ANNUAL
REPORT
PAN AMERICAN SILVER CORP. 1
2020 PAN AMERICAN SILVER owns and
operates silver and gold mines located in
Mexico, Peru, Canada, Argentina and Bolivia.
We also own the Escobal mine in Guatemala
that is currently not operating. As the world’s
second largest primary silver producer with the
largest silver reserve base globally, we provide
enhanced exposure to silver in addition to a
diversified portfolio of gold producing assets.
Pan American has a 27-year history of operating
in Latin America, earning an industry-leading
reputation for corporate social responsibility,
operational excellence and prudent financial
management.
Our shares trade on NASDAQ and the Toronto
Stock Exchange under the symbol “PAAS”.
Dolores
La Colorada
Skarn Deposit
Escobal*
(Currently on care
and maintenance)
Shahuindo
La Arena
Huaron
Morococha
San Vicente
Ag
17.3 Moz
consolidated production
$11.38/oz
silver segment all-in
sustaining costs
550 Moz
proven + probable reserves
E
C
N
A
M
R
O
F
R
E
P
G
N
T
A
R
E
P
O
0
2
0
2
I
Au
522.4 koz
consolidated production
$1,011/oz
gold segment all-in
sustaining costs
5.2 Moz
proven + probable reserves
E
C
N
A
M
R
O
F
R
E
P
G
N
T
A
R
E
P
O
0
2
0
2
I
Timmins
Silver Segment
Mining Operations
Gold Segment
Mining Operations
Development and
Advanced Stage
Exploration Projects
Navidad
Manantial Espejo
2020 REVENUE GENERATED BY METAL
2020 RESERVES BY METAL
Zinc
6%
Lead
2%
Copper
2%
Silver
25%
Gold
65%
Zinc
13%
Lead
5%
Copper
3%
Gold
32%
Silver
47%
Revenue by metal in 2020 is based on the average realized metal
prices for 2020 of: $20.60/oz for silver, $1,758/oz for gold, $2,288/
tonne for zinc, $1,851/tonne for lead and $6,412/tonne for copper.
Silver production and revenue reflect the disproportionate impact of
COVID-19 on underground silver mines.
The reserves by metal reflect the Company’s 2020 mineral reserve
estimates effective June 30, 2020, and metal price assumptions
of $18.00/oz for silver, $1,300/oz for gold, $2,350/tonne for zinc,
$2,000/tonne for lead, and $6,000/tonne for copper. See the
mineral reserves and resources on page 75 for further information.
CONSOLIDATED RESULTS
For the year ended December 31,
Weighted average shares during period (millions)
Shares outstanding end of period (millions)
FINANCIAL (in thousands USD, except per share amounts)
Revenue
Mine operating earnings
Net earnings
Basic earnings per share(1)
Adjusted earnings(2)
Basic adjusted earnings per share(1)
Net cash generated from operating activities
Net cash generated from operating activities before changes in working capital(2)
Sustaining capital expenditures
Project capital expenditures
Cash dividend per share
PRODUCTION (in thousands)
Silver (ounces)
Gold (ounces)
Zinc (tonnes)
Lead (tonnes)
Copper (tonnes)
CASH COSTS(2) ($/ounce)
Silver Segment(3)
Gold Segment(4)
AISC(2) ($/ounce)
Silver Segment(3)
Gold Segment(4)
Consolidated Silver Basis(5)
AVERAGE REALIZED PRICES(6)
Silver ($/ounce)
Gold ($/ounce)
Zinc ($/tonne)
Lead ($/tonne)
Copper ($/tonne)
2020
210.1
210.3
2019
201.4
209.8
1,338,812
1,350,759
360,177
176,455
0.85
243,382
1.16
462,315
365,333
162,047
21,545
0.22
17,312
522.4
40.2
15.7
5.2
7.05
797
11.38
1,011
(3.29)
20.60
1,758
2,288
1,851
6,412
229,288
111,244
0.55
157,987
0.78
282,028
309,972
179,096
44,734
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
(1) Per share amounts are based on basic weighted average common shares.
(2) Non- GAAP measures: cash costs, AISC, adjusted earnings, basic adjusted earnings per share, and net cash generated from operating activities before
changes in working capital are non-GAAP financial measures. Please refer to the “Alternative Performance (non-GAAP) Measures” section at the end of this
annual report for further information on these measures.
(3) Silver Segment comprised of the following operations: La Colorada, Dolores, Huaron, Morococha, San Vicente and Manantial Espejo. Beginning in 2021,
Dolores will move from the Silver Segment to the Gold Segment due to mine sequencing into higher gold grades over the remaining active mine life. Silver
Segment 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.
(4) Gold Segment comprised of the following operations: Shahuindo, La Arena and Timmins. Beginning in 2021, Dolores will move to the Gold Segment from
the Silver Segment due to mine sequencing into higher gold grades over the remaining active mine life. Gold Segment cash costs and AISC are calculated
net of credits for realized silver revenues and are calculated per ounce of gold sold.
(5) Consolidated Silver Basis is calculated by treating all revenues from metals other than silver, including gold, as a by-product credit. 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 consolidated amounts.
(6) Metal prices stated are inclusive of final settlement adjustments on concentrate sales.
For historical financial and operating data, please see the Interactive Analyst Centre at panamericansilver.com.
All financial data in this report is stated in US dollars (“USD”) unless otherwise noted.
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.
PAN AMERICAN SILVER CORP. 1
Environmental, Social and Governance (ESG)
APPROACH
ENVIRONMENTAL
Pan American is committed to conducting its business
in a responsible and sustainable manner. Our core ESG
values are: caring for the environment in which we
operate; contributing to the long-term development
of our host communities; ensuring safe and secure
workplaces for our employees; contributing to the
welfare of our employees, local communities and
governments; and, operating transparently.
In 2020, we developed a set of Sustainability
Performance Indicators to measure and monitor on a
monthly basis the progress of the key environmental
and social sustainability activities at our operations.
The aim is to instill a high level of understanding and
commitment by those who carry out our day-to-day
business activities. Our social performance indicators
cover social risk management, grievance management
and community investment. Our environmental
performance indicators cover environmental incidents,
audits, water, energy and greenhouse gas emissions, and
implementation of the Mining Association of Canada’s
Towards Sustainable Mining (TSM) program. Health and
safety performance indicators are also monitored.
2020 ESG HIGHLIGHTS
We continue to actively implement the TSM framework
at all our mines, which is designed to enhance our
community engagement processes, drive environmental
and tailings best practices and reinforce our
commitment to the health and safety of our employees
and surrounding communities. While progress on TSM
was delayed in 2020 due to COVID-19, we successfully
achieved TSM B Level or higher for all TSM protocols at
all operations.
Health and safety remain our top priority, and in 2020
we had the lowest number of accidents resulting in lost
time in the Company’s history. Our long-standing goal is
zero fatal accidents, which we work very hard to achieve
through extensive safety training, serious accident
prevention programs and, in our Peruvian operations,
advancing the trial behavioral safety program. Despite
this focus on safety, we suffered two fatalities at our
operations during 2020, one at Huaron and the second
at La Colorada. Both fatal accidents were thoroughly
investigated, and we are implementing measures
designed to prevent similar accidents in the future.
(1) An SEI is defined as an incident that has a direct negative impact on
the environment, or the communities outside the Company’s mines or
project sites, including environmental incidents that significantly impact
communities’ perceptions of the Company.
(2) The corporate audit program was limited in 2020 due to COVID-19
travel restrictions.
• We had no significant environmental
incidents (“SEI”)(1) at our operations.
• We conducted a corporate environmental
audit(2) on the La Colorada operation with
no material issues identified.
• We ensured safe management of tailings
facilities during mine suspensions related
to the COVID-19 pandemic.
SOCIAL
• In response to the COVID-19 pandemic, we
committed to donate $2.0 million towards
food, hygiene and medical supplies, and
personal protection equipment for our local
communities.
• We entered into a 3-year, $1.5 million
partnership commitment with UNICEF
Canada to provide health and education to
vulnerable children in Latin America.
• We conducted a social audit(2) of the Manantial
Espejo operation with no material issues
identified.
• We became signatories to the United Nations
Global Compact.
• We resolved a community dispute related to
water distribution near our La Arena operation,
while we continue to be involved in two other
community disputes related to La Colorada in
Mexico and Escobal in Guatemala.
• We recorded a low lost time injury frequency
(LTIF) of 0.35 and a low lost time injury severity
(LTIS) of 534, but overall safety performance
was disappointing due to two fatal accidents.
GOVERNANCE
• We adopted an Inclusion and Diversity Policy.
• We achieved a 17.3% increase in the percentage
of new female hires and promotions and
increased the representation of women on our
Board of Directors.
• We established an ESG Committee comprised
of cross-departmental senior and executive
management representatives.
PAN AMERICAN SILVER CORP. 2
2021 ESG Goals
• Achieve zero Significant Environmental Incidents.
• Reduce water consumption by 6% compared to the 2021 base case.(1)
• Reduce GHG emissions by 11% compared to the 2021 base case.(1)
• Achieve 80 hectares net positive impact on vegetation and biodiversity.
• Reduce industrial waste by 11% compared to the 2021 base case.(1)
• Continue implementation of TSM to achieve Level A for all protocols
at all mines.
• Resolve all medium and high-risk grievances by the end of 2021.
• Update integrated stakeholder engagement plans at all sites.
• Maintain LTIF of 0.90 or less and LTIS of 525 or less.
• Complete the first phase of our Building Respect Together
program,(2) covering 70% of our workforce.
Further discussion on our ESG approach, performance
and goals will be provided in our 2020 Sustainability
Report, to be released in the second quarter of 2021.
In addition to the Global Reporting Initiative (GRI)
Standards, our 2020 Sustainability Report will take into
consideration the Sustainability Accounting Standards
Board (SASB) and Task Force on Climate Related
Disclosure (TCFD) reporting frameworks.
(1) The 2021 base case is our projected 2021 water use, energy use, GHG emissions,
and waste generation, as calculated using our life of mine plans adjusted for annual
production guidance (see page 17 of this annual report for 2021 guidance).
(2) The “Building Respect Together” program is aimed at fostering a more
respectful, safe and inclusive work environment.
“Pan American remains committed to
continuously improving our sustainability
performance. We are implementing
industry best practices, such as the
Mining Association of Canada’s Towards
Sustainable Mining protocols, the
Voluntary Principles for Security and
Human Rights, and the World Gold
Council Conflict-Free Standard.”
- Michael Steinmann, President & CEO
PAN AMERICAN SILVER CORP. 3
PAN AMERICAN SILVER
Our Purpose
Pan American Silver was founded in 1994 by
Ross Beaty and John Wright, based on Ross’
vision to build the world’s foremost silver
mining company. Today, Pan American holds
the largest silver reserves in the world as well
major catalysts for growth in silver production.
With a diversified portfolio of assets, we are the
second largest primary silver producer in the
world and a large gold producer. We provide
investors with long-life exposure to silver, a
metal crucial for the global transition to a
clean, modern economy.
Since inception, we have been demonstrating
our commitment to living our vision and values.
Pan American Silver founders Ross J. Beaty and John H. Wright.
Vision
Values
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 an attractive return on invested
capital 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.
Pan American’s core values are embedded in all
aspects of our daily operations. In carrying out our
business, we are committed to:
• Operating in a responsible and ethical manner.
• Providing a safe, healthy and respectful
workplace for our employees and contractors.
• Conducting our business free from
favouritism, fear, coercion, discrimination,
or harassment.
• Providing full, fair, accurate, timely and
understandable disclosure to our stakeholders.
PAN AMERICAN SILVER CORP. 4
19942020 Letter from the Board Chair
This is a poignant moment for me. After 27 years
in the saddle as Founder and Chair of our great
company, I’ve decided it’s time to retire and so this is
my last letter to shareholders. I will step down at our
Annual General and Special Meeting in May 2021.
Pan American Silver has been a big part of my life,
but it’s simply good governance to have managed
succession and the time is right for me to retire, just as
it was the right decision for me to split the role of Chair
and CEO in 2004 when I turned the CEO role over to
Geoff Burns. I’m so pleased Gillian Winckler has agreed
to take my position as Chair. Gill has been on the
Pan American Board since mid-2016 and has served
with distinction. She will make an outstanding Chair,
having deep experience in the mining industry and
especially strong skills in ESG matters. I would also like
to welcome Kathleen Sendall to our Board. Her strong
background in responsible resource development will
further provide the Board with strong oversight in ESG
matters, which are so vitally important in today’s world
and to our company.
My decision to step down has nothing to do with the
terrible scourge of COVID-19 that swept through the
world in 2020 and made our business so difficult.
Operations were suspended at many of our mines, and
our entire team suffered tremendous strain, as workers
at all our locations were threatened by the insidious
coronavirus. Yet we will survive this pandemic and
we will be a stronger company for it. I express great
appreciation to every single employee for their efforts
to support Pan American’s operations during this very
difficult time in our history.
Two words stand out for me now: PRIDE and
GRATITUDE. I cannot fully express my pride at what we
have built over the past 27 years, and my gratitude to all
those who have helped make it happen along the way.
From a simple idea that I had in March 1994 to build the
world’s best silver mining company, which started as a
shell company with no money, no properties and a $0.08
share price, Pan American has grown to become a silver
industry icon. We are now the world’s second largest
primary silver producer with the largest silver reserves
and resources. We are also a large gold producer. We
have ten mining operations in six countries, including
Escobal in Guatemala that is currently suspended. Our
operations employ approximately 12,500 people, and
the company had a market value of approximately $7.3
billion at December 31, 2020.
From a simple idea that I had in March
1994 to build the world’s best silver
mining company… Pan American has
grown to become a silver industry icon.
It’s impossible to recount the adventures we’ve had
along the way – there are simply too many. A lot of wins
and plenty of losses too. But with steadfast work by
thousands of our people, we became a major mining
company and today we have never been stronger. It’s
a good time for me to retire and let a new generation
build Pan American into an even greater company. I
feel so incredibly proud to have been at the helm in the
formative stages of our world-class company, which
today provides a livelihood for so many people in so
many communities in the Americas.
My gratitude extends to the many thousands who have
contributed to the success of Pan American Silver. I’m
going to start with our sterling team of employees. I’ve
always felt that every single employee in our company
has made a unique contribution to our success, from
the miners at the face to the administrative teams at
all our offices. I extend my thanks to each one of you!
I offer special gratitude to our senior team with whom
I’ve worked so closely for so many years. Many have
left the company since our foundation in 1994, but their
contributions are still felt today. For those that have
continued, you know how much I appreciate your work
in building our company. It’s difficult to single out any
one individual for special acknowledgement, but I must
do so, for without them Pan American would not have
succeeded. These include my founding partner, John
Wright, the two CEOs who followed me – Geoff Burns
(2004-2016) and Michael Steinmann (2016 to present),
and two of our top operating engineers - Andres Dasso
and Steve Busby. These individuals know how much
their contributions were essential to our success.
PAN AMERICAN SILVER CORP. 5
19942020 I also extend my thanks to all our contractors and
consultants who support our operations, to the
communities around our mines who help our business
in so many ways, to the national governments in
countries where we work for providing fair laws and
regulatory oversight, and to the many international
groups who provide equipment, services and advice
to our business. I give special thanks to our Board of
Directors who have guided Pan American since its
inception, dedicating themselves to providing good
advice and good governance.
The result of all the hard work of our team and our
Board over all these years is that Pan American is a
highly respected company in the mining industry.
Respected for fair treatment of its employees, providing
a safe and healthy workplace, having good relations
with its communities and government agencies, and for
its excellence in engineering, exploration, operations
and ESG practices.
I’m also grateful for the support of our shareholders
– you are all an integral part of our story. Some of you
may be new but I know many shareholders have been
with the company since the beginning, sharing all our
The mining industry is essential for
modern society to function, yet there are
good and bad ways to mine. I know Pan
American will constantly strive to be a
leader in sustainable mining.
ups and downs, our travails and our joys. Without your
support we could never have financed our activities,
built our mines, or explored our properties.
Many things have changed in the past 27 years since
Pan American’s inception. One big change has been
the growth of exchange-traded funds and algorithm
trading, the latter not looking at management quality
or fundamental value in making decisions to buy or
sell our shares. Yet our real value is built from our
mining operations, from our growth prospects that
come from successful exploration and acquisitions,
prudent financial management that has resulted in
a consistently strong balance sheet throughout the
commodity cycle, and from our ESG practices that
are so closely scrutinized by so many investors today.
I am super confident that Pan American Silver has an
exceptional future because I know how acutely these
matters are being managed by our teams at every one
of our locations.
The need is urgent for global mining to operate
ever more sustainably, to look after the natural
environment even better, to reduce water usage
and minimize land impacts as much as possible, to
use renewable energy more and to strive for better
resource efficiency everywhere. The mining industry is
essential for modern society to function, yet there are
good and bad ways to mine. I know Pan American will
constantly strive to be a leader in sustainable mining,
to provide silver, gold and other metals to support
today’s industrial economy worldwide. One of my
recommendations in 2020 was for Pan American to
adopt a policy of no net loss of habitat to help protect
biodiversity at our mine sites.
It has been a special pleasure to build a world leader
in silver production. Silver is the most diversely used
of all metals, with more applications than any other. I
remember many people saying when we started Pan
American Silver in 1994 that “silver is yesterday’s metal
– its biggest use is in photography, which will disappear
with the advent of digital photography”. How wrong
they were! Silver use has indeed nearly disappeared in
traditional photography, but because silver is the best
conductor of electricity, its use has exploded in nearly
all digital products as the world goes ever more digital.
In recent years, photovoltaic cells for solar energy
now constitute the single largest use of silver, making
silver an important part of the energy transition to
clean, renewable power. Silver is indeed vital, and Pan
American is connected to the global economy as an
important supplier of this essential metal.
In 1994, I started Pan American with a simple mission:
to build the world’s best silver mining company
while also gaining a reputation for excellence in all
its activities. I am retiring with a great feeling of
accomplishment, yet I also feel tremendous excitement
to see where Pan American will go in the coming
years. With such a strong base of operations, robust
financials, an amazing management team and fabulous
growth projects like Escobal in Guatemala, La Colorada
in Mexico, and Navidad in Argentina, Pan American has
never been in a better condition to continue its future
as a world leader in silver mining.
Pan American will always remain my most beloved
business of the many I’ve been involved with. It has
been a big part of my life, and I have a myriad of
wonderful memories. Many of our senior managers
have become dear, life-long friends. I will be retiring
as Board Chair, but continuing as Chair Emeritus,
remaining connected with the many Board members,
employees, contractors, community leaders and
shareholders who have helped our business over so
many years. To each of you, please accept my profound
thanks for your role in our success, for making my work
fun (usually) and for helping build Pan American Silver
into such a large, successful, and respected global
enterprise. Good wishes and good luck to everyone.
Respectfully submitted,
“signed”
ROSS BEATY, Chair
march 15, 2021
PAN AMERICAN SILVER CORP. 6
2020 Letter from the President & CEO
The year 2020 was defined by the global
COVID-19 pandemic, a humanitarian crisis that
the world is still struggling to emerge from.
Pan American immediately engaged our crisis response
team when the pandemic was declared in March 2020.
Our primary concern was to protect the health and
safety of our people and the communities in which
they live and work. We supplemented our existing
community outreach programs by committing $2.0
million in donations of food and supplies, including the
donation of a medical oxygen plant to the province of
Cajabamba in Peru. In addition, we made a three-year,
$1.5 million commitment to UNICEF Canada to support
children and families affected by COVID-19.
We implemented comprehensive COVID-19 protocols at
all operations, including physical distancing measures,
enhanced sanitization, and testing and screening for
the virus. We introduced new programs to support
workforce mental health, such as “PAAS Listens”,
which enables employees to share their thoughts and
concerns directly with senior leadership. This platform
will remain part of our efforts to communicate with the
workforce post the pandemic.
The countries in Latin America where most of our
operations are located took early, comprehensive
action to combat the spread of the COVID-19 virus.
These measures included national quarantines
and suspension of non-essential activities. All our
Latin American operations were placed in care and
maintenance for an average of approximately two
months during the first half of 2020, while our Huaron
and Morococha were suspended again in the third
quarter of 2020. COVID-19 protocols to protect health
and safety also reduced production capacities and
pressured costs across the operations. Our Timmins
operation in Canada continued to operate throughout
the year at reduced capacity rates to accommodate the
COVID-19 related protocols.
Despite these extraordinary challenges, we generated
a record $462.3 million of operating cash flow in 2020.
Notably, the gold assets that we acquired with the
Tahoe Resources Inc. transaction generated $424
million of free cash flow since the acquisition closed in
February 2019. By the end of 2020, we had fully repaid
the approximately $335 million drawn on our Credit
Facility to help fund the acquisition. At December 31,
2020, Pan American had no bank debt, while the cash
and short-term investment balances increased to
approximately $279.1 million.
Our diversified portfolio of assets
and the rise in precious metal prices
contributed to our strong financial
performance in 2020.
We were also able to double our quarterly dividend
in 2020 through two increases during the year. We
distributed approximately $46.2 million in aggregate
cash dividends, or $0.22 per common share. Together
with the appreciation in the share price, total
shareholder return in 2020 was 46.9%.
Our diversified portfolio of assets and the rise in
precious metal prices contributed to our strong
financial performance in 2020. While production was
lower than we had originally anticipated before the
pandemic, the value of our assets and the long-term
prospects for our business remain.
Our near mine site exploration activities successfully
converted resources to reserves and extended mine
lives at several operations, most notably by discovering
10 million ounces of silver mineral reserves at La
Colorada, 406,000 ounces of gold mineral reserves
at Shahuindo, and 168,000 ounces of gold mineral
reserves at La Arena.
In addition to a solid operating base, our portfolio offers
catalysts that have the potential to materially increase
shareholder value. The inferred resource for our skarn
deposit at La Colorada is now estimated at 100.4 million
tonnes containing 141 million ounces of silver. We are
continuing with an infill drilling program, early-stage
engineering and metallurgical testing, aiming to provide
a Preliminary Economic Assessment in late 2021.
The ILO 169 consultation process that is required
for a restart of the Escobal mine in Guatemala was
delayed; first, by a change in government with the new
PAN AMERICAN SILVER CORP. 7
2020 administration taking office in January 2020, and then
by the COVID-19 pandemic. In early 2021, the Ministry
of Energy and Mines in Guatemala and the Xinka
People agreed to begin the pre-consultation stage in
April 2021. We look forward to an inclusive process
that respects the Xinka people’s right to consultation
under the principles of good faith, mutual respect and
transparency. Meanwhile, our care and maintenance
program for the mine is focused on safely completing
the actions required by our approved environmental
management plan, ensuring the mine is in excellent
condition for a possible restart, and to support the
government led ILO 169 consultation process. In 2020,
we made significant progress in deploying Towards
Sustainable Mining protocols at the site.
We know that achieving progress on these catalysts,
and maintaining support for our existing operations,
depends on our ability to demonstrate strong
performance on ESG factors. Sustainability has been
at the core of our business throughout our 27 years
of operations, and we continue to set new goals to
improve performance and manage risk. In 2020, we
improved our disclosure on greenhouse gas emissions
and climate risks, and we hosted our first ESG call for
investors. In 2021, we plan to expand our disclosure on
climate risk in line with the TCFD recommendations in
our Sustainability Report.
The metal we produce is important in the transition
to a low-carbon economy. The largest single industrial
use of silver today is in photovoltaic cells that
produce energy, and silver is widely used in electrical
componentry. The investment case for precious
metals has also been reaffirmed. The unprecedented
level of monetary and fiscal stimulus has dramatically
increased government debt levels, raising concerns
of fiat currency debasements and inflation. Precious
metals offer investors portfolio diversification.
Pan American is committed to fostering a more diverse
and inclusive work environment. In 2020, we adopted
an Inclusion and Diversity Policy and I signed a pledge
to the BlackNorth Initiative as a commitment to
encourage advancement and remove barriers for Black,
Asian and other racialized communities, Indigenous
peoples, members of the LGBTQ+ community, persons
with disabilities, and women. In addition, we increased
the representation of women in our workforce through
new hires and promotions, and we are proud to have
welcomed Kathleen Sendall to our Board of Directors.
I would like to thank our Board of Directors for their
counsel, as we managed the dynamic and difficult
environment that transpired over 2020. Mr. Ross
Beaty, Founder and Chair of the Board of Directors,
has informed the Board that he will retire as Chair and
Director at our Annual General and Special Meeting in
May 2021. Ross has been an important mentor to me,
Sustainability has been at the core of
our business throughout our 27 years
of operations, and we continue to set
new goals to improve performance
and manage risk.
providing guidance that has helped shape the decisions
we have made at Pan American. I hope to continue
benefiting from his perspective in his role as Chair
Emeritus. The Board intends to appoint Ms. Gillian
Winckler as Chair of the Board. Gill has been on the Pan
American Board since 2016. She is a highly experienced
mining professional with a strong background in
ESG matters, and I am very much looking forward to
working more closely with Gill.
In closing, I would like to express my deep gratitude to
the employees and contractors across our company.
It is through their steadfast commitment and efforts
that we have been able to successfully navigate the
extraordinary challenges of the past year. The Pan
American team demonstrated the resilience of our
business, and our ability to support and create value for
all our stakeholders.
“signed”
MICHAEL STEINMANN, President & CEO
march 15, 2021
PAN AMERICAN SILVER CORP. 8
Management’s Discussion and Analysis
FOR THE YEAR ENDED DECEMBER 31, 2020
February 17, 2021
TABLE OF CONTENTS
Introduction
Core Business and Strategy
2020 Highlights
Environmental, Social, and Governance
2021 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
17
24
41
41
55
51
55
55
57
66
73
73
73
75
79
PAN AMERICAN SILVER CORP.
9
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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, 2020 (the “2020 Financial Statements”) and the related notes contained therein. All
amounts in this MD&A and the 2020 Financial Statements are expressed in United States dollars (“USD”), unless
identified otherwise. The Company reports its financial position, financial performance 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 2020 Financial
Statements.
This MD&A refers to various non-Generally Accepted Accounting Principles (“non-GAAP”) measures, such as “all-in
sustaining costs per ounce sold", “cash costs per ounce sold”, “adjusted earnings” and “basic adjusted earnings per
share”, "total debt", "capital", and “working capital", 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, do not have standardized meanings under IFRS, and the methodology by which
these measures are calculated may differ from similar measures reported by other companies. To facilitate a
better understanding of these non-GAAP measures as calculated by the Company, additional information has been
provided in this MD&A. Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP)
Measures” for a detailed description of “all-in sustaining cost per ounce sold”, “cash costs per ounce sold”,
“adjusted earnings“ and “basic adjusted earnings per share”, "total debt", "capital", and “working capital” as well
as details of the Company’s by-product credits and a reconciliation, where appropriate, of these measures to the
2020 Financial Statements.
Any reference to “Cash Costs” in this MD&A 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 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, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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. Our strategy to achieve this vision is to:
• Generate an attractive return on invested capital 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.
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.
2020 HIGHLIGHTS
Operations
Coronavirus disease ("COVID-19") pandemic impact
Pan American's normal operations in Mexico, Peru, Argentina and Bolivia were suspended for an average duration
of approximately two months during the first half of 2020 in order to comply with mandatory national quarantines
imposed in response to the COVID-19 pandemic. The Huaron and Morococha operations were suspended for
another approximately three months through the third quarter of 2020. The Company conducted care and
maintenance activities at the suspended operations until the government restrictions were lifted and Pan
American determined it was safe to resume operations. During these suspensions, limited production continued
from the circulation of process solutions on the heap leach pads at the Shahuindo and La Arena open pit
operations in Peru and the Dolores open pit operation in Mexico. Pan American incurred care and maintenance
costs for the COVID-19 related mine suspensions of $75.1 million in 2020, inclusive of depreciation and
amortization related to fixed assets.
Following the restart of operations, production was below normal capacity rates in order to accommodate
COVID-19 related protocols to help protect the health and safety of our workforce and communities.
Implementation of COVID-19 related protocols also resulted in the Timmins operation in Canada operating below
normal capacity rates; however, operations at Timmins were not suspended during 2020. Further discussion on
the operational status of each mine is included in the "2020 Operating Performance" section of this MD&A under
the sub-heading "Impact of COVID-19".
The COVID-19 pandemic also delayed progress on certain capital projects in 2020, resulting in approximately $50.0
million to $60.0 million of sustaining and project capital being deferred into 2021.
PAN AMERICAN SILVER CORP.
11
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Due to the uncertainties regarding the impact of COVID-19 on our operations, in May 2020, the Company
withdrew its 2020 annual production, Cash Costs, AISC and capital expenditure forecasts, as provided in the 2019
annual MD&A dated March 12, 2020 (the "Original 2020 Forecasts"). The Company subsequently issued a new
2020 annual forecast in the Q2 2020 MD&A dated August 5, 2020 (the "August 2020 Forecast"). In the MD&A for
the third quarter of 2020 ("Q3 2020"), dated November 4, 2020, management further revised forecasts for 2020
annual silver production and capital expenditures (the "Revised 2020 Forecast"). A comparison of 2020 results to
the Revised 2020 Forecast is included and discussed in the 2020 Operating Performance section of this MD&A.
Silver production of 17.3 million ounces
Consolidated silver production for 2020 of 17.3 million ounces was 8.6 million ounces less than in 2019, mainly
reflecting COVID-19 related mine suspensions and restricted capacities. 2020 silver production was less than the
Revised 2020 Forecast range of 18.0 to 19.0 million ounces, largely due to the production shortfall at La Colorada
from the impact of the loss of a ventilation raise from surface in Q4 2020.
Gold production of 522.4 thousand ounces
Consolidated gold production for 2020 of 522.4 thousand ounces was 36.7 thousand ounces less than in 2019,
largely reflecting the same COVID-19 related factors that affected 2020 silver production, partially offset by
continued limited production at the Gold Segment mines during their suspensions from circulation of process
solutions on the heap leach pads, and better ability to operate the open pit mines at rates closer to design capacity
than in the underground mines where social distancing measures are more restrictive. 2020 gold production was
slightly lower than the Revised 2020 Forecast range of 525.0 to 575.0 thousand ounces.
Base metal production
Zinc production in 2020 of 40.2 thousand tonnes was lower than 2019, primarily due to the impact of COVID-19,
and was within management's Revised 2020 Forecast production range of 40.0 to 43.0 thousand tonnes.
Lead production in 2020 of 15.7 thousand tonnes was lower than 2019, due to the impact of COVID-19, and was
below management's Revised 2020 Forecast production range of 17.0 to 18.0 thousand tonnes.
Copper production in 2020 of 5.2 thousand tonnes was lower than 2019, and above management's Revised 2020
Forecast production range of 4.3 to 4.9 thousand tonnes.
Financial
Revenue, net earnings, and operating cash flows
Revenue in 2020 of $1.34 billion was 1% lower than in 2019, reflecting decreased quantities of metal sold offset by
higher realized precious metal prices. Quantities of metals sold were largely impacted by the COVID-19 related
mine suspensions and throughput reductions. Revenue in the fourth quarter of 2020 ("Q4 2020") of $430.5 million
was a Company quarterly record.
