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Synergies, asset sales key priorities for Pan American after Tahoe takeover

Bnamericas Published: Thursday, May 09, 2019
Synergies, asset sales key priorities for Pan American after Tahoe takeover

Securing synergies from the Tahoe Resources takeover and advancing asset sales are key priorities for Pan American Silver in 2019.

Pan American acquired Tahoe in a US$1.29bn cash and shares deal in February, adding the suspended Escobal silver mine and Peruvian and Canadian gold assets to its portfolio of silver and gold operations in Mexico, Peru, Bolivia and Argentina.

"In 2019 our priority is to integrate and optimize Tahoe operations and capture available synergies, and we are very pleased with how the integration is progressing," Pan American CEO Michael Steinmann told the Q1 earnings call.

ASSET SALES

The CEO also gave further details of potential asset sales aimed at reducing debt, which stood at US$363mn at end-Q1, including US$335mn drawn on the company's credit facility during the quarter to part fund the Tahoe acquisition and repay US$125mn of a revolving credit facility outstanding at the date of the transaction.

The Timmins gold operations in Canada are currently held for sale, Steinmann told the call.

In Latin America, the company is considering selling its La Arena II (sulfide stage) copper-gold project in Peru.

"It is an interesting project but would better fit in a very large base metal company than in Pan American Silver," the CEO said.

The La Arena gold mine is expected to continue operating for 3-4 years, based on current reserves, he added.

Other properties being considered for sale include the 25% interest in Nexa Resources' Shalipayco zinc project in Peru, and the La Bolsa and Pico Machay projects in Mexico and Peru, respectively, which are too small for Pan American, Steinmann said.

GUATEMALA

In Guatemala, Pan American is taking a long-term approach regarding Escobal, which has been suspended since 2017 due to a license suspension and roadblock.

A court-ordered consultation with indigenous communities, by the energy and mines ministry, is advancing, with the first phase, to define the mine’s area of influence, completed, and the second stage pre-consultation underway, Steinmann told the call.

No timeline has been provided to complete the four-stage consultation. Tahoe's previous view of a possible restart in late 2019 is unlikely to be met.

"We want to take the time to listen to everybody and understand what the concerns really are," the CEO added.

PRODUCTION, GUIDANCE

Pan American produced 6.12Moz of silver and 80,500oz gold in Q1, compared to 6.10Moz and 46,200oz, respectively, in the same period last year.

Gold production was lifted by 38 days of output from the former Tahoe mines.

All-in sustaining costs (AISCs) were US$10.45/oz silver, net of by-product credits, up from US$6.55/oz.

Guidance for 2019 is 26.6-27.6Moz silver and 570-620,000oz gold, at AISCs of US$7.75-10.75/oz silver.

EARNINGS

Net earnings were US$33.8mn, down from US$48.2mn, with revenue at US$233mn, up from US$207mn.

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