All amounts are expressed in US$ unless otherwise indicated. Financial information is based on International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. Results are unaudited.

This news release refers to measures that are not generally accepted accounting principle ("Non-GAAP") financial measures, including cash costs per payable ounce of silver, all-in sustaining costs per silver ounce sold, and adjusted earnings (losses). Please refer to the section titled "Alternative Performance (non-GAAP) Measures" contained in this news release for further information on these measures.

VANCOUVER, Feb. 14, 2017 /CNW/ - Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAAS) ("Pan American", or the "Company") today reported unaudited results for the fourth quarter ended December 31, 2016 ("Q4 2016") and full year 2016.

"We achieved solid performance on all fronts in 2016, generating $215 million in net cash from operating activities and beating our original guidance for both costs and silver production," said Michael Steinmann, President and Chief Executive Officer of the Company. "We achieved major milestones at our La Colorada and Dolores mine expansions in Mexico. We expect both expansions will be completed by the end of this year, which contributes to an improving outlook for costs and production over the next three years."

Added Mr. Steinmann: "We entered 2017 in a very strong financial position, with cash and short-term investments of $218 million, despite funding the peak year of capital expenditures for our mine expansions and repaying short-term debt. Our strong financial position enables us to continue investing in our mines and suite of assets, while pursuing attractive growth opportunities."

Highlights for the three and twelve-month periods ended December 31, 2016:

• Silver production in Q4 2016 was 6.31 million ounces compared with 6.79 million ounces in Q4 2015. The decrease primarily reflects anticipated production declines at Alamo Dorado and Manantial Espejo, partially offset by higher silver production at La Colorada and Morococha. For the twelve-month period, silver production totaled 25.42 million ounces in 2016 compared with 26.12 million ounces in the same period of 2015. The decrease in year-over-year production reflects Alamo Dorado and open-pit mining at Manantial Espejo nearing completion, and mine sequencing at Dolores.
• Gold production was 43.9 thousand ounces in Q4 2016 compared with 48.2 thousand ounces in the same period of 2015. Production decreases at Manantial Espejo and Alamo Dorado more than offset the production increase at Dolores, as anticipated. For the twelve-month period, gold production was 183.9 thousand ounces in 2016 compared with 183.7 thousand ounces in 2015.
• Consolidated cash costs per payable ounce of silver, net of by-product credits ("Cash Costs") of $6.66 in Q4 2016 declined from $9.09 recorded in Q4 2015. For the year-ended 2016, Cash Costs of $6.29 were down 35% compared with 2015. The reduction in Cash Costs reflects increased by-product credits and lower direct operating costs.
• Consolidated All-In Sustaining Costs per Silver Ounce Sold ("AISCSOS") was $10.38 in Q4 2016 compared with $14.76 in Q4 2015. For the twelve-month period, AISCSOS was $10.17, down 32% compared with $14.92 in 2015. The decrease in year-over-year AISCSOS mainly reflects increased by-product credits, lower production costs, positive inventory valuation adjustments at Manantial Espejo and Dolores, and export incentives at Manantial Espejo.
• Revenue was $190.6 million in Q4 2016 compared with $163.0 million in Q4 2015. Annual revenue was up 15% to $774.8 million in 2016 compared with 2015, largely a result of higher metal prices. Realized silver prices per ounce averaged $17.65 in Q4 2016 and $17.35 for the full year 2016 compared with $14.66 and $15.53 in the 2015 respective periods.
• Net cash generated from operating activities was $45.7 million in Q4 2016, up 95% from Q4 2015. Full year 2016 net cash generated from operating activities of $214.8 million was more than double the $88.7 million recorded in 2015.
• Net income increased to $22.3 million ($0.14 basic earnings per share) in Q4 2016 compared with a net loss of $137.0 million ($0.88 basic loss per share) in Q4 2015. For the full year, net income was $101.8 million ($0.66 basic earnings per share) in 2016 compared with a net loss of $231.6 million ($1.49 basic loss per share) in 2015. The increase in year-over-year net income reflects higher revenue, lower costs and gains associated with the sale of our interest in Shalipayco to Votorantim Metais - Cajamarquilla S.A. ("Votorantim") and the Maverix Metals Inc. ("Maverix") transaction, partially offset by higher income taxes. Net income in Q4 2015 and full year 2015 were also impacted by impairment charges of $121.5 million and $150.3 million, respectively.
• Adjusted earnings were $27.5 million ($0.18 basic adjusted earnings per share) in Q4 2016 compared with an adjusted net loss of $12.7 million ($0.08 basic adjusted loss per share) in Q4 2015. Full year 2016 adjusted earnings were $95.2 million ($0.63 basic adjusted earnings per share) compared with an adjusted net loss of $41.3 million ($0.27 basic adjusted loss per share) in 2015. The most significant adjustments to earnings were the removal of the gains associated with the Votorantim and Maverix transactions in 2016 and removal of the impairment charges recorded in 2015.
• Liquidity position. At December 31, 2016, cash and cash equivalents and short-term investment balances were $217.6 million and the working capital position was $428.6 million. Total debt outstanding was $43.3 million after repayment of $5.9 million in short-term debt in Q4 2016.
• Capital expenditures totaled $198.4 million in 2016, with $119.0 million directed to expansion projects at the Dolores and La Colorada mines, and the remaining $79.4 million to sustaining capital.
• A quarterly cash dividend of $0.025 per common share, approximately $3.8 million in aggregate cash dividends, has been approved by the Board of Directors. This is an increase from the quarterly dividend paid in 2016 of $0.0125 per common share. The dividend will be payable on or about Friday, March 10, 2017, to holders of record of Pan American's common shares as of the close on Monday, February 27, 2017. Pan American's dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada). As is standard practice, the amounts and specific distribution dates of any future dividends will be evaluated and determined by the Board of Directors on an ongoing basis.
• Maverix transaction. During Q4 2016, Pan American exercised share purchase warrants in Maverix at a cost of approximately $5.5 million, and received replacement warrants in connection with Maverix acquiring additional royalties from Gold Fields Netherlands Services BV. As at December 31, 2016, Pan American's ownership was approximately 39.8% of the total number of the issued and outstanding common shares of Maverix on a non-diluted basis (approximately 42.8% on a fully-diluted basis). The transaction resulted in recording a dilution gain of $8.5 million in Q4 2016, net of a share of loss from associate.
  

