Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver's twenty twenty Preliminary Production Results and twenty twenty one Guidance 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.
I would now like to turn the conference over to Soren Fiskek, Vice President of Investor Relations. Please go ahead.
Thank you, operator, and welcome everyone to Pan American Silver's conference call to discuss our guidance for 2021 and preliminary production results for 2020. Media and other participants on the call are invited to participate in listen only mode. We issued a news release earlier this morning that details our guidance for production, costs and expenditures in 2021, as well as the preliminary 2020 production results. The news release and presentation slides for today's call are available on our website. That material in 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. I will now turn the call over to Pan American's President and CEO, Michael Steinman. Following his remarks, we'll open the call to questions and answers with the rest of the executive team.
Thank you, everyone, for joining us today. I will begin with a brief recap of 2020 production and then discuss our outlook for 2021. In 2020, we produced 17,300,000 ounces of silver and 522,000 ounces of gold. Government decrease in response to the COVID-nineteen pandemic led to the suspension of all our Latin American operations for various durations in 2020. As well, production at Manantiales Bejo was suspended from 12/21/2020 to 01/07/2021, following a directive from the government of Santa Cruz in Argentina imposed on mining operations in the province.
Comprehensive COVID-nineteen protocols also reduced production capacities and added COVID related expenses at all operations. Nevertheless, we generated strong cash flows in 2020 and repaid $275,000,000 on our credit facility, exiting the year with no bank debt, while our cash and short term investment balance reached approximately $271,100,000 at 12/31/2020. We also increased the dividend twice during the year by 43% in January and another 40% in November, returning $46,200,000 to our shareholders. At La Colorada, production was impacted by an inability to access high grade ore due to the COVID-nineteen related delay in completing an underground ventilation race and the loss of a second surface race in Q4 twenty twenty, which further limited the deployment of personnel and diesel equipment underground. Last week, we successfully completed the 3.1 meter diameter surface to three forty five level race bore, which will replace the critical ventilation race that failed in Q4 twenty nineteen after ten years of service.
This new ventilation race will now be shot created before the fan is installed and commissioned in the next few weeks. In 2021, we will be advancing three additional pre grouted raised bore shafts in different areas of the mine. While we complete these projects, we are temporarily moving ventilation fans and tapping other available infrastructure, including existing ramps and shafts to distribute the available fresh air intake to the key production areas of the mine. This ventilation work has been incorporated in our 2021 guidance. La Cubarada is currently our largest silver producer with long live reserves.
The investment in the new ventilation systems will serve us well for many years to come, not only for our current reserves in production, but also in developing our world class current discovery and future mine expansions. We have also revised our Cosi and Joaquin mine plants in Argentina to address the scarcity of qualified underground miners in the region due to COVID related interprovincial travel restrictions and the cost associated with mobilizing a larger workforce. Workforce numbers have been reduced under the new mine plans resulting in lower mining rates and annual output while extending mine life by about one year. As you know, the pandemic is still with us and our outlook for 2021 incorporates our view that while production will bounce back from 2020 levels, operations will continue to be impacted by COVID-nineteen protocols, which increase costs and restrict throughput levels, especially at our underground mines where we produce most of our silver. The impact on operations is expected to diminish over the course of 2021 as vaccinations are deployed throughout our operating jurisdictions later in the year.
For Q1 twenty twenty one, we assume operations will experience the full effect of COVID-nineteen restrictions similar to Q4 twenty twenty. We assume the impact of restrictions on cost and production declines to 75% in the second quarter to 50% in the third quarter and 25% in the fourth quarter of twenty twenty one. The first quarter of twenty twenty two is assumed to be the first period that will be free of COVID-nineteen restrictions allowing operations to run at full capacity. Of course, these assumptions depend on the global supply of vaccines, how each jurisdiction manages the vaccination programs, the effectiveness of vaccines and any potential virus outbreaks. In 2021, we are guiding silver production of twenty two point five million to 24,000,000 ounces and a record gold production of 605,000 to 655,000 ounces.
