs of negative $4.89 per ounce were $2.64 lower than the low-end of the May Guidance, driven
primarily from higher than expected gold production and prices.
AISC
Silver segment AISC of $10.46 per silver ounce was within Management's May Guidance range. 2019 AISC reflects
the same factors affecting cash costs, partially offset by higher sustaining capital per ounce due to the lower than
expected silver production, despite lower than forecast sustaining capital spending.
Gold Segment AISC of $948 per gold ounce was below the low end of the May Guidance range, reflecting the same
factors affecting cash costs, as well as lower sustaining capital due to the deferral of certain projects into 2020.
Consolidated AISC, calculated on a silver ounce basis, of $4.44 was well below the low end of the May Guidance,
primarily as a result of higher by-product credits from higher than assumed gold prices, and lower than expected
sustaining capital expenditures in the Gold Segment operations.
PAN AMERICAN SILVER CORP.
27
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Capital Expenditures versus Forecast:
The following table summarizes the 2019 capital expenditures compared to the Updated 2019 Forecast:
2019 Capital Expenditure ($ millions)
Guidance (1)
Actual
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Shahuindo
La Arena
Timmins
Sustaining Capital Sub-total
Morococha projects
Mexico projects
Joaquin and COSE projects
Acquired Mines Projects
Project Capital Sub-total
Total Capital
6.5 – 7.0
53.0 – 54.0
6.5 – 7.5
11.0 – 12.0
6.5 – 7.5
1.5 – 2.0
47.5 – 49.0
54.0 – 56.0
16.5 – 18.0
203.0 - 213.0
2.5
7.5
20.0
10.0
40.0
243.0 – 253.0
9.7
49.7
10.9
12.6
5.0
2.8
29.9
47.6
11.0
179.1
2.3
11.5
23.8
6.1
43.6
222.7
(1) Guidance amount per the May Guidance.
Sustaining capital expenditures were $23.9 million less than the low end of the May Guidance range, driven primarily
by deferrals of certain sustaining capital projects in the Gold Segment mines, particularly at Shahuindo. Project capital
expenditures in 2019 were largely consistent with guidance amounts.
Individual Mine Performance
An analysis of performance at each operation in 2019 compared with 2018 follows. The project capital amounts
invested in 2019 are further discussed in the "Project Development Update" section of this MD&A. The Gold Segment
Mines were acquired on February 22, 2019, and as such, the financial and operating results of these mines have only
been reported, and included in the Company's consolidated results, from this date forward. As all comparative 2018
period amounts are nil, they have been excluded from the tables and the analysis.
PAN AMERICAN SILVER CORP.
28
La Colorada mine
Tonnes milled - kt
Average silver grade – grams per tonne
Average zinc grade - %
Average lead grade - %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Cash costs(1)
Sustaining capital - ('000s)(2)
AISC(1)
Payable silver sold - koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
Year ended
December 31,
2019
197.1
358
2.85
1.70
2,080
1.28
4.85
2.92
4.30 $
1,957 $
5.80 $
1,770
2018
187.4
375
3.10
1.50
2,074
1.16
5.09
2.44
2.46 $
5,364 $
5.93 $
1,780
2019
768.7
361
3.10
1.65
8,206
4.61
20.97
11.15
2.99 $
9,721 $
4.54 $
7,583
2018
726.0
358
2.83
1.40
7,617
4.40
17.79
8.84
2.26
15,462
4.63
7,069
$
$
$
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $2.9 million and $11.1 million investing activity cash outflows for Q4 2019 and full year 2019, respectively (Q4 2018
and full year 2018: $2.8 million and $7.0 million respectively) related to investment capital incurred on the La Colorada projects, as disclosed in the “Project
Development Update” section of this MD&A.
2019 versus 2018
Production:
•
Silver: 8% increase, driven primarily by higher throughput of sulphide ore and higher silver grades in the oxide
ores from mine sequencing as expected.
• By-products: 18% and 26% increase in zinc and lead, respectively, primarily from the higher throughput of
sulphide ore as expected.
Cash Costs: were 32% higher than in 2018; the increase reflects higher than anticipated operating costs largely driven
from underground mine ventilation development shortfalls, initial mechanization implementations, higher treatment
and refining charges due to a deteriorating concentrate market and lower zinc and lead prices, which more than offset
higher production.
Sustaining Capital: primarily related to investments in mechanization equipment, underground infrastructure, lease
payments for equipment and offices, and near-mine exploration activities. The decrease in sustaining capital relates
to lower expenditures in equipment replacements and refurbishments, and tailings dam expenditures, as anticipated.
AISC: the 2% decrease was the result of lower sustaining capital more than offsetting the drivers that increased cash
costs, as described previously.
PAN AMERICAN SILVER CORP.
29
Dolores mine
Tonnes placed - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Cash costs(1)
Sustaining capital - ('000s)(2)
AISC(1)
Payable silver sold - koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
2019
1,856.7
42
0.62
1,287
26.1
2.64
8,106
9.33
1,402
2018
1,818.5
25
0.68
824
29.4
6.30
13,255
35.36
870
Year ended
December 31,
2019
6,777.0
38
0.60
5,122
117.6
3.09
49,660
15.45
4,924
2018
6,903.3
31
0.85
4,081
136.6
(1.81)
48,842
16.36
4,205
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $nil and $0.4 million investing activity cash outflows for Q4 2019 and full year 2019, respectively (Q4 2018 and full
year 2018: $0.3 million and $10.6 million respectively) related to final payables for the pulp agglomeration plant and underground mine projects.
2019 versus 2018
Production:
•
Silver: the 26% increase was primarily the result of higher grades from mine sequencing as expected partially
offset by leach sequencing that resulted in additional silver being inventoried on the heaps.
• Gold: the 14% decrease was due to lower grades from mine sequencing, partially offset by increased recoveries
from improved leach kinetics, as expected.
Cash Costs: increased $4.90 per ounce due to lower by-product credits from lower gold production, partially offset
by higher silver production and higher gold prices.
Sustaining Capital: consistent year-over-year and primarily related to pre-stripping and leach pad expansions in both
periods.
AISC: decrease of 6% due to the factors affecting cash costs being offset by a decrease in NRV adjustments.
PAN AMERICAN SILVER CORP.
30
Huaron mine
Tonnes milled - kt
Average silver grade – grams per tonne
Average zinc grade - %
Average lead grade - %
Average copper grade - %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash costs(1)
Sustaining capital - ('000s)
AISC(1)
Payable silver sold – koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
Year ended
December 31,
2019
252.3
140
2.49
1.32
0.85
935
0.21
4.95
2.50
1.57
5.34 $
2,834 $
9.44 $
736
2018
252.0
142
2.49
1.22
0.78
965
0.22
4.82
2.16
1.52
2.42 $
6,099 $
9.71 $
858
2019
994.0
142
2.38
1.22
0.81
3,796
0.97
18.07
9.22
6.02
4.15 $
2018
935.0
142
2.44
1.18
0.76
3,561
0.79
17.38
8.05
5.44
1.79
10,936 $
17,761
7.74 $
3,253
7.95
3,094
$
$
$
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
2019 versus 2018
Production:
Silver: 7% higher primarily due to higher throughput.
•
• By-products: increased lead, copper and zinc production of 15%, 11% and 4%, respectively, primarily from
higher throughput, and higher lead and copper grades due to mine sequencing, as expected.
Cash Costs: $2.36 per ounce higher due primarily from lower base metal prices, partially offset by increased production
of all metals.
Sustaining Capital: primarily related to equipment leases, near mine exploration, mine deepening, and equipment
replacements and refurbishments. The year-over-year decrease is primarily related to the reduced spending on the
tailings storage facility expansion and mine deepening projects, as the former was completed in 2018 and the latter
nears completion.
AISC: a decrease of 3% due to the same factors affecting year-over-year cash costs, being fully offset by decreased
sustaining capital.
PAN AMERICAN SILVER CORP.
31
Morococha mine(1)
Tonnes milled – kt
Average silver grade – grams per tonne
Average zinc grade - %
Average lead grade - %
Average copper grade - %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash costs (2)
Sustaining capital - ('000s)(3)
AISC(2)
Payable silver sold (100%) - koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
Year ended
December 31,
2019
176.5
112
3.55
1.17
0.44
554
0.23
5.46
1.61
0.46
10.85 $
3,945 $
18.83 $
515
2018
163.0
154
4.02
1.09
0.44
740
0.19
5.78
1.40
0.45
(0.58) $
4,357 $
6.19 $
674
2019
686.2
126
3.76
1.21
0.44
2,456
1.39
22.50
6.56
1.83
4.35 $
12,599 $
10.08 $
2,335
2018
672.0
149
3.80
0.92
0.66
2,881
2.09
22.17
4.69
3.30
(4.43)
15,038
1.59
2,652
$
$
$
(1) Production figures are for Pan American’s 92.3% share only, unless otherwise noted.
(2) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
(3) Sustaining capital expenditures exclude $0.8 million and $2.3 million investing activity cash outflows for Q4 2019 and full year 2019, respectively, related
to investment capital incurred on the Morococha project, as disclosed in the “Project Development Update” section of this MD&A (Q4 2018 and full year
2018, nil).
2019 versus 2018
Production:
Silver: 15% lower, primarily due to lower grades from mine sequencing.
•
• By-products: a 40% increase in lead and 45% decrease in copper, both related to mine sequencing into higher
lead ore zones. Zinc production was consistent year-over-year.
Cash Costs: $8.78 per ounce higher, due primarily to lower base metal prices and lower silver and copper production,
as well as higher direct unit operating costs and treatment and refining charges.
Sustaining Capital: primarily related to expanded near-mine exploration, equipment replacements and
refurbishments, and equipment and office leases. The decrease is primarily related to lower ventilation and mill
capital.
AISC: $8.49 per ounce increase, primarily driven by the same factors affecting year-over-year cash costs.
PAN AMERICAN SILVER CORP.
32
San Vicente mine (1)
Tonnes milled – kt
Average silver grade – grams per tonne
Average zinc grade - %
Average lead grade - %
Average copper grade - %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Copper – kt
Cash costs (2)
Sustaining capital - ('000s)
AISC(2)
Payable silver sold (100%) - koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
Year ended
December 31,
2019
91.1
328
1.80
0.15
0.30
877
0.13
1.31
0.13
0.22
14.38 $
2,048 $
16.50 $
1,001
2018
88.3
372
3.66
0.32
0.37
937
0.12
2.82
0.26
0.22
10.20 $
1,637 $
13.59 $
502
2019
349.7
345
2.16
0.14
0.31
3,528
0.48
6.01
0.42
0.85
11.77 $
4,960 $
13.08 $
4,003
2018
332.9
362
2.77
0.34
0.40
3,544
0.50
7.47
0.78
1.02
9.83
6,983
12.20
3,054
$
$
$
(1) Production figures are for Pan American’s 95.0% share only, unless otherwise noted.
(2) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
2019 versus 2018
Production:
Silver: consistent year-over-year as higher throughput was offset by lower grades, as expected.
•
• By-products: decreased lead, zinc and copper production of 46%, 20% and 17%, respectively, as a result of
lower base metal grades due to the mine sequencing, largely as expected.
Cash costs: $1.94 per ounce increase due to lower base metal grades and prices, higher treatment and refining charges,
and higher direct unit costs; partially offset by lower royalties, all in line with expectations.
Sustaining Capital: expenditures primarily relate to mine equipment replacements and rehabilitations, near-mine
exploration, and mine site and camp infrastructure. The year-over-year decrease is due to the completion of a tailings
storage facility expansion in 2018 and a shortfall in completing planned projects in 2019.
AISC: a $0.88 per ounce increase due to the same factors affecting year-over-year cash costs, partially offset by lower
sustaining capital.
PAN AMERICAN SILVER CORP.
33
Manantial Espejo mine
Tonnes milled - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Cash costs (1)
Sustaining capital - ('000s)
AISC(1)
Payable silver sold - koz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended
December 31,
Year ended
December 31,
2019
186.5
150
1.21
817
6.71
15.47 $
696 $
16.94 $
928
2018
198.5
95
0.98
587
6.19
23.03 $
436 $
27.94 $
615
2019
708.6
127
1.08
2,599
22.41
19.59 $
2,757 $
18.43 $
2,460
2018
804.4
135
1.42
3,092
34.55
14.83
2,827
16.83
3,086
$
$
$
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
2019 versus 2018
Production:
•
Silver and gold: 16% and 35% decreases, respectively, primarily from lower throughput due to the temporary
suspension in operations following the accident at COSE reported in June 2019 and the processing of lower
grade stockpiles from the lack of higher grade ores due to project delays.
Cash costs: a $4.76 per ounce increase from lower sales of silver and gold, as well as higher direct selling costs due
to the export tax introduced in September 2018.
Sustaining Capital: consistent with prior year, and primarily related to near-mine exploration and certain mill
improvements to adapt for the COSE and Joaquin ores.
AISC: a $1.60 per ounce increase as the factors affecting year-over-year cash costs were partially offset by an increase
in cost-decreasing NRV inventory adjustments.
PAN AMERICAN SILVER CORP.
34
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Gold Segment Mines
The Gold Segment Mines were acquired on February 22, 2019, and as such, the financial and operating results of
these mines have only been reported, and included in the Company's consolidated results, from this date forward.
All comparative 2018 period amounts for the Acquired Mines are nil.
Tonnes milled - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Cash costs(1)
Sustaining capital - ('000s)(2)
AISC(1)
Three months ended
December 31,
Shahuindo
La Arena
Timmins
Shahuindo
3,449.4
7
0.58
54.21
43.52
5,311.8
—
0.41
10.81
48.43
473.9
—
3.17
5.53
47.33
Year ended
December 31,
La Arena
11,189.7
—
0.41
Timmins
1,480.7
—
3.18
11,218.8
8
0.60
136.62
145.37
26.16
122.52
17.53
143.77
$
$
$
605 $
580 $
884 $
570 $
644 $
904
14,156 $
8,382 $
4,066 $
29,873 $
47,557 $
11,035
970 $
764 $
984 $
807 $
1,042 $
998
Payable gold sold - koz
39.85
48.06
46.40
133.30
124.21
143.30
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed
reconciliation of these measures to cost of sales.
(2) Timmins sustaining capital expenditures exclude $0.1 million and $2.7 million of investing activity cash outflow for Q4 2019 and full year 2019, respectively,
and related primarily to reduction in accounts payable balances from the Bell Creek shaft project completed prior to acquisition. Shahuindo sustaining
capital expenditures exclude $0.1 million and $3.4 million of investing activity cash outflow for Q4 2019 and full year 2019, respectively, relating to project
development, as disclosed in the “Project Development Update” section of this MD&A.
Shahuindo
Production: gold production of 145.4 thousand ounces was within the May Guidance range of 135.0 thousand
ounces to 165.0 thousand ounces.
Cash Costs: of $570 per ounce of gold were within the May Guidance range of $550 to $625 per ounce.
Sustaining Capital: primarily comprised of leach pad construction and mining equipment, and reflect the deferral in
completion of several sustaining capital projects into 2020.
AISC: of $807 per ounce of gold were lower than the May Guidance range of $875 to $1,000, as a result of
deferrals in sustaining capital expenditures into 2020.
La Arena
Production: gold production of 122.5 thousand ounces was at the high end of the May Guidance range of 117.5
thousand ounces to 122.5 thousand ounces.
Cash Costs: of $644 per gold ounce were lower than the May Guidance range of $800 to $850 per ounce, due to
higher than expected mining costs being classified as capitalized pre-stripping activities as well as lower than
expected administrative costs.
Sustaining Capital: primarily comprised of greater than expected classification of mining costs to capitalized pre-
stripping activities, leach pad and waste storage facility construction, mine infrastructure upgrades, and land
purchases. 2019 sustaining capital was below Management's expectations, as completion of certain sustaining
capital projects were deferred into 2020.
AISC: of $1,042 per ounce of gold was lower than the May Guidance range of $1,275 to $1,325, primarily due to
better than expected gold sales, lower administrative costs, and lower sustaining capital.
PAN AMERICAN SILVER CORP.
35
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Timmins
Production: gold production of 143.8 thousand ounces was below the May Guidance range of 155.0 thousand
ounces to 160.0 thousand ounces largely due to reducing the cut-off grade in an effort to maximize life-of-mine
profitability.
Cash Costs: of $904 per ounce of gold are within the May Guidance range of $890 to $940 per ounce.
Sustaining Capital: primarily comprised of exploration, equipment rebuilds and infrastructure upgrades. 2019
sustaining capital was below Management's forecasted range, as completion of certain sustaining capital projects
were deferred into 2020.
AISC: was $998 per ounce of gold, which is below the lower end of the May Guidance range of $1,025 to $1,075,
due to the factors previously described.
PROJECT DEVELOPMENT UPDATE
The following table reflects the amounts spent at each of Pan American’s major projects in 2019 as compared to 2018.
Project Development Investment(1)
(thousands of USD)
Three months ended
December 31,
Year ended
December 31,
Mexico Projects
Joaquin and COSE Projects
Morococha Projects
Acquired Mines Projects
Total
2019
2,891
5,622
804
187
9,504
2018
3,128
10,022
—
—
13,150
2019
11,469
23,754
2,284
6,120
43,627
2018
17,648
27,053
—
—
44,701
(1) Amounts provided in the table above, including prior year amounts, reflect cash-outflows for project capital in the respective periods. Amounts provided
in similar tables of previous MD&As represented amounts capitalized as part of the projects in the period reported. As a result of periodic changes in
accounts payable balances, the amounts capitalized for the projects during the period may be different than the project investment cash outflows in the
period.
Mexico Projects:
The Company spent $11.5 million in 2019, primarily related to exploration drilling activities for the La Colorada skarn
deposit discovery first announced in October 2018, for which the Company published an initial resource on December
11, 2019.
Joaquin and COSE Projects:
The Company spent a combined $23.8 million in 2019 on the COSE and Joaquin projects, in order to substantially
complete the development of both projects. As a result of the aforementioned accident at COSE, development of
both the COSE and Joaquin projects were delayed to reassess and re-engineer ground control systems. Both mines
are expected to begin ramp-up ore production rates in 2020.
Morococha Project:
Project capital spending at Morococha during 2019 related to the installation of a power-line to the existing processing
plant and advancing engineering and permitting work, all related to a future relocation for the plant.
Acquired Mines Projects:
The Company spent $6.1 million during 2019, primarily related to completing the crushing and agglomeration plant
at Shahuindo and the mine shaft and paste plant projects at Bell Creek projects that were started by Tahoe before
the Tahoe Acquisition.
PAN AMERICAN SILVER CORP.
36
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
OVERVIEW OF 2019 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 sales, which varies with the timing of shipments. The fourth quarter of
both 2019 and 2018 included impairment charges to the Manantial Espejo mine and the COSE and Joaquin projects.
2019
(In thousands of USD, other than per share amounts)
Revenue(2)
Mine operating earnings (loss)(2)
Earnings (loss) for the period attributable to equity holders
Basic earnings (loss) per share
Diluted earnings (loss) per share
Cash flow from operating activities
Cash dividends paid per share
Other financial information
Total assets
Total long-term financial liabilities(3)
Total attributable shareholders’ equity
March 31 (1)
June 30 (1)
Sept 30 (1)
Dec 31
Quarter Ended
Year
Ended
Dec 31
$
$
$
$
$
$
$
253,699 $
340,494 $
352,187 $
404,379 $
1,350,759
15,770 $
37,740 $
2,783 $
5,053 $
0.02 $
0.02 $
0.02 $
0.02 $
77,168 $
50,975 $
0.26 $
0.26 $
98,610 $
51,927 $
0.25 $
0.25 $
(12,911) $
83,518 $
81,948 $
129,473 $
0.035 $
0.035 $
0.035 $
0.035 $
229,288
110,738
0.55
0.55
282,028
0.140
$
$
$
3,461,682
517,776
2,463,099
(1) Amounts differ from those originally reported in the respective quarter due to: (1) the finalization of the purchase price allocation which was retrospectively
applied, the most significant change being the removal of the previously recorded $30.5M bargain purchase gain; and, (2) amounts presented retrospectively
as if Timmins had not been classified as held for sale.
(2) Concurrent with the Tahoe Acquisition, the Company classified the Timmins mines as a discontinued operation held for sale and, in the third quarter,
reclassified to be a continuing operation after a change in Management's intentions. As a result, the previously recorded first and second quarters have
been recast to present the Timmins mines as continuing operations.
(3) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant
liabilities.
2018
Quarter Ended
(In thousands of USD, other than per share amounts)
March 31
June 30
Sept 30
Dec 31
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
$
$
$
$
$
$
$
206,961 $
216,460 $
187,717 $
55,124 $
47,376 $
0.31 $
0.31 $
34,400 $
0.035 $
54,851 $
36,187 $
0.24 $
0.24 $
66,949 $
0.035 $
(4,412) $
(9,460) $
(0.06) $
(0.06) $
41,699 $
0.035 $
173,357 $
(4,666) $
(63,809) $
(0.42) $
(0.42) $
11,930 $
0.035 $
Year
Ended
Dec 31
784,495
100,897
10,294
0.07
0.07
154,978
0.140
$
$
$
1,937,476
96,828
1,508,212
(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.
37
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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 $
38,569 $
0.025 $
44,782 $
35,472 $
0.23 $
0.23 $
42,906 $
0.025 $
47,818 $
17,256 $
0.11 $
0.11 $
63,793 $
0.025 $
43,285 $
48,892 $
0.32 $
0.32 $
79,291 $
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
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
(1) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant
liabilities.
Income Statement: 2019 versus 2018
Net earnings of $111.2 million were recorded in 2019 compared to $12.0 million in 2018, which corresponds to basic
earnings per share of $0.55 and $0.07, respectively.
The following table highlights the difference between net earnings in 2019 compared with 2018:
Net earnings, year ended December 31, 2018
(in thousands of USD)
Increased revenue:
Increased realized metal prices
Higher quantities of metal sold
Increased 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 investment income net of other expense
Increased income tax expense
Increased mine care and maintenance
Increased interest and finance expense
Increased impairment charges
Increased general and administrative expense
Decreased net gain on asset sales, commodity contracts and derivatives
Increased foreign exchange gains
Decreased transaction costs
Increased share of income from associate and dilution gain
Increased exploration and project development expense
Net earnings, year ended December 31, 2019
$
$
$
12,041
Note
63,792
515,563
(20,732)
7,641
$
566,264
(1)
(331,709)
(106,164)
$
$
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(437,873)
83,711
(50,121)
(23,662)
(21,143)
(12,261)
(9,103)
(4,666)
4,323
2,714
1,566
(546)
111,244
1. Revenue for 2019 was $1.4 billion, a $566.3 million increase from the $784.5 million of revenue recognized
in 2018. The major factor driving the increase was $515.6 million in additional quantities of metal sold,
primarily from the addition of the newly acquired Gold Segment mines, and $63.8 million from higher precious
PAN AMERICAN SILVER CORP.
38
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
metal prices net of lower base metal prices. Partially offsetting this increase were increased selling costs,
mainly from deteriorating concentrate treatment terms and additional export taxes in Argentina.
The following table reflects the metal prices realized by the Company and the quantities of metal sold during
each year:
Silver(1) – koz
Gold(1) – koz
Zinc(1) – kt
Lead(1) – kt
Copper(1) – kt
Realized Metal Prices
Quantities of Metal Sold
Year ended
December 31,
Year ended
December 31,
2019
2018
2019
2018
$
$
$
$
$
16.34
1,406
2,535
1,997
5,973 $
15.61
1,272
2,846
2,189
6,519
24,676
548.2
60.0
25.7
7.6
23,160
173.9
54.6
20.6
9.2
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper, inclusive of final settlement adjustments
on concentrate sales.
Realized prices for silver and gold increased by 5% and 11%, respectively, in 2019 compared to 2018, whereas
realized prices for zinc, lead and copper decreased by 11%, 9% and 8%, respectively.
Gold, silver, lead and zinc quantities sold in 2019 increased by 215%, 7%, 25%, and 10% compared to 2018,
respectively, whereas copper quantities sold decreased by 18%. The changes were primarily the result from
production changes previously described.
2. Production and royalty costs in 2019 were $331.7 million higher than in 2018. The increase was mainly
attributable to production costs being $350.3 million higher largely due to: (i) additional production costs
from the newly Acquired Mines ($325.0 million); (ii) increased production costs at Dolores, San Vicente and
Morococha, primarily from inflationary pressures, and at La Colorada from higher sales volumes; partially
offset by (iii) lower production costs at Manantial Espejo due primarily to the depreciation of the ARS; and,
(iv) a $24.7 million reduction in negative NRV charges. Royalty charges in 2019 were $6.0 million higher, due
primarily to royalty charges at the Timmins mines acquired in 2019.
3. Depreciation and amortization ("D&A") was $106.2 million higher than in 2018, largely as a result of
additional depreciation expense from the Acquired Mines of $79.8 million, and increased depreciation at
Dolores due to a higher asset base.
4.
5.
Investment income in 2019 was $84.7 million compared to a loss of $0.3 million in 2018, the increase reflects
the fair value mark-to-market adjustment of the Company's equity investments for which prices appreciated
during 2019, primarily from it's approximately 17% equity interest in New Pacific.
Income tax expense for the year ended December 31, 2019 increased to $71.3 million compared to $21.1
million in 2018. The $50.1 million year-over-year increase in income tax expense was mainly due to the
increase in earnings before taxes from 2018 to 2019.
6. Care and maintenance costs totaled $23.7 million in 2019 and related primarily to the Company's Escobal
mine where operations are currently suspended. The Escobal mine was acquired in February 2019 as part of
the Tahoe Acquisition therefore there are no comparable expenses from 2018.
7.
8.
Interest and finance costs of $29.3 million in 2019 increased by $21.1 million from 2018, reflecting the interest
expense relating to the debt drawn on the Credit Facility, and increased interest expense related to IFRS 16
leases.
Impairment charges of $40.1 million ($40.1 million, net of tax expense) were recorded in 2019, with
impairment charges of $27.8 million recorded in 2018. Non-current assets are tested for impairment, or
reversal of previous impairment charges, when events or changes in circumstance indicate that the carrying
PAN AMERICAN SILVER CORP.
39
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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.
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, 2019
impairment charges totaling $40.1 million (2018 - charges of $27.8 million) were required on Manantial Espejo.
2019 Impairment - Manantial Espejo
A recent increase in Argentina export taxes, announced in January 2020, combined with the delayed
commencement of production from the COSE and Joaquin deposits, and the deteriorated Argentina economy
led management to conclude that there was an indication of impairment to its Argentine operating assets,
namely the Manantial Espejo mine, and the COSE and Joaquin projects. As at December 31, 2019, the
Company determined that the combined CGU carrying amount of the Manantial Espejo mine and the Joaquin
and COSE development projects, including mineral properties, plant and equipment, and stockpile inventories,
net of associated closure and decommissioning liabilities, of $63.6 million was higher than the combined
estimated recoverable amount of $23.5 million when using a 9.75% risk adjusted discount rate. Based on this
assessment, the Company recorded an impairment charge related to the Manantial Espejo mineral property,
and the COSE and Joaquin projects, of $40.1 million ($40.1 million, net of tax).
2018 Impairment - Manantial Espejo
The decrease in short term analyst consensus silver prices and the introduction of an export tax of three to
four Argentine pesos per Dollar of export in September 2018, led management to conclude that there was
an indication of impairment to its operating assets in Argentina, namely the Manantial Espejo mine, and the
COSE and Joaquin projects. As at December 31, 2018, the Company determined that the combined CGU
carrying amount of the Manantial Espejo mine and the Joaquin and COSE development projects, including
mineral properties, plant and equipment, and stockpile inventories, net of associated closure and
decommissioning liabilities, of $68.1 million was greater than the combined estimated recoverable amount
of $39.3 million when using a 7.25% risk adjusted discount rate. Based on this assessment, the Company
recorded an impairment charge related to the Manantial Espejo mineral property, and the COSE and Joaquin
projects, of $27.8 million ($27.8 million, net of tax).