Net earnings of $176.5 million ($0.85 basic income per share) was recorded for 2020 compared with $111.2
million ($0.55 basic income per share) in 2019. The $65.2 million year-over-year increase mainly reflects: a $130.9
million increase in mine operating earnings; a $40.1 million decrease in impairment charges, with no impairment
charges or impairment reversals recorded in 2020; a $9.2 million decrease in interest and finance expense; and a
$7.5 million decrease in transaction and integration costs; all partially offset by a $78.4 million increase in care and
maintenance costs, reflecting the COVID-19 related mine suspensions; a $4.3 million increase in income tax
expense; a $21.7 million decrease in investment income; and a $17.1 million increase in other expenses.
Adjusted earnings: in 2020 were $243.4 million, representing basic adjusted earnings per share of $1.16, which
was $85.4 million, or $0.37 per share, higher than 2019 adjusted earnings of $158.0 million, and basic adjusted
earnings per share of $0.78, respectively.
Cash flow from operations: in 2020 totaled $462.3 million for a Company record, which was $180.3 million more
than the $282.0 million generated in 2019. Cash flow from operations in Q4 2020 of $170.6 million was also a
Company quarterly record.
PAN AMERICAN SILVER CORP.
12
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Liquidity and working capital
As at December 31, 2020, the Company had cash and short-term investment balances of $279.1 million, working
capital of $495.2 million, and the full $500.0 million available under its revolving credit facility (the "Credit
Facility"), following repayment in Q4 2020 of the remaining $90.0 million drawn amount. Total debt of $33.6
million was related to lease liabilities.
Cash costs per ounce sold
Silver Segment 2020 cash costs were $7.05 per silver ounce sold, in-line with the Revised 2020 Forecast range of
$6.20 to $7.70 per silver ounce sold.
Gold Segment 2020 cash costs were $797 per gold ounce sold, which was slightly lower than the Revised 2020
Forecast range of $800 to $860 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 2020 Financial Statements.
All-in Sustaining Costs per ounce sold (“AISC”)
Silver Segment 2020 AISC were $11.38 per silver ounce sold, in-line with the Revised 2020 Forecast range of
$10.50 to $12.50 per silver ounce sold.
Gold Segment 2020 AISC were $1,011 per gold ounce sold, which was lower than the Revised 2020 Forecast range
of $1,050 to $1,125 per gold ounce sold.
Consolidated 2020 AISC per silver ounce sold, including by-product credits from the Gold Segment mines, were
negative $(3.29) per silver ounce sold, which was lower than the Revised 2020 Forecast range of $(3.00) to $0.75
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 2020 Financial Statements.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE
Pan American is committed to the principles of sustainable development and conducting our activities in an
environmentally and socially responsible manner. Our core environmental, social, governance ("ESG") values are:
caring for the environment in which we operate; contributing to the long-term development of our host
communities; ensuring safe and secure workplaces for our employees; contributing to the welfare of our
employees, local communities and governments; and, operating transparently.
The Company sets annual corporate performance goals with an effort to instill a high level of understanding and
commitment by those who carry out our day-to-day business activities. These goals and performance relative to
them are reported in our sustainability report, which also includes our ESG, and health and safety performance.
Our 2019 sustainability report (the "Sustainability Report") released on May 8, 2020 is available on our website at
www.panamericansilver.com, and the Company plans to release an updated 2020 sustainability report (the "2020
Sustainability Report") in the early part of the second quarter of 2021.
On September 14, 2020 the Company hosted its first "Responsible Investor Conference Call" where senior
members of the Company's management team discussed the Company's approach and performance on ESG
matters, the key opportunities and challenges regarding our sustainability strategy, and the Company's 2019
Sustainability Report, and responded to questions from investors and analysts. A webcast of this call along with
the related presentation slides are available on our website at www.panamericansilver.com.
As part of our commitment to driving global sustainable development and contributing to the United Nations
Sustainable Development Goals, we became signatories to the United Nations Global Compact in July 2020. As a
signatory, in 2021 we will begin reporting on our progress implementing the United Nations Global Compact
Principles into business operations.
PAN AMERICAN SILVER CORP.
13
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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.
The Company's board of directors (the "Board of Directors" or "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 were independent
as at December 31, 2020. 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.
The Health, Safety, Environment, and Communities Committee ("HSEC Committee") of the Board provides
oversight related to health and safety and guidance to management in ensuring mine operations and project
development are conducted in an environmentally and socially responsible manner. The full charter of the HSEC
Committee is available at www.panamericansilver.com.
At the management level, we have established an ESG Committee comprised of cross-departmental senior and
executive management representatives, including: the Chief Executive Officer; the Chief Operating Officer; the
Chief Financial Officer; the Senior Vice President, Corporate Affairs and Sustainability; the General Counsel; the
Senior Vice President, Technical Services & Process Optimization; the Vice President, Sustainability, Diversity and
Inclusion; the Vice President, Environment; and, the Vice President, Mineral Processing, Tailings & Dams.
The ESG Committee meets frequently and is responsible for establishing and overseeing the Company's ESG
policies and performance, and monitoring the Company's human rights programs.
Health and Safety
Pan American is deeply committed to protecting the health, safety and well-being of our employees, contractors,
suppliers, and communities where we operate. We believe that operating safe mines and building a culture of
safety are directly related to our operational success and the ability to create long-term value for all our
stakeholders.
Environmental
Environmental Stewardship
We are committed to operating our mines and developing our new projects in an environmentally responsible
manner. Guided by our Environmental Policy, we take measures to minimize and mitigate the environmental
impacts of our operations in each phase of the mine life 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 ("TSM") program at all of our mines.
We have a company-wide goal, connected to our annual executive compensation plan, of incurring zero significant
environmental incidents ("SEI") at our operations. An SEI is defined as an incident that has a direct negative
impact on the environment, or the communities outside the Company's mines or project sites, including
environmental incidents that significantly impact communities' perceptions of the Company. We have had no SEIs
in 2020 or in 2021 as of the date of this MD&A.
We conduct corporate environmental audits of our operations to monitor and continuously
improve
environmental performance. Environmental staff from the mines periodically assist the corporate environmental
team in conducting these audits, which improves commitment, definition and adoption of best practices, and
PAN AMERICAN SILVER CORP.
14
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
integration and consolidation of company-wide standards across our operations. In 2020 a corporate
environmental audit was conducted on the La Colorada operation. In 2019, environmental audits were conducted
on the Manantial Espejo, La Arena, and Shahuindo mines. No material issues were identified in either the 2020 or
2019 environmental audits. The corporate audit program was restricted in 2020 due to COVID-19 travel
restrictions.
Climate Strategy
We recognize that climate change is a threat to the global environment, society, our stakeholders and our
business. We support the recommendations from the Financial Stability Board Task Force on Climate Related
Financial Disclosure ("TCFD"), and we are working towards their implementation, targeting 2021 for the release of
our first TCFD-aligned report. In 2020, we started work on climate-related goals for 2021 and climate change risk
analysis for TCFD reporting purposes, including transitional risks. The Company plans to include in the 2020
Sustainability Report details on the approach and status of management's assessment of climate change related
risks and opportunities facing the Company. The nature of such risks are expected to include, but are not
necessarily limited to, the climate change risks further described in the Risk and Uncertainties section of this
MD&A. We will also continue to report on our emissions, targeted emission reductions, climate risks and other
climate-related actions in our annual sustainability reports.
Tailings
We continuously work to ensure that all tailings storage facilities, dams, heap leach pads, and waste stockpiles are
robustly designed, built, operated, maintained and closed in accordance with our internal standards, the TSM
Tailings Management protocol, the Canadian Dam Association guidelines, and known global best practices in order
to prevent any incidents or failures. Our tailings storage facilities and water dams are subject to routine
inspections, audits, geotechnical and environmental monitoring, annual reviews, and independent reviews to
continually improve systems and methods in order to minimize potential harm associated with these long-term
facilities.
In 2020, we advanced the implementation of the TSM protocols at all of our sites and ensured safe management
of tailings facilities during mine suspensions related to the COVID-19 pandemic. All installations are in satisfactory
condition, and continue to be monitored to confirm readings and trends are acceptable.
Water
We recognize competition to access valuable water resources is intensifying in the regions where we operate due
to population growth, economic development, degraded water quality and climate change. Our effective water
stewardship is essential to secure access to valuable water resources, protecting shared resources, respecting the
rights of other water users, and where possible avoiding impacts that may occur within and beyond our operating
boundaries. This involves developing comprehensive understandings in the quantity, quality, competing rights and
uses, and renewability of the water resource regimes that has been allocated to our business and closely managing
our use of freshwater, investigating ways of using water more efficiently, minimizing negative impacts on water
quality and, in many instances, developing access to water resources for regional benefits that were previously
unknown or undeveloped.
In 2020, we continued to implement the TSM Water Stewardship protocol and had no material incidents or non-
compliance related to water in the quarter.
Corporate Social Responsibility
Supporting Communities during the COVID-19 Pandemic
The COVID-19 pandemic has resulted in a humanitarian crisis in many of the communities where Pan American
operates. The Company is engaging with its communities to better understand the effects of the pandemic on its
residents and how we can support them during this time. Pan American has committed to donate $2.0 million
towards food, hygiene and medical supplies, and personal protection equipment; and included the donation of an
PAN AMERICAN SILVER CORP.
15
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
oxygen plant from our Shahuindo operation to the Cajambamba province of Peru. The oxygen plant supplies
oxygen to local hospitals and health care centres in the Cajamarca region. The Company is also providing health
care support, assisting with sanitation efforts, and facilitating access to education. At the request of some of the
communities, we paused the implementation of our local economic development programs earlier in 2020. Most
of these programs are now in the process of being resumed.
In 2020, Pan American entered into a 3-year, $1.5 million partnership commitment with UNICEF Canada to provide
health and education to vulnerable children in Latin America affected by the COVID-19 pandemic.
Community Engagement
We have adopted formal policies, procedures, and industry best practices to manage our impacts and contribute
to the social and economic development of local communities. Our social management framework provides a
consistent methodology for measuring and tracking social impacts and sustainability performance across our
mines, while offering the flexibility needed to tailor our approach to the circumstances of each operation.
Components of our management framework include:
•
•
•
•
Community teams at each operation are responsible for community engagement, impact management,
and program implementation.
Response mechanisms help us understand and respond to community questions, concerns or complaints
around the perceived or actual impacts of our activities.
Participatory baseline assessments conducted with communities and third parties help us understand a
community’s social context, the potential impacts of our activities, and communities of interest and
vulnerable groups.
Programs and initiatives intended to provide long-term sustainable benefits are designed in collaboration
with communities.
We conduct social audits at all operations to help us monitor and manage the impacts of our activities on
communities, our work force, and in our regional supply chains. Our audit framework is based on the ISO 26000
guidance on social responsibility and incorporates content from best practices and other standards, including the
United Nations Guiding Principles on Business and Human Rights, as well as the TSM Protocol on Community and
Aboriginal Relationships. During 2020, we conducted a social audit of the Manantial Espejo operation in Argentina.
Human Rights
In 2019, Pan American adopted its Global Human Rights Policy that is based on the three pillars of the United
Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.
This policy consolidates several of our existing objectives in the areas of environment, labour, diversity and social
responsibility. It formalizes our approach to fostering a positive human rights culture throughout our organization
and our work to prevent, minimize or mitigate adverse impacts from our activities on our employees,
communities, and other external stakeholders.
We took additional steps to align with international human rights best practices in 2019 and conducted a gap
assessment of our security practices against the requirements of the Voluntary Principles on Security and Human
Rights and UNICEF Canada’s Child Rights and Security Checklist at two of our three operations with armed security
forces: La Colorada in Mexico and Escobal in Guatemala. In 2020, we completed the final assessment at Dolores in
Mexico.
Our on-going community engagement, social audit process, and response mechanisms are designed to help us
identify actual and potential human rights risks resulting from our activities and take appropriate steps to manage
and mitigate these risks. Our social audit process screens for human rights risks in the provisions of certain
contractor and subcontractor agreements, as well as from contractor security practices. Our Supplier Code of
Conduct provides an additional framework to help manage human rights risks in our supply chain. We also follow
PAN AMERICAN SILVER CORP.
16
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
the guidelines set by the World Gold Council’s Conflict-Free Gold Standard, which helps us ensure that our actions
do not contribute to human rights violations.
In December 2020, Pan American adopted an Inclusion and Diversity Policy, which provides guidance on standards
of conduct that must be followed by our directors, officers, employees, contractors and business partners acting
on behalf of or representing Pan American. The Policy is available at panamericansilver.com.
Indigenous Rights
Pan American recognizes and respects the rights, cultures, heritage and interests of indigenous peoples. We are
committed to building and maintaining positive relationships with indigenous groups through on-going
engagement, and identification of mutually beneficial opportunities.
Through our acquisition (the "Tahoe Acquisition") of Tahoe Resources Inc. ("Tahoe"), we now control three mining
properties located near Indigenous communities – our Timmins West and Bell Creek operating mines (collectively,
"Timmins") in Canada and the Escobal mine in Guatemala. Mining operations at Escobal are suspended while the
government of Guatemala completes an International Labour Organization 169 ("ILO 169") consultation process
with local Indigenous communities.
2021 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 2021
production, cash costs and AISC outlooks for each mine are further discussed in the "2021 Mine Operation
Forecasts" section of this MD&A.
2021 Silver and Gold Production, Cash Costs and AISC Forecasts:
Silver Segment:
La Colorada
Huaron
Morococha (92.3%)(2)
San Vicente (95.0%)(3)
Manantial Espejo/COSE/Joaquin
Total(4,5)
Gold Segment:
Dolores
Shahuindo
La Arena
Timmins
Total(4,5)
Total Production(5)
Consolidated Silver Basis(6)
Silver Production
Gold Production
(million ounces)
(thousand ounces)
Cash Costs
($ per ounce)(1)
AISC
($ per ounce)(1)
7.16 - 7.44
3.61 - 3.86
2.25 - 2.42
3.23 - 3.37
3.18 - 3.46
19.43 - 20.55
2.73 - 2.97
0.29 - 0.43
0.03
0.02
3.07 - 3.45
22.50 - 24.00
n/a
4.0 - 4.2
0.5
0.8 - 0.9
0.5
33.2 - 35.3
39.0 - 41.4
160.8 - 179.3
153.9 - 165.0
102.9 - 110.9
148.4 - 158.5
566.0 - 613.7
605.0 - 655.1
n/a
4.00 - 5.00
4.80 - 7.90
10.00 - 14.20
12.30 - 13.50
16.30 - 17.30
8.50 - 10.00
665 - 820
715 - 795
870 - 940
1,085 - 1,160
825 - 925
n/a
n/a
8.50 - 9.50
9.50 - 12.50
13.50 - 17.50
16.75 - 17.75
19.00 - 20.00
12.50 - 14.00
850 - 1,000
1,125 - 1,250
1,275 - 1,400
1,375 - 1,450
1,135 - 1,250
n/a
(2.80) - 2.70
(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 $23.50/oz for
silver, $1,825/oz for gold, $2,700/tonne ($1.22/lb) for zinc, $1,900/tonne ($0.86/lb) for lead, and $7,400/tonne ($3.36/lb) for copper;
and average annual exchange rates relative to 1 USD of 20.00 for the Mexican peso ("MXN"), 3.50 for the Peruvian sol ("PEN"), 96.67
for the Argentine peso ("ARS"), 7.00 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.
PAN AMERICAN SILVER CORP.
17
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
(3) San Vicente data represents Pan American’s 95.0% interest in the mine's production.
(4) Silver Segment 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 Cash Costs and AISC are calculated net of credits for realized silver revenues and are
calculated per ounce of gold sold.
(5) Totals may not add due to rounding.
(6) Consolidated AISC is calculated per silver ounce sold with total gold revenues included within by-product credits. General and
administrative ("G&A") and greenfield exploration costs are included in the consolidated AISC, but not allocated in calculating AISC for
each operation.
The 2021 forecast assumes operations will continue to be impacted by comprehensive COVID-19 protocols, which
increase costs and restrict throughput levels, especially at our underground mines. The impact of COVID-19 on
operations is expected to diminish over the course of 2021, as vaccinations are deployed throughout our operating
jurisdictions later in the year. For the first quarter of 2021, we assume operations will experience the full effect of
COVID-19 restrictions, similar to Q4 2020. We assume the impact of restrictions declines to 75% in the second
quarter, 50% in the third quarter and 25% in the fourth quarter of 2021. The first quarter of 2022 is assumed to be
the first period that will be free of COVID-19 restrictions, allowing operations to run at full capacity. The impact
regarding the restrictions could improve or worsen relative to our assumptions, depending on how each
jurisdiction manages potential outbreaks of COVID-19, the development and supply of vaccines, and the roll-out of
vaccination programs in each jurisdiction.
The Company has forecast 2021 silver production of 22.50 to 24.00 million ounces, representing a 30% to 39%
increase over the 2020 consolidated production of 17.31 million ounces, as operating restrictions related to
COVID-19 begin to diminish over 2021. The silver production guidance for 2021 reflects: the decline in silver
grades and increase in gold grades at Dolores from mine sequencing; restricted mining rates at La Colorada during
the first half of the year due to the replacement of ventilation infrastructure; and a continued scarcity of qualified
underground mining personnel in southern Argentina due to inter-provincial travel restrictions, which results in
reduced production rates at Manantial Espejo, COSE and Joaquin while extending the mine lives by approximately
one year.
Gold production in 2021 is expected to be between 605.0 thousand and 655.1 thousand ounces, which is an
increase of between 16% and 25% from 2020 production levels. The expected increase is primarily driven from the
higher gold production at Dolores due to an expected 40% to 45% increase in gold grades, as well as the
assumption that operating restrictions related to COVID-19 begin to diminish over 2021.
Due to the expected gold production at Dolores, the Company has determined that the mine is better identified as
a Gold Segment operation. As such, the Company will report Dolores cash costs and AISC in 2021 on a per ounce of
gold basis and include it as part of its Gold Segment cash costs and AISC calculations.
Silver Segment cash costs for 2021 are forecast to be between $8.50 and $10.00 per payable ounce of silver, while
Silver Segment AISC are expected to be between $12.50 and $14.00 per ounce, which compare to 2020 Silver
Segment cash costs and AISC of $7.05 and $11.38, respectively. The expected increases relative to 2020 are
primarily driven by the reallocation of Dolores from the Silver Segment, as the 2020 cash costs and AISC, exclusive
of Dolores, were $10.14 and $13.10, respectively. Excluding the impact from moving Dolores into the Gold
Segment, Silver Segment cash costs are expected to decrease in 2021 due to higher by-product credits from higher
price assumptions and better grades at Manantial Espejo and San Vicente, which should more than offset
increased operating costs. Similarly, Silver Segment AISC are expected to decrease from 2020 AISC (excluding
Dolores) due to higher grades and by-product credits, despite higher anticipated sustaining capital investments for
several long life projects, such as tailings storage facility expansions and other mine infrastructure.
Gold Segment cash costs for 2021 are forecast to be between $825 and $925 per payable ounce of gold, while
Gold Segment AISC are expected to be between $1,135 and $1,250 per ounce, which compare to 2020 Gold
Segment cash costs and AISC of $797 and $1,011, respectively. The expected increase in the Gold Segment unit
cost per ounce metrics are primarily due to higher waste mining at La Arena and Shahuindo from an increase in
the waste-to-ore strip ratio and increased costs in consumables and community spending, as well as increased
capital spending at Shahuindo, La Arena and Timmins, as described in the "2021 Capital Expenditure Forecasts"
section, which largely reflects the deferral of major projects from 2020 into 2021. The increases at Shahuindo, La
PAN AMERICAN SILVER CORP.
18
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Arena and Timmins are expected to be partially offset by the reallocation of Dolores into the Gold Segment, which
is expected to be our lowest unit cost per ounce producer in 2021.
Consolidated AISC (on a silver basis, net of by-product credits) in 2021 is forecast to be between negative $2.80
and positive $2.70 compared to the negative $3.29 per ounce recorded in 2020. The expected increase in AISC is
largely driven by higher anticipated capital spending.
2021 Consolidated Base Metal Production Forecasts:
Consolidated Production
60.7 - 64.5
23.4 - 25.7
Zinc
(kt)
Lead
(kt)
Copper
(kt)
7.1 - 8.0
Base metal production is expected to increase for zinc, lead and copper in 2021 compared to 2020. The expected
increases are largely due to an assumption of steadily increasing operating capacity at all underground mines
during 2021, given the assumption of gradually decreasing pandemic impacts.
2021 Capital Expenditure Forecasts
Pan American expects sustaining capital expenditure of between $245.0 million and $260.0 million in 2021, which
is an increase from the $162.0 million invested in 2020. In addition, Pan American expects to invest between $55.0
million and $60.0 million in project capital, primarily to advance the skarn deposit at La Colorada and for
exploration drilling of the Wetmore project adjacent to the Bell Creek Mine. Approximately $50.0 million to $60.0
million of sustaining and project capital was deferred into 2021 from 2020 due to COVID-19 related delays.
The following table details the forecast capital expenditures at the Company's operations and projects in 2021:
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Dolores
Shahuindo
La Arena
Timmins
Sustaining Capital Total
La Colorada Skarn
Timmins Expansion
Project Capital Total
Total Capital
2021 Forecast Capital
Investment
($ millions)
27.0 - 29.5
14.5 - 15.5
6.0 - 7.0
13.5 - 14.5
6.5 - 7.5
26.0 - 30.0
66.5 - 68.0
44.5 - 45.0
40.5 - 43.0
245.0 - 260.0
50.0 - 55.0
5.0
55.0 - 60.0
300.0 - 320.0
The forecast 2021 sustaining capital is related primarily to the following activities:
•
La Colorada - underground ventilation infrastructure improvements, mine equipment replacement and
refurbishments, tailing storage facility expansions and near-mine exploration;
• Huaron - a tailings storage facility expansion, mine deepening and infrastructure investments, mine
equipment replacements, and near-mine exploration;
• Morococha - near-mine exploration and mine equipment additions and replacements;
•
San Vicente - a tailings storage facility expansion, mine infrastructure and equipment replacements, and
near-mine exploration;
PAN AMERICAN SILVER CORP.
19
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
• Manantial Espejo - a tailings storage facility expansion, and lease payments related to on-site electricity
generation;
• Dolores - heap leach pad expansions, mine equipment refurbishments, and mine infrastructure and plant
•
•
•
upgrades;
Shahuindo - heap leach pad expansions, waste rock storage facility expansions and other mine
infrastructure, land purchases and near-mine exploration;
La Arena - open pit mine waste pre-stripping, waste rock storage facility expansions, leach pad expansions,
and near-mine exploration; and,
Timmins - tailings storage facility expansions, mine equipment replacements and refurbishments, mill
upgrades, and near-mine exploration.
Forecast 2021 project capital consists of:
•
•
La Colorada - continued exploration and in-fill drilling, early stage engineering and metallurgical testing for
the skarn discovery; camp upgrades; and a refrigeration unit to address temperatures in the underground
mine, which appear to increase at depth. The investment in camp upgrades and the refrigeration unit is
expected to benefit the current operation, and especially the long-term development of the skarn
deposit;
Timmins - underground development from the existing Bell Creek workings at depth and exploration
expenditures related to the Wetmore project.
2021 Care & Maintenance and General & Administrative Expense Forecast
Forecast care and maintenance expense for 2021 is $22.0 million to $23.5 million, and is comprised of $20.0
million to $21.0 million for the Escobal mine and $2.0 million to $2.5 million for the Navidad project. Annual
corporate general and administrative expense, including share-based compensation, is forecast to be between
$39.0 million and $42.0 million in 2021.
2021 Exploration Expenditures Forecast
Exploration expenditures in 2021, including amounts that will be expensed and capitalized, are expected to
total approximately $42.0 million, comprised of: (1) $12.5 million for 105,000 metres of near-mine brownfield
exploration drilling targeting reserve replacement, which is included in the forecast for 2021 sustaining capital
expenditures for each mine, (2) $8.0 million in regional, greenfield exploration in Peru, Mexico and Canada and
corporate overhead; and (3) $22.0 million for drilling the La Colorada skarn and adjacent vein systems, as well as
exploring the Wetmore project adjacent to the Bell Creek mine in Timmins, which is included in the forecast for
2021 project capital expenditures.
2021 Mine Operation Forecasts
Management's expectations for each mine’s 2021 operating performance, including production, cash costs, and
AISC, are provided below:
La Colorada operation
Silver production is forecast to be between 7.16 and 7.44 million ounces in 2021, which is 42% to 48% more than
the 5.02 million ounces produced in 2020. The expected increase is driven primarily by higher throughput rates
and higher grades, as the ventilation systems are restored and operating restrictions related to COVID-19 diminish
during the year.
Cash costs per silver ounce in 2021 are forecast to be between $4.00 and $5.00, significantly lower than the $6.99
recorded in 2020, given the higher production from higher throughput and grades.
AISC in 2021 is forecast to be between $8.50 and $9.50 per silver ounce, lower than the $10.80 achieved in 2020,
driven by the same factors affecting cash costs, partially offset by higher sustaining capital per ounce in 2021 for
PAN AMERICAN SILVER CORP.
20
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
investments in ventilation and tailings storage projects and because of the COVID-19 related deferral of certain
projects from 2020 into 2021.
Huaron operation
Silver production is forecast to be between 3.61 to 3.86 million ounces in 2021, which is 68% to 80% higher than
the 2.15 million ounces produced in 2020, reflecting higher anticipated throughput as the operating restrictions
related to COVID-19 diminish during the year. The higher throughput is similarly expected to result in an increase
in base metal production, offset by slightly lower grades from mine sequencing.
Cash costs per silver ounce in 2021 are forecast to be between $4.80 and $7.90, an increase from the 2020 cash
costs of $3.77 per ounce. Higher cost per tonne estimates for 2021 are based on assumptions for modest
escalations in wages and consumable costs and increased depth of mining, partially offset by higher by-product
credits from higher base metal price assumptions.
AISC for 2021 is forecast to be between $9.50 and $12.50 per silver ounce, higher than the $6.53 per ounce
achieved in 2020. The anticipated increase in AISC reflects higher operating costs and higher sustaining capital
from the COVID-19 related deferral of certain projects from 2020 into 2021.
Morococha operation
Silver production is forecast to be between 2.25 and 2.42 million ounces in 2021, approximately double the 1.17
million ounces produced in 2020. The expected increase reflects higher anticipated throughput, as the operating
restrictions related to COVID-19 diminish during the year, and slightly higher grades. The higher throughput is
similarly expected to result in an increase in base metal production, which more than offsets lower base metal
grades from mine sequencing.
Cash costs per silver ounce in 2021 are forecast to be between $10.00 and $14.20, comparable to the 2020 cash
costs of $11.40 per ounce.
AISC is forecast to be between $13.50 and $17.50 per silver ounce in 2021, significantly lower than the $18.38 per
ounce reported in 2020. The decrease largely reflects lower anticipated sustaining capital per ounce in 2021, given
the higher production.
San Vicente operation
Silver production is forecast to be between 3.23 and 3.37 million ounces in 2021, a meaningful increase over 2020
production of 2.32 million ounces. The expected increase reflects higher anticipated throughput, as the operating
restrictions related to COVID-19 diminish during the year, and higher grades from mine sequencing. The higher
throughput and grades are similarly expected to result in an increase in lead and zinc production, while copper
production is expected to decrease due to changes in the commercialization strategy.
Cash costs per silver ounce in 2021 are forecast to be between $12.30 and $13.50, which is between $2.04 and
$3.24 per ounce lower than 2020 cash costs of $15.54 per ounce. The expected decrease is driven by higher by-
product credits per ounce from increased zinc grade and improved concentrate treatment terms, partially offset
by higher operating costs, including an increase in royalties based on price assumptions.
AISC for 2021 is forecast to be between $16.75 and $17.75 per silver ounce, slightly lower than the $17.94 per
ounce recorded in 2020. The expected decrease is due to the same factors affecting the cash costs forecast,
partially offset by higher sustaining capital from the COVID-19 related deferral of certain projects from 2020 into
2021.
PAN AMERICAN SILVER CORP.
21
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Manantial Espejo operation
Silver production is forecast to be between 3.18 and 3.46 million ounces in 2021, which is between 25% and 36%
higher than the 2.55 million ounces produced in 2020. Gold production in 2021 is forecast to be between 33.2 and
35.3 thousand ounces, which is between 42% and 51% higher than the 23.4 thousand ounces produced in 2020.
The expected increase reflects higher anticipated throughput, particularly from the higher grade COSE and Joaquin
operations, as the operating restrictions related to COVID-19 diminish during the year.
Cash costs per silver ounce in 2021 are forecast to be between $16.30 to $17.30, an increase from the 2020 cash
costs of $15.68. The expected increase is primarily the result of an assumption that local inflationary pressures will
lead to increased wage and consumable costs in dollar terms, and the additional costs for the mining, trucking and
processing of COSE and Joaquin ores. These factors increasing costs are partially offset by higher gold by-product
credits due to the higher gold grades from COSE displacing low-grade stockpile ores.
AISC for 2021 is forecast to be between $19.00 and $20.00 per silver ounce, higher than the $15.80 per ounce
reported in 2020. AISC is expected to increase due to the same factors affecting cash costs, as well as slightly
higher sustaining capital.
Dolores operation
Gold production in 2021 is forecast to be between 160.8 and 179.3 thousand ounces, which is between 64% and
83% higher than the 98.0 thousand ounces produced in 2020. Silver production is forecast to be between 2.73 and
2.97 million ounces in 2021, which is 21% to 28% lower than the 3.78 million ounces produced in 2020. The
expected increase in gold production and decrease in silver production is primarily driven by planned mine
sequencing into higher gold grade but lower silver grade zones in the open pit at depth.
Cash costs per gold ounce in 2021 are forecast to be between $665 and $820 per ounce, compared to $824 per
gold ounce had Dolores been reported as a Gold Segment operation in 2020. The expected decrease in cash costs
is driven by higher gold grades, despite the lower silver grades expected in 2021, and an increase in operating
costs from a higher proportion of non-capitalized open pit waste mining expenditures.
AISC in 2021 is forecast to be between $850 and $1,000 per gold ounce, significantly lower than the $1,189 had
Dolores been reported as a Gold Segment operation in 2020. The expected decrease is due to the same factors
affecting cash costs, in addition to lower sustaining capital per ounce, largely from a lower open pit strip ratio
resulting in lower open pit pre-stripping in 2021.
Shahuindo operation
Gold production is forecast to be between 153.9 and 165.0 thousand ounces in 2021, an increase from the 142.4
thousand ounces produced in 2020. The expected increase reflects higher anticipated throughput, as the
operating restrictions related to COVID-19 diminish during the year, partially offset by a decrease in the ratio of
ounces produced to gold ounces placed on the heap due to expected leach sequencing during 2021.
Cash costs per gold ounce in 2021 are forecast to be between $715 and $795, up from the 2020 cash costs of $588
per ounce. The expected increase results from: a higher open pit waste strip ratio, operating cost increases for
wages and consumables; greater consumption of consumables in the processing circuit; and higher community
expenses.