All in sustaining costs are expected to be in the range of $12.5 to $14 for silver segment and $11.35 dollars to $12.50 dollars for the gold segment. These cuts reflect the reclassification of the Dolores operation to the gold segment given the mine is sequencing into higher gold grade ores in 2021. We expect to spend $245,000,000 to $260,000,000 on sustaining capital in 2021, largely on open pit pre stripping, leach pads and tailing storage facilities, exploration, site infrastructure and mine equipment overhauls and replacements. Approximately $50,000,000 to $60,000,000 of that spending has been carried forward from 2020 as we had to defer certain projects because of the pandemic. Project capital is expected to be between $55,000,000 to $60,000,000 The vast majority will be invested in the La Coloradas Garn project for the infill drill program, early stage engineering, metallurgical testing and completion of a preliminary economic assessment or PEA.
It also includes investment to advance some longer term infrastructure for the Skarn project. About $5,000,000 of project capital will be spent on the Wetmore exploration project, which is located 900 meters southwest of the current Bal Creek mine underground workings. The goal is to expand and upgrade the existing resource to reserve with 15,000 meters of underground drilling from an eight twenty five meter exploration drift developed from the existing Bell Creek mine underground workings. Our 2021 guidance does not include any production for the potential restart of the Escobal mine in Guatemala. As stated previously, we cannot provide a view on timing.
We understand that Guatemala's Ministry Of Energy And Mines and the Xinca Parliament have agreed to begin the pre consultation meetings in April 2021 as part of the court ordered ILO-one 69 consultation process. In 2021, we expect to spend $20,000,000 to $21,000,000 in care and maintenance expenditures at Escobal, which 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 one hundred and sixty nine consultation process. In 2020, we made significant progress deploying the forward sustainable mining protocols at the site. And we facilitated the launch of a participatory environmental monitoring program in partnership with the School of Engineering of the University of San Carlos in Guatemala City. The budget for care and maintenance at NaviDAD project is approximately $2,000,000 Under our guidance assumption for 2021, we expect to generate robust levels of free cash flow With bank debt fully repaid, our capital allocation priorities are to invest in high quality projects like the La Colorada expansion and other select exploration projects, as well as returning cash to our shareholders through dividends.
We are very excited about progressing our La Coloradas Garn project and providing a PEA by the end of the year. La Coloradas are world class deposit that will continue to be mined for decades, both from vein expansions and development of this current deposit providing long term exposure to silver. And with that, I would like to open the call for questions.
Thank you. We will now begin the question and answer session. Our first question comes from Don DeMarco of National Bank Financial. Please go ahead.
Hi, Michael and team. Thanks for taking my call. First my first question has to do with Dolores. I see you've switched over to the gold segment. You're seeing increased gold rates.
How long do you expect this sequencing to last?
Yes. Hi, Don. Steve here. I think the best indication of that is to look at the mine plan that's in the forty three-one hundred and one technical report. It kind of shows that, but we've always talked all along in the development of the Dolores Open Pit that the high grade at the bottom of the pit that we strip so much waste for is very high in gold and relatively low in silver and that is going to be predominantly most of our ore for the rest of the life of Dolores.
It just made the cost metrics for the silver net of byproduct gold look silly. So that's really the reason why we changed. So Dolores was always kind of close to half half, so it didn't really matter. And we had it obviously in our silver segment because it was always with Pan Am for a long time. But now producing more value in gold than silver, it was time to change it over just to have the cost metrics
in a reasonable place. Okay. That makes sense. And certainly, it's AISC helps that gold group, helps the gold segment. But shifting to another name in the gold segment, the costs at Timmins have increased a little bit over year.
Maybe can you speak to some of the reasons for this and your outlook or strategy for this mine?