Consolidated Financial Results

 

Consolidated Operational Results

 

 

By-Product Results

 

 

Mexico mine expansions on track for completion in 2017

Pan American achieved significant progress in the expansion of its La Colorada and Dolores mines in Mexico during 2016. At the La Colorada mine, the new mine shaft and sulphide ore processing plant both began operating on schedule in Q3 2016. The new 115kV power line to La Colorada is targeted for completion in Q2 2017, and additional development headings in the underground mine are advancing to enable increased ore mining rates up to the designed 1,800 tonnes per day by the end of 2017. The La Colorada expansion project is expected to increase annual silver production to approximately 7.7 million ounces in 2018, while also resulting in significant increases in zinc and lead production.

At Dolores, construction of the pulp agglomeration plant is approximately 65% complete and development of the new underground mine is advancing towards delivering first ore by the end of 2017.  The Dolores expansion is expected to increase silver production by 40% and gold by 52% during the first 5 years of operation through a combination of greater throughput and higher recoveries, with associated operational efficiencies helping to reduce cash costs.

2017 Guidance and Three-year Outlook

There have been no revisions to the outlook Pan American provided for the years 2017 to 2019 (the "Three-year Outlook") in its press release dated January 12, 2017. The following table provides Pan American's Three-year Outlook:

 

The following table provides the price and foreign exchange rate assumptions used to forecast total Cash Costs and AISCSOS in the Three-year Outlook:

 

Technical information contained in this news release with respect to Pan American has been reviewed and approved by Martin Wafforn, P.Eng., Senior Vice President, Technical Services & Process Optimization, who is the Company's Qualified Person for the purposes of National Instrument 43-101. For additional information about the Company's material mineral properties, please refer to the Company's Annual Information Form dated March 24, 2016, filed at www.sedar.com. For further technical information relating to the La Colorada and Dolores expansion projects, please refer to the National Instrument 43-101 technical reports entitled "Technical Report - Preliminary Economic Analysis for the Expansion of the La Colorada Mine, Zacatecas, Mexico," with an effective date of December 31, 2013, and "Technical Report for the Dolores Property, Chihuahua, Mexico - Preliminary Economic Assessment of a Pulp Agglomeration Treatment and Underground Option", with an effective date of May 31, 2014, both of which are filed on SEDAR at www.sedar.com. The results of preliminary economic assessments are preliminary in nature, in that they include inferred mineral resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the assessment will be realized. Mineral resources that are not mineral reserves have no demonstrated economic viability.