Key assumptions and sensitivity:
The metal prices used to calculate the recoverable amounts at December 31, 2019 and December 31, 2018
are based on analyst consensus prices:
PAN AMERICAN SILVER CORP.
40
Metal prices used at December 31, 2019:
Metal Prices
Silver - $/oz
Gold - $/oz
Metal prices used at December 31, 2018:
Metal Prices
Silver - $/oz
Gold - $/oz
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
2020-2022 average
$17.94
$1,474
2019-2022 average
$17.07
$1,300
In 2019, 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 3.7% (2018 – 5.3%), with rates applied
to the various mines and projects ranging from 4.0% to 12.3% (2018 - 4.5% to 9.8%), 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, 2019,
the Company performed a sensitivity analysis on all key assumptions that assumed a 10% adverse change to
each individual assumption while holding the other assumptions constant.
At December 31, 2019, 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 Shahuindo, La Arena, Timmins, 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 10% adverse change in any one key assumption would reduce the recoverable amount below the carrying
amount.
At December 31, 2018, 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 10% adverse change in any one
key assumption would reduce the recoverable amount below the carrying amount.
9. General and Administrative expense was $31.8 million in 2019 compared to $22.6 million in 2018. The $9.1
million increase reflects the increased size and composition of the Company as a result of the Tahoe
Acquisition. The share-based compensation of $4.4 million in 2019 was higher than the share-based
compensation of $3.0 million in 2018, a result of the increased size and share price of the Company.
Statement of Cash Flows: 2019 versus 2018
Cash flow from operations in 2019 totaled $282.0 million, $127.1 million more than the $155.0 million generated in
2018. The increase was due to the additional operating cash flow from the newly Acquired Mines, which was mostly
offset by lower cash mine operating earnings at Dolores and Manantial Espejo due to a combination of lower revenues
and higher operating costs per ounce (see "Individual Mine Performance" section of this MD&A), and a $23.7 million
increase in use of cash from working capital changes.
Working capital changes in 2019 resulted in a $27.9 million use of cash reflecting a $43.5 million pay down of accounts
payable and accrued liabilities partially offset by a $22.8 million draw-down of inventories. These working capital
movements compared to a $4.3 million use of cash in 2018, comprised mainly of inventory buildups and decreased
provisions, partially offset by accounts payable buildups and collection of receivables.
Investing activities utilized $402.2 million in 2019, inclusive of $39.7 million received from the net sale of short-term
investments. The investing cash outflow reflects the $247.5 million investment (net of cash acquired) related to the
PAN AMERICAN SILVER CORP.
41
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Tahoe Acquisition, as described in the "Acquisition of Tahoe" section of this MD&A, and $205.8 million spent on
mineral properties, plant and equipment at the Company’s mines and projects.
In 2018, investing activities utilized $159.2 million, inclusive of $25.6 million used on the net purchase of short-term
investments. The balance of 2018 investing activities consisted primarily of spending $144.3 million on mineral
properties, plant and equipment at the Company’s mines and projects, and the remaining $7.5 million payment used
for the acquisition of the COSE project.
Cash from the sale of certain non-core assets in 2019 and 2018 totaled $10.3 million and $15.8 million, respectively.
Financing activities in 2019 generated $103.3 million compared to a use of $33.1 million in 2018. Financing activities
in 2019 were primarily related to the Tahoe Acquisition. The net cash generated consisted of a net $335.0 million
drawn on the Company's Credit Facility, described in the "Liquidity and Capital" section of this MD&A, and
$125.0 million used to settle Tahoe's previously drawn credit facility. In addition to these acquisition related financing
activities, $29.3 million was paid as dividends, $19.3 million of lease repayments were made, and $2.8 million was
realized from share issuances from the exercise of stock options in 2019. Financing activities in 2018 consisted of
$21.3 million paid as dividends to shareholders, $7.9 million of lease repayments, and $3.0 million used to repay
short-term loans.
Adjusted Earnings: 2019 versus 2018
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 2019 Financial Statements.
Adjusted Earnings in 2019 were $158.0 million, representing a basic adjusted earnings per share of $0.78, which was
$98.6 million, or $0.39 per share, higher than 2018 adjusted earnings of $59.4 million, and basic adjusted earnings
per share of $0.39, respectively.
PAN AMERICAN SILVER CORP.
42
The following chart illustrates the key factors leading to the change in adjusted earnings from 2018 to 2019:
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
PAN AMERICAN SILVER CORP.
43
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Income Statement: Q4 2019 versus Q4 2018
Net earnings of $51.7 million was recorded in Q4 2019 compared to net loss of $63.6 million in Q4 2018, which
corresponds to basic earnings per share of $0.25 and basic loss per share of $0.42, respectively.
The following table highlights the key items driving the difference between the net earnings in Q4 2019 as compared
to the net loss recorded in Q4 2018:
Net loss, three months ended December 31, 2018
(in thousands of USD)
Increased revenue:
Increased realized metal prices
Higher quantities of metal sold
Increased direct selling costs
Decreased 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 investment income net of other expense
Increased income tax expense
Increased share of income from associate and dilution gain
Increased impairment charges
Decreased transaction costs
Increased mine care and maintenance
Increased interest and finance expense
Increased general and administrative expense
Increased foreign exchange gains
Increased net gain on asset sales, commodity contracts and derivatives
Decreased exploration and project development expense
Net earnings, three months ended December 31, 2019
$
$
$
(63,577) Note
62,320
180,560
(6,862)
(4,996)
$
231,022
(1)
(96,752)
(30,994)
$
$
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(127,746)
32,210
(19,914)
14,428
(12,261)
10,426
(8,008)
(6,022)
(4,559)
2,564
2,196
947
51,706
1. Revenue for Q4 2019 was $404.4 million, a $231.0 million increase from $173.4 million in Q4 2018. The major
factors for the increase were: a $180.6 million variance primarily from increased quantities of precious metals
sold due to the additional gold sales from the Acquired Mines and higher silver sales from higher production
from the Mexican operations, a $62.3 million price variance from higher realized metal prices for silver, gold
and lead; slightly offset by increased direct selling costs, primarily from favorable changes in contract terms
relating to concentrate treatment and refining charges, and negative settlement adjustments on concentrate
shipments.
PAN AMERICAN SILVER CORP.
44
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
The following table reflects the metal prices realized by the Company and the quantities of metal sold during
each quarter:
Silver(1) – koz
Gold(1) – koz
Zinc(1) – kt
Lead(1) – kt
Copper(1) – kt
Realized Metal Prices
Quantities of Metal Sold
Three months ended
December 31,
Three months ended
December 31,
2019
2018
2019
2018
$
$
$
$
$
17.84 $
1,479 $
2,325 $
2,078 $
5,840 $
14.35
1,232
2,508
1,914
6,098
6,392
171.0
15.1
6.1
1.9
5,299
36.6
15.6
5.4
2.1
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper, inclusive of final settlement adjustments
on concentrate sales.
Increased quarter-over-quarter realized silver, gold, and lead prices of 24%, 20% and 9%, respectively, had
the most significant impact on revenues. Zinc and copper price decreases of 7% and 4%, respectively,
negatively impacted Q4 2019 revenue.
Sales volumes increased for all metals except zinc and copper. The quantities of silver, gold and lead sold in
Q4 2019 were 21%, 367% and 12%, respectively, while quantities of zinc and copper sold decreased by 3%
and 6%, respectively.
2. Production and royalty costs variances were comprised of a $3.3 million increase in royalty costs, largely due
to new royalties at the Timmins mines, and a $93.4 million increase in production costs. The quarter-over-
quarter production increase reflects new production costs from the Acquired Mines and higher production
costs at the Silver Segment mines, mainly Morococha and San Vicente, which was only partially offset by a
$12.7 million quarter-over-quarter decrease in cost-increasing NRV inventory adjustments.
3. D&A expense of $68.2 million in Q4 2019 was $31.0 million higher than in Q4 2018, largely the result of D&A
on the Acquired Mines, which totaled $24.0 million, and increased D&A at Dolores on account of higher
depreciable asset-bases, as well as from increased quantities of silver sold.
4.
5.
Investment income in Q4 2019 was $33.7 million compared to a loss of $1.4 million in Q4 2018, the increase
reflects the fair value mark-to-market adjustment of the Company's equity investments for which prices
appreciated during 2019, primarily the Company's investment in New Pacific.
Income tax expense in Q4 2019 was $26.0 million compared to $6.0 million in Q4 2018. The $19.9 million
increase was largely attributable to the increase in net earnings before tax and to foreign exchange movements
which positively impacted tax assets.
6. Share of income from associate and dilution gains were $14.2 million in Q4 2019 compared to a $0.2 million
expense in Q4 2018, and relate to the Company's investment in Maverix Metals Inc. ("Maverix") which is
accounted for using the equity method whereby the Company records its portion of Maverix's net income
based on Pan American's fully diluted ownership interest. The quarter over quarter increase was attributable
to Maverix issuing common shares in Q4 2019 to acquire certain royalty assets which diluted Pan American's
ownership in Maverix and resulted in the recognition of a $13.6 million dilution gain. Maverix did not have a
comparable transaction in Q4 2018.
7.
Impairment charges of $40.1 million were recorded in Q4 2019, compared to impairment charges of $27.8
million recorded in Q4 2018. The impairment charges in each quarter related to the previously discussed
Manantial Espejo CGU.
8. Transactions costs incurred in Q4 2018 relate to the Tahoe Acquisition described in the "Acquisition of Tahoe"
section of this MD&A. Transaction and integration costs incurred for the Tahoe Acquisition were substantially
completed in the third quarter of 2019, and as such there were no comparable costs in Q4 2019.
PAN AMERICAN SILVER CORP.
45
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
9. Care and maintenance costs totaled $8.0 million in Q4 2019 and related primarily to the Company's Escobal
mine where operations are currently suspended. The Escobal mine was acquired in February 2019 as part of
the Tahoe acquisition and therefore there were no comparable expenses in Q4 2018.
10. Interest and finance costs of $8.3 million in Q4 2019 increased by $6.0 million from Q4 2018, reflecting the
interest expense relating to the debt drawn on the Credit Facility, and increased interest expense related to
IFRS 16 leases.
Statement of Cash Flows: Q4 2019 versus Q4 2018
Cash flow from operations in Q4 2019 totaled $129.5 million, $117.5 million more than the $11.9 million generated
in Q4 2018. The increase was largely the result of approximately $114.5 million higher cash mine operating earnings;
and a $9.6 million increase in operating cash flows from working capital changes; partially offset by a $4.1 million
increase in interest payments and a $2.4 million increase in taxes paid.
The quarter-over-quarter increase in mine operating earnings, excluding non-cash D&A and inventory adjustments,
was mainly attributable to the addition of the Acquired Mines and improved cash mine operating earnings at Dolores,
which was partially offset by lower operating cash flows at Manantial Espejo due to the impact of lower margins.
Working capital changes in Q4 2019 resulted in a $4.7 million source of cash, comprised mainly of accounts receivable
collections and a build up in payables, partially offset by inventory buildups and increased prepaid expenses.
Comparatively, working capital changes resulted in a $4.9 million use of operating cash flow in Q4 2018, comprised
mainly of inventory buildups offset slightly by payables settlements.
Investing activities utilized $51.5 million in Q4 2019, inclusive of $1.8 million used on the net purchase of short-term
investments. The balance of Q4 2019 investing activities related primarily to spending $50.3 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 2018, investing activities utilized $51.0 million inclusive of $10.0 million
used on the net purchase of short-term investments. The majority of Q4 2018 investing activity cash flow reflected
$42.3 million spent on mineral property, plant and equipment additions at the Company’s various operations and
projects.
Financing activities in Q4 2019 used $51.9 million compared to $8.7 million in Q4 2018. Cash used in Q4 2019 consisted
of $40.0 million of repayments on the Company's Credit Facility, $7.3 million paid as dividends to shareholders, and
$5.7 million of lease repayments. In Q4 2018, cash used in financing activities consisted primarily of $5.4 million in
dividends to shareholders and $2.2 million of lease repayments.
Adjusted Earnings: Q4 2019 versus Q4 2018
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 2019 Financial Statements.
Adjusted Earnings in Q4 2019 was $68.9 million, representing a basic adjusted loss per share of $0.33, which was
$70.9 million, or $0.34 per share, higher than Q4 2018 adjusted loss of $2.0 million, and basic adjusted loss per share
of $0.01.
PAN AMERICAN SILVER CORP.
46
The following chart illustrates the key factors leading to the change in adjusted earnings from Q4 2018 to Q4 2019:
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
ACQUISITION OF TAHOE
The Company completed the Tahoe Acquisition on February 22, 2019 (the "Closing Date").
In aggregate, Pan American paid Tahoe shareholders $275.0 million in cash, issued 55,990,512 Pan American shares,
and issued contingent consideration in the form of 313,887,490 contingent value rights (CVRs). Each CVR will be
exchanged for 0.0497 of a Pan American share upon first commercial shipment of concentrate following restart of
operations at the Escobal mine. The CVRs are transferable and have a term of 10 years. Upon closing of the
Arrangement, existing Pan American and former Tahoe shareholders owned approximately 73% and 27% of Pan
American, respectively. Upon satisfaction of the payment conditions under the terms of the CVRs, Pan American and
Tahoe shareholders will own approximately 68% and 32%, respectively, of the combined company (based upon the
number of Pan American shares outstanding as at the Closing Date).
Revolving credit facility increase and draw-down
The Company amended and extended its revolving credit facility (the "Credit Facility"). The Credit Facility was increased
by $200.0 million to $500.0 million in Q1 2019, and now matures on February 1, 2023. At Pan American's option,
amounts can be drawn under the Credit Facility and will incur interest based on the Company's leverage ratio at either
(i) LIBOR plus 1.875% to 2.750% or; (ii) The Bank of Nova Scotia's Base Rate on U.S. dollar denominated commercial
loans plus 0.875% to 1.750%. Undrawn amounts under the Credit Facility are subject to a stand-by fee of 0.4219% to
0.6188% per annum, dependent on the Company's leverage ratio.
In conjunction with the Tahoe Acquisition, the Company drew down $335.0 million on the Credit Facility in Q1 2019
under LIBOR-based interest rates to fund, in part, the cash purchase price under the Arrangement and to repay Tahoe's
revolving facility, under which $125.0 million was outstanding at the date of acquisition. The Company repaid $60.0
million of the Credit Facility during 2019.
PAN AMERICAN SILVER CORP.
47
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Consolidation of Tahoe
The Company reported its initial accounting for the Tahoe Acquisition during the first quarter of 2019 and had a
measurement period of up to one year from the acquisition date to adjust any provisional amounts recognized and
to recognize new assets and liabilities as a result of new information obtained which existed at the acquisition date.
As a result, the Company recorded a deferred tax asset and made adjustments to the deferred tax liabilities and
mineral property during the fourth quarter of 2019. The bargain purchase gain recognized on the acquisition date
was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the first quarter's results as a result
of changes in the fair values of assets acquired.
Since acquisition on February 22, 2019, the assets acquired from Tahoe contributed revenue of $565.4 million and
net income of $124.5 million for the year ended December 31, 2019. Acquisition-related costs of $7.5 million were
expensed during the year ended December 31, 2019 were presented as transaction and integration costs.
The following table summarizes the consideration paid as part of the purchase price:
Consideration:
Fair value estimate of the Pan American Share consideration (1)
Fair value estimate of the CVRs (2)
Cash (1)
Fair value estimate of replacement options (3)
Total Consideration
Shares Issued/
Issuable
Consideration
55,990,512 $
15,600,208
—
835,874
72,426,594 $
795,626
71,916
275,008
124
1,142,674
(1) The Pan American Share consideration value is based on an assumed value of $14.21 per share (based on the NASDAQ closing price on February 21, 2019).
(2) Assumed fair value of the CVRs is based on the residual amount of the value of the Tahoe Shares acquired (based on the NYSE closing price closing of $3.64
on February 21, 2019) after deducting the cash consideration of $275 million and the fair value of the Company's share consideration paid (based on the
February 21, 2019 NASDAQ closing price of $14.21).
(3) Assumed fair value of 3.5 million Tahoe options that upon the Tahoe Acquisition vested and converted into 835.8 thousand Pan American stock options
(the "Replacement options"). The fair value of the Replacement options was determined using the Black-Scholes option pricing model, as at the Tahoe
Acquisition date, using the following assumptions:
Share price at February 21, 2019 (Canadian dollars, "CAD")
Exercise price
Expected volatility
Expected life (years)
Expected dividend yield
Risk-free interest rate
Fair value (CAD)
CAD to USD exchange rate at December 31, 2018
Fair value (USD)
$
$
$
$
$
19.01
11.67 - 97.26
0.4075
0.2 - 1.0
0.78%
0.93%
163,273.36
0.7578
123,729.43
PAN AMERICAN SILVER CORP.
48
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
The following table summarizes the preliminary and final allocation of the purchase price to the identifiable assets
and liabilities based on their estimated fair values at the date of the Tahoe Acquisition:
Total purchase consideration paid for Tahoe
Cash and cash equivalents
Accounts receivable
VAT Receivable
Inventory
Other current assets
Mineral properties, plant and equipment
Other assets
Deferred tax assets
Accounts payable and accrued liabilities
Debt
Provision for closure and decommissioning liabilities
Net current and deferred income tax liabilities
Fair value of Tahoe net assets acquired
Bargain purchase gain recognized in net earnings on February 22, 2019
Preliminary
as reported
March 31, 2019
Adjustments
Final
as reported
December 31,
$
$
$
$
1,142,674 $
27,529 $
17,854
87,268
152,534
4,135
1,298,037
3,450
—
(159,675)
(125,000)
(70,119)
(62,847)
1,173,166 $
— $
— $
300
224
(4,325)
(2,754)
(58,635)
3,101
30,728
10,933
—
(7,201)
(2,863)
(30,492) $
1,142,674
27,529
18,154
87,492
148,209
1,381
1,239,402
6,551
30,728
(148,742)
(125,000)
(77,320)
(65,710)
1,142,674
30,492 $
(30,492) $
—
We primarily used discounted cash flow models (being the net present value of expected future cash flows) to
determine the fair value of the mining interests. Expected future cash flows are based on the timing of commencement
of commercial production and estimates of quantities of mineral reserves and mineral resources, including expected
conversions of resources to reserves, expected future production costs and capital expenditures based on the life of
mine plans for the acquired mines as at the acquisition date. The discounted future cash flow models used discount
rates with rates applied to the acquired mines ranging from 5% to 9%, depending on the Company’s assessment of
country risk, project risk, and other potential risks specific to the acquired mining interest. Further, the discounted
cash flow models were based on the following estimated future metal prices:
Commodity Prices
Gold price - $/oz.
Silver price - $/oz
Zinc - $/tonne
Lead - $/tonne
2019-2022
$1,300
$17.07
$2,599
$2,171
2023 onwards
$1,300
$18.50
$2,600
$2,200
PAN AMERICAN SILVER CORP.
49
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
LIQUIDITY AND CAPITAL POSITION
Liquidity and Capital
Liquidity and Capital Measures (in $000s)
Cash and cash equivalents ("Cash")
Short-term Investments
Cash and Short-term investments
Working Capital
Credit Facility committed amount
Credit Facility amounts drawn
Shareholders' equity
Total debt (1)
Capital (2)
December 31,
2019
September 30,
2019
December 31,
2018
Q4 2019
Change
2019
Change
120,564
117,776
238,340
517,249
500,000
275,000.0
2,467,846
316,208
2,545,714
94,713
82,310
177,023
459,272
500,000
315,000.0
2,450,231
360,492
2,633,700
138,510
74,004
212,514
397,846
300,000
—
1,513,349
6,676
1,307,511
25,851
35,466
61,317
57,977
—
(40,000)
17,615
(44,284)
(87,986)
(17,946)
43,772
25,826
119,403
200,000
275,000
954,497
309,532
1,238,203
(1) Total debt is a Non-GAAP measure calculated as the total of amounts drawn on the Revolving Credit Facility, finance lease liabilities and loans payable.
(2) The capital of the Company consists of items included in shareholders’ equity and debt, net of cash and cash equivalents and short term investments.
Liquidity
The Company's cash and short-term investments increased by $61.3 million and $25.8 million during Q4 2019 and
2019, respectively. Operating cash flows in Q4 2019 of $129.5 million, which was a Company record, included $14.5
million in tax payments and a $4.7 million release of cash from working capital changes, financed all of the Company's
investing and financing activities in the quarter. The significant financing and investing activity cash outflows in the
quarter included $50.3 million in payments for mineral property plant and equipment, $40 million in repayment of
the Credit Facility and $7.3 million in dividend payments. Additionally, the Company's investment in New Pacific
Metals, classified as a short-term investment, increased by $32.1 million in the quarter.
2019 annual operating cash flows of $282.0 million, which included $82.6 million in tax payments and a $27.9 million
use of cash from working capital changes, was sufficient to finance the Company's investments in mineral property
plant and equipment of $205.8 million, dividends of $29.3 million and lease payments of $19.3 million during the
year. The other significant financing and investing activity cash outflows in the year included the cash component of
the consideration paid to Tahoe shareholders of $ 247.5 million ($275 million less cash acquired of $27.5 million),
proceeds from the Credit Facility of $335 million, repayment of the Tahoe credit facility of $125 million and subsequent
repayments of the Credit Facility of $60 million. Additionally, the Company's investment in New Pacific Metals,
classified as a short-term investment, increased by $80.6 million in the year.
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"), 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, 2019 of $517.2 million increased by $58 million from September 30, 2019. The
strengthening working capital was mainly attributable to the $61.3 million liquidity increase described above, along
with a $17.8 million increase in inventories, partially offset by a $11.1 million increase in current liabilities. Since
December 31, 2018, working capital increased $119.4 million, primarily from: the $25.8 million liquidity increase
described above; a $72.7 million increase in trade and other receivables, and $132 million higher inventory, all partially
offset by a net $138.1 million increase in current liabilities.
PAN AMERICAN SILVER CORP.
50
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Capital Resources
The Company manages its capital structure and makes adjustments in light of changes in its economic environment
and the risk characteristics of the Company’s assets. To effectively manage the Company’s capital requirements, Pan
American utilizes a planning, budgeting and forecasting process to help determine the funds required to ensure the
Company has the appropriate liquidity to meet its operating and growth objectives. The Company ensures that there
are sufficient committed loan facilities to meet its short-term business requirements, taking into account its anticipated
cash flows from operations and its holdings of cash and cash equivalents and short term investments.
In February 2019, in part related to the Tahoe Acquisition discussed in the "Tahoe Acquisition" section of this MD&A,
the Company amended and extended its Credit Facility. The amended Credit Facility was increased by $200.0
million to $500.0 million, and matures on February 1, 2023. At Pan American's option, amounts can be drawn under
the amended Credit Facility and will incur interest based on the Company's leverage ratio at either (i) LIBOR plus
1.875% to 2.750% or; (ii) The Bank of Nova Scotia's Base Rate on U.S. dollar denominated commercial loans plus
0.875% to 1.750%. Undrawn amounts under the revolving facility are subject to a stand-by fee of 0.4219% to 0.6188%
per annum, dependent on the Company's leverage ratio. The Company drew down US$335 million under the Credit
Facility, under LIBOR-based interest rates to fund, in part, the cash purchase price under the Tahoe Acquisition and
to repay, in full, and cancel Tahoe's second amended and restated revolving facility, under which US$125 million had
been drawn. The Company repaid $60 million against the Credit Facility prior to December 31, 2019, bring the drawn
balance to $275 million at the end of 2019 (2018 - $nil). The Company was in compliance with all covenants required
by the Credit Facility.
The Company’s financial position at December 31, 2019, 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 2020
working capital requirements, commitments, fund currently planned capital expenditures, and to discharge liabilities
as they come due. The Company remains well positioned to take advantage of 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. The Company has no off-balance sheet
arrangements.
PAN AMERICAN SILVER CORP.
51
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Commitments
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:
Payments due by period 2019
Within 1
year
2 - 3 years
4- 5 years
After 5
years
Total
Financial liabilities
Accounts payable and accrued liabilities other than:
Severance accrual
Employee compensation
Total accounts payable and accrued liabilities
Debt
Credit facility
Interest
Provisions(1)(2)
Income taxes payable
Lease obligations
Future employee compensation
Total contractual obligations(2)
$
221,488
$
— $
— $
— $
221,488
994
2,848
225,330
—
12,952
3,979
24,770
16,221
1,444
284,696
$
$
5,967
—
5,967
—
27,040
633
—
15,906
8,711
58,257
$
772
—
772
275,000
—
1,350
—
7,193
—
284,315
$
109
—
109
—
—
967
—
21,675
—
22,751
$
7,842
2,848
232,178
275,000
39,992
6,929
24,770
60,995
10,155
650,019
(1) Total litigation provision as further discussed in Note 17 of the 2019 Financial Statements.
(2) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current $3.4 million, long-term
$185.1 million) as discussed in Note 17 of the 2019 Financial Statements (2018 - current $1.9 million, long-term $68.6 million), the deferred credit arising
from the Aquiline acquisition ($20.8 million) (2018 - $20.8 million) discussed in Note 20 of the 2019 Financial Statements, and deferred tax liabilities of
$176.8 million (2018 - $148.8 million).
Outstanding Share Amounts
As at December 31, 2019, the Company had approximately 1.1 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 $97.26 and a weighted
average life of 23 months. Approximately 1.0 million of the stock options were vested and exercisable at December 31,
2019, with an average weighted exercise price of CAD $35.16 per share.
The following table sets out the common shares and options outstanding as at the date of this MD&A:
Common shares
Options (1)
Total
Outstanding as at
March 12, 2020
210,002,117
498,878
210,500,995
In January 2019, the Company obtained shareholder approval to increase its authorized share capital from 200 million
to 400 million Common Shares without par value.
As part of the consideration payable to Tahoe shareholders in connection with the Tahoe Acquisition, Tahoe
shareholders received contingent consideration in the form of one contingent value right ("CVR") for each Tahoe
share. Each CVR has a 10 year term and will be exchanged for 0.0497 of a Pan American share upon first commercial
shipment of concentrate following restart of operations at the Escobal mine. The Company issued an aggregate of
313,887,490 CVRs.
PAN AMERICAN SILVER CORP.
52
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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, 2019 was $290.4 million (December 31, 2018 - $159.1
million) using inflation rates of between 0% and 5% (2018 - between 2% and 17%). The inflated and discounted
provision on the statement of financial position as at December 31, 2019, using discount rates between 2% and 9%
(December 31, 2018 - between 2% and 22%), was $188.5 million (December 31, 2018 - $70.6 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 2019 were primarily a result of liabilities for the acquired Tahoe mines, 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 of the discount charged in Q4 2019 and 2019 earnings as finance expense were $2.6 million and $9.9
million, respectively (Q4 2018 and 2018 - $1.6 million and $6.5 million, respectively). Reclamation expenditures
incurred during Q4 2019 and 2019 were $0.5 million and $2.3 million, respectively (Q4 2018 and 2018 - $2.0 million
and $7.8 million, respectively).
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. Related party transactions with Maverix have been disclosed in Note 14 of the 2019
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.
53
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES
Per Ounce Measures
Cash Costs and AISC are non-GAAP financial measures that do not have any standardized meaning prescribed by IFRS
and are therefore unlikely to be comparable to similar measures presented by other companies.
Pan American produces by-product metals incidentally to our silver and gold mining activities. We have adopted the
practice of calculating a performance measure with the net cost of producing an ounce of silver and gold, our primary
payable metals, after deducting revenues gained from incidental by-product production. 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.
Silver segment Cash Costs and AISC are calculated net of credits for realized revenues from all metals other than silver
("silver segment by-product credits"), and are calculated per ounce of silver sold. Gold segment Cash Costs and AISC
are calculated net of credits for realized silver revenues ("gold segment by-product credits"), and are calculated per
ounce of gold sold. Consolidated Cash Costs and AISC are based on total silver ounces sold and are net of by-product
credits from all metals other than silver ("silver basis consolidated by-product credits").
