Pan American Silver (PAAS)

Q2 2012 Earnings Call

August 15, 2012 11:00 am ET

Executives

Kettina Cordero

Geoffrey A. Burns - Chief Executive Officer, President, Director, Member of Health, Safety & Environmental Committee and Member of Finance Committee

Steven L. Busby - Chief Operating Officer

Michael Steinmann - Executive Vice President of Geology and Exploration

A. Robert Doyle - Chief Financial Officer

Analysts

John D. Bridges - JP Morgan Chase & Co, Research Division

Chris Lichtenheldt - UBS Investment Bank, Research Division

John Kratochwil - Canaccord Genuity, Research Division

Trevor Turnbull - Scotiabank Global Banking and Market, Research Division

Barry Cooper - CIBC World Markets Inc., Research Division

Ralph M. Profiti - Crédit Suisse AG, Research Division

Joel Locker - FBN Securities, Inc., Research Division

Presentation

Operator

Good morning, my name is Howell, and I will be your conference operator today. At this time, I'd like to welcome everyone to the second quarter results conference call. [Operator Instructions] Thank you. Ms. Cordero, you may begin your conference.

Kettina Cordero

Thank you, operator. Good morning, ladies and gentlemen, and welcome to Pan American Silver's Second Quarter 2012 Earnings Conference Call. Here with me today are Geoff Burns, President and CEO; Steve Busby, Chief Operating Officer; Michael Steinmann, Executive Vice President of Geology and Exploration; and Rob Doyle, Chief Financial Officer.

Before Geoff takes over, I would like to remind our listeners that this call cannot be reproduced or retransmitted without our consent and to indicate that certain of the statements and information in this call will constitute forward-looking statements and forward-looking information within the meaning of applicable securities laws. All statements other than statements of historical facts are forward-looking statements. These statements reflect the company's current views with respect to future events and are necessarily based upon a number of assumptions and estimates that, while considered reasonable by the company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

Many known and unknown factors could cause actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements, and the company have made assumptions and estimates based on or related to many of these factors. We encourage investors to refer to the cautionary language included in our news releases from August 14, 2012, as well as those factors identified under the caption Risks Related to Pan American's Business in the company's Form 40-F and Annual Information Form. Investors are cautioned against attributing undue certainty or reliance on forward-looking statements, and the company does not intend or assume any obligation to update these forward-looking statements or information, other than as required by law.

I will now turn the call over to Geoff.

Geoffrey A. Burns

Thank you, Kettina. And thanks, everyone, for taking the time to join us on the call this morning. I'm going to start with an overview of our second quarter results and then pass the call over to Steve, Michael and Rob for a more thorough description of the highlights of our operations, development projects, exploration programs and financial performance.

I'm happy to report that we had a very good second quarter from a production perspective, and we just released some excellent news from our exploration programs. However, as a consequence of a number of items, including a build-up of unsold silver and gold inventory and a sizable repricing adjustment, our short-term quarterly financial results lagged our operating performance. Rob will describe these items in more detail in a few minutes, but suffice to say that all things being equal, we should see our financial results catch up to our solid operating performance over the balance of the year.

We produced 6.4 million ounces of silver in the second quarter. This was the second highest silver production total in our company's history. We also produced 32,000 ounces of gold, a new company record. As we have discussed during our last call in May of this year, our cash cost increased to $11.85 per ounce, net of byproduct rate -- net of byproduct credits, basically right in line with our full year guidance.

We realized average sales prices of $29.53 per ounce for silver, which was 23% lower than the $38.21 we realized a year ago. And $1,622 per ounce of gold, about 8% higher than a year ago. Base ore prices for zinc, lead and copper were also lower as compared to the second quarter of 2011.

In spite of the downtrend in prices, we still managed to generate very respectable mine operating earnings of $56 million and net earnings of $44 million or $0.29 a share. Our operating cash flow for the quarter, before changes in working capital, was $35 million or $0.23 a share. We closed the quarter with over $770 million -- or near $770 million in working capital, of which $520 million was cash in the bank, not quite the financial results we're expecting given the production quarter we've delivered, but decent. And I fully expect to see a significant improvement in Q3, driven largely by a sell-down in the silver and gold inventories that we built during Q2.

In keeping with our stated intention of returning value directly to our shareholders, I am pleased to announce that yesterday our Board of Directors approved a 33% increase to our quarterly dividend and approved the payment of our third quarterly dividend of the year now in the amount of $0.05 per common share. This was the third increase to our dividend since it was introduced in 2010, and it now stands at $0.20 per share per year. The dividend will be paid on or about Monday, September 10, to holders of record as of the close of business on Monday, August 27.

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