 

About Pan American Silver

Pan American Silver Corp. is one of the largest primary silver producers in the world. We own and operate seven mines located in Mexico, Peru, Argentina and Bolivia. Pan American also owns several development projects in the USA, Mexico, Peru and Argentina. Our vision is to be the world's pre-eminent silver producer, with a reputation for excellence in discovery, engineering, innovation and sustainable development. The Company is headquartered in Vancouver, B.C. and our shares trade on NASDAQ and the Toronto Stock Exchange under the ticker "PAAS".

For more information, visit: www.panamericansilver.com.

Alternative Performance (Non-GAAP) Measures

In this press release we refer to measures that are not generally accepted accounting principle ("non-GAAP") financial measures. These measures are widely used in the mining industry as a benchmark for performance, but do not have a standardized meaning as prescribed by IFRS as an indicator of performance, and may differ from methods used by other companies with similar descriptions. These non-GAAP financial measures include:

• Cash costs per payable ounce of silver, net of by-product credits ("cash costs"). Cash costs does not have a standardized meaning prescribed by IFRS as an indicator of performance. The Company's method of calculating cash costs may differ from the methods used by other entities and, accordingly, the Company's cash costs may not be comparable to similarly titled measures used by other entities. Investors are cautioned that cash costs should not be construed as an alternative to production costs, depreciation and amortization, and royalties determined in accordance with IFRS as an indicator of performance.
• Adjusted earnings (loss), and adjusted earnings (loss) per share. The Company believes that these measures better reflect normalized earnings as they eliminate items that may be volatile from period to period relating to positions that will settle in future periods, and items that are non-recurring.
• All-in sustaining costs per silver ounce sold ("AISCSOS"). The Company has adopted AISCSOS as a measure of its consolidated operating performance and its ability to generate cash from all operations collectively, and the Company believes it is a more comprehensive measure of the cost of operating our consolidated business than traditional cash costs per payable ounce, as it includes the cost of replacing ounces through exploration, the cost of ongoing capital investments (sustaining capital), general and administrative expenses, as well as other items that affect the Company's consolidated earnings and cash flow.

Readers should refer to the "Alternative Performance (non-GAAP) Measures" section following the Consolidated Statements of Cash Flows in this press release for a more detailed discussion of these and other non-GAAP measures and their calculation.

Cautionary Note Regarding Forward-Looking Statements and Information

Certain of the statements and information in this news release constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and "forward-looking information" within the meaning of applicable Canadian provincial securities laws. All statements, other than statements of historical fact, are forward-looking statements or information. Forward-looking statements or information in this news release relate to, among other things: future financial or operational performance, including our estimated production of silver, gold and other metals in 2017 and beyond, and our estimated Cash Costs and AISCSOS in 2017 and beyond; the ability of the Company to successfully complete any capital investment programs and projects, including whether on time, or on or below budget, and the impacts of any such programs and projects on the Company, including with respect to production and associated operational efficiencies; the realization of benefits from any transactions and the financial and operational impacts of any such transactions on the Company; and the approval or the amount of any future cash dividends.

These forward-looking statements and information reflect the Company's current views with respect to future events and are necessarily based upon a number of assumptions that, while considered reasonable by the Company, are inherently subject to significant operational, business, economic and regulatory uncertainties and contingencies. These assumptions include: tonnage of ore to be mined and processed; ore grades and recoveries; prices for silver, gold and base metals remaining as estimated; currency exchange rates remaining as estimated; capital, decommissioning and reclamation estimates; our mineral reserve and recourse estimates and the assumptions upon which they are based; prices for energy inputs, labour, materials, supplies and services (including transportation); no labour-related disruptions at any of our operations; no unplanned delays or interruptions in scheduled production; all necessary permits, licenses and regulatory approvals for our operations are received in a timely manner; and our ability to comply with environmental, health and safety laws. The foregoing list of assumptions is not exhaustive.