Prior period cash costs per ounce reported in previous news releases and MD&As were based on cash costs per ounce
of payable silver produced and were net of by-product credits calculated with average market prices applied to all
metals produced other than silver. Given the increased complexity of the business with the addition of the new gold
operations, the Company determined that conforming the calculation of Cash Costs with a consistent method to that
used for AISC, using realized by-product sales as by-product credits and based on per ounce of silver sold, would
provide a more consistent per-ounce measure; as such, the comparative Cash Costs amounts in this MD&A have been
quantified using the current methodology and are different from those previously reported. As shown in the detailed
quantification of consolidated AISC below, corporate general and administrative expense, and exploration and project
development expenses are included in the calculation of consolidated (silver basis) AISC, but are not allocated amongst
the operations and thus are not included in either the silver or gold segment AISC totals. In prior years these costs
were similarly included only in the consolidated all-in-sustaining costs per silver ounce sold ("AISCSOS") metrics and
not allocated to each mine's AISCSOS amount; as such, consolidated AISCSOS in previous years included such costs,
where total silver segment AISC in the current period does not. A detailed description of how previously reported
Cash Costs were quantified is provided in the Company's prior period MD&As.
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. Cash costs
per ounce is conceptually understood and widely reported in the mining industry.
We believe that AISC, also calculated net of by-products, is a comprehensive measure of the full cost of operating our
business, given it includes the cost of replacing silver and gold 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 these measures as calculated by the Company, the following tables provide the
detailed reconciliation of these measures to the applicable cost items as reported in the consolidated financial
statements for the respective periods. All operating results from the mines acquired in the Tahoe acquisition only
include results from February 22, 2019 to December 31, 2019 and the year-to-date amounts do not represent a full
twelve months of operations.
PAN AMERICAN SILVER CORP.
54
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Consolidated Cash Costs and AISC:
(In thousands of USD, except as noted)
Production Costs
Purchase Price Allocation Inventory Fair Value
Adjustment
Net Realizable Value Adjustments
Direct Operating Costs
Royalties
Smelting, refining and other direct selling
charges (4)
Cash Costs before By-product Credits
Silver segment by-product credits (4)
Gold segment by-product credits (4)
Consolidated silver basis by-product credits (4)
Cash Costs
Net Realizable Value Adjustments
Sustaining capital (1)
Exploration
Reclamation cost accretion
General & Administrative expense
All In Sustaining Costs
Silver Segment Silver Ounces Sold
Gold Segment Gold Ounces Sold
Total Silver Ounces Sold
Cash Costs per Ounce Sold (5)
All-In Sustaining Costs per Ounce Sold
All-In Sustaining Costs per Ounce Sold (Excludes
NRV Adj.) (7)
Three months ended
December 31, 2019
Silver Segment
Gold Segment
Corporate
136,443
(486)
135,957
6,024
21,148
163,129
(113,555)
—
—
49,573
486
19,584
929
1,652
—
72,225
6,352
—
—
7.80
11.37
11.29
93,151
(1,683)
—
91,468
1,912
326
93,706
—
(690)
—
93,016
—
26,603
633
777
—
121,029
—
134
—
693
901
901
1,000
154
10,009
11,163
Consolidated
(silver basis)(3)
229,594
(1,683)
(486)
227,425
7,936
21,474
256,835
—
—
(312,015)
(55,180)
486
46,187
2,562
2,583
10,009
6,648
—
—
6,392
(8.63)
1.04
0.96
Three months ended
December 31, 2018(1,2)
Silver Segment
Corporate
132,334
(13,263)
119,070
4,601
14,614
138,285
(107,468)
—
—
30,817
13,263
31,150
1,133
1,475
77,839
5,299
—
—
5.82
14.69
12.19
2,375
156
5,450
7,981
Consolidated
(silver basis)
132,334
(13,263)
119,070
4,601
14,614
138,285
(107,468)
30,817
13,263
31,150
3,509
1,631
5,450
85,821
—
—
5,299
5.82
16.19
13.69
(1) 2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the 2019 AISC per ounce
sold. The change in methodology relates to the sustaining capital calculation to account for the adoption of IFRS 16, and the inclusion of lease payments. Previously, leased assets were included as sustaining
capital in the period of acquisition, while future related lease payments were excluded.
(2) Production costs used to calculate 2018 and Q4 2018 AISC excludes $3.9 million of costs to produce certain doré metal inventory that was subsequently written-off in full as a result of the inventory being held
at a refinery that filed for bankruptcy in November of 2018.
(3) Consolidated silver basis calculated by treating all revenues from metals other than silver, including gold, as a by-product credit in Cash Costs. Total silver basis consolidated by-product credits include all silver
segment by-product credits, as well as gold revenues from the Gold Segment mines as by-products. Total silver ounces sold likewise includes silver ounces sold from Gold Segment operations.
See next page for Notes 4, 5, 6, 7 and 8.
PAN AMERICAN SILVER CORP.
55
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Year ended
December 31, 2019(6)
Year ended
December 31, 2018(1,2)
Silver Segment
516,642
Gold Segment (6)
324,655
Corporate
Consolidated
(silver basis)(3)
841,297
(In thousands of USD, except as noted)
Production Costs
Purchase Price Allocation Inventory Fair Value
Adjustment
Net Realizable Value Adjustments
Direct Operating Costs
Royalties
Smelting, refining and other direct selling
charges (4)
Cash Costs before By-product Credits
Silver segment by-product credits (4)
Gold segment by-product credits (4)
Consolidated silver basis by-product credits (4)
Cash Costs
Net Realizable Value Adjustments
Sustaining capital (1)
Exploration(8)
Reclamation cost accretion
General & Administrative expense
All In Sustaining Costs
356
516,998
21,413
72,898
611,309
(454,472)
—
—
156,836
(356)
90,632
3,195
6,605
(43,395)
—
281,260
5,308
953
287,521
—
(1,968)
—
285,553
—
88,464
3,404
2,637
256,913
380,058
3,204
661
31,752
35,617
Silver Segment Silver Ounces Sold
Gold Segment Gold Ounces Sold
Total Silver Ounces Sold
Cash Costs per Ounce Sold (5)
All-In Sustaining Costs per Ounce Sold
All-In Sustaining Costs per Ounce Sold (Excludes
NRV Adj.)(7)
24,559
—
—
6.39
10.46
10.48
—
401
—
712
948
948
Silver Segment
Corporate
511,793
(24,330)
487,462
20,673
53,119
561,255
(483,325)
—
—
77,930
24,330
106,913
4,476
5,902
219,551
23,160
—
—
3.36
9.48
8.43
6,661
622
22,649
29,932
Consolidated
(silver basis)
511,793
(24,330)
487,462
20,673
53,119
561,255
(483,325)
77,930
24,330
106,913
11,138
6,524
22,649
249,484
—
—
23,160
3.36
10.77
9.72
(43,395)
356
798,257
26,721
73,851
898,829
—
—
(1,019,548)
(120,718)
(356)
179,096
9,803
9,903
31,752
109,480
—
—
24,676
(4.89)
4.44
4.45
Included in the revenue line of the consolidated income statements. By-product credits are reflective of realized metal prices for the applicable periods.
Notes 1, 2 and 3 provided on previous page.
(4)
(5) Cash costs per ounce sold are calculated based on Cash Costs, net of by-product credits divided by per ounce of silver sold and are therefore different than previously reported 2018 "Cash Costs" which were
calculated based on cash costs net of by-product credits divided by payable silver ounces produced. The 2018 cash costs per ounce sold included in the table above have been calculated and presented as
comparative amounts to conform to the methodology used by the Company to calculate the 2019 Cash Cost per ounce sold.
(6) All operating results from the mines acquired in connection with the Tahoe Acquisition are only from February 22, 2019 to December 31, 2019, and do not represent a full twelve months of operations.
(7) The Company makes net realizable value ("NRV") adjustments, when necessary, to ensure inventory costs do not exceed their estimated selling prices less the estimated costs of completion and sale.
(8) The amounts for 2019 year-to-date exclude $1.9 million from non-cash project development write-downs.
PAN AMERICAN SILVER CORP.
56
Sustaining capital is included in AISC, while capital related to growth projects or acquisitions (referred to by the Company as project or investment capital)
is not. Inclusion of only sustaining capital in the AISC measure reflects the capital costs associated with current ounces sold as opposed to project capital,
which is expected to increase future production.
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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
(1) As presented on the unaudited interim consolidated statements of cash flows.
Three months ended
December 31,
Year ended
December 31,
2019
50,319
5,726
(9,857)
46,187
2018
42,302
2019
205,807
2018
144,348
2,223
(13,375)
31,150
19,270
(45,980)
179,096
7,911
(45,346)
106,913
PAN AMERICAN SILVER CORP.
57
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Silver Segment Cash Costs and AISC by mine:
SILVER SEGMENT
Three months ended December 31, 2019
(In thousands of USD, except as noted)
Production Costs
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Silver segment by-product credits
Cash Costs
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs
Silver segment silver ounces sold (koz)
Cash cost per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV
inventory adjustments)
La Colorada
Dolores
Huaron
Morococha
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
18,049
—
18,049
179
4,775
23,003
(15,399)
7,604
—
1,957
565
144
10,269
1,770
4.30
5.80
5.80
42,949
(435)
42,513
2,126
21
44,660
(40,958)
3,702
435
8,106
274
560
13,077
1,402
2.64
9.33
9.02
19,680
—
19,680
—
5,592
25,272
(21,339)
3,934
—
2,834
—
181
6,949
736
5.34
9.44
9.44
19,787
—
19,787
—
4,091
23,878
(18,296)
5,582
—
3,945
51
109
9,687
515
10.85
18.83
18.83
12,336
—
12,336
3,494
4,509
20,339
(5,942)
14,396
—
2,048
—
78
16,522
1,001
14.38
16.50
16.50
23,642
(51)
23,591
224
2,160
25,975
(11,621)
14,354
51
696
39
580
15,720
928
15.47
16.94
16.88
136,443
(486)
135,957
6,024
21,148
163,128
(113,555)
49,572
486
19,584
929
1,652
72,224
6,352
7.80
11.37
11.29
SILVER SEGMENT(1)
Three Months Ended December 31, 2018
(In thousands of USD, except as noted)
Production Costs
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Silver segment by-product credits
Cash Costs
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs
Silver segment silver ounces sold (koz)
Cash cost per ounce sold(2)
AISC per ounce sold
AISC per ounce sold (excluding NRV
inventory adjustments)
La Colorada
Dolores
Huaron
Morococha
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
16,947
—
16,947
130
2,050
19,127
(14,749)
4,378
—
5,364
711
114
10,567
1,780
2.46
5.93
5.93
51,107
(11,440)
39,667
1,642
31
41,340
(35,862)
5,479
11,440
13,255
241
351
30,766
870
6.30
35.36
22.21
19,707
—
19,707
—
6,061
25,768
(23,696)
2,073
—
6,099
7
152
8,331
858
2.42
9.71
9.71
16,096
—
16,096
—
2,524
18,620
(19,013)
(394)
—
4,357
123
87
4,173
674
(0.58)
6.19
6.19
6,984
—
6,984
2,554
1,816
11,354
(6,231)
5,123
—
1,637
—
63
6,823
502
10.20
13.59
13.59
21,494
(1,822)
19,671
275
2,132
22,078
(7,917)
14,161
1,822
436
51
708
17,178
615
23.03
27.94
24.98
132,334
(13,263)
119,070
4,601
14,614
138,285
(107,468)
30,817
13,263
31,150
1,133
1,475
77,839
5,299
5.82
14.69
12.19
PAN AMERICAN SILVER CORP.
58
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
SILVER SEGMENT
Year ended December 31, 2019
(In thousands of USD, except as noted)
Production Costs
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Silver segment by-product credits
Cash Costs
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs(1)
Silver segment silver ounces sold (koz)
Cash cost per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV
inventory adjustments)
La Colorada
Dolores
Huaron
Morococha
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
74,544
—
74,544
595
17,420
92,559
(69,905)
22,654
—
9,721
1,445
576
34,396
7,583
2.99
4.54
4.54
183,058
(7,885)
175,174
8,264
106
183,544
(168,333)
15,211
7,885
49,660
1,105
2,240
76,100
4,924
3.09
15.45
13.85
76,962
—
76,962
—
21,088
98,050
(84,544)
13,506
—
10,936
13
723
25,178
3,253
4.15
7.74
7.74
73,396
—
73,396
—
15,675
89,071
(78,907)
10,164
—
12,599
327
436
23,526
2,335
4.35
10.08
10.08
46,456
—
46,456
11,348
11,871
69,675
(22,573)
47,102
—
4,960
—
311
52,373
4,003
11.77
13.08
13.08
62,226
8,240
70,466
1,206
6,738
78,410
(30,211)
48,200
(8,240)
2,757
305
2,319
45,341
2,460
19.59
18.43
21.78
516,642
356
516,998
21,413
72,898
611,309
(454,472)
156,836
(356)
90,632
3,195
6,605
256,913
24,559
6.39
10.46
10.48
SILVER SEGMENT(1)
Year ended December 31, 2018
70,248
(In thousands of USD, except as noted) La Colorada
Production Costs
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Silver segment by-product credits
Cash Costs
70,248
616
8,537
79,401
(63,442)
15,959
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs
Silver segment silver ounces sold (koz)
Cash cost per ounce sold(2)
AISC per ounce sold
AISC per ounce sold (excluding NRV
inventory adjustments)
—
15,462
880
457
32,758
7,069
2.26
4.63
4.63
Dolores
Huaron
Morococha
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
179,165
(24,567)
154,598
7,991
129
162,718
(170,337)
(7,618)
24,567
48,842
1,594
1,405
68,790
4,205
(1.81)
16.36
10.52
75,382
68,068
33,461
75,382
—
21,326
96,708
(91,155)
5,553
—
17,761
660
609
24,583
3,094
1.79
7.95
7.95
68,068
—
13,313
81,381
(93,142)
(11,761)
—
15,038
598
347
4,222
2,652
(4.43)
1.59
1.59
33,461
9,943
7,451
50,855
(20,829)
30,026
—
6,983
—
252
37,261
3,054
9.83
12.20
12.20
85,468
238
85,705
2,124
2,363
90,192
(44,420)
45,772
(238)
2,827
744
2,832
51,937
3,086
14.83
16.83
16.91
511,793
(24,330)
487,462
20,673
53,119
561,256
(483,325)
77,931
24,330
106,913
4,476
5,902
219,552
23,160
3.36
9.48
8.43
(1) 2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used
by the company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the
adoption of IFRS 16, and sustaining capital now includes lease payments. Previously leased assets were included as sustaining capital in the period of
acquisition, while future related lease payments were excluded.
(2) Cash costs per ounce sold are calculated based on Cash Costs, net of by-product credits divided by per ounce of silver sold and are therefore different from
previously reported 2018 "Cash Costs" which were calculated based on cash costs net of by-product credits divided by payable silver ounces produced.
The 2018 cash costs per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology
used by the company to calculate the 2019 cash cost per ounce sold.
PAN AMERICAN SILVER CORP.
59
Gold Segment Cash Costs and AISC by mine:
GOLD SEGMENT
(In thousands of USD, except as noted)
Production Costs
Purchase Price Allocation Inventory Fair Value Adjustment
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Gold segment by-product credits
Cash Costs of Sales
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs
Gold segment gold ounces sold
Cash cost per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV inventory adjustments)
GOLD SEGMENT
(In thousands of USD, except as noted)
Production Costs
Purchase Price Allocation Inventory Fair Value Adjustment
NRV inventory adjustments
On-site direct operating costs
Royalties
Smelting, refining & direct selling costs
Cash Costs before by-product credits
Gold segment by-product credits
Cash Costs of Sales
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
All-in sustaining costs
Gold segment gold ounces sold
Cash cost per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV inventory adjustments)
(1) Timmins refers to the Timmins West and Bell Creek mines.
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Three months ended December 31, 2019
Shahuindo
La Arena
Timmins(1)
Total
25,375
(916)
—
24,459
—
173
24,632
(507)
24,125
—
14,156
82
290
38,653
39,849
605
970
970
28,603
(750)
—
27,853
—
118
27,971
(92)
27,879
—
8,382
33
447
36,740
48,062
580
764
764
39,173
(17)
—
39,156
1,912
35
41,103
(91)
41,012
—
4,066
518
40
45,636
46,400
884
984
984
93,151
(1,683)
—
91,468
1,912
326
93,706
(690)
93,016
—
26,603
633
777
121,030
134,310
693
901
901
Shahuindo
Year ended December 31, 2019
Timmins(1)
La Arena
Total
90,877
(14,003)
—
76,874
—
501
77,375
(1,411)
75,964
—
29,873
787
983
107,607
133,298
570
807
807
99,915
(19,978)
—
79,937
—
345
80,282
(278)
80,004
—
47,557
358
1,515
129,434
124,206
644
1,042
1,042
133,863
(9,414)
—
124,449
5,308
107
129,864
(279)
129,585
—
11,035
2,259
139
143,019
143,300
904
998
998
324,655
(43,395)
—
281,260
5,308
953
287,521
(1,968)
285,553
—
88,464
3,404
2,637
380,059
400,804
712
948
948
PAN AMERICAN SILVER CORP.
60
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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, 2019 and 2018, to the net earnings for each period.
(In thousands of USD, except as noted)
Net earnings for the period
Adjust for:
Loss on derivatives
Impairment charges
Write-down of project development costs
Unrealized foreign exchange losses
Net realizable value adjustments to heap inventory
Unrealized gains on commodity and foreign currency contracts
Share of income from associate and dilution gain
Reversal of previously accrued tax liabilities
Metal inventory loss
Gains on sale of mineral properties, plant and equipment
Closure and decommissioning liability adjustment
Transaction and integration costs
Adjust for effect of taxes relating to the above
Adjust for effect of foreign exchange on taxes
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,
2019
51,706
$
2018
(63,577) $
Year ended
December 31,
2019
111,244
$
2018
12,041
$
—
40,050
—
(1,395)
4,128
(1,046)
(14,246)
—
—
(1,040)
—
(197)
(1,455)
(7,597)
60
27,789
—
(348)
12,977
765
182
—
4,670
56
2,832
10,229
(5,832)
8,175
14
40,050
1,882
6,057
29,833
(646)
(15,245)
—
—
(3,858)
—
7,515
(11,208)
(7,651)
$
$
68,908
209,671
0.33
$
$
(2,022) $
157,987
153,352
201,397
(0.01) $
0.78
$
$
1,078
27,789
—
10,337
24,082
(2,481)
(13,679)
(1,188)
4,670
(7,973)
2,832
10,229
(9,914)
1,611
59,434
153,315
0.39
Total debt is a non-GAAP measure calculated as the total current and non-current portions of long-term debt (including
amounts drawn on the Revolving Credit Facility), 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.
Capital
Capital is a non-GAAP measure and is calculated as total equity plus total debt less cash and cash equivalents and
short term investments. 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 the enterprise value of the Company.
PAN AMERICAN SILVER CORP.
61
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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.
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, gold, zinc, lead, and copper; 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, economic and social risks related to conducting business in foreign
jurisdictions such as Canada, Peru, Mexico, Argentina, Bolivia and Guatemala; environmental risks; and risks related
to its relations with employees. Certain of these risks are described below, and are more fully described in Pan
American’s Annual Information Form (available on SEDAR at www.sedar.com) and Form 40-F filed with the SEC, and
in the Financial Instruments and related risks section of the 2019 Financial Statements. Certain additional risk factors
relating to the business of Tahoe are described in the Company’s management information circular dated December
4, 2018, with respect to the Arrangement, which is available on SEDAR at www.sedar.com. 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.
Financial Instruments Risk Exposure
The Company is exposed to financial risks, including metal price risk, credit risk, interest rate risk, foreign currency
exchange rate risk, and liquidity risk. The Company's exposures and management of each of those risks is described
in the Company's 2019 Financial Statements under Note 9 "Financial Instruments", along with the financial statement
classification, the significant assumptions made in determining the fair value, and amounts of income, expenses, gains
and losses associated with 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 following provides a description of the risks related to financial instruments and how management manages
these risks:
Metal Price Fluctuations
The majority of our revenue is derived from the sale of silver, gold, zinc, copper and lead, and therefore fluctuations
in the price of these metals significantly affects our operations and profitability. Our sales are directly dependent on
metal prices, and metal prices have historically shown significant volatility and are beyond our control. The Board of
Directors continually assesses Pan American’s strategy towards our base metal exposure, depending on market
conditions. The table below illustrates the effect of changes in silver and gold prices on anticipated revenues for 2019,
expressed in percentage terms. This analysis assumes that quantities of silver and gold produced and sold remain
constant under all price scenarios presented.
PAN AMERICAN SILVER CORP.
62
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
2020 Revenue Metal Price Sensitivity
Gold Price
$1,225
$1,325
$1,425
$1,525
$1,625
$1,725
$1,825
Silver
Price
$14.50
$15.50
$16.50
$17.50
$18.50
$19.50
$20.50
83%
85%
86%
88%
89%
91%
93%
87%
89%
90%
92%
94%
95%
97%
91%
93%
94%
96%
98%
99%
101%
95%
97%
98%
100%
102%
103%
105%
99%
101%
102%
104%
106%
107%
109%
103%
105%
106%
108%
110%
111%
113%
107%
109%
111%
112%
114%
115%
117%
Since base metal and gold revenue are treated as a by-product credit for purposes of calculating Cash Costs per ounce
of silver sold and AISC, these non-GAAP measures are highly sensitive to base metal and gold prices. The table below
illustrates this point by plotting the expected AISC per ounce according to our 2020 guidance against various price
assumptions for the Company’s two main by-product credits, zinc and gold, expressed in percentage terms:
2020 AISC Metal Price Sensitivity
$1,225
$1,325
$1,425
$1,525
$1,625
Gold Price
Zinc
Price
$2,050
$2,150
$2,250
$2,350
$2,450
$2,550
$2,650
260%
256%
252%
248%
245%
241%
238%
210%
206%
202%
198%
195%
192%
188%
161%
156%
153%
149%
146%
142%
139%
112%
107%
103%
100%
97%
93%
90%
62%
58%
54%
51%
47%
44%
41%
$1,725
13%
9%
5%
2%
(2)%
(5)%
(9)%
$1,825
(36)%
(40)%
(44)%
(47)%
(51)%
(54)%
(58)%
The price of silver and other metals are affected by numerous factors beyond our control, including:
•
•
global and regional levels of supply and demand;
sales by government holders and other third parties;
• metal stock levels maintained by producers and others;
•
•
•
•
•
•
•
•
increased production due to new mine developments and improved mining and production methods;
speculative activities;
inventory carrying costs;
availability, demand and costs of metal substitutes;
international economic and political conditions;
interest rates, inflation and currency values;
increased demand for silver or other metals for new technologies; and
reduced demand resulting from obsolescence of technologies and processes utilizing silver and other metals.
In addition to general global economic conditions that can have a severely damaging effect on our business in many
ways, declining market prices for metals could materially adversely affect our operations and profitability. A decrease
PAN AMERICAN SILVER CORP.
63
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
in the market price of silver, gold and other metals could affect the commercial viability of our mines and production
at some of our mining properties. Lower prices could also adversely affect future exploration and our ability to develop
mineral properties and mines, including the development of capital intensive projects such as Navidad, all of which
would have a material adverse impact on our financial condition, results of operations and future prospects. There
can be no assurance that the market prices will remain at sustainable levels.
If market prices of gold and silver remain below levels used in Pan American’s impairment testing and reserve prices
for an extended period of time, Pan American may need to reassess its long-term price assumptions, and a significant
decrease in the long-term price assumptions would be an indicator of potential impairment, requiring Pan American
to perform an impairment assessment on related assets. Pan American further discusses key assumptions used in
measuring the recoverable amounts of its mining assets in Note 13 of Pan American’s Audited Consolidated Financial
Statements for the year ended December 31, 2019. Due to the sensitivity of the recoverable amounts to long term
metal prices, as well as to other factors including changes to mine plans and cost escalations, any significant change
in these key assumptions and inputs could result in impairment charges in future periods.
The Board of Directors continually assesses Pan American’s strategy towards our base metal exposure, depending on
market conditions. From time to time, we mitigate the market price risk associated with our base metal production
by committing some of our forecast base metal production to forward sales and options contracts. However, decisions
relating to hedging may have material adverse effects on our financial performance, financial position, and results of
operations. As at December 31, 2019 the Company had no outstanding contracts to sell base metal production.
We take the view that our precious metals production should not be hedged, thereby allowing the maximum exposure
to precious metal prices. However, in extreme circumstances, the Board of Directors may make exceptions to this
approach. Such decisions could have material adverse effects upon our financial performance, financial position, and
results of operations.
Trading Activities and Credit Risk
The zinc, lead, and copper concentrates produced by us are sold through long-term supply arrangements to metal
traders or integrated mining and smelting companies. The terms of the concentrate contracts may require us to deliver
concentrate that has a value greater than the payment received at the time of delivery, thereby introducing us to
credit risk of the buyers of our concentrates. Should any of these counterparties not honour supply arrangements,
or should any of them become insolvent, we may incur losses for products already shipped and be forced to sell our
concentrates in the spot market or we may not have a market for our concentrates and therefore our future operating
results may be materially adversely impacted.
For example, the Doe Run Peru smelter, a significant buyer of our production in Peru, experienced financial difficulties
in the first quarter of 2009 and closed. We continued to sell copper concentrates to other buyers but on inferior terms.
The Doe Run Peru smelter remains closed and we are owed approximately $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, 2019, we had receivable balances associated with buyers of our concentrates of $48.8 million
(2018 - $40.8 million) and receivable balances associated with buyers of our doré of $17.5 million (2018 - $nil). The
vast majority of our concentrate is sold to a limited number of concentrate buyers.
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. For example, in November
2018, Republic Metals Corporation ("Republic"), a refinery used by us, filed for bankruptcy. At the time of the
bankruptcy, Republic had possession of approximately $4.9 million of our metal and we are pursuing a claim to collect
damages, but, like many other creditors, we may also be subject to alleged preference claims against us. As at
December 31, 2019, we had approximately $58.2 million (2018 - $19.7 million) contained in precious metal inventory
PAN AMERICAN SILVER CORP.
64
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
at refineries. We maintain insurance coverage against the loss of precious metals at our mine sites and in-transit to
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 our
counterparties’ credit risk 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
we operate. These advances represent a credit risk to us to the extent that suppliers do not deliver products or perform
services as expected. As at December 31, 2019, we had made $3.4 million of supplier advances (2018 - $14.4 million),
which are reflected in “Trade and other receivables” on Pan American'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.
Exchange Rate Risk
We report our financial statements in USD; however we operate in jurisdictions that utilize other currencies. As a
consequence, the financial results of our operations, as reported in USD, are subject to changes in the value of the
USD relative to local currencies. Since our sales are denominated in USD and a portion of our operating costs and
capital spending are in local currencies, we are negatively impacted by strengthening local currencies relative to the
USD and positively impacted by the inverse. From time to time, we mitigate part of this currency exposure by
accumulating local currencies, entering into contracts designed to fix or limit our 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.
Pan American held cash and short-term investments of $123.4 million in Canadian dollars, $5.2 million in Mexican
pesos, $2.4 million in Peruvian soles, $3.7 million in Argentine pesos, $3.4 million in Bolivian bolivianos, and $0.4
million in Guatemalan quetzals as at December 31, 2019.
As at December 31, 2019, Pan American had outstanding positions on $12.0 million in foreign currency exposure of
Mexican peso ("MXN") purchases, $60.0 million of Peruvian sol ("PEN") purchases, and $30.0 million of Canadian
dollar ("CAD") purchases. MXN purchases had put rates of 19.50 and call rates ranging from $20.82 to $21.59 expiring
between January 2020 and December 2020. PEN purchases had put rates of $3.35 and call rates ranging from $3.40
to $3.55 expiring between January 2020 and December 2020. And, CAD purchases had put rates of $1.30 and call
rates of $1.37 expiring between January 2020 and December 2020.
For the year ended December 31, 2019, the Company recorded gains of $1.0 million (2018 - gains of $0.7 million),
$0.7 million (2018 - $nil), and $0.3 million (2018 - $nil) on MXN, PEN, and CAD derivative contracts, respectively.
