Exhibit 99.1
Unaudited Condensed Interim Consolidated Financial Statements and Notes
FOR THE THREE AND NINE MONTHS ENDING SEPTEMBER 30, 2020
Condensed Interim Consolidated Statements of Financial Position (unaudited, in thousands of U.S. dollars) |
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents (Note 21) | $ | 150,329 | $ | 120,564 | ||||
Short-term investments (Note 5) | 81,302 | 117,776 | ||||||
Trade and other receivables | 121,491 | 168,753 | ||||||
Income taxes receivable | 30,039 | 17,209 | ||||||
Inventories (Note 6) | 358,972 | 346,507 | ||||||
Derivative financial instruments (Note 4a) | 1,364 | 1,272 | ||||||
Prepaid expenses and other current assets | 8,968 | 16,838 | ||||||
752,465 | 788,919 | |||||||
Non-current assets | ||||||||
Mineral properties, plant and equipment (Note 7) | 2,422,478 | 2,504,901 | ||||||
Inventories (Note 6) | 24,554 | 24,209 | ||||||
Long-term refundable tax | 9,815 | 17,900 | ||||||
Deferred tax assets | 31,462 | 36,447 | ||||||
Investment in associates (Note 9) | 59,239 | 84,319 | ||||||
Goodwill and other assets (Note 10) | 4,456 | 4,987 | ||||||
Total Assets | $ | 3,304,469 | $ | 3,461,682 | ||||
Liabilities | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities (Note 11) | $ | 237,917 | $ | 225,330 | ||||
Derivative financial instruments (Note 4a) | 630 | — | ||||||
Current portion of provisions (Note 12) | 4,960 | 7,372 | ||||||
Current portion of lease obligations (Note 13) | 12,243 | 14,198 | ||||||
Income tax payable | 31,106 | 24,770 | ||||||
286,856 | 271,670 | |||||||
Non-current liabilities | ||||||||
Long-term portion of provisions (Note 12) | 207,359 | 188,012 | ||||||
Deferred tax liabilities | 203,665 | 176,808 | ||||||
Long-term portion of lease obligations (Note 13) | 22,023 | 27,010 | ||||||
Debt (Note 14) | 95,560 | 275,000 | ||||||
Deferred revenue (Note 9) | 13,297 | 12,542 | ||||||
Other long-term liabilities (Note 15) | 26,823 | 27,754 | ||||||
Share purchase warrants (Note 9) | — | 15,040 | ||||||
Total Liabilities | 855,583 | 993,836 | ||||||
Equity | ||||||||
Capital and reserves (Note 16) | ||||||||
Issued capital | 3,129,531 | 3,123,514 | ||||||
Reserves | 93,371 | 94,274 | ||||||
Deficit | (777,203) | (754,689) | ||||||
Total Equity attributable to equity holders of the Company | 2,445,699 | 2,463,099 | ||||||
Non-controlling interests | 3,187 | 4,747 | ||||||
Total Equity | 2,448,886 | 2,467,846 | ||||||
Total Liabilities and Equity | $ | 3,304,469 | $ | 3,461,682 |
See accompanying notes to the condensed interim consolidated financial statements
APPROVED BY THE BOARD ON NOVEMBER 4, 2020
"signed" | Ross Beaty, Director | "signed" | Michael Steinmann, Director |
PAN AMERICAN SILVER CORP. | 1 |
Condensed Interim Consolidated Income Statement (unaudited, in thousands of U.S. dollars) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(1) | 2020 | 2019(1) | |||||||||||
Revenue (Note 22) | $ | 300,414 | $ | 352,187 | $ | 908,351 | $ | 946,380 | ||||||
Cost of sales (Note 22) | ||||||||||||||
Production costs (Note 17) | (117,220) | (204,628) | (489,970) | (611,703) | ||||||||||
Depreciation and amortization | (50,700) | (78,267) | (177,005) | (185,214) | ||||||||||
Royalties | (7,933) | (5,442) | (18,371) | (18,785) | ||||||||||
(175,853) | (288,337) | (685,346) | (815,702) | |||||||||||
Mine operating earnings (Note 22) | 124,561 | 63,850 | 223,005 | 130,678 | ||||||||||
General and administrative | (10,367) | (8,237) | (25,694) | (21,743) | ||||||||||
Exploration and project development | (1,839) | (2,066) | (6,005) | (9,122) | ||||||||||
Mine care and maintenance (Note 18) | (27,123) | (6,365) | (95,350) | (15,654) | ||||||||||
Foreign exchange losses | (2,362) | (6,012) | (4,268) | (7,973) | ||||||||||
Gains (losses) on commodity and foreign currency contracts (Note 4d) | 1,465 | 170 | (3,746) | 1,751 | ||||||||||
Gains (losses) on sale of mineral properties, plant and equipment | 41 | (673) | (1,910) | 2,818 | ||||||||||
Share of income (loss) from associate and dilution gain (Note 9) | 1,078 | 79 | (1,811) | 999 | ||||||||||
Transaction and integration costs | — | (2,863) | — | (7,712) | ||||||||||
Other (expense) income | (730) | 1,042 | (8,519) | 818 | ||||||||||
Earnings from operations | 84,724 | 38,925 | 75,702 | 74,860 | ||||||||||
(Loss) gain on derivatives (Note 4d) | (523) | — | 113 | (14) | ||||||||||
Investment income (Note 4b) | 13,055 | 36,139 | 32,315 | 50,963 | ||||||||||
Interest and finance expense (Note 19) | (4,367) | (8,256) | (15,621) | (20,955) | ||||||||||
Earnings before income taxes | 92,889 | 66,808 | 92,509 | 104,854 | ||||||||||
Income tax expense (Note 23) | (27,629) | (29,089) | (85,072) | (45,316) | ||||||||||
Net earnings for the period | $ | 65,260 | $ | 37,719 | $ | 7,437 | $ | 59,538 | ||||||
Attributable to: | ||||||||||||||
Equity holders of the Company | $ | 65,741 | $ | 37,657 | $ | 8,997 | $ | 58,811 | ||||||
Non-controlling interests | (481) | 62 | (1,560) | 727 | ||||||||||
$ | 65,260 | $ | 37,719 | $ | 7,437 | $ | 59,538 | |||||||
Earnings per share attributable to common shareholders (Note 20) | ||||||||||||||
Basic earnings per share | $ | 0.31 | $ | 0.18 | $ | 0.04 | $ | 0.30 | ||||||
Diluted earnings per share | $ | 0.31 | $ | 0.18 | $ | 0.04 | $ | 0.30 | ||||||
Weighted average shares outstanding (in 000’s) Basic | 210,160 | 209,535 | 210,049 | 198,609 | ||||||||||
Weighted average shares outstanding (in 000’s) Diluted | 210,355 | 209,730 | 210,267 | 198,757 |
See accompanying notes to the condensed interim consolidated financial statements.
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three and nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
PAN AMERICAN SILVER CORP. | 2 |
Condensed Interim Consolidated Statements of Comprehensive Income (unaudited, in thousands of U.S. dollars) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(1) | 2020 | 2019(1) | |||||||||||
Net earnings for the period | $ | 65,260 | $ | 37,719 | $ | 7,437 | $ | 59,538 | ||||||
Items that may be reclassified subsequently to net earnings: | ||||||||||||||
Unrealized net losses on short-term investments | — | (1) | — | — | ||||||||||
Reclassification adjustment for realized gains on short-term investments to earnings | — | — | — | (208) | ||||||||||
Total comprehensive earnings for the period (Note 4c) | $ | 65,260 | $ | 37,718 | $ | 7,437 | $ | 59,330 | ||||||
Total comprehensive earnings attributable to: | ||||||||||||||
Equity holders of the Company | $ | 65,741 | $ | 37,656 | $ | 8,997 | $ | 58,603 | ||||||
Non-controlling interests | (481) | 62 | (1,560) | 727 | ||||||||||
$ | 65,260 | $ | 37,718 | $ | 7,437 | $ | 59,330 |
See accompanying notes to the condensed interim consolidated financial statements.
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three and nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
PAN AMERICAN SILVER CORP. | 3 |
Condensed Interim Consolidated Statements of Cash Flows (unaudited, in thousands of U.S. dollars) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(1) | 2020 | 2019(1) | |||||||||||
Cash flow from operating activities | ||||||||||||||
Net earnings for the period | $ | 65,260 | $ | 37,719 | $ | 7,437 | $ | 59,538 | ||||||
Current income tax expense (Note 23) | 24,923 | 23,309 | 53,293 | 55,696 | ||||||||||
Deferred income tax expense (recovery) (Note 23) | 2,706 | 5,780 | 31,779 | (10,380) | ||||||||||
Interest expense (Note 19) | 1,711 | 5,179 | 7,520 | 12,117 | ||||||||||
Depreciation and amortization | 54,305 | 78,267 | 193,779 | 185,214 | ||||||||||
Accretion on closure and decommissioning provision (Note 12) | 2,065 | 2,718 | 6,199 | 7,320 | ||||||||||
Unrealized losses on foreign exchange | 2,712 | 5,888 | 7,855 | 7,452 | ||||||||||
(Gain) loss on sale of mineral properties, plant and equipment | (41) | 669 | 1,910 | (2,818) | ||||||||||
Other operating activities (Note 21) | (36,347) | (41,606) | (28,831) | (48,647) | ||||||||||
Changes in non-cash operating working capital (Note 21) | 8,984 | (14,894) | 78,406 | (32,690) | ||||||||||
Operating cash flows before interest and income taxes | $ | 126,278 | $ | 103,029 | $ | 359,347 | $ | 232,802 | ||||||
Interest paid | (1,841) | (4,951) | (8,714) | (12,906) | ||||||||||
Interest received | 35 | 96 | 234 | 701 | ||||||||||
Income taxes paid | (9,529) | (16,226) | (59,123) | (68,042) | ||||||||||
Net cash generated from operating activities | $ | 114,943 | $ | 81,948 | $ | 291,744 | $ | 152,555 | ||||||
Cash flow from investing activities | ||||||||||||||
Payments for mineral properties, plant and equipment | $ | (38,832) | $ | (49,891) | $ | (124,920) | $ | (155,488) | ||||||
Tahoe Resources Inc. ("Tahoe") acquisition ("Tahoe Acquisition") | — | — | — | (247,479) | ||||||||||
Acquisition of mineral interests | — | — | — | (1,545) | ||||||||||
Net proceeds from (purchase of) short-term investments and other securities | 5,219 | (2) | 89,411 | 41,576 | ||||||||||
Proceeds from sale of mineral properties, plant and equipment | 75 | 1,026 | 10,446 | 10,164 | ||||||||||
Exercise of warrants (Note 9) | — | — | (15,626) | — | ||||||||||
Net (payments) proceeds from commodity, diesel fuel swaps, and foreign currency contracts | (1,095) | 1,352 | (3,096) | 2,151 | ||||||||||
Net cash used in investing activities | $ | (34,633) | $ | (47,515) | $ | (43,785) | $ | (350,621) | ||||||
Cash flow from financing activities | ||||||||||||||
Proceeds from issue of equity shares | $ | 387 | $ | 1,416 | $ | 4,728 | $ | 1,610 | ||||||
Distributions to non-controlling interests | — | (653) | — | (914) | ||||||||||
Dividends paid | (10,508) | (7,334) | (31,511) | (21,995) | ||||||||||
Repayment of credit facility (Note 14) | (110,000) | (20,000) | (265,000) | (145,000) | ||||||||||
Proceeds from credit facility (Note 14) | — | — | 80,000 | 335,000 | ||||||||||
Proceeds from Loans (Note 14) | 5,616 | — | 5,616 | — | ||||||||||
Payment of equipment leases | (2,880) | (4,674) | (9,921) | (13,544) | ||||||||||
Net cash (used in) generated from financing activities | $ | (117,385) | $ | (31,245) | $ | (216,088) | $ | 155,157 | ||||||
Effects of exchange rate changes on cash and cash equivalents | (713) | (696) | (2,106) | (888) | ||||||||||
Net (decrease) increase in cash and cash equivalents | (37,788) | 2,492 | 29,765 | (43,797) | ||||||||||
Cash and cash equivalents at the beginning of the period | 188,117 | 92,221 | 120,564 | 138,510 | ||||||||||
Cash and cash equivalents at the end of the period | $ | 150,329 | $ | 94,713 | $ | 150,329 | $ | 94,713 |
Supplemental cash flow information (Note 21).
