Pan American Silver Corp.
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Thank you for standing by. This is the conference Operator. Welcome to the Pan American Silver Full Year and Fourth Quarter 2020 Audited Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to Siren Fisekci, VP Investor Relations, for opening remarks. Please go ahead.

[Siren Fisekci:]

Thank you, operator, and welcome, everyone, to Pan American Silver’s Fourth Quarter and Full Year 2020 Conference Call. We released our results after yesterday’s market close and a copy of the news release MD&A 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 Steinmann, who will provide a brief review of our results. We will then open the call to questions and answers.

[Michael Steinmann:]

Thank you for joining us today to discuss our fourth quarter and full-year 2020 results. We finished the year with a strong financial quarter. Revenue in Q4 was a quarterly record of $430.5 million, driven by the rise in precious metal prices. Q4 net earnings were $169 million or $0.80 per share driven by record quarterly mine operating earnings of $137.2 million. Earnings in Q4 benefited from the recognition of $41 million in deferred tax assets, investment income of $30.7 million, gains on the sale of exploration properties and gains on fuel and currency hedges. The deferred tax assets recognized relates to extend mine lives at the Timmins and Laren operations due to our exploration success and our ability to utilize tax attributes. Adjusted earnings in Q4 were $120.5 million or $0.57 per share. The most significant adjustments were the removal of $22.2 million related to currency movement that reduced tax expense, the dilution gain relating to our interest in Maverix and the gain on the sale of exploration properties. Full-year 2020 net earnings totaled $176.5 million or $0.85 per share. Full-year 2020 adjusted earnings were $243.4 million or $1.16 per share. In 2020, our operations generated record cash flow of $462.3 million. We fully repaid the amount drawn on our corporate credit facility, and we doubled the quarterly dividend. As at December 31, 2020, our cash and short-term investment balances increased to $279.1 million. Keep in mind that we achieved this strong financial results despite the significant impact COVID-19 had on our operations, including incurring mine care and maintenance costs of about $75 million for the COVID-19 related mine suspensions.

[Operator:]

We will now begin the question-and-answer session. The first question comes from Tyler Langton with JPMorgan. Please go ahead.

[Tyler Langton:]

Good morning and thanks for taking my questions. I guess, just first on the guidance. I know it is sort of - based on the impacts of COVID kind of diminishing throughout the year kind of with Q1 equal to Q4 and then kind of Q2 around 75%. I know it is sort of early in the year, but so far in Q1, as Q1 kind of sort of - is the impact sort of similar to Q4 and do you have a sense what things could look like heading into Q2?

[Michael Steinmann:]

I don’t know which way it is now any more second wave or going to third wave in many places. See strong waves in Peru and Mexico, many other countries around the globe. So that is our assumption. Of course, we don’t know what is going to happen through the year, but we also luckily see that vaccination programs in countries that achieved already quite a high percentage that vaccination programs really, really help here and bring those numbers down. So we are very positive that during the year and with the rollout of those programs, we will start getting over this. But right now, in Q1, of course, there is no a lot of programs in place in Latin America, some vaccination has started. So we will see how that goes. But yes, I would say Q1, as we assumed in our budget, will be similar to Q4 of last year.

[Tyler Langton:]

Okay. That is helpful. And then just sort of in the release, you kind of talked about inflationary pressures impacting costs, especially on the gold side at Shahuindo and Lorena. I guess, can you talk a little bit about what you are seeing and kind of whether those - if you continue to see higher cost if the risk to the cost guidance in that area or do you see kind of risk to any of the other operations?

[Michael Steinmann:]

Yes. Just in general, something to the cost, and then I will pass it on to Steve. Of course, every given year or in most years, you are going to see a difference between how we end the year and how we guide for the next year. And that is just simply the fact that we have to assume some metal prices for the following year in our budget, which are lower than what we just experienced in the past year are the same. I mean we become plug-in higher cost than what we have just seen in the past, because our costs are dependent on byproduct credits, that automatically increases our costs in our guidance always a bit at the beginning of the year, and that will be normalized during the year, depending where metal prices go. If metal prices go higher up, of course, we have more byproduct credits and vice versa. But for sure, we see some pressure, I guess, and on especially the salary side, so I will pass on to Steve to comment on that.

