Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver Q3 2020 results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Siren Fisekci, Vice President, Investor Relations and Corporate Communications. Please go ahead, Ms. Fisekci.
Welcome to Pan American Silver's Q3 2021 conference call. Media and other participants on the call are invited to participate in listen-only mode. We released our Q3 results after yesterday's market close, and a copy of the news release, MD&A, and presentation sl ides for today's call are available on our website. That material on today's call contains certain statements and information that constitute forward-looking statements and information. Please review the cautionary statements included in our news release and presentation, as well as the risk factors described in our most recent Form 40-F and annual information form. Please also note that we use non-GAAP measures. Please refer to the alternative performance non-GAAP measures section of the news release and presentation for further information on these measures.
Joining the call today from Pan American are President and CEO Rob Doyle , Steve Busby, Chief Operating Officer, Rob Doyle, Chief Financial Officer, Martin Wafforn, Senior VP, Technical Services and Process Optimization, and Chris Emerson, VP, Business Development and Geology. I'll now turn the call over to Michael for a brief overview of the results before opening the call for questions.
Thank you, Siren, and thank you for joining us today to discuss our Q3 results. Revenue in Q3 of $460.3 million was a new quarterly record. The realized price per ounce for silver was $24.16, and $1,782 per ounce of gold. Net earnings were $20.2 million in Q3 or $0.10 per share, which included non-cash mark-to-market losses on short-term investments of $25.3 million, primarily for our investment in New Pacific Metals Corp. The realized gain on the sale of our Waterloo early exploration asset of $28.5 million and income tax expense of $50.4 million.
The tax expense includes $6.8 million of expense related to the Waterloo sale and $9.9 million related to changes in deductible tax attributes driven by changes in foreign exchange rates. Adjusted earnings were $37.8 million or 18 cents per share. Strong Q3 cash flow from operations of $157 million was more than sufficient to fund sustaining capital investments and dividend payments and contributed to a $75 million increase to cash and short-term investment balance at September 30. Turning to operations, we produced 4.8 million ounces of silver in Q3. Silver production for the last 18 months has been hindered by ventilation constraints at La Colorada. As disclosed previously, early in Q3, we removed the blockage that had formed during the commissioning of a primary ventilation raise.
In Q3, we also completed several raise bore replacements and upgraded projects, all being fully lined with shotcrete ground support. Overall, mine ventilation air volumes now exceed pre-2019 rates by 44%, successfully lowering temperatures and humidity in many parts of the mine. We expect mine developments and mining rates at La Colorado to continue increasing over the coming quarters, steadily ramping up to the throughput rates of approximately 2,000 tons per day by mid-2022. Improvement in ventilation will also allow us to increase underground exploration drilling rates, particularly for the skarn deposit. We produced 142,600 ounces of gold in Q3.
At Timmins, we continue to mine at lower rates and grades as we adjust the mining methods and upgrade ground support systems to adapt to the wider ore extensions in this section of the mine plan. We will be debottlenecking and increasing the capacity of our new cemented rockfill plant during Q4 2021, which has been limiting our mining rates in the wider ore zones to a greater extent than expected. At Dolores, we had an in-heap gold inventory buildup of 8,100 ounces during the quarter and 37,000 ounces year to date. The inventory build is the result of heap sequencing necessary to accommodate a delay in completing construction of leach pad 1 south, which results in leach sequencing into relatively deeper sections of the heap for longer periods than originally expected.
We will be loading ore on the new pad one south by the end of November, which will benefit the heap kinetics in late 2021 and moving into early 2022. At Shahuindo, we had an increase in pad inventories of 5,900 ounces in Q3 for a total of 16,100 ounces for year to date, 2021. We have been stockpiling fine grain material until we could mine the coarser grained ore for mixing and placing on the heap. We have adjusted our mine sequencing and are now accessing coarser ore, which is allowing greater blending for the finer grained ore, including blending in some of the previously stockpiled ores. Silver segment cash costs in Q3 were $11.92, and all-in sustaining costs were $16.30 per silver ounce sold.
Spending was elevated at La Colorado for the ventilation work, extensive shotcrete support, and for mine mechanization towards greater longhole stoping production rates. We believe the investment in mine mechanization will benefit safety, productivity, and costs over the next few years as we accelerate developments to capture the full benefits of longhole stope mining methods. All-in sustaining costs at La Colorado should come down as throughput rates rise over the coming quarters. Excluding net realizable value inventory adjustments, silver all-in sustaining costs were $16 per silver ounce sold. Gold segment cash costs in Q3 were $922, and all-in sustaining costs were $1,176 per gold ounce sold. Excluding net realizable value inventory adjustments, gold all-in sustaining costs were $1,168 per gold ounce sold.
