Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver Second Quarter 2019 Results Conference Call. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Siren Fisekci, VP of Investor Relations. Please, go ahead.

Thank you, operator, and welcome everyone to Pan American Silver's Second Quarter 2019 Conference Call. We released our results after yesterday's market close, and a copy of the news release and presentation slides for today's call are available on our website. In a few moments, I will turn the call over to Pan American's President and CEO, Michael Steinmann, who will provide a brief review of our results. We will then open the call to questions and answers. Joining us for the Q&A portion are Pan American's Chief Operating Officer, Steve Busby; Chief Financial Officer, Rob Doyle; Senior VP, Project Development, George Greer; Senior VP, Technical Services and Process Optimization, Martin Wafforn; and VP of Business Development and Geology, Chris Emerson. I'd like to remind everyone that our news release and certain statements and information in this call constitute forward-looking statements and information. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent Form 40-F and Annual Information Form. Media and other participants on the call are invited to participate in listen-only mode. I will now turn the call over to Michael.

Thank you, Siren. Welcome everyone joining us today to discuss our results for the second quarter of 2019. Revenue in Q2 2019 was roughly $283 million, up 31% from Q2 2018, driven by higher quantities of metal salt except copper. This number excludes revenue of $57.5 million from our Timmins mines, which are classified as assets held for sale. Gold volumes more than doubled quarter-over-quarter, reflecting the strong contribution from our new La Arena and Shahuindo mines in Peru, as well as the Bell Creek and Timmins West Mines in Canada. Partially offsetting the higher quantity sold, where lower metal prices for silver and base metals compared to Q2 2018 and increased higher direct selling costs due to increased treatment and re refining costs for concentrates and the temporary export tax in Argentina. Net earnings for the quarter were $18.5 million or $0.09 per share. Adjusted earnings were $9 million or $0.04 per share. The primary adjustments made to earnings were the removal of earnings from Timmins mines and removal of NRV adjustments at Dolores. Net cash generated from operations in Q2 was $83.5 million. Strong operational cash flow was more than sufficient to cover our sustaining capital taxes, interests, dividends and project capital while adding $17 million to our cash and short-term investment balance, which was about $139 million at June 30. Working capital at the end of Q2 was $793 million, which includes $376 million relating to the Timmins mines. Total debt was $378.8 million, comprised of $43.8 million of lease liabilities and $335 million drawn in our credit facility. We continued to have $165 million available under the credit facility and total liquidity of $304 million. We produced 6.5 million ounces of silver and 154,600 ounces of gold in Q2, consolidated cash cost were negative $4.19 per…

[Operator Instructions] Your first question comes from Chris Terry with Deutsche Bank. Please go ahead.

Hi, Michael and team. Yes, few questions from me. Just the first one divestments, I think previously you've said that you were pretty close on the Timmins sale and you were doing the D-Day with some potential buyers. Just wondering if you could give a timeline on your latest thinking on the assets you may divest and when that might occur? Thank you.

Yes. Look I don't have obviously for things like that, there is no fixed timeline as you understand. As I indicated from the beginning on, the idea is to divest non-core assets. I think they are pretty well defined now with obviously Timmins, La Arena 2 that are refined as a big copper porphyry that is not a good fit for us. I also indicated our ownership in the large Shalipayco zinc deposit in Peru that we had in our portfolio. And then there are a few smaller assets from the Pan American side. So a lot of fronts we work on, as you can imagine with a lot of changes in metal prices over the last, what is it now, a couple months – 1.5 month, a lot changed. And I think people have to regroup, we have to regroup and see how to move forward, I was very clear that we are not in a hurry at all to sell these assets, you have seen the results on Timmins for example, which have been very positive, even at considerable lower prices actually in Q2 that what we see actually right now. So we will be very patient here and obviously, on this all these assets, if we get the right value for our shareholders. So, stay tuned and as I said we’ll see how it advances over the next few months.

Thanks, Michael. That makes sense. And then just in terms of the great success you've had at La Colorada, I think you said you were expecting a upset resource at the end of the year. Can you talk a little bit more about the ways you're looking at to best monetize that success? Just whatever framework you can provide. Thank you.

Sure. It's a great discovery, it's probably quite a bit early to talk about how we monetize it right away, I mean, you've seen the results that [indiscernible] drilling with seven rigs on it, it’s obviously a very important project for us, I think it's a very fascinating, discovered very wide intersects and high grades and you can hear here speaking the geologist that of me, being very excited about this large discovery. Just a few notes on this, keep in mind that this is separate from the – really from the silver side of La Colorada, so – La Colorada, very important and very strong silver producer and cash flow generator for the company, that will happen over a long, long time, we have long – very long resource and very long resource life at that asset. The skarn is a little bit on the side and there will be separate treatment obviously, everybody saw that, the silver grades are a bit lower, although there are some very fascinating intersects and there is obviously some high grade silver veins as well cutting this carne [ph] cross-cutting it, that's – if you look at the press release that we put out last week, you see there some more narrow, very high grade silver veins, the narrow intersects are obviously the veins that cross-cutting this carne. But very wide intersects are very interesting, it will need obviously a separate – different mining method is completely a different wide ore body, not what we mine at La Colorada right now, we’ll require different treatments, we did not think yet about size of plant or location, et cetera, et cetera. All we do right now is be fascinated about the results, keep drilling, they keep coming and they are very, very wide. And as we indicated towards the end of the year, we come out with a maiden resource on it. I think to drill it fully, that too will take a time, it’s a very, very large discovery.