See accompanying notes to the condensed interim consolidated financial statements.
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three and nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
PAN AMERICAN SILVER CORP. | 4 |
Condensed Interim Consolidated Statements of Changes in Equity (unaudited, in thousands of U.S. dollars, except for number of shares) |
Attributable to equity holders of the Company | ||||||||||||||||||||||||||
Issued shares | Issued capital | Reserves | Investment revaluation reserve | Deficit | Total | Non- controlling interests | Total equity | |||||||||||||||||||
Balance, December 31, 2018 | 153,448,356 | $ | 2,321,498 | $ | 22,573 | $ | 208 | $ | (836,067) | $ | 1,508,212 | $ | 5,137 | $ | 1,513,349 | |||||||||||
Total comprehensive earnings | ||||||||||||||||||||||||||
Net earnings for the year | — | — | — | — | 110,738 | 110,738 | 506 | 111,244 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (208) | — | (208) | — | (208) | ||||||||||||||||||
— | — | — | (208) | 110,738 | 110,530 | 506 | 111,036 | |||||||||||||||||||
Shares issued on the exercise of stock options | 244,299 | 3,697 | (916) | — | — | 2,781 | — | 2,781 | ||||||||||||||||||
Shares issued as compensation | 152,391 | 2,693 | — | — | — | 2,693 | — | 2,693 | ||||||||||||||||||
Share-based compensation on option grants | — | — | 577 | — | — | 577 | — | 577 | ||||||||||||||||||
Tahoe Acquisition consideration | 55,990,512 | 795,626 | 72,040 | — | — | 867,666 | — | 867,666 | ||||||||||||||||||
Distributions by subsidiaries to non-controlling interests | — | — | — | — | (28) | (28) | (896) | (924) | ||||||||||||||||||
Dividends paid | — | — | — | — | (29,332) | (29,332) | — | (29,332) | ||||||||||||||||||
Balance, December 31, 2019 | 209,835,558 | $ | 3,123,514 | $ | 94,274 | $ | — | $ | (754,689) | $ | 2,463,099 | $ | 4,747 | $ | 2,467,846 | |||||||||||
Total comprehensive earnings | ||||||||||||||||||||||||||
Net earnings for the period | — | — | — | — | 8,997 | 8,997 | (1,560) | 7,437 | ||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | ||||||||||||||||||
— | — | — | — | 8,997 | 8,997 | (1,560) | 7,437 | |||||||||||||||||||
Shares issued on the exercise of stock options | 329,062 | 5,790 | (1,062) | — | — | 4,728 | — | 4,728 | ||||||||||||||||||
Shares issued as compensation | 9,456 | 227 | — | — | — | 227 | — | 227 | ||||||||||||||||||
Share-based compensation on option grants | — | — | 159 | — | — | 159 | — | 159 | ||||||||||||||||||
Dividends paid | — | — | — | — | (31,511) | (31,511) | — | (31,511) | ||||||||||||||||||
Balance, September 30, 2020 | 210,174,076 | $ | 3,129,531 | $ | 93,371 | $ | — | $ | (777,203) | $ | 2,445,699 | $ | 3,187 | $ | 2,448,886 |
See accompanying notes to the condensed interim consolidated financial statements.
PAN AMERICAN SILVER CORP. | 5 |
Condensed Interim Consolidated Statements of Changes in Equity (unaudited, in thousands of U.S. dollars, except for number of shares) |
Attributable to equity holders of the Company | ||||||||||||||||||||||||||
Issued shares | Issued capital | Reserves | Investment revaluation reserve | Deficit(1) | Total | Non- controlling interests | Total equity | |||||||||||||||||||
Balance, December 31, 2018 | 153,448,356 | $ | 2,321,498 | $ | 22,573 | $ | 208 | $ | (836,067) | $ | 1,508,212 | $ | 5,137 | $ | 1,513,349 | |||||||||||
Total comprehensive earnings | ||||||||||||||||||||||||||
Net earnings for the period(1) | — | — | — | — | 58,811 | 58,811 | 727 | 59,538 | ||||||||||||||||||
Other comprehensive loss | — | — | — | (208) | — | (208) | — | (208) | ||||||||||||||||||
— | — | — | (208) | 58,811 | 58,603 | 727 | 59,330 | |||||||||||||||||||
Shares issued on the exercise of stock options | 148,652 | 2,105 | (495) | — | — | 1,610 | — | 1,610 | ||||||||||||||||||
Shares issued as compensation | 22,335 | 243 | — | — | — | 243 | — | 243 | ||||||||||||||||||
Share-based compensation on option grants | — | — | 450 | — | — | 450 | — | 450 | ||||||||||||||||||
Tahoe Acquisition consideration | 55,990,512 | 795,626 | 72,040 | — | — | 867,666 | — | 867,666 | ||||||||||||||||||
Distributions by subsidiaries to non-controlling interests | — | — | — | — | (18) | (18) | (896) | (914) | ||||||||||||||||||
Dividends paid | — | — | — | — | (21,995) | (21,995) | — | (21,995) | ||||||||||||||||||
Balance, September 30, 2019 | 209,609,855 | $ | 3,119,472 | $ | 94,568 | $ | — | $ | (799,269) | $ | 2,414,771 | $ | 4,968 | $ | 2,419,739 |
See accompanying notes to the condensed interim consolidated financial statements.
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three and nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
PAN AMERICAN SILVER CORP. | 6 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
1. NATURE OF OPERATIONS
Pan American Silver Corp. is the ultimate parent company of its subsidiary group (collectively, the “Company”, or “Pan American”). Pan American is a British Columbia corporation domiciled in Canada, and its office is at Suite 1440 – 625 Howe Street, Vancouver, British Columbia, V6C 2T6.
The Company is engaged in the production and sale of silver, gold, zinc, lead and copper as well as other related activities, including exploration, extraction, processing, refining and reclamation. The Company’s major products are produced from mines in Canada, Peru, Mexico, Argentina and Bolivia. Additionally, the Company has project development activities in Canada, Peru, Mexico and Argentina, and exploration activities throughout South America, Canada and Mexico. As at September 30, 2020, the Company's Escobal mine in Guatemala continues to be on care and maintenance pending satisfactory completion of a consultation process led by the Ministry of Energy and Mines in Guatemala.
Principal subsidiaries:
The principal subsidiaries of the Company and their geographic locations at September 30, 2020 were as follows:
Subsidiary | Location | Ownership Interest | Accounting | Operations and Development Projects Owned | ||||||||||
Lake Shore Gold Corp. | Canada | 100 | % | Consolidated | Bell Creek and Timmins mines | |||||||||
Plata Panamericana S.A. de C.V. | Mexico | 100 | % | Consolidated | La Colorada mine | |||||||||
Compañía Minera Dolores S.A. de C.V. | Mexico | 100 | % | Consolidated | Dolores mine | |||||||||
Pan American Silver Huaron S.A. | Peru | 100 | % | Consolidated | Huaron mine | |||||||||
Compañía Minera Argentum S.A. | Peru | 92 | % | Consolidated | Morococha mine | |||||||||
Shahuindo S.A.C. | Peru | 100 | % | Consolidated | Shahuindo mine | |||||||||
La Arena S.A. | Peru | 100 | % | Consolidated | La Arena mine | |||||||||
Pan American Silver (Bolivia) S.A. | Bolivia | 95 | % | Consolidated | San Vicente mine | |||||||||
Minera San Rafael S.A. | Guatemala | 100 | % | Consolidated | Escobal mine | |||||||||
Minera Tritón Argentina S.A. | Argentina | 100 | % | Consolidated | Manantial Espejo mine & Cap-Oeste Sur Este ("COSE") project | |||||||||
Minera Joaquin S.R.L. | Argentina | 100 | % | Consolidated | Joaquin project | |||||||||
Minera Argenta S.A. | Argentina | 100 | % | Consolidated | Navidad project |
2. BASIS OF PREPARATION
These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). As a result, these unaudited condensed interim consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the IASB have been condensed with certain disclosures from the Annual Financial Statements omitted. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2019.
The Company’s interim results are not necessarily indicative of its results for a full year.
PAN AMERICAN SILVER CORP. | 7 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND JUDGEMENTS
a)Changes in accounting policies
The accounting policies applied in the preparation of these unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2019.
b)Changes in accounting policies not yet effective
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. These standards are not expected to have a material impact on the Company in the current or future reporting periods.
c)Significant Judgements in Applying Accounting Policies
In March 2020, the World Health Organization declared a global pandemic following the emergence and rapid spread of a novel strain of the coronavirus ("COVID-19"). The outbreak and subsequent measures intended to limit the pandemic contributed to significant declines and volatility in financial markets. The pandemic adversely impacted global commercial activity. The full extent of the impact of COVID-19 on operations and future financial performance is currently unknown. It will depend on future developments that are uncertain and unpredictable, including the duration and spread of COVID-19, its continued impact on capital and financial markets on a macro-scale and any new information that may emerge concerning the severity of the virus. These uncertainties may persist beyond when it is determined how to contain the virus or treat its impact.
IFRS requires management to make estimates and assumptions that affect reported amounts and disclosures. These estimates and assumptions take into account historical and forward looking factors that the Company believes are reasonable, including but not limited to the potential impacts arising from COVID-19 and public and private sector policies and initiatives aimed at reducing its transmission. As the extent and duration of the impacts from COVID-19 remain unclear, the Company’s estimates and assumptions may evolve as conditions change. Actual results could differ significantly from those estimates.