[Steven Busby:]

Yes. Tyler, it is Steve here. Yes, generally, we forecasted nominally 3% to 5% in inflation for 2021. We are seeing pressures in wages, as Michael said, we generally negotiate a collective bargaining with all of our sites towards - between March, April, May, June or the heavy months. And a lot of those are retroactive back to January 1st. So we don’t know exactly where they are going to be but we are forecasting in that range. The other thing I would raise is we have been seeing some very high ocean freight costs for our materials coming in. We have seen pretty sharp escalations in that. And then the energy costs, of course, with the oil prices going up, that generally relates directly to our costs as well for our energy components. One thing I would also alert you to relative to Shahuindo, La Arena and Deloris are open pits is to pay attention to the waste movement and the strip ratios with the mine planning, for instance, Deloris strip ratio is going to reduce 32% over where it was in 2020. Where at Shahuindo and La Arena are increasing 19% and 33%, respectively. And that is just mine plan sequencing. We added life at La Arena. We added life at Shahuindo. Those come with a little higher strip ratio as we get into those waste zones to strip down to that ore. So that is the other thing to pay attention to.

[Michael Steinmann:]

At the last point on the cost from my side. Hopefully, with subsiding pandemic during the year, let’s be helpful for that, we will probably see or we hopefully see less cost directly related to the pandemic for testing, quarantine, et cetera.

[Tyler Langton:]

Okay. Thanks so much.

[Operator:]

The next question comes from Justin Stevens with PI Financial. Please go ahead.

[Justin Stevens:]

Hey guys. Probably a couple of questions for Steve. Mostly wondering, can you give sort of a ballpark in terms of what we might expect the sort of inmate change percentage to be La Colorada how long that once that new raise is commissioned sort of a lease spitball between H1 and H2?

[Steven Busby:]

Yes. Hi, Justin. Generally, for the full-year, we are looking to get up to about 330 gram or 335 gram per tonne silver. We kind of averaged 2020 at 310, 308. So I think it is going to be kind of the same picture as the COVID. We are going to be at the 308 early on. And then you will see it increase in Q2, Q3 and Q4 and average out the year at the 335.

[Justin Stevens:]

Got it. Yes, I can back up those numbers then. That is pretty helpful. It is mostly going to be a great impact, right? You guys are not going to have any trouble. I think keeping the mill filled just with some lower-grade material until that ventilation is sorted, right?

[Steven Busby:]

Well, it does affect how many tonnes we can get out of the mine because it limits the deployment of underground equipment, we have to maintain a certain ratio of equipment to the ventilation flow rates that we have available. So it does impact throughput as well to some degree. So we will see lower throughput in the first part of the year increasing throughout the year.

[Justin Stevens:]

Got it. Perfect. That is very helpful. And if you could just quickly give an update on how things are going at Dolores, particularly with the underground and the pulp agglomeration?

[Steven Busby:]

Yes. Both are running well. The underground is running with the kind of 80% to 90% range that we had in Q4 with the COVID impacts. We are seeing that type of impact. The open pit is running more closer to the full design capacity, and we have with the mine sequencing, as I mentioned earlier, quite a bit less waste to move this year, so that helps relieve some of that. The pulp agglomeration plant has been running well, you know close to the 5,500 tonnes per day, 5,300 tonnes per day average rates, that is been going well. We do experience in the mine plan both a low-grade because of mine sequencing early in the year, higher grades towards the end.

[Justin Stevens:]

Got it. No that sounds great. Alright, thank so much.

[Steven Busby:]

Thank you.

[Operator:]

The next question comes from (Ph) with Scotiabank. Please go ahead.

[Unidentified Analyst:]

Hi everyone. Thank you for taking my question. I have a question regarding the investment income that was reported in 2020. I believe it is $60 million worth approximately, and half of that was reported in Q4. Correct me if I’m wrong, but I don’t think the unrealized portion of the investment income has been adjusted out of your adjusted earnings. So if that is the case, is it possible to provide some guidance on maybe the breakdown of the securities making up the games.

[Robert Doyle:]

Sure. Good morning. It is Rob Doyle here. You are correct. We don’t make any adjustments for our investment income in our adjusted earnings. We consistently leave that as part of our core earnings. That gain that you referred to, the 63 million for the year, it is the mark-to-markets on our strategic positions in mostly new Pacific or Peru, Euro, Peru and various other investment positions that we have. So it is almost entirely mark-to-market and unrealized.