Overall, our operating performance is being impacted by qualified labor and supervision shortages, additional costs related to COVID protocols, and cost inflation pressures, particularly for fuels and logistics. Based on operating results year to date and expectations for the remainder of the year, we have revised our guidance for 2021. We now expect to produce 19-20 million ounces of silver. The reduction from the guidance provided on May 12 is due to lower than expected silver grades at San Vicente due to narrowing vein structure, resulting in reduced productivity and increased dilution, the extensive shotcrete support and development advances at La Colorado, and slower heap leach kinetics given the delay in completing construction of leach pad 1 South at Dolores. We now expect to produce 560-588 thousand ounces of gold in 2021.
The reduced estimate is primarily due to lower than expected production at Chahuindo and Bell Creek. At Chahuindo, the fine-grained ore resulted in reduced solution application rates, which in turn led to a buildup in gold inventory in the heap leach pads, in addition to revision to the mine sequence and lower grades to encounter more coarse material for blending. At Bell Creek, additional ground support and increased cemented rockfill was required in the wider areas of the ore body. Silver segment cash costs are estimated to between $1,160 and $1,250 per ounce, and all-in sustaining costs between $1,575 and $1,675. Gold segment cash costs are estimated to between $825 to $925 dollars per ounce, and all-in sustaining costs between $1,135 to $1,250 dollars.
The impact of our lower gold production estimates is offset by deferred spending on capital projects and timing on some discretionary spending within operating costs. We have also reduced our estimate for total capital spending to a range between $261 million and $271 million, including project spending of $43.5 million-$45 million. Project capital is largely directed at advancing the exploration and development studies for the La Colorado current project, advancing construction of the new concrete lined ventilation shaft and refrigeration plant at La Colorado, and the Wetmore exploration project in Timmins. Details of our revised guidance are provided in our Q3 MD&A. Pan American is in a strong financial position.
We have a total available liquidity of $815 million, comprised of a fully undrawn $500 million under our revolving credit facility and $315.4 million in cash and short-term investments at the end of Q3. Operations are generating strong levels of free cash flow, and we expect a meaningful improvement in operating performance in Q4, in line with our revised guidance. Our capital allocation priorities remain on investing in high return projects and returning cash to shareholders through dividends. Over the past 18 months, we have increased the dividend three times, returning $86.2 million to shareholders during that period. Yesterday, we announced a quarterly dividend of $0.10 per share. We will continue to evaluate dividend payout levels in light of our requirement to fund growth projects that will deliver high returns to our shareholders.
Yesterday, we also announced drill results from 39 new infill and step-out holes at the La Colorada skarn. The expansion of the current skarn mineralization footprint is highlighted by the exceptional grade and thickness of S 62-21 and S 71-21 on the eastern side of the deposit, 200 meters from the nearest drill hole. Exploration hole S7121 returned 77.1 meters of 119 grams per ton silver, 7.7% lead, and 13.62% zinc. Also, drill hole U6721, drilled to the west of the breccia, expanded the resource 200 meters with 150-meter interval at 133 grams silver, 3.6% lead, and 4.83% zinc. The deposit remains open to the west, to the east, and southeast.
In consideration of the expanded footprint of the mineral resource and the high grades in some of the step out holes, Pan American has decided to expand the scope of the preliminary economic assessment and not release a technical report at year-end as anticipated. These studies will include additional drilling of the deposit and review of larger scale mining methods such as sublevel caving versus longhole open stoping. At the Escobal project, the third pre-consultation meeting was held in October, and the next one is set for November 27th. The Guatemalan Ministry of Energy and Mines is resuming monthly meetings following a lengthy delay in holding the third meeting due to a resurgence in COVID cases in Guatemala. The Ministry of Energy and Mines, who is leading this consultation, have set up a website as a repository for information related to the consultation.
The link to that website is provided on the slides that accompany this call. At the beginning of this year, we estimated the impact of COVID on our operations would steadily reduce over the course of the year, with no impact starting in Q1 2022. While vaccination rates have substantially improved in Latin America over the past few months, we are still experiencing COVID-related impacts in terms of lower workforce deployment levels, shipment delays, supply chain interruptions, and related cost pressures. These headwinds will continue at least to the first part of 2022, and will be taken into account in our budget and forecast for the next year. Before we open the call to questions, I would like to thank Rob Doyle for his 18 years of service to the company.
As we announced yesterday, Rob has informed us of his plans to retire as Chief Financial Officer of the company effective March 31, 2022. Rob has been an integral part of our team, and I have greatly appreciated his efforts, which have earned Pan American a reputation for prudent financial management. We are following our succession plan to ensure an orderly transition. With that, I would like to open the call for questions.
Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. Our first question is from Tyler Langton with JP Morgan. Please go ahead.