PAN AMERICAN SILVER CORP.
65
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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 2020, expressed in percentage terms:
2020 Cost of Sales Exchange Rate Sensitivity
MXN/USD
$18.00
$18.50
$19.00
$19.50
$20.00
$20.50
$21.00
PEN/
USD
$3.04
$3.14
$3.24
$3.34
$3.44
$3.54
$3.64
102%
102%
101%
101%
100%
100%
99%
102%
102%
101%
101%
100%
100%
99%
102%
101%
101%
100%
100%
99%
99%
102%
101%
101%
100%
100%
99%
99%
101%
101%
100%
100%
99%
99%
98%
101%
101%
100%
100%
99%
99%
98%
101%
100%
100%
99%
99%
98%
98%
Our 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 our 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 than the unofficial exchange rates more readily utilized locally to determine prices and value.
Our investments in Argentina are primarily funded from outside of the country, and therefore conversion of foreign
currencies, like USD, at the official exchange rate has had the effect of reducing purchasing power and substantially
increasing relative costs in an already high inflationary market. Maintaining monetary assets in ARS also exposes us
to the risks of ARS devaluation and high domestic inflation.
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.
We are required to use a portion of our cash flow to service principal and interest on debt, which will limit the cash
flow available for other business opportunities. We also maintain and enter into intercompany credit arrangements
with our subsidiaries in the normal course. Our ability to make scheduled principal payments, pay interest on or
refinance our indebtedness depends on our future performance, which is subject to economic, financial, competitive
and other factors beyond our control. Unexpected delays in production, the suspension of our mining licenses, or
other operational problems could impact our ability to service the debt and make necessary capital expenditures
when the debt becomes due. If we are unable to generate such cash flow to timely repay any debt outstanding, we
may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional
equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend
on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities
or engage in these activities on desirable terms, which could result in a default on our debt obligations.
PAN AMERICAN SILVER CORP.
66
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Taxation Risks
In addition to the risks relating to taxation discussed under the heading “Governmental Regulation”, we are also
exposed to other tax related risks. In assessing the probability of realizing income tax assets recognized, we make
estimates related to expectations of future taxable income, applicable tax planning opportunities, expected timing
of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon
examination by applicable tax authorities. In making its assessments, we give additional weight to positive and negative
evidence that can be objectively verified. Estimates of future taxable income are based on forecasted cash flows from
operations and the application of existing tax laws in each jurisdiction. We consider relevant tax planning opportunities
that are within our 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 us from realizing the tax benefits from
the deferred tax assets. We reassess unrecognized income tax assets at each reporting period.
Claims and Legal Proceedings
We are 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 are from current or ex-employees, or employees of former or
current owners of our operations such as the Quiruvilca-related claims in Peru, some of which involve claims of
significant value, and include alleged improper dismissals, workplace illnesses, such as silicosis, and claims for
additional profit-sharing and bonuses in prior years. In some cases, we may become subject to class action lawsuits.
For example, in mid-2017, Tahoe, which was acquired by us in late February 2019, and certain of its former directors
and officers became the subject of three purported class action lawsuits filed in the United States that center primarily
around alleged misrepresentations. These U.S. class action lawsuits were later consolidated into one class action suit
that is ongoing. In October 2018, Tahoe learned that a similar proposed class action lawsuit had been filed against
Tahoe and its former chief executive officer in the Superior Court of Ontario. These lawsuits seek significant damages.
Tahoe has disputed the allegations made in these suits, however the outcomes are not determinable at this time.
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, or environmental or social damage, and such claimants may seek sizeable
monetary damages against us and/or the return of surface or mineral rights or revocation of permits and licenses
that are valuable to us and which may impact our operations and profitability if lost.
Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved
unfavourably to us. We 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 us. 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.
Foreign Operations
In 2019, a significant portion of our production and revenues were derived from our operations in Peru, Mexico,
Argentina, and Bolivia and, as a result, we are exposed to a number of risks and uncertainties, including:
•
•
•
•
expropriation, nationalization, and the cancellation, revocation, renegotiation, or forced modification of
existing contracts, permits, licenses, approvals, or title, particularly without adequate compensation;
changing political and fiscal regimes, sometimes unexpectedly or as a result of precipitous events, and
economic and regulatory instability;
unanticipated adverse changes to laws and policies, including those relating to mineral title, royalties and
taxation;
delays or inability to obtain or maintain necessary permits, licenses or approvals;
PAN AMERICAN SILVER CORP.
67
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
•
•
•
•
•
•
•
•
•
•
•
•
•
•
opposition to mine development projects, which include the potential for violence, property damage and
frivolous or vexatious claims;
restrictions on foreign investment;
limitations on repatriation of operating cash flows, including legal and practical restrictions to transfer funds
from foreign jurisdictions;
unreliable or undeveloped infrastructure;
labour unrest and scarcity;
human rights violations including indigenous rights claims;
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 restrictions on foreign exchange, currencies and
repatriation;
inability to obtain fair dispute resolution or judicial determinations because of bias, corruption or abuse of
power;
abuse of power of foreign governments who impose, or threaten to impose, fines, penalties or other similar
mechanisms, without regard to the rule of law;
difficulties enforcing judgments, particularly judgments obtained in Canada or the United States, with respect
to assets located outside of those jurisdictions;
difficulty understanding and complying with the regulatory and legal framework with respect to mineral
properties, mines and mining operations, and permitting;
violence and the prevalence of criminal activity, including organized crime, theft and illegal mining;
civil unrest, terrorism and hostage taking;
•
•
• military repression and increased likelihood of international conflicts or aggression; and
•
increased public health concerns.
Certain of these risks and uncertainties are illustrated well by circumstances in Guatemala and Bolivia.
Some communities and non-governmental organizations ("NGOs") have been vocal and active in their opposition to
mining and exploration activities in Guatemala. In July 2017, the Escobal mining license was suspended as a result of
a court proceeding initiated by an NGO in Guatemala, based upon the allegation that Guatemala’s Ministry of Energy
and Mines ("MEM") violated the Xinka indigenous people’s right of consultation. After several decisions and appeals
on the matter, a decision of the Constitutional Court of Guatemala was rendered on September 3, 2018, determining
that the Escobal mining license would remain suspended until the Guatemala MEM completes an ILO 169 consultation.
The consultation process is proceeding, with the pre-consultation stage underway. Normal operations at Escobal mine
remain suspended. Legal challenges to the consultation process have been filed with the Guatemalan Supreme Court
and the outcome of those challenges is unknown. The process and timing for completing the ILO 169 consultation
remains uncertain. In addition, in June 2017, the Company's wholly owned subsidiary Minera San Rafael S.A. ("MSR")
which owns the Escobal mine, filed its annual request to renew the Escobal mine’s export credential with the
Guatemala MEM. However, the Guatemala MEM did not renew the export credential because its renewal had become
contingent on the Supreme Court's reinstatement of the Escobal mining license. The export credential therefore
expired in August 2017 and has not been renewed.
In early 2009, a new constitution was enacted in Bolivia that further entrenched the government’s ability to unilaterally
amend or enact laws, and which enshrined the concept that all natural resources belong to the Bolivian people. On
May 28, 2014, the Bolivian government enacted 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 the Mining
Corporation of Bolivia "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 such migration
and possible renegotiation of key terms. The migration process has been delayed by COMIBOL and has not been
PAN AMERICAN SILVER CORP.
68
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
completed. 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. 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 further enacted the New Conciliation and Arbitration Law, which endeavors
to set out newly prescribed arbitral norms and procedures, including for foreign investors. However, its application
is unclear and we await clarification by regulatory authorities in order to assess its impact on our business.
Criminal activity and violence are also prevalent in some areas that we work in. For example, violence in Mexico is
well documented and has, over time, been increasing. Conflicts between the drug cartels and violent confrontations
with authorities are not uncommon. Operations at our Dolores mine were temporarily curtailed in 2018 as a result
of such violence and the threat of violence on the access roads to the mine. Other criminal activity, such as kidnapping
and extortion, is also an ongoing concern. Many incidents of crime and violence go unreported and efforts by police
and other authorities to reduce criminal activity are challenged by a lack of resources, corruption and the pervasiveness
of organized crime. Incidents of criminal activity have occasionally affected our employees and our contractors and
their families, as well as the communities in the vicinity of our operations. Such incidents may prevent access to our
mines or offices; halt or delay our operations and production; result in harm to employees, contractors, visitors or
community members; increase employee absenteeism; create or increase tension in nearby communities; or
otherwise adversely affect our ability to conduct business. We can provide no assurance that security incidents, in
the future, will not have a material adverse effect on our operations.
Challenges also exist with respect to inconsistent application of the rule of law, and to sometimes unreliable and
biased legal systems and judiciary. In April 2012, Pan American sold all of its interest in the Quiruvilca mine
(“Quiruvilca”) in Peru, which was previously owned by our subsidiary, Huaron. Since the 2012 sale, a substantial
number of labour-related claims have been made by persons alleging to be former or then-current employees working
at the Quiruvilca mine. Notwithstanding that an overwhelming majority of these claims were made exclusively against
the subsequent owners of Quiruvilca, that Huaron has not owned or been involved with Quiruvilca for a number of
years, and that Huaron was not afforded the opportunity to participate or challenge the assertions in court, the labour
courts in Trujillo, Peru, have in many cases, imputed liability on Huaron. In some cases, the courts ordered seizure
of monies from Huaron’s local bank accounts and garnishment of funds due to Huaron from certain of its trading
partners. In August 2018, the current owner of Quiruvilca declared bankruptcy, further exacerbating the situation.
Huaron has challenged the basis of the labour court’s decisions in Trujillo, and in the Commercial Court and
Constitutional Courts of Peru. Pan American believes it has a strong legal position against liability for these claims
and intends to continue to vigorously challenge them and enforce certain contractual rights to indemnification.
However, there can be no assurance that the outcome of the proceedings or any enforcement of our rights will be
favorable to us or that it will not have a material adverse impact on our financial position. Huaron will likely be subject
to further labour-related claims, and could also be subject to, directly or indirectly, claims by creditors of the current
owner of Quiruvilca and claims relating to the now abandoned mine site, which in aggregate could be material.
In most cases, the effect of these risks and uncertainties cannot be accurately predicted and, in many cases, their
occurrence is outside of our control. Although we are unable to determine the impact of these risks on our future
financial position or results of operations, many of these risks and uncertainties have the potential to substantially
affect our exploration, development and production activities and could therefore have a material adverse impact
on our operations and profitability.
PAN AMERICAN SILVER CORP.
69
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Governmental Regulation
Our operations, exploration, and development activities are subject to extensive laws and regulations in the
jurisdictions in which we conduct our business, including with respect to:
environmental protection, including carbon emissions;
permitting;
•
•
• management and use of toxic substances and explosives;
• management and use of natural resources, including water and energy supplies;
• management of waste and wastewater;
exploration, development, production, and post-closure reclamation of mines;
•
imports and exports;
•
•
transportation;
price controls;
•
•
taxation;
• mining royalties;
•
•
•
labour standards, employee profit-sharing and occupational health and safety, including mine safety;
human rights;
social matters, including historic and cultural preservation, engagement and consultation, local hiring and
procurement, development funds;
anti-corruption and anti-money laundering; and
data protection and privacy.
•
•
The costs associated with compliance with these and future laws and regulations can be substantial, and changes to
existing laws and regulations (including the imposition of higher taxes and mining royalties) could cause additional
expense, capital expenditures, restrictions on or suspensions of our operations and delays in the development of our
properties. In addition, the regulatory and legal framework in some jurisdictions in which we operate are out-dated,
unclear and at times, inconsistent. A failure to comply with these laws and regulations, including with respect to our
past and current operations, and possibly even actions of parties from whom we acquired our mines or properties,
could lead to, among other things, the imposition of substantial fines, penalties, sanctions, the revocation of licenses
or approvals, expropriation, forced reduction or suspension of operations, and other civil, regulatory or criminal
proceedings.
Many of the jurisdictions in which we operate also have certain laws or policies that impose restrictions on mining
activities. For example, there are currently laws in the Province of Chubut, Argentina, which, among other things,
prohibit open pit mining and the use of cyanide in mineral processing across the entire Province. As currently enacted,
the laws in the Province of Chubut would likely render any future construction and development of the Navidad
property uneconomic or not possible at all. There is no guarantee that these restrictions on mining will be removed
or that they will not become more restrictive, or that new constraints will not be imposed, including those that might
have significant economic impacts on our operations and profitability.
Unanticipated or drastic changes in laws and regulations have affected our operations in the past. For example, under
previous political regimes in Argentina, the government intensified the use of severe price, foreign exchange, and
import controls in response to unfavourable domestic economic trends. These included informal restrictions on
dividend, interest, and service payments abroad and limitations on the ability to convert ARS into USD, exposing us
to additional risks of ARS devaluation and high domestic inflation. While some of these restrictions had begun to ease
after the elections in 2015, the government introduced a new export duty in 2018 on silver and gold doré exported
from Argentina. In 2019, we paid approximately $3.5 million (2018 - $1.6 million) in export duties, representing an
average rate for the export duty of approximately 6%. Following elections in 2019, the new government in Argentina
has begun reinstituting some of the previous unfavourable economic policies, such as strict currency controls.
As governments continue to struggle with deficits and concerns over the effects of depressed economies, the mining
and metals sector has been targeted to raise revenue. Taxation and royalties are often subject to change and are
PAN AMERICAN SILVER CORP.
70
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
vulnerable to increases in both poor and good economic times, especially in many resource rich countries. The addition
of new taxes, specifically those aimed at mining companies, could have a material impact on our operations and will
directly affect profitability and our financial results.
In late December 2016, for example, the Zacatecas state government in Mexico enacted a new set of ecological taxes
which took effect on January 1, 2017. The Zacatecas Tax applies broadly across a number of industries in the State of
Zacatecas that involve extraction, emissions to the air, soil or water, and deposits of residue or waste. The Zacatecas
Tax primarily effects the La Colorada mine in respect of the materials placed in its tailings storage facility. We paid
approximately $2.0 million in respect of the Zacatecas Tax in 2019 (2018 - $1.2 million). The validity of the Zacatecas
Tax has been challenged on constitutional grounds by various parties, including Pan American.
Community Action
The success of our business is, in many ways, dependent on maintaining positive and respectful relationships with
communities in the areas where we work. There is an increasing level of public concern relating to the perceived
effects of mining activities, particularly on communities and peoples impacted by such activities. Communities and
NGOs have become more vocal and active with respect to mining activities at or near their communities. Some
communities and NGOs have taken actions that could have a material adverse effect on our operations, such as setting
up road closures and commencing lawsuits. In certain circumstances, such actions might ultimately result in the
cessation of mining activities and the revocation of permits and licenses. These actions relate not only to current
activities, but are often in respect of past activities by prior owners of mining properties. The manner with which we
respond to civil disturbances and other activities can give rise to additional risks where those responses are perceived
to be inconsistent with international standards, including those with respect to human rights.
On June 18, 2014, seven plaintiffs filed an action against Tahoe in the British Columbia Supreme Court alleging battery
and negligence regarding a security incident that occurred at the Escobal mine on April 27, 2013. The plaintiffs sought
compensatory and punitive damages. In April 2017, three of the seven plaintiffs settled their claims against Tahoe.
On July 30, 2019, we settled, on behalf of Tahoe, the remaining four plaintiffs’ claims and the British Columbia Supreme
Court action was dismissed.
Since June 7, 2017, a group of protesters near the town of Casillas has blocked the primary highway that connects
Guatemala City to San Rafael Las Flores and the Escobal mine that we recently acquired. Operations were reduced
between June 8 and June 19, 2017 to conserve fuel, and on July 5, 2017, were ultimately ceased following the Supreme
Court’s provisional decision to suspend the Escobal mining license while the case against the Guatemala MEM was
heard on the merits. A second roadblock was initiated in 2018 near the community of Mataquescuintla. While we
have been taking steps to regain trust and repair relationships, there is no guarantee that a positive resolution will
be reached.
Pan American is continuing with the implementation of the Mining Association of Canada’s “Towards Sustainable
Mining” ("TSM"), a program designed to enhance our community engagement processes, drive world-leading
environmental practices and reinforce our commitment to the safety and health of our employees and surrounding
communities. As part of TSM, we have implemented a response mechanism which helps us manage our social risks
by better understanding and responding to community questions or concerns around the perceived or actual impacts
of our activities. While we are committed to operating in a responsible manner, there is no assurance that our efforts
will be successful at mitigating adverse impacts to our operations, and we may suffer material consequences to our
business, including among other things, delays and closures, increased costs, and significant reputational damage.
PAN AMERICAN SILVER CORP.
71
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Title to Assets
The validity of mining or exploration titles or claims or rights, which constitute most of our property holdings, can be
uncertain and may be contested. Our properties may be subject to prior unregistered liens, agreements or transfers,
indigenous land claims, or undetected title defects. In some cases, we do not own or hold rights to the mineral
concessions we mine, including in Bolivia where the government has title to the concessions and our right to mine
is contractual in nature. We have not conducted surveys of all the claims in which we hold direct or indirect interests
and therefore, the precise area and location of such claims may be in doubt. No assurance can be given that applicable
governments will not revoke or significantly alter the conditions of the applicable exploration and mining titles or
claims, or that such exploration and mining titles or claims will not be challenged or impugned by third parties. We
may be unable to operate our properties as expected, or to enforce our rights to our properties. Any defects in title
to our properties, or the revocation of our rights to mine, could have a material adverse effect on our operations and
financial condition.
For example, certain individuals have asserted community rights and land ownership over a portion of the La Colorada
mine’s surface lands in the Agrarian Courts of Mexico. They have also initiated a process before the Secretariat of
Agrarian, Territorial and Urban Development of Mexico’s Federal Government (“SEDATU”) in Zacatecas to declare
such lands as national property. In 2019, Pan American filed an amparo against such process and obtained an injunction
to protect it’s ownership of these surface rights pending the outcome of the amparo and a further review by SEDATU.
If Pan American is unable to acquire or maintain access to those surface rights, there could be material adverse impacts
on the La Colorada mine’s future mining operations.
Similarly, in Guatemala, the land title system is not well developed and in many cases, relies on informal, hereditary
or possessory rights. Such informal systems can create significant uncertainty in obtaining and maintaining ownership
or rights of access, in defining precise locations or clear boundaries to properties, and substantiating rights if
challenged. It is also difficult to establish the identity of parties who may have, or purport to have, an interest in such
property. Many of the surface areas on which the Escobal mine is located are based on such informal rights. MSR is
subject to a legal action by an individual claiming to own title to certain lands within the Escobal mine site that MSR
had previously purchased. If we are unable to maintain existing lands and access, or to obtain new lands as required,
there may be significant adverse impacts to the mine and its operation.
We operate in countries with developing mining laws, and changes in such laws could materially impact our rights or
interests to our properties. We are also subject to expropriation risk in a number of countries in which we operate,
including the risk of expropriation or extinguishment of property rights based on a perceived lack of development or
advancement. There is limited activity at our Navidad property, for example, as a result of legal restrictions relating
to mining, and there is a risk that the federal or provincial governments in Argentina are dissatisfied with a lack of
advancement. Expropriation, extinguishment of rights and any other such similar governmental actions would likely
have a material adverse effect on our operations and profitability.
In many jurisdictions in which we operate, legal rights applicable to mining concessions are different and separate
from legal rights applicable to surface lands. Accordingly, title holders of mining concessions in many jurisdictions
must agree with surface land owners on compensation in respect of mining activities conducted on such land. We
do not hold title to all of the surface lands at many of our operations and rely on contracts or other similar rights to
conduct surface activities.
We do not own most of the surface rights to the areas that overlie our mining concessions comprising the Morococha
mine, nor to the areas where administration and operations are taking place, but were used by us pursuant to a
usufruct agreement. These surface rights have been the subject of various disputes over the many years of operation
at the Morococha mine. In June 2010, we reached an agreement with Minera Chinalco Peru ("MCP") that clearly
defines each party’s long-term surface rights and provides for the dismissal of the various judicial and administrative
claims, therefore providing more certainty to the land situation for our Morococha mine. The primary focus of the
agreement is on the lands and concessions around the Morococha mine and MCP’s Toromocho copper project. Under
PAN AMERICAN SILVER CORP.
72
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
the terms of the agreement, Argentum is required to relocate the core Morococha facilities over a 5-year period and
transfer certain mineral concessions and access rights to MCP that it needs in order to proceed with the development
of the Toromocho project. In exchange, Argentum is to receive periodic cash payments from MCP which would off-
set a portion of the capital required for the facility relocation, and a package of surface rights, easements, and mineral
concessions in order to relocate the facilities and to continue uninterrupted operations. Pursuant to the agreement,
the transfer of lands and rights and the cash payments would occur over a period of time and are dependent on
meeting certain milestones. During the course of the agreement, however, certain adjustments have been made by
the parties with respect to the timing of achieving milestones, in some cases informally, and additional adjustments
will be required going forward. As of December 31, 2019, the Morococha facilities had not been relocated within the
time period originally established in the agreement, and the parties had not yet agreed on a revised milestone.
Although this agreement has diminished the risks associated with the Morococha land situation, there is no certainty
that amended milestones can be agreed upon or achieved by the parties, that the relationship will continue in an
amicable fashion, and that the future relocation and other costs associated with the commitments in the agreement
will not render continued operations at the Morococha mine uneconomic.
General Economic Conditions
General economic conditions may adversely affect our growth, profitability and ability to obtain financing. Events in
global financial markets in the past several years have had a profound impact on the global economy. Many industries,
including the silver and gold mining industry, have been and continue to be impacted by these market conditions.
Some of the key impacts of the current financial market turmoil include contraction in credit markets resulting in a
widening of credit risk, devaluations, high volatility in global equity, commodity, foreign exchange and precious metal
markets and a lack of market confidence and liquidity. A continued or worsened slowdown in the financial markets
or other economic conditions, including but not limited to, consumer spending, employment rates, business
conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial
markets, interest rates and tax rates, may adversely affect our growth, profitability and ability to obtain financing. A
number of issues related to economic conditions could have a material adverse effect on our business, financial
condition and results of operations, including:
•
•
•
•
•
contraction in credit markets could impact the cost and availability of financing and our overall liquidity;
the volatility of silver, gold and other metal prices would impact our revenues, profits, losses and cash flow;
recessionary pressures could adversely impact demand for our production;
volatile energy, commodity and consumables prices and currency exchange rates could impact our production
costs; and
the devaluation and volatility of global stock markets could impact the valuation of our equity and other
securities.
In addition, the current outbreak of the novel coronavirus (COVID-19) that was first reported from Wuhan, China on
December 31, 2019, and any future emergence and spread of similar pathogens or the existence of pandemics could
have a material adverse effect on global economic conditions which may adversely impact our business and results
of operations, and our employees and contractors, and the operations of our suppliers, service providers, including
smelter and refining service providers, and the demand for our production. While initially the outbreak was largely
concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries
and infections have been reported globally. To date, the coronavirus has not spread widely in areas where we have
operations. If the coronavirus spreads to those areas, however, it may have a significant adverse impact on our
workforce, production levels, and our ability to continue operating some of our mines. Government efforts to curtail
the spread of the coronavirus may also result in temporary or long-term suspensions or shut-downs of our operations.
The extent to which the coronavirus impacts our operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that
PAN AMERICAN SILVER CORP.
73
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
may emerge concerning the severity of the coronavirus and the actions taken to contain the coronavirus or treat its
impact, among others.
Moreover, the actual and threatened spread of the coronavirus globally could also have a material adverse effect on
the regional economies in which we operate, could continue to negatively impact stock markets, including the trading
price of our shares, could adversely impact our ability to raise capital, could cause continued interest rate volatility
and movements that could make obtaining financing or refinancing our debt obligations more challenging or more
expensive and could result in any operations affected by coronavirus becoming subject to quarantine. Any of these
developments, and others, could have a material adverse effect on our business 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 5 and Note 6 of the 2019 Financial Statements,
respectively.
Readers should also refer to Note 3 of the 2019 Financial Statements, for the Company’s summary of significant
accounting policies.
CHANGES IN ACCOUNTING STANDARDS
New and Amended IFRS Standards that are Effective for the Current Year
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16 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 for lessees 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 less than 12 months in duration 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 has applied IFRS 16 using the modified retrospective approach from January 1, 2019 and has elected
to record the transition date right-of-use assets at amounts equal to the present value of the minimum lease payments,
on a lease by lease basis. Short-term and low-value recognition exemptions were applied, as well as certain practical
expedients allowing for the use of hindsight to assess the lease term for contracts with extension options, the exclusion
of initial direct costs from measurement of the Right-of-Use-Assets ("ROU Assets") and the exclusion of leases with
a term of less than one year remaining at the transition date.
Policy applicable from January 1, 2019
PAN AMERICAN SILVER CORP.
74
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Lease Definition
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains,
a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
An identified asset may be implicitly or explicitly specified in a contract, but must be physically distinct, and must not
have the ability for substitution by a lessor. The Company has the right to control an identified asset if it obtains
substantially all of its economic benefits and either pre-determines, or directs how and for what purpose the asset
is used.
Measurement of ROU Assets and Lease Obligations
At lease commencement, the Company recognizes a ROU Asset and a lease obligation. The ROU Asset is initially
measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made
at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives received.
The ROU Asset is subsequently amortized on a straight-line basis over the shorter of the term of the lease, or the
useful life of the asset determined on the same basis as the Company’s property, plant and equipment. The ROU Asset
is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initially measured at the present value of lease payments remaining at the lease commencement
date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of
the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or
rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase,
extension or termination option that the Company is reasonably certain to exercise.
The lease obligation is subsequently measured at amortized cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the
Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company
changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease
obligation is remeasured, a corresponding adjustment is made to the carrying amount of the ROU Asset.
Recognition Exemptions
The Company has elected not to recognize ROU Assets and lease obligations for short-term leases that have a lease
term of twelve months or less or for leases of low-value assets. Payments associated with these leases are recognized
as an operating expense on a straight-line basis over the lease term within costs and expenses on the consolidated
income statement.
Leases
The Company’s leased assets include land, buildings, vehicles, and machinery and equipment with a carrying value
of $45.8 million at December 31, 2019. Effective January 1, 2019, the Company adopted IFRS 16 as outlined in Note
18, recognizing $21.4 million of ROU assets, $18.9 million of lease obligations and deferred tax assets/liabilities of
$nil.
New and amended IFRS standards not yet effective
New accounting standards and interpretations have been published that are not mandatory for the current period
and have not been early adopted. These standards are not expected to have a material impact on the Company in
the current or future reporting periods.
PAN AMERICAN SILVER CORP.
75
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
DISCLOSURE CONTROLS AND PROCEDURES
Pan American’s management considers the meaning of internal control to be the processes established by
management to provide reasonable assurance about the achievement of the Company’s objectives regarding
operations, reporting and compliance. Internal control is designed to address identified risks that threaten any of
these objectives.
As of December 31, 2019, 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, 2019, 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, 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 IFRS as issued by the
IASB. 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 IFRS, 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,
2019, 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, 2019, 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. 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, 2019. 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, 2019 that has materially affected or is reasonably likely to materially affect, its internal control over
financial reporting.
PAN AMERICAN SILVER CORP.