PAN AMERICAN SILVER CORP. | 8 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
4. FINANCIAL INSTRUMENTS
a)Financial assets and liabilities by categories
September 30, 2020 | Amortized cost | FVTPL | FVTOCI | Total | ||||||||||
Financial Assets: | ||||||||||||||
Cash and cash equivalents | $ | 150,329 | $ | — | $ | — | $ | 150,329 | ||||||
Trade receivables from provisional concentrates sales(1) | — | 24,793 | — | 24,793 | ||||||||||
Receivable not arising from sale of metal concentrates(1) | 87,479 | — | — | 87,479 | ||||||||||
Short-term investments, equity securities | — | 81,302 | — | 81,302 | ||||||||||
Derivative financial assets | — | 1,364 | — | 1,364 | ||||||||||
$ | 237,808 | $ | 107,459 | $ | — | $ | 345,267 | |||||||
Financial Liabilities: | ||||||||||||||
Derivative financial liabilities | $ | — | $ | 630 | $ | — | $ | 630 | ||||||
$ | — | $ | 630 | $ | — | $ | 630 |
(1)Included in Trade and other receivables.
December 31, 2019 | Amortized cost | FVTPL | FVTOCI | Total | ||||||||||
Financial Assets: | ||||||||||||||
Cash and cash equivalents | $ | 120,564 | $ | — | $ | — | $ | 120,564 | ||||||
Trade receivables from provisional concentrates sales(1) | — | 48,767 | — | 48,767 | ||||||||||
Receivable not arising from sale of metal concentrates(1) | 116,596 | — | — | 116,596 | ||||||||||
Short-term investments, equity securities | — | 117,776 | — | 117,776 | ||||||||||
Derivative financial assets | — | 1,272 | — | 1,272 | ||||||||||
$ | 237,160 | $ | 167,815 | $ | — | $ | 404,975 | |||||||
(1)Included in Trade and other receivables.
b)Short-term investments in equity securities recorded at fair value through profit or loss ("FVTPL")
The Company’s short-term investments in equity securities are recorded at FVTPL. The gains from short-term investments in equity securities for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Unrealized gains (losses) on short-term investments, equity securities | $ | 12,144 | $ | 35,713 | $ | (20,159) | $ | 50,087 | ||||||
Realized gains on short-term investments, equity securities | 911 | 426 | 52,474 | 876 | ||||||||||
$ | 13,055 | $ | 36,139 | $ | 32,315 | $ | 50,963 |
PAN AMERICAN SILVER CORP. | 9 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
c)Financial assets recorded at fair value through other comprehensive income ("FVTOCI")
The Company’s short-term investments other than equity securities are recorded at fair value through other comprehensive income. The unrealized gains (losses) from short-term investments other than equity securities for the three and nine months ended September 30, 2020 and 2019 were as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Unrealized net losses on short-term investments, other than equity securities | $ | — | $ | (1) | $ | — | $ | — | ||||||
Reclassification adjustment for realized gains on short-term investments, other than equity securities | — | — | — | (208) | ||||||||||
$ | — | $ | (1) | $ | — | $ | (208) |
d)Derivative instruments
The Company's derivative financial instruments are comprised of foreign currency and commodity contracts. The gains (losses) on commodity contracts and (loss) gain on derivatives for the three and nine months ended September 30, 2020 and 2019 were comprised of the following:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Gains (losses) on foreign currency and commodity contracts: | ||||||||||||||
Realized (losses) gains on foreign currency and commodity contracts | $ | (1,095) | $ | 1,351 | $ | (3,096) | $ | 2,150 | ||||||
Unrealized gains (losses) on foreign currency and commodity contracts | 2,560 | (1,181) | (650) | (399) | ||||||||||
$ | 1,465 | $ | 170 | $ | (3,746) | $ | 1,751 | |||||||
(Loss) gain on derivatives: | ||||||||||||||
(Loss) gain on warrants | $ | (523) | $ | — | $ | 113 | $ | (14) | ||||||
$ | (523) | $ | — | $ | 113 | $ | (14) |
e)Fair value information
i) Fair Value Measurement
The categories of the fair value hierarchy that reflect the inputs to valuation techniques used to measure fair value are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: Inputs for the asset or liability based on unobservable market data.
The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized on the Consolidated Statements of Financial Position at fair value on a recurring basis were categorized as follows:
At September 30, 2020 | At December 31, 2019 | |||||||||||||
Level 1 | Level 2 | Level 1 | Level 2 | |||||||||||
Assets and Liabilities: | ||||||||||||||
Short-term investments | $ | 81,302 | $ | — | $ | 117,776 | $ | — | ||||||
Trade receivables from provisional concentrate sales | — | 24,793 | — | 48,767 | ||||||||||
Derivative financial assets | — | 1,364 | — | 1,272 | ||||||||||
Derivative financial liabilities | — | (630) | — | — | ||||||||||
$ | 81,302 | $ | 25,527 | $ | 117,776 | $ | 50,039 |
PAN AMERICAN SILVER CORP. | 10 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
The methodology and assessment of inputs for determining the fair value of financial assets and liabilities as well as the levels of hierarchy for the Company’s financial assets and liabilities measured at fair value remains unchanged from that at December 31, 2019.
ii) Valuation Techniques
Short-term investments and other investments
The Company’s short-term investments and other investments are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy and are primarily money market securities and U.S. Treasury securities. The fair value of the investment securities is calculated as the quoted market price of the investment and in the case of equity securities, the quoted market price multiplied by the quantity of shares held by the Company.
Derivative assets and liabilities
The Company’s derivative assets and liabilities were comprised of investments in warrants, commodity swaps and foreign currency contracts. The fair value of the warrants is calculated using an option pricing model which utilizes a combination of quoted prices and market-derived inputs. The Company's commodity swaps and foreign currency contracts are valued using observable market prices. Warrants are classified within Level 2 of the fair value hierarchy.
Receivables from Provisional Concentrate Sales
A portion of the Company’s trade receivables arose from provisional concentrate sales and are valued using quoted market prices based on the forward London Metal Exchange for copper, zinc and lead and the London Bullion Market Association P.M. fix for gold and silver.
f)Financial Instruments and related risks
The Company has exposure to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are:
i)Credit risk
ii)Liquidity risk
iii)Market risk
1. Currency risk
2. Interest rate risk
3. Price risk
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.
PAN AMERICAN SILVER CORP. | 11 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
i) Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s trade receivables. The carrying value of trade receivables represents the maximum credit exposure.
The Company has long-term concentrate contracts to sell the zinc, lead, copper and silver concentrates produced by the Huaron, Morococha, San Vicente and La Colorada mines. Concentrate contracts are a common business practice in the mining industry. The terms of the concentrate contracts may require the Company to deliver concentrate that has a value greater than the payment received at the time of delivery, thereby introducing the Company to credit risk of the buyers of concentrates. Should any of these counterparties not honour supply arrangements, or should any of them become insolvent, the Company may incur losses for products already shipped and be forced to sell its concentrates on the spot market or it may not have a market for its concentrates and therefore its future operating results may be materially adversely impacted. At September 30, 2020, the Company had receivable balances associated with buyers of its concentrates of $24.8 million (December 31, 2019 - $48.8 million). The vast majority of the Company’s concentrate is sold to five well-known concentrate buyers.
Doré production from La Colorada, Dolores, Manantial Espejo, Shahuindo, La Arena, Bell Creek and Timmins is refined under long term agreements with fixed refining terms at four separate refineries worldwide. The Company generally retains the risk and title to the precious metals throughout the process of refining and therefore is exposed to the risk that the refineries will not be able to perform in accordance with the refining contract and that the Company may not be able to fully recover precious metals in such circumstances. At September 30, 2020, the Company had approximately $63.9 million (December 31, 2019 - $58.2 million) of value contained in precious metal inventory at refineries. The Company did not have any value contained in precious metal inventory at major commercial banks as at September 30, 2020 and December 31, 2019. The Company maintains insurance coverage against the loss of precious metals at the Company’s mine sites, in-transit to refineries and while at the refineries.
The Company maintains trading facilities with several banks and bullion dealers for the purposes of transacting the Company’s metal sales. None of these facilities are subject to margin arrangements. The Company’s trading activities can expose the Company to the credit risk of its counterparties to the extent that the trading positions have a positive mark-to-market value. However, the Company minimizes this risk by ensuring there is no excessive concentration of credit risk with any single counterparty, by active credit management and monitoring.
Refined silver and gold is sold in the spot market to various bullion traders and banks. Credit risk may arise from these activities if the Company is not paid for metal at the time it is delivered, as required by spot sale contracts.
Management constantly monitors and assesses the credit risk resulting from its refining arrangements, concentrate sales and commodity contracts with its refiners, trading counterparties and customers. Furthermore, management carefully considers credit risk when allocating prospective sales and refining business to counterparties. In making allocation decisions, management attempts to avoid unacceptable concentration of credit risk to any single counterparty.
The Company invests its cash and cash equivalents, which also has credit risk, with the objective of maintaining safety of principal and providing adequate liquidity to meet all current payment obligations.
PAN AMERICAN SILVER CORP. | 12 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
ii) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows. The Company has in place a rigorous planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its expansion plans. The Company strives to maintain sufficient liquidity to meet its short-term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and short-term investments, and its committed loan facilities.
There was no significant change to the Company’s exposure to liquidity risk during the three and nine months ended September 30, 2020.
iii) Market Risk
1.Currency Risk
The Company reports its financial statements in USD; however, the Company operates in jurisdictions that utilize other currencies. As a consequence, the financial results of the Company’s operations as reported in USD are subject to changes in the value of the USD relative to local currencies. Since the Company’s sales are denominated in USD and a portion of the Company’s operating costs and capital spending are in local currencies, the Company is negatively impacted by strengthening local currencies relative to the USD and positively impacted by the inverse.
At September 30, 2020, the Company had outstanding positions on its foreign currency exposure of Mexican peso ("MXN"), Peruvian peso ("SOL") and Canadian dollar ("CAD") purchases. The Company recorded gains of $1.8 million, losses of $0.1 million, and gains of $0.3 million, respectively, on MXN, SOL and CAD derivative contracts for the three months ended September 30, 2020 (2019 - losses of $0.4 million on MXN derivative contracts). The Company recorded losses of $1.9 million, $1.9 million, and $0.7 million, respectively, on MXN, SOL and CAD derivative contracts for the nine months ended September 30, 2020 (2019 - gains of $0.5 million on MXN derivative contracts).
2.Interest Rate Risk
Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The average interest rate earned by the Company during the three and nine months ended September 30, 2020 on its cash and short-term investments was 1.27% and 0.89%, respectively (2019 - 0.66% and 0.94%, respectively).
At September 30, 2020, the Company had $90 million in amounts drawn on its secured revolving credit facility (the "Credit Facility") at an average interest rate of 2.6% for the nine months ended September 30, 2020. At December 31, 2019, the Company had $275 million in amounts drawn on its secured revolving credit facility (the "Credit Facility") at an average interest rate of 4.3% for the year ended December 31, 2019.