[Michael Steinmann:]

So just to give some more background here. Of course, the reason why we have investments, especially the larger ones like New Pacific is because we like projects like that. We obviously like new discoveries, large silver discoveries in jurisdictions where we are already active. In this case, it is Bolivia. And that is part of our business, our business to help growing those assets with our investment and financing because there is two ways to do. We can obviously do our own exploration and have been very successful with that, too. But I think other companies making discoveries, and we help to finance that gives us many more opportunities to explore and look at deposits. So it is really part of our core business to make those kind of investments in potential large silver discoveries.

[Robert Doyle:]

Lee, maybe I will just add 1 more thing. It is important to note that our investment to our position in Maverick is not included in that. We account from Abric as an associate and therefore, we don’t mark-to-market our large position in Maverix. So that is just on short term investments.

[Unidentified Analyst:]

Okay, great. Thanks a lot.

[Operator:]

The next question comes from John Tumazos with John Tumazos Very Independent Research. Please go ahead.

[John Tumazos:]

Thank you very much for taking my question. Just to review, this coming April would be the first consultation and then resumed process. Do you have any idea how many consultations or months or years the process might take? You didn’t mention Argentina with all the lockdowns there, I presume nothing has happened or resumed and should both process. And with the net cash position, would you confirm whether or not you are still a property seller of any pieces of the Taho or acquisition or other assets? And what the investment priorities would be in addition to La Colorada?

[Michael Steinmann:]

Okay. John, let me see if I remember every question.

[John Tumazos:]

Sorry. .

[Michael Steinmann:]

That is okay. Yes, you are right that the government announced that - and it is not the start of the consultation, but the pre-consultation in Guatemala in April. So we will see how that goes. As you know, this is a government-run process run by the Ministry of Mines in Guatemala for this ILO 169 consultation process, which we are just a party to it. We are not running it. So we don’t have control over the time line. So I can’t tell you how many meetings will be required or how long it will take. Time will tell, but we are obviously happy to see that after understandable delay for COVID that this is picked up again, if you want to say like that with meetings. As we know, every country in the world has been impacted very hard by COVID and all the countries have been and still are very focused, of course, to keep everyone safe in their country and make sure that there is enough hospital beds and treatment possibilities available for the population. In Chubut, as I said, in my text there that the change in the law has been proposed and discussed, as we know, and there is a lot of information out there on that Chubut, but the legislative did not vote on this yet. And again, I don’t have a date on Venda Man would happen or not. So we will just have to be patient and wait for that, but there is definitely discussions going on, on that, what it is called zonification where the law would basically identify areas in the province that would potentially allow open pit mining and other areas now. So just to make one point clear, as there is a lot of information out there. Even if that law will be approved, this is not a direct approval of Navidad project, but it would allow us to actually apply for permits. Right. This is just this law is intended to set basically the base to actually apply for permits, mining permits in certain areas of the province. It is not an approval of a certain project. Regarding, I think, divestments, you asked, look, we are very, very happy with our gold assets from the Tahoe side. Well, we are very happy with any of the gold assets, we have and the silver assets. But as you know, we have been very successful with the exploration in La Arena and Timmins, especially, where we added already many years of more production. So the situation looks quite a bit different than when we did the purchase and close the purchase. And we actually, for example, in La Arena, we assumed at that time that 2021 will be the last year of production from the outside and looks like now we have at least another three-years, so 2024. And we are still exploring and drilling, and we are still finding very interesting intercepts. And by the way, I think we used like 1,350 or 1,400 gold for those reserves. So it is not just a reflection of higher gold prices, it is a pretty conservative coal price that we use, I believe, for a short-term asset for the reserves. But needless to say that this is a good time to divest some of our smaller assets. We announced that earlier on, and we will continue doing that. We have many smaller assets that came to us over the last, let’s call it, 15-years, 20-years through many acquisitions. And for sure, we will try to divest some of them over this year or next year, depending how the demand will be for those assets. Those are assets that are too small for us to build, but could be interesting for a smaller company, obviously, to do something with it. Then I think there was another question, the fourth one, Sean, and I forgot about that one. Sorry.

[John Tumazos:]

What are the CapEx or investment priorities in addition to La Colorada skarn?