76
MINERAL RESERVES AND RESOURCES
Pan American Silver Corporation Mineral Reserves as of June 30, 2019 (1,2)
Property
Classification
Location
Ag (g/t)
Tonnes
(Mt)
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Contained
Ag (Moz)
Au (g/t)
Contained
Au (koz)
Cu (%)
Pb (%)
Zn (%)
Silver Segment
Huaron
Peru
Morococha (92.3%)(3)
Peru
Proven
Probable
Proven
Probable
La Colorada
Mexico
Proven
Probable
Dolores
Mexico
Proven
Manantial Espejo
Argentina
Proven
Probable
San Vicente (95%)(3)
Bolivia
Probable
Proven
Probable
Joaquin
COSE
Escobal
Total Silver Segment(4)
Gold Segment
La Arena
Shahuindo
Timmins
La Bolsa
Argentina
Probable
Argentina
Probable
Guatemala Proven
Probable
Peru
Peru
Proven
Probable
Proven
Probable
Canada
Proven
Probable
Mexico
Proven
Probable
6.2
3.7
4.1
2.2
4.0
5.4
35.9
7.8
0.8
0.1
1.4
0.5
0.5
0.1
2.5
22.1
97.5
27.4
9.5
69.8
42.8
2.7
7.2
9.5
6.2
Total Gold Segment(4)
Total Gold and Silver
Segments(4)
Proven +
Probable
175.0
272.5
168
170
147
173
395
287
26
28
170
204
414
345
721
918
486
316
169
N/A
N/A
6
6
N/A
N/A
10
7
6
77
33.5
20.1
19.5
12.3
50.8
49.6
29.8
6.9
4.6
0.9
18.6
6.0
11.0
2.2
39.5
225.0
N/A
N/A
N/A
N/A
0.33
0.26
0.84
0.84
1.35
3.64
N/A
N/A
0.41
17.7
0.42
0.34
N/A
N/A
N/A
N/A
42.0
44.4
967.4
210.7
36.2
16.0
N/A
N/A
6.2
43.3
34.2
243.8
0.69
0.33
0.38
0.31
N/A
N/A
N/A
N/A
N/A
N/A
0.43
0.32
N/A
N/A
N/A
N/A
530.4
0.64
1,644.1
0.47
N/A
N/A
14.4
7.8
N/A
N/A
3.1
1.4
26.8
0.36
0.30
0.51
0.46
3.06
3.10
0.67
0.57
319.4
90.9
1,133.2
629.9
269.1
718.6
202.9
113.1
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.62
3,476.9
N/A
557.2
0.63
5,121.1
0.47
1.44
1.55
1.38
1.20
1.72
1.35
N/A
N/A
N/A
N/A
0.35
0.42
N/A
N/A
1.02
0.77
1.10
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1.10
3.02
3.00
4.03
3.26
3.11
2.44
N/A
N/A
N/A
N/A
3.06
2.71
N/A
N/A
1.75
1.25
2.24
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2.24
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2019”.
(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. Total average grades of each element are with respect to those mines that produce the element.
PAN AMERICAN SILVER CORP.
77
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Pan American Silver Corporation Measured and Indicated Mineral Resources as of June 30, 2019(1,2)
Property
Location
Classification
Tonnes
(Mt)
Ag (g/t)
Contained
Ag (Moz)
Au (g/t)
Contained
Au (koz)
Cu (%)
Pb (%)
Zn (%)
Silver Segment
Huaron
Peru
Morococha (92.3%)(3)
Peru
La Colorada
Dolores
Mexico
Mexico
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Manantial Espejo
Argentina Measured
San Vicente (95%)(3)
Bolivia
Indicated
Measured
Indicated
Navidad
Joaquin
Escobal
Total Silver Segment(4)
Gold Segment
La Bolsa
Pico Machay
La Arena
Shahuindo
Argentina Measured
Indicated
Argentina
Indicated
Guatemala Measured
Indicated
Mexico
Peru
Peru
Peru
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Timmins
Canada
Measured
La Arena II
Peru
Canada
Canada
Canada
Canada
Canada
Canada
Fenn-Gib
Whitney
Gold River
Juby
Marlhill
Vogel
Total Gold Segment(4)
Total Gold and Silver
Segments(4)
Indicated
Measured
Indicated
Indicated
Measured
Indicated
Indicated
Indicated
Indicated
Indicated
Measured +
Indicated
2.2
2.4
0.3
0.3
0.5
1.6
2.0
1.5
0.1
0.2
0.9
0.3
15.4
139.8
0.1
2.3
14.2
184.0
1.4
4.5
4.7
5.9
1.3
1.7
3.7
8.4
1.7
5.4
155.7
586.7
40.8
1.0
2.3
0.7
26.6
0.4
2.2
854.9
157
155
138
143
229
185
21
28
164
241
161
158
137
126
385
251
201
134
11
9
N/A
N/A
N/A
N/A
7
5
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
7
11.0
12.0
1.2
1.6
3.8
9.6
1.3
1.4
0.7
1.4
4.4
1.4
67.8
564.5
0.7
18.6
91.6
792.9
0.5
1.3
N/A
N/A
N/A
N/A
0.8
1.5
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
4.1
N/A
N/A
N/A
N/A
0.24
0.15
0.35
0.56
1.65
2.86
N/A
N/A
N/A
N/A
0.58
0.23
0.20
0.27
0.90
0.50
0.91
0.67
0.41
0.38
0.53
0.46
3.89
3.41
0.25
0.23
0.99
7.02
6.77
5.29
1.28
4.52
1.75
N/A
N/A
N/A
N/A
4.0
7.8
22.0
27.1
7.1
16.5
N/A
N/A
N/A
N/A
1.1
16.7
93.0
195.3
39.9
71.2
137.5
127.1
17.5
20.6
63.2
123.6
212.4
587.8
1,265.2
4,371.9
1,298.6
218.1
490.5
117.4
1,094.7
57.4
125.0
0.59
0.61
0.29
0.20
N/A
N/A
N/A
N/A
N/A
N/A
0.22
0.27
0.10
0.04
N/A
N/A
N/A
0.06
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.37
0.35
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.38
10,439.6
0.35
1,038.8
123
797.0
0.38
10,634.9
0.30
1.50
1.64
0.86
0.83
0.65
0.56
N/A
N/A
N/A
N/A
0.20
0.21
1.44
0.79
N/A
0.31
0.38
0.82
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.82
2.80
3.03
2.14
2.09
1.16
1.16
N/A
N/A
N/A
N/A
2.27
1.73
N/A
N/A
N/A
0.59
0.66
1.21
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1.21
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2019”.
(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. Total average grades of each element are with respect to those mines that produce the element.
PAN AMERICAN SILVER CORP.
78
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
Pan American Silver Corporation Inferred Mineral Resources as of June 30, 2019(1,2)
Property
Location
Classification
Tonnes
(Mt)
Ag
(g/t)
Contained
Ag (Moz)
Au
(g/t)
Contained
Au (koz)
Cu (%)
Pb (%)
Zn (%)
Silver Segment
Huaron
Morococha (92.3%)(3)
La Colorada
Dolores
Manantial Espejo
San Vicente (95%)(3)
Navidad
Joaquin
COSE
Escobal
Total Silver Segment(4)
Gold Segment
La Bolsa
Pico Machay
La Arena
Shahuindo
Shahuindo Sulphide
Timmins
La Arena II
Fenn-Gib
Whitney
Gold River
Juby
Vogel
Total Gold Segment(4)
Total Gold and Silver
Segments(4)
Peru
Peru
Mexico
Mexico
Inferred
Inferred
Inferred
Inferred
Argentina
Inferred
Bolivia
Inferred
Argentina
Inferred
Argentina
Inferred
Argentina
Inferred
Guatemala Inferred
Mexico
Peru
Peru
Peru
Peru
Canada
Peru
Canada
Canada
Canada
Canada
Canada
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
6.2
4.5
8.1
4.0
0.5
3.0
45.9
—
—
1.9
74.0
13.7
23.9
1.1
10.0
97.4
3.7
91.6
24.5
1.0
5.3
96.2
1.5
369.8
443.8
155
138
133
47
194
289
81
389
382
180
106
8
N/A
N/A
5
14
N/A
N/A
N/A
N/A
N/A
N/A
N/A
13
48
30.8
19.9
34.5
6.0
3.0
27.9
119.4
0.1
0.3
10.7
252.5
3.3
N/A
N/A
1.6
45.1
N/A
N/A
N/A
N/A
N/A
N/A
N/A
50.0
N/A
N/A
0.12
1.22
2.71
N/A
N/A
1.29
7.10
0.90
0.62
0.51
0.58
0.30
0.44
0.74
3.74
0.23
0.95
5.34
6.06
0.94
3.60
N/A
N/A
31.6
156.3
41.4
N/A
N/A
0.2
6.3
53.7
289.5
224.6
445.7
10.7
140.6
2323.3
443.8
683.1
750.0
170.7
1,027.4
2,908.8
168.8
0.41
0.37
N/A
N/A
N/A
0.24
0.02
N/A
N/A
N/A
0.10
N/A
N/A
N/A
N/A
N/A
N/A
0.17
N/A
N/A
N/A
N/A
N/A
0.78
9,297.6
0.17
302.5
0.78
9,587.1
0.14
1.45
1.02
2.03
N/A
N/A
0.38
0.57
N/A
N/A
0.22
0.8
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0.8
2.77
3.26
4.01
N/A
N/A
3.32
N/A
N/A
N/A
0.42
3.2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
3.2
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2019”.
(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. Total average grades of each element are with respect to those mines that produce the element.
PAN AMERICAN SILVER CORP.
79
Metal Price Assumptions Used to Estimate Mineral Reserves and Resources as of June 30, 2019
Property
Category
Ag US$/oz Au US$/oz
Cu US$/t
Pb US$/t
Zn US$/t
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
6,000
6,000
6,000
2,100
2,100
2,100
2,500
2,500
2,500
6,000
2,100
1,100
2,500
2,204
2,424
8,816
Huaron
Morococha
La Colorada
Dolores
La Bolsa
Manantial Espejo
San Vicente
Navidad
Pico Machay
Joaquin
COSE
Escobal
Shahuindo
Shahuindo Sulphide
La Arena
La Arena II
Timmins - Bell Creek
Fenn-Gib
Whitney
Gold River
Juby(1)
Marlhill
Vogel
All categories
All categories
All categories
Reserves
Resources
All categories
All categories
All categories
All categories
All categories
All categories
All categories
All categories
Reserves
Resources
Inferred
Resource
Reserves
Resources
All categories
All categories
Inside pit
Below pit
All categories
All categories
All categories
All categories
Inside pit
Below pit
17.00
17.00
17.00
17.00
22.00
14.00
16.00
17.00
12.52
16.00
16.00
20.00
17.00
22.00
15.00
17.00
22.00
1,300
1,300
1,300
1,300
1,400
825
1,300
1,300
700
1,300
1,300
1,300
1,300
1,400
1,400
1,400
1,500
1,500
1,300
1,190
1,190
1,200
1,200
1,125
1,150
1,150
(1) Estimation used a cut-off grade of 0.40% g/t Au
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 12, 2020, 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
PAN AMERICAN SILVER CORP.
80
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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.
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
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 12, 2020, filed at www.sedar.com or the Company’s most recent
Form 40-F filed with the SEC.
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, including the Acquired
Mines; future Cash Costs and AISC; the sufficiency of the Company’s current working capital, anticipated operating
cash flow or its ability to raise necessary funds; the anticipated amount and timing of production at each of the
Company’s properties and in the aggregate; our expectations with respect to future metal prices and exchange rates;
the timing and disclosure of the allocation of purchase price for the Tahoe Acquisition; the duration and effect of the
license suspensions and any road blocks relating to the Escobal mine; the constitutional court-mandated ILO 169
consultation process in Guatemala, and the timing and completion thereof; the anticipated timing for commencement
of commercial production at our COSE and Joaquin projects; the estimated cost of and availability of funding necessary
for sustaining capital; forecast capital and non-operating spending; 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 mineral
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 can be maintained; and our ability to comply with environmental,
health and safety laws, particularly given the potential for modifications and expansion of such 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, BOB, GTQ and CAD versus the USD); risks related to the technological
PAN AMERICAN SILVER CORP.
81
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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, Guatemala or other countries where the Company may carry on business, including the risk of
expropriation related to certain of our operations, particularly in Argentina and Bolivia and risks related to the
constitutional court-mandated ILO 169 consultation process in Guatemala; 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 Company’s ability to secure our mine sites or maintain access to our
mine sites due to criminal activity, violence, or civil and labour unrest; the speculative nature of mineral exploration
and development, including the risk of obtaining or retaining necessary licenses and permits and the presence of
laws, regulations and other legal impediments that may impose restrictions on mining, including those currently in
the province of Chubut, Argentina, or that might otherwise prevent or cause the suspension or discontinuation of
mining activities; 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 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 or revise 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.
PAN AMERICAN SILVER CORP.
82
Management Discussion and Analysis
For the years ended December 31, 2019 and 2018
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, 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.
83
Consolidated Financial Statements and Notes
FOR THE YEARS ENDED DECEMBER 31, 2019 AND DECEMBER 31, 2018
PAN AMERICAN SILVER CORP.
84
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 of Pan American Silver Corp. (the "Board") 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. The Audit 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 the 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 12, 2020
"signed"
A. Robert Doyle
Chief Financial Officer
PAN AMERICAN SILVER CORP.
85
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Pan American Silver Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Pan American Silver Corp. and
subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated income statements,
statements of comprehensive income, statements of cash flows, and statements of changes in equity, for each of
the two years in the period ended December 31, 2019, and the related notes (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 of December 31, 2019 and 2018, and its financial performance and its cash flows for
each of the two years in the period ended December 31, 2019, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
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, 2019, 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 12, 2020, expressed an unqualified
opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express
an opinion on the Company's financial statements based on our audits. 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 audits in accordance with 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 of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
PAN AMERICAN SILVER CORP.
86
Tahoe Acquisition - Refer to Notes 5(e) and 8 to the financial statements
Critical Audit Matter Description
The Company completed the acquisition of Tahoe Resources Inc. ("Tahoe") on February 22, 2019. The purchase
price was allocated to the assets acquired and liabilities assumed based on their fair values, which included certain
mineral properties including the Escobal mine in Guatemala ("Escobal") (collectively the "Acquired Mineral
Properties"). The determination of the fair value of the Acquired Mineral Properties required management to
make significant estimates and assumptions.
While there are many estimates and assumptions that management makes to determine the fair value of the
Acquired Mineral Properties, the assumptions with the highest degree of subjectivity are future commodity prices,
discount rates, the in-situ multiples and specifically for Escobal, the ability, timing and likelihood that the mine
operations will restart. Our audit procedures to evaluate the reasonableness of these estimates and assumptions
required a high degree of auditor judgment and an increased extent of audit effort, including the need to involve
fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the future commodity prices, discount rates, the in-situ multiples and specifically
for Escobal, the ability, timing and likelihood that the mine operations will restart included the following, among
others:
• Evaluated the effectiveness of the Company’s controls over management’s assumptions of future
commodity prices, discount rates, in-situ multiples and management’s assessment of the ability, timing
and likelihood that the mine operations at Escobal will restart.
• With the assistance of fair value specialists:
Evaluated the future commodity prices by comparing forecasts to third party forecasts,
Evaluated the reasonableness of the discount rates by testing the source information underlying
the determination of the discount rate, and
Evaluated the reasonableness of the in-situ multiples applied to the exploration properties.
• Evaluated and corroborated through inquiries with key executives, management’s ability to estimate the
ability, timing and likelihood of Escobal restarting by understanding their process to obtain the background
knowledge to make such determination.
• Evaluated the ability, timing and likelihood that the mine operations at Escobal will restart by considering
the information received from management and external sources.
Impairment - Assessment of Whether Indicators of Impairment or Impairment Reversal Exist within the Mineral
Properties, Plant and Equipment - Refer to Notes 3 and 6 to the financial statements
Critical Audit Matter Description
The Company’s determination of whether or not an indicator of impairment or impairment reversal exists at the
cash generating unit levels requires significant management judgement. 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.
While there are several factors that are required to determine whether or not an indicator of impairment or
impairment reversal exists, the judgements with the highest degree of subjectivity are future commodity prices
(for both silver and gold), forecast production output (for both silver and gold), company performance, ability and
timing to commence or restart mine operations, and the discount rate. Auditing these estimates and factors
required a high degree of subjectivity in applying audit procedures and in evaluating the results of those
procedures. This resulted in an increased extent of audit effort, including the involvement of fair value specialists.
PAN AMERICAN SILVER CORP.
87
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the future commodity prices (for both silver and gold), future production output
(for both silver and gold), company performance, ability and timing to commence or restart mine operations, and
the discount rate in the assessment of indicators of impairment or impairment reversal included the following,
among others:
• Evaluated the effectiveness of the Company’s controls over management’s assessment of indicators of
impairment or impairment reversal.
• Evaluated management’s ability to accurately forecast future production by:
Assessing the methodology used in management’s determination of the future production and,
Comparing management’s future production to historical data and available market trends.
• Performed independent research to assess if there have been any substantive local, political or regulatory
changes impacting the jurisdictions in which the Company operates impacting the ability to commence or
restart mine operations.
• Compared the company performance of the mineral properties to historical results and third-party reports.
• With the assistance of fair value specialists:
Evaluated the future commodity prices by comparing management forecasts to third party
forecasts, and
Evaluated the reasonableness of the change in discount rate by testing the source information
underlying the determination of the discount rate.
Impairment - Testing of Impairment of Mineral Properties, Plant and Equipment - Manantial Espejo Cash
Generating Unit (“CGU”) - Refer to Notes 3 and 13 to the financial statements
Critical Audit Matter Description
The Company identified an indicator of impairment for the Manantial Espejo CGU as a result of an increase in
Argentina export taxes, and project delays. The Company determined that the combined CGU carrying amount of
Manantial Espejo mine and the Joaquin and COSE development project and other related assets was greater than
the combined estimated recoverable amount, causing the Company to recognize an impairment loss.
While there are several assumptions that go into determining the recoverable amount, the judgement with the
highest degree of subjectivity in the valuation model is the commodity prices. Auditing the assumptions
surrounding the commodity prices required a high degree of subjectivity in applying audit procedures and in
evaluating the results of those procedures. This resulted in an increased extent of audit effort, including the
involvement of fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the commodity prices used in the valuation models to determine the recoverable
amount of the CGU included the following, among others:
• Evaluated the effectiveness of the controls surrounding the commodity prices.
• Evaluated the commodity prices by comparing management forecasts to third party forecasts with the
assistance of fair value specialists.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 12, 2020
We have served as the Company's auditor since 1993.
PAN AMERICAN SILVER CORP.
88
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, 2019, 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, 2019, 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), the consolidated financial statements as of and for the year ended December 31, 2019, of
the Company and our report dated March 12, 2020, expressed an 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 generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, 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.
PAN AMERICAN SILVER CORP.
89
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
March 12, 2020
PAN AMERICAN SILVER CORP.
90
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
December 31,
2019
December 31,
2018
$
$
$
$
$
$
$
120,564
117,776
168,753
17,209
346,507
1,272
16,838
788,919
2,504,901
24,209
17,900
36,447
84,319
4,987
3,461,682
225,330
—
7,372
14,198
24,770
271,670
188,012
176,808
27,010
275,000
12,542
27,754
15,040
993,836
138,510
74,004
96,091
13,108
214,465
640
11,556
548,374
1,301,002
—
70
12,244
70,566
5,220
1,937,476
131,743
51
5,072
5,356
8,306
150,528
70,083
148,819
1,320
—
13,288
25,425
14,664
424,127
3,123,514
94,274
—
(754,689)
2,463,099
4,747
2,467,846
3,461,682
$
2,321,498
22,573
208
(836,067)
1,508,212
5,137
1,513,349
1,937,476
Assets
Current assets
Cash and cash equivalents (Note 25)
Short-term investments (Note 10)
Trade and other receivables
Income taxes receivable
Inventories (Note 11)
Derivative financial instruments (Note 9)
Prepaid expenses and other current assets
Non-current assets
Mineral properties, plant and equipment (Note 12)
Inventories (Note 11)
Long-term refundable tax
Deferred tax assets (Note 28)
Investment in associates (Note 14)
Goodwill & other assets (Note 15)
Total Assets
Liabilities
Current liabilities
Accounts payable and accrued liabilities (Note 16)
Derivative financial instruments (Note 9)
Current portion of provisions (Note 17)
Current portion of lease obligations (Note 18)
Income tax payable
Non-current liabilities
Long-term portion of provisions (Note 17)
Deferred tax liabilities (Note 28)
Long-term portion of lease obligations (Note 18)
Debt (Note 19)
Deferred revenue (Note 14)
Other long-term liabilities (Note 20)
Share purchase warrants (Note 14)
Total Liabilities
Equity
Capital and reserves (Note 21)
Issued capital
Reserves
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 9, 29); subsequent events (Note 31)
See accompanying notes to the consolidated financial statements
APPROVED BY THE BOARD ON MARCH 12, 2020
"signed" Ross Beaty, Director
"signed" Michael Steinmann, Director
PAN AMERICAN SILVER CORP.
91
Revenue (Note 26)
Cost of sales
Production costs (Note 22)
Depreciation and amortization (Note 12)
Royalties
Mine operating earnings (Note 26)
General and administrative
Exploration and project development
Mine care and maintenance
Foreign exchange losses
Impairment charges (Note 13)
Gains on commodity and foreign currency contracts (Note 9)
Gains on sale of mineral properties, plant and equipment (Note 12)
Share of income from associate and dilution gain (Note 14)
Transaction and integration costs (Note 8)
Other expense (Note 27)
Earnings from operations
Loss on derivatives (Note 9)
Investment income (loss)
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.
Consolidated Income Statements
(in thousands of U.S. dollars except per share amounts)
2019
2018
$
1,350,759
$
784,495
(841,297)
(253,453)
(26,721)
(1,121,471)
229,288
(31,752)
(11,684)
(23,662)
(5,003)
(40,050)
3,315
3,858
15,245
(7,515)
(4,936)
127,104
(14)
84,704
(29,282)
182,512
(71,268)
$
111,244
$
(515,636)
(147,289)
(20,673)
(683,598)
100,897
(22,649)
(11,138)
—
(9,326)
(27,789)
4,930
7,973
13,679
(10,229)
(3,659)
42,689
(1,078)
(284)
(8,139)
33,188
(21,147)
12,041
$
$
$
110,738
506
111,244
$
10,294
1,747
12,041
0.55
0.55
$
$
201,397
201,571
0.07
0.07
153,315
153,522
PAN AMERICAN SILVER CORP.
92
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 short-term investments (net of $nil tax in 2019 and 2018)
Reclassification adjustment for realized gains on short-term investments to earnings
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.
2019
$
111,244
$
—
(208)
2018
12,041
993
(788)
$
$
$
111,036
$
12,246
110,530
506
111,036
$
$
10,499
1,747
12,246
PAN AMERICAN SILVER CORP.
93
Cash flow from operating activities
Net earnings for the year
Current income tax expense (Note 28)
Deferred income tax recovery (Note 28)
Interest expense (recovery) (Note 23)
Depreciation and amortization (Note 12)
Impairment charges (Note 13)
Accretion on closure and decommissioning provision (Note 17)
Unrealized foreign exchange losses
Gain on sale of mineral properties, plant and equipment
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
Tahoe Resources Inc. ("Tahoe") acquisition (Note 8)
Acquisition of mineral interests
Net proceeds from sale of short-term investments
Proceeds from sale of mineral properties, plant and equipment
Net proceeds from commodity, diesel fuel swaps, and foreign currency contracts
Net cash used in investing activities
Cash flow from financing activities
Proceeds from issue of equity shares
Distributions to non-controlling interests
Dividends paid
Proceeds from credit facility (Note 19)
Repayment of credit facility (Note 19)
Repayment of short-term loans
Payment of lease obligations
Net cash generated from (used in) financing activities
Effects of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
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)
2019
2018
$
111,244
$
12,041
92,129
(20,861)
16,879
253,453
40,050
9,903
6,057
(3,858)
(96,277)
(27,944)
380,775
(16,944)
776
(82,579)
282,028
$
$
53,901
(32,754)
(678)
147,289
27,789
6,524
10,337
(7,973)
17,724
(4,261)
229,939
(1,684)
1,944
(75,221)
154,978
(205,807) $
(247,479)
(1,545)
39,727
10,267
2,669
(144,348)
—
(7,500)
(25,554)
15,781
2,449
(402,168) $
(159,172)
2,781
(924)
(29,332)
335,000
(185,000)
—
(19,270)
103,255
(1,061)
(17,946)
138,510
120,564
$
$
$
1,081
(2,020)
(21,284)
—
—
(3,000)
(7,911)
(33,134)
(115)
(37,443)
175,953
138,510
$
$
$
$
$
$
$
PAN AMERICAN SILVER CORP.
94
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
Reserves(1)
Investment
revaluation
reserve
Deficit
Total
Non-
controlling
interests
Total
equity
Balance, December 31, 2017
153,302,976
$ 2,318,252
$
22,463
$
1,605
$ (825,470) $ 1,516,850
$
4,201
$ 1,521,051
Impact of adopting IFRS 9
— $
— $
— $
(1,602) $
1,602
$
— $
— $
—
Balance, January 1, 2018
153,302,976
$ 2,318,252
$
22,463
$
3
$ (823,868) $ 1,516,850
$
4,201
$ 1,521,051
Total comprehensive earnings
Net earnings for the year
Other comprehensive income
—
—
—
Cancellation of expired shares
(120,339)
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
125,762
139,957
—
—
—
—
—
—
—
1,367
1,879
—
—
—
—
—
—
—
(286)
—
396
—
—
—
205
205
—
—
—
—
—
—
10,294
—
10,294
178
—
—
—
10,294
205
10,499
178
1,081
1,879
396
1,747
—
1,747
—
—
—
—
12,041
205
12,246
178
1,081
1,879
396
(1,209)
(21,462)
(1,209)
(21,462)
(811)
—
(2,020)
(21,462)
Balance, December 31, 2018
153,448,356
$ 2,321,498
$
22,573
$
208
$ (836,067) $ 1,508,212
$
5,137
$ 1,513,349
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
Tahoe acquisition
consideration (Note 8)
Distributions by subsidiaries
to non-controlling interests
Dividends paid
—
—
—
244,299
152,391
—
—
—
—
3,697
2,693
—
—
—
—
(916)
—
577
55,990,512
795,626
72,040
—
—
—
—
—
—
—
(208)
(208)
110,738
110,738
—
(208)
110,738
110,530
—
—
—
—
2,781
2,693
577
867,666
—
—
—
—
—
—
(28)
(28)
(29,332)
(29,332)
(896)
—
506
—
506
—
—
—
—
111,244
(208)
111,036
2,781
2,693
577
867,666
(924)
(29,332)
Balance, December 31, 2019
209,835,558
$ 3,123,514
$
94,274
$
— $ (754,689) $ 2,463,099
$
4,747
$ 2,467,846
Includes reserves for share options and contingent value rights ("CVRs") (Note 8).
(1)
See accompanying notes to the consolidated financial statements.
PAN AMERICAN SILVER CORP.
95
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for 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 is a British Columbia corporation 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, zinc, lead and copper as well as other related
activities, including exploration, extraction, processing, refining and reclamation. The Company’s major products are
produced from mines in Canada, Peru, Mexico, Argentina and Bolivia. Additionally, the Company has project
development activities in Canada, Peru, Mexico and Argentina, and exploration activities throughout the Americas.
As at December 31, 2019, the Company's Escobal mine in Guatemala continues to be on care and maintenance pending
satisfactory completion of an ILO 169 consultation process led by the Ministry of Energy and Mines in Guatemala.
2. BASIS OF PREPARATION
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 12, 2020.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies used in the preparation of these consolidated financial statements are as follows:
a) Presentation currency
The functional and presentation currency of the Company and each of its subsidiaries is the United States dollar
("USD").
b) Basis of measurement
These consolidated financial statements have been prepared on an historical cost basis, except for those assets
and liabilities that are measured at revalued amounts or fair values at the end of each reporting period.
PAN AMERICAN SILVER CORP.
96
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
c) Basis of consolidation
The accounts of the Company and its subsidiaries, which are controlled by the Company, have been included in
these consolidated financial statements. Control is achieved when the Company is exposed, or has rights, to
variable returns from the investee and when the Company has the ability to affect those returns through its power
over the investee. Subsidiaries are included in the consolidated financial results of the Company from the effective
date of acquisition up to the effective date of disposition or loss of control. The principal subsidiaries of the
Company
follows:
2019 were
December 31,
geographic
locations
their
and
as
at
Subsidiary
Location
Ownership
Interest
Accounting
Operations and Development
Projects Owned
Pan American Silver Huaron S.A.
Peru
Compañía Minera Argentum S.A.