Morning. Thanks for taking my question and best wishes for your retirement, Rob. You know, I guess just to start with costs at La Colorado. I think you know, you mentioned they were impacted by the ventilation upgrades to Shaft Creek and the long-haul mining investments. I mean, do you have a rough sense as to how much those added to costs in the quarter, and then you know, should we expect those to sort of ease over the next several quarters or will some costs still remain sort of throughout the balance of 2022?
Yeah. Hi, Tyler. Steve here.
Morning.
Good morning. Currently, we're kind of still putting our thoughts together for next year and our budgets for next year, and trying to roll in our current understanding of some of the inflationary factors on some of our inputs. I think from a standpoint of catching up on the shotcreting, we should be seeing that start to taper off during Q1, Q2 of next year. Our investments on the long hole mining, that's really pushing ramps out ahead because it allows us to go basically three sublevels for each stope versus what we've been doing with the cut and fill mining methods. That's gonna take us most of 2022 to keep those ramps pushed out ahead in an accelerated basis.
We're not prepared to give an indication yet of what our costs are gonna be next year. We'll do that in January. Those are some of the factors that we'll see, and it's just how much of that inflation's gonna hit us overall. We'll see that come January. We'll give some numbers.
Get it. That's helpful. Then just sticking with costs. I mean, do you have a rough sense? I know it's hard to quantify, but you know, sort of the higher costs that you continue to see, is that, right now at least, is that more from, you know, COVID-related restrictions, or is it also sort of any impacts from inflationary pressures?
Yeah. I'd say COVID-related restrictions that are really the protocols, the cost of doing the testing and that. That is starting to come off. We do anticipate that to drop off early part of next year pretty substantially from the levels we're at now. It's really mostly inflationary and these kind of catch-up projects, if you will, on the shotcreting and the ramp advance.
Sorry, it's Michael. Just in general, for sure, we do like the whole world. We see some pressure on wages, call it COVID related or after COVID related recovery, but we definitely see that. As a reminder to everyone, our exposure to foreign currency is a big driver for cost up and down, obviously, depending where they go. Foreign currency for us includes Canadian dollars as we report in US dollars. Then the other two big ones are Mexican peso and Peruvian sol. You know, moving up and down and with those currencies have an impact on our cost. We see some devaluation right now in Peru, which gives us some tailwind on the cost side with the Peruvian sol.
Of course, if this kind of devaluation stay longer and are not just transitory, then we normally see kind of a claw back later on, especially on the wage side. Just keep that in mind when you look at the costs.
Perfect. Thanks so much.
The next question is from Cosmos Chiu with CIBC. Please go ahead.
Hi. Thanks, Michael and team, and, congrats, Rob. Hopefully, we can stay in touch.
Best of luck.
Thanks, Rob. Maybe my first question is on the, you know, as you talked about, you're currently in the process of budgeting. Sounds like you're putting out guidance in January 2022. Michael, are you anticipating potentially giving out three-year guidance, longer-term guidance as well? I know it's more challenging given, you know, costs, inflation and, you know, COVID-19 impacts. Is that something that you're considering?
I think once everything normalizes with COVID, we can start looking at that again. I mean, as you remember at the beginning of this year, we kind of had a straight line. We didn't really know in January 2021 where the pandemic is going, like nobody knows. We assumed improvements, constant improvements during the year. Of course, that happened in a certain way, but not in a straight line for sure. Probably not as fast as we all hoped for. We see now a really big catch up on the vaccination rates in Latin America.
I really hope that, you know, after the first couple quarters or so next year, we are at that new spot where, you know, where we have less or nearly no impact from COVID, but I really don't know right now where it's going. We'll keep a really close eye on that. I think we really have to, you know, have a normalized situation again from the pandemic before we can go to a longer guidance.
Of course. You know, in terms of inflation, Michael, you know, you're in a unique position. You have operations underground, open pit, in Latin America, in Canada. To the extent possible, could you maybe talk about inflationary pressures? Where are you seeing it? Is it underground versus open pit, or is it Canada versus, say, Mexico? Any comments that you can make.
I will make some general comments here and then pass it on to Steve as well. You know, as said before, I mean, we for sure see some inflationary pressure on wages. You know, it's just the shortage of people as you experience, everybody's experience in the world. We are not immune to that. That puts pressure on wages as we come out of this, you know, of this pandemic. With the recovery, there's obviously gonna be shortage. A lot of activity in lots of countries we are working, while there are still a lot of restrictions in many countries we are working.
There's this, you know, kind of difficult situation where there's a lot of demand for people and there's a lot of restrictions still in place. As I said, I really hope that end Q2 or somewhere, yeah, middle next year, that starts to normalize. As we all learned over the last two years, this pandemic has been very unpredictable and is new to all of us. We, you know, we make predictions and then adapt to the reality of the advancement of the virus. As I said, vaccination rates are advancing really strongly now in Latin America, so that's very encouraging. I really believe that we're gonna see strong improvements here.