[Michael Steinmann:]

Okay. Yes. As I always said at these three kind of buckets, right. I always pay back our debt, invest in high-quality projects and return cash to shareholders, most likely in the form of dividends. I think we have been very successful last year in achieving all of that. We repaid all our debt, $275 million in a very difficult year. Last year with the COVID impact, pretty strong. We doubled our dividend actually, we have increased it twice. And totally, it was a double of our dividend during the year. And that bucket is still there. Of course, we like to return cash to our shareholders. We paid dividend uninterrupted since 2010, and we actually return up-to-date. I think without the payment that is coming up in March, we returned nearly half a billion of cash to our shareholders, some share buyback, but mostly dividends. So that definitely will continue. And as we don’t have to pay back line of credit or the debt right now or bank that will, for sure, have a hard look again at the dividends as the year progresses. But as I always said, the best return for you as a shareholder is investment in high-quality, high-return projects. So there is definitely a big focus on La Colorada. This is, as you know, a multi-year project and the investment, bring it now first to a PA level and then advance the project further. So that will require capital. Not a huge number this year but as we go forward, the following years that the number will obviously increase with a lot of underground development and surface infrastructure for that project. But we are very active on the exploration side, in other projects we are exploring a few new projects around payments. As I said, we are exploring around Shahuindo and La Arena, where we have been very successful. And I count those as well as addition of high-quality projects and use of capital as, of course, every time we expand the reserve in these big open pits. It will require more heap reach space and more stripping, which you will see reflected in our sustaining capital needs.

[John Tumazos:]

If $4 copper, are you starting to like La Arena copper-gold sulfides anymore?

[Michael Steinmann:]

I always like La Arena sulfide, to La Arena II, as it is called, which is a copper-gold project. I always like that as a project, but I still believe that it is probably not the right project for Pan American Silver. It is a very large copper porphyry, perfect project for a large base metal producer. And so that is still there available, and there is obviously more and more interest with today’s copper prices. We are right now really focused on the oxides and as I said, we added already quite a few years of production there.

[John Tumazos:]

Thank you.

[Michael Steinmann:]

Thank you John.

[Operator:]

The next question comes from Cosmos Chiu with CIBC. Please go ahead.

[Cosmos Chiu:]

Hi, thanks. Michael, Steve, Rob, Siren and team. Great to see your $0.07 per share dividend and a very strong balance sheet here. Maybe my first question is on Dolores. As you mentioned in your 2021 guidance, gold grades are going to be higher, silver grades a bit lower due to mine sequencing. Can you remind me how long are you going to be in this zone in terms of higher-grade gold and lower grade silver? And then, again, remind me once again, as you go deeper, is it - does the gold grade come up in all areas or is this just 1 specific area that we are looking at?

[Steven Busby:]

Yes. Hi Cosmos, Steve here. Yes. It is a nice zone down there for sure. At the bottom of that pit. We have been waiting years to get down there. The gold grade is down and that bottom. We see areas where we are mining large tonnages at plus 1.5 gram to 2.5 gram gold, very nice, but there is very low silver with those, we are forecasting something less than 20 grams per tonne silver this year versus we have seen up 30, gram even 40-gram up higher in the deposit. That high gold zone, that lower part of this pit, which we have been stripping on for ever since we bought the asset in 2012. It is a big zone, and we will be in that zone for the next probably 2.5 years. In reality, we will be mining that zone for the rest of the mine life at Dolores, but the tonnage does start to come off after we get that initial few benches, it gets pretty tight down at the bottom of the pit towards the end. I still suggest going back to the 43-101 it gives a good profile of what that looks like. It is out of sequence a little bit. We are a little behind what that sequence was in the 43-101, but it is still a good indication of what the grades do towards from now towards the end of the mine life.

[Michael Steinmann:]

Cosmos. So that is the reason, of course, and just to remind everyone on the call, why we moved Dolores asset from our Silver Group segment when we look at the cost and production to our Gold segment just because the gold production from now on to the end of that asset will outweigh the silver production. So it is definitely something that is there to stay, and that is why we moved it over to the Gold segment, which makes it a bit harder to compare apples-to-apples on the cost side. But if you look at mine-to-mine, of course, you still get the real picture.

[Cosmos Chiu:]

So Michael, a follow-up, I guess, it is going to be in the Gold segment for the foreseeable future, not just 2021, but beyond all those.

[Michael Steinmann:]

For the end of the life, we are not going to change it back.