In July and September 2020, the Company borrowed $2.8 million and $2.8 million, respectively, in Loans under a Peruvian government COVID-19 pandemic program ("Loans"). At September 30, 2020, the Company had $5.6 million in Loans outstanding that incur an average interest rate of 1.3% and is deferred and payable after July and September 2021, respectively.
At September 30, 2020, the Company had $34.3 million in lease obligations (December 31, 2019 - $41.2 million) that are subject to an annualized interest rate of 9.4% (2019 - 9.7%).
PAN AMERICAN SILVER CORP. | 13 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
3.Price Risk
Metal price risk is the risk that changes in metal prices will affect the Company’s income or the value of its related financial instruments. The Company derives its revenue from the sale of silver, gold, lead, copper, and zinc. The Company’s sales are directly dependent on metal prices that have shown significant volatility and are beyond the Company’s control. Consistent with the Company’s mission to provide equity investors with exposure to changes in precious metal prices, the Company’s current policy is to not hedge the price of precious metal.
The Company mitigates the price risk associated with its base metal production by committing some of its forecasted base metal production from time to time under forward sales and option contracts. The Board of Directors continually assesses the Company’s strategy towards its base metal exposure, depending on market conditions. At September 30, 2020, the Company had no outstanding contracts to sell base metal production.
During the three and nine months ended September 30, 2020, the Company entered into diesel swap contracts designated to fix or limit the Company’s exposure to higher fuel prices (the “Diesel fuel swaps”). The Company did not enter into any Diesel fuel swaps in 2019. The Company recorded losses of $0.5 million and gains of $0.8 million on the Diesel fuel swaps in the three and nine months ended September 30, 2020.
5. SHORT-TERM INVESTMENTS
September 30, 2020 | December 31, 2019 | |||||||||||||||||||
Fair Value | Cost | Accumulated unrealized holding gains | Fair Value | Cost | Accumulated unrealized holding gains | |||||||||||||||
Short-term investments | $ | 81,302 | $ | 21,899 | $ | 59,403 | $ | 117,776 | $ | 36,826 | $ | 80,950 |
6. INVENTORIES
Inventories consist of:
September 30, 2020 | December 31, 2019 | |||||||
Concentrate inventory | $ | 13,244 | $ | 17,433 | ||||
Stockpile ore (1) | 24,177 | 27,708 | ||||||
Heap leach inventory and in process (2) | 183,532 | 169,751 | ||||||
Doré and finished inventory (3) | 70,831 | 67,820 | ||||||
Materials and supplies | 91,742 | 88,004 | ||||||
Total inventories | $ | 383,526 | $ | 370,716 | ||||
Less: current portion of inventories | $ | (358,972) | $ | (346,507) | ||||
Non-current portion of inventories(4) | $ | 24,554 | $ | 24,209 |
(1)Includes an impairment charge of $2.6 million to reduce the cost basis of inventory to net realizable value ("NRV") at Manantial Espejo mine at September 30, 2020 (December 31, 2019 – $5.0 million at Manantial Espejo and Dolores mines).
(2)Includes an impairment charge of $31.4 million to reduce the cost basis of inventory to NRV at Dolores mine at September 30, 2020 (December 31, 2019 - $39.3 million at Manantial Espejo and Dolores mines).
(3)Includes an impairment charge of $3.8 million to reduce the cost basis of inventory to NRV at Dolores mine at September 30, 2020 (December 31, 2019 - $2.9 million at Manantial Espejo and Dolores mines).
(4)Inventories at Escobal mine, which include $17.3 million (December 31, 2019 - $16.9 million) in supplies with the remainder attributable to metals, have been classified as non-current pending the restart of operations.
PAN AMERICAN SILVER CORP. | 14 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
Mineral properties, plant and equipment consist of:
September 30, 2020 | December 31, 2019 | |||||||||||||||||||
Cost | Accumulated Depreciation and Impairment | Carrying Value | Cost | Accumulated Depreciation and Impairment | Carrying Value | |||||||||||||||
Huaron, Peru | $ | 217,524 | $ | (133,747) | $ | 83,777 | $ | 215,109 | $ | (126,301) | $ | 88,808 | ||||||||
Morococha, Peru | 265,047 | (172,969) | 92,078 | 258,862 | (164,501) | 94,361 | ||||||||||||||
Shahuindo, Peru | 528,600 | (67,787) | 460,813 | 498,960 | (39,668) | 459,292 | ||||||||||||||
La Arena, Peru | 139,095 | (37,115) | 101,980 | 112,014 | (22,853) | 89,161 | ||||||||||||||
Alamo Dorado, Mexico | 71,724 | (71,724) | — | 71,724 | (71,724) | — | ||||||||||||||
La Colorada, Mexico | 318,945 | (159,233) | 159,712 | 305,357 | (143,232) | 162,125 | ||||||||||||||
Dolores, Mexico | 1,636,985 | (1,170,946) | 466,039 | 1,608,334 | (1,091,862) | 516,472 | ||||||||||||||
Manantial Espejo, Argentina (1) | 473,658 | (442,389) | 31,269 | 371,677 | (367,901) | 3,776 | ||||||||||||||
San Vicente, Bolivia | 145,590 | (101,072) | 44,518 | 143,251 | (95,360) | 47,891 | ||||||||||||||
Timmins, Canada | 307,864 | (73,594) | 234,270 | 292,986 | (42,672) | 250,314 | ||||||||||||||
Other | 27,739 | (18,060) | 9,679 | 27,711 | (17,485) | 10,226 | ||||||||||||||
Total | $ | 4,132,771 | $ | (2,448,636) | $ | 1,684,135 | $ | 3,905,985 | $ | (2,183,559) | $ | 1,722,426 | ||||||||
Land and Non-Producing Properties: | ||||||||||||||||||||
Land | $ | 5,683 | $ | (1,254) | $ | 4,429 | $ | 5,528 | $ | (1,267) | $ | 4,261 | ||||||||
Navidad, Argentina | 566,577 | (376,101) | 190,476 | 566,577 | (376,101) | 190,476 | ||||||||||||||
Escobal, Guatemala | 258,644 | (1,035) | 257,609 | 249,353 | — | 249,353 | ||||||||||||||
Timmins, Canada | 73,656 | — | 73,656 | 87,747 | — | 87,747 | ||||||||||||||
Shahuindo, Peru | 6,079 | — | 6,079 | 15,586 | — | 15,586 | ||||||||||||||
La Arena, Peru | 117,000 | — | 117,000 | 117,000 | — | 117,000 | ||||||||||||||
Minefinders, Mexico | 79,714 | (36,975) | 42,739 | 83,079 | (36,975) | 46,104 | ||||||||||||||
La Colorada, Mexico | 20,698 | — | 20,698 | 15,544 | — | 15,544 | ||||||||||||||
Morococha, Peru | 5,054 | — | 5,054 | 7,213 | — | 7,213 | ||||||||||||||
COSE Project, Argentina | — | — | — | 95,851 | (66,859) | 28,992 | ||||||||||||||
Other | 32,479 | (11,876) | 20,603 | 31,866 | (11,667) | 20,199 | ||||||||||||||
Total non-producing properties | $ | 1,165,584 | $ | (427,241) | $ | 738,343 | $ | 1,275,344 | $ | (492,869) | $ | 782,475 | ||||||||
Total mineral properties, plant and equipment | $ | 5,298,355 | $ | (2,875,877) | $ | 2,422,478 | $ | 5,181,329 | $ | (2,676,428) | $ | 2,504,901 |
(1)Includes COSE and Joaquin projects, which entered commercial production during the three and nine months ended September 30, 2020.
(2)COSE project entered commercial production and was transferred to Manantial Espejo producing property during the three and nine months ended September 30, 2020.
8. IMPAIRMENT OF NON-CURRENT ASSETS
Non-current assets are tested for impairment, or reversal of previous impairment charges, when events or changes in circumstance indicate that the carrying amount may not be recoverable, or previous impairment charges against assets are recoverable. The Company performs an impairment test for goodwill at each financial year end and when events or changes in circumstances indicate that the related carrying value may not be recoverable.
Based on the Company’s assessment with respect to possible indicators of either impairment or reversal of previous impairments to its mineral properties, the Company concluded that as of September 30, 2020, no such indicators were noted, and no impairment charges or impairment charge reversals were required.
As part of the assessment for indicators of impairment or reversal, the Company considered various external and internal factors, such as significant increases or decreases in forecasted production volumes (which include
PAN AMERICAN SILVER CORP. | 15 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
assumptions related to proved and probable reserves), commodity prices, capital expenditures and operating costs. In future periods, the effects of the pandemic may have material impacts on our anticipated operating results and the recoverable amount of our CGUs.
9. INVESTMENT IN ASSOCIATES
The following table shows a continuity of the Company's investment in Maverix Metals Inc. ("Maverix"):
2020 | |||||
Balance of investment, December 31, 2019 | $ | 84,319 | |||
Disposal of investment in associate | (23,467) | ||||
Dilution losses | (142) | ||||
Adjustment for change in ownership interest | 1,252 | ||||
Dividends | (1,054) | ||||
Loss from associate | (1,669) | ||||
Balance of investment, September 30, 2020 | $ | 59,239 |
Investment in Maverix:
On June 5, 2020, the Company completed a Secondary Offering pursuant to an underwriting agreement dated May 29, 2020 between Maverix, the Company, and a syndicate of underwriters (the "Secondary Offering"). As part of the Secondary Offering, the Company sold 10,350,000 common shares of Maverix at a price of $4.40 per common share for aggregate gross proceeds of $45.5 million and paid underwriting fees equal to 4% of the gross proceeds equal to $1.9 million.
Concurrent with the Secondary Offering, the Company acquired ownership or control of an additional 8,250,000 common shares of Maverix through the exercise of its remaining 8,250,000 common share purchase warrants in Maverix (the "Warrants"). 5,000,000 Warrants had an exercise price of $1.56 and 3,250,000 Warrants had an exercise price of $2.408. Maverix received gross proceeds of approximately $15.6 million. As a result, the Company de-recognized the remaining warrant liability representing in substance ownership of Maverix. This warrant liability was $15.0 million as at December 31, 2019 .
The Company's share of Maverix income or loss was recorded, based on its 26% interest from January 1, 2020 to June 5, 2020, and 18% from June 6, 2020 to September 30, 2020 (26% for the year ended December 31, 2019), representing the Company’s fully diluted ownership.
Deferred Revenue:
Deferred revenue relates to precious metal streams whereby the Company will sell 100% of the future gold production from La Colorada and 5% of the future gold production from La Bolsa, which is in the exploration stage, to Maverix for $650 and $450 per ounce, respectively (the "Streams").
The deferred revenue related to the Streams will be recognized as revenue by Pan American as the gold ounces are delivered to Maverix. As at September 30, 2020, the deferred revenue liability was $13.3 million (December 31, 2019 - $12.5 million).