Peru
Shahuindo S.A.C
Peru
La Arena S.A.
Peru
Plata Panamericana S.A. de C.V.
Mexico
Compañía Minera Dolores S.A. de C.V. Mexico
Minera Tritón Argentina S.A.
Minera Joaquin S.R.L.
Minera Argenta S.A.
Pan American Silver (Bolivia) S.A.
Lake Shore Gold Corp.
Minera San Rafael S.A. ("MSR")
Argentina
Argentina
Argentina
Bolivia
Canada
Guatemala
d) Investments in associates
Huaron mine
100% Consolidated
92% Consolidated Morococha mine
Shahuindo mine
100% Consolidated
La Arena mine
100% Consolidated
La Colorada mine
100% Consolidated
Dolores mine
100% Consolidated
Manantial Espejo mine & Cap-
Oeste Sur Este ("COSE") project
Joaquin project
Navidad project
San Vicente mine
Bell Creek and Timmins West
mines (together, "Timmins")
Escobal mine
100% Consolidated
100% Consolidated
95% Consolidated
100% Consolidated
100% Consolidated
100% Consolidated
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.
e) 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.
PAN AMERICAN SILVER CORP.
97
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 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.
f) Revenue recognition
Revenue associated with the sale of commodities is recognized when control of the asset sold is transferred to
the customer. Indicators of control transferring include an unconditional obligation to pay, legal title, physical
possession, transfer of risk and rewards and customer acceptance. This generally occurs when the goods are
delivered to a loading port, warehouse, vessel or metal account as contractually agreed with the buyer; at which
point the buyer controls the goods. In cases where the Company is responsible for the cost of shipping and certain
other services after the date on which control of the goods transfers to the customer, these other services are
considered separate performance obligations and thus a portion of revenue earned under the contract is allocated
and recognized as these performance obligations are satisfied.
The Company’s concentrate sales contracts with third-party buyers, 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 transaction 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 control
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 and estimated
quantities. 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 date
when control is transferred to the buyer and the actual final price set under the smelting contracts are caused
by changes in metal prices resulting in the receivable being recorded at fair value through profit or loss ("FVTPL").
IFRS 15 - Revenue from Contracts with Customers ("IFRS 15") requires that variable consideration should only be
recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur. The Company concluded that the adjustments relating to the final assay results for the
quantity and quality of concentrate sold are not significant and do not constrain the recognition of revenue.
Refining and treatment charges under the sales contracts 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.
PAN AMERICAN SILVER CORP.
98
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
g) Financial instruments
Measurement – initial recognition
Financial assets and financial liabilities are recognized in the Company’s statement of financial position when the
Company becomes a party to the contractual provisions of the instrument. On initial recognition, all financial
assets and financial liabilities are recorded at fair value, net of attributable transaction costs, except for financial
assets and liabilities classified as at FVTPL. Transaction costs of financial assets and liabilities classified as at FVTPL
are expensed in the period in which they are incurred.
Subsequent measurement of financial assets and liabilities depends on the classifications of such assets and
liabilities.
Classification of financial assets
Amortized cost:
Financial assets that meet the following conditions are measured subsequently at amortized cost:
(i) The financial asset is held within a business model whose objective is to hold financial assets in order to
collect contractual cash flows, and
(ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition
minus the principal repayments, plus the cumulative amortization using effective interest method of any
difference between that initial amount and the maturity amount, adjusted for any loss allowance. Interest income
is recognized using the effective interest method. Interest income is recognized in Investment (loss) income in
the Consolidated Income Statements.
The Company's financial assets at amortized cost primarily include cash and cash equivalents, receivables not
arising from sale of metal concentrates included in Trade and other receivables in the Consolidated Statement of
Financial Position (Note 9(a)).
Fair value through other comprehensive income ("FVTOCI"):
Financial assets that meet the following conditions are measured at FVTOCI:
(i) The financial asset is held within a business model whose objective is achieved by both collecting contractual
cash flows and selling financial assets, and
(ii) The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.
The Company's short-term investments in other than equity securities are measured at FVTOCI (Note 9(c)).
FVTPL:
By default, all other financial assets are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing
so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise
from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair
value gains or losses recognized in profit or loss to the extent they are not part of a designated hedging relationship.
Fair value is determined in the manner described in Note 9(e)(ii). The Company's financial assets at FVTPL include
its trade receivables from provisional concentrate sales, short-term investments in equity securities, and derivative
assets not designated as hedging instruments.
PAN AMERICAN SILVER CORP.
99
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting
all its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct
issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity.
No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own
equity instruments.
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading
or designated as at FVTPL, are measured at amortized cost using effective interest method.
Derivatives
When the Company enters into derivative contracts, these transactions are designed to reduce exposures related
to assets and liabilities, firm commitments or anticipated transactions. The Company does not have derivative
instruments that qualify as cash flow hedges and consequently all derivatives are recorded at fair value with
changes in fair value recognized in net earnings.
h) 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.
i)
Inventories
Inventories include work in progress, concentrate ore, doré, processed silver and gold, heap leach inventory, and
operating materials and supplies. Work in progress inventory includes ore stockpiles and other partly processed
material. Stockpiles represent ore that has been extracted and is available for further processing. The classification
of inventory is determined by the stage at which the ore is in the production process. Inventories of ore are
sampled for metal content and are valued based on the lower of cost or estimated net realizable value ("NRV")
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
PAN AMERICAN SILVER CORP.
100
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 NRV, with cost being determined using a weighted average cost method.
The ending inventory value of ounces associated with the leach pad is equal to opening recoverable ounces plus
recoverable ounces placed less ounces produced plus or minus ounce adjustments.
The estimate of both the ultimate recovery expected over time and the quantity of metal that may be extracted
relative to the time the leach process occurs requires the use of estimates which rely upon laboratory test work
and estimated models of the leaching kinetics in the heap leach pads. Test work consists of leach columns of up
to 400 days duration with 150 days being the average, from which the Company projects metal recoveries up to
three years in the future. The quantities of metal contained in the ore are based upon actual weights and assay
analysis. The rate at which the leach process extracts gold and silver from the crushed ore is based upon laboratory
column tests and actual experience. The assumptions used by the Company to measure metal content during
each stage of the inventory conversion process include estimated recovery rates based on laboratory testing and
assaying. The Company periodically reviews its estimates compared to actual experience and revises its estimates
when appropriate. The ultimate recovery will not be known until the leaching operations cease.
Supplies inventories are valued at the lower of average cost and NRV 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.
PAN AMERICAN SILVER CORP.
101
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
j) 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.
k) Operational mining properties and mine development
When it has been determined that a mineral property can be economically developed as a result of establishing
proven and probable reserves (which occurs upon completion of a positive economic analysis of the mineral
deposit), the costs incurred to develop such property including costs to further delineate the ore body and remove
overburden to initially expose the ore body prior to the start of mining operations, are also capitalized. Such costs
are amortized using the units-of-production method over the estimated life of the ore body based on proven and
probable reserves.
Costs associated with commissioning activities on constructed plants are deferred from the date of mechanical
completion of the facilities until the date the Company is ready to commence commercial production. Any
revenues earned during this period are recorded as a reduction in deferred commissioning costs. These costs are
PAN AMERICAN SILVER CORP.
102
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
l) 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.
i) 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.
ii) 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 including capitalized evaluation and development expenditures – based
on applicable reserves on a unit of production basis.
• Exploration and evaluation – not depreciated until mine goes into production
• Assets under construction – not depreciated until assets are ready for their intended use
PAN AMERICAN SILVER CORP.
103
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
m) 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.
A cash-generating unit ("CGU") is identified as the smallest identifiable group of assets that generate cash inflows
that are largely independent of the cash inflows from other assets. An impairment review is performed, either
individually or at the CGU level, when there are indicators that the carrying amount of the CGU may exceed its
recoverable amount. 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.
PAN AMERICAN SILVER CORP.
104
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
n) Deferred stripping costs
In open pit mining operations, it is necessary to remove overburden and other waste in order to access the ore
body. During the preproduction phase, these costs are capitalized as part of the cost of the mine property and
subsequently amortized over the life of the mine (or pit) on a units of production basis.
The costs of removal of the waste material during a mine’s production phase are deferred where they give rise
to future benefits. These capitalized costs are subsequently amortized on a unit of production basis over the
reserves that directly benefit from the specific stripping activity.
o) 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 CGUs. In addition, an
impairment loss is recognized for any excess of carrying amount over the recoverable amount, being the higher
of its fair value less costs to sell ("FVLCTS"), or its value in use (being the net present value of expected future
cash flows of the relevant CGU), of a non-current asset or disposal group held for sale. 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 CGU 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, closure, 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 CGU 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 CGU 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.
PAN AMERICAN SILVER CORP.
105
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
p) Closure and decommissioning costs
The mining, extraction and processing activities of the Company normally give rise to obligations for site closure
or rehabilitation. Closure and decommissioning works can include facility decommissioning and dismantling;
removal or treatment of waste materials; site and land rehabilitation. The extent of work required and the
associated costs are dependent on the requirements of relevant authorities and the Company’s environmental
policies. Provisions for the cost of each closure and rehabilitation program are recognized at the time that
environmental disturbance occurs. When the extent of disturbance increases over the life of an operation, the
provision is increased accordingly. Costs included in the provision encompass all closure and decommissioning
activity expected to occur progressively over the life of the operation and at the time of closure in connection
with disturbances at the reporting date. Routine operating costs that may impact the ultimate closure and
decommissioning activities, such as waste material handling conducted as an integral part of a mining or
production process, are not included in the provision. Costs arising from unforeseen circumstances, such as the
contamination caused by unplanned discharges, are recognized as an expense and liability when the event gives
rise to an obligation which is probable and capable of reliable estimation. The timing of the actual closure and
decommissioning expenditure is dependent upon a number of factors such as the life and nature of the asset,
the operating license conditions, and the environment in which the mine operates. 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.
q) 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.
PAN AMERICAN SILVER CORP.
106
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
r) 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.
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.
s)
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
PAN AMERICAN SILVER CORP.
107
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
in the foreseeable future. The amount of deferred tax recognized is based on the expected manner and timing
of realization or settlement of the carrying amount of assets and liabilities, with the exception of items that have
a tax base solely derived under capital gains tax legislation, using tax rates enacted or substantively enacted at
period end. To the extent that an item’s tax base is solely derived from the amount deductible under capital gains
tax legislation, deferred tax is determined as if such amounts are deductible in determining future assessable
income.
The carrying amount of deferred income tax assets is reviewed at each statement of financial position date and
reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or
part of the deferred income tax asset to be utilized. To the extent that an asset not previously recognized fulfils
the criteria for recognition, a deferred income tax asset is recorded.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in
which the asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively
enacted at the statement of financial position date.
Current and deferred taxes relating to items recognized in other comprehensive income or directly in equity are
recognized in other comprehensive income or equity and not in the income statement. Mining taxes and royalties
are treated and disclosed as current and deferred taxes if they have the characteristics of an income tax.
Judgements are required about the application of income tax legislation. These judgements and assumptions are
subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations,
which may impact the amount of deferred tax assets and deferred tax liabilities recognized on the statement of
financial position and the amount of other tax losses and temporary differences not yet recognized. In such
circumstances, some or the entire carrying amount of recognized deferred tax assets and liabilities may require
adjustment, resulting in a corresponding credit or charge to the income statement.
Deferred tax assets, including those arising from tax losses, capital losses and temporary differences, are
recognized only where it is probable that taxable earnings will be available against which the losses or deductible
temporary differences can be utilized. Assumptions about the generation of future taxable earnings and
repatriation of retained earnings depend on management’s estimates of future cash flows. These depend on
estimates of future production and sales volumes, commodity prices, reserves, operating costs, closure and
decommissioning costs, capital expenditures, dividends and other capital management transactions.
t) 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.
PAN AMERICAN SILVER CORP.
108
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
u) Borrowing costs and upfront costs
Borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets
are capitalized. Qualifying assets are assets that require a substantial amount of time to prepare for their intended
use, including mineral properties in the evaluation stage where there is a high likelihood of commercial
exploitation. Qualifying assets also include significant expansion projects at the operating mines. Borrowing costs
are considered an element of the historical cost of the qualifying asset. Capitalization ceases when the asset is
substantially complete or if construction is interrupted for an extended period. Where the funds used to finance
a qualifying asset form part of general borrowings, the amount capitalized is calculated using a weighted average
of rates applicable to the relevant borrowings during the period. Where funds borrowed are directly attributable
to a qualifying asset, the amount capitalized represents the borrowing costs specific to those borrowings. Where
surplus funds available out of money borrowed specifically to finance a project are temporarily invested, the total
borrowing cost is reduced by income generated from short-term investments of such funds.
Upfront costs incurred in connection with entering new credit facilities are recorded as Other assets and are
amortized over the life of the respective credit facilities.
4. CHANGES IN ACCOUNTING STANDARDS
New and amended IFRS standards that are effective for the current year
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16 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 for lessees 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 less than 12 months in duration 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 has applied IFRS 16 using the modified retrospective approach from January 1, 2019 and has elected
to record the transition date right-of-use assets at amounts equal to the present value of the minimum lease
payments, on a lease by lease basis. Short-term and low-value recognition exemptions were applied, as well as
certain practical expedients allowing for the use of hindsight to assess the lease term for contracts with extension
options, the exclusion of initial direct costs from measurement of the Right-of-Use-Assets ("ROU Assets") and the
exclusion of leases with a term of less than one year remaining at the transition date.
Policy applicable from January 1, 2019
Lease Definition
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or
contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. An identified asset may be implicitly or explicitly specified in a contract, but must be physically
distinct, and must not have the ability for substitution by a lessor. The Company has the right to control an
identified asset if it obtains substantially all of its economic benefits and either pre-determines, or directs how and
for what purpose the asset is used.
Measurement of ROU Assets and Lease Obligations
At lease commencement, the Company recognizes a ROU Asset and a lease obligation. The ROU Asset is initially
measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments
PAN AMERICAN SILVER CORP.
109
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
made at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives
received.
The ROU Asset is subsequently amortized on a straight-line basis over the shorter of the term of the lease, or the
useful life of the asset determined on the same basis as the Company’s property, plant and equipment. The ROU
Asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease
obligation.
The lease obligation is initially measured at the present value of lease payments remaining at the lease
commencement date, discounted using the Company’s incremental borrowing rate. Lease payments included in
the measurement of the lease obligation, when applicable, may comprise fixed payments, variable payments that
depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise
price under a purchase, extension or termination option that the Company is reasonably certain to exercise.
The lease obligation is subsequently measured at amortized cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a
change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if
the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease obligation is remeasured, a corresponding adjustment is made to the carrying amount of the ROU
Asset.
Recognition Exemptions
The Company has elected not to recognize ROU Assets and lease obligations for short-term leases that have a lease
term of twelve months or less or for leases of low-value assets. Payments associated with these leases are
recognized as an operating expense on a straight-line basis over the lease term within costs and expenses on the
consolidated income statement.
Leases
The Company’s leased assets include land, buildings, vehicles, and machinery and equipment with a carrying value
of $45.8 million at December 31, 2019. Effective January 1, 2019, the Company adopted IFRS 16 as outlined in Note
18, recognizing $21.4 million of ROU assets, $18.9 million of lease obligations and deferred tax assets/liabilities of
$nil.
New and amended IFRS standards not yet effective
New accounting standards and interpretations have been published that are not mandatory for the current period
and have not been early adopted. These standards are not expected to have a material impact on the Company.
5. 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:
a) 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 13. 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.
PAN AMERICAN SILVER CORP.
110
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
b) 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.
c) 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.
d) 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.
e) 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.
f) 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 14).
g) Deferral of stripping costs
In determining whether stripping costs incurred during the production phase of a mining property relate to mineral
reserves that will be mined in a future period and therefore should be capitalized, the Company treats the costs
of removal of the waste material during a mine’s production phase as deferred, where it gives rise to future
benefits. These capitalized costs are subsequently amortized on a unit of production basis over the reserves that
directly benefit from the specific stripping activity. As at December 31, 2019, the carrying amount of Dolores and
La Arena capitalized stripping costs was $57.5 million and $19.9 million, respectively (2018 - $57.0 million and
$nil, respectively).
PAN AMERICAN SILVER CORP.
111
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
h) 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 ("Common 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, 2019, the carrying amount of the deferred
credit arising from the Aquiline acquisition was $20.8 million (2018 - $20.8 million).
6. 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 recognized when control
of the asset sold is transferred to the customer. The Company's concentrate sales contracts with third-party
buyers, 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. 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 control 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 and estimated quantities. 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 date when control is transferred to the buyer and the actual final
price set under the smelting contracts are caused by changes in metal prices resulting in the receivable being
recorded at FVTPL. 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.
PAN AMERICAN SILVER CORP.
112
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
• 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 11 for details.
• 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 13.
• 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 17 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.
PAN AMERICAN SILVER CORP.
113
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
• Accounting for acquisitions: The 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, discount rates, and the timing of the commencement of commercial production.
Changes to the provisional values of assets acquired and liabilities assumed, deferred income taxes and resulting
goodwill, if any, are retrospectively adjusted when the final measurements are determined 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.
7. 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 $2.5 billion as at December 31, 2019 (2018 - $1.5 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 objective with
respect to capital risk management remains unchanged from the year ended December 31, 2018.
PAN AMERICAN SILVER CORP.
114
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
8. TAHOE ACQUISITION
On February 22, 2019, the Company completed the acquisition of 100% of the issued and outstanding shares of Tahoe
(the "Tahoe Acquisition"). Each Tahoe shareholder had the right to elect to receive either $3.40 in cash (the "Cash
Election") or 0.2403 of a Common Share (the "Share Election") for each Tahoe share, subject in each case to pro-
ration based on a maximum cash consideration of $275 million and a maximum number of Common Shares issued
of 56.0 million. Tahoe shareholders who did not make an election by the election deadline were deemed to have
made the Share Election. Holders of 23,661,084 Tahoe shares made the Cash Election and received all cash
consideration in the amount of $3.40 per Tahoe share. The holders of 290,226,406 Tahoe shares that made or were
deemed to have made, the Share Election were subject to pro-ration, and received consideration of approximately
$0.67 in cash and 0.1929 of a Common Share per Tahoe share.
In addition, Tahoe shareholders received contingent consideration in the form of one CVR for each Tahoe share. Each
CVR will be exchanged for 0.0497 of a Common Share upon the first commercial shipment of concentrate following
restart of operations at the Escobal mine (the "First Shipment"). The CVRs are transferable and have a term of 10
years. The First Shipment contingency is a discrete event upon which a fixed number of Common Shares will be
issued. As there is no variability in the number of shares to be issued if the contingency is met, the Company has
concluded that the CVR consideration meets the ‘fixed-for-fixed’ requirement in IAS 32 - Financial Instruments:
Presentation. As such the CVRs are classified as a component of equity, recognized initially at fair value with no
remeasurement, and any subsequent settlement to be accounted for within equity.
As a result of the Tahoe Acquisition, the Company paid $275 million in cash, issued 55,990,512 Common Shares, and
issued 313,887,490 CVRs. After this share issuance, Pan American shareholders owned approximately 73%, while
former Tahoe shareholders owned approximately 27% of the shares of the combined company. The Company has
determined that this transaction represents a business combination with Pan American identified as the acquirer.
Based on the February 21, 2019 closing share price of Common Shares, the total consideration of the Tahoe Acquisition
is $1.1 billion. The Company began consolidating the operating results, cash flows and net assets of Tahoe from
February 22, 2019 onwards.
Tahoe was a mid-tier publicly traded precious metals mining company with ownership interests in a diverse portfolio
of mines and projects including the following principal mines: Timmins West and Bell Creek in Canada; La Arena and
Shahuindo in Peru; and Escobal in Guatemala (the "Acquired Mines"). The Escobal mine's operations have been
suspended since June 2017.
The Company reported its initial accounting for the Tahoe Acquisition during the first quarter of 2019 and had a
measurement period of up to one year from the acquisition date to adjust any provisional amounts recognized and
to recognize new assets and liabilities as a result of new information obtained which existed at the acquisition date.
As a result, the Company recorded a deferred tax asset with most significant adjustments made to the deferred tax
liabilities and mineral property during the fourth quarter of 2019. The bargain purchase gain recognized on the
acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the first quarter's
results as a result of changes in the assessed fair values of assets acquired.
Since acquisition on February 22, 2019, the assets acquired from Tahoe contributed revenue of $565.4 million and
pre-tax net income of $124.5 million for the year ended December 31, 2019. Had the transaction occurred January
1, 2018, Tahoe would have contributed revenue of $644.3 million and pre-tax net income of $125.5 million for the
year ended December 31, 2019. Acquisition-related costs of $7.5 million were expensed during the year ended
December 31, 2019 and were presented as transaction and integration costs.
PAN AMERICAN SILVER CORP.
115
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The following table summarizes the consideration paid as part of the purchase price:
Consideration:
Fair value estimate of the Pan American Share consideration (1)
Fair value estimate of the CVRs (2)
Cash (1)
Fair value estimate of replacement options (3)
Total Consideration
Shares Issued/
Issuable
Consideration
55,990,512 $
15,600,208
—
835,874
72,426,594 $
795,626
71,916
275,008
124
1,142,674
(1) The Pan American Share consideration value is based on an assumed value of $14.21 per share (based on the NASDAQ closing price on February 21, 2019).
(2) Assumed fair value of the CVRs is based on the residual amount of the value of the Tahoe Shares acquired (based on the NYSE closing price closing of $3.64
on February 21, 2019) after deducting the cash consideration of $275 million and the fair value of the Company's share consideration paid (based on the
February 21, 2019 NASDAQ closing price of $14.21).
(3) Assumed fair value of 3.5 million Tahoe options that upon the Tahoe Acquisition vested and converted into 835.8 thousand Pan American stock options
(the "Replacement options"). The fair value of the Replacement options was determined using the Black-Scholes option pricing model, as at the Tahoe
Acquisition date, using the following assumptions:
Share price at February 21, 2019 (Canadian dollars, "CAD")
Exercise price
Expected volatility
Expected life (years)
Expected dividend yield
Risk-free interest rate
Fair value (CAD)
CAD to USD exchange rate at December 31, 2018
Fair value (USD)
$
$
$
$
$
19.01
11.67 - 97.26
0.4075
0.2 - 1.0
0.78%
0.93%
163,273.36
0.7578
123,729.43
The following table summarizes the preliminary and final allocation of the purchase price to the identifiable assets
and liabilities based on their estimated fair values at the date of the Tahoe Acquisition:
Total purchase consideration paid for Tahoe
Cash and cash equivalents
Accounts receivable
VAT Receivable
Inventory
Other current assets
Mineral properties, plant and equipment
Other assets
Deferred tax assets
Accounts payable and accrued liabilities
Debt
Provision for closure and decommissioning liabilities
Net current and deferred income tax liabilities
Fair value of Tahoe net assets acquired
Bargain purchase gain recognized in net earnings on February 22, 2019
Preliminary
as reported
March 31, 2019
Adjustments
Final
as reported
December 31, 2019
$
$
$
$
1,142,674 $
27,529 $
17,854
87,268
152,534
4,135
1,298,037
3,450
—
(159,675)
(125,000)
(70,119)
(62,847)
1,173,166 $
— $
— $
300
224
(4,325)
(2,754)
(58,635)
3,101
30,728
10,933
—
(7,201)
(2,863)
(30,492) $
1,142,674
27,529
18,154
87,492
148,209
1,381
1,239,402
6,551
30,728
(148,742)
(125,000)
(77,320)
(65,710)
1,142,674
30,492 $
(30,492) $
—
We primarily used discounted cash flow models (being the net present value of expected future cash flows) to
determine the fair value of the mining interests. Expected future cash flows are based on the timing of commencement
of commercial production and estimates of quantities of ore reserves and mineral resources, including expected
conversions of resources to reserves, expected future production costs, and capital expenditures based on the life of
PAN AMERICAN SILVER CORP.
116
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
mine plans for the acquired mines as at the acquisition date. The discounted future cash flow models used discount
rates with rates applied to the acquired mines ranging from 5% to 9%, depending on the Company’s assessment of
country risk, project risk, and other potential risks specific to the acquired mining interest. Further, the discounted
cash flow models were based on the following estimated future metal prices:
Commodity Prices
Gold price - $/oz.
Silver price - $/oz
Zinc - $/tonne
Lead - $/tonne
9. FINANCIAL INSTRUMENTS
a) Financial assets and liabilities by categories
December 31, 2019
Financial Assets:
Cash and cash equivalents
Trade receivables from provisional concentrates sales (1)
Receivable not arising from sale of metal concentrates (1)
Short-term investments, equity securities
Short-term investments, other than equity securities
Derivative financial assets
Financial Liabilities:
Derivative financial liabilities
(1)
Included in Trade and other receivables.
December 31, 2018
Financial Assets:
Cash and cash equivalents
Trade receivables from provisional concentrates sales (1)
Receivable not arising from sale of metal concentrates (1)
Short-term investments, equity securities
Short-term investments, other than equity securities
Derivative financial assets
Financial Liabilities:
Derivative financial liabilities
(1)
Included in Trade and other receivables.
2019-2022
$1,300
$17.07
$2,599
$2,171
2023 onwards
$1,300
$18.50
$2,600
$2,200
Amortized
cost
FVTPL
FVTOCI
Total
120,564
—
116,596
—
—
—
237,160
$
$
— $
48,767
—
117,776
—
1,272
167,815
$
— $
— $
— $
— $
— $
—
—
—
—
—
— $
— $
— $
120,564
48,767
116,596
117,776
—
1,272
404,975
—
—
Amortized
cost
FVTPL
FVTOCI
Total
138,510
—
40,918
—
—
—
179,428
$
$
— $
— $
— $
40,803
—
19,178
—
640
60,621
51
51
$
$
$
— $
—
—
—
54,826
—
54,826
$
138,510
40,803
40,918
19,178
54,826
640
294,875
— $
— $
51
51
$
$
$
$
$
$
$
$
PAN AMERICAN SILVER CORP.
117
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
b) Short-term investments in equity securities recorded at FVTPL
The Company’s short-term investments in equity securities are recorded at FVTPL for the year ended December 31,
2019 and 2018. Net gains (losses) on short-term investments recorded at FVTPL were as follows:
Unrealized net gains (losses) on short-term investments, equity securities
Realized net losses on short-term investments, equity securities
2019
83,705
—
83,705
$
$
$
$
2018
(3,298)
(49)
(3,347)
c) Financial assets recorded at FVTOCI
The Company’s short-term investments other than equity securities are recorded at FVTOCI. The unrealized gains
from short-term investments other than equity securities for the year ended December 31, 2019 and 2018 were as
follows:
Unrealized net gains on short-term investments, other than equity securities
Reclassification adjustment for realized gains on short-term investments, other than equity securities
2019
— $
(208)
(208) $
2018
993
(788)
205
$
$
d) Derivative instruments
The Company's derivative financial instruments are comprised of foreign currency and commodity contracts. The
net gains (losses) on derivatives for the year ended December 31, 2019 and 2018 were comprised of the following:
Gains on foreign currency and commodity contracts:
Realized gains on foreign currency and commodity contracts
Unrealized gains on foreign currency and commodity contracts
Loss on derivatives:
Loss on warrants
e) Fair value information
i)
Fair Value Measurement
2019
2,669
646
3,315
$
$
2018
2,449
2,481
4,930
(14) $
(14) $
(1,078)
(1,078)
$
$
$
$
The categories of the fair value hierarchy that reflect the inputs to valuation techniques used to measure fair value
are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly; and
Level 3: Inputs for the asset or liability based on unobservable market data
PAN AMERICAN SILVER CORP.