[Cosmos Chiu:]

Got it. Maybe, again, on Dolores, following up on the underground question. I think it has been a while since I have asked about the underground. The last time I asked, it was going from 1,000 tonnes per day to 1,500 tonnes per day how is it going so far? Where are you at right now? And is it also getting some of this high-grade gold, lower grade silver or is it in some other area?

[Steven Busby:]

Yes. We haven’t got to the 1,500 tonnes a day yet. We were disrupted in that ramp up with COVID and with all the complications of 2020 and the suspensions and things like that. So we are still running about 1,000 tonnes to 1,200 tonnes per day at this time. We are not really intending to push that because we don’t really want to be mobilizing more people to the site at this time. Again, given the COVID constraints and risk there. So we will probably stay at that kind of rate for the rest of the year. The grades are a little bit different in the underground. There is a little bit more silver, it is kind of funny. We kind of look at it as a gold equivalent basis underground, it will average about 2.5 gram gold equivalent basis. But it is about a 60% gold, 40% silver kind of split on that. It is in a different area. It is not directly underneath the pit at this time, it is more adjacent and down strike.

[Cosmos Chiu:]

Okay. Thanks Steve. Maybe switching gears a little bit. Manantial so as you talked about, more broadly, micro COVID-19 impact. I think 1 of the things you talked about Manantial in the past was labor and the constraints around labor coming from the northern part of the country. I guess again, this might be too early at this point in time, but you are looking at 2021 production that is higher than 2020 in part of some of these constraints lifting in 2021. How is that going so far? And I guess it is a bit more complicated now just given the fact that you have three mining areas with different grades, higher grades coming from Cose and Joaquin. On that, can you remind us what is the contribution coming in terms of tonnage from each of those assets that you factored into your 2021 guidance?

[Michael Steinmann:]

Yes. I start on Argentina to hand it over to Steve or Martin on the tonnages. But you are right, the complication is obviously still there. And we are only about six weeks into the year. So nothing has really changed on that. And that is what we assumed in our budget. So when you look at the budget numbers for the year, I think that is what we are on track for right now. As I said, it is very early days. And we will see what happens. But we obviously budgeted for that complication. And that is one part of the plan that we have that it is improving during the year. And one other reason why our production is more back-end loaded in 2021. So we are assuming that, that is getting better during the year. You are absolutely right, this is a combination of Manantial itself plus COSI and vacin to high-grade underground operations that truck the material to our plant at Manantial so a lot of complications during COVID you can imagine with a lot of moving parts to it.

[Steven Busby:]

Yes, maybe I will start and then I will turn it over to Martin for a little bit more of the distribution. But 1 thing I would like to say, Cosmos, that is really interesting is Cosi, which is our smallest tonnage. And we keep it small specifically because it is a bit of a challenge to mill this ore. We got a unique opportunity of Manantial fail with the massive tonnage of low-grade and then the high-grade from the underground of Manantial and the high-grade from Joaquin, that whole blend lends itself amenable to accept more COSI ore. It’d be very difficult to process Cosi by itself. It has to be blended because it consumes so much oxygen through the plant. So we are getting better extraction rates than we expected actually, but we have to keep that rate of production out of Cosi fairly low, given it is high grade. And Martin, maybe you can give a distribution of it.

[Martin Wafforn:]

Yes. Hi Cosmos,. Yes. First of all, the Argentina operations have been pretty impacted with the CORONA virus and the shutdown that we had around the end of the year there. But Cosi, typically, the plan for this year is to get into the 80 to 100 tonnes a day type of range. That is kind of where you would be and then accelerating as we get a little bit later on in the year. Joaquin is more than that. If memory serves, it is getting to around 400 tonnes a day is our plan for this year is about the best we can do. And then we have a still some residual production from the Manantial underground that is coming again in that type of work in type of production type range. And then the remainder of the plant capacity is taken up with the stockpiles that we still have the low-grade stockpiles that were made when we mined a pit.

[Cosmos Chiu:]

Great. Thanks, Martin. Maybe a question on the financials here. As you mentioned earlier, Michael, talked about some of the input costs increasing. But at the same time, you are seeing better byproduct credits coming from the base metals. As we talked about, I think your assumption that you used was $3.36 per pound copper, and you are almost $4 a pound copper now. I guess my question is, what is your hedging strategy here in terms of say, diesel and some of the other fuels and also, would you consider hedging some of the your byproduct credits to lock in some of those potential gains here, could you maybe give us a bit more color?