AISC for 2021 is forecast to be between $1,125 and $1,250 per gold ounce, which is $375 to $500 higher than the
2020 AISC of $750 per ounce, reflecting the increase in cash costs, as well as higher sustaining capital from the
COVID-19 related deferral of certain projects from 2020 into 2021.
La Arena operation
Gold production is forecast to be between 102.9 and 110.9 thousand ounces in 2021, consistent with the 105.4
thousand ounces produced in 2020 as throughput, grades and recoveries are expected to be relatively stable year-
over-year.
PAN AMERICAN SILVER CORP.
22
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Cash costs per gold ounce in 2021 are forecast to be between $870 and $940, which is $149 to $219 higher than
2020 cash costs of $721, largely due to an increase in open pit waste mining, expected cost increases in wages and
consumables, and community expenses.
AISC for 2021 is forecast to be between $1,275 and $1,400 per gold ounce, which is between $166 to $291 higher
than the $1,109 per ounce reported in 2020 due to the increase in cash costs previously mentioned, as well as
higher sustaining capital per ounce. The increase in sustaining capital is primarily from a higher open pit strip ratio
and an increase in deferred stripping, which reflect the extension of the mine life following significant exploration
success, as disclosed in our 2020 mineral reserves and resources update.
Timmins operation
Gold production is forecast to be between 148.4 and 158.5 thousand ounces in 2021, comparable to the 148.4
thousand ounces produced in 2020, and reflects higher anticipated throughput, as the operating restrictions
related to COVID-19 diminish during the year.
Cash costs per gold ounce in 2021 are forecast to be between $1,085 and $1,160, slightly higher than the 2020
cash costs of $1,061. The expected increase primarily reflects an assumption that the Canadian dollar will
appreciate relative to the US Dollar in 2021, and for modest cost increases of wages and consumables.
AISC for 2021 is forecast to be between $1,375 and $1,450 per gold ounce, higher than 2020 AISC of $1,213 per
ounce due to the expected increase in cash costs, as well as higher sustaining capital investments, largely for a
significant expansion of the tailings facility planned for 2021.
PAN AMERICAN SILVER CORP.
23
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
2020 OPERATING PERFORMANCE
Impact of COVID-19
• Operational Impacts
The following section describes the impact of the COVID-19 pandemic on the Company’s operations during the
twelve months ended December 31, 2020. Please see the "2021 Operating Outlook" section of this MD&A for our
expectation for operations in 2021.
Argentina
On March 20, 2020, the federal government of Argentina imposed mandatory social distancing on its population
and ordered the suspension of non-essential activities, including mining. In order to comply with these orders, the
Company suspended its Manantial Espejo operations on March 23, 2020, and assigned a work-from-home
directive for its administrative personnel. The federal government subsequently deemed mining an essential
activity on April 3, 2020. Underground mining at Manantial Espejo resumed on April 26, 2020, and development
work at the Joaquin and COSE mines resumed in early May 2020. In addition, the Mining Secretary in the Province
of Santa Cruz, Argentina, imposed a suspension of mining operations during the holiday period to help curb the
spread of COVID-19, which caused production at Manantial Espejo, COSE and Joaquin to be suspended between
December 21, 2020 and January 7, 2021.
Bolivia
On March 22, 2020, the Bolivian government announced a national quarantine and suspension of non-essential
activities including mining. In response, the Company halted all supply deliveries and personnel transport to its San
Vicente mine, and subsequently suspended operations in an orderly manner, assigning a work-from-home
directive for its administrative personnel and support offices. On May 2, 2020, the government authorized the
resumption of mining activities. Underground development activities at San Vicente resumed on May 12, 2020,
mining resumed on May 18, 2020 and plant operations resumed on June 1, 2020.
Canada
The Timmins mines operated throughout 2020 at reduced capacity to comply with physical distancing restrictions.
Health and safety protocols consistent with those recommended by the local and provincial health authorities,
best management practices and the World Health Organization were adopted in March 2020 and continue to be
refined as new recommendations are adopted.
Mexico
On March 17, 2020, Mexico’s Senate announced the need to demobilize the vulnerable population from
conducting activities that could increase the possibility of becoming infected from the COVID-19 virus. On March
19, 2020, the Company began to demobilize vulnerable workers, assigned a work-from-home directive for its
administrative personnel and reduced the workforce at its mines in Mexico by approximately 30% in order to
increase physical distancing throughout the operations, offices, and personnel transport systems. On March 31,
2020, Mexico's Ministry of Health issued a National Agreement for the immediate suspension of non-essential
activities until April 30, 2020, which was subsequently extended to May 30, 2020. The Company suspended its La
Colorada and Dolores operations in early April to comply with this National Agreement. Mining operations were
permitted to prepare to restart in late May, 2020, as the government began lifting some of the lockdown
restrictions and redefined the mining industry as an essential business.
On May 24, 2020, underground mining and processing activities resumed at La Colorada at reduced capacity to
accommodate physical distancing restrictions.
At the Dolores operation, open pit mining, crushing, and heap leaching production activities resumed on June 1,
2020 at modestly reduced capacity to accommodate physical distancing restrictions. The pulp agglomeration plant
PAN AMERICAN SILVER CORP.
24
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
restarted in mid-June 2020 and underground mining resumed in July 2020. Circulation of process solutions on the
heap leach pads continued during the suspension, allowing gold and silver production from pad inventory at
reduced rates. Construction activity on the heap leach pad expansion resumed in Q4 2020 once the rain season
had passed.
Peru
On March 15, 2020, the government of Peru declared a State of Emergency, requiring a national quarantine and
suspension of non-essential activities including mining. To comply with the order, the Company assigned a work-
from-home directive for its administrative personnel and temporarily suspended operations at its four Peruvian
mines: Shahuindo, La Arena, Huaron and Morococha.
Open pit mining and run-of-mine heap leach activities at Shahuindo and La Arena resumed on May 15, 2020 at
reduced capacities to accommodate physical distancing restrictions. Construction of the Shahuindo heap leach pad
expansion and preparation for construction of the La Arena waste dump resumed in June 2020.
During the suspensions at both Shahuindo and La Arena, circulation of process solutions on the heap leach pads
continued.
Operations resumed at Huaron and Morococha on June 7, 2020 and June 23, 2020, respectively; however, both
mines were returned to care and maintenance on July 20, 2020 in response to several workers at the mines testing
positive for COVID-19. Following intensive health screenings and testing for the virus that were developed and
deployed at Shahuindo and La Arena during July and August 2020, the Company began gradually redeploying its
workforce at Huaron and Morococha over last two weeks of September 2020.
Financial Impacts
The full financial impacts of the COVID-19 pandemic on the Company are indeterminable given the uncertainty of
how long the pandemic impacts will persist. However, management believes that the Company's liquidity is
sufficient to satisfy our anticipated 2021 working capital requirements, fund currently planned capital
expenditures, and to discharge liabilities as they come due based on the Company's current financial position, the
results of a management performed COVID-19 disruption and liquidity analysis, and the Company's access to
capital, particularly given the credit facility currently in-place. Please see the "Liquidity and Capital Position" and
the "Risks and Uncertainties" sections of this MD&A for further information.
PAN AMERICAN SILVER CORP.
25
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Consolidated 2020 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, 2020 and 2019, except for the Shahuindo, La Arena, and Timmins'
mines (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,
2020
2019
2020
2019
2020
2019
2020
2019
1,186
2,080
892
527
663
742
764
83
11
4
935
554
877
817
1,287
54
11
6
5,025
2,148
1,173
2,320
2,547
3,779
268
33
18
8,206
3,796
2,456
3,528
2,599
5,122
137
26
18
0.8
0.3
0.2
0.1
8.0
30.5
33.6
41.4
38.1
1.3
0.2
0.2
0.1
6.7
26.1
43.5
48.4
47.3
4,872
6,622
17,312
25,886
152.9
173.9
3.5
0.5
0.6
0.3
23.4
98.0
142.4
105.4
148.4
522.4
4.6
1.0
1.4
0.5
22.4
117.6
145.4
122.5
143.8
559.2
La Colorada
Huaron
Morococha(1)
San Vicente(2)
Manantial Espejo
Dolores
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
2020 consolidated silver production of 17.31 million ounces was 33% lower than the 25.89 million ounces
produced in 2019. Production at all Silver Segment operations declined year-over-year due to the COVID-19
related mine suspensions and restricted capacities. Other factors reducing 2020 production were: an inability to
access high-grade ore at La Colorada due to the COVID-19 related delay in completing an underground ventilation
raise and the loss of a ventilation raise from surface in late Q4 2020; mine sequencing into higher gold grade zones
and lower silver grade zones at the Dolores open pit mine; and lower grades at San Vicente from mine sequencing.
Consolidated silver production in Q4 2020 of 4.87 million ounces was 26% lower than the 6.62 million ounces
produced in Q4 2019, primarily due to the COVID-19 related impacts on operations, as well as the other factors
described previously. Q4 2020 silver production was also reduced by a suspension of operations at Manantial
Espejo from December 21, 2020 to January 7, 2021, to help curb the spread of COVID-19.
Gold Production
Consolidated gold production in 2020 of 522.4 thousand ounces was 7% below the 559.2 thousand ounces
produced in 2019. Gold production was less impacted by COVID-19 than silver production because: operations at
Timmins continued throughout 2020; limited production continued at Dolores, La Arena and Shahuindo during
their suspensions from circulation of process solutions on the heap leach pads; and capacities are less restricted at
the gold open pit mines than the silver producing underground mines.
Consolidated gold production in Q4 2020 of 152.9 thousand ounces was 12% lower than the 173.9 thousand
ounces produced in Q4 2019, largely due to the COVID-19 related restrictions on operating capacities and open pit
mine sequencing.
Each operation’s production variances are further discussed in the “Individual Mine Performance” section of this
MD&A.
PAN AMERICAN SILVER CORP.
26
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Base Metal Production
The following table provides the Company’s base metal production for the three-month and twelve-month periods
ended December 31, 2020 and 2019:
Zinc - kt
Lead - kt
Copper - kt
Base Metal Production
Three months ended
December 31,
Year ended
December 31,
2020
2019
2020
2019
14.2
5.4
2.3
16.6
7.2
2.3
40.2
15.7
5.2
67.6
27.3
8.7
Zinc, lead and copper production were 40%, 42% and 41% lower in 2020 relative to 2019, respectively. The
decreases were primarily due to the COVID-19 related mine suspensions and restricted capacities, as well as lower
grades at La Colorada because of ventilation issues preventing access to certain high-grade zones of the mine.
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'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. The quantification of both the current cash costs and AISC measures
is described in detail, and where appropriate reconciled to the 2020 financial statements, in the "Alternative (Non-
GAAP) Performance Measures" section of this MD&A.
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, 2020, as compared to the same periods in 2019 for the
Silver Segment mines and since February 22, 2019 for the Gold Segment mines:
Cash Costs(1)
($ per ounce)
AISC(1)
($ per ounce)
Three months
ended
December 31,
Year ended
December 31,
Three months
ended
December 31,
Year ended
December 31,
2020
2019
2020
2019
2020
2019
2020
2019
7.07
(9.79)
2.03
11.85
17.67
18.72
6.15
619
556
1,126
763
4.30
2.64
5.34
10.85
14.38
15.47
7.80
605
580
884
693
6.99
(2.48)
3.77
11.40
15.54
15.68
7.05
588
721
1,061
797
2.99
3.09
4.15
4.35
11.77
19.59
6.39
570
644
904
712
11.78
(2.17)
3.35
18.29
20.89
19.24
10.37
842
873
1,355
1,023
5.80
9.33
9.44
18.83
16.50
16.94
11.37
970
764
984
901
10.80
6.17
6.53
18.38
17.94
15.80
11.38
750
1,109
1,213
1,011
4.54
15.45
7.74
10.08
13.08
18.43
10.46
807
1,042
998
948
(7.28)
1.04
(3.29)
4.44
(5.85)
0.96
(2.35)
4.45
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Silver Segment Consolidated
Shahuindo
La Arena
Timmins
Gold Segment Consolidated
Consolidated per silver ounce sold(2):
All Operations
All Operations before net realizable value
("NRV") inventory adjustments
(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 2020 Financial Statements.
PAN AMERICAN SILVER CORP.
27
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
(2) 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
Silver Segment cash costs in 2020 were $7.05 per ounce, a $0.66 increase from the $6.39 per ounce reported in
2019. The increase was the result of: (i) higher direct operating costs per ounce, largely from the COVID-19 related
impact on throughput and the cost associated with protocols to protect health and safety, (ii) higher direct selling
costs per ounce from higher concentrate treatment charges, and (iii) higher royalties from increased metal prices.
Partially offsetting these factors was an increase in by-product credits per ounce from increased gold, lead, and
copper prices.
Gold Segment cash costs in 2020 were $797 per ounce, an $85 increase from the $712 per ounce reported in 2019.
The increase was the result of: (i) higher direct operating costs from COVID-19 related protocols, (ii) wage
increases and cost escalations in certain consumables, and (iii) utilizing a lower grade cut-off at Timmins, based on
mine life extensions identified late in 2019.
AISC
Silver Segment AISC in 2020 was $11.38 per ounce, a $0.92 increase from the $10.46 per ounce reported in 2019.
The increase was primarily due to the same factors that increased Silver Segment cash costs, as well as higher
sustaining capital per ounce. Partially offsetting these factors were net realizable value ("NRV") inventory
adjustments, which reduced costs by $16.2 million in 2020.
Gold Segment AISC in 2020 was $1,011 per ounce, a $63 increase from the $948 per ounce reported in 2019. The
increase was primarily due to the same factors that increased Gold Segment cash costs, partially offset by lower
sustaining capital per ounce because of COVID-19 related delays or deferrals of certain capital projects.
Consolidated silver basis AISC for 2020 was negative $3.29 per ounce, a $7.73 decrease from the $4.44 per ounce
reported in 2019. The decrease was primarily from higher by-product prices and a higher proportion of gold
relative to silver revenues, which more than offset the increased costs described above.
PAN AMERICAN SILVER CORP.
28
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
2020 Operating Results versus 2020 Guidance
The following table sets out the actual 2020 annual metal production, cash costs, AISC and capital expenditures
compared to those forecast by Management throughout the year. The Original 2020 Forecasts were provided in
our Annual 2019 MD&A dated March 12, 2020, which was withdrawn on May 6, 2020 due to uncertainties
regarding the impact of COVID-19. Management subsequently provided further updates in its Q2 2020 MD&A and
Q3 2020 MD&A (the "August 2020 Forecast" and "Revised 2020 Forecasts", respectively). In the table below "NC"
denotes no changes to the previously provided forecast.
Original 2020
Forecast
August 2020
Forecast
Revised 2020
Forecast
2020 Actual
Silver Production - Moz
Gold Production - koz
Zinc Production - kt
Lead Production - kt
Copper Production - kt
Silver Segment Cash Costs ($ per ounce)
Gold Segment Cash Costs ($ per ounce)
Silver Segment AISC ($ per ounce)
Gold Segment AISC ($ per ounce)
27.0 - 28.5
19.0 - 22.0
18.0 - 19.0
625.0 - 675.0
525.0 - 575.0
67.5 - 70.5
27.5 - 29.5
9.3 - 10.3
5.75 - 7.50
820 - 870
40.0 - 43.0
17.0 - 18.0
4.3 - 4.9
6.20 -7.70
800 - 860
10.25 - 11.75
10.50 - 12.50
1,090 - 1,170
1,050 - 1,125
NC
NC
NC
NC
NC
NC
NC
NC
NC
Consolidated Silver Basis AISC ($ per ounce)
4.50 - 6.50
(3.00) - 0.75
Sustaining Capital ($ millions)
Project Capital ($ millions)
225.0 - 240.0
185.0 - 189.0
175.0 - 180.0
22.0 - 27.0
25.0 - 26.0
20.0 - 21.0
The following section compares our August 2020 Forecast to the actual 2020 results.
Silver and Gold Production versus the August 2020 Forecast
17.3
522.4
40.2
15.7
5.2
7.05
797
11.38
1,011
(3.29)
162.0
21.5
Silver Segment:
La Colorada
Dolores
Huaron
Morococha(2)
San Vicente(2)
Manantial Espejo
Silver Segment Total(3)
Gold Segment:
Shahuindo
La Arena
Timmins
Gold Segment Total(3)
Total(3)
2020 Silver Production
(million ounces)
2020 Gold Production
(thousand ounces)
Forecast (1)
Actual
Forecast (1)
Actual
6.4 - 7.2
4.0 - 4.8
2.0 - 2.2
1.2 - 1.4
2.2 - 2.6
3.0 - 3.5
18.8 - 21.7
0.2 - 0.3
—
—
0.2 - 0.3
19.0 - 22.0
5.0
3.8
2.1
1.2
2.3
2.5
17.0
0.3
—
—
0.3
17.3
4.0
99.0 - 104.0
1.0
1.0
-
24.0 - 27.0
130.0 - 138.0
147.0 - 164.0
103.0 - 114.0
145.0 - 159.0
395.0 - 437.0
525.0 - 575.0
3.5
98.0
0.5
0.6
0.3
23.4
126.3
142.4
105.4
148.4
396.2
522.4
(1) The August 2020 Forecast, representing the first revision to annual forecasts subsequent to the withdrawal of the Original 2020
Forecast due to the impact of COVID-19 (previously discussed in the "Impact of COVID-19" section of this MD&A).
(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.
PAN AMERICAN SILVER CORP.
29
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Silver Production
Consolidated 2020 silver production was 17.3 million ounces, 9% lower than the 19.0 million ounces at the low-
end of the August 2020 Forecast range. The production shortfall was primarily due to the loss of a ventilation raise
from surface at La Colorada in Q4 2020, slower silver leaching kinetics at Dolores, and a greater than anticipated
impact of COVID-19 on operations, including the suspension of Manantial Espejo operations from December 21,
2020 to January 7, 2021.
Gold Production
Consolidated 2020 gold production was 522.4 thousand ounces, slightly below the 525.0 thousand ounce low-end
of the August 2020 Forecast range, which reflects the greater than anticipated impact of COVID-19 on our
operations.
Base Metal Production versus the August 2020 Forecast
Consolidated
2020 Zinc Production (thousand
tonnes)
2020 Lead Production
(thousand tonnes)
2020 Copper Production
(thousand tonnes)
Forecast (1)
40.0 - 43.0
Actual
40.2
Forecast (1)
17.0 - 18.0
Actual
15.7
Forecast (1)
4.3 - 4.9
Actual
5.2
(1) The August 2020 Forecast, representing the first revision to annual forecasts subsequent to the withdrawal of the Original 2020
Forecast due to the impact of COVID-19 (previously discussed in the "Impact of COVID-19" section of this MD&A).
2020 zinc production was in-line with the August 2020 Forecast, whereas copper production was above the high
end of the August 2020 Forecast and lead production was below the low end of the August 2020 Forecast. Strong
base metal production at Huaron and San Vicente largely offset the shortfalls at La Colorada from the impact of
COVID-19 and the lack of access to high-grade ore due to the ventilation issues .
Cash Costs and AISC versus August 2020 Forecast:
The following table summarizes 2020 cash costs and AISC compared to the August 2020 Forecast 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
Timmins
Total(3)
Consolidated Silver Basis(3,4)
2020 Cash Costs(1)
($ per ounce)
2020 AISC(1)
($ per ounce)
Forecast (2)
Actual
Forecast (2)
Actual
6.20 - 7.00
(5.60) - (3.90)
8.20 - 9.10
11.00 - 12.30
14.30 - 16.20
13.80 - 15.90
6.20 - 7.70
590 - 660
760 - 860
1,030 - 1,060
800 - 860
n/a
6.99
(2.48)
3.77
11.40
15.54
15.68
7.05
588
721
1,061
797
n/a
9.50 - 10.50
3.90 - 7.40
11.80 - 12.85
16.80 - 18.40
16.10 - 18.20
15.30 - 17.70
10.50 - 12.50
860 - 960
1,140 - 1,260
1,175 - 1,240
1,050 - 1,125
(3.30) - 0.75
10.80
6.17
6.53
18.38
17.94
15.80
11.38
750
1,109
1,213
1,011
(3.29)
(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 2020 Financial Statements. The
cash costs and AISC forecasts assumed realized prices and exchange rates for the six month period ended June 30, 2020 and the
following price and exchange rate assumptions for the period July 1, 2020 to December 31, 2020: metal prices of $18.25/oz for silver,
$1,850/oz for gold, $2,050/tonne ($0.93/lb) for zinc, $1,775/tonne ($0.81/lb) for lead, and $6,150/tonne ($2.79/lb) for copper; and
PAN AMERICAN SILVER CORP.
30
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
average exchange rates relative to 1 USD of 22.50 for the MXN, 3.50 for the PEN, 77.53 for the ARS, 6.91 for the BOB, and $1.35 for the
CAD.
(2) The August 2020 Forecast, representing the first revision to annual forecasts subsequent to the withdrawal of the Original 2020
Forecasts due to the impact of COVID-19 (previously discussed in the "Impact of COVID-19" section of this MD&A).
(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.
Cash Costs
Silver segment cash costs of $7.05 per ounce were within the August 2020 Forecast range of $6.20 to $7.70 per
ounce. Higher than anticipated cash costs at La Colorada and Dolores were offset by higher by-product metal
prices and lower costs at Huaron, as described further in the "Individual Mine Performance" section of this MD&A.
Gold segment cash costs of $797 per ounce were below the low end of the August 2020 Forecast, reflecting lower
than anticipated costs at La Arena and Shahuindo, and costs at Timmins narrowly above the forecasted range.
AISC
Silver Segment AISC of $11.38 per silver ounce was within the August 2020 Forecast range. 2020 AISC reflects the
same factors affecting cash costs. AISC also benefited from $15.8 million in higher cost reducing NRV adjustments
in 2020.
Gold Segment AISC of $1,011 per gold ounce was below the August 2020 Forecast range, primarily because of
lower sustaining capital due to the deferral of certain capital expenditures into 2021.
Consolidated AISC, calculated on a silver ounce basis, of negative $3.29 was within the August 2020 Forecast
range.
Capital Expenditures versus the August 2020 Forecast:
The following table summarizes the 2020 capital expenditures compared to the August 2020 Forecast:
La Colorada
Dolores
Huaron
Morococha
San Vicente
Manantial Espejo
Shahuindo
La Arena
Timmins
Sustaining Capital Sub-total
La Colorada Skarn project
Timmins expansion
Other
Project Capital Sub-total
Total Capital
7.3
4.5
4.9
44.9
18.4
Actual
2020 Capital Expenditure ($ millions)
Forecast (1)
19.0 – 19.5
42.0 – 42.5
5.5 – 6.0
5.5 – 6.0
3.5 – 4.0
3.0
44.5 - 45.5
40.0 - 41.0
23.0 - 24.0
185.0 - 189.0
13.5 - 14.0
4.0 - 4.5
7.5
25.0 -26.0
210.0 – 215.0
162.0
183.6
21.5
22.7
18.8
11.0
37.3
3.3
8.6
2.0
(1) The August 2020 Forecast, representing the first revision to annual forecasts subsequent to the withdrawal of the Original 2020
Forecast due to the impact of COVID-19 (previously discussed in the "Impact of COVID-19" section of this MD&A).
PAN AMERICAN SILVER CORP.
31
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Sustaining capital expenditures were $23.0 million less than the low end of the August 2020 Forecast range, driven
primarily by deferrals of certain sustaining capital, particularly at Shahuindo. Project capital in 2020 was also
below the August 2020 Forecast range due to the COVID-19 related deferral of certain projects.
Individual Mine Operation Performance
An analysis of performance at each operation in 2020 compared with 2019 follows. The project capital amounts
invested in 2020 are further discussed in the "Project Development Update" section of this MD&A. The Gold
Segment operations 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.
La Colorada operation
Tonnes milled - kt
Average silver grade – grams per tonne
Average zinc grade - %
Average lead grade - %
Production:
Silver – koz
Gold – koz
Zinc – kt
Lead – kt
Three months ended
December 31
Year ended
December 31
2020
139.6
295
2.62
1.29
1,186
0.77
3.13
1.50
2019
197.1
358
2.85
1.70
2,080
1.28
4.85
2.92
2020
559.1
308
2.80
1.39
5,025
3.47
13.58
6.63
2019
768.7
361
3.10
1.65
8,206
4.61
20.97
11.15
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands(2)
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
Payable silver sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
1,770
1,957
18,417
4.30
5.80
11.78
10.80
5,496
7,973
5,254
1,291
7,583
9,721
6.99
7.07
4.54
2.99
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $1.9 million and $11.0 million investing activity cash outflows for Q4 2020 and full year 2020,
respectively (Q4 2019 and full year 2019: $2.9 million and $11.1 million, respectively) related to investment capital incurred on the La
Colorada projects, as disclosed in the “Project Development Update” section of this MD&A.
2020 versus 2019
Production:
•
•
Silver: 39% decrease due to the COVID-19 related mine suspension and capacity restrictions, as well as an
inability to access high-grade ore due to the COVID-19 related delay in completing an underground
ventilation raise and the loss of a ventilation raise from surface.
By-products: 35% and 41% decrease in zinc and lead, respectively, due to the same factors affecting silver
production.
Cash Costs: were $4.00 higher than in 2019, reflecting an increase in operating costs per ounce due to COVID-19
related impacts and the ventilation issues, as well as higher treatment and refining charges.
Sustaining Capital: primarily related to investments in mechanization equipment, underground infrastructure,
lease payments for equipment and offices, and near-mine exploration activities. The increase relative to 2019 was
related to a tailings storage facility lift and mine ventilation infrastructure investments.
AISC: was $6.26 higher than in 2019, as a result of the factors affecting year-over-year cash costs, in addition to
higher sustaining capital per ounce due to the higher investments and lower production in 2020.
PAN AMERICAN SILVER CORP.
32
Dolores operation
Tonnes placed - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended
December 31
Year ended
December 31
2020
1,891.1
21
0.76
764
30.5
2019
1,856.7
42
0.62
1,287
26.1
2020
6,429.9
29
0.64
3,779
98.0
2019
6,777.0
38
0.60
5,122
117.6
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands(2)
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
4,924
Payable silver sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
1,402
8,106
(2.17)
(2.48)
(9.79)
10,175
44,861
12,778
49,660
9.33
2.64
4,063
15.45
6.17
3.09
959
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $nil and $nil investing activity cash outflows for Q4 2020 and full year 2020, respectively (Q4
2019 and full year 2019: $nil and $0.4 million respectively) related to underground mine projects, as disclosed in the “Project
Development Update” section of this MD&A.
2020 versus 2019
Production:
•
Silver: the 26% decrease was primarily the result of lower grades from mine sequencing, as expected, and
slightly lower stacking rates from the suspension of operations in Q2 2020 due to the COVID-19 pandemic.
• Gold: the 17% decrease was primarily due to the timing of leach pad kinetics, which resulted in a build-up
of inventory on pad 3 in Q4 2020. Further, gold production in 2019 benefited from the stacking of partially
leached pad 1 material, which enhanced recoveries above the expected life of mine recovery rate.
Cash Costs: decreased $5.57 per ounce due to higher by-product credits per ounce from higher gold prices and an
increased proportion of revenue from gold in 2020 relative to 2019. This benefit from by-product credits more
than offset higher operating costs per ounce from COVID-19 related protocols and the impact from the build-up in
gold inventory in Q4 2020.
Sustaining Capital: consistent year-over-year, and primarily related to pre-stripping and leach pad expansions in
both periods.
AISC: decreased $9.28 per ounce due to the same factors decreasing cash costs, in addition to a $4.73 per ounce
positive swing in cost-reducing NRV inventory adjustments, which more than offset higher sustaining capital per
ounce, despite the deferral of some capital spending due to COVID-19.
PAN AMERICAN SILVER CORP.
33
Huaron operation
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 - $ per ounce(1)
Sustaining capital - $ thousands
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended
December 31
Year ended
December 31
2020
230.5
143
2.58
1.32
0.94
892
0.29
4.69
2.33
1.65
2.03
776
2019
252.3
140
2.49
1.32
0.85
935
0.21
4.95
2.50
1.57
5.34
2,834
2020
555.6
144
2.58
1.32
0.88
2,148
0.53
11.21
5.59
3.65
3.77
4,500
2019
994.0
142
2.38
1.22
0.81
3,796
0.97
18.07
9.22
6.02
4.15
10,936
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
3,253
Payable silver sold – koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
20,840
9.44
1,843
736
3.35
6.53
7.74
(11)
697
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
2020 versus 2019
Production:
•
•
Silver: 43% lower, primarily from the COVID-19 related mine suspension and capacity restrictions.
By-products: lead, copper and zinc production declined 39%, 39% and 38%, respectively, primarily due to
the same factors affecting silver production, partially offset by higher grades from mine sequencing.
Cash Costs: $0.38 per ounce lower, as higher concentrate treatment charges were more than offset by lower
operating costs per ounce and higher by-product credits per ounce from higher base metal grades and higher lead
and copper prices.
Sustaining Capital: primarily related to equipment leases, near mine exploration, and equipment replacements and
refurbishments. The year-over-year decrease is primarily related to the reduced spending on a tailings storage
facility expansion, mine deepening and mine infrastructure projects.
AISC: a decrease of $1.21 per ounce due to the same factors affecting year-over-year cash costs, in addition to
lower sustaining capital investments, partly from the deferral of a number of projects due to COVID-19.
PAN AMERICAN SILVER CORP.
34
Morococha operation(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
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended
December 31
Year ended
December 31
2020
141.4
129
3.30
1.31
0.47
527
0.19
4.08
1.51
0.43
2019
176.5
112
3.55
1.17
0.44
554
0.23
5.46
1.61
0.46
2020
328.6
126
3.43
1.29
0.43
1,173
0.59
9.86
3.46
0.88
2019
686.2
126
3.76
1.21
0.44
2,456
1.39
22.50
6.56
1.83
Cash costs - $ per ounce(2)
Sustaining capital - $ thousands(3)
Care and maintenances costs - $ thousands
AISC - $ per ounce(2)
Payable silver sold (100%) - koz
(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
10.85
18.83
3,945
20,023
12,599
11.85
11.40
18.38
18.29
1,108
3,219
7,259
10.08
2,335
515
4.35
517
(3)
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
(3) Sustaining capital expenditures exclude $0.2 million and $1.0 million investing activity cash outflows for Q4 2020 and full year 2020,
respectively (Q4 2019 and full year 2019, $0.8 million and $2.3 million, respectively) related to investment capital incurred on the
Morococha project, as disclosed in the “Project Development Update” section of this MD&A.
2020 versus 2019
Production:
•
•
Silver: 52% lower, entirely from the COVID-19 related mine suspension and capacity restrictions.
By-products: zinc, lead and copper decreased by 56%, 47%, 52%, respectively, due to the same factors
affecting silver production. In addition, zinc grades were lower due to mine sequencing.
Cash Costs: $7.05 per ounce higher, due primarily to higher concentrate treatment charges, COVID-19 related cost
impacts, and lower by-product credits per ounce due to lower zinc grades and prices.
Sustaining Capital: primarily related to expanded near-mine exploration, equipment replacements and
refurbishments, and equipment and office leases. The year-over-year decrease was primarily related to lower
capital investments in equipment replacements and near-mine exploration.