Income Statement Impacts:
The Company recorded a gain of $nil and $23.5 million, respectively, during the three and nine months ended September 30, 2020 as a result of the disposition of shares pursuant to the Secondary Offering.
The Company recognized $nil and $0.1 million, respectively, in dilution losses during the three and nine months ended September 30, 2020 (2019 - $0.1 million and $0.1 million, respectively). Dilution gains and losses are recorded in share of income from associate and dilution gain.
For the three and nine months ended September 30, 2020, the Company also recognized $1.1 million share of income from associate and $1.7 million share of loss from associate (2019 - $0.1 million and $1.1 million share of
PAN AMERICAN SILVER CORP. | 16 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
income from associate, respectively), which represents the Company's proportionate share of Maverix's earnings during the periods.
10. GOODWILL AND OTHER ASSETS
Other assets consist of:
September 30, 2020 | December 31, 2019 | |||||||
Goodwill | $ | 3,057 | $ | 3,057 | ||||
Other assets | 1,399 | 1,930 | ||||||
$ | 4,456 | $ | 4,987 |
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of:
September 30, 2020 | December 31, 2019 | |||||||
Trade accounts payable(1) | $ | 60,516 | $ | 66,924 | ||||
Royalties payable | 16,223 | 16,108 | ||||||
Other accounts payable and trade related accruals | 71,069 | 59,295 | ||||||
Payroll and related benefits | 52,066 | 47,221 | ||||||
Severance accruals | 2,748 | 994 | ||||||
Refundable tax payable | 8,962 | 9,844 | ||||||
Other taxes payable | 26,333 | 24,944 | ||||||
$ | 237,917 | $ | 225,330 |
(1)No interest is charged on the trade accounts payable ranging from 30 to 60 days from the invoice date. The Company has policies in place to ensure that all payables are paid within the credit terms.
12. PROVISIONS
Closure and Decommissioning | Litigation | Total | |||||||||
December 31, 2019 | $ | 188,455 | $ | 6,929 | $ | 195,384 | |||||
Revisions in estimates and obligations incurred | 11,941 | — | 11,941 | ||||||||
Charged (credited) to earnings: | |||||||||||
-new provisions | — | 2,130 | 2,130 | ||||||||
-change in estimate | — | (1,031) | (1,031) | ||||||||
-exchange gains on provisions | — | (535) | (535) | ||||||||
Charged in the year | — | (86) | (86) | ||||||||
Reclamation expenditures | (1,683) | — | (1,683) | ||||||||
Accretion expense (Note 19) | 6,199 | — | 6,199 | ||||||||
September 30, 2020 | $ | 204,912 | $ | 7,407 | $ | 212,319 |
Maturity analysis of total provisions: | September 30, 2020 | December 31, 2019 | ||||||
Current | $ | 4,960 | $ | 7,372 | ||||
Non-Current | 207,359 | 188,012 | ||||||
$ | 212,319 | $ | 195,384 |
PAN AMERICAN SILVER CORP. | 17 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
13. LEASES
a.ROU Assets
The following table summarizes changes in ROU Assets for the nine months ended September 30, 2020 which have been recorded in mineral properties, plant and equipment on the Condensed Interim Consolidated Statements of Financial Position:
September 30, 2020 | December 31, 2019 | |||||||||||||
Cost | Cost | |||||||||||||
Balance, January 1, 2020 | $ | 60,779 | Balance, January 1, 2019 | $ | 34,983 | |||||||||
Additions | 2,921 | Additions (1) | 42,415 | |||||||||||
Transfer out | (9,300) | Transfer out | (16,619) | |||||||||||
Balance, September 30, 2020 | 54,400 | Balance, December 31, 2019 | 60,779 | |||||||||||
Accumulated Depreciation | Accumulated Depreciation | |||||||||||||
Balance at January 1, 2020 | (17,418) | Balance at January 1, 2019 | (4,780) | |||||||||||
Amortization | (11,086) | Amortization (2) | (20,103) | |||||||||||
Transfer out | 7,192 | Transfer out | 7,465 | |||||||||||
Balance, September 30, 2020 | (21,312) | Balance, December 31, 2019 | (17,418) | |||||||||||
Carrying Amounts | Carrying Amounts | |||||||||||||
At January 1, 2020 | 43,361 | At January 1, 2019 | 30,203 | |||||||||||
At September 30, 2020 | $ | 33,088 | At December 31, 2019 | $ | 43,361 |
(1)Includes $8.5 million in assets acquired from Tahoe Acquisition.
(2)Includes an impairment charge of $2.4 million related to the Manantial Espejo mineral property, and the COSE and Joaquin projects.
b.Lease obligations
The following table presents a reconciliation of the Company's undiscounted cash flows at September 30, 2020 and December 31, 2019 to their present value for the Company's lease obligations:
September 30, 2020 | December 31, 2019 | |||||||
Within one year | $ | 13,047 | $ | 16,221 | ||||
Between one and five years | 18,811 | 23,099 | ||||||
Beyond five years | 19,789 | 21,675 | ||||||
Total undiscounted lease obligations | 51,647 | 60,995 | ||||||
Less future interest charges | (17,381) | (19,787) | ||||||
Total discounted lease obligations | 34,266 | 41,208 | ||||||
Less: current portion of lease obligations | (12,243) | (14,198) | ||||||
Non-current portion of lease obligations | $ | 22,023 | $ | 27,010 |
When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted average rate applied is 9.4% (December 31, 2019 - 9.7%).
14. DEBT
September 30, 2020 | December 31, 2019 | |||||||
Credit Facility | $ | 90,000 | $ | 275,000 | ||||
Loans | 5,560 | — | ||||||
Non-current portion of debt | $ | 95,560 | $ | 275,000 |
The Company's four-year, $300.0 million secured revolving credit facility, which was due to mature on April 15, 2020, was increased to $400.0 million on February 1, 2019, and increased to $500.0 million on February 22, 2019,
PAN AMERICAN SILVER CORP. | 18 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
with maturity on February 1, 2023, and resulted in additional upfront costs of $2.0 million. These amendments were made as part of the Tahoe Acquisition.
The upfront costs have been recorded as an asset under the classification "Prepaid expenses and other current assets" and are being amortized over the life of the Credit Facility. The Credit Facility can be drawn down at any time to finance the Company’s working capital requirements, acquisitions, investments and for general corporate purposes.
The financial covenants required the Company to maintain a tangible net worth (exclusive of any prospective write-downs of certain assets) of greater than $1,036.4 million plus 50% of the positive net income from and including the fiscal quarter ended March 31, 2016. As part of the amendment, after March 31, 2019, the financial covenants require the Company to maintain a minimum tangible net worth (exclusive of any prospective write-downs of certain assets) of greater than 70% of its tangible net worth as of March 31, 2019 plus 50% of positive net income from and including the fiscal quarter ended June 30, 2019. In addition, the financial covenants continue to include the requirement for the Company to maintain: (i) a leverage ratio less than or equal to 3.5:1; and (ii) an interest coverage ratio more than or equal to 3.0:1. As of September 30, 2020, the Company was in compliance with all covenants required by the Credit Facility.
At Pan American's option, amounts can be drawn under the revolving facility and will incur interest based on the Company's leverage ratio at either (i) LIBOR plus 1.875% to 2.750% or; (ii) The Bank of Nova Scotia's Base Rate on U.S. dollar denominated commercial loans plus 0.875% to 1.750%. Undrawn amounts under the revolving facility are subject to a stand-by fee of 0.4219% to 0.6188% per annum, dependent on the Company's leverage ratio. During the nine months ended September 30, 2020, the Company drew down $80 million and repaid $265 million of the Credit Facility (2019 - The Company drew down $335 million, under the Credit Facility, under LIBOR-based interest rates, to fund, in part, the cash purchase price under the Tahoe arrangement and to repay, in full, and cancel Tahoe's second amended and restated revolving facility, under which $125 million had been drawn).
During the nine months ended September 30, 2020, the average interest rate incurred by the Company on the Credit Facility was 2.6% (2019 - 4.3%). During the three and nine months ended September 30, 2020, the Company incurred $0.6 million and $1.1 million, respectively, (2019 - $0.5 million and $1.0 million, respectively) in standby charges on undrawn amounts and $0.9 million and $5.6 million, respectively, (2019 - $3.1 million and $8.5 million, respectively) in interest on drawn amounts under this Facility.
In April 2020, the Company increased its cash and cash equivalents holdings with an $80 million draw on the Credit Facility as a precautionary measure to increase liquidity considering the uncertain economic impacts of the COVID-19 pandemic. During the three and nine months ended September 30, 2020, the Company repaid $110 million and $265 million, respectively, of the Credit Facility, reducing the drawn amount at September 30, 2020 to $90 million.
In July and September 2020, the Company borrowed $2.8 million and $2.8 million, respectively, in Loans under a Peruvian government COVID-19 pandemic program. These loans incur an average interest rate of 1.3% which is deferred and payable after July and September 2021, respectively. At September 30, 2020, the Company had $5.6 million of these Loans outstanding.
15. OTHER LONG TERM LIABILITIES
Other long term liabilities consist of:
September 30, 2020 | December 31, 2019 | |||||||
Deferred credit(1) | $ | 20,788 | $ | 20,788 | ||||
Other income tax payable | 92 | 118 | ||||||
Severance accruals | 5,943 | 6,848 | ||||||
$ | 26,823 | $ | 27,754 |
(1)As part of the 2009 Aquiline transaction, the Company issued a replacement convertible debenture that allowed the holder to convert the debenture into either 363,854 Pan American Shares or a Silver Stream contract related to certain production from the Navidad project. Regarding the replacement
PAN AMERICAN SILVER CORP. | 19 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
convertible debenture, it was concluded that the deferred credit presentation was the most appropriate and best representation of the economics underlying the contract as of the date the Company assumed the obligation as part of the Aquiline acquisition. Subsequent to the acquisition, the counterparty to the replacement debenture selected the Silver Stream alternative. The Company continues to classify the fair value calculated at the acquisition as a deferred credit of this alternative.
16. SHARE CAPITAL AND EMPLOYEE COMPENSATION PLANS
a.Stock options and common shares issued as compensation ("Compensation Shares")
For the three and nine months ended September 30, 2020, the total share-based compensation expense relating to stock options and Compensation Shares was $1.0 million and $3.2 million, respectively, (2019 - $1.1 million and $3.1 million, respectively) and is presented as a component of general and administrative expense.
i.Stock options
The Company did not grant any stock options during the three and nine months ended September 30, 2020 or the comparative periods in 2019.
During the three and nine months ended September 30, 2020, the Company issued 33,231 and 329,062 common shares, respectively, in connection with the exercise of 33,563 and 329,394 options, respectively (2019 – 128,010 and 148,652 common shares and options, respectively).
ii.Compensation shares
During the three and nine months ended September 30, 2020, 9,456 shares were issued to Directors in lieu of Directors' fees of $0.2 million (2019 – 22,335 common shares in lieu of fees of $0.2 million).