[Michael Steinmann:]

Yes. And I will turn that now first to Rob. But just to the hedging strategy, first of all, we are absolutely unhedged on precious metal, so no hedge on silver and gold, we are hedging some base metals, and Rob can give you some details there. We are hedging some currencies in the countries where the currencies that are really taken important for us, which is mostly Peruvian Sol, Mexican peso, Canadian dollar. We have seen some diesel fuel, and have been very successful actually doing so with - just that we put in place last year. But that is about it. So as I said, absolutely unhedged some precious metals and there Rob can give us some details on the base metals, please.

[Robert Doyle:]

Sure. Yes, I think Mike has covered most of it there, Cosmos. We do have some modest base metal programs in place. And actually, all of those details are in the MD&A. So I would refer you to that. And if you want any detailed breakdown of the positions, I can certainly provide that to you. But yes, the main thing is that we do only really focus on the currencies and the byproduct credits. The precious metals are off the table and always have bits.

[Michael Steinmann:]

Just to remind, we wondered, if we look at revenue, it obviously depends on the base metal prices, but I guess by 12% to 15%, or 14% of revenue is coming at the moment from base margins.

[Cosmos Chiu:]

And I guess on that, Rob or Michael, would you consider increasing your position in terms of those base metal hedges. As you said, Rob, they are fairly modest at this point in time?

[Robert Doyle:]

Yes, they are. There is always some technicalities when it comes to hedging the base metals and they are - we produce the base metals in the form of concentrates. So there is the nuances of the concentrate terms and various tax impacts. So typically, you won’t see us hedging more than 50% to maximum 60% of our payable production at any point in time.

[Cosmos Chiu:]

Of course. Maybe one last question. Again, on the financial side here. Michael, as you mentioned in your opening remarks, some of the tax payments can be a bit lumpy. If I remember correctly, and I think you mentioned this as well. A lot of it is in Q1 and Q2. Could you remind me how much of that total year annual tax payment is going to be paid in Q1 and Q2? And I can see that there is definitely an impact on the cash flow. But can you remind me if there is also an impact on the income statement expenses as well?

[Robert Doyle:]

Sure, Cosmos, I can take that. For sure, not an impact on the income statement. We, of course, we would accrue for any tax expense in the period. So we don’t expect any lumpy treatment on the income statement. On the cash flow for sure, just the timing of payments, typically in the countries we operate, we have catch-up payments based on the last year’s income tax generated in March of each year, March, April, so if you look at our balance sheet, you will see under current liabilities, we have got about $54 million of income taxes payable. So we expect most of that to be paid in the first quarter. Usually more than half of our total tax payments for the year come in that first period of the year. So after that, it smooths out, and it really just is made up of installment payments, which we make on each of our operations.

[Cosmos Chiu:]

Great. And I guess, if I remember correctly, I guess, it would be higher this year because silver prices have increased. And so you need to catch up. The true-up is a bit more than usual. Is that correct, is that how that works?

[Robert Doyle:]

That is exactly how it works. So of course, we made installment payments throughout 2020. But because our income tax was much higher than the year before, because of the strong economic performance, we do have this catch up payment. So there is always this one year lag that we have in our tax payments. And from time-to-time, we do get a refund if we have overpaid in our installments. But of course, this year, it is going to be a catch-up payment.

[Cosmos Chiu:]

Great. Thanks a lot. Those are the questions I have. Thanks once again.

[Michael Steinmann:]

Thanks Cosmos.

[Operator:]

The next question comes from Ryan Thompson with BMO. Please go ahead.

[Ryan Thompson:]

Hey guys. I think my questions were sort of asked, but maybe I will just ask some quick follow-ups. First one is probably for Rob. But just on the topic of the investment gains in the mark-to-market. Obviously, it creates a bit of volatility in your earnings. Is there any thought of adjusting that out going forward or are you happy to sort of stick with how you did it last year?

[Robert Doyle:]

Hi, Ryan. Yes, it is debated internally. Consistently, we haven’t adjusted that out, as we touched on that. We see that as part of our core business. I think we always review that policy with our Audit committee. So it may change going forward in 2021. But at this point in time, I mean, it is clearly disclosed. So anyone can make whatever adjustments they feel fit to do so.