AISC: increased $8.30 per ounce, primarily driven by the same factors affecting year-over-year cash costs, in
addition to higher sustaining capital per ounce.
PAN AMERICAN SILVER CORP.
35
San Vicente operation (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 - $ per ounce(2)
Sustaining capital - $ thousands
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended
December 31
Year ended
December 31
2020
93.0
237
2.88
0.05
0.24
663
0.08
2.34
0.04
0.18
17.67
1,391
2019
91.1
328
1.80
0.15
0.30
877
0.13
1.31
0.13
0.22
14.38
2,048
2020
285.1
276
2.34
0.02
0.27
2,320
0.31
5.57
0.05
0.62
15.54
4,877
2019
349.7
345
2.16
0.14
0.31
3,528
0.48
6.01
0.42
0.85
11.77
4,960
Care and maintenances costs - $ thousands
AISC - $ per ounce(2)
Payable silver sold (100%) - koz
(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
16.50
1,001
20.89
17.94
2,890
2,153
13.08
4,003
453
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
2020 versus 2019
Production:
•
•
Silver: 34% lower, due to a combination of the COVID-19 related mine suspension and capacity
restrictions, and lower grades from mine sequencing and challenges with narrow-vein mining in 2020.
By-products: zinc, lead and copper production decreased 7%, 87% and 26%, respectively, primarily due to
the same factors affecting silver production. Zinc production benefited from higher grades from mine
sequencing, whereas the significant decrease in lead production was the result of commercial terms that
resulted in lower lead payability.
Cash costs: increased $3.77 per ounce due to higher royalty costs per ounce from increased silver and copper
metal prices, lower by-product credits per ounce from lower zinc prices and lower lead marketed in favor of
copper contained in the bulk flotation concentrate, and lower silver grades.
Sustaining Capital: consistent with 2019, with expenditures primarily related to mine equipment replacements and
rehabilitations, near-mine exploration, and mine site and camp infrastructure.
AISC: a $4.86 per ounce increase due to the same factors affecting year-over-year cash costs, in addition to higher
sustaining capital per ounce due to the silver production shortfalls.
PAN AMERICAN SILVER CORP.
36
Manantial Espejo operations
Tonnes milled - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended
December 31
Year ended
December 31
2020
149.3
166
1.78
2019
186.5
150
1.21
2020
604.7
146
1.30
2019
708.6
127
1.08
742
817
2,547
2,599
Gold – koz
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands(2)
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
2,460
Payable silver sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
16.94
15.47
6.71
19.24
15.68
18.72
23.37
15.80
2,545
5,617
3,264
18.43
19.59
22.41
2,757
928
696
7.98
702
732
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $1.2 million and $7.5 million investing activity cash outflows for Q4 2020 and full year 2020,
respectively (Q4 2019 and full year 2019, $5.6 million and $23.8 million, respectively) related to the development of the Joaquin and
COSE projects, as disclosed in the “Project Development Update” section of this MD&A.
2020 versus 2019
Production: Silver and gold: consistent with 2019 production, as the COVID-19 related mine suspension and
capacity restrictions were offset by higher silver and gold grades from the addition of high-grade COSE and Joaquin
ores in 2020.
Cash costs: decreased $3.91 per ounce from higher gold prices and lower operating costs per ounce due to the
devaluation of the peso and lower diesel prices.
Sustaining Capital: consistent with prior year, and primarily related to near-mine exploration and lease payments
for diesel generators.
AISC: decreased $2.63 per ounce due to the same factors affecting year-over-year cash costs, partially offset by a
decrease in cost-reducing NRV inventory adjustments.
PAN AMERICAN SILVER CORP.
37
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Shahuindo operation
The Shahuindo mine was acquired on February 22, 2019, and as such, the 2019 financial and operating results
have only been reported, and included in the Company's consolidated results, from this date forward.
Tonnes milled - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands
Three months ended
December 31,
Year ended
December 31,
2020
2,697.3
7
0.54
83.10
33.60
619
6,963
2019
2020
2019
3,449.4
10,603.4
11,218.8
7
0.58
54.21
43.52
605
14,156
9
0.56
268.30
142.38
588
22,749
8
0.60
136.62
145.37
570
29,873
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
Payable gold sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
39.85
150.77
133.30
33.06
3,855
970
842
750
807
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
2020 versus 2019
Production: Gold, 2% decrease, primarily from the COVID-19 related mine suspension and capacity restrictions and
lower grades from mine sequencing, which were largely offset by higher than anticipated ratio of ounces produced
over ounces placed from leach pad sequencing.
Cash Costs: increased $18 per ounce, primarily as a result of the lower grades mined being largely offset by higher
by-product credits due to higher silver sales and prices.
Sustaining Capital: 2020 expenditures comprised leach pad expansions, site infrastructure improvements, near-
mine exploration, and payments for leased mining equipment.
AISC: decreased $57 per ounce, as lower sustaining capital expenditures per ounce, due to the COVID-19 related
deferral of major projects, more than offset the factors increasing year-over-year cash costs.
PAN AMERICAN SILVER CORP.
38
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
La Arena operation
The La Arena mine was acquired on February 22, 2019, and as such, the 2019 financial and operating results have
only been reported, and included in the Company's consolidated results, from this date forward.
Tonnes milled - kt
Average silver grade – grams per tonne
Average gold grade – grams per tonne
Production:
Silver – koz
Gold – koz
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands
Three months ended
December 31,
Year ended
December 31,
2020
4,132.2
1
0.42
11.27
41.40
556
13,030
2019
2020
2019
5,311.8
10,079.3
11,189.7
—
0.41
10.81
48.43
580
8,382
1
0.37
33.46
105.37
721
37,324
—
0.41
26.16
122.52
644
47,557
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
Payable gold sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
48.06
124.21
99.32
42.10
3,712
1,109
1,042
764
873
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
2020 versus 2019
Production: Gold, a 14% decrease from the COVID-19 related mine suspension and capacity restrictions, and lower
grades from mine sequencing.
Cash Costs: increased $77 per ounce, primarily from lower grades and certain wage and consumable cost
increases.
Sustaining Capital: 2020 expenditures primarily related to capitalized deferred stripping, waste storage facility
expansions, and near-mine exploration.
AISC: increased by $67 per ounce, due to the same factors affecting year-over-year cash costs, which were
partially offset by a slight decrease in sustaining capital per ounce.
PAN AMERICAN SILVER CORP.
39
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Timmins' operation
The Timmins mines were acquired on February 22, 2019, and as such, the 2019 financial and operating results
have only been reported, and included in the Company's consolidated results, from this date forward.
Tonnes milled - kt
Average gold grade – grams per tonne
Production:
Silver – koz
Three months ended
December 31,
Year ended
December 31,
2020
426.2
2.73
2019
473.9
3.17
2020
1,643.1
2.85
2019
1,480.7
3.18
4.38
5.53
17.63
17.53
Gold – koz
Cash costs - $ per ounce(1)
Sustaining capital - $ thousands(2)
Care and maintenances costs - $ thousands
AISC - $ per ounce(1)
143.30
Payable gold sold - koz
(1) Cash costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this
46.40
47.33
4,066
148.40
148.13
18,795
143.77
11,035
38.09
37.20
1,213
7,621
1,126
1,061
1,355
884
984
904
998
—
—
—
—
MD&A for a detailed reconciliation of these measures to cost of sales.
(2) Sustaining capital expenditures exclude $0.5 million and $2.0 million investing activity cash outflows for Q4 2020 and full year 2020,
respectively (Q4 2019 and full year 2019, $0.1 million and $2.7 million, respectively) related to investment capital incurred on the
Timmins projects, as disclosed in the “Project Development Update” section of this MD&A.
2020 versus 2019
Production: Gold, increased 3%, as a full year of operations in 2020 mitigated the impact of the COVID-19 related
capacity restrictions and the lower cut-off grade applied in 2020.
Cash Costs: increased $157 per ounce, primarily due to the application of lower grade cut-offs in ore control,
encountering some geotechnical issues in the underground mine and COVID-19 safety protocols preventing higher
anticipated throughput levels.
Sustaining Capital: 2020 expenditures primarily comprised mine equipment refurbishments and replacements,
mine infrastructure upgrades, near-mine exploration, and lease payments for mining equipment.
AISC: increased by $215 per ounce due to the same factors impacting cash costs, as well as higher sustaining
capital expenditures.
PAN AMERICAN SILVER CORP.
40
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
PROJECT DEVELOPMENT UPDATE
The following table reflects the amounts spent at each of Pan American’s major projects in 2020 as compared to
2019.
Project Development Investment(1)
(thousands of USD)
Mexico Projects
Joaquin and COSE Projects
Timmins projects
Other
Three months ended
December 31
Year ended
December 31
2020
1,909
1,198
450
196
2019
2,891
5,622
104
961
2020
10,971
7,525
1,956
1,093
2019
11,469
23,754
2,712
6,799
Total
(1) Categorization of the Q4 2019 and full year 2019 amounts have been changed from those reported in the Q4 2019 MD&A to conform
21,545
9,578
44,734
3,753
to the current period categorizations.
Mexico Projects:
The Company spent $9.4 million in 2020 on exploration drilling and $1.5 million on project engineering relating to
the La Colorada skarn deposit compared to $11.5 million spent in 2019. The Company published an updated
inferred resource estimate for the skarn on August 4, 2020.
Joaquin and COSE Projects:
In 2020, the Company spent $7.5 million on the final development of the COSE and Joaquin projects, directed
mainly at advancing development of the underground mines. The Manantial Espejo plant began processing ore
mined from COSE in early September 2020. In 2019, the Company spent a combined $27.1 million on these
projects during which development of both projects was delayed to reassess and re-engineer ground control
systems.
Timmins Projects:
The Company spent $2.0 million on projects at Timmins in 2020, primarily related to purchasing equipment and
materials for an expansion of operations, which continues to be delayed due to the COVID-19 pandemic.
OVERVIEW OF 2020 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 the volatility of realized metal prices, and the volume and timing of sales, which varies with the timing of
shipments, and which was also impacted by the COVID-19 related suspensions of normal course operations at
certain of our mines in 2020. The fourth quarters of both 2019 and 2018 included impairment charges to the
Manantial Espejo mine and the COSE and Joaquin projects.
PAN AMERICAN SILVER CORP.
41
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
2020
Quarter Ended
(In thousands of USD, other than per share amounts)
March 31
June 30
Sept 30
Dec 31
Year
Ended
Dec 31
Revenue
$
358,428 $
249,509 $
300,414 $
430,461 $
1,338,812
Mine operating earnings
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(1)
Total attributable shareholders’ equity
$
$
$
50,058 $
48,386 $
124,561 $
137,172 $
360,177
(76,807) $
20,063 $
65,741 $
168,885 $
177,882
(0.37) $
(0.37) $
0.10 $
0.10 $
0.31 $
0.31 $
0.80 $
0.80 $
0.85
0.85
114,051 $
62,750 $
114,943 $
170,571 $
462,315
0.050
$
0.050
$
0.050
$
0.070
$
0.220
$
$
$
3,433,875
277,696
2,602,519
(1) Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities and deferred revenue.
2019
(In thousands of USD, other than per share amounts)
Revenue (1)
Mine operating earnings (1)
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(2)
Total attributable shareholders’ equity
Quarter Ended
March 31
June 30
Sept 30
Dec 31
Year
Ended
Dec 31
$
$
$
$
$
$
$
253,699 $
15,770 $
2,783 $
0.02 $
0.02 $
(12,911) $
0.035
$
340,494 $
51,058 $
18,371 $
0.09 $
0.09 $
83,518 $
0.035 $
352,187 $
63,850 $
37,657 $
0.18 $
0.18 $
81,948 $
0.035 $
110,738
229,288
404,379 $ 1,350,759
98,610 $
51,927 $
0.26 $
0.26 $
129,473 $
0.035 $
282,028
0.140
0.55
0.55
$ 3,461,682
$
517,776
$ 2,463,099
(1) Concurrent with the Tahoe Acquisition, the Company classified the Timmins mines as a discontinued operation held for sale and, in Q3
2019, 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.
(2) 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.
42
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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 $
55,124 $
47,376 $
0.31 $
0.31 $
34,400 $
0.035
$
216,460 $
54,851 $
36,187 $
0.24 $
0.24 $
66,949 $
0.035 $
187,717 $
(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.
Income Statement: 2020 versus 2019
Net earnings of $176.5 million were recorded in 2020 compared to $111.2 million in 2019, which corresponds to
basic earnings per share of $0.85 and $0.55, respectively.
The following table highlights the difference between net earnings in 2020 compared with 2019:
$
$
Net earnings, year ended December 31, 2019
Decreased revenue:
Lower quantities of metal sold
Increased realized metal prices
Decreased direct selling costs
Increased negative settlement adjustments
Total decrease in revenue
Decreased cost of sales:
Decreased production costs and increased royalty charges
Increased depreciation and amortization
Total decrease in cost of sales
Increased care and maintenance costs
Decreased impairment charge
Decreased investment income
Increased other expense
Decreased interest and finance expense
Decreased transaction and integration costs
Decreased dilution gain, net of share of loss from associate
Increased general and administrative expense
Increased income tax expense
Decreased exploration and project development expense
Increased net gain on asset sales, commodity contracts and derivatives
Increased foreign exchange loss
$
111,244
Note
(260,205)
237,298
12,374
(1,414)
$
(11,947)
(1)
143,852
(1,016)
$
(2)
(3)
(4)
(5)
(6)
(7)
(8)
142,836
(78,443)
40,050
(21,680)
(17,131)
9,178
7,515
(4,716)
(4,623)
(4,289)
4,588
4,344
(471)
176,455
Net earnings, year ended December 31, 2020
$
1. Revenue for 2020 was $1.34 billion, an $11.9 million decrease from the $1.35 billion of revenue recognized in
2019. The revenue decrease resulted from the impact of increased realized precious metal prices being more
than offset by decreased quantities of metal sold. The lower quantities of metal sold were due to lower metal
PAN AMERICAN SILVER CORP.
43
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
production and sales volumes for all metals, reflecting COVID-19 related throughput reductions and mine
suspensions.
The following table reflects the metal prices realized by the Company and the quantities of metal sold during
each year:
Realized Metal Prices
Quantities of Metal Sold
Year ended
December 31
Year ended
December 31
2020
2019
2020
2019
$
Silver(1) – koz
Gold(1) – koz
Zinc(1) – kt
Lead(1) – kt
Copper(1) – kt
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper, inclusive of final
settlement adjustments on concentrate sales.
16.34
1,406
6,412 $
2,535
1,997
5,973
17,317
24,676
519.7
20.60
2,288
1,758
1,851
548.2
16.5
35.7
25.7
60.0
4.2
7.6
$
$
$
$
Realized prices for silver and gold increased by 26% and 25%, respectively, in 2020 compared to 2019, whereas
realized prices for zinc and lead decreased by 10% and 7%, respectively, and realized copper prices increased
7% in 2020.
Lower quantities of all metals were sold in 2020 compared to 2019, with year-over-year quantities of silver,
gold, zinc, lead and copper decreased by 30%, 5%, 41%, 36%, and 44%, respectively.
Silver Segment and Gold Segment revenues in 2020 were $630.6 million and $708.2 million, respectively,
compared to Silver Segment and Gold Segment revenues in 2019 of $785.4 million and $565.4 million,
respectively.
2. Production and royalty costs in 2020 were $724.2 million, $143.9 million lower than in 2019. The decrease
was attributable to production costs being $144.6 million lower in 2020, which was largely due to production
costs from the Silver Segment operations being approximately $142.7 million lower, reflecting reduced
throughput largely from the COVID-19 related mine suspensions and operating protocols, and a $15.8M
increase in cost reducing NRV adjustments in 2020 relative to 2019. The cost variances reflect the lower sales
volumes in 2020 from the COVID-19 related decreased production levels, as previously discussed in the
"Individual Mine Performance" section of this MD&A, largely offset by a full year of production from the Gold
Segment mines, compared with 2019, which only included production and sales from the Gold Segment mines
from the February 22, 2019 closing date of the Tahoe Acquisition onwards.
3. Care and maintenance costs were $102.1 million in 2020, a $78.4 million increase from 2019, reflecting the
COVID-19 related mine suspensions in 2020, details of which are included in the "Impact of COVID-19"
discussion in the "2020 Operating Performance" section of this MD&A. Care and maintenance costs in 2019
related primarily to the Company's Escobal mine where operations are currently suspended.
4.
Impairment charges no impairment charges or impairment reversals were recorded in 2020. In 2019, $40.1
million ($40.1 million, net of tax expense) of impairments were recorded related to the Company's Manantial
Espejo asset in Argentina.
Non-current assets are tested for impairment, or reversal of previous impairment charges, when events or
changes in circumstance indicate that the carrying amount may not be recoverable, or previous impairment
charges against assets are recoverable. The Company performs an impairment test for goodwill at each
financial year-end and when events or changes in circumstances indicate that the related carrying value may
not be recoverable. The Company considers its internal discounted cash flow economic models as a proxy for
the calculation of fair value less cost to sell, given a willing market participant would use such models in
establishing a value for the properties. The Company considers impairment, or if previous impairment charges
PAN AMERICAN SILVER CORP.
44
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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 metals 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, including the impact of COVID-19 on our operations and the
prevailing market metals prices, the Company concluded that as of December 31, 2020, no impairment or
impairment reversal indicators were identified.
As of December 31, 2019, there were indicators of impairment at Manantial Espejo, which required the
Company to record impairment charges of $40.1 million.
2019 Impairment - Manantial Espejo
increase
in Argentina export taxes, announced
in January 2020, combined with the delayed
The
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, 2020, 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).
Key assumptions and sensitivity:
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. The metal prices used to
calculate the recoverable amounts at December 31, 2019 are based on analyst consensus prices:
Metal prices used at December 31, 2019:
Metal Prices
Silver - $/oz
Gold - $/oz
2020-2022 average
$17.94
$1,474
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 at 3.7%, with rates applied to the various
mines and projects ranging from 4.0% to 12.3%, depending on the Company’s assessment of country risk,
project risk, and other potential risks specific to each CGU.
At December 31, 2020, 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, 2020, 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 fair-value less cost to sell ("FVLCTS")
PAN AMERICAN SILVER CORP.
45
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
through impairment charges, a 10% adverse change in any one key assumption would reduce the recoverable
amount below the carrying amount.
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.
5.
Investment income of $63.0 million in 2020 was $21.7 million lower than in 2019. Investment income in each
period largely reflects fair value "mark-to-market" adjustments and realized gains on certain of the Company's
equity investments, the largest component of which being the Company's shares in New Pacific Metals Corp.
("New Pacific").
6. Other expense of $22.1 million in 2020 was $17.1 million higher than in 2019. The increase mainly reflects: a
$6.1 million provision relating to certain value-added tax receivables in Guatemala; a $5.2 million increase to
estimated closure and decommissioning liabilities for the Company's Alamo Dorado mine in Mexico, which
went into reclamation at the end of 2017; commissions and transactions costs associated with the Company's
sales of certain Maverix Metals Inc. ("Maverix") and New Pacific shares in 2020; and the settlement of certain
claims by former contractors of the Company. There were no such comparable costs for these matters in 2019.
7.
Interest and finance costs of $20.1 million in 2020 were $9.2 million lower than in 2019, reflecting a lower
amount drawn on the Credit Facility during the year, as further discussed in the "Liquidity and Capital Position"
section of this MD&A, and lower prevailing interest rates compared to 2019.
8. Transaction and integration costs were $7.5 million lower in 2020 because no such costs were recorded
whereas in 2019 these costs were incurred in relation to the Tahoe acquisition.
Statement of Cash Flows: 2020 versus 2019
Cash flow from operations in 2020 totaled $462.3 million, $180.3 million more than the $282.0 million generated
in 2019. The increase was mostly related to a $124.9 million increase in cash from working capital changes and an
increase in cash mine operating earnings (which excluded non-cash items such as depreciation and amortization,
and NRV inventory adjustments). The increase in cash mine operating earnings was driven by stronger precious
metal prices, which more than offset the additional care and maintenance costs.
Working capital changes in 2020 resulted in a $97.0 million source of cash, largely reflecting a $56.8 million
increase in current accounts payable and accrued liabilities, and a $54.8 million draw-down of accounts
receivables, partially offset by a $14.6 million increase in inventory balances. These working capital movements
compared to the $27.9 million use of cash in 2019, which was driven primarily by the settlement of accounts
payables and accrued liabilities related to the Tahoe transaction, partially offset by a release of inventories.
Investing activities utilized $83.9 million, primarily from $178.6 million spent on mineral properties, plant and
equipment at the Company’s mines and projects, plus $15.6 million invested in the exercise of Maverix warrants,
which was partially offset by $90.4 million received from the sale of short-term investments, primarily in New
Pacific, and partial disposition of the Company's interest in Maverix, as well as $22.5 million in proceeds from the
sale of certain non-core exploration-stage mineral properties.
In 2019, $402.2 million of cash was used in investing activities, 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 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. Cash from
the sale of certain non-core assets in 2019 totaled $10.3 million.
PAN AMERICAN SILVER CORP.
46
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Financing activities in 2020 used $329.6 million, primarily related to the net repayment of $275.0 million of the
Credit Facility, which was repaid in full by December 31, 2020, $46.2 million in dividends to shareholders, and
$13.1 million of lease repayments.
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 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, $60.0 million of Credit Facility repayments were made, $29.3 million was paid as dividends and
$19.3 million of lease repayments were made in 2019.
Adjusted Earnings: 2020 versus 2019
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 that 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 2020 Financial Statements.
Adjusted Earnings in 2020 were $243.4 million, representing a basic adjusted earnings per share of $1.16, which
was $85.4 million, or $0.37 per share, higher than 2019 adjusted earnings of $158.0 million, and basic adjusted
earnings per share of $0.78, respectively.
The following chart illustrates the key factors leading to the change in adjusted earnings from 2019 to 2020:
PAN AMERICAN SILVER CORP.
47
(Millions)Adjusted Earnings Reconciliation - 2019 to 2020 ($ millions)$158.0235.9(260.2)114.714.312.49.2(22.8)(12.9)(5.3)0.1243.42019adjustedearningsIncreasedmetalprices,net ofsettlementadjustmentsDecreasedquantitiesof metalsoldDecreaseddirectoperatingcostsDecreasedincometaxprovisionDecreaseddirectsellingcostsDecreasedinterestandfinanceexpenseDecreasedinvestmentincomeIncreasedotherexpenseDecreasedderivativecontractgainsOther2020adjustedearnings0100200300400500 Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Income Statement: Q4 2020 versus Q4 2019
Net earnings of $169.0 million was recorded in Q4 2020 compared to $51.7 million in Q4 2019, which corresponds
to basic earnings per share of $0.80 and $0.25, respectively.
The following table highlights the key items driving the difference between the net earnings in Q4 2020 as
compared to the net earnings recorded in Q4 2019:
$
$
Net earnings, three months ended December 31, 2019
Increased revenue:
Increased realized metal prices
Lower quantities of metal sold
Increased negative settlement adjustments
Increased direct selling costs
Total increase in revenue
Decreased cost of sales:
Decreased production costs and increased royalty charges
Increased depreciation and amortization
Total decrease in cost of sales
Decreased impairment charge
Decreased income tax expense
Increased net gain on asset sales, commodity contracts and derivatives
Increased other expense
Increased foreign exchange loss
Decreased interest and finance expense
Decreased investment income
Decreased dilution gain, net of share of income from associate
Decreased care and maintenance costs
Decreased exploration and project development expense
Increased other costs
$
51,706
Note
96,084
(67,711)
(1,662)
(629)
$
26,082
(1)
21,705
(9,225)
$
(2)
(3)
(4)
(5)
(6)
(7)
(8)
12,480
40,050
35,467
14,442
(7,794)
(4,176)
3,844
(3,032)
(1,906)
1,253
1,471
(869)
169,018
Net earnings, three months ended December 31, 2020
$
1. Revenue for Q4 2020 was $430.5 million, a $26.1 million increase from the $404.4 million recognized in Q4
2019. The revenue increase reflects higher realized metal prices being offset by lower quantities of metal sold.
The lower quantities of metal sold reflect lower production, primarily as a result of COVID-19 related
throughput reductions, as discussed in the "2020 Operating Performance" section of this MD&A, as well as the
loss of a ventilation raise at La Colorada, suspension of operations at Manantial Espejo, and mine sequencing.
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
2020
2019
2020
2019
$
$
$
$
$
24.72 $
1,874 $
2,566 $
1,922 $
7,234 $
17.84
1,479
2,325
2,078
5,840
4,732
148.1
14.5
5.4
1.7
6,392
171.0
15.1
6.1
1.9
(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 zinc prices of 39%, 27% and 10%, respectively, had
the most significant impact on revenues. Realized lead price decreased 7%, while realized copper prices
PAN AMERICAN SILVER CORP.
48
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
increased 24%, though these price movements had a less significant impact on revenues due to the lower
quantities of these metals produced and sold relative to gold, silver and zinc.
Sales volumes decreased for all metals with quarter-over-quarter quantities of silver, gold, copper, lead and
zinc down 26%, 13% 12%, 11%, an 4%, respectively.
Silver Segment and Gold Segment revenues in Q4 2020 were $216.1 million and $214.4 million, respectively,
compared to Q4 2019 Silver Segment and Gold Segment revenues of $205.5 million and $198.9 million,
respectively.
2. Production and royalty costs of $215.8 million in Q4 2020 were $21.7 million lower than those in Q4 2019.
The quarter-over-quarter decrease was driven by production costs being $22.9 million lower in Q4 2020
compared to Q4 2019. The lower production costs reflect the previously discussed lower sales volumes for all
metals, which were partially offset by increased costs relating to COVID-19 operating protocols. Further
reducing production costs were $6.7 million in non-cash, cost-reducing, NRV inventory adjustments in Q4
2020, mainly from increased precious metals prices, which compared to negative, cost increasing, NRV
inventory adjustments of $0.5 million in Q4 2019. The majority of the adjustments in each period were related
to inventories at the Dolores mine.
3. Depreciation and amortization expense of $77.5 million in Q4 2020 was $9.2 million higher than in Q4 2019,
largely the result of the increased depreciable asset base from capital additions in 2020, with the largest
increases being attributable to the open pit operations, which accounted for $6.6 million of the quarter-over-
quarter increase, and the Timmins operation, which accounted for $3.1 million of the increase.
4.
5.
Impairment charges were nil in Q4 2020. In Q4 2019, $40.1 million of impairments were recorded for the
previously discussed Manantial Espejo operation.
Income tax recovery in Q4 2020 was $9.5 million compared to $26.0 million of income tax expense in Q4
2019. The $35.5 million variance was largely attributable to the recognition of previously unrecognized tax
attributes related to the Timmins West, Bell Creek, and La Arena mines, and the appreciation of the Mexican
Peso, which resulted in an increase in the foreign currency denominated tax attributes (mainly mineral,
property, plant and equipment), partially offset by tax on the increase in net earnings before tax.
6. Net gain on asset sales, commodity contracts and derivatives was $14.4 million higher in Q4 2020 compared
to Q4 2019, driven largely by an $8.8 million increase in gains related to the sale of mineral property plant and
equipment ("MPP&E"), and a $5.7 million increase in gains on commodity and foreign currency contracts. The
Q4 2020 gain on MPP&E sales largely reflects the disposition of certain Canadian exploration stage assets. The
increased commodity and foreign currency contract gains is the result of a $7.3 million gain being recognized
in Q4 2020 on foreign currency and diesel contracts, due largely to the appreciation of the Mexican peso
relative to the US dollar and the increase in diesel prices during Q4 2020, compared to $1.6 million of gains in
Q4 2019.
7. Other expense of $13.5 million in Q4 2020 was $7.8 million higher than in Q4 2019. The increase mainly
reflects a $6.1 million provision relating to certain value-added tax receivables in Guatemala, a $5.2 million
increase to estimated closure and decommissioning liabilities for the Company's Alamo Dorado mine in
Mexico, which went into reclamation at the end of 2017. There were no such comparable expenses for these
matters in Q4 2019.
8. Foreign exchange ("FX") losses were $1.2 million in Q4 2020 compared to FX gains of $3.0 million in Q4 2019.
The Q4 2020 FX losses reflect devaluation of Argentinian denominated monetary assets, where the Q4 2019 FX
gains reflect appreciation of Peruvian denominated monetary assets.
PAN AMERICAN SILVER CORP.
49
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Statement of Cash Flows: Q4 2020 versus Q4 2019
Cash flow from operations in Q4 2020 totaled $170.6 million, $41.1 million more than the $129.5 million
generated in Q4 2019. The increase was mainly attributable to increased cash mine operating earnings (which
excluded non-cash items such as depreciation and amortization, and NRV inventory adjustments) driven primarily
by stronger precious metal prices and a $13.8 million increase in cash from changes in non-cash operating working
capital, partially offset by an $8.0 million increase in income tax payments.
Working capital changes in Q4 2020 resulted in an $18.6 million source of cash, mainly reflecting increased current
accounts payable and accrued liabilities largely offset by increased inventories and receivables balances. Changes
in non-cash working capital in Q4 2019 resulted in a $4.7 million use of cash, comprised mainly of accounts
receivable collections and a build up in payables, partially offset by inventory buildups and increased prepaid
expenses.
Investing activities utilized $40.1 million of cash in Q4 2020, comprised mostly of $53.6 million spent on mineral
property, plant and equipment additions at the Company’s mines and projects, partially offset by $12.0 million of
proceeds from asset sales, largely reflecting the sale of certain non-core Canadian exploration stage assets in the
quarter. In Q4 2019, investing activities utilized $51.5 million inclusive of $1.8 million used on the net purchase of
short-term investments, with the balance relating primarily to spending of $50.3 million on mineral property, plant
and equipment at the Company’s mines and projects.
Financing activities in Q4 2020 used $113.5 million, the majority of which related to $90.0 million of repayments
on the Credit Facility, which was fully repaid in the quarter, $14.7 million of dividends paid to shareholders, $5.6
million of loan repayments, and $3.2 million of lease repayments. In Q4 2019, $51.9 million was used in financing
activities, which consisted of $40.0 million of repayments on the Credit Facility, $7.3 million paid as dividends to
shareholders, and $5.7 million of lease repayments.
Adjusted Earnings: Q4 2020 versus Q4 2019
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 2020 Financial Statements.
Adjusted Earnings in Q4 2020 was $120.5 million, representing a basic adjusted earnings per share of $0.57, which
was $51.6 million, or $0.24 per share, higher than Q4 2019 adjusted earnings of $68.9 million, and $0.33 of basic
adjusted earnings per share.
PAN AMERICAN SILVER CORP.