118
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and
recognized on the Consolidated Statements of Financial Position at fair value on a recurring basis were categorized
as follows:
Assets and Liabilities:
Short-term investments
Trade receivables from provisional concentrate sales
Derivative financial assets
Derivative financial liabilities
At December 31, 2019
Level 2
Level 1
At December 31, 2018
Level 2
Level 1
$
$
117,776
—
—
—
117,776
$
$
— $
48,767
1,272
—
50,039
$
74,004
—
—
—
74,004
$
$
—
40,803
640
(51)
41,392
There were no transfers between Level 1 and Level 2 during the year ended December 31, 2019. 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, 2018.
ii)
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 assets and liabilities
The Company’s derivative assets and liabilities were comprised of investments in warrants, commodity swaps and
foreign currency contracts. The fair value of the warrants is calculated using an option pricing model which utilizes
a combination of quoted prices and market-derived inputs. The Company's commodity swaps and foreign currency
contracts are valued using observable market prices. Derivative instruments are classified within Level 2 of the fair
value hierarchy.
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 for copper, zinc and lead and the London Bullion Market
Association P.M. fix for gold and silver.
f) Financial Instruments and related risks
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:
i) Credit risk
ii) Liquidity risk
iii) Market risk
1. Currency risk
2. Interest rate risk
3. Price 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.
119
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
i)
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, 2019, the Company had receivable balances
associated with buyers of its concentrates of $48.8 million (2018 - $40.8 million) and receivable balances associated
with buyers of its doré of $17.5 million (2018 - $nil). The vast majority of the Company’s concentrate is sold to six
well-known concentrate buyers.
Doré production from Shahuindo, La Arena, Timmins, 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, 2019, the Company had
approximately $58.2 million (2018 - $19.7 million) of value contained in precious metal inventory at refineries. The
Company maintains insurance coverage against the loss of precious metals at the Company’s mine sites, in-transit
to refineries and whilst at the refineries.
The Company maintains trading facilities with several banks and bullion dealers for the purposes of transacting the
Company’s trading activities. None of these facilities are subject to margin arrangements. The Company’s trading
activities can expose the Company to the credit risk of its counterparties to the extent that 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.
Refined silver and gold are sold in the spot market to various bullion traders and banks. Credit risk may arise from
this activity 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, 2019, the Company had made $3.4 million
(2018 - $14.4 million) of supplier advances, which are reflected in “Trade and other receivables” on the Company’s
consolidated statement of financial position.
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, 2019, the Company has recorded a loss allowance for expected credit losses in the amount of $7.6
million (2018 – $7.6 million) which relates to trade receivables 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.
At December 31, 2019, the Company has also recorded a loss allowance for expected credit losses in the amount
of $4.7 million (2018 - $4.7 million) which relates to amounts owning from Republic Metals, one of the buyers of
doré, for deliveries that occurred in 2018.
PAN AMERICAN SILVER CORP.
120
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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
Trade accounts receivable (1)
Supplier advances
Royalty receivable (1)
Employee loans (1)
(1)
Included in Trade and other receivables.
December 31,
2019
December 31,
2018
$
$
120,564
66,230
3,391
121
392
138,510
40,803
14,370
105
312
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.
ii)
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.
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:
Payments due by period 2019
Within 1
year
2 - 3 years
4- 5 years
After 5
years
Total
Financial liabilities
Accounts payable and accrued liabilities other than:
Severance accrual
Employee compensation
Total accounts payable and accrued liabilities
Debt
Credit facility
Interest
Provisions(1)(2)
Income taxes payable
Lease obligations
Future employee compensation
Total contractual obligations(2)
$
221,488
$
— $
— $
— $
221,488
994
2,848
225,330
—
12,952
3,979
24,770
16,221
1,444
284,696
$
$
5,967
—
5,967
—
27,040
633
—
15,906
8,711
58,257
$
772
—
772
275,000
—
1,350
—
7,193
—
284,315
$
109
—
109
—
—
967
—
21,675
—
22,751
$
7,842
2,848
232,178
275,000
39,992
6,929
24,770
60,995
10,155
650,019
PAN AMERICAN SILVER CORP.
121
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Payments due by period 2018
Within 1
year
2 - 3 years
4- 5 years
After 5
years
Total
Financial liabilities
Accounts payable and accrued liabilities other than:
Severance accrual
Employee compensation
Total accounts payable and accrued liabilities
Debt
Interest
Loss on commodity contracts
Provisions(1)(2)
Income taxes payable
Capital and operating expenditure commitments
Future employee compensation
Total contractual obligations(2)
$
128,486
$
— $
— $
— $
128,486
1,791
1,466
131,743
1,200
51
3,123
8,306
7,947
1,530
153,900
$
$
3,763
—
3,763
350
—
547
—
7,898
4,911
17,469
$
534
—
534
—
—
720
—
2,885
—
4,139
$
112
—
112
—
—
178
—
530
—
820
$
6,200
1,466
136,152
1,550
51
4,568
8,306
19,260
6,441
176,328
(1) Total litigation provision (Note 17).
(2) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current $3.4 million, long-term
$185.1 million) discussed in Note 17 (2018 - current $1.9 million, long-term $68.6 million), the deferred credit arising from the Aquiline acquisition ($20.8
million) (2018 - $20.8 million) discussed in Note 20, and deferred tax liabilities of $176.8 million (2018 - $148.8 million).
The increase in the Company's exposure to liquidity risk during the year ended December 31, 2019 were due
primarily to the draw on the credit facility to finance the Tahoe Acquisition (Note 8) and the obligations acquired.
iii) Market Risk
1.
Currency 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 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.
As at December 31, 2019, Pan American had outstanding positions on $12.0 million in foreign currency
exposure of Mexican peso ("MXN") purchases, $60.0 million of Peruvian sol ("PEN") purchases, and $30.0
million of Canadian dollar ("CAD") purchases. MXN purchases had put rates of 19.50 and call rates ranging
from $20.82 to $21.59 expiring between January 2020 and December 2020. PEN purchases had put rates
of $3.35 and call rates ranging from $3.40 to $3.55 expiring between January 2020 and December 2020.
And, CAD purchases had put rates of $1.30 and call rates of $1.37 expiring between January 2020 and
December 2020.
For the year ended December 31, 2019, the Company recorded gains of $1.0 million (2018 - gains of $0.7
million), $0.7 million (2018 - $nil), and $0.3 million (2018 - $nil) on MXN, PEN, and CAD derivative contracts,
respectively.
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, 2019 non-USD net
monetary liabilities were denominated would result in an income before taxes change of about $5.1 million
(2018 - $14.3 million).
PAN AMERICAN SILVER CORP.
122
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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
$
$
123,391
5,222
3,652
3,447
3
2,406
353
138,474
$
$
3,897
14,215
18,511
221
—
55,851
1,482
94,177
$
$
2,045
7,645
13,737
1,524
—
(14,660)
(238)
10,053
$
$
(23,387) $
(64,589)
(16,143)
(8,749)
—
(39,884)
(669)
(153,421) $
23,640
(73,938)
—
(9,925)
—
(80,138)
1
(140,360)
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
$
$
22,514
2,724
2,677
285
127
1,268
29,595
$
$
1,793
18,873
15,038
532
—
2,324
38,560
$
$
— $
7,240
1,134
(6,068)
(332)
2,640
4,614
$
(851) $
(31,909)
(18,739)
(12,167)
—
(13,134)
(76,800) $
—
(106,383)
—
(9,372)
—
(23,004)
(138,759)
At December 31, 2019
Canadian Dollar
Mexican Peso
Argentine Peso
Bolivian Boliviano
European Euro
Peruvian Sol
Guatemala quetzal
At December 31, 2018
Canadian Dollar
Mexican Peso
Argentine Peso
Bolivian Boliviano
European Euro
Peruvian Sol
2.
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. The average interest rate earned by the Company during the year ended
December 31, 2019 on its cash and short-term investments was 0.6% (2018 - 0.9%). A 10% increase or
decrease in the interest earned from financial institutions on cash and short-term investments would result
in a $0.1 million increase or decrease in the Company’s before tax earnings (2018 – $0.2 million).
At December 31, 2019, the Company has $275.0 million in amounts drawn on its secured revolving credit
facility (the "Credit Facility"), which had an average interest rate of 4.3%. There were no amounts drawn
on the Credit Facility in 2018.
At December 31, 2019, the Company has $41.2 million in lease obligations (2018 - $6.7 million), that are
subject to an annualized interest rate of 9.7% (2018 - 2.2%).
3.
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 precious metal prices, the Company’s current policy is to not hedge the price
of precious metal.
PAN AMERICAN SILVER CORP.
123
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
A 10% increase in all metal prices as at December 31, 2019, would result in an increase of approximately
$139.1 million (2018 – $81.2 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 $140.1 million (2018 - $82.7 million) in the
Company’s revenues. The Company also enters into provisional concentrate contracts to sell the zinc, lead
and copper concentrates. We have provisionally priced sales for which price finalization, referenced to the
relevant zinc, lead, copper and silver index, is outstanding at the balance sheet date. A 10% increase in
metals prices on open positions of zinc, lead, copper and silver for provisional concentrate contracts for
the year ended December 31, 2019 would result in an increase of approximately $6.4 million (2018 - $6.2
million) in the Company’s before tax earnings, which would be reflected in 2019 results. A 10% decrease
in metal prices for the same period would result in a decrease of approximately $6.4 million (2018 - $6.2
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, 2019, the Company had no outstanding contracts to sell base metals
production.
10. SHORT-TERM INVESTMENTS
December 31, 2019
December 31, 2018
Fair
Value
Cost
Accumulated
unrealized
holding gains
Fair Value
Cost
Accumulated
unrealized
holding gains
Short-term investments
$
117,776
$
36,826
$
80,950
$
74,004
$
73,796
$
208
11. INVENTORIES
Inventories consist of:
Concentrate inventory
Stockpile ore (1)
Heap leach inventory and in process (2)
Doré and finished inventory (3)
Materials and supplies
Total inventories
Less: current portion of inventories
Non-current portion of inventories (4)
December 31,
2019
December 31,
2018
$
$
$
$
$
17,433
27,708
169,751
67,820
88,004
370,716
$
(346,507) $
24,209
$
19,286
3,945
113,199
30,736
47,299
214,465
(214,465)
—
(1)
(2)
(3)
(4)
Includes an impairment charge of $5.0 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines (2018 – $11.2 million
at Manantial Espejo mine).
Includes an impairment charge of $39.3 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines (2018 - $28.9 million
at Manantial Espejo and Dolores mines).
Includes an impairment charge of $2.9 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines at December 31, 2019.
(2018 - $7.5 million at Manantial Espejo mine).
Inventories at Escobal mine, which include $16.9 million in supplies with the remainder attributable to metals, have been classified as non-current pending
the restart of operations.
The costs of inventories recognized as expense for the year ended December 31, 2019 amounted to $1.1 billion (2018
– $683.6 million), of which $841.3 million (2018 – $515.6 million) and $253.5 million (2018 – $147.3 million) were
included in production costs and depreciation and depletion in the Consolidated Income Statements, respectively.
PAN AMERICAN SILVER CORP.
124
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
During the year ended December 31, 2019 a $0.4 million NRV recovery (2018 - $24.3 million NRV loss) was recognized,
primarily driven by increased production costs, and included in production costs (Note 22). Inventories held at NRV
amounted to $151.5 million (2018 - $143.6 million).
A portion of the stockpile ore amounting to $1.2 million (2018 - $2.5 million) and a portion of the heap leach inventory
amounting to $74.5 million (2018 - $75.3 million) are expected to be recovered or settled after more than twelve
months.
12. 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, 2019
Net of accumulated depreciation
Additions
Tahoe acquisition (Note 8)
Disposals
Depreciation and amortization
Depreciation charge captured in inventory
Impairment charge
Transfers
Closure and decommissioning – changes in
estimate (Note 17)
As at December 31, 2019
Cost as at December 31, 2019
Accumulated depreciation and impairments
Carrying value – December 31, 2019
Mining Properties
Depletable
Non-depletable
Reserves
and Resources
Reserves
and Resources
Exploration
and
Evaluation
Plant and
Equipment
Total
$
$
$
$
$
678,489
152,033
314,604
(2,461)
(113,067)
(33,810)
—
(77,598)
32,562
$
73,375
42,487
274,817
(13)
—
—
(33,245)
(25,872)
$
249,231
549
194,900
—
—
—
(6,805)
13,051
$
299,907
68,664
455,080
(2,010)
(140,386)
—
—
90,419
1,301,002
263,733
1,239,401
(4,484)
(253,453)
(33,810)
(40,050)
—
—
—
—
32,562
950,752
$
331,549
$
450,926
$
771,674
$
2,504,901
2,429,815
(1,479,063)
950,752
$
$
398,485
(66,936)
331,549
$
$
876,859
(425,933)
450,926
$
$
1,476,170
(704,496)
771,674
$
$
5,181,329
(2,676,428)
2,504,901
PAN AMERICAN SILVER CORP.
125
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for 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
$
$
$
$
$
766,883
106,701
—
(68,935)
(12,620)
(2,144)
(115,726)
$
71,809
25,423
(396)
—
—
(25,113)
1,652
$
253,128
—
—
—
—
—
(3,897)
$
244,863
16,896
(937)
(78,354)
—
(532)
117,971
1,336,683
149,020
(1,333)
(147,289)
(12,620)
(27,789)
—
4,330
—
—
—
4,330
678,489
$
73,375
$
249,231
$
299,907
$
1,301,002
1,997,880
(1,319,391)
678,489
$
$
104,614
(31,239)
73,375
$
$
668,358
(419,127)
249,231
$
$
939,993
(640,086)
299,907
$
$
3,710,845
(2,409,843)
1,301,002
Carrying value
As at January 1, 2018
Net of accumulated depreciation
Additions
Disposals
Depreciation and amortization
Depreciation charge captured in inventory
Impairment charge
Transfers
Closure and decommissioning – changes in
estimate (Note 17)
As at December 31, 2018
Cost as at December 31, 2018
Accumulated depreciation and impairments
Carrying value – December 31, 2018
PAN AMERICAN SILVER CORP.
126
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
December 31, 2019
Accumulated
Depreciation
and
Impairment
Cost
Carrying
Value
Cost
December 31, 2018
Accumulated
Depreciation
and
Impairment
Carrying
Value
$
$
$
$
$
215,109
258,862
498,960
112,014
71,724
305,357
1,608,334
371,677
143,251
292,986
27,711
3,905,985
5,528
566,577
249,353
87,747
15,586
117,000
83,079
15,544
7,213
95,851
31,866
1,275,344
$
(126,301) $
(164,501)
(39,668)
(22,853)
(71,724)
(143,232)
(1,091,862)
(367,901)
(95,360)
(42,672)
(17,485)
$ (2,183,559) $
88,808
94,361
459,292
89,161
—
162,125
516,472
3,776
47,891
250,314
10,226
1,722,426
$
(1,267) $
(376,101)
—
—
—
—
(36,975)
—
—
(66,859)
(11,667)
(492,869) $
$
4,261
190,476
249,353
87,747
15,586
117,000
46,104
15,544
7,213
28,992
20,199
782,475
5,181,329
$ (2,676,428) $
2,504,901
$
$
$
$
$
207,360
243,603
—
—
126,960
301,706
1,529,751
367,105
137,394
—
23,994
2,937,873
4,677
566,577
—
—
—
—
91,362
—
9,674
69,774
30,908
772,972
$
(114,288) $
(149,120)
—
—
(126,960)
(121,940)
(981,948)
(362,293)
(86,663)
—
(16,265)
$ (1,959,477) $
$
(1,096) $
(376,101)
—
—
—
—
(36,975)
—
—
(24,939)
(11,255)
(450,366) $
$
93,072
94,483
—
—
—
179,766
547,803
4,812
50,731
—
7,729
978,396
3,581
190,476
—
—
—
—
54,387
—
9,674
44,835
19,653
322,606
3,710,845
$ (2,409,843) $
1,301,002
Huaron, Peru
Morococha, Peru
Shahuindo, Peru (1)
La Arena, Peru (1)
Alamo Dorado, Mexico
La Colorada, Mexico
Dolores, Mexico
Manantial Espejo, Argentina
San Vicente, Bolivia
Timmins, Canada (1)
Other
Total
Land and Non-Producing Properties:
Land
Navidad, Argentina
Escobal, Guatemala (1)
Timmins, Canada (1)
Shahuindo, Peru (1)
La Arena, Peru (1)
Minefinders, Mexico
La Colorada, Mexico
Morococha, Peru
Projects, Argentina (2)
Other
Total non-producing properties
Total mineral properties, plant and
equipment
(1) Acquired as part of the Tahoe Acquisition (Note 8).
(2) Comprised of the Joaquin and COSE projects.
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 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 received on May 18, 2018, as scheduled. During the year ended
December 31, 2018, the Company recorded a gain of $8.0 million ($6 million, net of tax expense) on the sale of
Calcatreu included in gain on sale of mineral properties, plant and equipment.
PAN AMERICAN SILVER CORP.
127
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
13. IMPAIRMENT OF NON-CURRENT ASSETS
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 CGU level. The Company’s CGUs are its
mine sites, represented by its principal producing mining properties and significant development projects. 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.
Impairment charges
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, 2019, impairment charges
totaling $40.1 million (2018 - charges of $27.8 million) were required on Manantial Espejo.
2019 Impairment - Manantial Espejo
A recent increase in Argentina export taxes, announced in January 2020, combined with the delayed commencement
of production from the COSE and Joaquin deposits, and the deteriorated Argentina economy led management to
conclude that there was an indication of impairment to its Argentine operating assets, namely the Manantial Espejo
mine, and the COSE and Joaquin projects. As at December 31, 2019, the Company determined that the combined
CGU carrying amount of the Manantial Espejo mine and the Joaquin and COSE development projects, including mineral
properties, plant and equipment, and stockpile inventories, net of associated closure and decommissioning liabilities
of $63.6 million was higher than the combined estimated recoverable amount of $23.5 million when using a 9.75%
risk adjusted discount rate. Based on this assessment, the Company recorded an impairment charge related to the
Manantial Espejo mineral property, and the COSE and Joaquin projects, of $40.1 million ($40.1 million, net of tax).
2018 Impairment - Manantial Espejo
The decrease in short term analyst consensus silver prices and the introduction of an export tax of three to four
Argentine pesos per Dollar of export in September 2018, led management to conclude that there was an indication
of impairment to its operating assets in Argentina, namely the Manantial Espejo mine, and the COSE and Joaquin
projects. As at December 31, 2018, the Company determined that the combined CGU carrying amount of the
Manantial Espejo mine and the Joaquin and COSE development projects, including mineral properties, plant and
equipment, and stockpile inventories, net of associated closure and decommissioning liabilities of $68.1 million was
greater than the combined estimated recoverable amount of $39.3 million when using a 7.25% risk adjusted discount
rate. Based on this assessment, the Company recorded an impairment charge related to the Manantial Espejo mineral
property, and the COSE and Joaquin projects, of $27.8 million ($27.8 million, net of tax).
Key assumptions and sensitivity
The metal prices used to calculate the recoverable amounts at December 31, 2019, and December 31, 2018 are based
on analyst consensus prices and the Company’s long term reserve prices, and are summarized in the following tables.
PAN AMERICAN SILVER CORP.
128
Metal prices used at December 31, 2019:
Metal Prices
Silver price - $/oz.
Gold price - $/oz.
Metal prices used at December 31, 2018:
Metal Prices
Silver price - $/oz.
Gold price - $/oz.
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
2020-2022 average
$17.94
$1,474
2019-2022 average
$17.07
$1,300
In 2019, 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 3.7% (2018 – 5.3%), with rates applied to the
various mines and projects ranging from 4.0% to 12.3% (2018 - 4.5% to 9.8%), 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, 2019, the Company
performed a sensitivity analysis on all key assumptions that assumed a 10% adverse change to each individual
assumption while holding the other assumptions constant.
At December 31, 2019, 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 Shahuindo, La Arena, Timmins, 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 10% adverse change in any
one key assumption would reduce the recoverable amount below the carrying amount.
At December 31, 2018, 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 10% adverse change in any one key assumption would reduce the
recoverable amount below the carrying amount.
14. INVESTMENT IN ASSOCIATES
The following table shows a continuity of the Company's investment in Maverix and its investment in other associates:
Balance of investment in Maverix, December 31,
Dilution gains (1)
Income in associate
Balance of investment in Maverix, December 31,
Balance of investment in other (2)
$
$
$
$
$
2019
69,116
13,438
1,765
84,319
$
— $
$
84,319
2018
53,567
15,158
391
69,116
1,450
70,566
Includes adjustment for change in ownership interest.
(1)
(2) The Company sold its interest in an equity investee for $5 million in May 2019 resulting in a gain of $3.6 million recorded in gains (losses) on sale of mineral,
properties, plant and equipment on the Consolidated Income Statements.
Investment in Maverix:
The Company's warrant liability representing in substance ownership interest in Maverix was $15.0 million as at
December 31, 2019 (2018 - $14.7 million). The Company's share of Maverix income was recorded based on its fully
diluted ownership which averaged 26% for the year ended December 31, 2019 (2018 - 34%).
PAN AMERICAN SILVER CORP.
129
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 Company will recognize the deferred revenue related to the Streams as revenue as the gold ounces are delivered
to Maverix. As at December 31, 2019, the deferred revenue liability was $12.5 million (December 31, 2018 - $13.3
million).
The Company recognized $0.7 million during the year ended December 31, 2019 (2018 - $0.6 million), for the delivery
of 3,758 ounces (2018 - 3,968 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 Company recognized dilution gains of $13.5 million for the year ended December 31, 2019 (2018 - gains of $13.3
million) recorded in share of loss from associate and dilution gain.
For the year ended December 31, 2019, the Company also recognized its share of income from associate of $1.8
million (2018 - $0.4 million income), which represents the Company's proportionate share of Maverix's income (loss)
during the year.
15. GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of:
Goodwill
Other assets
16. ACCOUNTS PAYABLE
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
Refundable tax payable
Other taxes payable
December 31,
2019
December 31,
2018
$
$
3,057
1,930
4,987
$
$
3,057
2,163
5,220
December 31,
2019
December 31,
2018
$
$
66,924
16,108
59,295
47,221
994
9,844
24,944
225,330
$
$
52,201
2,004
32,896
26,817
1,791
4,044
11,990
131,743
(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.
PAN AMERICAN SILVER CORP.
130
17. PROVISIONS
December 31, 2017
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 24)
December 31, 2018
Revisions in estimates and obligations incurred
Acquired from Tahoe (Note 8)
Charged (credited) to earnings:
-new provisions
-change in estimate
-exchange gains on provisions
Charged in the year
Reclamation expenditures
Accretion expense (Note 24)
December 31, 2019
Maturity analysis of total provisions:
Current
Non-Current
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Closure and
Decommissioning
Litigation
$
$
$
$
65,396
6,516
$
4,097
—
—
—
—
—
(7,849)
6,524
70,587
32,909
77,320
—
—
—
—
(2,264)
9,903
188,455
$
$
1,308
(173)
(253)
(411)
—
—
4,568
—
732
2,551
(252)
(265)
(405)
—
—
6,929
$
$
Total
69,493
6,516
1,308
(173)
(253)
(411)
(7,849)
6,524
75,155
32,909
78,052
2,551
(252)
(265)
(405)
(2,264)
9,903
195,384
December 31,
2019
December 31,
2018
$
$
7,372
188,012
195,384
$
$
5,072
70,083
75,155
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 $290.4 million (2018 - $159.1 million), which has been inflated using
inflation rates of between 0% and 5% (2018 – between 2% and 17%). The total provision for closure and
decommissioning cost is calculated using discount rates of between 2% and 9% (2018 - between 2% and 22%). Revisions
made to the reclamation obligations in 2019 were primarily a result of the newly acquired Tahoe mines, 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 2019 earnings as finance expense was $9.9 million (2018 - $6.5 million). Reclamation
expenditures paid during the current year were $2.3 million (2018 - $7.8 million).
Litigation Provision
The litigation provision, as at December 31, 2019 and 2018, consists primarily of amounts accrued for labour claims
at several of the Company’s mine operations. The balance of $6.9 million at December 31, 2019 (2018 - $4.6 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.
131
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
18. LEASES
a. ROU Assets
The following table summarizes changes in ROU Assets for the year ended December 31, 2019, which have been
recorded in property, plant and equipment on the Consolidated Statements of Financial Position:
Cost
Balance, January 1, 2019 (1)
Additions after January 1, 2019
Assets acquired from Tahoe (Note 8)
Transfer out
Balance, December 31, 2019
Accumulated Depreciation
Balance at January 1, 2019
Amortization
Transfer out
Balance, December 31, 2019
Carrying Amounts
At January 1, 2019
At December 31, 2019
December 31,
2019
$
$
$
$
$
$
$
$
34,983
33,895
8,520
(16,619)
60,779
(4,780)
(17,674)
7,465
(14,989)
30,203
45,790
(1)
Includes $21.4 million in newly recognized ROU assets.
b. Lease obligations
The following table presents a reconciliation of the Company's undiscounted cash flows at December 31, 2019 and
December 31, 2018 to their present value for the Company's lease obligations:
Within one year
Between one and five years
Beyond five years
Total undiscounted lease obligations
Less: future interest charges
Total discounted lease obligations
Less: current portion of lease obligations
Non-current portion of lease obligations
December 31,
2019
December 31,
2018
$
$
$
16,221
23,099
21,675
60,995
(19,787)
41,208
(14,198)
27,010
$
$
$
5,488
1,335
—
6,823
(147)
6,676
(5,356)
1,320
When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at
January 1, 2019. The weighted average rate applied was 9.7% (2018 - 2.2%), which resulted in interest charges of
$3.4 million for the year ended December 31, 2019 (2018 - $0.2 million).
PAN AMERICAN SILVER CORP.
132
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The following table reconciles the Company’s lease commitments disclosed in the consolidated financial
statements as at and for the year ended December 31, 2019, to the lease obligations recognized on initial
application of IFRS 16:
Operating lease commitments at December 31, 2018
Discounted using the incremental borrowing rate at January 1, 2019
Recognition exemptions for short-term and low-value leases
Variable payments not included in lease liabilities
Lease obligations recognized at January 1, 2019 related to operating lease commitments at December 31, 2018
$
$
$
$
$
19,260
(2,819)
(455)
(233)
15,753
19. DEBT
Credit Facility
December 31,
2019
December 31,
2018
$
275,000
$
—
The Company's four-year, $300.0 million secured revolving credit facility, which was due to mature on April 15,
2020, was increased to $400.0 million on February 1, 2019, and increased to $500.0 million on February 22, 2019,
with maturity on February 1, 2023, and resulted in additional upfront costs of $2.0 million. These amendments
were made as part of the Tahoe Acquisition.
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.
The financial covenants required 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. As part of the amendment, after March 31, 2019, the financial
covenants require the Company to maintain a minimum tangible net worth (exclusive of any prospective write-
downs of certain assets) of greater than 70% of its tangible net worth as of March 31, 2019 plus 50% of positive
net income from and including the fiscal quarter ended June 30, 2019. 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, 2019, the Company was in
compliance with all covenants required by the Credit Facility.
At Pan American's option, amounts can be drawn under the revolving facility and will incur interest based on the
Company's leverage ratio at either (i) LIBOR plus 1.875% to 2.750% or; (ii) The Bank of Nova Scotia's Base Rate on
U.S. dollar denominated commercial loans plus 0.875% to 1.750%. Undrawn amounts under the revolving facility
are subject to a stand-by fee of 0.4219% to 0.6188% per annum, dependent on the Company's leverage ratio. The
Credit Facility remained undrawn in 2018. During the year ended December 31, 2019, the Company drew
down $335 million, and repaid $60 million, under the Credit Facility, under LIBOR-based interest rates, to fund, in
part, the cash purchase price for the Tahoe Acquisition and to repay, in full, and cancel Tahoe's second amended
and restated revolving facility, under which $125 million had been drawn.
During the year ended December 31, 2019, the average interest rate incurred by the Company on the Credit
Facility was 4.3%. The Credit Facility was not drawn in 2018. During the year ended December 31, 2019, the
Company incurred $0.9 million (2018 - $1.4 million) in standby charges on undrawn amounts and $11.6 million
(2018 - $nil) in interest on drawn amounts under this Facility.
PAN AMERICAN SILVER CORP.