[Ryan Thompson:]

Okay. That is helpful. And maybe just switching gears and following up on the question about the sulfides at La Arena, the porphyry. Can you just describe - like is that porphyry - is it sitting below like the current pit or is it sort of off to the side? Like if someone was to come in and say, acquire that project. Do they have to effectively wait for mining to be completed on the oxides? And I know you said you have sort of extended the life beyond the 2021 time frame you originally had in mind? So if you can just comment on what that would potentially look like or how a deal could potentially be structured there?

[Michael Steinmann:]

Yes. It is a very large paper. It is sitting below and on the side of it. Much, much larger, of course, than the oxide portion of the deposit. So to answer your question, yes, no you cannot mind the porphyry and oxide at the same time, but that would not happen anyway because there is building such a large porphyry copper mine will go to quite a multi-year of engineering and permitting and getting ready. And while we have been very successful in La Arena with adding oxides, it will come to an end at 1 point. And at the end, as I indicated, I think the sulfide copper porphyry piece will be better in hands of a large base metal company when the handover would happen and who gets paid for which part of the oxide. I mean that is just a part of negotiation. I don’t see that really complicating the situation. But at the moment, as I said, there is ample time for us to mine the oxide and mine the additional oxide we are discovering. And there will be ample time for somebody to come in and start working at engineering and permitting for the sulfides.

[Ryan Thompson:]

Okay. Yes, that is helpful. And then maybe just one last question for me. Sort of switching back to, I guess, quasi the New Pacific investment and your operation in Bolivia, San Vicente. There is been a change in government in Bolivia. Can you just make any comments that you can regarding that change in government? And if it is had any impact on San Vicente and the relationships in Bolivia?

[Michael Steinmann:]

No, look, we are working and very happily working in Bolivia since 95. San Vicente has been very great contributor for our silver production and still is. And that is the reason why we are interested to look at other projects in Bolivia, and our investment in New Pacific. I don’t see any reason to change that with the new government. For us, it has been a good jurisdiction to work in.

[Ryan Thompson:]

Okay. That is all I have. Thanks a lot for the update guys.

[Michael Steinmann:]

Thank you.

[Operator:]

The next question comes from Lawson Winder with Bank of America Securities. Please go ahead.

[Lawson Winder:]

Thank you operator and hello everybody. I hope you guys are all well. Just a couple of follow-ups for me. So first off, on the La Colorada skarn, in your release, you discussed the cooling installations and the heat that is being generated underground there. I would just be curious to know, is the heat is being generated there, is that just from the high concentration of sulfide in the rock or are there other geological features that are causing that?

[Christopher Emerson:]

Yes. Hi Lawson, it is Chris here. Yes. I mean, as you know, I mean drilling deep down into that skarn zone to the east, the vein sitting further up top. Yes, we have gone into a porphyry. There are ground waters there, which are - have a thermal gradient, of course. And so it is not really geological in that respect. Yes, there are systems and hydro systems, which are bringing in heat, obviously, you have got heat from the operations as it is as it stands to-date. But in terms of the sulfide content and is that creating that heat, not essentially.

[Steven Busby:]

I might add, too, Lawson, that the refrigeration plant, I mean, because of that temperature gradient, we are pretty confident as we go into the skarn, we are going to need cooling. And today, as Chris alluded to, we see now and then areas of hot water that we intersect. We are able to pump that out. We are able to ventilate it. We are able to, over time, cool that early off. So we see an opportunity, if we can get that refrigeration plant in early, it gives us more speed in getting into areas that are hot now. Even though we don’t necessarily - we could probably survive without it. It will help the current operation, and that is why we are kind of pushing that project forward.

[Lawson Winder:]

And I imagine that, it is also part of planning for when an ultimate development decision as well.

[Steven Busby:]

Exactly. Yes.

[Lawson Winder:]

Thank you for that. Also, Steve, you mentioned that the strip ratio at La Arena and Shahuindo or I might have them backwards, but I believe you said 19% and 33%, respectively. By any chance, are you able to provide what those strip ratios are expected to be in 2021?

[Steven Busby:]

Sure. In Shahuindo, it is the other way around. Shahuindo is up 19% from 1.0 to 1.2., La Arena is up 33% from 2.1 to 2.8 when comparing 2020 actual to 2021 plan.