50
The following chart illustrates the key factors leading to the change in adjusted earnings from Q4 2019 to Q4 2020:
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
LIQUIDITY AND CAPITAL POSITION
Liquidity and Capital Measures
Cash and cash equivalents ("Cash")
Short-term Investments
Cash and Short-term investments
Working Capital
Credit Facility committed amount
Credit Facility amounts drawn
Shareholders' equity
Total debt (1)
Capital (2)
December 31,
2020
September 30,
2020
December 31,
2019
Q4 2020
Change
2020
Change
167,113
111,946
279,059
495,168
500,000
—
150,329
81,302
231,631
465,609
500,000
90,000
120,564
117,776
238,340
517,249
500,000
275,000
16,784
30,644
47,428
29,559
—
46,549
(5,830)
40,719
(22,081)
—
(90,000)
(275,000)
2,605,839
2,448,886
2,467,846
156,953
137,993
33,565
129,826
316,208
(96,261)
(282,643)
2,360,345
2,347,081
2,545,714
13,264
(185,369)
(1) Total debt is a Non-GAAP measure calculated as the total of amounts drawn on the Credit Facility, finance lease liabilities and loans
payable.
(2) The capital of the Company consists of items included in shareholders’ equity and debt, net of cash and cash equivalents and short
term investments.
PAN AMERICAN SILVER CORP.
51
(Millions)Adjusted Earnings Reconciliation - Q4 2019 to Q4 2020($ millions)$68.995.5(67.7)14(9.2)22.33.8(3)(2.6)(1.5)120.5Q4 2019adjustedearningsIncreasedmetalprices,net ofsettlementadjustmentsDecreasedquantitiesof metalsoldDecreaseddirectoperatingcostsIncreasedDDADecreasedincometaxprovisionDecreasedinterestandfinanceexpenseDecreasedinvestmentincomeIncreasedotherexpenseOtherQ4 2020adjustedearnings050100150200
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Liquidity
The Company's cash and short-term investments increased by $16.8 million and $46.5 million during Q4 2020 and
the full year 2020, respectively. Operating cash flows of $170.6 million in Q4 2020, which was a Company record,
included $22.5 million in tax payments and a $18.6 million source 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 $90.0 million of repayments to the Credit Facility, which was fully repaid as
of December 31, 2020, $53.6 million in payments for mineral property plant and equipment, $14.7 million in
dividend payments for which the rate increased to $0.07 per share from $0.05 per share in Q3 2020, and $12.0
million of cash proceeds from the sale of non-core mineral properties. Additionally, the Company's investments in
equity investments classified as a short-term investment, including the Company's investment in New Pacific,
increased by $21.8 million in the quarter.
Annual operating cash flows in 2020 of $462.3 million, which included $97.0 million source of cash from working
capital changes and $81.6 million in tax payments. Annual operating cash flows together with $71.9 million of net
cash realized from the partial disposition of the Company's equity investments in Maverix and New Pacific (net of
$15.6 million spent to exercise certain Maverix warrants), and $22.5 million of proceeds from the sale of non-core
mineral properties was sufficient to finance a net $275.0 million in repayments on the Credit Facility, $178.6
million of investments in mineral property plant and equipment, dividend payments of $46.2 million, and lease
payments of $13.1 million during the year. Additionally, the Company's investments in equity investments
classified as a short-term investment, including the Company's investment in New Pacific, increased by $21.2
million in 2020.
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, 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, 2020 of $495.2 million increased by $29.6 million from September 30, 2020. The
increase was attributable to: the $47.4 million combined increase in cash and short-term investments described
above; a $65.0 million increase in other current assets other than those relating to taxes, though primarily from a
$47.2 million increase in inventories; all partially offset by a $51.5 million increase in current liabilities, other than
those relating to taxes, and a $31.4 million net increase in current tax liabilities. Conversely, since December 31,
2019, working capital decreased by $22.1 million, primarily from: a $60.3 million increase in current liabilities
other than those relating to taxes, and a $24.9 million net increase in current tax liabilities; partially offset by $40.7
million of cash and short-term investments, and a $22.4 million increase in other current assets other than those
relating to taxes.
The net cash generated from the sales of metal production provides our primary source of cash flows. We have
not experienced payment delinquencies from our metal sales counterparties during the COVID-19 pandemic, nor
do we currently expect to experience such delinquencies as the pandemic continues, though the impact of
COVID-19 on the credit risk associated with our counterparties cannot be determined with any degree of certainty.
The Company may periodically experience restrictions on the ability of its subsidiaries to transfer funds to Pan
American SIlver Corp., primarily as a result of fiscal restrictions or regulatory changes in the jurisdictions where we
operate. For example, Argentina has, at times, instituted unfavourable economic policies and strict currency
controls, particularly on USD transactions. These restrictions on our ability to receive funds from our subsidiaries
have not, and are not currently expected to, materially impact the Company’s ability to meet its obligations.
PAN AMERICAN SILVER CORP.
52
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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 has since repaid the full outstanding amount on the
Credit Facility, and has no balance owing at December 31, 2020, and the Company was in compliance with all
covenants required by the Credit Facility.
The Company’s financial position at December 31, 2020, 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
2021 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.
53
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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:
Financial liabilities
Payments due by period 2020
Within 1 year
2 - 3 years
4- 5 years
After 5
years
Total
$
— $
— $
3,711
—
3,711
—
—
272,266 $
2,935
6,737
281,938
54,556
367
Accounts payable and accrued liabilities other
than:
Severance accrual
Employee compensation
Total accounts payable and accrued liabilities
Income taxes payable
Loss on commodity contracts
Debt
Interest & Standby Fees
Provisions(1)(2)
Future employee compensation
Total contractual obligations(2)
(1) Total litigation provision as further discussed in Note 17 of the 2020 Financial Statements.
(2) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current $8.4
million, long-term $226.7 million) as discussed in Note 17 of the 2020 Financial Statements (2019 - current $3.4 million, long-term
$185.1 million), the deferred credit arising from the Aquiline acquisition ($20.8 million as at December 31, 2020 and December 31,
2019) discussed in Note 20 of the 2020 Financial Statements, and deferred tax liabilities of $175.3 million (2019 - $176.8 million).
272,266
7,842
6,737
286,845
54,556
367
2,110
3,648
4,396
347,015 $
2,294
3,109
11,468
20,582 $
— $
76
—
76
—
—
—
85
—
1,205 $
4,404
6,843
15,864
368,879
1,120
—
1,120
—
—
—
1
—
77 $
$
Outstanding Share Amounts
As at December 31, 2020, the Company had approximately 0.32 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 $65.71
and a weighted average life of 43 months. Approximately 0.30 million of the stock options were vested and
exercisable at December 31, 2020, with an average weighted exercise price of CAD $17.95 per share.
The following table sets out the common shares and options outstanding as at the date of this MD&A:
Common shares
Options
Total
Outstanding as at
February 17, 2021
210,261,535
314,549
210,576,084
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.
54
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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, 2020 was $330.6 million (December 31, 2019 -
$290.4 million) using inflation rates of between 0% and 4% (December 31, 2019 - between 0% and 5%). The
inflated and discounted provision on the statement of financial position as at December 31, 2020, using discount
rates between 0% and 8% (December 31, 2019 - between 2% and 9%), was $235.1 million (December 31, 2019 -
$188.5 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 2046 or later if mine
life is extended. Revisions made to the reclamation obligations in 2020 were primarily a result of increased site
disturbance at the mines as well as revisions to the estimate based on periodic reviews of closure plans, actual
expenditures incurred and concurrent closure activities completed. These obligations will be funded from
operating cash flows, reclamation deposits and cash on hand.
The accretion of the discount charged in Q4 2020 and 2020 earnings as finance expense were $2.1 million and $8.3
million, respectively (Q4 2019 and 2019 - $2.6 million and $9.9 million, respectively). Reclamation expenditures
incurred during Q4 2020 and 2020 were $0.8 million and $2.5 million, respectively (Q4 2019 and 2019 - $0.5
million and $2.3 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 2020 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.
55
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
ACQUISITION OF TAHOE
On February 22, 2019 (the "Closing Date"), the Company completed the 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 Acquired Mines and Escobal in Guatemala, where operations have been suspended since
June 2017. 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 reporting.
All 2019 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.
Consolidation of Tahoe
As described in Note 8 of the 2020 Financial Statements, the Company determined that the Tahoe Acquisition
represented a business combination with Pan American identified as the acquirer. Based on the February 21, 2019,
closing share price of Pan American's common shares on the NASDAQ, the total consideration of the Tahoe
Acquisition was $1.14 billion.
The following table summarizes the consideration paid as part of the purchase price:
Consideration
Consideration:
Fair value estimate of the Pan American share consideration (1)
795,626
Fair value estimate of the CVRs (2)
71,916
Cash (1)
275,008
Fair value estimate of replacement options (3)
124
1,142,674
Total Consideration
(1) The Pan American share consideration value is based on an assumed value of $14.21 per Pan American common share (based on the
Shares Issued/
Issuable
55,990,512 $
15,600,208
—
835,874
72,426,594 $
NASDAQ closing price on February 21, 2019).
(2) The assumed fair value of the CVRs was determined using a market approach valuation technique that utilized observable market
inputs, which included the Tahoe $3.64 closing share price on the NYSE on February 21, 2019, and the Company's $14.21 closing share
price on the NASDAQ on February 21, 2019.
(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 Closing Date, the assumptions of which are described in the Company's Q3 2019 Financial
Statements.
The following table summarizes the allocation of the purchase price to the identifiable assets and liabilities based
on their estimated fair values at the Closing Date of the Tahoe Acquisition:
Allocation of consideration:
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
$
$
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
PAN AMERICAN SILVER CORP.
56
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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").
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 consolidated 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.
Due to the expected production profile at Dolores, the Company has determined that prospectively the mine is
more appropriately categorized as a Gold Segment operation. As such, beginning in 2021, the Company will begin
to report Dolores cash costs and AISC, including recast comparative amounts, on a per ounce of gold basis and
include it as part of its Gold Segment cash costs and AISC calculations.
To facilitate a better understanding of these measure as calculated by the Company, the following table provides
the detailed reconciliation of these measure to the applicable cost items, as reported in the consolidated financial
statements for the respective periods. All 2019 operating results from the Gold Segment mines only include results
from February 22, 2019 to December 31, 2019.
PAN AMERICAN SILVER CORP.
57
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Consolidated Cash Costs and AISC:
(In thousands of USD, except as noted)
Production Costs
Purchase price allocation inventory fair value
adjustment
NRV inventory adjustments
On-site direct operating costs(3)
Royalties
Smelting, refining and direct selling charges(2)
Cash cost of sales before by-product credits(3)
Silver segment by-product credits(2)
Gold segment by-product credits(2)
Consolidated silver basis by-product credits(1,2)
Cash costs(3)
NRV inventory adjustments
Sustaining capital
Exploration and project development
Reclamation cost accretion
General and administrative expense
All-in sustaining costs(3)
Silver segment silver ounces sold (koz)
Gold segment gold ounces sold (koz)
Total silver ounces sold (koz)
Cash costs per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV inventory
adjustments)
Three months ended
December 31, 2020
Three months ended
December 31, 2019
Silver
Segment
119,407
Gold Segment
87,296
Corporate
Consolidated
(silver basis)(1)
206,702
Silver Segment Gold Segment
93,151
136,443
Corporate
Consolidated
(silver basis)(1)
229,594
—
6,742
126,148
7,222
22,074
155,444
(127,021)
—
—
28,424
(6,742)
24,392
596
1,225
—
47,895
4,620
—
—
6.15
10.37
11.83
(712)
—
86,583
1,902
29
88,514
—
(2,745)
—
85,769
—
27,615
851
749
—
114,984
—
112
—
763
1,023
1,023
(712)
6,742
212,732
9,123
22,103
243,958
—
—
(337,483)
(93,524)
(6,742)
52,007
1,091
2,061
10,679
(34,428)
—
—
4,732
(7.28)
(5.85)
(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
(1,683)
—
91,468
1,912
326
93,706
—
(690)
—
93,016
—
26,603
633
777
—
121,029
—
134
—
693
901
901
(356)
87
10,679
10,410
(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
1.04
0.96
1,000
154
10,009
11,163
PAN AMERICAN SILVER CORP.
58
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Year ended
December 31, 2020
Year ended
December 31, 2019
Silver
Segment
375,475
Gold Segment
321,198
Corporate
Consolidated
(silver basis)(1)
696,672
Silver
Segment
Gold
Segment(4)
516,642
324,655
Corporate
Consolidated
(silver basis)(1)
841,297
16,175
391,650
20,663
61,340
473,653
(354,042)
—
—
119,611
(16,175)
83,178
1,474
4,898
(3,463)
—
317,735
6,832
137
324,704
—
(7,213)
—
317,490
—
78,868
3,413
2,996
192,986
402,768
16,966
—
—
7.05
11.38
12.33
—
398
—
797
1,011
1,011
(3,463)
16,175
709,385
27,494
61,477
798,357
—
—
(1,052,852)
(254,495)
(16,175)
162,047
7,096
8,260
36,375
(56,893)
—
—
17,317
(3.29)
2,209
365
36,375
38,948
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
24,559
—
—
6.39
10.46
—
401
—
712
948
948
(2.35)
10.48
(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
4.44
4.45
(In thousands of USD, except as noted)
Production Costs
Purchase price allocation inventory fair value
adjustment
NRV inventory adjustments
On-site direct operating costs(3)
Royalties
Smelting, refining and direct selling charges(2)
Cash cost of sales before by-product credits(3)
Silver segment by-product credits(2)
Gold segment by-product credits(2)
Consolidated silver basis by-product credits(1,2)
Cash costs(3)
NRV inventory adjustments
Sustaining capital
Exploration and project development(5)
Reclamation cost accretion
General and administrative expense
All-in sustaining costs(3)
Silver segment silver ounces sold (koz)
Gold segment gold ounces sold (koz)
Total silver ounces sold (koz)
Cash costs per ounce sold
AISC per ounce sold
AISC per ounce sold (excluding NRV inventory
adjustments)
(1) Consolidated silver basis calculated by treating all revenues from metals other than silver, including gold, as a by-product credit in Cash Costs. Consolidated silver basis 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.
Included in the revenue line of the consolidated income statements. By-product credits are reflective of realized metal prices for the applicable periods.
(2)
(3) Totals may not add due to rounding.
(4) All operating results from the Gold Segment Mines, are only from the Closing Date to September 30, 2019, and do not represent a full twelve months of 2019 operations.
(5) The amounts for the twelve months ended December 31, 2019 exclude $1.9 million from non-cash project development write-downs.
PAN AMERICAN SILVER CORP.
59
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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.
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)
Three months ended
December 31,
Year ended
December 31,
2020
53,637
2019
50,319
2020
2019
178,556
205,807
Lease repayments
Non-Sustaining capital(2)
Sustaining Capital
(1) As presented on the unaudited interim consolidated statements of cash flows.
(2) Non-sustaining capital includes expenditures disclosed in the “Project Development Update” section of this MD&A, $0.1 million and $4.8 million in Q4 2020 and full year 2020,
respectively primarily for Escobal generators, as well as lease payments related to the power plant at Shahuindo and office lease and capital expenditures related to the corporate
offices.
(29,610)
(45,980)
162,047
179,096
(4,807)
(9,857)
13,101
52,007
19,270
46,187
3,180
5,726
PAN AMERICAN SILVER CORP.
60
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Silver Segment Cash Costs and AISC by mine:
SILVER SEGMENT
Three months ended December 31, 2020
SILVER SEGMENT
Three Months Ended December 31, 2019
11.78
4.35
3.35
18.29
20.89
19.94
11.83
Dolores
Huaron
Dolores
Huaron
(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
La Colorada
22,069
—
22,069
185
4,444
26,698
(17,577)
9,121
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)
—
5,496
442
143
15,201
1,291
7.07
11.78
(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
La Colorada
18,049
—
18,049
179
4,775
23,003
(15,399)
7,604
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)
—
1,957
565
144
10,269
1,770
4.30
5.80
5.80
36,235
6,250
42,485
2,603
13
45,101
(54,493)
(9,392)
(6,250)
12,778
124
660
(2,079)
959
(9.79)
(2.17)
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
Morococha
17,207
—
17,207
—
5,775
22,982
(16,852)
6,130
16,402
—
16,402
57
7,790
24,249
(22,832)
1,416
—
776
—
144
2,336
697
2.03
3.35
—
3,219
30
84
9,463
517
11.85
18.29
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
6,455
—
6,455
3,647
2,132
12,234
(4,222)
8,013
—
1,391
—
71
9,475
453
17.67
20.89
21,038
492
21,530
730
1,919
24,180
(11,044)
13,136
(492)
732
—
123
13,499
702
18.72
19.24
119,407
6,742
126,148
7,222
22,074
155,444
(127,021)
28,424
(6,742)
24,392
596
1,225
47,895
4,620
6.15
10.37
Morococha
19,787
—
19,787
—
4,091
23,878
(18,296)
5,582
19,680
—
19,680
—
5,592
25,272
(21,339)
3,934
—
2,834
—
181
6,949
736
5.34
9.44
—
3,945
51
109
9,687
515
10.85
18.83
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
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
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
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
9.44
18.83
16.50
16.88
11.29
PAN AMERICAN SILVER CORP.
61
SILVER SEGMENT
Year ended December 31, 2020
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Dolores
Huaron
(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
La Colorada
69,073
—
69,073
593
18,110
87,776
(51,039)
36,737
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)
SILVER SEGMENT(1)
—
18,417
998
570
56,723
5,254
6.99
10.80
(In thousands of USD, except as noted) La Colorada
74,544
Production Costs
—
NRV inventory adjustments
74,544
On-site direct operating costs
595
Royalties
17,420
Smelting, refining & direct selling costs
92,559
Cash Costs before by-product credits
(69,905)
Silver segment by-product credits
22,654
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)
—
9,721
1,445
576
34,396
7,583
2.99
4.54
138,670
12,713
151,384
8,286
66
159,736
(169,802)
(10,066)
(12,713)
44,861
338
2,640
25,060
4,063
(2.48)
6.17
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
Morococha
35,768
—
35,768
—
11,712
47,480
(34,856)
12,624
39,572
—
39,572
42
18,167
57,781
(50,826)
6,955
—
4,500
—
576
12,031
1,843
3.77
6.53
—
7,259
138
336
20,357
1,108
11.40
18.38
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
25,940
—
25,940
9,812
7,092
42,844
(9,383)
33,461
—
4,877
—
285
38,623
2,153
15.54
17.94
66,451
3,462
69,913
1,930
6,192
78,036
(38,137)
39,899
(3,462)
3,264
—
491
40,192
2,545
15.68
15.80
375,475
16,175
391,650
20,663
61,340
473,653
(354,042)
119,611
(16,175)
83,178
1,474
4,898
192,986
16,966
7.05
11.38
Morococha
73,396
—
73,396
—
15,675
89,071
(78,907)
10,164
76,962
—
76,962
—
21,088
98,050
(84,544)
13,506
—
10,936
13
723
25,178
3,253
4.15
7.74
—
12,599
327
436
23,526
2,335
4.35
10.08
San
Vicente
Manantial
Espejo
Consolidated
Silver
Segment
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
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
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
10.80
9.30
6.53
18.38
17.94
17.16
12.33
Year ended December 31, 2019
Dolores
Huaron
4.54
13.85
7.74
10.08
13.08
21.78
10.48
PAN AMERICAN SILVER CORP.
62
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)
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Three months ended December 31, 2020
Shahuindo
La Arena
Timmins(1)
Total
23,460
(688)
—
22,772
—
—
22,772
(2,291)
20,481
—
6,963
—
404
27,848
33,063
619
842
842
23,797
(24)
—
23,772
—
—
23,772
(365)
23,407
—
13,030
—
295
36,732
42,096
556
873
873
40,039
—
—
40,039
1,902
29
41,970
(89)
41,881
—
7,621
851
51
50,404
37,200
1,126
1,355
1,355
87,296
(712)
—
86,583
1,902
29
88,514
(2,745)
85,769
—
27,615
851
749
114,984
112,359
763
1,023
1,023
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
PAN AMERICAN SILVER CORP.
63
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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.
Shahuindo
Year ended December 31, 2020
Timmins(1)
La Arena
Total
97,941
(3,125)
—
94,816
—
—
94,816
(6,120)
88,695
—
22,749
(5)
1,615
113,055
150,775
588
750
750
72,676
(336)
—
72,339
—
—
72,339
(743)
71,596
—
37,324
—
1,179
110,098
99,320
721
1,109
1,109
150,581
(1)
—
150,580
6,832
137
157,549
(350)
157,199
—
18,795
3,418
203
179,615
148,130
1,061
1,213
1,213
321,198
(3,463)
—
317,735
6,832
137
324,704
(7,213)
317,490
—
78,868
3,413
2,996
402,768
398,225
797
1,011
1,011
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.
64
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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, 2020 and 2019, to the net earnings for each period.
(In thousands of USD, except as noted)
Net earnings for the period
Adjust for:
Derivative losses (gains)
Impairment charges on mineral properties
Write-down of other assets
Unrealized foreign exchange losses (gains)
Heap inventory net realizable value (recovery) charge
Unrealized gains on foreign currency and commodity contracts
Share of income from associate and dilution gain
Gain on sale of assets
COVID 19 mine care and maintenance
Transaction and integration costs
Closure and decommissioning liability
Effect of taxes on adjusting items
Effect of foreign exchange on taxes
Total adjustments
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
2020
2019
Year ended
December 31
2020
2019
$
169,018 $
51,706 $
176,455 $
111,244
75
—
—
1,002
(3,621)
(6,787)
(12,340)
(9,832)
—
—
5,174
(30)
(22,171)
—
40,050
—
(1,395)
4,128
(1,046)
(14,246)
(1,040)
—
(197)
—
(1,455)
(7,597)
(38)
—
2,013
8,857
662
(6,137)
(10,529)
(7,922)
75,097
—
5,174
(18,848)
18,598
$
$
$
(48,530) $
17,202 $
66,927 $
120,488 $
68,908 $
243,382 $
210,193
209,671
210,085
0.57 $
0.33 $
1.16 $
14
40,050
1,882
6,057
29,833
(646)
(15,245)
(3,858)
—
7,515
—
(11,208)
(7,651)
46,743
157,987
201,397
0.78
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 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.
65
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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 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. Additional details and
other risks facing the Company, including but not limited to: taxation risks, foreign operations, government
regulations, community action, title to assets, and general economic conditions 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 2020 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 2020 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 affect 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 metal exposure,
depending on market conditions. The table below illustrates the effect of changes in silver and gold prices on
anticipated revenues for 2021, 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.
66
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
2021 Revenue Metal Price Sensitivity
Gold Price
$1,525
$1,625
$1,725
$1,825
$1,925
$2,025
$2,125
Silver
Price
$20.50
$21.50
$22.50
$23.50
$24.50
$25.50
$26.50
86%
87%
88%
90%
91%
92%
93%
89%
91%
92%
93%
94%
96%
97%
93%
94%
95%
97%
98%
99%
100%
96%
98%
99%
100%
101%
102%
104%
100%
101%
102%
103%
105%
106%
107%
103%
104%
106%
107%
108%
109%
111%
107%
108%
109%
110%
112%
113%
114%
Since base metal and gold revenue are treated as a by-product credit for purposes of calculating Silver Segment
cash costs and AISC per ounce of silver sold, and silver revenue is treated as a by-product credit for purposes of
calculating Gold Segment cash costs and AISC per ounce of gold sold, these non-GAAP measures are highly
sensitive to metal prices. The tables below illustrate this point by plotting the expected Silver Segment AISC per
silver ounce according to our 2021 guidance against various price assumptions for the Silver Segment’s two main
by-product credits, zinc and gold, and plotting the expected Gold Segment AISC per gold ounce according to our
2021 guidance against various price assumptions for the Gold Segment's main by-product credit, Silver, expressed
in percentage terms:
2021 Silver Segment AISC Metal Price Sensitivity
$1,525
$1,625
$1,725
$1,825
$1,925
Gold Price
Zinc
Price
$2,400
$2,500
$2,600
$2,700
$2,800
$2,900
$3,000
109%
107%
106%
104%
103%
101%
100%
107%
106%
104%
103%
101%
100%
98%
106%
104%
103%
101%
100%
98%
97%
105%
103%
102%
100%
98%
97%
95%
103%
102%
100%
99%
97%
96%
94%
2021 Gold Segment AISC Metal Price Sensitivity
$2,025
102%
100%
99%
97%
96%
94%
93%
$2,125
100%
99%
97%
96%
94%
93%
91%
$20.50
Gold
Price
$1,825
101%
$21.50
101%
$22.50
100%
Silver Price
$23.50
100%
$24.50
100%
$25.50
$26.50
99%
99%
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;
PAN AMERICAN SILVER CORP.
67
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
•
•
•
•
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 significant impact on our business in many ways,
declining market prices for metals could materially adversely affect our operations and profitability. A decrease 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 the 2020 Financial
Statements for the year ended December 31, 2020. 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. The Company recorded gains of $nil and $1.2 million in Q4 2019 and 2019,
respectively, on certain outstanding collars made up of put and call contracts on base metal production to manage
the Company's financial exposure to these metals. As at December 31, 2020, the Company had no outstanding
contracts to sell base metal production.
During 2020, the Company entered into diesel swap contracts designed to fix or limit the Company’s exposure to
higher fuel prices. At December 31, 2020, the Company had outstanding positions on its diesel exposure with a
notional amount of 15.6 million gallons, with a weighted average fixed price of $1.18 per gallon, expiring between
January 2021 and December 2022. The Company recorded gains of $4.0 million and $4.7 million for the three and
twelve months ended December 31, 2020, respectively (Q4 2019 and 2019: $nil and $nil, respectively).
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.
PAN AMERICAN SILVER CORP.
68
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
As at December 31, 2020, we had receivable balances associated with buyers of our concentrates of $35.1 million
(2019 - $48.8 million) and receivable balances associated with buyers of our doré of $ nil (2019 - $17.5 million).
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 are also subject to alleged preference claims against us. As
at December 31, 2020, we had approximately $61.8 million (2019 - $58.2 million) contained in precious metal
inventory 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, 2020, we had made $8.2 million of supplier advances (2019 -
$3.4 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 $118.0 million in CAD, $1.0 million in MXN, $13.9 million in
PEN, $7.2 million in ARS, $0.6 million in BOB, and $0.5 million in Guatemalan quetzals as at December 31, 2020.
As at December 31, 2020, Pan American had outstanding positions on $51.0 million in foreign currency exposure
of MXN purchases and $45.6 million of PEN purchases. The MXN positions had weighted average USD put and call
exchange rates of $21.29 and $30.43, respectively, expiring between January 2021 and December 2021. The PEN
positions had weighted average USD put and call exchange rates of $3.50 and $3.67, respectively, expiring
between January 2021 and December 2021.
PAN AMERICAN SILVER CORP.
69
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
For the year ended December 31, 2020, the Company recorded gains of $1.6 million (2019 - gains of $1.0 million),
losses of $2.2 million (2019 - gains of $0.7 million), and losses of $0.6 million (2019 - gains of $0.3 million) on MXN,
PEN, and CAD derivative contracts, respectively.
The following table illustrates the effect of changes in the exchange rate of PEN and CAD against the USD on
anticipated cost of sales for 2021, expressed in percentage terms:
2021 Cost of Sales Exchange Rate Sensitivity
PEN/
USD
$3.20
$3.30
$3.40
$3.50
$3.60
$3.70
$3.80
$1.21
103%
102%
102%
101%
101%
100%
100%
$1.24
102%
102%
101%
101%
100%
100%
99%
$1.27
102%
101%
101%
100%
100%
99%
99%
CAD/USD
$1.30
102%
101%
100%
100%
100%
99%
99%
$1.33
101%
101%
100%
100%
99%
99%
98%
$1.36
101%
100%
100%
99%
99%
98%
98%
$1.39
101%
100%
99%
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.
PAN AMERICAN SILVER CORP.
70
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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.
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, which could in the aggregate be 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 also 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 Nevada. 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. We have
disputed the allegations made in these suits, however the outcomes are not determinable at this time.
We may also be subject to proceedings in our commercial relationships. In November 2018, 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. However, like many other creditors, we are
now also subject to alleged preference claims against us by the litigation trustee in the Republic bankruptcy. The
trustee has alleged that certain transfers that occurred in the three month period leading up to the bankruptcy are
avoidable pursuant to applicable bankruptcy laws and that such amounts received by us from Republic are subject
to recovery by the bankrupt’s estate. While we believe that we have defenses to such allegations, if we are
unsuccessful in our defense of these claims, we may be subject to significant losses.
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 against 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.
COVID-19 and Other Pandemics
Since the outbreak of the coronavirus in late 2019 ("COVID-19") , it has spread into areas where we have
operations and where our offices are located. Government efforts to curtail the spread of COVID-19 resulted in
temporary suspensions of our operations in Mexico, Peru, Argentina and Bolivia, and we have reduced throughput
at our Canadian operations in Timmins in order to enhance physical distancing and protect our personnel and the
community. The spread of COVID-19 has impacted our employees and contractors, not only as it relates to
potential health concerns, but also in terms of limitations on movement, availability of food and other goods, and
personal well-being, among others. Our suppliers and service providers have also been impacted.
While COVID-19 has already had significant, direct impacts on our operations, our business, our workforce, and
our production, the extent to which COVID-19 will continue to impact our operations will depend on future
developments which are highly uncertain and cannot be predicted with confidence. These future developments
include, but are not limited to, the duration of the outbreak, new information that may emerge concerning the
severity of COVID-19, and the actions taken to contain COVID-19 or treat it. The impact of governmental
PAN AMERICAN SILVER CORP.
71
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
restrictions and health and safety protocols could improve or worsen relative to our assumptions, depending on
how each jurisdiction manages potential outbreaks of COVID-19, the development and adequate supply of
vaccines, and the roll-out of vaccination programs in each jurisdiction. We assume operations will continue to be
impacted by comprehensive COVID-19 protocols in 2021, which would increase costs and restrict throughput
levels, especially at our underground mines. Our ability to continue with our operations, or to successfully
maintain our operations on care and maintenance if so required, or to restart or ramp-up any such operations
efficiently or economically, or at all, is unknown. It is also uncertain, beyond 2020, whether we will be able to
maintain an adequate financial condition and have sufficient capital, or have access to capital through our credit
facility or otherwise, to sustain our business and operations.
Moreover, the continued presence of, or spread, of COVID-19, and any future emergence and spread of similar
pathogens, globally would likely have material adverse effect on both global and regional economies, including
those in which we operate, as we have seen already. Such effects would not only affect our business and results
of operations, but also the operations of our suppliers, contractors and service providers, including smelter and
refining service providers, and the demand for our production. COVID-19 and the spread of similar pathogens
could also negatively impact stock markets, including the trading price of our shares, adversely impact our ability
to raise capital, cause continued interest rate volatility and movements that could make obtaining financing or
refinancing our debt obligations more challenging or more expensive (if such financing is available at all), and
result in any operations affected by coronavirus becoming subject to quarantine or shut down. Any of these
developments, and others, could have a material adverse effect on our business and results of operations.
Please refer to "Impact of COVID-19" discussion included in the "Operating Performance" section of this MD&A, as
well as Pan American’s new releases for further information and updates related to the impact of COVID-19 on our
operations.