The Company cautions the reader that forward-looking statements and information involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements or information contained in this news release and the Company has made assumptions and estimates based on or related to many of these factors. Such factors include, without limitation: fluctuations in silver, gold and base metal prices; fluctuations in prices for energy inputs, labour, materials, supplies and services (including transportation); fluctuations in currency markets (such as the Canadian Dollar, Peruvian Sol, Mexican Peso, Argentine Peso and Bolivian Boliviano versus the U.S. Dollar); operational risks and hazards inherent with the business of mining (including environmental accidents and hazards, industrial accidents, equipment breakdown, unusual or unexpected geological or structural formations, cave-ins, flooding and severe weather); risks relating to the credit worthiness or financial condition of suppliers, refiners and other parties with whom the Company does business; inadequate insurance, or inability to obtain insurance, to cover these risks and hazards; employee relations; relationships with, and claims by, local communities and indigenous populations; our ability to obtain all necessary permits, licenses and regulatory approvals in a timely manner; changes in laws, regulations and government practices in the jurisdictions where we operate, including environmental, export and import laws and regulations; legal restrictions relating to mining, including in Chubut, Argentina; risks relating to expropriation; diminishing quantities or grades of mineral reserves as properties are mined; increased competition in the mining industry for equipment and qualified personnel; and those factors identified under the caption "Risks Related to Pan American's Business" in the Company's most recent form 40-F and Annual Information Form filed with the United States Securities and Exchange Commission and Canadian provincial securities regulatory authorities, respectively. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, described or intended. Investors are cautioned against undue reliance on forward-looking statements or information. Forward-looking statements and information are designed to help readers understand management's current views of our near and longer term prospects and may not be appropriate for other purposes. The Company does not intend, nor does it assume any obligation to update or revise forward-looking statements or information, whether as a result of new information, changes in assumptions, future events or otherwise, except to the extent required by applicable law.

 

 

 

 

ALTERNATIVE PERFORMANCE (NON-GAAP) MEASURES

• AISCSOS

We believe that AISCSOS reflects a comprehensive measure of the full cost of operating our consolidated business given it includes the cost of replacing ounces through exploration, the cost of ongoing capital investments (sustaining capital), general and administrative expenses, as well as other items that affect the Company's consolidated earnings and cash flow. To facilitate a better understanding of this measure as calculated by the Company, the following table provides the detailed reconciliation of this measure to the applicable cost items, as reported in the consolidated income statements for the respective periods:

 

As part of the AISCSOS measure, sustaining capital is included while expansionary or acquisition capital (referred to by the Company as investment capital) is not. Inclusion of sustaining capital only is a better measure of capital costs associated with current ounces sold as opposed to investment capital, which is expected to increase future production. For the periods under review, the below noted items associated with the La Colorada expansion project, and Dolores' leach pad and other expansionary expenditures are considered investment capital projects.

 

All-In Sustaining Cost per Silver Ounce Sold per mine
(Unaudited in thousands of U.S. dollars)

 

 

 

 

• Cash Costs per Ounce of Silver, net of by-product credits

Pan American produces by-product metals incidentally to our silver mining activities. We have adopted the practice of calculating the net cost of producing an ounce of silver, our primary payable metal, after deducting revenues gained from incidental by-product production, as a performance measure. This performance measurement has been commonly used in the mining industry for many years and was developed as a relatively simple way of comparing the net production costs of the primary metal for a specific period against the prevailing market price of that metal.

Cash costs per ounce metrics, net of by-product credits, were utilized extensively in our internal decision making processes. We believe they are useful to investors as these metrics facilitate comparison, on a mine by mine basis, notwithstanding the unique mix of incidental by-product production at each mine, of our operations' relative performance on a period by period basis, and against the operations of our peers in the silver industry on a consistent basis. Cash costs per ounce is conceptually understood and widely reported in the silver mining industry. However, cash cost per ounce does not have a standardized meaning prescribed by GAAP and the Company's method of calculating cash costs may differ from the methods used by other entities.

To facilitate a better understanding of these measures as calculated by the Company, the following table provides the detailed reconciliation of these measures to the production costs, as reported in the unaudited consolidated income statements for the respective periods:

 

 

 

 

 

• Adjusted Earnings and Basic Adjusted Earnings Per Share

Adjusted earnings is a non-GAAP measure that the Company considers to better reflect normalized earnings as it eliminates items that may be volatile from period to period, relating to positions which will settle in future periods, and items that are non-recurring. Certain items that become applicable in a period may be adjusted for, with the Company retroactively presenting comparable periods with an adjustment for such items and conversely, items no longer applicable may be removed from the calculation. The Company adjusts certain items in the periods that they occurred but does not reverse or otherwise unwind the effect of such items in future periods.

The following table shows a reconciliation of adjusted loss and earnings for the three and twelve months ended December 31, 2016 and 2015, to the net (loss) earnings for each period:

 

Mine Operating Highlights

 

 

 

 

 

 

 

SOURCE Pan American Silver Corp.