The following table summarizes changes in stock options for the nine months ended September 30, 2020 and year ended December 31:
Stock Options | ||||||||
Options | Weighted Average Exercise Price CAD$ | |||||||
As at December 31, 2018 | 698,387 | $ | 15.00 | |||||
Granted | 22,788 | 26.54 | ||||||
Granted pursuant to the Tahoe Acquisition | 835,874 | 48.47 | ||||||
Exercised | (244,299) | 15.10 | ||||||
Expired | (141,604) | 58.45 | ||||||
Forfeited | (27,798) | 34.00 | ||||||
As at December 31, 2019 | 1,143,348 | $ | 33.84 | |||||
Exercised | (329,394) | 19.22 | ||||||
Expired | (481,698) | 53.44 | ||||||
Forfeited | (21,387) | 43.08 | ||||||
As at September 30, 2020 | 310,869 | $ | 18.32 |
PAN AMERICAN SILVER CORP. | 20 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
The following table summarizes information about the Company's stock options outstanding at September 30, 2020:
Options Outstanding | Options Exercisable | ||||||||||||||||
Range of Exercise Prices CAD$ | Number Outstanding as at September 30, 2020 | Weighted Average Remaining Contractual Life (months) | Weighted Average Exercise Price CAD$ | Number Outstanding as at September 30, 2020 | Weighted Average Exercise Price CAD$ | ||||||||||||
$9.76 - $23.61 | 269,727 | 44.51 | $ | 15.75 | 198,111 | $ | 15.11 | ||||||||||
$23.62 - $35.21 | 23,845 | 70.95 | $ | 26.82 | 1,057 | $ | 32.92 | ||||||||||
$35.22 - $46.53 | 14,414 | 16.50 | $ | 42.85 | 14,414 | $ | 42.85 | ||||||||||
$46.54 - $65.71 | 2,883 | 13.11 | $ | 65.71 | 2,883 | $ | 65.71 | ||||||||||
310,869 | 44.95 | $ | 18.32 | 216,465 | $ | 17.72 |
b.PSUs
Compensation expense for PSUs was $1.7 million and $3.6 million, respectively, for the three and nine months ended September 30, 2020 (2019 - $0.5 million and $0.9 million, respectively) and is presented as a component of general and administrative expense.
At September 30, 2020, the following PSUs were outstanding:
PSU | Number Outstanding | Fair Value | ||||||
As at December 31, 2018 | 210,409 | $ | 3,091 | |||||
Granted | 75,311 | 1,784 | ||||||
Paid out | (38,119) | (903) | ||||||
Change in value | — | 1,924 | ||||||
As at December 31, 2019 | 247,601 | $ | 5,896 | |||||
Change in value | — | 2,119 | ||||||
As at September 30, 2020 | 247,601 | $ | 8,015 |
c.RSUs
Compensation expense for RSUs was $0.7 million and $2.0 million, respectively, for the three and nine months ended September 30, 2020 (2019 – $0.6 million and $1.5 million, respectively) and is presented as a component of general and administrative expense.
At September 30, 2020, the following RSUs were outstanding:
RSU | Number Outstanding | Fair Value | ||||||
As at December 31, 2018 | 328,823 | $ | 3,624 | |||||
Granted | 146,594 | 3,891 | ||||||
Paid out | (157,584) | (3,140) | ||||||
Forfeited | (18,617) | (441) | ||||||
Change in value | — | 3,173 | ||||||
As at December 31, 2019 | 299,216 | $ | 7,107 | |||||
Forfeited | (15,242) | (489) | ||||||
Change in value | — | 2,558 | ||||||
As at September 30, 2020 | 283,974 | $ | 9,176 |
PAN AMERICAN SILVER CORP. | 21 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
d.Issued share capital
The Company is authorized to issue 400,000,000 common shares without par value.
e.Dividends
The Company declared the following dividends for the nine months ended September 30, 2020 and 2019:
Declaration Date | Record Date | Dividend per common share | ||||||
November 4, 2020 (1) | November 16, 2020 | $ | 0.070 | |||||
August 5, 2020 | August 17, 2020 | $ | 0.050 | |||||
May 6, 2020 | May 19, 2020 | $ | 0.050 | |||||
February 19, 2020 | March 2, 2020 | $ | 0.050 | |||||
November 6, 2019 | November 18, 2019 | $ | 0.035 | |||||
August 7, 2019 | August 19, 2019 | $ | 0.035 | |||||
May 8, 2019 | May 21, 2019 | $ | 0.035 | |||||
February 20, 2019 | March 4, 2019 | $ | 0.035 |
(1)These dividends were declared subsequent to the quarter ended September 30, 2020 and have not been recognized as distributions to owners during the period presented.
f.CVRs
On February 22, 2019, the Company issued 313,887,490 CVRs as part of the Tahoe Acquisition, which were convertible into 15,600,208 common shares following the First Shipment upon the restart of operations at the Escobal mine. As of September 30, 2020, there were 313,883,990 CVRs outstanding which were convertible into 15,600,034 common shares (December 31, 2019 - 313,887,490 CVRs convertible into 15,600,208 common shares).
17. PRODUCTION COSTS
Production costs are comprised of the following:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(3) | 2020 | 2019(3) | |||||||||||
Consumption of raw materials and consumables | $ | 76,799 | $ | 77,757 | $ | 208,530 | $ | 223,138 | ||||||
Employee compensation and benefits expense | 77,492 | 78,998 | 220,063 | 196,913 | ||||||||||
Contractors and outside services | 31,144 | 20,941 | 80,845 | 79,795 | ||||||||||
Utilities | 9,082 | 12,128 | 28,509 | 30,550 | ||||||||||
Other expenses | 1,962 | 15,498 | 11,854 | 42,220 | ||||||||||
Changes in inventories (1)(2) | (79,259) | (694) | (59,831) | 39,087 | ||||||||||
$ | 117,220 | $ | 204,628 | $ | 489,970 | $ | 611,703 |
(1)Includes NRV adjustments to inventory to reduce production costs by $22.6 million and $9.4 million, respectively, for the three and nine months ended September 30, 2020 (2019 - $6.7 million and $0.8 million, respectively).
(2)Includes fair value increases recognized on the Tahoe Acquisition of select Tahoe inventories of $0.6 million and $3.9 million, respectively, for the three and nine months ended September 30, 2020 (2019 - $4.9 million and $41.7 million, respectively).
(3)Includes amounts previously included in discontinued operations which have been recast, and presented, for the three months ended September 30, 2019 in continuing operations as a result of Timmins no longer being classified as held for sale.
PAN AMERICAN SILVER CORP. | 22 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
18. MINE CARE AND MAINTENANCE
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
COVID 19 mine care and maintenance expenses | $ | 16,871 | $ | — | $ | 58,323 | $ | — | ||||||
COVID 19 mine care and maintenance depreciation | 3,605 | — | 16,774 | — | ||||||||||
Total COVID 19 mine care and maintenance | 20,476 | — | 75,097 | — | ||||||||||
Mine care and maintenance expenses | 6,647 | 6,365 | 20,253 | 15,654 | ||||||||||
$ | 27,123 | $ | 6,365 | $ | 95,350 | $ | 15,654 |
19. INTEREST AND FINANCE EXPENSE
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(1) | 2020 | 2019(1) | |||||||||||
Interest expense | $ | 1,711 | $ | 5,179 | $ | 7,520 | $ | 12,117 | ||||||
Finance fees | 591 | 298 | 1,902 | 1,518 | ||||||||||
Accretion expense (Note 12) | 2,065 | 2,779 | 6,199 | 7,320 | ||||||||||
$ | 4,367 | $ | 8,256 | $ | 15,621 | $ | 20,955 |
(1)Includes amounts previously included in discontinued operations which have been recast, and presented, for the three and nine months ended September 30, 2019 in continuing operations as a result of Timmins no longer being classified as held for sale.
20. EARNINGS PER SHARE (BASIC AND DILUTED)
For the three months ended September 30, | 2020 | 2019(2) | ||||||||||||||||||
Earnings(1) (Numerator) | Shares (000’s) (Denominator) | Per-Share Amount | Earnings(1) (Numerator) | Shares (000’s) (Denominator) | Per-Share Amount | |||||||||||||||
Net earnings for the period | $ | 65,741 | $ | 37,657 | ||||||||||||||||
Basic earnings per share | $ | 65,741 | 210,160 | $ | 0.31 | $ | 37,657 | 209,535 | $ | 0.18 | ||||||||||
Effect of Dilutive Securities: | ||||||||||||||||||||
Stock Options | — | 195 | — | 195 | ||||||||||||||||
Diluted earnings per share | $ | 65,741 | 210,355 | $ | 0.31 | $ | 37,657 | 209,730 | $ | 0.18 |
(1)Net earnings attributable to equity holders of the Company.
(2)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
For the nine months ended September 30, | 2020 | 2019(2) | ||||||||||||||||||
Earnings(1) (Numerator) | Shares (000’s) (Denominator) | Per-Share Amount | Earnings(1) (Numerator) | Shares (000’s) (Denominator) | Per-Share Amount | |||||||||||||||
Net earnings for the period | $ | 8,997 | $ | 58,811 | ||||||||||||||||
Basic earnings per share | $ | 8,997 | 210,049 | $ | 0.04 | $ | 58,811 | 198,609 | $ | 0.30 | ||||||||||
Effect of Dilutive Securities: | ||||||||||||||||||||
Stock Options | — | 218 | — | 148 | ||||||||||||||||
Diluted earnings per share | $ | 8,997 | 210,267 | $ | 0.04 | $ | 58,811 | 198,757 | $ | 0.30 |
(1)Net earnings attributable to equity holders of the Company.
(2)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
Potentially dilutive securities excluded in the diluted earnings per share calculation for the three and nine months ended September 30, 2020 were 17,297 out-of-the-money options and CVRs potentially convertible into
PAN AMERICAN SILVER CORP. | 23 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
15,600,034 common shares (2019 – 716,931 out-of-the-money options and CVRs potentially convertible into 15,600,208 common shares).