Climate Change
There is significant evidence of the effects of climate change on our planet and an intensifying focus on addressing
these issues. The Company recognizes that climate change is a global challenge that may have both favorable and
adverse effects on our business in a range of possible ways. Mining and processing operations are energy intensive
and result in a carbon footprint either directly or through the purchase of fossil-fuel based electricity. As such, the
Company is impacted by current and emerging policy and regulation relating to greenhouse gas emission levels,
energy efficiency, and reporting of climate-change related risks. While some of the costs associated with reducing
emissions may be offset by increased energy efficiency, technological innovation, or the increased demand for our
metals as part of technological innovations, the current regulatory trend may result in additional transition costs
at some of our operations. Governments are introducing climate change legislation and treaties at the
international, national, and local levels, and regulations relating to emission levels and energy efficiency are
evolving and becoming more rigorous. Current laws and regulatory requirements are not consistent across the
jurisdictions in which we operate, and regulatory uncertainty is likely to result in additional complexity and cost in
our compliance efforts. Public perception of mining is, in some respects, negative and there is increasing pressure
to curtail mining in many jurisdictions as a result, in part, of perceived adverse effects of mining on the
environment.
Concerns around climate change may also affect the market price of our shares as institutional investors and
others may divest interests in industries that are thought to have more environmental impacts. While we are
committed to operating responsibly and reducing the negative effects of our operations on the environment, our
ability to reduce emissions, energy and water usage by increasing efficiency and by adopting new innovation is
constrained by technological advancement, operational factors and economics. Adoption of new technologies,
the use of renewable energy, and infrastructure and operational changes necessary to reduce water usage may
also increase our costs significantly. Concerns over climate change, and our ability to respond to regulatory
requirements and societal pressures, may have significant impacts on our operations and on our reputation, and
may even result in reduced demand for our products.
The physical risks of climate change could also adversely impact our operations. These risks include, among other
things, extreme weather events, resource shortages, changes in rainfall and in storm patterns and intensities,
water shortages, changing sea levels and extreme temperatures. Climate-related events such as mudslides,
PAN AMERICAN SILVER CORP.
72
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
floods, droughts and fires can have significant impacts, directly and indirectly, on our operations and could result
in damage to our facilities, disruptions in accessing our sites with labour and essential materials or in shipping
products from our mines, risks to the safety and security of our personnel and to communities, shortages of
required supplies such as fuel and chemicals, inability to source enough water to supply our operations, and the
temporary or permanent cessation of one or more of our operations. There is no assurance that we will be able to
anticipate, respond to, or manage the risks associated with physical climate change events and impacts, and this
may result in material adverse consequences to our business and to our financial results.
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 2020 Financial Statements, respectively.
Readers should also refer to Note 3 of the 2020 Financial Statements, for the Company’s summary of significant
accounting policies.
CHANGES IN ACCOUNTING STANDARDS
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.
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, 2020, 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, 2020,
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
PAN AMERICAN SILVER CORP.
73
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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, 2020, 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, 2020, 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, 2020. 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 three and twelve
month periods ended December 31, 2020 that has materially affected or is reasonably likely to materially affect,
its internal control over financial reporting.
PAN AMERICAN SILVER CORP.
74
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
MINERAL RESERVES AND RESOURCES
Pan American Silver Corporation Mineral Reserves as of June 30, 2020 (1,2)
Property
Classification
Location
Tonnes
(Mt)
Ag (g/t) Contained
Ag (Moz)
Au (g/t) Contained
Cu (%)
Pb (%)
Zn (%)
Au (koz)
Silver Segment
Huaron
Peru
Morococha (92.3%)(3) Peru
La Colorada
Mexico
Dolores
Mexico
Manantial Espejo
Argentina
San Vicente (95%)(3)
Bolivia
Joaquin
COSE
Escobal
Total Silver
Segment(4)
Gold Segment
La Arena
Shahuindo
Timmins
La Bolsa
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Probable
Argentina
Argentina
Guatemala Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Proven
Probable
Peru
Peru
Canada
Mexico
6.9
3.6
3.3
2.4
4.4
5.7
30.1
6.8
0.4
0.5
1.1
0.3
—
0.3
0.1
2.5
22.1
90.7
26.9
15.6
74.8
49.6
3.0
7.1
9.5
6.2
164
169
158
187
339
301
23
26
240
276
453
366
591
546
903
486
316
178
—
—
7
7
—
—
10
7
36.3
19..8
16.6
14.6
48..2
55.1
21.9
5.7
3.2
4.1
16.5
3.9
0.9
5.8
2.2
39.5
225.0
—
—
—
—
0.25
0.20
0.88
0.81
1.87
2.89
—
—
0.15
0.35
17.61
0.42
0.34
—
—
—
—
35.3
36.3
853.7
177.4
24.7
42.4
—
—
0.2
3.8
41.9
34.2
243.8
0.77
0.31
0.32
0.36
—
—
—
—
—
—
0.46
0.35
—
—
—
—
—
1.44
1.60
1.52
1.31
1.28
1.09
—
—
—
—
0.33
0.39
—
—
—
1..02
0.77
3.03
3.07
3.98
3.47
2.29
1.90
—
—
—
—
3.36
3.92
—
—
—
1.75
1.25
519.2
0.64
1,493.8
0.51
1.06
2.13
—
—
16.1
10.4
—
—
3.1
1.4
0.36
0.27
0.50
0.47
3.05
2.93
0.67
0.57
311.3
135.5
1201.4
750.6
295.8
665.5
202.9
113.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
192.5
Total Gold
Segment(4)
Total Gold and Silver
Segments(4)
1.06
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2020”.
(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 Standards of Disclosures of
Mineral Projects (“NI 43-101").
Proven +
Probable
5,169.8
3,676.0
283.2
550.2
0.51
31.0
2.13
0.59
0.61
63
—
—
—
5
(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.
75
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Pan American Silver Corporation Measured and Indicated Mineral Resources as of June 30, 2020(1,2)
Property
Classification
Location
Au (g/t) Contained
Tonnes
(Mt)
Ag (g/t) Contained
Ag (Moz)
Silver Segment
Huaron
Morococha (92.3%)(3) Peru
La Colorada
Dolores
Manantial Espejo
San Vicente (95%)(3)
Navidad
Joaquin
Escobal
Total Silver
Segment(4)
Gold Segment
La Bolsa
Pico Machay
La Arena
Shahuindo
Timmins
Canada
La Arena II
Peru
Fenn-Gib(5)
Whitney
Gold River
Marlhill
Vogel
Canada
Canada
Canada
Canada
Canada
Peru
Mexico
Mexico
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Argentina Measured
Indicated
Measured
Indicated
Argentina Measured
Indicated
Argentina Measured
Indicated
Guatemala Measured
Indicated
Bolivia
Mexico
Peru
Peru
Peru
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Measured
Indicated
Indicated
Measured
Indicated
Indicated
Indicated
Indicated
1.8
2.4
0.8
0.6
0.9
1.1
1.6
0.8
0.1
0.2
1.1
0.2
15.4
139.8
0.2
0.2
2.3
14.2
183.8
1.4
4.5
4.7
5.9
3.6
6.6
11.0
17.4
2.2
4.9
155.7
586.7
40.8
0.8
1.8
0.7
0.4
2.2
161
155
135
142
204
242
12
15
213
229
167
260
137
126
356
366
251
201
135
11
9
—
—
—
—
5
4
—
—
—
—
—
—
—
—
—
—
Au (koz)
—
—
—
—
5.7
5.7
18.8
12.5
6.9
17.8
—
—
—
—
0.9
1.4
16.7
93.0
Cu (%)
Pb (%)
Zn (%)
0.18
0.61
0.70
0.58
—
—
—
—
—
—
0.22
0.22
0.10
0.04
—
—
—
—
1.65
1.64
0.91
0.91
0.88
0.54
—
—
—
—
0.19
0.24
1.44
0.79
—
—
0.31
0.38
3.02
2.85
2.89
2.94
1.43
0.98
—
—
—
—
2.43
2.80
—
—
—
—
0.59
0.66
9.5
11.8
3.4
2.8
5.9
8.8
0.7
0.4
0.9
1.4
6.1
1.9
67.8
564.5
1.8
1.9
18.6
91.6
—
—
—
—
0.20
0.16
0.36
0.47
1.71
2.95
—
—
—
—
0.19
0.27
0.23
0.20
799.9
0.26
179.4
0.06
0.82
1.29
0.5
1.3
—
—
—
—
1.7
2.2
—
—
—
—
—
—
—
—
—
—
0.90
0.50
0.91
0.67
0.27
0.25
0.25
0.25
3.37
3.00
0.25
0.23
0.99
7.02
6.77
5.29
4.52
1.75
39.9
71.2
137.5
127.1
30.8
52.6
87.9
142.3
239.6
469.6
1,265.2
4,371.9
1,298.6
172.3
387.5
117.4
57.4
125.0
—
—
—
—
—
—
—
—
—
—
0.37
0.35
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total Gold
Segment(4)
Total Gold and Silver
Segments(4)
0.82
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2020”.
(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 NI 43-101.
Measured +
Indicated
1,034.9
9,194.0
9,373.4
805.5
851.1
0.34
0.30
0.33
0.35
1.29
110
5.6
—
—
4
(3) This information represents the portion of mineral reserves attributable to Pan American based on its ownership interest in the
operating entity as indicated.
PAN AMERICAN SILVER CORP.
76
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
(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.
(5) The Company disposed of the the Fenn-Gib property in Q4 2020; as of the date of this MD&A, the property is no longer owned by the
Company.
Pan American Silver Corporation Inferred Mineral Resources as of June 30, 2020(1,2)
Contained
Classification
Property
Ag (Moz)
Tonnes
(Mt)
Ag
(g/t)
Location
Au
(g/t)
Contained
Au (koz)
Cu (%)
Pb (%)
Zn (%)
Silver Segment
Peru
Huaron
Morococha (92.3%)(3) Peru
La Colorada
La Colorada Skarn
Dolores
Manantial Espejo
San Vicente (95%)(3)
Navidad
Joaquin
COSE
Escobal
Inferred
Inferred
Inferred
Mexico
Inferred
Mexico
Inferred
Mexico
Inferred
Argentina
Inferred
Bolivia
Inferred
Argentina
Inferred
Argentina
Argentina
Inferred
Guatemala Inferred
Total Silver
Segment(4)
Gold Segment
La Bolsa
Pico Machay
La Arena
Shahuindo
Shahuindo Sulphide
Timmins
La Arena II
Fenn-Gib(5)
Whitney
Gold River
Vogel
Mexico
Peru
Peru
Peru
Peru
Canada
Peru
Canada
Canada
Canada
Canada
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
Inferred
5.8
4.4
6.2
100.4
3.8
0.6
2.5
45.9
0.4
—
1.9
171.8
13.7
23.9
13.3
12.0
97.4
5.0
91.6
24.5
0.8
5.3
1.5
157
157
232
44
43
206
303
81
351
382
180
74
8
—
—
7
14
—
—
—
—
—
—
29.0
22.4
46.2
141.0
5.3
3.9
24.5
119.4
4.2
0.3
10.7
—
—
0.13
—
1.14
2.18
—
—
0.27
7.10
0.90
—
—
26.8
—
139.0
41.9
—
—
3.2
6.3
53.7
0.45
0.35
—
0.20
—
—
0.24
0.02
—
—
—
1.55
1.05
1.60
1.77
—
—
0.31
0.57
—
—
0.22
2.83
3.38
3.10
4.29
—
—
3.14
—
—
—
0.42
406.9
0.66
270.8
0.16
1.37
4.05
3.3
—
—
2.8
45.1
—
—
—
—
—
—
0.51
0.58
0.24
0.52
0.74
3.27
0.23
0.95
5.34
6.06
3.60
224.6
445.7
101.0
201.8
2,323.3
529.3
683.1
750.0
134.9
1027.4
168.8
—
—
—
—
—
—
0.17
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total Gold
Segment(4)
Total Gold and Silver
Segments(4)
1.37
(1) See table below entitled “Metal price assumptions used to estimate mineral reserves and resources as at June 30, 2020”.
(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 NI 43-101.
Inferred
6,860.7
6,589.9
460.8
458.1
289.0
0.14
0.71
4.05
0.71
51.2
0.17
46
12
—
—
(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.
(5) The Company disposed of the the Fenn-Gib property in Q4 2020; as of the date of this MD&A, the property is no longer owned by the
Company.
PAN AMERICAN SILVER CORP.
77
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
Metal Price Assumptions Used to Estimate Mineral Reserves and Resources as of June 30, 2019
Property
Ag US$/oz Au US$/oz Cu US$/t
Category
Pb US$/t
Zn US$/t
6,000
6,000
6,000
6,500
2,000
2,000
2,000
2,200
2,350
2,350
2,350
2,600
6,000
2,000
1,100
2,350
2,204
2,424
8,816
Huaron
Morococha
La Colorada
La Colorada Skarn
Dolores
La Bolsa
Manantial Espejo
San Vicente
Navidad
Pico Machay
Joaquin
COSE
Escobal
Shahuindo
Shahuindo Sulphide
La Arena
La Arena II
Timmins
Fenn-Gib
Whitney
Gold River
Marlhill
Vogel
All categories
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
Inside pit
Below pit
18.00
18.00
18.00
18.50
18.00
18.50
14.00
18.00
18.00
12.52
18.00
18.00
20.00
18.00
18.50
15.00
18.00
18.50
1,300
1,300
1,300
1,350
1,700
825
1,400
1,300
700
1,300
1,300
1,300
1,350
1,700
1,400
1,400
1,700
1,500
1,350
1,190
1,190
1,200
1,200
1,125
1,150
1,150
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 February 17, 2021, available at www.sedar.com for further information on the
Company's material mineral properties, including information concerning associated QA/QC and data verification matters, the key
assumptions, parameters and methods used by the Company to estimate mineral reserves and mineral resources, and for a detailed
description of known legal, political, environmental, and other risks that could materially affect the Company's business and the potential
development of the Company's mineral reserves and resources.
Quantities of contained metal are shown before metallurgical recoveries.
Scientific and technical information contained in this MD&A has been reviewed and approved by Martin Wafforn, P.Eng., Senior Vice
President Technical Services and Processing Optimization, and Christopher Emerson, FAusIMM, Vice President Business Development and
Geology, each of whom are Qualified Persons, as the term is defined in NI 43-101.
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
February 17, 2021, filed at www.sedar.com or the Company’s most recent Form 40-F filed with the SEC.
PAN AMERICAN SILVER CORP.
78
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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 or operational performance,
and estimates of current production levels including our estimated production of silver, gold and other metals forecasted for 2021, our
estimated cash costs, AISC and expenditures in 2021; future anticipated prices for gold, silver and other metals and assumed foreign
exchange rates; expectations with respect to the future anticipated impact of COVID-19 on our operations, the assumptions related to the
global supply of COVID-19 vaccines and the roll-out in each country, and the effectiveness and results of any vaccines, the lessening or
increase in pandemic-related restrictions, and the anticipated rate and timing for the same; the effect that the COVID-19 pandemic may
have on our financial and operational results; the ability of Pan American to continue with its operations, or to successfully maintain our
operations on care and maintenance, should the situation related to COVID-19 not be as anticipated; whether Pan American is able to
maintain a strong financial condition and have sufficient capital, or have access to capital through the Credit Facility or otherwise, to sustain
our business and operations; the presence and impact of COVID-19 on our workforce, suppliers and other essential resources and the effect
those impacts have on our business; the timing and outcome with respect to Pan American's environmental, social and governance
activities, and Pan American Silver's corporate social responsibilities activities and our reporting in respect thereof; the anticipated amount
and timing of production at each of the Company’s properties and in the aggregate; the timing and impact of the replacement of ventilation
infrastructure at the La Colorada mine; the duration and effect of the license suspensions and any road blocks relating to the Escobal mine
and; the constitutional court-mandated ILO 169 consultation process in Guatemala, and the timing and completion thereof; the ability of
Pan American to successfully complete any capital projects, the expected economic or operational results derived from those projects, and
the impacts of any such projects on Pan American; the future results of exploration activities, including with respect to the skarn exploration
program at La Colorada; anticipated mineral reserves and mineral resources; 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:
the world-wide economic and social impact of COVID-19 is managed and the duration and extent of the coronavirus pandemic is minimized
or not long-term; if necessary, continuation of operations following shutdowns or reductions in production, our ability to manage reduced
operations efficiently and economically, including to maintain necessary staffing; our ability to implement environmental, social and
governance activities; 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: the duration and effects of the coronavirus and COVID-19, and any other pandemics
on our operations and workforce, and their effects on global economies and society; fluctuations in silver, gold, and base metal prices;
fluctuations in prices for energy inputs; fluctuations in currency markets (such as the PEN, MXN, ARS, BOL, GTQ and CAD versus the USD);
risks related to the technological and operational nature of the Company’s business; changes in national and local government, legislation,
taxation, controls or regulations and political, legal or economic developments in Canada, the United States, Mexico, Peru, Argentina,
Bolivia, 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; presence of or
changes in laws, regulations and government practices in the jurisdictions where we operate, including environmental, export and import
laws and regulations; 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 Pan American may carry
on business, including legal restrictions relating to mining, such as in Chubut, Argentina, risks relating to expropriation, and risks relating to
the constitutional court-mandated ILO 169 consultation process in Guatemala, some of which might 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;
PAN AMERICAN SILVER CORP.
79
Management Discussion and Analysis
For the years ended December 31, 2020 and 2019
(tabular amounts in thousands of U.S. dollars other than shares, options,
warrants, per share amounts, or unless otherwise noted)
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.
Cautionary Note to U.S. Investors Concerning Estimates of Mineral Reserves and Mineral 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 references to mineral reserve and mineral 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.
80
Consolidated Financial Statements and Notes
FOR THE YEARS ENDED DECEMBER 31, 2020 AND DECEMBER 31, 2019
PAN AMERICAN SILVER CORP.
81
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
throughout our
International Accounting Standards Board
management’s discussion and analysis is consistent with these Consolidated Financial Statements.
information appearing
(“IASB”). Financial
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
February 17, 2021
"signed"
A. Robert Doyle
Chief Financial Officer
PAN AMERICAN SILVER CORP.
82
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, 2020 and 2019, the related consolidated income statements,
statements of comprehensive income, cash flows, and changes in equity, for each of the two years in the period
ended December 31, 2020, 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, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the
period ended December 31, 2020, 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, 2020, 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 February 17, 2021, 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 Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates
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 matter
below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
PAN AMERICAN SILVER CORP.
83
Impairments – Assessment of Whether Indicators of Impairment or Impairment Reversal Exist within the
Mineral Properties, Plant and Equipment – Refer to Notes 3, 6 and 13 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 level 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.
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.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
February 17, 2021
We have served as the Company's auditor since 1993.
PAN AMERICAN SILVER CORP.
84
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, 2020, 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, 2020, 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, 2020, of the Company and our
report dated February 17, 2021, 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.
/s/ Deloitte LLP
Chartered Professional Accountants
Vancouver, Canada
February 17, 2021
PAN AMERICAN SILVER CORP.
85
Consolidated Statements of Financial Position
(in thousands of U.S. dollars)
December 31,
2020
December 31,
2019
$
$
$
167,113 $
111,946
127,756
22,051
406,191
7,812
14,055
856,924
2,415,006
24,355
4,009
57,850
71,560
4,171
3,433,875 $
281,938 $
367
12,066
12,829
54,556
361,756
229,887
175,311
20,736
—
13,273
27,073
—
828,036
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
3,132,140
93,409
(623,030)
2,602,519
3,320
2,605,839
3,433,875 $
3,123,514
94,274
(754,689)
2,463,099
4,747
2,467,846
3,461,682
$
Assets
Current assets
Cash and cash equivalents (Note 26)
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
Investment in associates (Note 14)
Goodwill and 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
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
Deficit
Total Equity attributable to equity holders of the Company
Non-controlling interests
Total Equity
Total Liabilities and Equity
Commitments and contingencies (Notes 9, 30)
See accompanying notes to the consolidated financial statements
APPROVED BY THE BOARD ON FEBRUARY 17, 2021
"signed" Ross Beaty, Director
"signed" Michael Steinmann, Director
PAN AMERICAN SILVER CORP.
86
Revenue (Note 27)
Cost of sales
Production costs (Note 22)
Depreciation and amortization (Note 12,23)
Royalties
Mine operating earnings (Note 27)
General and administrative
Exploration and project development
Mine care and maintenance (Note 23)
Foreign exchange losses
Impairments (Note 13)
Gains on commodity and foreign currency contracts (Note 9d)
Gains on sale of mineral properties, plant and equipment
Share of income from associate and dilution gain (Note 14)
Transaction and integration costs (Note 8)
Other expense (Note 28)
Earnings from operations
Gain (loss) on derivatives (Note 9d)
Investment income (Note 9b)
Interest and finance expense (Note 24)
Earnings before income taxes
Income tax expense (Note 29)
Net earnings for the year
Attributable to:
Equity holders of the Company
Non-controlling interests
Earnings per share attributable to common shareholders (Note 25)
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)
2020
1,338,812 $
2019
1,350,759
$
(696,672)
(254,469)
(27,494)
(978,635)
360,177
(36,375)
(7,096)
(102,105)
(5,474)
—
3,543
7,922
10,529
—
(22,067)
209,054
38
63,024
(20,104)
252,012
(75,557)
176,455 $
177,882
(1,427)
176,455 $
0.85 $
0.85 $
210,085
210,295
(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
110,738
506
111,244
0.55
0.55
201,397
201,571
$
$
$
$
PAN AMERICAN SILVER CORP.
87
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:
Reclassification adjustment for realized gains on short-term investments to earnings (Note 9c)
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.
2020
176,455 $
2019
111,244
—
176,455 $
(208)
111,036
177,882 $
(1,427)
176,455 $
110,530
506
111,036
$
$
$
$
PAN AMERICAN SILVER CORP.
88
Cash flow from operating activities
Net earnings for the year
Current income tax expense (Note 29)
Deferred income tax recovery (Note 29)
Interest expense (Note 24)
Depreciation and amortization (Note 12,23)
Impairment charge (Note 13)
Accretion on closure and decommissioning provision (Note 17)
Unrealized losses on foreign exchange
Gain on sale of mineral properties, plant and equipment
Other operating activities (Note 26)
Changes in non-cash operating working capital (Note 26)
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 ("Tahoe Acquisition") (Note 8)
Acquisition of mineral interests
Net proceeds from short-term investments and other securities
Proceeds from sale of mineral properties, plant and equipment
Exercise of warrants (Note 14)
Net (payments) 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
Repayment of credit facility (Note 19)
Proceeds from credit facility (Note 19)
Payment of equipment leases
Net cash (used in) generated from financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase (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 26).
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
2020
2019
$
176,455 $
111,244
98,355
(22,798)
9,216
272,444
—
8,260
8,857
(7,922)
(85,934)
96,982
553,915 $
(10,217)
253
(81,636)
462,315 $
(178,556) $
—
—
90,384
22,474
(15,626)
(2,594)
(83,918) $
4,737 $
—
(46,223)
(355,000)
80,000
(13,101)
(329,587) $
(2,261)
46,549
120,564
167,113 $
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
(205,807)
(247,479)
(1,545)
39,727
10,267
—
2,669
(402,168)
2,781
(924)
(29,332)
(185,000)
335,000
(19,270)
103,255
(1,061)
(17,946)
138,510
120,564
$
$
$
$
$
$
$
PAN AMERICAN SILVER CORP.
89
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
Investment
revaluation
reserve
Deficit
Total
Non-
controlling
interests
Total
equity
153,448,356 $ 2,321,498 $
22,573 $
208 $ (836,067) $ 1,508,212 $
5,137 $ 1,513,349
—
—
—
—
—
—
—
—
—
—
(208)
(208)
110,738
—
110,738
110,738
(208)
110,530
506
—
506
111,244
(208)
111,036
244,299
3,697
(916)
152,391
2,693
—
—
—
577
55,990,512
795,626
72,040
—
—
—
—
209,835,558 $ 3,123,514 $
—
—
94,274 $
—
—
—
—
—
—
—
—
2,781
2,693
577
867,666
(28)
(29,332)
—
—
— $ (754,689) $ 2,463,099 $
(28)
(29,332)
—
—
—
—
2,781
2,693
577
867,666
(896)
—
(924)
(29,332)
4,747 $ 2,467,846
—
—
—
—
—
—
329,379
5,800
(1,063)
93,730
2,826
—
—
—
—
—
177,882
177,882
177,882
177,882
(1,427)
(1,427)
176,455
176,455
—
—
4,737
2,826
—
—
4,737
2,826
Balance, December 31, 2018
Total comprehensive earnings
Net earnings for the year
Other comprehensive loss
Shares issued on the
exercise of stock options
Shares issued as
compensation (Note 26)
Share-based compensation
on option grants
Tahoe Acquisition
consideration
Distributions by subsidiaries
to non-controlling interests
Dividends paid
Balance, December 31, 2019
Total comprehensive earnings
Net earnings for the year
Shares issued on the
exercise of stock options
Shares issued as
compensation (Note 26)
Share-based compensation
on option grants
Dividends paid
Balance, December 31, 2020
See accompanying notes to the consolidated financial statements.
210,258,667 $ 3,132,140 $
—
—
—
—
198
—
93,409 $
—
—
—
— $ (623,030) $ 2,602,519 $
198
(46,223)
(46,223)
—
—
198
(46,223)
3,320 $ 2,605,839
PAN AMERICAN SILVER CORP.
90
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
1440 – 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 South
America, Canada and Mexico. As at December 31, 2020, the Company's Escobal mine in Guatemala continues to
be on care and maintenance pending satisfactory completion of a 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 as issued by the International Accounting Standards Board (“IFRS”), effective as of December 31, 2020.
These consolidated financial statements were approved for issuance by the Board of Directors on February 17,
2021.
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.
91
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 and their geographic locations at December 31, 2020 were as follows:
Subsidiary
Location
Canada
Lake Shore Gold Corp.
Plata Panamericana S.A. de C.V.
Mexico
Compañía Minera Dolores S.A. de C.V. Mexico
Pan American Silver Huaron S.A.
Compañía Minera Argentum S.A.
Shahuindo S.A.C.
La Arena S.A.
Pan American Silver (Bolivia) S.A.
Pan American Silver Guatemala S.A.
Peru
Peru
Peru
Peru
Bolivia
Guatemala
Minera Tritón Argentina S.A.
Minera Joaquin S.R.L.
Minera Argenta S.A.
Argentina
Argentina
Argentina
d)
Investments in associates
Ownership
Interest
Accounting
Operations and Development
Projects Owned
100 % Consolidated Bell Creek and Timmins mines
100 % Consolidated La Colorada mine
100 % Consolidated Dolores mine
100 % Consolidated Huaron mine
92 % Consolidated Morococha mine
100 % Consolidated Shahuindo mine
100 % Consolidated La Arena mine
95 % Consolidated San Vicente mine
100 % Consolidated Escobal mine
Manantial Espejo mine & Cap-Oeste Sur
Este ("COSE") project
100 % Consolidated
100 % Consolidated Joaquin project
100 % Consolidated Navidad project
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.
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.
PAN AMERICAN SILVER CORP.
92
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
93
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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.
94
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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.
PAN AMERICAN SILVER CORP.
95
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The costs incurred in the construction of the heap leach pad are capitalized. Heap leach inventory represents
silver and gold contained in ore that has been placed on the leach pad for cyanide irrigation. The heap leach
process is a process of extracting silver and gold by placing ore on an impermeable pad and applying a diluted
cyanide solution that dissolves a portion of the contained silver and gold, which is then recovered during the
metallurgical process. When the ore is placed on the pad, an estimate of the recoverable ounces is made
based on tonnage, ore grade and estimated recoveries of the ore type placed on the pad. The estimated
recoverable ounces on the pad are used to compile the inventory cost.
The Company uses several integrated steps to scientifically measure the metal content of the ore placed on
the leach pads. The tonnage, grade, and ore type to be mined in a period was first estimated using the Mineral
Reserve model. As the ore body is drilled in preparation for the blasting process, samples are taken of the drill
residue which is assayed to determine their metal content and quantities of contained metal. The estimated
recoverable ounces carried in the leach pad inventory are adjusted based on actual recoveries being
experienced. Actual and estimated recoveries achieved are measured to the extent possible using various
indicators including, but not limited to, individual cell recoveries, the use of leach curve recovery and trends in
the levels of carried ounces depending on the circumstances or cumulative pad recoveries.
The Company then processes the ore through the crushing facility where the output is again weighed and
sampled for assaying. A metallurgical reconciliation with the data collected from the mining operation is
completed with appropriate adjustments made to previous estimates. The crushed ore is then transported to
the leach pad for application of the leaching solution. The samples from the automated sampler are assayed
each shift and used for process control. The quantity of leach solution is measured by flow meters throughout
the leaching and precipitation process. The pregnant solution from the heap leach is collected and passed
through the processing circuit to produce precipitate which is retorted and then smelted to produce doré
bars.
The Company allocates direct and indirect production costs to by-products on a systematic and rational basis.
With respect to concentrate and doré inventory, production costs are allocated based on the silver equivalent
ounces contained within the respective concentrate and doré.
The inventory is stated at lower of cost or 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.
96
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
PAN AMERICAN SILVER CORP.
97
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
are amortized using the units-of-production method (described below) over the life of the mine, commencing
on the date of commercial production.
Acquisition costs related to the acquisition of land and mineral rights are capitalized as incurred. Prior to
acquiring such land or mineral rights, the Company makes a preliminary evaluation to determine that the
property has significant potential to economically develop the deposit. The time between initial acquisition
and full evaluation of a property’s potential is dependent on many factors including: location relative to
existing infrastructure, the property’s stage of development, geological controls and metal prices. If a
mineable deposit is discovered, such costs are amortized when production begins. If no mineable deposit is
discovered, such costs are expensed in the period in which it is determined the property has no future
economic value. In countries where the Company has paid VAT and where there is uncertainty of its
recoverability, the VAT payments have either been deferred with mineral property costs relating to the
property or expensed if it relates to mineral exploration. If the Company ultimately makes recoveries of the
VAT, the amount received will be applied to reduce mineral property costs or taken as a credit against current
expenses depending on the prior treatment.
Major development expenditures on producing properties incurred to increase production or extend the life of
the mine are capitalized while ongoing mining expenditures on producing properties are charged against
earnings as incurred. Gains or losses from sales or retirements of assets are included in gain or loss on sale of
assets.
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.
PAN AMERICAN SILVER CORP.
98
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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
•
• Mining properties and leases including capitalized evaluation and development expenditures –
Buildings and plant facilities – 25 to 50 years
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
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, 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.
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
PAN AMERICAN SILVER CORP.
99
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
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. For a disposal group held for sale, an
impairment loss is recognized for any excess of carrying amount over the recoverable amount, being the its
fair value less costs to sell ("FVLCTS"). The best evidence of FVLCTS is the value obtained from an active market
or binding sale agreement. Where neither exists, FVLCTS is based on the best information available to reflect
the amount the Company could receive for the 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.
PAN AMERICAN SILVER CORP.
100
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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’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.
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.
PAN AMERICAN SILVER CORP.
101
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
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.
PAN AMERICAN SILVER CORP.
102
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
s)
Leases
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.
t)
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.
PAN AMERICAN SILVER CORP.