Yes. Relative to cash costs, there's a modest increase and it's really reflecting some of our COVID protocols and the way we've costed those through the year gradually decreasing through the year 2021 while the vaccine kind of rolls out. Relative to DACEKOS, there is a substantial increase in relative capital spending from previous years and that's really in light of the large we have a very large tailings dam expansion project that starts during 2021 and we had to really expand the size of that tailings facility to be able to accommodate some of the new reserves that we've discovered there and planning for that. We just didn't have a facility that was capable of handling that. So there's a substantial spend of about $18,000,000 of that capital at Timmins for tailings dam expansions.
That's really the driver there.
I see. Okay. So maybe it's a sort of a one year elevated cost. But in the past you had talked about maybe selling this. Is that sort of been you're now content to keep it within your portfolio?
Yes.
Look, Timmins was on this and fabulous mine and really what Steve is alluding to is we added much more mine life to the asset and that's requiring some capital right this year.
And I
think that's not only for Timmins. I mean, we look, if you look at the other assets that we purchased, I'm sure you remember we added last summer about 400,000 ounces of new gold reserves to Shaw window adding such a big new reserve obviously requires at the end a bigger stripping and that requires more space in our leach pads and waste areas. Something similar at La Reina where we actually added probably a full three years of production since the purchase. But of course that requires more space for waste and more capital for that. And so that's kind of a bit more capital intensive year with those kind of one off addition to a very positive story of course because it means actually substantial increase in mine life on all places.
But at one point we have to of course put the capital in to make that happen. And that's why you see increased ASK on these assets for this year just because of the capital. I think if you compare the cash cost, you see that the increase is not all that much.
Okay. And my final question is on the La Colorada Skarn. And of course, this is a tremendous opportunity and base metal prices are cooperating here. We're looking forward to the PEA, but the release mentioned plan to develop some ventilation raises. Do you have something in mind with respect to developing this asset at this point?
Well, we already know that this is a world class discovery. And you mentioned base metal prices. I mean, we're looking at remember it's over 100,000,000 tons of resource already still open basically all around and we are drilling and expanding that a bit further, but mostly focusing on infill drilling. This will be decades in production. So just looking at a one year metal price move doesn't make too much sense.
I think we have to look at long term. This will be the longest life asset that we have. In my view, as I said, there will be decades to come. Don't forget that we have already about ten or twelve years of reserves and resources for the veins, which all continue deeper down as well. And now we added this really long life, very large Skarn orebody.
So we are very aggressively developing that orebody and we start with some access either from underground from surface this year. We'll start with building some ventilation that helps us in demand for the veins and for the skarn because they're very close together. And this is just a start obviously of putting capital in that great discovery as you can imagine to build over the next year. So in a substantial increase of production at La Colorada will require more capital at one point. But this year, I think we guided $55,000,000 to $60,000,000
Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.
Hi guys, good morning and thanks for doing this call. I think it's a great idea. Just a few questions on the guidance. First with Far On, it makes perfect sense, of course, that the underground mines would continue to experience some negative impact from COVID. But Faron, on the other hand, has actually exceeded my expectations as opposed to the others, which were a little below.
So I guess my starting question would be what are you guys expecting in terms of tons and grades at that asset for 2021?
Yes. Thanks Lawson. Steve here. And actually we're seeing there is an impact in our throughput. We do expect to be about an average of 8% less than its maximum capacity, let's call it in mining and processing rates in our year.
What we're seeing in that production is a little bit better grade than what we've seen in the past and that's largely mine sequencing is what we're seeing there. But overall, I have to say and agree with you that we're on is performing incredibly well these days. We're very happy with it. But I think what you're seeing and what you're describing is mostly mine sequencing making up for that difference in shortfalls in tonnages.
Just in general, a few comments on COVID here and the impact that we see. Of course, the impact is much bigger to our underground operations, which produce more silver than our open pit. We don't really see an impact on we don't see an impact really in our open pit. So I think we are pretty much back where we want to be actually in most places if we look at the tonnage it's increased compared to 2020 because of the increased stripping that I just mentioned because of the new reserves that we found. So it's of course easier to social distance in the open pit than in the underground and we expect bigger impacts from COVID on the underground operations.