We see large disruptions in the world, supply chain disruption, transport disruption, shortage of shipping, ships and containers, et cetera, et cetera. You know, I would say this is probably more a bit transitory. I think when that normalizes, that's hopefully normalizing with the recovery from the pandemic. I don't think so that that will be a longer-term issue. Wage inflation is obviously a bit more difficult, right? Once you are there, it's not very easy to come back from it. When we look at other goods, I'll probably pass it on to Steve, what he sees, you know, on, let's say, cyanide or other suppliers that we need.
Yeah. I mean, next to labor, fuel and energy would be our next highest cost input for the company. Generally speaking, kind of the global fuel and energy costs are going up pretty dramatically. Now, we do see some offsets to that. In some of our jurisdictions, we do have some subsidies that come in and kind of dilute that increase. Then beyond that, yeah, some of our consumables, some of our reagents, particularly the transport to get reagents to the site, that cost is going up. We've seen some in the neighborhood of as high as, I'll say 10% is kind of the projection for next year. Probably on average, it's more like 6% or 7% for a lot of our input spare parts and lime and cyanide and things like that.
Steve, it's probably worth mentioning that we are partially hedged on our diesel consumption. We put in a 24-month program in 2020, so we do have some coverage on our diesel needs through the balance of this year and across 2022 as well. We do have an offset that sits in the derivative line.
Great. Thanks. Maybe switching gears a little bit here, diving deeper into Dolores. In Q3, I guess there was a continued build in inventory. As you said in Q2, I thought, you know, some of that was gonna be recognized as production in the second half, but it seems like it's been delayed due to the leach pad 1 south construction. Could you walk me through that again in terms of how that works? Is it, you know, you're now expecting it to be recognized as production in 2022? Is it more based on, you know, stacking of the leach pad 1 south, and so the leach time is gonna be quicker?
Is it waiting for what you've been stacking on the old pad and waiting for that to come out in 2022 in due time? Could you maybe give me a bit more color?
Yeah, sure, Cosmos. It's a combination of the two. Obviously, when we go to stacking on the new pad directly on the liner, we'll put our highest grade ore we can find on that. So we'll get pretty quick recovery compared to where we're stacking now on Pad Three. We're up stacking kind of the final lifts of that pad, so we've got depths as much as 120, 130 meters of ore that we have to soak through to recover that at the bottom of the pad on that area. What happens, too, is, as we're stacking that Pad Three on the final lifts, those cells that we're loading are fairly small in surface area. We have to reduce our primary leach cycle time. What happens is we load, we start to leach.
We have to stop that leaching early because we don't have enough area and let it drain before we stack another load on. We've got multiple lifts that have been partially leached. As we start to stack on Pad 1 South, we'll be able to keep irrigation on full time on that Pad 3. That'll start to release all those ounces that we built during the year, in addition to getting the quicker ounces off Pad 1 South.
Okay. I get it now. It's a combination of both. Maybe one last question, you know, bigger picture. Michael, you know, we've seen sort of M&A pick up in the gold space. You know, to the extent that you have any comments, do you think that's gonna translate and do you think it's gonna happen in the silver space as well?
Well, look, I mean, I'm a strong believer in stronger companies. I think we have proven that with the acquisition of Tahoe and what happened to Pan American. I would refer everybody to the slides that are attached to that call. There's a, you know, there's a slide in there with total net cash position and what happened since the acquisition of Tahoe, where we improved our net position by $559 million while paying to our shareholders $119 million dividend and put about $100 million into new projects, mostly exploration of the skarn at La Colorado. Of course, you have less overhead. You save a lot of money on your G&A.
When you build a bigger and stronger company, you have to find the right targets, of course. If not, it doesn't make any sense. You have to find a target that gives you that, you know, that strong consolidation and savings. So preferably in, you know, similar or close by jurisdictions, et cetera, et cetera. So there's not just a blanket answer to that. As you know, it's very complicated.
Mm-hmm
...with timing. In general, I think that will happen. Yeah. I think in the future we're gonna see the trend to larger and stronger company, not only on the gold side, but on the silver side as well.
Great. Thanks again, Michael, Steve, Rob, and Siren. Those are all the questions I have.
Thanks, Cosmos.
The next question is from Trevor Turnbull with Scotiabank. Please go ahead.
Yeah. Thank you. My first question, I guess, is related to La Colorado skarn and the update. You were talking about a potentially larger scope project and the investigation of bulk mining with sublevel caving. I just wondered what this means in terms of the processing plant, if there's upgrades in terms of capacity that you're considering or just general upgrades to the facilities that would have to go hand in hand with this. Whatever you can tell us a bit about that, please.