103
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The tax effect of certain temporary differences is not recognized, principally with respect to goodwill;
temporary differences arising on the initial recognition of assets or liabilities (other than those arising in a
business combination or in a manner that initially impacted accounting or taxable earnings); and temporary
differences relating to investments in subsidiaries, jointly controlled entities and associates to the extent that
the Company is able to control the reversal of the temporary difference and the temporary difference is not
expected to reverse in the foreseeable future. The amount of deferred tax recognized is based on the
expected manner and timing of realization or settlement of the carrying amount of assets and liabilities, with
the exception of items that have a tax base solely derived under capital gains tax legislation, using tax rates
enacted or substantively enacted at period end. To the extent that an item’s tax base is solely derived from the
amount deductible under capital gains tax legislation, deferred tax is determined as if such amounts are
deductible in determining future assessable income.
The carrying amount of deferred income tax assets is reviewed at each statement of financial position date
and reduced to the extent that it is no longer probable that sufficient taxable earnings will be available to
allow all or part of the deferred income tax asset to be utilized. To the extent that an asset not previously
recognized fulfils the criteria for recognition, a deferred income tax asset is recorded.
Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in
which the asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively
enacted at the statement of financial position date.
Current and deferred taxes relating to items recognized in other comprehensive income or directly in equity
are recognized in other comprehensive income or equity and not in the income statement. Mining taxes and
royalties are treated and disclosed as current and deferred taxes if they have the characteristics of an income
tax. Judgements are required about the application of income tax legislation. These judgements and
assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will
alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognized
on the statement of financial position and the amount of other tax losses and temporary differences not yet
recognized. In such circumstances, some or the entire carrying amount of recognized deferred tax assets and
liabilities may require adjustment, resulting in a corresponding credit or charge to the income statement.
Deferred tax assets, including those arising from tax losses, capital losses and temporary differences, are
recognized only where it is probable that taxable earnings will be available against which the losses or
deductible temporary differences can be utilized. Assumptions about the generation of future taxable earnings
and repatriation of retained earnings depend on management’s estimates of future cash flows. These depend
on estimates of future production and sales volumes, commodity prices, reserves, operating costs, closure and
decommissioning costs, capital expenditures, dividends and other capital management transactions.
u) 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.
104
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
v) 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 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.
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.
PAN AMERICAN SILVER CORP.
105
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, 2020, the carrying
amount of Dolores and La Arena capitalized stripping costs was $40.7 million and $32.9 million, respectively
(2019 - $57.5 million and $19.9 million, respectively).
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, 2020, the
carrying amount of the deferred credit arising from the Aquiline acquisition was $20.8 million (2019 - $20.8
million).
PAN AMERICAN SILVER CORP.
106
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
i)
Coronavirus disease ("COVID-19") pandemic impact
In March 2020, the World Health Organization declared a global pandemic following the emergence and rapid
spread of a novel strain of the coronavirus ("COVID-19"). The outbreak and subsequent measures intended to
limit the pandemic contributed to significant declines and volatility in financial markets. The pandemic
adversely impacted global commercial activity. The full extent of the impact of COVID-19 on operations and
future financial performance is currently unknown. It will depend on future developments that are uncertain
and unpredictable, including the duration and spread of COVID-19, its continued impact on capital and
financial markets on a macro-scale and any new information that may emerge concerning the severity of the
virus. These uncertainties may persist beyond when it is determined how to contain the virus or treat its
impact.
IFRS requires management to make estimates and assumptions that affect reported amounts and disclosures.
These estimates and assumptions take into account historical and forward looking factors that the Company
believes are reasonable, including but not limited to the potential impacts arising from COVID-19 and public
and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the
impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions
change. Actual results could differ significantly from those estimates.
Pan American's normal operations in Mexico, Peru, Argentina and Bolivia were suspended for an average
duration of approximately two months during the first half of 2020 in order to comply with mandatory
national quarantines imposed in response to the COVID-19 pandemic. The Huaron and Morococha operations
were suspended for another approximately three months through the third quarter of 2020. The Company
conducted care and maintenance activities at the suspended operations until the government restrictions
were lifted and Pan American determined it was safe to resume operations. Following the restart of
operations, production was below normal capacity rates in order to accommodate COVID-19 related protocols
to help protect the health and safety of our workforce and communities.
As of December 31, 2020 no operations were suspended as a result of COVID and, based on management
analysis, the Company has concluded that these temporary, short-term, suspensions and resulting deferral of
production do not represent indicators of impairment, or require impairment reversal, for any of the
Company's assets.
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
PAN AMERICAN SILVER CORP.
107
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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
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.
in engineering and geological
•
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
PAN AMERICAN SILVER CORP.
108
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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.
• 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 30 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 $2.6 billion as at December 31, 2020 (2019 - $2.5 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, 2019.
PAN AMERICAN SILVER CORP.
109
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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"). Tahoe's principal mines included: 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.
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 Contingent Value Rights ("CVRs"). Each CVR has a term of 10 years and 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 Company determined this transaction represents a business
combination with Pan American identified as the acquirer. The Company began consolidating the operating
results, cash flows and net assets of Tahoe from February 22, 2019 onwards. Acquisition-related costs of
$7.5 million were expensed during the year ended December 31, 2019 were presented as transaction and
integration costs. There were no acquisition-related costs recorded during the year ended December 31, 2020.
The following table summarizes the consideration paid as part of the purchase price which was finalized in the
fourth quarter of 2019:
Consideration:
Fair value estimate of the Pan American Share consideration
Fair value estimate of the CVRs
Cash (1)
Fair value estimate of replacement options
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) Net of cash and cash equivalents acquired, the Company paid $247.5 million in cash.
The following table below presents the final allocation of the Tahoe purchase price to the identifiable assets and
liabilities based on their estimated fair values which was finalized in the fourth quarter of 2019:
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
$
$
$
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
PAN AMERICAN SILVER CORP.
110
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
9. FINANCIAL INSTRUMENTS
a) Financial assets and liabilities by categories
December 31, 2020
Amortized cost
FVTPL
FVTOCI
Total
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
Derivative financial assets
Financial Liabilities:
Derivative financial liabilities
(1)
Included in Trade and other receivables.
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:
Debt
(1)
Included in Trade and other receivables.
$
$
$
$
$
167,113 $
— $
—
84,486
—
—
35,084
—
111,946
7,812
251,599 $
154,842 $
— $
—
—
—
—
— $
167,113
35,084
84,486
111,946
7,812
406,441
— $
367 $
— $
367
$
120,564 $
— $
—
116,596
—
—
—
48,767
—
117,776
—
1,272
237,160 $
167,815 $
— $
—
—
—
—
—
— $
120,564
48,767
116,596
117,776
—
1,272
404,975
— $
275,000 $
— $
275,000
December 31, 2019
Amortized cost
FVTPL
FVTOCI
Total
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, 2020 and 2019. Net gains (losses) on short-term investments recorded at FVTPL were as follows:
2019 (1)
2020 (1)
Unrealized net gains on short-term investments, equity securities
Realized net gains on short-term investments, equity securities
$
$
10,577 $
51,562
62,139 $
83,705
—
83,705
(1) Excludes $0.9 million in income not recorded at FVTPL for the year ended December 31, 2020 (2019 - $1.0 million).
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, 2020 and 2019 were as
follows:
Reclassification adjustment for realized gains on short-term investments, other than equity securities
—
(208)
2020
2019
PAN AMERICAN SILVER CORP.
111
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, 2020 and 2019 were comprised of the following:
Gains on foreign currency and commodity contracts:
Realized (losses) gains on foreign currency and commodity contracts
Unrealized gains on foreign currency and commodity contracts
Gain (loss) on derivatives:
Gain (loss) on warrants
e) Fair value information
i)
Fair Value Measurement
2020
2019
$
$
$
$
(2,594) $
6,137
3,543 $
38 $
38 $
2,669
646
3,315
(14)
(14)
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
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, 2020
Level 2
Level 1
At December 31, 2019
Level 2
Level 1
$
111,946 $
— $
117,776 $
—
—
—
$
111,946 $
35,084
7,812
(367)
42,529 $
—
—
—
117,776 $
—
48,767
1,272
—
50,039
There were no transfers between Level 1 and Level 2 during the year ended December 31, 2020. 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, 2019.
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.
PAN AMERICAN SILVER CORP.
112
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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:
Credit risk
i)
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.
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,
2020, the Company had receivable balances associated with buyers of its concentrates of $35.1 million (2019 -
$48.8 million) and receivable balances associated with buyers of its doré of $nil (2019 - $17.5 million). The vast
majority of the Company’s concentrate is sold to five 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 five 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,
2020, the Company had approximately $61.8 million (2019 - $58.2 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, and in-transit to refineries. Risk is transferred to the refineries upon delivery.
PAN AMERICAN SILVER CORP.
113
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 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, 2020, the Company had
made $8.2 million (2019 - $3.4 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, 2020, the Company had a provision recorded for expected credit losses in the amount of $4.7
million (2019 - $4.7 million) which relates to amounts owning from Republic Metals, one of the refineries of
doré, for deliveries that occurred in 2018.
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,
2020
167,113 $
35,084
8,186
—
552
December 31,
2019
120,564
66,230
3,391
121
392
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.
PAN AMERICAN SILVER CORP.
114
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 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 2020
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
Income taxes payable
Loss on commodity contracts
Debt
Interest & Standby Fees
Provisions(1)(2)
Future employee compensation
Total contractual obligations(2)
$
$
272,266 $
2,935
6,737
281,938
54,556
367
2,110
3,648
4,396
347,015 $
— $
— $
3,711
—
3,711
—
—
2,294
3,109
11,468
20,582 $
1,120
—
1,120
—
—
—
85
—
1,205 $
— $
76
—
76
—
—
—
1
—
77 $
272,266
7,842
6,737
286,845
54,556
367
4,404
6,843
15,864
368,879
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
Income taxes payable
Debt
Credit facility
Interest & Standby Fees
Provisions(1)(2)
Future employee compensation
Total contractual obligations(2)
$
$
221,488 $
994
2,848
225,330
24,770
—
12,952
3,979
1,444
268,475 $
— $
— $
— $
5,967
—
5,967
—
—
27,040
633
8,711
42,351 $
772
—
772
—
275,000
—
1,350
—
277,122 $
109
—
109
—
—
—
967
—
1,076 $
221,488
7,842
2,848
232,178
24,770
275,000
39,992
6,929
10,155
589,024
(1) Total litigation provision (Note 17).
(2) Amounts above do not include payments related to the Company’s anticipated closure and decommissioning obligation (current
$8.4 million, long-term $226.7 million) discussed in Note 17 (2019 - current $3.4 million, long-term $185.1 million), the deferred
credit arising from the Aquiline acquisition ($20.8 million) (2019 - $20.8 million) discussed in Note 20, and deferred tax liabilities of
$175.3 million (2019 - $176.8 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.
PAN AMERICAN SILVER CORP.
115
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, 2020, Pan American had outstanding positions on $51.0 million in foreign currency
exposure of Mexican peso ("MXN") purchases, $45.6 million of Peruvian sol ("PEN") purchases. The
MXN purchases had weighted averaged USD put and call exchange rates of 21.29 and 30.43,
respectively, expiring between January 2021 and December 2021. The PEN positions had weighted
average USD put and call exchange rates of 3.50 and 3.67, respectively, expiring between January 2021
and December 2021.
For the year ended December 31, 2020, the Company recorded gains of $1.6 million (2019 - gains of $1.0
million), losses of $2.2 million (2019 - gains of $0.7 million), and losses of $0.6 million (2019 - gains of
$0.3 million) 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, 2020 non-USD net monetary liabilities were denominated would result in an income
before taxes change of about $9.2 million (2019 - $6.9 million).
The Company is exposed to currency risk through the following financial assets and liabilities, and
deferred income tax assets and liabilities denominated in foreign currencies:
At December 31, 2020
Canadian Dollar
Mexican Peso
Argentine Peso
Bolivian Boliviano
European Euro
Peruvian Sol
Guatemala quetzal
$
$
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
117,956 $
1,020
7,175
571
3
13,917
453
141,095 $
4,952 $
29,895
16,878
218
—
26,257
677
78,877 $
3,537 $
3,657
1,513
(2,443)
—
(38,507)
—
(32,243) $
(24,310) $
(45,050)
(14,543)
(19,402)
—
(54,672)
(4,559)
(162,536) $
40,600
(72,552)
—
(7,700)
—
(77,810)
1
(117,461)
PAN AMERICAN SILVER CORP.
116
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
short-term
investments
Other current and
non-current
assets
Income taxes
receivable
(payable),
current and non-
current (1)
Accounts payable
and accrued
liabilities and
non-
current liabilities
Deferred tax
assets and
liabilities
$
At December 31, 2019
Canadian Dollar
Mexican Peso
Argentine Peso
Bolivian Boliviano
European Euro
Peruvian Sol
Guatemala quetzal
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 $
(769) $
6,902
1,400
(3,135)
—
(12,147)
—
(7,749) $
(23,387) $
(64,589)
(16,143)
(8,749)
—
(39,884)
(669)
(153,421) $
23,640
(73,938)
—
(9,925)
—
(80,138)
—
(140,361)
(1) Recast comparative to provide consistency with current presentation.
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, 2020 on its cash and short-term investments was 0.9% (2019 - 0.6%). 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
(2019 – $0.1 million).
At December 31, 2020, the Company did not have any amounts drawn (2019 - $275.0 million) on its
secured revolving credit facility (the "Credit Facility"). The amounts drawn in 2020 had an average
interest rate of 2.6% (2019 - 4.3%).
In July and September 2020, the Company borrowed $2.8 million and $2.8 million, respectively, in loans
under a Peruvian government COVID-19 pandemic program ("Loans"). During the year ended
December 31, 2020, the Company repaid all Loans outstanding. These loans had previously incurred an
average interest rate of 1.3%.
At December 31, 2020, the Company has $33.6 million in lease obligations (2019 - $41.2 million), that
are subject to an annualized interest rate of 9.3% (2019 - 9.7%).
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.
During the year ended December 31, 2020, the Company entered into diesel swap contracts designated
to fix or limit the Company’s exposure to higher fuel prices (the “Diesel Fuel Swaps”). The Company did
not enter into any Diesel Fuel Swaps in 2019. The Company recorded gains of $4.7 million on the Diesel
Fuel Swaps in the year ended December 31, 2020.
PAN AMERICAN SILVER CORP.
117
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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, 2020, would result in an increase of approximately
$138 million (2019 – $139.1 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 $138.2 million (2019 - $140.1 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, 2020 would result in an increase of
approximately $4.6 million (2019 - $6.4 million) in the Company’s before tax earnings, which would be
reflected in 2020 results. A 10% decrease in metal prices for the same period would result in a decrease
of approximately $4.6 million (2019 - $6.4 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, 2020, the Company had no outstanding contracts to
sell base metals production.
10. SHORT-TERM INVESTMENTS
December 31, 2020
December 31, 2019
Fair
Value
Cost
Accumulated
unrealized
holding gains
Fair Value
Cost
Accumulated
unrealized
holding gains
Short-term investments
$
111,946 $
20,419 $
91,527 $
117,776 $
36,826 $
80,950
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,
2020
19,104 $
30,063
219,334
77,489
84,556
430,546 $
(406,191) $
24,355 $
December 31,
2019
17,433
27,708
169,751
67,820
88,004
370,716
(346,507)
24,209
$
$
$
$
(1)
(2)
(3)
(4)
Includes an impairment charge of $2.0 million to reduce the cost basis of inventory to NRV at Manantial Espejo mine (2019 – $5.0
million at Manantial Espejo and Dolores mines).
Includes an impairment charge of $26.2 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines
(2019 - $39.3 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 Dolores mine at December 31, 2020.
(2019 - $2.9 million at Manantial Espejo and Dolores mines).
Inventories at Escobal mine, which include $17.1 million (2019 - $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, 2020 amounted to $978.6 million
(2019 – $1.1 billion), of which $696.7 million (2019 – $841.3 million) and $254.5 million (2019 – $253.5 million)
were included in production costs and depreciation and depletion in the Consolidated Income Statements,
respectively.
PAN AMERICAN SILVER CORP.
118
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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, 2020 a $16.2 million NRV recovery (2019 - $0.4 million NRV recovery) was
recognized, primarily driven by increased expected precious metal prices, and included in production costs (Note
22). Inventories held at NRV amounted to $215.5 million (2019 - $151.5 million).
A portion of the stockpile ore amounting to $2.7 million (2019 - $1.2 million) and a portion of the heap leach
inventory amounting to $147.0 million (2019 - $74.5 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:
Mining Properties
Depletable
Non-depletable
Reserves
and Resources
Reserves
and Resources
Exploration
and Evaluation
Plant and
Equipment
Total
Carrying value
As at January 1, 2020
Net of accumulated depreciation
Additions
Disposals
Depreciation and amortization (1)
Depreciation charge captured in inventory
Transfers
Closure and decommissioning – changes in
estimate (Note 17)
As at December 31, 2020
Cost as at December 31, 2020
Accumulated depreciation and impairments
Carrying value – December 31, 2020
$
$
$
$
950,752 $
142,463
(235)
(125,277)
(29,618)
22,747
35,913
996,745 $
331,549 $
17,159
(38)
(1,059)
—
(40,531)
450,926 $
631
(14,315)
—
—
(5,592)
771,674 $
30,971
(382)
(146,108)
—
23,376
307,080 $
431,650 $
679,531 $
2,504,901
191,224
(14,970)
(272,444)
(29,618)
—
35,913
2,415,006
2,824,861 $
(1,828,116)
996,745 $
321,639 $
(14,559)
307,080 $
844,487 $
(412,837)
431,650 $
1,461,678 $
(782,147)
679,531 $
5,452,665
(3,037,659)
2,415,006
(1) Includes $18.0 million of depreciation and amortization included in mine care and maintenance for the year ended December 31, 2020.
PAN AMERICAN SILVER CORP.
119
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
$
$
$
$
678,489 $
152,033
314,604
(2,461)
(113,067)
(33,810)
—
(77,598)
32,562
950,752 $
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
—
331,549 $
450,926 $
771,674 $
1,301,002
263,733
1,239,401
(4,484)
(253,453)
(33,810)
(40,050)
—
32,562
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
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
PAN AMERICAN SILVER CORP.
120
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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, 2020
December 31, 2019
Accumulated
Depreciation
and
Impairment
Cost
218,270 $
267,705
546,643
170,401
71,725
308,378
1,709,105
513,626
144,790
307,243
28,653
4,286,539 $
(135,932) $
(175,844)
(86,855)
(66,313)
(71,725)
(164,443)
(1,228,492)
(485,036)
(101,408)
(75,902)
(18,313)
(2,610,263) $
Carrying
Value
Cost
Accumulated
Depreciation
and
Impairment
Carrying
Value
82,338 $
91,861
459,788
104,088
—
143,935
480,613
28,590
43,382
231,341
10,340
1,676,276 $
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 $
(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
6,758 $
(1,254) $
566,577
259,198
71,099
6,079
117,000
80,239
21,589
5,054
—
32,533
1,166,126 $
(376,101)
(1,072)
—
—
—
(36,975)
—
—
—
(11,994)
(427,396) $
5,504 $
190,476
258,126
71,099
6,079
117,000
43,264
21,589
5,054
—
20,539
738,730 $
5,528 $
(1,267) $
566,577
249,353
87,747
15,586
117,000
83,079
15,544
7,213
95,851
31,866
1,275,344 $
(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
5,452,665 $
(3,037,659) $
2,415,006 $
5,181,329 $
(2,676,428) $
2,504,901
Huaron, Peru
Morococha, Peru
Shahuindo, Peru
La Arena, Peru
Alamo Dorado, Mexico
La Colorada, Mexico
Dolores, Mexico (1)
Manantial Espejo, Argentina (2)(4)
San Vicente, Bolivia
Timmins, Canada
Other
Total
Land and Non-Producing
Properties:
Land
Navidad, Argentina (3)
Escobal, Guatemala
Timmins, Canada
Shahuindo, Peru
La Arena, Peru
Minefinders, Mexico
La Colorada, Mexico
Morococha, Peru
Projects, Argentina (4)
Other
Total non-producing properties
Total mineral properties, plant
and equipment
$
$
$
$
$
(1) Includes previously recorded impairment charges of $748.9 million at December 31, 2020 (2019 - $748.9 million).
(2) Includes previously recorded impairment charges of $173.3 million at December 31, 2020 (2019 - $173.3 million).
(3) Includes previously recorded impairment charges of $376.1 million at December 31, 2020 (2019 - $376.1 million).
(4) Comprised of the Joaquin and COSE projects which entered commercial production and were transferred to Manantial Espejo during the
year ended December 31, 2020.
PAN AMERICAN SILVER CORP.
121
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 and Reversals
Based on the Company’s assessment with respect to possible indicators of either impairment or reversal of
previous impairments to its mineral properties, including the impact of COVID-19 on our operations and the
prevailing market metals prices, the Company concluded that as of December 31, 2020 no impairment or
impairment reversal indicators were identified.
As of December 31, 2019, there were indicators of impairment at Manantial Espejo which required the Company
to record impairment charges of $40.1 million.
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).
Key assumptions and sensitivity
The metal prices used to calculate the recoverable amounts at December 31, 2019 are based on analyst consensus
prices and the Company’s long term reserve prices, and are summarized in the following table.
Metal prices used at December 31, 2019:
Metal Prices
Silver price - $/oz.
Gold price - $/oz.
2020-2023 average
$17.94
$1,474
PAN AMERICAN SILVER CORP.
122
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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%, with rates applied to the various mines
and projects ranging from 4.0% to 12.3%, 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 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.
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, December 31, 2019
Disposal of investment in associate
Adjustment for change in ownership interest
Dividends
Dilution gains
Income from associate
Blance of investment, December 31, 2020
(1) Includes adjustment for change in ownership.
Investment in Maverix:
2020
84,319 $
(23,467)
1,489
(1,310)
9,160
1,369
71,560 $
$
$
2019
69,116
—
(42)
—
13,480
1,765
84,319
On June 5, 2020, the Company completed a Secondary Offering pursuant to an underwriting agreement dated
May 29, 2020 between Maverix, the Company, and a syndicate of underwriters (the "Secondary Offering"). As
part of the Secondary Offering, the Company sold 10,350,000 common shares of Maverix at a price of $4.40 per
common share for aggregate gross proceeds of $45.5 million and paid underwriting fees equal to 4% of the gross
proceeds equal to $1.9 million.
Concurrent with the Secondary Offering, the Company acquired ownership or control of an additional 8,250,000
common shares of Maverix through the exercise of its remaining 8,250,000 common share purchase warrants in
Maverix (the "Warrants"). 5,000,000 Warrants had an exercise price of $1.56 and 3,250,000 Warrants had an
exercise price of $2.408. Maverix received gross proceeds of approximately $15.6 million. As a result, the
Company de-recognized the remaining warrant liability representing in substance ownership of Maverix. This
warrant liability was $15.0 million as at December 31, 2019.
The Company's share of Maverix income or loss was recorded, based on its 26% interest from January 1, 2020 to
June 5, 2020, 18% from June 6, 2020 to October 29, 2020, and 17% from October 30, 2020 to December 31, 2020
(26% for the year ended December 31, 2019), representing the Company’s equity interest.
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").
PAN AMERICAN SILVER CORP.
123
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
The deferred revenue related to the Streams will be recognized as revenue by Pan American as the gold ounces
are delivered to Maverix. As at December 31, 2020, the deferred revenue liability was $13.3 million (December 31,
2019 - $12.5 million).
Income Statement Impacts:
The Company recorded a gain of $23.5 million during the year ended December 31, 2020 as a result of the
disposition of shares pursuant to the Secondary Offering.
The Company recognized $9.2 million in dilution gains during the year ended December 31, 2020 (2019 - $13.5
million). Dilution gains are recorded in share of income from associate and dilution gain.
For the year ended December 31, 2020, the Company also recognized $1.4 million share of income from associate
(2019 - $1.8 million), which represents the Company's proportionate share of Maverix's earnings during the
periods.
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,
2020
December 31,
2019
$
$
2,775 $
1,396
4,171 $
3,057
1,930
4,987
December 31,
2020
80,280 $
18,166
94,600
53,780
2,935
11,208
20,969
281,938 $
December 31,
2019
66,924
16,108
59,295
47,221
994
9,844
24,944
225,330
$
$
(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.
124
17. PROVISIONS
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
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, 2020
Maturity analysis of total provisions:
Current
Non-Current
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
$
70,587 $
32,909
77,320
—
—
—
—
(2,264)
9,903
188,455 $
40,857
—
—
—
—
(2,462)
8,260
235,110 $
$
$
Litigation
4,568 $
—
732
2,551
(252)
(265)
(405)
—
—
6,929 $
—
2,402
(1,754)
(569)
(165)
—
—
6,843 $
Total
75,155
32,909
78,052
2,551
(252)
(265)
(405)
(2,264)
9,903
195,384
40,857
2,402
(1,754)
(569)
(165)
(2,462)
8,260
241,953
December 31,
2020
12,066 $
229,887
241,953 $
December 31,
2019
7,372
188,012
195,384
$
$
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 $330.6 million (2019 - $290.4 million), which has been inflated using
inflation rates of between 0% and 4% (2019 – between 0% and 5%). The total provision for closure and
decommissioning cost is calculated using discount rates of between 0% and 8% (2019 - between 2% and 9%).
Revisions made to the reclamation obligations in 2020 were primarily a result of increased site disturbance at the
mines as well as revisions to the estimate based on periodic reviews of closure plans, actual expenditures incurred
and concurrent closure activities completed. These obligations will be funded from operating cash flows,
reclamation deposits and cash on hand.
The accretion expense charged to 2020 earnings as finance expense was $8.3 million (2019 - $9.9 million).
Reclamation expenditures paid during the current year were $2.5 million (2019 - $2.3 million).
Litigation Provision
The litigation provision, as at December 31, 2020 and 2019, consists primarily of amounts accrued for labour
claims at several of the Company’s mine operations. The balance of $6.8 million at December 31, 2020 (2019 - $6.9
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.
125
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 years ended December 31, 2020 and 2019, which
include land, buildings, vehicles, and machinery and equipment which have been recorded in mineral properties,
plant and equipment on the Consolidated Statements of Financial Position:
Cost
Balance, January 1, 2020
Additions
Transfer out
Balance, December 31, 2020
Accumulated Depreciation
Balance, January 1, 2020
Amortization
Transfer out
Balance, December 31, 2020
Carrying Amounts
At January 1, 2020
At December 31, 2020
December 31,
2020
Cost
$
$
60,779 Balance, January 1, 2019
5,534 Additions (1)
(10,458) Transfer out
55,855 Balance, December 31, 2019
Accumulated Depreciation
(17,418) Balance, January 1, 2019
(14,244) Amortization (2)
9,350 Transfer out
(22,312) Balance, December 31, 2019
Carrying Amounts
43,361 At January 1, 2019
33,543 At December 31, 2019
December 31,
2019
$
$
34,983
42,415
(16,619)
60,779
(4,780)
(20,103)
7,465
(17,418)
30,203
43,361
(1)
(2)
Includes $8.5 million in assets acquired from Tahoe Acquisition (Note 8).
Includes an impairment charge of $2.4 million (Note 13) related to the Manantial Espejo mineral property, and the COSE and Joaquin
projects.
b. Lease obligations
The following table presents a reconciliation of the Company's undiscounted cash flows at December 31, 2020 and
December 31, 2019 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
19. DEBT
Credit Facility
December 31,
2020
13,505 $
17,902
19,255
50,662
(17,097)
33,565 $
(12,829)
20,736 $
December 31,
2019
16,221
23,099
21,675
60,995
(19,787)
41,208
(14,198)
27,010
$
$
$
December 31,
2020
$
— $
December 31,
2019
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
PAN AMERICAN SILVER CORP.
126
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, 2020, 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.
During the year ended December 31, 2020, the Company drew down $80 million, as a precautionary measure to
increase liquidity considering the uncertain impacts of the COVID-19 pandemic, and repaid $355 million of the
Credit Facility under LIBOR-based interest rates (2019 - The Company drew down $335 million, to fund, in part, the
cash purchase price for the Tahoe Acquisition and to repay, in full, and cancel Tahoe's $125 million second
amended and restated revolving facility. The Company repaid a further $60 million from the Credit Facility).
During the year ended December 31, 2020, the average interest rate incurred by the Company on the Credit
Facility was 2.6% (2019 - 4.3%). During the year ended December 31, 2020, the Company incurred $2.2 million
(2019 - $0.9 million) in standby charges on undrawn amounts and $5.0 million (2019 - $11.6 million) in interest on
drawn amounts under this Facility.
In July and September 2020, the Company borrowed $2.8 million and $2.8 million, respectively, in Loans under a
Peruvian government COVID-19 pandemic program. These loans incur an average interest rate of 1.3% which is
deferred and payable after July and September 2021, respectively. At December 31, 2020, the Company had
$0.0 million of these Loans outstanding.
20. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of:
Deferred credit(1)
Other income tax payable
Severance accruals
December 31,
2020
20,788 $
54
6,231
December 31,
2019
20,788
118
6,848
27,073 $
27,754
$
$
(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.
PAN AMERICAN SILVER CORP.
127
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
21. SHARE CAPITAL AND STOCK-BASED COMPENSATION
a. Stock options and Common Shares issued as compensation ("Compensation Shares")
For the year ended December 31, 2020, the total share-based compensation expense relating to stock options and
Compensation Shares was $3.0 million (2019 - $4.4 million) and is presented as a component of general and
administrative expense.
i.
Stock options
During the year ended December 31, 2020, the Company granted 7,605 (2019 – 22,788 stock options) stock
options.
During the year ended December 31, 2020, the Company issued 329,379 common shares in connection with
the exercise of 329,711 options (2019 – 244,299 common shares and options) in connection with the exercise
of stock options.
ii. Compensation shares
During the year ended December 31, 2020, 9,883 common shares were issued to Directors in lieu of Directors
fees of $0.2 million (2019 - 22,335 shares in lieu of fees of $0.2 million).
The following table summarizes changes in stock options for the years ended December 31:
As at December 31, 2018
Granted
Granted pursuant to the Tahoe Acquisition (Note 8)
Exercised
Expired
Forfeited
As at December 31, 2019
Granted
Exercised
Expired
Forfeited
As at December 31, 2020
Stock Options
Weighted
Average
Exercise
Price CAD$
15.00
26.54
48.47
15.10
58.45
34.00
33.84
39.48
19.23
53.41
43.08
18.78
Shares
698,387 $
22,788 $
835,874 $
(244,299) $
(141,604) $
(27,798) $
1,143,348 $
7,605
(329,711) $
(482,438)
(21,387) $
317,417 $
The following table summarizes information about the Company's stock options outstanding at December 31,
2020:
Range of Exercise
Prices
CAD$
$9.76 - $23.61
$23.62 - $35.21
$35.22 - $46.53
$46.54 - $65.71
Options Outstanding
Options Exercisable
Number
Outstanding as
at December
31, 2020
Weighted
Average
Remaining
Contractual Life
(months)
Weighted
Average
Exercise Price
CAD$
Number
Outstanding as
at December
31, 2020
Weighted
Average
Exercise
Price CAD$
269,727
22,788
22,019
2,883
317,417
41.49 $
71.16 $
37.60 $
10.09 $
43.07 $
15.75
26.54
41.68
65.71
18.78
269,727 $
11,396 $
14,414 $
2,883 $
298,420 $
15.75
26.54
42.85
65.71
17.95
PAN AMERICAN SILVER CORP.