133
20. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of:
Deferred credit(1)
Other income tax payable
Severance accruals
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
December 31,
2019
December 31,
2018
$
$
20,788
118
6,848
27,754
$
$
20,788
227
4,410
25,425
(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 Common 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.
21. SHARE CAPITAL AND STOCK-BASED COMPENSATION
a. Stock options and Common Shares issued as compensation ("Compensation Shares")
For the year ended December 31, 2019, the total share-based compensation expense relating to stock options and
Compensation Shares was $4.4 million (2018 - $3.0 million) and is presented as a component of general and
administrative expense.
i.
Stock options
During the year ended December 31, 2019, the Company granted 22,788 (2018 – 149,163 stock options) stock
options.
During the year ended December 31, 2019, the Company issued 244,299 common shares (2018 – 125,762 shares)
in connection with the exercise of stock options.
ii. Replacement options
Following completion of the Tahoe Acquisition (Note 8), the Company issued 835,874 replacement options to
eligible Tahoe option holders. These replacement options were fully vested with 12 months of remaining
contractual life upon issuance and various exercise prices between CAD $20.52 and CAD $97.26.
iii. Compensation shares
During the year ended December 31, 2019, 22,335 common shares were issued to Directors in lieu of Directors
fees of $0.2 million (2018 - 10,338 shares in lieu of fees of $0.2 million).
PAN AMERICAN SILVER CORP.
134
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The following table summarizes changes in stock options for the years ended December 31:
As at December 31, 2017
Granted
Exercised
Expired
Forfeited
As at December 31, 2018
Granted
Granted pursuant to the Tahoe Acquisition (Note 8)
Exercised
Expired
Forfeited
As at December 31, 2019
Stock Options
Weighted
Average
Exercise
Price CAD$
16.56
17.53
11.14
24.90
19.49
15.00
26.54
48.47
15.10
58.45
34.00
33.84
Shares
$
936,123
149,163
$
(125,762) $
(211,614) $
(49,523) $
698,387
$
22,788
835,874
$
(244,299) $
(141,604)
(27,798) $
$
1,143,348
The following table summarizes information about the Company's stock options outstanding at December 31,
2019:
Range of Exercise
Prices
CAD$
$9.76 - $23.61
$23.62 - $35.21
$35.22 - $46.53
$46.54 - $54.15
$54.16 - $97.26
Options Outstanding
Options Exercisable
Number
Outstanding as
at December
31, 2019
476,368
150,614
179,488
189,106
147,772
1,143,348
Weighted
Average
Remaining
Contractual
Life
(months)
Weighted
Average
Exercise Price
CAD$
Number
Exercisable as
at December
31, 2019
Weighted
Average
Exercise
Price CAD$
47.33
14.30
4.34
2.05
2.34
22.93
$
$
$
$
$
$
14.96
27.72
41.72
51.60
68.63
33.84
401,790
127,826
179,488
189,106
147,772
1,045,982
$
$
$
$
$
$
14.48
27.94
41.72
51.60
68.63
35.16
The following assumptions were used in the Black-Scholes option pricing model in determining the fair value of
options granted during the years ended December 31:
Expected life
Expected volatility
Expected dividend yield
Risk-free interest rate
Weighted average exercise price (CAD$)
Weighted average fair value (CAD$)
2019
2018
4.0
37.1%
1.0%
2.0%
$
$
26.54
8.34
$
$
4.0
43.8%
2.1%
2.5%
17.53
5.90
PAN AMERICAN SILVER CORP.
135
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
b. PSUs
PSUs are notional share units that mirror the market value of the Company’s Common 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 of Directors
approved the issuance of 75,311 PSUs for 2019 with a share price of CAD $24.88 (2018 - 117,328 PSUs approved at
a share price of CAD $17.48). Compensation expense for PSUs was $2.2 million for the year ended December 31,
2019 (2018 - $1.0 million) and is presented as a component of general and administrative expense.
At December 31, 2019, the following PSUs were outstanding:
PSU
As at December 31, 2017
Granted
Paid out
Forfeited
Change in value
As at December 31, 2018
Granted
Paid out
Forfeited
Change in value
As at December 31, 2019
c. RSUs
Number
Outstanding
166,344
117,328
(73,263)
—
—
210,409
75,311
(38,119)
—
—
247,601
$
$
$
Fair Value
2,611
1,532
(1,528)
—
476
3,091
1,784
(903)
—
1,924
5,896
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 of
Directors and vest in three installments, the first 33.3% vest on the first anniversary date of the grant, the second
33.3% vest on the second anniversary date of the grant, and a further 33.3% vest on the third anniversary date of the
grant. Additionally, RSU value is adjusted to reflect dividends paid on Common Shares over the vesting period.
Compensation expense for RSUs was $2.5 million for the year ended December 31, 2019 (2018 – $1.7 million) and is
presented as a component of general and administrative expense.
At December 31, 2019, the following RSUs were outstanding:
RSU
As at December 31, 2017
Granted
Paid out
Forfeited
Change in value
As at December 31, 2018
Granted
Paid out
Forfeited
Change in value
As at December 31, 2019
Number
Outstanding
262,013
244,961
(156,715)
(21,436)
—
328,823
146,594
(157,584)
(18,617)
—
299,216
$
$
$
Fair Value
4,098
3,207
(2,181)
(313)
(1,187)
3,624
3,891
(3,140)
(441)
3,173
7,107
PAN AMERICAN SILVER CORP.
136
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
d. Issued share capital
The Company is authorized to issue 400,000,000 Common Shares without par value.
e. Dividends
The Company declared the following dividends for the years ended December 31, 2019 and 2018:
Declaration Date
February 19, 2020 (1)
November 6, 2019
August 7, 2019
May 8, 2019
February 20, 2019
November 6, 2018
August 8, 2018
May 9, 2018
February 20, 2018
Record date
March 2, 2020
November 18, 2019
August 19, 2019
May 21, 2019
March 4, 2019
November 19, 2018
August 20, 2018
May 22, 2018
March 5, 2018
Dividend per
common share
$
$
$
$
$
$
$
$
$
0.0500
0.0350
0.0350
0.0350
0.0350
0.0350
0.0350
0.0350
0.0350
(1) These dividends were declared subsequent to the year end and have not been recognized as distributions to owners during the period presented.
22. PRODUCTION COSTS
Production costs are comprised of the following:
Consumption of raw materials and consumables
Employee compensation and benefits expense (1)
Contractors and outside services
Utilities
Other expenses
Changes in inventories (2)
(1) Employee compensation and benefits expense is comprised of:
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
2019
311,812
271,684
117,018
41,674
74,469
24,640
841,297
2019
288,015
4,448
292,463
(16,156)
(4,623)
271,684
$
$
$
$
2018
184,484
167,879
88,475
26,320
31,417
17,061
515,636
2018
181,957
2,957
184,914
(13,919)
(3,116)
167,879
$
$
$
$
(2)
Includes NRV adjustments to inventory to reduce production costs by $0.4 million for the year ended December 31, 2019 (2018 - increase by $24.3 million).
23. INTEREST AND FINANCE EXPENSE
Interest expense (recovery)
Finance fees
Accretion expense (Note 17)
2019
16,879
2,500
9,903
29,282
$
$
$
$
2018
(678)
2,293
6,524
8,139
PAN AMERICAN SILVER CORP.
137
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
24. EARNINGS PER SHARE (BASIC AND DILUTED)
For the year ended December 31,
2019
2018
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
$
$
$
110,738
110,738
—
110,738
201,397
$
174
201,571
$
$
$
0.55
0.55
$
10,294
10,294
—
10,294
153,315
$
0.07
207
153,522
$
0.07
(1) Net earnings attributable to equity holders of the Company.
Potentially dilutive securities excluded in the diluted earnings per share calculation for the year ended December 31,
2019 were 711,662 out-of-the-money options (2018 – 45,705).
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) loss on securities held
Gains on commodity and foreign currency contracts (Note 9)
Loss on derivatives (Note 9)
Loss on inventory
Share of income from associate and dilution gain (Note 14)
Net realizable value adjustment for inventories (Note 22)
Project development write-down
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
Cash and Cash Equivalents
Cash in banks
Short-term money market investments
Cash and cash equivalents
2019
2018
$
$
$
$
$
$
$
4,448
(83,705)
(3,315)
14
—
(15,245)
(356)
1,882
(96,277) $
$
2019
1,545
22,753
(4,093)
(43,527)
(4,622)
(27,944) $
2019
51,181
2,693
$
$
2,957
3,298
(4,930)
1,078
4,670
(13,679)
24,330
—
17,724
2018
6,256
(12,128)
1,878
8,053
(8,320)
(4,261)
2018
7,028
1,879
December 31,
2019
December 31,
2018
$
$
120,564
—
120,564
$
$
77,735
60,775
138,510
PAN AMERICAN SILVER CORP.
138
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
26. SEGMENTED INFORMATION
Operating segments are determined by the way information is reported and used by the Company's Chief
Operating Decision Maker ("CODM") to review operating performance. The Company has determined that each
producing mine and significant development property represents a reportable segment. The Company has
organized its reportable segments by significant revenue streams and geographic regions.
Significant information relating to the Company’s reportable segments is summarized in the table below:
For the year ended December 31, 2019
Segment/Country
Mine
Revenue
Production
costs and
royalties
Depreciation
Mine operating
earnings
Capital
expenditures
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Guatemala
Total Silver Segment
Gold Segment:
Peru
Canada
Total Gold Segment
Other segment:
Canada
Argentina
Other
Total
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Escobal
Shahuindo
La Arena
Timmins
Pas Corp
Navidad
Other
For the year ended December 31, 2018
Segment/Country
Mine
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Total Silver Segment
Other segment:
Canada
Argentina
Other
Total
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Pas Corp
Navidad
Other
$
$
$
$
248,744
177,698
117,118
101,549
76,968
63,289
—
785,366
189,372
174,803
201,218
565,393
—
—
—
1,350,759
Revenue
236,835
164,050
114,739
117,517
60,503
90,851
784,495
—
—
—
784,495
$
$
$
$
191,320
75,139
76,962
73,396
57,805
63,432
—
538,054
90,877
99,915
139,172
329,964
—
—
—
868,018
$
$
$
104,701
23,175
13,638
15,482
9,449
5,854
—
172,299
28,649
14,873
36,302
79,824
(47,277) $
79,384
26,518
12,671
9,714
(5,997)
—
75,013
69,846
60,015
25,744
155,605
488
—
842
253,453
$
(488)
—
(842)
229,288
$
47,722
20,139
8,013
10,703
4,938
23,909
1,107
116,531
31,239
47,557
10,346
89,142
125
9
—
205,807
Production
costs and
royalties
Depreciation
Mine operating
earnings
Capital
expenditures
187,920
70,864
75,382
68,066
43,405
90,672
536,309
—
—
—
536,309
$
$
83,620
22,567
12,867
15,476
6,200
6,084
146,814
145
—
330
147,289
$
$
(34,705) $
70,619
26,490
33,975
10,898
(5,905)
101,372
(145)
—
(330)
100,897
$
59,480
22,473
14,551
10,370
6,949
29,881
143,704
440
39
165
144,348
PAN AMERICAN SILVER CORP.
139
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
A reconciliation of segment mine operating earnings to the Company’s earnings before income taxes per the
Consolidated Income Statements is as follows:
Mine operating earnings
General and administrative
Exploration and project development
Mine care and maintenance
Foreign exchange losses
Impairment charges (Note 13)
Gains on commodity and foreign currency contracts (Note 9)
Gains on sale of mineral properties, plant and equipment (Note 12)
Share of income from associate and dilution gain (Note 14)
Transaction and integration costs (Note 8)
Other expense (Note 27)
Earnings from operations
Loss on derivatives (Note 9)
Investment income (loss)
Interest and finance expense (Note 23)
Earnings before income taxes
At December 31, 2019
Segment/Country
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Guatemala
Total Silver Segment
Gold Segment:
Peru
Canada
Total Gold Segment
Other segment:
Canada
Argentina
Total
Mine
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Escobal
Shahuindo
La Arena
Timmins
Pas Corp
Navidad
Other
2019
229,288
2018
100,897
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(31,752) $
(11,684) $
(23,662) $
(5,003) $
(40,050) $
3,315
$
3,858
$
15,245
$
(7,515) $
(4,936) $
$
127,104
(14) $
84,704
$
(29,282) $
182,512
(22,649)
(11,138)
—
(9,326)
(27,789)
4,930
7,973
13,679
(10,229)
(3,659)
42,689
(1,078)
(284)
(8,139)
33,188
Assets
Liabilities
Net assets
$
$
$
$
$
$
$
$
$
$
$
$
$
$
763,301
223,416
110,642
128,280
76,418
77,635
293,178
1,672,870
600,096
282,978
429,060
1,312,134
229,814
193,034
53,830
3,461,682
$
$
$
$
$
$
$
$
$
$
$
$
$
$
137,396
46,476
39,962
36,754
35,331
27,455
19,340
342,714
162,821
90,472
50,171
303,464
$
$
$
$
$
$
$
$
$
$
304,184
$
— $
$
$
43,474
993,836
625,905
176,940
70,680
91,526
41,087
50,180
273,838
1,330,156
437,275
192,506
378,889
1,008,670
(74,370)
193,034
10,356
2,467,846
PAN AMERICAN SILVER CORP.
140
At December 31, 2018
Segment/Country
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Other segment:
Canada
Argentina
Mine
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Pas Corp
Navidad
Other
Product Revenue
Refined silver and gold
Zinc concentrate
Lead concentrate
Copper concentrate
Silver concentrate
Total
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Assets
Liabilities
Net assets
$
$
$
$
$
$
$
$
$
$
791,485
230,736
119,015
126,755
83,686
20,839
1,372,516
247,792
193,777
123,391
1,937,476
$
$
$
$
$
$
$
$
$
$
150,003
56,206
44,055
40,183
38,169
24,994
353,610
30,221
1,546
38,750
424,127
$
$
$
$
$
$
$
$
$
$
2019
894,202
134,992
183,343
78,865
59,357
1,350,759
641,482
174,530
74,960
86,572
45,517
(4,155)
1,018,906
217,571
192,231
84,641
1,513,349
2018
348,717
155,412
150,832
86,599
42,935
784,495
The Company has 23 customers that account for 100% of the concentrate and silver and gold sales revenue. The
Company has 7 customers that accounted for 15%, 15%, 13%, 13%, 9%, 8%, and 8% of total sales in 2019, and 7
customers that accounted for 28%, 14%, 13%, 10%, 8%, 8%, and 5% of total sales in 2018. The loss of certain of these
customers or curtailment of purchases by such customers could have a material adverse effect on the Company’s
financial performance, financial position, and cash flows.
27. OTHER INCOME AND (EXPENSES)
Change in closure and decommissioning estimates
Royalties income
Other expense
Total
2019
(221) $
909
(5,624)
(4,936) $
2018
(2,968)
631
(1,322)
(3,659)
$
$
PAN AMERICAN SILVER CORP.
141
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 recognized in the current year
Adjustments recognized in the current year with respect to prior years
Recognition of previously unrecognized deferred tax assets
Benefit from previously unrecognized losses, and other temporary differences
Decrease in deferred tax liabilities due to tax impact of NRV charge to inventory
Income tax expense
2019
2018
$
$
$
95,219
(3,090)
92,129
(13,079)
(5,003)
—
—
(2,779)
(20,861)
71,268
$
59,056
(5,155)
53,901
(13,256)
(1,098)
(6,140)
(3,600)
(8,660)
(32,754)
21,147
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, 2019 and the comparable period of 2018 were
foreign exchange fluctuations, changes in non-recognition of certain deferred tax assets, mining taxes paid,
withholding taxes on payments from foreign subsidiaries, and the addition to taxable income from the acquired Tahoe
assets. 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
Effect of other taxes paid (mining and withholding)
Effect of foreign exchange on tax expense
Non-taxable impact of foreign exchange
Change in non-deductible portion of reclamation liabilities
Change in current tax expense estimated for prior years
Other
Income tax expense
Effective income tax rate
$
$
$
2019
182,512
27.00%
49,278
$
$
7,271
2,507
3,117
(11,211)
(132)
21,307
(7,651)
4,158
8,207
(6,694)
1,111
71,268
39.05%
$
2018
33,188
27.00%
8,961
3,929
(2,160)
3,372
1,168
(3,254)
14,371
1,611
(351)
—
(5,030)
(1,470)
21,147
63.72%
PAN AMERICAN SILVER CORP.
142
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Deferred tax assets and liabilities
The following is the analysis of the deferred tax assets (liabilities) presented in the consolidated financial
statements:
Net deferred tax liability, beginning of year
Initial deferred tax liability associated with the Tahoe Acquisition
Recognized in net earnings in 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
2019
(136,575) $
(24,080)
20,861
(705)
138
(140,361) $
36,447
(176,808)
(140,361) $
2018
(168,549)
—
32,754
(697)
(83)
(136,575)
12,244
(148,819)
(136,575)
$
$
$
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, resource pools 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
2019
2018
$
$
$
16,002
112,188
2,701
—
16,865
17,194
(7,145)
(278,707)
(23,026)
3,567
(140,361) $
9,105
29,195
2,974
698
6,726
15,756
(11,752)
(169,703)
(19,746)
172
(136,575)
At December 31, 2019, the net deferred tax liability above included the deferred tax benefit of $112.2 million due to
tax losses ($49.6 million) and resource pools ($62.6 million). The significant increase in these deferred tax assets from
the prior year was primarily related to the Tahoe Acquisition. The losses will begin to expire after the 2024 year end,
if unused.
At December 31, 2018, the net deferred tax liability above included the deferred tax benefit of $29.2 million related
to tax losses of approximately $98.4 million. These losses will begin to expire after the 2024 year end, if unused.
PAN AMERICAN SILVER CORP.
143
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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
Payroll and vacation accruals
Other temporary differences
2019
239,216
34,646
260,413
2,849
118,380
141,018
53,595
11,339
23,895
1,055
3,399
889,805
$
$
$
$
2018
131,179
14,456
18,266
785
22,669
33,835
51,175
10,160
24,840
827
8,217
316,409
Included in the above amounts are operating losses, which if not utilized will expire as follows:
At December 31, 2019
2020
2021
2022 – and after
Total tax losses
At December 31, 2018
2019
2020
2021 – and after
Total tax losses
Canada
US
Peru
Mexico
Barbados
Argentina
—
—
79
318
215,374
13,185
2,110
28
1,778
—
—
2,792
$
215,374
$
13,582
$
3,916
$
2,792
$
7
7
106
120
$
1
2
3,429
3,432
Total
2,197
355
236,664
239,216
Canada
US
Peru
Mexico
Barbados
Argentina
—
—
85
80
114,466
13,469
$
114,466
$
13,634
$
—
—
250
250
—
—
2,456
$
2,456
$
4
7
105
116
$
45
61
151
257
Total
134
148
130,897
$
131,179
Taxable temporary differences associated with investment in subsidiaries
As at December 31, 2019, taxable temporary differences of $376.5 million (2018 – $85.2 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.
PAN AMERICAN SILVER CORP.
144
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
29. CONTINGENCIES
The following is a summary of the contingent matters and obligations relating to the Company as at December 31,
2019.
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. Environment
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, 2019,
$188.5 million (2018 - $70.6 million) was accrued for reclamation costs relating to mineral properties. See also Note
17.
c. 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.
d. Argentina
Unanticipated or drastic changes in laws and regulations have affected our operations in the past. For example, under
previous political regimes in Argentina, the government intensified the use of severe price, foreign exchange, and
import controls in response to unfavourable domestic economic trends. These included informal restrictions on
dividend, interest, and service payments abroad and limitations on the ability to convert ARS into USD, exposing the
Company to additional risks of ARS devaluation and high domestic inflation. While some of these restrictions had
begun to ease after the elections in 2015, the government introduced a new export duty in 2018 on silver and gold
doré exported from Argentina (Note 29(h)). Following elections in 2019, the new government in Argentina has begun
reinstituting some of the previous unfavorable economic policies, such as strict currency controls.
e. Bolivia
In early 2009, a new constitution was enacted in Bolivia that further entrenched the government’s ability to unilaterally
amend or enact laws, and which enshrined the concept that all natural resources belong to the Bolivian people. On
May 28, 2014, the Bolivian government enacted 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
PAN AMERICAN SILVER CORP.
145
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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 such migration and possible renegotiation of key
terms. The migration process has been delayed by COMIBOL and has not been completed. 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. 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 further enacted the New Conciliation and Arbitration Law, which endeavors
to set out newly prescribed arbitral norms and procedures, including for foreign investors. However, its application
is unclear and we await clarification by regulatory authorities in order to assess its impact on our business.
f. Other Legal
We are 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 are from current or ex-employees, or employees of former or
current owners of our operations such as the Quiruvilca-related claims in Peru, some of which involve claims of
significant value, and include alleged improper dismissals, workplace illnesses, such as silicosis, and claims for
additional profit-sharing and bonuses in prior years. In some cases, we may become subject to class action lawsuits.
For example, in mid-2017, Tahoe, which was acquired by us in late February 2019, and certain of its former directors
and officers became the subject of three purported class action lawsuits filed in the United States that center primarily
around alleged misrepresentations. These U.S. class action lawsuits were later consolidated into one class action suit
that is ongoing. In October 2018, Tahoe learned that a similar proposed class action lawsuit had been filed against
Tahoe and its former chief executive officer in the Superior Court of Ontario. These lawsuits seek significant damages.
Tahoe has disputed the allegations made in these suits, however the outcomes are not determinable at this time.
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, or environmental or social damage, and such claimants may seek sizeable
monetary damages against us and/or the return of surface or mineral rights or revocation of permits and licenses
that are valuable to us and which may impact our operations and profitability if lost.
Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved
unfavourably to us. We 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 us. 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.
g. Title
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. Any defects in title to our properties, or the revocation of
our rights to mine, could have a material adverse effect on our operations and financial condition.
h. Royalty 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.
PAN AMERICAN SILVER CORP.
146
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
As part of the arrangement closed with Maverix on July 11, 2016 (Note 14), Maverix acquired from the Company a
portfolio of royalties, precious metals streams and payment agreements, in exchange for a 54% interest in Maverix
(26% fully diluted as at December 31, 2019). 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, a net smelter returns royalty of one percent (1%) on the Pico Machay project that is currently owned by Pan
American.
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 to the Navidad project section below for further details.
In September 2018, the government of Argentina introduced a new export duty of 12% to be applied on the export
of goods from Argentina until December 31, 2020. In general, the duty is capped at ARS 4 per USD $1 of gold doré
exported, and at ARS 3 per USD $1 of silver doré exported. As a result, the Company paid approximately $3.5 million
(2018 - $1.6 million) in export duties, representing an average rate for the export duty of approximately 6% (2018 -
8%).
As part of the 2009 Aquiline transaction, the Company issued a replacement convertible debenture that allowed the
holder to convert the debenture into either 363,854 Common Shares or a silver stream contract 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 20.
Manantial Espejo
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
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, 2019, the Company incurred
approximately $5.1 million in COMIBOL royalties (2018 - incurred $4.8 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, 2019 the royalties paid to EMUSA amounted to approximately $0.8 million (2018 - $0.7
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%
for zinc and copper metal value of sales. The royalty is income tax deductible. For the year ended December 31, 2019,
the royalty amounted to $5.5 million (2018 - $4.4 million).
PAN AMERICAN SILVER CORP.
147
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Dolores
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 $7.0 million for the year ended December 31, 2019 (2018 – $6.8 million).
Escobal
Some communities and non-governmental organizations ("NGOs") have been vocal and active in their opposition to
mining and exploration activities in Guatemala. In July 2017, the Escobal mining license was suspended as a result
of a court proceeding initiated by an NGO in Guatemala, based upon the allegation that Guatemala’s Ministry of
Energy and Mines ("MEM") violated the Xinka indigenous people’s right of consultation. After several decisions and
appeals on the matter, a decision of the Constitutional Court of Guatemala was rendered on September 3, 2018,
determining that the Escobal mining license would remain suspended until the Guatemala MEM completes an ILO
169 consultation. The consultation process is proceeding, with the pre-consultation stage underway. Normal
operations at the Escobal mine remain suspended. Legal challenges to the consultation process have been filed with
the Guatemalan Supreme Court and the outcome of those challenges is unknown. The process and timing for
completing the ILO 169 consultation remains uncertain. In addition, in June 2017, MSR filed its annual request to
renew the Escobal mine’s export credential with the Guatemala MEM. However, the Guatemala MEM did not renew
the export credential because its renewal had become contingent on the Supreme Court's reinstatement of the Escobal
mining license. The export credential therefore expired in August 2017 and has not been renewed.
In addition, since June 7, 2017, a group of protesters near the town of Casillas have blocked the primary highway that
connects Guatemala City to San Rafael Las Flores and the Escobal mine. Tahoe's operations were reduced between
June 8, 2017 and June 19, 2017 to conserve fuel, and on July 5, 2017, were ceased following the Supreme Court’s
provisional decision to suspend the Escobal mining license while the case against the Guatemala MEM was heard on
the merits. A second roadblock was initiated in 2018 near the community of Mataquescuintla. MSR representatives
have been pursuing engagement with community leaders, government agencies, and NGOs to develop a dialogue
process aimed at resolving this protracted dispute and reaching a peaceful conclusion to the roadblocks, but there is
no guarantee that a positive conclusion will be reached.
Navidad
As a result of uncertainty over the zoning, regulatory and tax laws, the Company has 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. All related party transactions for the year ended December 31, 2019 and 2018
have been disclosed in these consolidated financial statements. Transactions with Maverix, an associate of the
Company, have been disclosed in Note 14 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.
PAN AMERICAN SILVER CORP.
148
Notes to the Consolidated Financial Statements
As at December 31, 2019 and December 31, 2018, and
for the years ended December 31, 2019 and 2018
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Remuneration of key management personnel
The remuneration of directors and other members of key management personnel during the year was as follows:
Salaries and short-term benefits (1)
Post-employment benefits (2)
Share-based payments (3)
(1)
(2)
(3)
Includes annual salary and short-term incentives or bonuses earned in the year.
Includes annual contributions to retirement savings plans made by the Company.
Includes annual RSUs, PSUs, stock option and common share grants.
2019
14,180
1,287
3,195
18,662
$
$
2018
13,863
535
2,446
16,844
$
$
PAN AMERICAN SILVER CORP.
149
Corporate Information
CORPORATE OFFICE
1440 - 625 Howe Street
Vancouver, British Columbia
Canada V6C 2T6
604-684-1175
info@panamericansilver.com
BOARD OF DIRECTORS
AND EXECUTIVE TEAM
(As at December 31, 2019)
Ross J. Beaty(1) – Chair
Michael Carroll(1,2) – Director
Neil de Gelder(2,3) – Director
Charles Jeannes(4,5) – Director
Kevin McArthur(1) – Director
Walter Segsworth(4,5,6) – Director
Gillian Winckler(2,3,5) – Director
Michael Steinmann(1,4) – Director,
President & Chief Executive Officer
Steve Busby – Chief Operating Officer
Robert Doyle – Chief Financial Officer
Christopher Lemon – General Counsel
Brent Bergeron – Senior Vice President,
Corporate Affairs & Sustainability
Andres Dasso – Senior Vice President,
Mining Operations
Christopher Emerson – Vice President,
Business Development & Geology
George Greer – Senior Vice President,
Project Development
Sean McAleer – Senior Vice President &
Managing Director, Guatemala
Martin Wafforn – Senior Vice President,
Technical Services & Process Optimization
(1) Finance Committee member
(2) Audit Committee member
(3) Nominating & Governance
Committee member
(4) Health, Safety, Environment &
Communities Committee member
(5) Human resources &
Compensation Committee member
(6) Lead Independent Director
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 December 31, 2019: 209.8 million
INVESTOR CONTACT
Siren Fisekci
Vice President, Investor Relations &
Corporate Communications
T: 604-684-1175
E: ir@panamericansilver.com
PANAMERICANSILVER.COM
ANNUAL MEETING
Wednesday, May 6, 2020 – 3:00pm (PST)
1200 Waterfront Centre
200 Burrard Street
Vancouver, British Columbia
Canada