Sure, Trevor. You know, I mean, we put out the press release that this morning before market open with some of the, you know, really astonishing drill holes, I think. I mean, if you look at the width and the grades of these drill holes, it's amazing. Some of them are 200-meter step-outs either side to the northeast and southwest. There's a large potential to increase that resource. Hence, you know, we need to drill more right now and redo the resource and basically look at even bigger bulk mineable ore bodies. That's really what happened. All good news there. It's, you know, the infill drilling showed very good continuity of the main ore body.
Very encouraging. Just to be clear, you know, this is gonna be, if you look at the size of the ore body, not just an expansion of the current plant, that's gonna require at one point a much larger plant to treat that ore. While we maybe can look at it, at the shorter time, shorter timeline here, depending when we get access to the ore. You know, if you look at this large bulk mineable ore bodies, we cannot just increase the current plant by, you know, by percentage and treat it there. It will definitely require a new facility. Maybe Martin, you wanna weigh in here?
No, absolutely, Michael, completely agree with your comments. It's a blank page in terms of looking at new plant, new infrastructure for a project of this magnitude. It just keeps getting bigger, which is leading us to look at these different alternatives in terms of the mining methods. Definitely much larger scale than we're doing now with the existing La Colorado mine. We're mining these fairly small veins, and you know, we're 2,000 tons a day kind of size frame.
We're looking at significantly larger than that for either longhole stoping, or as it continues to grow and continues to expand and get bigger and bigger, even more larger or more bulkier, less selective type mining methods like sublevel caving would require another increment again in the size of that, the processing and the infrastructure that we would need to put in place to deal with that.
To be short, you know, what we really do right now is focus on drilling. You see, I think we have 16 rigs on site. A lot of drilling going on. You see it there in the numbers in the press release and a lot of drilling planned for next year as well, which obviously will give further step outs and more information to the engineers, and for Martin's group to, you know, to answer all those questions.
No, I appreciate that, Michael. I was trying to get a sense also kind of thinking about the M&A question that was asked. You know, something like this would transform La Colorado to such a degree that potentially it would help with sustainability across the board with your assets. Maybe one last question just on La Colorado. You talked about the twin ramps coming down to the top of the ore body. Do you have a timeline for how long that may take to get down there and or any cost scoped out just for those declines?
Hi, Trevor. Steve here. We're still working on those plans, so we're not prepared to put timelines out yet. We're kind of developing that, and as Martin said, we're looking at different ways to approach that mine. That mining method may dictate how we actually enter into it too. How long those ramps will be, where we wanna access that ore body, it's still kind of up in the air, so we don't wanna put any timelines yet.
You know, to be clear, that we know where we wanna start with the ramps. There's a very clear starting point, and as you can imagine, this is gonna be a long-term project to bring these ramps down there. The sooner we start, you know, the further ahead we get with the project. That's really the thinking here.
I guess we would see at least some CapEx starting to get allocated as early as next year's budget for getting moving on this.
Well, the ramp and also the ventilation shaft, the concrete shaft that we discussed last quarter, if you remember.
Right. I only have one last question, and that's about Escobal and the consultation process. You talked about in the MD&A that there's been three meetings, and I think they're referred to as pre-consultations. I just wondered what the difference between the pre-consultation meetings and what I assume are the full consultation meetings are, and if you have any sense of how many of each of those type of meetings need to happen before that process is concluded.
Yeah. Under ILO 169, what happens is you have a pre-consultation phase, where you come to certain agreements, like in our case, definition, how the consultation will be run exactly and timelines, et cetera. You go into the consultation. There's no preset amount of meetings for either the pre-consultation or the consultation. It's really, you know, depending how that advances. As it's run by the Ministry of Energy and Mines and not by us, as I said, you know, I can't give you a timing or a number of meetings that are required. You know, I'm encouraged that we continue these meetings, obviously. I mentioned we had one in October.
November twenty-seventh will be the next one, so it looks like we are back on kind of a monthly schedule here. There was definitely a lengthy delay because of COVID. These meetings are in person, in large groups. There was an obvious delay because of COVID, but I think we are, you know, back on this monthly schedule. Looking forward to continue with these very inclusive meetings and supporting them for sure.
Trying to understand a bit better. With the pre-consultations, it sounds like you mentioned these are kind of a chance to set out the parameters with, I guess, the leadership of the Xinka communities. Then the consultations will be what more of a public forum where people then can come in, using the guidelines that have been agreed to voice their concerns or to ask questions?
I think no. I think it's, you know, it's the same people are involved in the pre-consultation and consultation group that the group is defined and has meetings together. It's more like during the meetings, and, you know, would encourage everyone to go on the website that MEM actually set up, where you get all the details on each of the meetings. You know, definition of who is doing what kind of technical reports to deliver for the future meetings, who's doing that, when they will be delivered, et cetera, and in what form. And that will all form part of the, you know, of the information that will be provided for the consultation meeting.
It's more this kind of definition of structure and then timing.