21. SUPPLEMENTAL CASH FLOW INFORMATION
The following tables summarize other adjustments for non-cash income statement items, changes in operating working capital items and significant non-cash items:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
Other operating activities | 2020 | 2019 | 2020 | 2019 | |||||||||||||
Adjustments for non-cash income statement items: | |||||||||||||||||
Share-based compensation expense | $ | 1,002 | $ | 1,079 | $ | 3,236 | $ | 3,136 | |||||||||
Gains on securities held | (12,686) | (35,713) | (28,077) | (50,087) | |||||||||||||
(Gains) losses on commodity and foreign currency contracts (Note 4d) | (1,465) | (170) | 3,746 | (1,751) | |||||||||||||
Loss (gain) on derivatives (Note 4d) | 523 | — | (113) | 14 | |||||||||||||
Share of (income) loss from associate and dilution gain (Note 9) | (1,078) | (79) | 1,811 | (999) | |||||||||||||
Net realizable value adjustment for inventories | (22,643) | (6,723) | (9,434) | (842) | |||||||||||||
Project development write-down | — | — | — | 1,882 | |||||||||||||
$ | (36,347) | $ | (41,606) | $ | (28,831) | $ | (48,647) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
Changes in non-cash operating working capital items: | 2020 | 2019 | 2020 | 2019 | ||||||||||
Trade and other receivables | $ | 20,967 | $ | (20,201) | $ | 63,067 | $ | (19,112) | ||||||
Inventories | (37,246) | (4,356) | 5,408 | 32,482 | ||||||||||
Prepaid expenses | 1,956 | 680 | 7,870 | 3,679 | ||||||||||
Accounts payable and accrued liabilities | 23,907 | 9,225 | 4,242 | (47,118) | ||||||||||
Provisions | (600) | (242) | (2,181) | (2,621) | ||||||||||
$ | 8,984 | $ | (14,894) | $ | 78,406 | $ | (32,690) |
Cash and Cash Equivalents | September 30, 2020 | December 31, 2019 | ||||||
Cash in banks | $ | 150,329 | $ | 120,564 | ||||
22. SEGMENTED INFORMATION
The Company reviews its segment reporting to ensure it reflects the operational structure of the Company and enables the Company's Chief Operating Decision Maker ("CODM") to review operating segment performance. We have determined that each producing mine and significant development property represents an operating segment. The Company has organized its reportable and operating segments by significant revenue streams and geographic regions.
Significant information relating to the Company’s reportable operating segments is summarized in the table below:
PAN AMERICAN SILVER CORP. | 24 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
For the three months ended September 30, 2020 | |||||||||||||||||||||||
Segment/Country | Operation | Revenue | Production costs and royalties | Depreciation | Mine operating earnings | Mine care and maintenance | Capital expenditures(1) | ||||||||||||||||
Silver Segment: | |||||||||||||||||||||||
Mexico | Dolores | $ | 49,061 | $ | 8,112 | $ | 17,484 | $ | 23,465 | $ | — | $ | 7,409 | ||||||||||
La Colorada | 37,835 | 17,938 | 5,371 | 14,526 | (26) | 7,736 | |||||||||||||||||
Peru | Huaron | 12,501 | 4,114 | 636 | 7,751 | 10,092 | 1,730 | ||||||||||||||||
Morococha | 6,145 | 2,838 | 520 | 2,787 | 9,923 | 1,365 | |||||||||||||||||
Bolivia | San Vicente | 18,382 | 12,381 | 2,125 | 3,876 | — | 1,330 | ||||||||||||||||
Argentina | Manantial Espejo | 22,159 | 14,255 | 2,299 | 5,605 | — | 1,836 | ||||||||||||||||
Guatemala | Escobal | — | — | — | — | 4,935 | 10 | ||||||||||||||||
Total Silver Segment | 146,083 | 59,638 | 28,435 | 58,010 | 24,924 | 21,416 | |||||||||||||||||
Gold Segment: | |||||||||||||||||||||||
Peru | Shahuindo | 63,043 | 16,875 | 7,988 | 38,180 | 107 | 4,839 | ||||||||||||||||
La Arena | 32,173 | 14,420 | 4,300 | 13,453 | 380 | 9,511 | |||||||||||||||||
Canada | Timmins | 59,115 | 34,220 | 9,599 | 15,296 | — | 5,729 | ||||||||||||||||
Total Gold Segment | 154,331 | 65,515 | 21,887 | 66,929 | 487 | 20,079 | |||||||||||||||||
Other segment: | |||||||||||||||||||||||
Canada | Pas Corp | — | — | 121 | (121) | — | 75 | ||||||||||||||||
Argentina | Navidad | — | — | — | — | 1,712 | — | ||||||||||||||||
Other | Other | — | — | 257 | (257) | — | 142 | ||||||||||||||||
Total | $ | 300,414 | $ | 125,153 | $ | 50,700 | $ | 124,561 | $ | 27,123 | $ | 41,712 |
(1)Includes payments for mineral properties, plant and equipment and payment of equipment leases.
For the three months ended September 30, 2019 | |||||||||||||||||||||||
Segment/Country | Operation | Revenue | Production costs and royalties | Depreciation | Mine operating earnings | Mine care and maintenance | Capital expenditures(1) | ||||||||||||||||
Silver Segment: | |||||||||||||||||||||||
Mexico | Dolores | $ | 69,746 | $ | 42,555 | $ | 26,416 | $ | 775 | $ | — | $ | 13,522 | ||||||||||
La Colorada | 43,808 | 17,566 | 5,484 | 20,758 | — | 5,780 | |||||||||||||||||
Peru | Huaron | 30,773 | 19,792 | 3,590 | 7,391 | — | 2,739 | ||||||||||||||||
Morococha | 24,434 | 18,148 | 3,925 | 2,361 | — | 3,966 | |||||||||||||||||
Bolivia | San Vicente | 14,388 | 10,597 | 2,569 | 1,222 | — | 1,508 | ||||||||||||||||
Argentina | Manantial Espejo | 9,123 | 9,416 | 1,937 | (2,230) | — | 5,909 | ||||||||||||||||
Guatemala | Escobal | — | — | — | — | 4,558 | 37 | ||||||||||||||||
Total Silver Segment | 192,272 | 118,074 | 43,921 | 30,277 | 4,558 | 33,461 | |||||||||||||||||
Gold Segment: | |||||||||||||||||||||||
Shahuindo | 60,859 | 24,878 | 3,408 | 32,573 | — | 10,126 | |||||||||||||||||
La Arena | 45,302 | 34,140 | 1,905 | 9,257 | — | 7,250 | |||||||||||||||||
Canada | Timmins (2) | 53,754 | 32,978 | 28,673 | (7,897) | — | 3,378 | ||||||||||||||||
Total Gold Segment | 159,915 | 91,996 | 33,986 | 33,933 | — | 20,754 | |||||||||||||||||
Other segment: | |||||||||||||||||||||||
Canada | Pas Corp | — | — | 29 | (29) | — | 147 | ||||||||||||||||
Argentina | Navidad | — | — | (3) | 3 | 1,807 | 1 | ||||||||||||||||
Other | Other | — | — | 334 | (334) | — | 202 | ||||||||||||||||
Total | $ | 352,187 | $ | 210,070 | $ | 78,267 | $ | 63,850 | $ | 6,365 | $ | 54,565 |
(1)Includes payments for mineral properties, plant and equipment and amounts have been recast, and presented, for the three months ended September 30, 2019 to include payment of equipment leases.
(2)Includes amounts previously included in discontinued operations which have been recast, and presented, for the three months ended September 30, 2019 in continuing operations as a result of Timmins no longer being classified as held for sale.
PAN AMERICAN SILVER CORP. | 25 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
For the nine months ended September 30, 2020 | |||||||||||||||||||||||
Segment/Country | Operation | Revenue | Production costs and royalties | Depreciation | Mine operating earnings | Mine care and maintenance | Capital expenditures(1) | ||||||||||||||||
Silver Segment: | |||||||||||||||||||||||
Mexico | Dolores | $ | 172,208 | $ | 108,122 | $ | 60,273 | $ | 3,813 | $ | 10,175 | $ | 32,084 | ||||||||||
La Colorada | 89,461 | 47,410 | 13,801 | 28,250 | 7,973 | 21,982 | |||||||||||||||||
Peru | Huaron | 37,967 | 23,155 | 4,180 | 10,632 | 20,850 | 3,724 | ||||||||||||||||
Morococha | 22,205 | 18,562 | 3,860 | (217) | 20,025 | 6,075 | |||||||||||||||||
Bolivia | San Vicente | 34,825 | 25,650 | 5,033 | 4,142 | 2,890 | 3,487 | ||||||||||||||||
Argentina | Manantial Espejo | 57,873 | 46,612 | 5,686 | 5,575 | 5,617 | 8,859 | ||||||||||||||||
Guatemala | Escobal | — | — | — | — | 15,047 | 4,734 | ||||||||||||||||
Total Silver Segment | 414,539 | 269,511 | 92,833 | 52,195 | 82,577 | 80,945 | |||||||||||||||||
Gold Segment: | |||||||||||||||||||||||
Peru | Shahuindo | 205,151 | 74,480 | 30,772 | 99,899 | 3,855 | 16,244 | ||||||||||||||||
La Arena | 96,504 | 48,879 | 16,322 | 31,303 | 3,712 | 24,294 | |||||||||||||||||
Canada | Timmins | 192,157 | 115,471 | 35,908 | 40,778 | — | 12,680 | ||||||||||||||||
Total Gold Segment | 493,812 | 238,830 | 83,002 | 171,980 | 7,567 | 53,218 | |||||||||||||||||
Other segment: | |||||||||||||||||||||||
Canada | Pas Corp | — | — | 373 | (373) | — | 220 | ||||||||||||||||
Argentina | Navidad | — | — | — | — | 5,206 | 8 | ||||||||||||||||
Other | Other | — | — | 797 | (797) | — | 450 | ||||||||||||||||
Total | $ | 908,351 | $ | 508,341 | $ | 177,005 | $ | 223,005 | $ | 95,350 | $ | 134,841 |
(1)Includes payments for mineral properties, plant and equipment and payment of equipment leases.
For the nine months ended September 30, 2019 | |||||||||||||||||||||||
Segment/Country | Operation | Revenue | Production costs and royalties | Depreciation | Mine operating earnings | Mine care and maintenance | Capital expenditures(1) | ||||||||||||||||
Silver Segment: | |||||||||||||||||||||||
Mexico | Dolores | $ | 183,452 | $ | 146,248 | $ | 78,092 | $ | (40,888) | $ | — | $ | 41,935 | ||||||||||
La Colorada | 135,364 | 56,911 | 17,736 | 60,717 | — | 15,998 | |||||||||||||||||
Peru | Huaron | 88,452 | 57,282 | 10,375 | 20,795 | — | 8,101 | ||||||||||||||||
Morococha | 78,380 | 53,608 | 11,410 | 13,362 | — | 10,434 | |||||||||||||||||
Bolivia | San Vicente | 56,404 | 41,974 | 7,181 | 7,249 | — | 2,912 | ||||||||||||||||
Argentina | Manantial Espejo | 37,810 | 39,566 | 3,645 | (5,401) | — | 20,194 | ||||||||||||||||
Guatemala | Escobal | — | — | — | — | 11,814 | 1,033 | ||||||||||||||||
Total Silver Segment | 579,862 | 395,589 | 128,439 | 55,834 | 11,814 | 100,607 | |||||||||||||||||
Gold Segment: | |||||||||||||||||||||||
Shahuindo | 130,071 | 65,501 | 16,954 | 47,616 | — | 19,041 | |||||||||||||||||
La Arena | 104,091 | 71,312 | 10,198 | 22,581 | — | 39,176 | |||||||||||||||||
Canada | Timmins (2) | 132,356 | 98,086 | 28,673 | 5,597 | — | 9,537 | ||||||||||||||||
Total Gold Segment | 366,518 | 234,899 | 55,825 | 75,794 | — | 67,754 | |||||||||||||||||
Other segment: | |||||||||||||||||||||||
Canada | Pas Corp | — | — | 365 | (365) | — | 326 | ||||||||||||||||
Argentina | Navidad | — | — | — | — | 3,840 | 9 | ||||||||||||||||
Other | Other | — | — | 585 | (585) | — | 336 | ||||||||||||||||
Total | $ | 946,380 | $ | 630,488 | $ | 185,214 | $ | 130,678 | $ | 15,654 | $ | 169,032 |
(1)Includes payments for mineral properties, plant and equipment and amounts have been recast, and presented, for the nine months ended September 30, 2019 to include payment of equipment leases.