128
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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 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$)
Weighted average fair value (CAD$)
b. PSUs
2020
2019
4.0
37.9 %
1.1 %
0.8 %
$
$
39.45
15.80
$
$
4.0
37.1 %
1.0 %
2.0 %
26.54
8.34
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 62,920 PSUs for 2020 with a share price of CAD
$39.51 (2019 - 75,311 PSUs approved at a share price of CAD $24.88). Compensation expense for PSUs was $4.2
million for the year ended December 31, 2020 (2019 - $2.2 million) and is presented as a component of general
and administrative expense.
At December 31, 2020, the following PSUs were outstanding:
PSU
As at December 31, 2018
Granted
Paid out
Change in value
As at December 31, 2019
Granted
Paid out
Forfeited
Change in value
As at December 31, 2020
c. RSUs
Number
Outstanding
Fair Value
210,409 $
75,311
(38,119)
—
247,601 $
62,920
(54,962)
—
—
255,559 $
3,091
1,784
(903)
1,924
5,896
1,942
(2,626)
—
3,658
8,870
Under the Company’s RSU plan, selected employees are granted RSUs where each RSU has a value equivalent to
one Pan American common share. At the time of settlement, the Board of Directors has the discretion to settle the
RSUs with cash or Common Shares. The RSUs 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 $5.0 million for the year ended December 31, 2020 (2019 – $2.5 million) and
is presented as a component of general and administrative expense.
PAN AMERICAN SILVER CORP.
129
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
At December 31, 2020, the following RSUs were outstanding:
RSU
As at December 31, 2018
Granted
Paid out
Forfeited
Change in value
As at December 31, 2019
Granted
Paid out
Forfeited
Change in value
As at December 31, 2020
d.
Issued share capital
Number
Outstanding
Fair Value
328,823 $
146,594
(157,584)
(18,617)
—
299,216 $
261,224
(148,049)
(15,819)
—
396,572 $
3,624
3,891
(3,140)
(441)
3,173
7,107
6,302
(4,762)
(545)
5,628
13,730
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, 2020 and 2019:
Declaration Date
February 17, 2021 (1)
November 4, 2020
August 5, 2020
May 6, 2020
February 19, 2020
November 6, 2019
August 7, 2019
May 8, 2019
February 20, 2019
Record date
March 1, 2021
November 16, 2020
August 17, 2020
May 19, 2020
March 2, 2020
November 18, 2019
August 19, 2019
May 21, 2019
March 4, 2019
Dividend per
common share
0.0700
$
0.0700
$
0.0500
$
0.0500
$
0.0500
$
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.
f. CVRs
On February 22, 2019, the Company issued 313,887,490 CVRs as part of the Tahoe Acquisition (Note 8), which
were convertible into 15,600,208 common shares following the First Shipment upon the restart of operations at
the Escobal mine. As of December 31, 2020, there were 313,883,990 CVRs outstanding which were convertible
into 15,600,034 common shares (December 31, 2019 - 313,887,490 CVRs convertible into 15,600,208 common
shares).
PAN AMERICAN SILVER CORP.
130
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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)(3)
(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 Care and Maintenance expenses
Less: Expensed within General and Administrative expenses
Less: Expensed within Exploration expenses
Employee compensation and benefits expenses included in production costs
2020
284,215 $
262,753
125,242
39,242
18,198
(32,978)
696,672 $
2020
317,668 $
3,024
320,692
(37,695)
(17,180)
(3,064)
262,753 $
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
$
$
$
$
(2)
(3)
Includes NRV adjustments to inventory to reduce production costs by $16.2 million for the year ended December 31, 2020 (2019 -
reduce by $0.4 million).
Includes the sale of inventory with fair value increases of $3.5 million for the year ended December 31, 2020 (2019 - $43.4 million)
resulting from the Tahoe Acquisition (Note 8).
23. MINE CARE AND MAINTENANCE
Mine care and maintenance expenses (1)
Mine care and maintenance depreciation (2)
(1)
(2)
Includes $58.3 million as a result of the suspension of mines due to COVID 19.
Includes $16.8 million as a result of the suspension of mines due to COVID 19.
24. INTEREST AND FINANCE EXPENSE
Interest expense
Finance fees
Accretion expense (Note 17)
2020
84,130 $
17,975
102,105 $
2019
23,662
—
23,662
2020
9,216 $
2,628
8,260
20,104 $
2019
16,879
2,500
9,903
29,282
$
$
$
$
PAN AMERICAN SILVER CORP.
131
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
25. EARNINGS PER SHARE (BASIC AND DILUTED)
For the year ended December 31
2020
2019
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
Earnings
(Numerator)
Shares (000’s)
(Denominator)
Per-Share
Amount
Net earnings (1)
Basic earnings per share
Effect of Dilutive Securities:
Stock Options
Diluted earnings per share
$
$
$
177,882
177,882
—
177,882
210,085 $
210
210,295 $
(1) Net earnings attributable to equity holders of the Company.
$
0.85 $
110,738
110,738
201,397 $
0.55
—
0.85 $
110,738
174
201,571 $
0.55
Potentially dilutive securities excluded in the diluted earnings per share calculation for the year ended
December 31, 2020 were 24,902 out-of-the-money options (2019 – 711,662).
26. 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
Gains on securities held
Gains on commodity and foreign currency contracts (Note 9d)
(Gain) loss on derivatives (Note 9d)
Share of income from associate and dilution gain (Note 14)
Net realizable value adjustment for inventories
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:
Share-based compensation issued to employees and directors
Cash and Cash Equivalents
Cash in banks
27. SEGMENTED INFORMATION
2020
2019
$
3,024 $
(58,673)
(3,543)
(38)
(10,529)
(16,175)
—
(85,934) $
2020
54,838 $
(14,623)
2,353
56,816
(2,402)
96,982 $
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)
2020
2,826 $
2019
2,693
December 31,
2020
167,113 $
December 31,
2019
120,564
$
$
$
$
$
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.
PAN AMERICAN SILVER CORP.
132
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Significant information relating to the Company’s reportable segments is summarized in the table below:
For the year ended December 31, 2020
Mine
Revenue
Production
costs and
royalties
Depreciation
Mine
operating
earnings
Mine care and
maintenance
Capital
expenditures(1)
$
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Escobal
Segment/
Country
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Guatemala
Total Silver Segment
Gold Segment:
Peru
Shahuindo
La Arena
Timmins
Canada
Total Gold Segment
Other segment:
Canada
Argentina
Other
Total
Pas Corp
Navidad
Other
$
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Escobal
Segment/
Country
Silver Segment:
Mexico
Peru
Bolivia
Argentina
Guatemala
Total Silver Segment
Gold Segment:
Shahuindo
La Arena
Timmins
Canada
Total Gold Segment
Other segment:
Canada
Argentina
Other
Total
Pas Corp
Navidad
Other
250,219 $
128,824
72,073
47,046
48,396
84,051
630,609
270,043
176,028
262,132
708,203
—
146,961 $
69,663
39,612
35,768
35,753
68,381
—
396,138
97,940
72,676
157,412
328,028
—
—
—
87,694 $
19,608
7,069
7,203
6,725
9,787
138,086
40,562
27,683
46,605
114,850
15,564 $
39,553
25,392
4,075
5,918
5,883
—
96,385
131,541
75,669
58,115
265,325
491
—
1,042
254,469 $
(491)
—
(1,042)
360,177 $
10,175 $
7,973
20,840
20,023
2,890
5,617
21,001
88,519
3,855
3,712
—
7,567
—
6,019
—
102,105 $
44,861
29,388
4,500
10,168
4,877
10,789
4,807
109,390
23,335
37,324
20,751
81,410
297
—
560
191,657
248,744 $
177,698
117,118
101,549
76,968
63,289
—
785,366
189,372
174,803
201,218
565,393
—
—
—
191,320 $
75,139
76,962
73,396
57,805
63,432
—
538,054
90,877
99,915
139,172
329,964
—
—
—
104,701 $
23,175
13,638
15,482
9,449
5,854
—
172,299
28,649
14,873
36,302
79,824
488
—
842
(47,277) $
79,384
26,518
12,671
9,714
(5,997)
—
75,013
69,846
60,015
25,744
155,605
(488)
—
(842)
229,288 $
— $
—
—
—
—
—
17,738
17,738
—
—
—
—
—
5,924
—
23,662 $
50,657
20,275
10,936
15,556
4,960
26,512
1,107
130,003
33,280
47,557
13,747
94,584
396
9
85
225,077
$
1,338,812 $
724,166 $
(1)
Includes payments for mineral properties, plant and equipment and payment of equipment leases.
For the year ended December 31, 2019
Mine
Revenue
Production
costs and
royalties
Depreciation
Mine
operating
earnings
Mine care and
maintenance
Capital
expenditures(1)
$
1,350,759 $
868,018 $
253,453 $
(1)
Includes payments for mineral properties, plant and equipment and amounts have been recast, and presented, for the year ended
ended December 31, 2020 to include payment of equipment leases.
PAN AMERICAN SILVER CORP.
133
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
Impairments
Gains on commodity and foreign currency contracts
Gains on sale of mineral properties, plant and equipment
Share of income from associate and dilution gain
Transaction and integration costs
Other expense
Earnings from operations
Gain (loss) on derivatives
Investment income
Interest and finance expense
Earnings before income taxes
At December 31, 2020
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
2020
360,177 $
2019
229,288
$
(36,375)
(7,096)
(102,105)
(5,474)
—
3,543
7,922
10,529
—
(22,067)
209,054
38
63,024
(20,104)
252,012 $
$
(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
Assets
Liabilities
Net assets
$
752,873 $
231,217
113,177
121,004
83,668
75,113
288,588
1,665,640
566,734
299,372
414,396
1,280,502
169,444 $
48,971
40,663
34,906
40,536
26,950
24,427
385,897
201,427
112,475
60,482
374,384
583,429
182,246
72,514
86,098
43,132
48,163
264,161
1,279,743
365,307
186,897
353,914
906,118
230,872
192,999
63,862
3,433,875 $
$
18,795
—
48,960
828,036 $
212,077
192,999
14,902
2,605,839
PAN AMERICAN SILVER CORP.
134
Mine
Dolores
La Colorada
Huaron
Morococha
San Vicente
Manantial Espejo
Escobal
Shahuindo
La Arena
Timmins
Pas Corp
Navidad
Other
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
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, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
$
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
137,396 $
46,476
39,962
36,754
35,331
27,455
19,340
342,714
162,821
90,472
50,171
303,464
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
229,814
193,034
53,830
3,461,682 $
$
304,184
—
43,474
993,836 $
(74,370)
193,034
10,356
2,467,846
2020
1,047,601 $
65,033
132,823
50,081
43,274
1,338,812 $
2019
894,202
134,992
183,343
78,865
59,357
1,350,759
$
$
The Company has 26 customers that account for 100% of the concentrate and silver and gold sales revenue. The
Company has 7 customers that accounted for 19%, 17%, 12%, 11%, 7%, 7%, and 5% of total sales in 2020, and 7
customers that accounted for 15%, 15%, 13%, 13%, 9%, 8%, and 8% of total sales in 2019. 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.
28. OTHER EXPENSES
Change in closure and decommissioning estimates
Change in provisions
Commissions on investment dispositions
Other expense
Total
2020
5,230 $
7,493
3,465
5,879
22,067 $
$
$
2019
221
—
—
4,715
4,936
PAN AMERICAN SILVER CORP.
135
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
29. 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
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
2020
2019
$
$
99,013 $
(658)
98,355
14,667
433
(42,379)
4,481
(22,798)
75,557 $
95,219
(3,090)
92,129
(13,079)
(5,003)
—
(2,779)
(20,861)
71,268
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, 2020 and the comparable period of 2019
were foreign exchange fluctuations, changes in non-recognition of certain deferred tax assets (most notably the
realization of deferred tax benefits associated with the La Arena, Timmins West, and Bell Creek mines in Q4 2020),
mining taxes paid, and withholding taxes on payments from foreign subsidiaries. The Company expects 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
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
2020
2019
$
$
252,012
$
182,512
27.00 %
68,043
$
27.00 %
49,278
9,915
16,179
(3,485)
(61,280)
22,545
18,598
(3,000)
8,605
—
(563)
75,557
29.98 %
$
7,271
2,507
3,117
(11,211)
21,307
(7,651)
4,158
8,207
(6,694)
979
71,268
39.05 %
$
PAN AMERICAN SILVER CORP.
136
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
Components of deferred tax assets and liabilities
2020
(140,361) $
$
—
22,798
—
102
(117,461)
57,850
(175,311)
(117,461) $
$
2019
(136,575)
(24,080)
20,861
(705)
138
(140,361)
36,447
(176,808)
(140,361)
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
Accounts payable and accrued liabilities
Trade and other receivables
Provision for doubtful debts and inventory adjustments
Short-term investments
Mineral properties, plant, and equipment
Estimated sales provisions
Other temporary differences and provisions
Net deferred tax liability
2020
2019(1)
$
$
26,482 $
140,608
3,286
17,737
13,290
(21,354)
(15,649)
(274,483)
(14,028)
6,650
(117,461) $
16,002
122,187
2,701
17,974
17,194
(7,145)
(15,295)
(278,707)
(23,026)
7,754
(140,361)
(1) Recast comparative deferred tax assets and liabilities to provide consistency with current presentation.
At December 31, 2020, the net deferred tax liability above included the deferred tax benefit of $140.6 million,
which includes the benefits from tax losses ($43.8 million) and resource pools ($96.8 million). The increase in this
deferred tax asset is mainly due to the Timmins and Bell Creek mine asset additions which were related to
previously unbenefitted deductible resource pools, partially offset by losses utilized against taxable income
earned. The losses will begin to expire after the 2024 year end, if unused.
At December 31, 2019, the net deferred tax liability above included the deferred tax benefit of $122.2 million,
which includes the benefits from tax losses ($59.6 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.
PAN AMERICAN SILVER CORP.
137
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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
2020
284,626 $
32,378
48,773
2,003
58,644
136,728
33,587
12,160
41,378
1,491
3,562
655,330 $
$
$
2019 (1)
202,181
34,646
260,413
2,849
118,380
141,018
53,595
11,339
23,895
1,055
3,399
852,770
(1) Recast comparative temporary differences, unused tax losses and unused tax credits to provide consistency with current presentation.
Included in the above amounts are operating losses, which if not utilized will expire as follows:
At December 31, 2020
Canada
US
Peru
Mexico
Barbados
Argentina
2021
2022
2023 – and after
Total tax losses
$
$
— $
—
269,001
269,001 $
317 $
529
11,746
12,592 $
26 $
—
314
340 $
— $
—
2,406
2,406 $
8 $
12
183
203 $
1 $
3
80
84
At December 31, 2019
Canada
US
Peru
Mexico
Barbados
Argentina
$
2020
2021
2022 – and after (1)
Total tax losses (1)
(1) Recast comparative operating losses to provide consistency with current presentation.
— $
—
178,339
178,339 $
2,110 $
28
1,778
3,916 $
318
13,185
13,582 $
— $
—
2,792
2,792 $
79 $
$
7 $
7
106
120 $
1 $
2
3,429
3,432 $
Total
352
544
283,730
284,626
Total
2,197
355
199,629
202,181
Taxable temporary differences associated with investment in subsidiaries
At December 31, 2020, taxable temporary differences of $275.7 million (2019 – $376.5 million) associated with the
investments in subsidiaries have not been recognized as the Company is able to control the timing of the reversal
of these differences which are not expected to reverse in the foreseeable future.
PAN AMERICAN SILVER CORP.
138
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
30. CONTINGENCIES
The following is a summary of the contingent matters and obligations relating to the Company as at December 31,
2020.
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.
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, 2020, $235.1 million (2019 - $188.5 million) was accrued for reclamation costs relating to mineral
properties. See also Note 17.
Tax
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.
Title
The validity of our mining or exploration titles or claims or rights, which constitute most of our property holdings,
can be uncertain and may be contested. 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, indigenous land claims, or undetected title
defects. In some cases, we do not own or hold rights to the mineral concessions we mine, and our rights may be
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. The land title system is also not well
developed in some countries and may rely 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. 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. Any defects in title to our properties, or the revocation of or challenges to our rights to mine, could
have a material adverse effect on our operations and financial condition.
PAN AMERICAN SILVER CORP.
139
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
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, which could, in the aggregate, be
of significant value, and include alleged improper dismissals, workplace illnesses, such as silicosis, and claims for
additional profit-sharing and bonuses in prior years.
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 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.
We may also be subject to proceedings in our commercial relationships. 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. Like many other creditors, we are now also subject to
alleged preference claims against us by the litigation trustee in the Republic bankruptcy. The trustee has alleged
that certain transfers that occurred in the three month period leading up to the bankruptcy are avoidable
pursuant to applicable bankruptcy laws and that such amounts received by us from Republic are subject to
recovery by the bankrupt’s estate. While we believe that we have defenses to such allegations, if we are
unsuccessful in our defense of these claims, we may be subject to significant losses.
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.
Country
Argentina
Unanticipated or drastic changes in laws and regulations have affected our operations in the past. For
example, previous governments implemented severe price, foreign exchange, and import controls which
included informal restrictions on dividend, interest, and service payments abroad and limitations on the
ability to convert ARS into USD which exposed the Company to additional risks of ARS devaluation and
high domestic inflation. The current government in Argentina maintains unfavorable economic policies,
such as strict currency controls and the imposition of export duties.
The Company has suspended project development activities at Navidad as a result of uncertainty over the
zoning, regulatory and tax laws. 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.
PAN AMERICAN SILVER CORP.
140
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(Tabular amounts are in thousands of U.S. dollars, except for number of shares,
options, warrants, and per share amounts, unless otherwise noted)
Bolivia
On May 28, 2014, the Bolivian government enacted the New Mining Law. Among other things, 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. The Company currently has a joint venture agreement with
COMIBOL (the "COMIBOL Joint Venture"), a Bolivian state mining company, relating to the San Vicente
mine. As a result, we anticipate that the COMIBOL Joint Venture 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 COMIBOL Joint Venture, and the full impact may
only be realized over time. We will take appropriate steps to protect and, if necessary, enforce our rights
under the COMIBOL Joint Venture. There is, however, no guarantee that governmental actions, including
possible expropriation or additional changes in the law, and the migration of the COMIBOL Joint Venture
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.
The Company's San Vicente mine, pursuant to the COMIBOL Joint Venture, is obligated to pay COMIBOL a
participation fee of 37.5% (the “Participation Fee”) of the operation’s cash flow. For the year ended
December 31, 2020, the Company incurred approximately $5.8 million in COMIBOL royalties (2019 -
incurred $5.1 million).
Guatemala
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 and the mine remains suspended and on care and maintenance.
Legal challenges to the consultation process have been filed with the Guatemalan Supreme Court by
parties opposed to the Escobal mine and the ultimate outcome of the various challenges remains
uncertain. The MEM recently set a date for the pre-consultation to commence in April 2021, however the
process, timing, and outcome of the ILO 169 consultation also remains uncertain.
31. 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, 2020 and
2019 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.
141
Notes to the Consolidated Financial Statements
As at December 31, 2020 and December 31, 2019, and
for the years ended December 31, 2020 and 2019
(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:
2019
14,180
1,287
3,195
18,662
Salaries and short-term benefits (1)
Post-employment benefits (2)
Share-based payments (3)
2020
18,658 $
1,226
2,750
22,634 $
$
$
(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.
PAN AMERICAN SILVER CORP.
142
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 per ounce sold”, “cash costs per ounce sold”,
“adjusted earnings” and “basic adjusted earnings per share”, “net
cash generated from operating activities before changes in working
capital”, “total debt”, “capital”, “working capital”, and “free cash flow”.
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, 2020,
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; 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, 2020.
Cautionary Note Regarding Forward-Looking Statements and
Information
Certain of the statements and information in this news release
constitute “forward-looking statements” within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
“forward-looking information” within the meaning of applicable
Canadian provincial securities laws. All statements, other than
statements of historical fact, are forward-looking statements or
information. Forward-looking statements or information in this
annual report relate to, among other things: future financial or
operational performance; expectations with respect to the future
anticipated impact of COVID-19 on our operations, the assumptions
related to the global supply of COVID-19 vaccines and the roll-out
in each country, and the effectiveness and results of any vaccines,
the lessening or increase in pandemic-related restrictions, and the
anticipated rate and timing for the same; whether Pan American
is able to maintain a strong financial condition and have sufficient
capital, or have access to capital through our corporate credit facility
or otherwise, to sustain our business and operations; the continued
advancement of the ILO 169 consultation process in connection
with the Escobal mine and the results and timing for this process;
the successful implementation of the TSM Protocols at our mines;
our ability to complete a preliminary economic assessment for the
La Colorada skarn project, and the timing and results of the same;
expected results of exploration and development, including our ability
to discover or define new mineral reserves and mineral resources;
whether the laws in Chubut, Argentina will be changed to permit
mining, and the ability of Pan American to ever develop the Navidad
project; and the ability of Pan American to successfully complete
any capital and development projects, including the La Colorada
skarn project, the expected economic or operational results derived
from those projects, and the impacts of any such projects on Pan
American.
These forward-looking statements and information reflect Pan
American’s current views with respect to future events and are
necessarily based upon a number of assumptions that, while
considered reasonable by Pan American, are inherently subject
to significant operational, business, economic and regulatory
uncertainties and contingencies. These assumptions include:
the world-wide economic and social impact of COVID-19 and
the duration and extent of the COVID-19 pandemic and related
restrictions, and the presence and impact of COVID-19 and COVID-19
related restrictions on our workforce, suppliers and other essential
resources and what effect those impacts, if they change, would
have on our business; the effect that the COVID-19 pandemic
may have on our financial and operational results; the ability of
Pan American to continue with its operations, or to successfully
maintain our operations on care and maintenance, should the
situation related to COVID-19 not be as anticipated; continuation
of operations following shutdowns or reductions in production, our
ability to manage reduced operations efficiently and economically,
including to maintain necessary staffing; tonnage of ore to be
mined and processed; future anticipated prices for gold, silver
and other metals and assumed foreign exchange rates; the timing
and impact of the replacement of ventilation infrastructure at the
La Colorada mine; the ongoing impact and timing of the court-
mandated ILO 169 consultation process in Guatemala; ore grades
and recoveries; prices for silver, gold and base metals remaining as
estimated; currency exchange rates remaining as estimated; capital,
decommissioning and reclamation estimates; our mineral reserve
and resource estimates and the assumptions upon which they are
based; prices for energy inputs, labour, materials, supplies and
services (including transportation); no labour-related disruptions
at any of our operations; no unplanned delays or interruptions in
scheduled production; all necessary permits, licenses and regulatory
approvals for our operations are received in a timely manner; 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. The foregoing list
of assumptions is not exhaustive.
Pan American 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 news
release and Pan American has made assumptions and estimates
based on or related to many of these factors. Such factors include,
without limitation: the duration and effects of COVID-19, and any
other pandemics on our operations and workforce, and the effects
on global economies and society; fluctuations in silver, gold and
base metal prices; fluctuations in prices for energy inputs, labour,
materials, supplies and services (including transportation);
fluctuations in currency markets (such as the PEN, MXN, ARS,
BOB, GTQ and CAD versus the USD); operational risks and hazards
inherent with the business of mining (including environmental
accidents and hazards, industrial accidents, equipment breakdown,
unusual or unexpected geological or structural formations, cave-ins,
flooding and severe weather); risks relating to the credit worthiness
or financial condition of suppliers, refiners and other parties with
whom Pan American does business; inadequate insurance, or inability
to obtain insurance, to cover these risks and hazards; employee
relations; relationships with, and claims by, local communities and
indigenous populations; our ability to obtain all necessary permits,
licenses and regulatory approvals in a timely manner; changes in
laws, regulations and government practices in the jurisdictions where
we operate, including environmental, export and import laws and
regulations; 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 Pan American may carry
on business, including legal restrictions relating to mining, including
in Chubut, Argentina, risks relating to expropriation, and risks relating
to the constitutional court-mandated ILO 169 consultation process in
Guatemala; diminishing quantities or grades of mineral reserves as
properties are mined; increased competition in the mining industry
for equipment and qualified personnel; and those factors identified
under the caption “Risks Related to Pan American’s Business” in Pan
American’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.
PAN AMERICAN SILVER CORP. 143
Although Pan American 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. Pan American 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 February
17, 2021, available at www.sedar.com for further information on
Pan American’s material mineral properties as at December 31,
2020, 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 August 4, 2020 with respect
to Pan American’s inferred 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, February 13, 2020 and August 4, 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, 2020 as announced in our news release dated August 5, 2020.
Cautionary Note to U.S. Investors Concerning Estimates of
Mineral Reserves and Mineral Resources
This Annual Report has been prepared and disclosed in accordance
with the requirements of Canadian securities laws that differ from
the requirements of United States securities laws. Unless otherwise
indicated, all mineral reserve and mineral resource estimates
included in this Annual Report have been disclosed in accordance
with NI 43-101 and the Canadian Institute of Mining, Metallurgy
and Petroleum (“CIM”) - Definition Standards adopted by the CIM
Council. NI 43-101 is an instrument developed by the Canadian
Securities Administrators that establishes standards for all public
disclosure an issuer makes of scientific and technical information
concerning mineral projects.
Canadian public disclosure standards, including NI 43-101, differ
significantly from the requirements of the U.S. Securities and
Exchange Commission (the “SEC”), and information with respect to
mineralization and mineral reserves and mineral resources contained
or incorporated by reference herein may not be comparable to
similar information disclosed by U.S. companies. In particular, and
without limiting the generality of the foregoing, these documents
use the terms ‘‘Measured Resources’’, ‘‘Indicated Resources’’ and
‘‘Inferred Resources’’. U.S. investors are advised that, while such
terms are recognized and required by Canadian securities laws,
the SEC does not recognize them. The requirements of NI 43-101
for identification of ‘‘reserves’’ are not the same as those of the
SEC, and reserves reported by Pan American in compliance with NI
43-101 may not qualify as ‘‘reserves’’ under SEC standards. Under
U.S. standards, mineralization may not be classified as a ‘‘reserve’’
unless the determination has been made that the mineralization
could be economically and legally produced or extracted at the time
the reserve determination is made. U.S. investors are cautioned not
to assume that any part of a ‘‘Measured Resource’’ or ‘‘Indicated
Resource’’ will ever be converted into a ‘‘reserve’’. U.S. investors
should also understand that ‘‘Inferred Resources’’ have a great
amount of uncertainty as to their existence and as to their economic
and legal feasibility. It cannot be assumed that all or any part of
‘‘Inferred Resources’’ exist, are economically or legally mineable or
will ever be upgraded to a higher category. Under Canadian securities
laws, ‘‘Inferred Resources’’ may not form the basis of feasibility
or pre-feasibility studies except in certain cases. Disclosure of
‘‘contained ounces’’ in a mineral resource is a 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 in this Annual Report may not be
comparable with information made public by companies that report
in accordance with U.S. standards.
The SEC has adopted amendments to its disclosure rules to
modernize the mineral property disclosure requirements for
issuers whose securities are registered with the SEC under the U.S.
Securities Exchange Act of 1934, as amended (the “Exchange Act”).
These amendments became effective February 25, 2019 (the “SEC
Modernization Rules”) with compliance required for the first fiscal year
beginning on or after January 1, 2021. Under the SEC Modernization
Rules, the historical property disclosure requirements for mining
registrants included in Industry Guide 7 under the U.S. Securities Act
of 1933, as amended, will be rescinded and replaced with disclosure
requirements in subpart 1300 of SEC Regulation S-K. Following the
transition period, as a foreign private issuer that is eligible to file
reports with the SEC pursuant to the multi-jurisdictional disclosure
system (the “MJDS”), Pan American Silver is not required to provide
disclosure on its mineral properties under the SEC Modernization
Rules and will continue to provide disclosure under NI 43-101. If Pan
American Silver ceases to be a foreign private issuer or loses its
eligibility to file its annual report on Form 40-F pursuant to the MJDS,
then Pan American Silver will be subject to the SEC Modernization
Rules, which differ from the requirements of NI 43-101.
As a result of the adoption of the SEC Modernization Rules, the
SEC now recognizes estimates of “measured mineral resources”,
“indicated mineral resources” and “inferred mineral resources.” In
addition, the SEC has amended its definitions of “proven mineral
reserves” and “probable mineral reserves” to be “substantially
similar” to the corresponding standards under NI 43-101. While the
SEC will now recognize “measured mineral resources”, “indicated
mineral resources” and “inferred mineral resources”, U.S. investors
should not assume that any part or all of the mineralization in these
categories will ever be converted into a higher category of mineral
resources or into mineral reserves. Mineralization described using
these terms has a greater amount of uncertainty as to its existence
and feasibility than mineralization that has been characterized as
reserves. Accordingly, U.S. investors are cautioned not to assume
that any measured mineral resources, indicated mineral resources,
or inferred mineral resources that Pan American Silver reports
are or will be economically or legally mineable. Further, “inferred
mineral resources” have a greater amount of uncertainty as to
their existence and as to whether they can be mined legally or
economically. Therefore, U.S. investors are also cautioned not to
assume that all or any part of the “inferred mineral resources” exist.
Under Canadian securities laws, estimates of “inferred mineral
resources” may not form the basis of feasibility or pre-feasibility
studies, except in rare cases. While the above terms are “substantially
similar” to the standards under NI 43-101, there are differences in the
definitions under the SEC Modernization Rules. Accordingly, there
is no assurance any mineral reserves or mineral resources that Pan
American Silver may report as “proven mineral reserves”, “probable
mineral reserves”, “measured mineral resources”, “indicated mineral
resources” and “inferred mineral resources” under NI 43-101 would
be the same had Pan American Silver prepared the reserve or
resource estimates under the standards adopted under the SEC
Modernization Rules.
PAN AMERICAN SILVER CORP. 144
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 OFFICERS
(As at December 31, 2020)
Ross J. Beaty(1) – Chair
Michael Carroll(1,2) – Director
Neil de Gelder(2,3) – Director
Charles Jeannes(4,5) – Director
Walter Segsworth(4,5,6) – Director
Kathleen Sendall – 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
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 Avenue, 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, 2020: 210.3 million
INVESTOR CONTACT
Siren Fisekci
Vice President, Investor Relations &
Corporate Communications
T: 604-684-1175
E: ir@panamericansilver.com
PANAMERICANSILVER.COM
ANNUAL GENERAL AND SPECIAL MEETING
Wednesday, May 12, 2021 – 3:00pm (PST)
1200 Waterfront Centre
200 Burrard Street
Vancouver, British Columbia, Canada
Due to governmental restrictions and guidelines relating to the COVID-19
pandemic, shareholders and proxyholders should not attend in person
and instead vote by proxy. The Meeting may be accessed remotely via
Conference Call and Webcast:
Dial-in numbers: 1-800-319-4610 (toll-free in Canada and the U.S.)
+1-604-638-5340 (international participants)
Webcast: panamericansilver.com