Okay. I'll leave it there. Thank you very much, Michael.
Thank you.
Our next question is from John Tumazos with John Tumazos Very Independent Research. Please go ahead.
Rob, I hope that Mike paid you enough and you made enough on the Pan Am stock that you can ride your bike with a police escort, so some motorist doesn't wipe you out. Good luck.
Thank you, John.
Mike, some of these earlier questions about M&A stuff upset me. I'm a shareholder, and I hope that you don't have a minute to look at M&A because there's nothing better than building La Colorada skarn, getting your assets up to capacity, restarting Escobal, and building Navidad. You know, those guys with the M&A fees, you don't have to listen to them.
Well, John, there's obviously.
All you gotta do is run your own business. Everybody's gonna be so happy.
There is obviously a reason why we didn't do anything because I agree with you that we have a very strong pipeline. You know, as this question, I mean, these M&A questions are always very general because, of course, even if I would look at something, I would not talk about it in this form. But you know.
It's just a distraction.
I see in general that, you know, there's lots of single asset companies out there or let's call it companies that need more help on their financial side. You know, in general, I see that there will be consolidation in one form or the other in the industry just, you know, to find a home for those assets and build bigger companies. That was really my comment.
Concerning the delayed technical study on La Colorada skarn, is it purely a third resource statement to upgrade the 100.4 million metric tons inferred so that you have M&I to understand design and understand the mining method, or would it be a PEA or pre-feasibility too?
Well, yeah. We need more information, definitely. I mean, I think the current resource we have out there is 100 million tons. I think it's pretty easy when you look at the drill results there to see the potential for further growth of that resource. That's really where, you know, when you look at the results and the wide intercept and the really very high grades that we hit over the last few months, you know, wants us to focus on some of those areas of expansion and drill more holes and definitely move some of that resource or as much as we can into higher geological categories.
Is it too early to try to guess how many tons per day and the mining method and do a PEA or definitive feasibility until you get the third resource out?
I mean, when we do more drilling, we can release a new resource for sure, but it's definitely too early right now to put a pin in on a mining method. That's exactly one of the reasons why it got so big. As Martin mentioned, we can now really look at much bigger, much more bulk mining methods like sublevel caving and see what that would do, how that would work. It's just too early, all right, to, you know, to put a pin in on that.
Should we be putting the La Colorada skarn mine into our models as first output 2025? Because it's so big and requires so much study, and the bigger it is, the more drilling and infill drilling and ramping you have to do. What year?
Well, that's all part of the study. 2025 will come pretty quick here. You know, give us the time next year to drill further, come out with a new resource. I think that really will define much better the size of this ore body and give a bit more time to Martin to come up with the mining method. That will dictate how much development we have to do underground and how we best access that ore, or do we need to access it first to actually define a mining method or can we do that without access and then you know, go straight with the ramp to the right spot and start underground development.
There's a lot of open questions as you can see, and I think a lot of them can be answered in 2022.
I have a real simple algebra question about the 19.5 million ounce guidance. That in midpoint implies 5.6 million ounces for the Q4 , and we just came in at 4.83 in the September quarter. I guess we're gonna get almost a Q3 million ounce bump this quarter. Is it gonna come mostly from Dolores or La Colorado? Usually, you don't stick your neck out that far, Mike, but you're saying this quarter is gonna be a lot better.
Yeah, John, this is Steve. Just to add on to that, I mean, we have seen October numbers, and September was pretty strong for us. We are predicting a strong quarter in Q4. I think the location of where that silver is gonna come from is fairly spread through the organization, through our asset, our silver assets. La Colorado, we're anticipating, you know, it had a great ramp up in Q3 from Q2. We think we got a little bit more to go in Q4 there. Dolores, certainly with the leach pad, we will start to see that release from that inventory build that we have. Silver is a slow leach there, so it takes some time. Most of that will come in 2022, but we'll see a little bit there.
We're having some pretty good runs in Morococha and Huaron as well. I think, and Manantial included, I think we'll see a spread of those additional ounces in Q4.
If I could ask one last one. In these tough years, 2020 and 2021, Manantial Espejo has been the one mine that produced more. But it's the one that has the least documented life with satellites. What are the odds that we continue in 2024, 2025, 2026 and find a little more in Argentina?
Well, you're right. This Manantial did quite well in the production side because of the high grades that we mine, especially at COSE. You know, we had that in the mine plan. We knew that the satellites are high grade. That's why we were able to mine them and truck them to the mine. They're relatively small ore bodies, and I mean, our reserves are obviously out there at Manantial. You know, we're still exploring in some places and see what we can do to expand it. At the moment, as you said, it has a pretty short mine life.
Thank you. Thanks for letting me kid around a little bit, Mike.
Thank you. Have a good day.
Our next question is from Lawson Winder with Bank of America. Please go ahead.