(2)Includes amounts previously included in discontinued operations which have been recast, and presented, for the nine months ended September 30, 2019 in continuing operations as a result of Timmins no longer being classified as held for sale.
PAN AMERICAN SILVER CORP. | 26 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
A reconciliation of segment mine operating earnings to the Company’s earnings before income taxes per the Condensed Interim Consolidated Income Statements is as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019(1)(2) | 2020 | 2019(1) | |||||||||||
Mine operating earnings (Note 22) | $ | 124,561 | $ | 63,850 | $ | 223,005 | $ | 130,678 | ||||||
General and administrative | (10,367) | (8,237) | (25,694) | (21,743) | ||||||||||
Exploration and project development | (1,839) | (2,066) | (6,005) | (9,122) | ||||||||||
Mine care and maintenance (Note 18) | (27,123) | (6,365) | (95,350) | (15,654) | ||||||||||
Foreign exchange losses | (2,362) | (6,012) | (4,268) | (7,973) | ||||||||||
Gains (losses) on commodity and foreign currency contracts (Note 4d) | 1,465 | 170 | (3,746) | 1,751 | ||||||||||
Gains (losses) on sale of mineral properties, plant and equipment | 41 | (673) | (1,910) | 2,818 | ||||||||||
Share of income (loss) from associate and dilution gain (Note 9) | 1,078 | 79 | (1,811) | 999 | ||||||||||
Transaction and integration costs | — | (2,863) | — | (7,712) | ||||||||||
Other (expense) income | (730) | 1,042 | (8,519) | 818 | ||||||||||
Earnings from operations | 84,724 | 38,925 | 75,702 | 74,860 | ||||||||||
(Loss) gain on derivatives (Note 4d) | (523) | — | 113 | (14) | ||||||||||
Investment income (Note 4b) | 13,055 | 36,139 | 32,315 | 50,963 | ||||||||||
Interest and finance expense (Note 19) | (4,367) | (8,256) | (15,621) | (20,955) | ||||||||||
Earnings before income taxes | $ | 92,889 | $ | 66,808 | $ | 92,509 | $ | 104,854 |
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three and nine months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
At September 30, 2020 | ||||||||||||||
Segment/Country | Operation | Assets | Liabilities | Net assets | ||||||||||
Silver Segment: | ||||||||||||||
Mexico | Dolores | $ | 736,458 | $ | 154,873 | $ | 581,585 | |||||||
La Colorada | 238,922 | 59,432 | 179,490 | |||||||||||
Peru | Huaron | 98,310 | 33,135 | 65,175 | ||||||||||
Morococha | 109,936 | 28,805 | 81,131 | |||||||||||
Bolivia | San Vicente | 74,506 | 32,194 | 42,312 | ||||||||||
Argentina | Manantial Espejo | 76,508 | 24,923 | 51,585 | ||||||||||
Guatemala | Escobal | 294,014 | 23,632 | 270,382 | ||||||||||
Total Silver Segment | 1,628,654 | 356,994 | 1,271,660 | |||||||||||
Gold Segment: | ||||||||||||||
Peru | Shahuindo | 560,762 | 184,377 | 376,385 | ||||||||||
La Arena | 274,558 | 103,297 | 171,261 | |||||||||||
Canada | Timmins | 384,088 | 57,489 | 326,599 | ||||||||||
Total Gold Segment | 1,219,408 | 345,163 | 874,245 | |||||||||||
Other segment: | ||||||||||||||
Canada | Pas Corp | 181,925 | 110,369 | 71,556 | ||||||||||
Argentina | Navidad | 193,011 | 193,011 | |||||||||||
Other | 81,471 | 43,057 | 38,414 | |||||||||||
Total | $ | 3,304,469 | $ | 855,583 | $ | 2,448,886 |
PAN AMERICAN SILVER CORP. | 27 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
At December 31, 2019 | ||||||||||||||
Segment/Country | Operation | Assets | Liabilities | Net assets | ||||||||||
Silver Segment: | ||||||||||||||
Mexico | Dolores | $ | 763,301 | $ | 137,396 | $ | 625,905 | |||||||
La Colorada | 223,416 | 46,476 | 176,940 | |||||||||||
Peru | Huaron | 110,642 | 39,962 | 70,680 | ||||||||||
Morococha | 128,280 | 36,754 | 91,526 | |||||||||||
Bolivia | San Vicente | 76,418 | 35,331 | 41,087 | ||||||||||
Argentina | Manantial Espejo | 77,635 | 27,455 | 50,180 | ||||||||||
Guatemala | Escobal | 293,178 | 19,340 | 273,838 | ||||||||||
Total Silver Segment | 1,672,870 | 342,714 | 1,330,156 | |||||||||||
Gold Segment: | ||||||||||||||
Peru | Shahuindo | 600,096 | 162,821 | 437,275 | ||||||||||
La Arena | 282,978 | 90,472 | 192,506 | |||||||||||
Canada | Timmins | 429,060 | 50,171 | 378,889 | ||||||||||
Total Gold Segment | 1,312,134 | 303,464 | 1,008,670 | |||||||||||
Other segment: | ||||||||||||||
Canada | Pas Corp | 229,814 | 304,184 | (74,370) | ||||||||||
Argentina | Navidad | 193,034 | — | 193,034 | ||||||||||
Other | 53,830 | 43,474 | 10,356 | |||||||||||
Total | $ | 3,461,682 | $ | 993,836 | $ | 2,467,846 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
Product Revenue | 2020 | 2019(1) | 2020 | 2019(1) | ||||||||||
Refined silver and gold | $ | 220,416 | $ | 242,981 | $ | 724,261 | $ | 600,602 | ||||||
Zinc concentrate | 16,317 | 27,306 | 39,088 | 102,192 | ||||||||||
Lead concentrate | 39,439 | 47,123 | 88,396 | 138,474 | ||||||||||
Copper concentrate | 5,809 | 21,972 | 21,750 | 59,431 | ||||||||||
Silver concentrate | 18,433 | 12,805 | 34,856 | 45,681 | ||||||||||
Total | $ | 300,414 | $ | 352,187 | $ | 908,351 | $ | 946,380 |
(1)Includes amounts previously included in discontinued operations which have been recast, and presented, for the three months ended September 30, 2019 in continuing operations as a result of Timmins no longer being classified as held for sale.
23. INCOME TAXES
Components of Income Tax Expense
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Current income tax expense | $ | 24,923 | $ | 23,309 | $ | 53,293 | $ | 55,696 | ||||||
Deferred income tax expense (recovery) | 2,706 | 5,780 | 31,779 | (10,380) | ||||||||||
Income tax expense | $ | 27,629 | $ | 29,089 | $ | 85,072 | $ | 45,316 |
Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the items shown on the following table, which results in effective tax rates that vary considerably from the comparable period. The main factor that impacted the effective tax rate for the nine months ended September 30, 2020 was the devaluation of the Mexican Peso and the Peruvian Sol, which caused a significant decrease in the deductible tax attributes for operations in these countries. Other factors that impacted the effective tax rate for the three and nine months ended September 30, 2020 and the comparable periods for 2019 were changes in the recognition of certain
PAN AMERICAN SILVER CORP. | 28 |
Notes to the Condensed Interim Consolidated Financial Statements As at September 30, 2020 and December 31, 2019, and for the three and nine month periods ended September 30, 2020 and 2019 (Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted) |
deferred tax assets, changes in the non-deductible portion of reclamation liabilities, mining taxes paid, and withholding taxes remitted on payments from foreign subsidiaries. The Company continues to expect that these and other factors will continue to cause volatility in effective tax rates in the future.
Reconciliation of Effective Income Tax Rate
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2020 | 2019 | 2020 | 2019(1) | |||||||||||
Earnings before taxes and non-controlling interests | $ | 92,889 | $ | 66,808 | $ | 92,509 | $ | 104,854 | ||||||
Statutory Canadian income tax rate | 27.00 | % | 27.00 | % | 27.00 | % | 27.00 | % | ||||||
Income tax expense based on above rates | $ | 25,080 | $ | 18,038 | $ | 24,977 | $ | 28,311 | ||||||
Increase (decrease) due to: | ||||||||||||||
Non-deductible expenditures | 2,885 | 1,453 | 8,045 | 3,548 | ||||||||||
Foreign tax rate differences | 4,961 | 3,028 | 10,795 | 3,202 | ||||||||||
Change in net deferred tax assets not recognized: | ||||||||||||||
- Argentina exploration expenditures | 722 | 613 | 2,094 | 2,189 | ||||||||||
- Other deferred tax assets | (8,236) | (4,656) | (761) | (19,368) | ||||||||||
Effect of other taxes paid (mining and withholding) | 3,422 | 6,156 | 10,269 | 16,188 | ||||||||||
Effect of foreign exchange on tax expense | (1,647) | 5,977 | 40,769 | (54) | ||||||||||
Non-taxable impact of foreign exchange | 2,495 | (1,953) | (12,803) | 728 | ||||||||||
Change in non-deductible portion of reclamation liabilities | (337) | 2,069 | 3,663 | 9,401 | ||||||||||
Other | (1,716) | (1,636) | (1,976) | 1,171 | ||||||||||
Income tax expense | $ | 27,629 | $ | 29,089 | $ | 85,072 | $ | 45,316 | ||||||
(1)The bargain purchase gain recognized on the Tahoe Acquisition date was eliminated in the fourth quarter of 2019 and retrospectively adjusted from the Company's results, for the three months ended September 30, 2019, as a result of changes in the assessed fair values of assets acquired.
24. CONTINGENCIES
The Company is subject to various legal, tax, environmental and regulatory matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved unfavorably to the Company. In the opinion of management none of these matters are expected to have a material adverse effect on the results of operations or financial conditions of the Company. Since December 31, 2019, there have been no significant changes to these contractual obligations and commitments.
25. RELATED PARTY TRANSACTIONS
The Company’s related parties include its subsidiaries, associates over which it exercises significant influence, and key management personnel. During its normal course of operation, the Company enters into transactions with its related parties for goods and services.
Related party transactions with Maverix have been disclosed in Note 9 of these condensed interim consolidated financial statements. These transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by the parties which approximates fair value.
PAN AMERICAN SILVER CORP. | 29 |