In general, this has been of course a difficult budget to make these estimates on COVID and I gave some guidance there. What we assumed you probably saw there, it's a kind of similar impact to Q1 than to Q4 last year and then back end loaded decreased production towards the year with less and less impact on COVID. That's what we assume. That's our best guess really on that. That's like you and anyone else, we don't know yet how well or easy this vaccine is going to get distributed and how quick, especially in Latin America, we're going to go back to normal.
So that's kind of our take on where it's going to go. But as we learned with this pandemic it normally goes into different direction.
Yes, that's well appreciated by me. Thanks for that comment, Michael. I might want to also ask on Dolores. Steve, you made the comment that if you go back and look at the technical report, that might give you a good idea as to sort of gold grades versus silver grades. And I think I was actually modeling something pretty close to the technical report, but I was still a little bit above reserve grade for silver.
Whereas it looks to me that you guys might be mining a little bit below reserve grade in 2021. Is that correct?
Yes, that is correct. And part of that loss in is a sequencing of of stockpile ahead of the pulp agglomeration plant. You're right, but we are generally sequencing into lower silver than we had in the technical report for that specific year, but you got to remember that we're a little bit out of sequence with that technical report. But there is also a minor effect I will say from the stockpiling because we can't mine the deeper part of the open pit during the wet season. It basically floods the bottom of the pit.
So we have to build enough high grade stockpile to be able to run the pulp agglomeration plant through that period. And so there is some higher grade silver that gets tied up in stockpiles during the year 2021. It does have a bit of an effect there.
Right. Okay. That makes sense. And of course then, so that would explain partly why the gold grade seem to be a little higher than I would have expected as well?
Yes.
Okay. Okay, great. And then I'm just sort of backing out and stepping away from the guidance a bit. I just wanted to get your latest thoughts on Navadat and not really from the perspective of what's going on because I think it's become clear that at least the Governor in Chabot is supportive of the project and really it's just now a matter of getting this zonification law proposal through. And I'm not asking you to comment on that, but my question would be, if we assume that zonification law is passed, what are the next steps from there for Pan American?
Well, next step will be to present our environmental impact study and apply for permits. This is of course just one step. If the law change will happen like any mining project, this mining project would have to be permitted and we would have to make a decision, final decision on exactly size of the project, etcetera, etcetera. So as you probably recall, I think we talked about that before. Navidad is very scalable project.
It has really eight kind of shallow open pits next to each other. And you can develop one or two or three or how many as you want at the same time depending how much capital you want to put upfront or how much you want to grow the asset through cash flow while you are in production. So that's really the decision that has to be made at one point. But at the moment, as you said, we have to see what happens in Chibout. But once if the log has changed, it will just be a normal, I think, sequence what we would see in any mine development anywhere else in the world.
And what would sort of be the timeline or how much work I guess would be involved before you guys could make a decision on what exactly the operation look like, whether it be three or eight pits or whatever it might be? And then before you finally submit the application for the permits?
Yes, we actually have already defined in our permit applications that we prepared kind of a sequencing and incremental production ramp up over about a five or six year period. So we can kind of go forward with that permitting right away in our mind. Within a couple of months we have to do a few upgrades on the baseline data to get it up to snuff for the current period and get that submitted. But that permitting we expect could take it could take quite a while maybe up to a year and during that year we can kind of reconfigure that ramp up as we see best given the current conditions and the current kind of situations
if
you will down in Argentina.
Okay, that's great. And I mean it sounds to me like I mean you would be going ahead with the permitting process basically as soon as possible. I mean my question is you guys are keen to move ahead with this?
Yes, we're keen to get the permitting going. Remember there is an indigenous consultation period as well. It has to take place and we'll support the government. That will be a government led permitting effort and we'll support them with all the information and baseline data and project description information of what's going forward. And as I say, we've got a few weeks that we're going to want to get that up to snuff before we actually make the submission, but then focus on assisting the government through that process however long it may take.
Just to be clear, NaviDot is one of the best undeveloped silver deposit in the world. There's no doubt and that it's a great deposit. It's outcropping or very, very shallow. It's good grade. So yes, of course, we would move forward with the project or with the permitting if we will be allowed to do so.