Hello. Good morning, and thank you for the update. Rob, congratulations on an outstanding career with Pan American, and definitely all the best in the future.
Thank you, Lawson.
Yeah, if I might, I would like to turn back to the La Colorado skarn and just yeah, maybe follow up on anything you've learned from the 36,000 meters of additional infill drilling that you guys have done. You know, for example, have you learned any more about the continuity? You know, perhaps is it, is it more connected of an ore body than you thought or perhaps less?
Yes, absolutely, Lawson. Hi, it's Chris here. You know, through the last couple of years and the resource that came out in 2020, the infill drilling as we were driving towards the you know, new resource in the PEA, but obviously with extended step out drillings of the exploration, we have seen that the continuity is there. Our model works, which is really pleasing as a geologist. Obviously, the really pleasing is the western portion of this deposit as it builds out from the breccia going west. Now we're seeing more skarn and these higher grades, which potentially gives us another center. All to play for and certainly you know, we're looking forward to next year and continue the drilling.
Thanks very much for that, Chris. Could you maybe give us an idea of, like, what % of this ore body is going to be breccia and what % is going to be sort of more competent skarn?
Yeah, absolutely. I mean, obviously, it's an inferred resource at the moment, and the infill drilling as we drill through that center towards the skarn area to the east, we could certainly be looking at a potential split of around 50-ish at the moment, 50% either way. Of course, with all this new drilling, that's gonna change completely. That's something that we'll be working towards as we build it out.
In general, yeah, the skarn obviously mineralized high grade, the breccia mineralized, you know, that they're both fairly competent rocks down there. We are not in the dacite anymore. We are far and down into the limestones, so it doesn't really. I mean, if your question is, you know, breccia or the skarn on competency of the rock, you know, there's not a big difference.
Absolutely. Yeah. As you mentioned, Lawson, it's really down to that grade. Certainly from the recent drilling, you know, we're seeing that really high grade, which is that skarn.
Yeah, that's super helpful, guys. Thank you. Maybe just a quick one on Timmins. Obviously, it's been impacted by the ground conditions, so you had to spend more money on support. You mentioned that you're having to use a lot more consolidated or cemented rockfill. With the increased spending, do you see the scope for the grade to start to pick up in the Q4 or is the grade gonna continue to trend sort of where it's been trending for the first nine months of the year?
Yeah, Lawson, Steve here. We're not expecting to see a great increase there. It's pretty flat in our mine plans. It's really tonnage that we're after, and the tons are being hampered by the cemented rockfill, as you mentioned, and trying to get that plant up to full capacity. That's really where we're focused.
That begs the question, you know, do you expect in the Q4 you could start to see a pickup in that tonnage, or is that something we would expect to happen more in 2022?
Right now we're kind of pushing that off into 2022. You know, we're actually looking at bringing a second rockfill, cemented rockfill plant in to help boost production there. That's gonna take us a little bit more time. We're not expecting a big change in Q4 there.
Okay, great. Yeah, that's helpful, Steve. Finally, I just wanted to follow up on one comment you made about ESG and your greenhouse gas emission reduction target. You mentioned there was a policy change at the federal government level in Mexico. Could you maybe just elaborate on what that policy change was and also how that actually impacts the timing? Now when do you expect to hit those greenhouse gas emission reductions? That's it for me. Thanks.
I'll try to.
Yeah. I think you're referring to the potential law change and CFE or if it's that, I can give you an update on that. It's actually not done. It is not approved. There's no final change or law that we can discuss. I think at the moment the government is trying to give more control to the government-owned power company, CFE, and everything would run through there. While at the moment you actually have private providers of most are renewable power as well that you can purchase, and that we purchase or try to purchase obviously as well.
We'll have to wait a bit and see how that law changes and then what the change gonna be to purchase that renewable power through CFE or if it continues that we can purchase this from private providers. It's a bit too early. We don't know yet what the law change, if it's gonna change where it's going. But I would guess over the next quarter or two, we should have more clarity from that side from the government and then we'll update.
Yep. That's what I was referring to. Thanks very much, guys.
Yeah. Thank you.
Our next question is from Don DeMarco with National Bank Financial. Please go ahead.
Well, thank you, operator, and good morning, Mike and team. I think I'll ask a couple questions on Skarn, if I may. I mean, I think all my other questions have been answered already. Guys, can you provide some indication on the timing of the release of the Skarn PA? I apologize if you've answered this previously.
No, I didn't answer it because right now I'm, I don't have a, you know, final answer to that.
Yeah.
As you saw in the press release, this is growing, you know, so quickly and so much, and especially on the grade side, the really big improvement that, you know, we need to drill quite a bit next year to get a new understanding and make a new resource and then kind of decide on a mining method. It will take a bit more time. There will be, of course, information coming out during the year advancing that project. It's, you know, it's one of, for sure, the biggest and most important project, one of the most important projects we have. And you know, all eyes are on that exploration and for the engineering team on definition, on mining methods and accesses, etc.