[Lawson Winder:]

Okay. And then you also mentioned the strip ratio at Dolores was down 18%. What is that down to?

[Steven Busby:]

Down 32% from 3.8 in 2020 to 2.9 in 2021.

[Lawson Winder:]

Okay. No, that is fantastic. And I also wanted to ask about the current reserve at La Arena, does it include any of the satellite pits? And what I’m referring to, if you think back to like the Rio Alto days, they were finding a lot of mineralization in the satellite pits around the main pit. And I just wasn’t sure whether or not any of those have been included in the current reserve and resource statement.

[Martin Wafforn:]

Lawson, it is Martin here. No, no, they haven’t. It is just the main line anything.

[Lawson Winder:]

Is that an area of focus for your exploration at all, Chris?

[Martin Wafforn:]

When we did the purchase of Tahoe, we obviously went through the exploration portfolio. Yes, there are some a series of targets sitting around La Arena, but no, they are not a target for us at the moment.

[Lawson Winder:]

And so any potential upside you would expect to come in and/or around the existing pit, would that be fair?

[Martin Wafforn:]

Yes. That is correct. I mean, most of the exploration drilling that is been happening has been in pit, and it is really those central structures, those feeder veins have come up and that is where we are getting some certain amount of success.

[Michael Steinmann:]

As you can imagine, focus was on immediate life mine life expansion. As I said, as initially, when we purchased the asset, we planned the plan was to have 2021 as the last production year. So the focus was on immediate life expansion, which, of course, is in the pit.

[Lawson Winder:]

Okay. That is great. And then just one final question on some of the, I will call them noncore assets. I know there is already been a number of questions on them already, but one that hasn’t been addressed directly yet is (Ph). Where does that stand right now? I mean, are you in Nexa looking at potentially developing it? Is it an asset that Pan American might be interested in participating in or does Pan American still look at that as a non-core asset that would hopefully be sold at some point?

[Michael Steinmann:]

Yes. If I want to look at the development pipeline for Shelly PICO, you really have to look at the Nexa publications and press releases, I have seen some were talking about Shelly PICO, of course, as one of their projects. We are holding a 25% carried interest into production. So it is a large zinc deposit. No, we are not planning to - we don’t have to financially participate because it is a free carrier into commercial production. But very happy to have that it was one of our exploration project, and Nexa took an option on this many years ago and did a lot of work, great work on this deposit. And that is where it stands. They took over and are kind of running the show and are the operator and as I said, we will keep holding our 25% carried interest.

[Steven Busby:]

Sorry, listen, I do understand that they are continuing with technical studies on that project. And I believe, yes, as Mike mentioned, if you look at their website, et cetera, will give you some more flavor.

[Lawson Winder:]

That is fantastic. Thank you everyone for the answers today and all the best.

[Operator:]

This concludes the question-and-answer session. I would like to turn the conference back over to Michael Steinmann for any closing remarks.

[Michael Steinmann:]

Thank you, operator, and thank you, everyone, for calling in. This is all the time we have for this call. But please, if you have additional questions or come up with new questions, like always, feel free to call IR, send e-mails to Siren. We will be happy to answer those questions in due course. Just a few words to the silver market when I close here. You have seen probably some of the releases that came up February time from the Silver Institute, talking about an outlook on Silver 20-11. I think really important there besides, obviously, the use of silver as a hedge of inflation or store of value or however you want to call it, silver is a very, very important industrial model, especially while as the world is going into clean energy, more clean energy production and electrification. Silver like copper going to be or is a very essential metal to have. The Silver Institute is looking at probably a 10% to 11% increase this year as a forecast on the industrial side of silver makes a lot of sense. We have a different administration in the U.S., a lot of focus on clean energy. There will be a lot of production and the installation of solar panels, as I would assume, and also electric cars will consume quite a bit more silver than combustion engine cars. So just keep an eye on that, too. And I said, there is always these two sides of silver, one is of course, the investment or financial asset on the industrial side, which is more than 50% of the use of so but just on the industrial side, that does not include jewelry, et cetera. This is fastly growing and of course, we will grow more well. The world is coming out of this pandemic and hopefully going back here to normal as we roll out the vaccinations. Anyway, with that, I will close our call. Thank you, everyone, for calling in, and looking forward to update you again in May on our Q1 2021. Have a good day.

[Operator:]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.