But as I said, final decision on how the ramp up will happen is still pending.
Great. Steve, Michael, thank you so much.
Thank you. Thank you.
Our next question comes from Trevor Turnbull of Scotiabank. Please go ahead.
Yes. Hi. Thanks, guys. I just wanted to ask about the range on costs for guidance. You've talked about how many of these operations you feel will be continue to be heavily impacted in the first quarter and then that will gradually that impact will lessen as we go through the course of the year.
And I was wondering if we kind of look at the cash costs or all in sustaining cost guidance ranges, if it's safe to kind of assume we kind of start the year at the high end of that range and then maybe finish up at the low end. I guess I kind of wanted to understand, none of those quarters where I guess fall outside of the guidance range and certainly we would expect cost to be going down through the year. I'm just wondering if it's fair to kind of use that range as how we step it down?
Yes, Trevor, I don't think that's a bad approach. I mean we do know both in terms of cost, but also in terms of production, it is back end loaded to production and less cost at the tail end. So I wouldn't be surprised if we'll see kind of the last periods fall even outside the range below the range on costs and maybe be a little bit heavier going in. But I think using that as an average, we don't do a quarterly kind of guidance. But clearly this is back end loaded on production and higher costs upfront.
And can you just remind me kind of how badly has throughput been impacted by some of the restrictions? Are you off greater than 10% or as much as 20% at some of the operations?
Yes. As Michael mentioned, interestingly on the open pit mines, the three open pit mines we operate, we haven't seen much of an impact. We've been able to with the physical distancing, it's much easier in the open pits situation
than
it is underground. But also we're able to find temporary employees because passing through our screening to come to work is a pretty arduous process and we end up with pretty high absenteeism rates. And so we're able to make that up with temporary help in the open pit fairly easily and we've been successful in doing that. We're not able to do that underground with some of the specialized skills that we need underground. It's not so easy.
So when I look at Q4 as an example, we're looking on the underground of being about 20% short on personnel deployment and that equates directly to about a 20% on average shortfall of what's called maximum production rates from those underground mines. That's how severe it was impacted during Q4 and that's kind of the logic we take into Q1 of this year.
Okay, great. Thanks, Steve. And then the only other question I had maybe for Michael or Rob, I'm not sure. We saw that there was this proposal in Mexico on essentially a 5% mining fee. It was going to be a mining fee based on revenue.
This was, I guess, an early proposal by a Congressman that's been put forth. Have you heard anything about that or any sense if this has reasonable chance of moving forward or it's just kind of a one off by a Congressman that isn't necessarily destined to go very far?
Well, I started and handed over to Rob. But I think we know about as much as you have seen obviously in the public space. It has been made public and it was a proposal. In my view, that's where it stands. I don't know, really interrupt.
You want to
Yes, really not much more to add, Trevor. I mean, we just don't have a basis to rate the chances of that going through. It has actually been proposed in the past unsuccessfully. So we'll just have to take a wait and see approach.
Yes, it did seem like it came out of kind of a bit out of not necessarily nowhere, but didn't come out with a broad base of support and a lot of fanfare just seemed like it just kind of got tabled and hopefully it doesn't proceed too quickly.
That's fine. Anyhow, that's all
I have. Okay.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Steinman for any closing remarks.
Thank you everyone for calling in. I think it will be an exciting year here for the whole world. I hope I think vaccines will roll out somewhere in some places a bit slower, in some places faster, but I think there's light at the end of the tunnel and I'm really looking forward to this year. I'm looking forward to all the great projects that we have and catalysts that we have here that we are able to put in some more money at work. I'm very excited with the financial situation the company is in.
I'm sure you've seen there we have no debt and a substantial increase of our cash and short term investments. So it looks very good for 2021. At the beginning, as I said, COVID will impact more. That's impact hopefully in the second half of the year. And looking forward to share with you the details on the Q4 reporting and year end in just about one month, I guess.
So thank you very much and have a good day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.