It's a little bit early to give you the timing right now.
Okay. Fair enough. We look forward to those updates and an updated resource. I think just the number of questions on this just reflects, you know, our curiosity and, you know, we were looking forward to details in the PA, but certainly the reasons to postpone it are certainly valid. Just in an attempt to maybe get a little color, is there any other mining projects across the current landscape that you might consider as an analog to the Skarn? Like, for example, I looked at Arizona Mining's Taylor deposit, similar large tonnage, sub-level open stoping and so on, proposed mining method. I see the CapEx there was about $500 million or so, but this goes back a few years ago.
Are there analogs and are we kind of in terms of CapEx like is that order of magnitude? Is there any, at this early stage, you know, can you provide color, you know, as we await further details to be confirmed later?
Well, you know, it's tough to give it analog because there's not many deposits in that size and grade to look at in the world. It's also a deep-seated deposit, like many new deposits are deep-seated. Of course, over the last you know hundred years, you know, as a mining industry, mined a lot of the deposits closer to surface, and we go deeper and deeper down. That changes and complicates obviously situations for all the deposits. It's kind of a bit difficult to just compare one with the other because they're so different situations of the geology, of the ground conditions, the size, et cetera. I think I really would look at you know each separate.
You know, I don't have all the details on the Taylor deposit for sure. We're looking at it to, you know, to compare a bit later on size and grade. You know, if you look at sizes of this kind of deposits, I don't wanna jump ahead here for Martin, but I'm pretty sure the $500 million will not do to develop any of these kind of deposits, right? That's far north of that, but we don't have a number yet to share with you.
Okay. Okay, gentlemen, that's all for me. Thank you very much.
Thank you.
Our next question is from Craig Hutchison with TD Securities. Please go ahead.
Hey, good morning, guys.
Good morning.
Just in terms of the lower than expected silver grades you had at San Vicente, obviously that was due to narrowing vein structures. This is a very high grade, you know, resource. When do you guys expect to kinda get back into more like higher grade material or is this, you know, narrow vein structures expected to persist through Q4 and kind of into next year?
Yeah, good question, Craig. As we mentioned in the release, the ore deposits are narrowing. Right now we're looking at the equipment we have deployed at San Vicente was really designed for the larger, you know, even plus 5 meter wide veins. We're looking at some alternative mining methods. I hate to use the word potentially pursuing mining methods even to try to bring that grade back from what we've seen over the last quarter or two. We're not ready to predict what that may turn out for us yet. As we come out with our projections for 2022 in January, you'll get a better feel for that. We'll have a better sense. Right now it's coming down to how can we mine that best given the equipment that we got deployed there.
Okay, thanks. Just to turn to La Colorado, like we're beating a dead horse here, but just, you know, some of the best drill results you've had or you reported this morning are kind of 200-meter step-outs. You know, how long is it gonna sort of take to get a resource update? You know, should we expect it to be towards the back half next year, just given how much drilling you plan for 2022?
Yeah, look, I mean, in January, normally we come out mid-January with the forecast for the year. We will have all our budget, all the drilling. There will be for sure a big program again for drilling at La Colorada. You're not beating a dead horse here. It's a really alive horse and you know, an unbelievable discovery and deposit. As you know, we you know, we published the first hole in that only, what was it? Three and a half years ago probably. When we discovered with the first hole that's gold. It goes just beyond our imagination on size and now on grade that we hit as well. It will take a while to drill that out.
I definitely plan, you know, to give you kind of an updated resource at one point next year, and that will just be another point in time. I'm sure that deposit will just continue to surprise us and will grow bigger because as we know, and as I mentioned in the call, it's still open on all sides, even after those step outs that we're gonna follow up with the current program.
Okay, great. Maybe just one last question. You guys were planning to put the PEA out sort of kind of Q4 here. Can you give us a sense of what throughput you were looking at originally in that PEA?
It's, again, that will all change again, so I'm, I don't wanna really be pinned down at that tonnage. You know, it's multiple of what we do now.
Okay.
Well, probably somewhere, you know, let's call it as a starting point at maybe 8,000-10,000 tons, somewhere in that grade range. As I said, this is all too, you know, subject to change. That's because we're looking at a bigger and potentially higher grade deposit and differ ent mining methods. You know, that will all change next year.
I appreciate the color and great results this morning on the skarn. Thanks.
Thank you very much.
This concludes the question and answer session. I'd like to turn the conference back over to Michael Steinmann for closing remarks.
Thank you everyone for calling in. Looking forward to, well, that will be Q4 and next year. Have a good end of the year. Stay safe and stay healthy. Thank you, everyone.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.