Great. Thanks Michael. All the best.

Thank you.

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

Hi, thanks, Michael and team. Maybe my first question is on COSE and Joaquin. And maybe if you can give us – elaborate a little bit more on the ground condition issues here at COSE. I recall two years ago at the Analyst Day, I asked the question on Q-value and also RDQ of COSE or either COSE or Joaquin, and that number turned out to be pretty low. So I would imagine you had some thoughts in terms of you have to be careful in terms of how your mind the two assets here. But what is it, is it just more fractured than you had expected, a certain type of mineral that's causing you issues. And in terms of fixing it, is as simple as more ground support or maybe even a faster cycle time, if you can give us a bit more color that'd be great.

Yes. Thank you, Cosmos, this is Steve.

Hi, Steve.

Hi. Yes, obviously we did encounter ground conditions that were a little bit more trickier than we had anticipated. We did anticipate bad ground, the RTDs were quite high. I mean there were broken up material we knew that. We didn't recognize some of the structure, some of the fault features in there. And we ended up opening up an area a little bit bigger than we were hoping to open up. And unfortunately that's the area that came down. In terms of our mitigation plan to get back in there, we're looking at ways of mining that structure to where we don't open up as much if we do have to open up as much, obviously we're going to much more elaborate support systems possibly rebar bolting, cable bolting, getting a lot more length into the wall. So that's kind of what we're focused on. The delay that we have and doing this is going to be probably a few months as we look at the engineering of that, which means we'll start support production towards the end of the year. We have been producing a bit of development mark as we got into that structure, which looked pretty good. I mean we already have 1,500 tons on the ground, that's great and 2.6 kilos of silver and 33 grams of gold. So the structure is there, it's broken up, there are ways we know we can mine it, it's just a matter of getting all the design properly done and then training our miners on how to properly use that new ground support systems.

And then in terms of 2019 guidance, the update at 2019 guidance, I guess you mentioned that it includes only development or coming from COSE in 2019. Can you remind us anything coming in from Joaquin in terms of that guidance?

Yes. I don’t have that number right in front of me, Cosmo, but yes, it's – we've also reduced that back a little bit because we have decided to do a little bit more work on the ground control methods in that mine as well, it won't be as big a delay as we're seeing that at COSE, but there will be about a month delay there compared to what we originally planned. So we did trim that guidance down a little bit too, I don't have it broken out by those two different assets, so…

So – but as you mentioned, Steve, that's been factored into your updated 2019 guidance.

That's correct, it is.

And then in terms of the issue we just talked about, is it confined to COSE or? As you mentioned, you're looking at some of the grand support systems at Joaquin as well, but it's not as sensitive –I don't even know what the word is, is it – does that translate – are you seeing the same thing at Joaquin?

No. The issue at Joaquin, we saw in the development ramp in the waste rock, it wasn't in the ore zone at all. And we saw some interesting clay zones and covered zones in the waste that we didn't expect. We did elaborate on the ground support systems as we got into that area, it looks pretty solid. But given what happened at COSE, we decided, we need a – we're bringing in a lot of geotechnical experts to look at COSE, we thought we’d take advantage for that and look at Joaquin at the same time. So we're just being extra cautious given the nature of the accident that occurred, but that’s not in the ore zone and we're not anticipating any change in our understanding the ore of Joaquin as we get into

Great. As Michael mentioned at least for 2019 COSE and Joaquin’s production, isn't exactly material to the company. And from that perspective, as you kind of find out more about a COSE and Joaquin and learning about the potential additional costs, is there any possibility that COSE and Joaquin might just never come in, in terms of production?

I don't believe so, Cosmo, I think we see some real benefits in keeping that asset moving down there Manantial Espejo, keeping people gainfully employed and it is providing some limited value, but it keeps our Argentine business kind of established – well established, well respected within the community down there. So we feel some importance to that. Although this mines by themselves are not material, I think that overall operation, we see some strategic value and as we look forward.

Of course. Maybe switching gears a little bit in terms of Dolores, Q2 costs were still fairly high and tracking to higher than your 2019 all-in sustaining cost guidance. Could you give us a sense in terms of what we should be expecting in terms of improvements in the second half? And in terms of the pulp agglomeration plant, how is that working out? And I guess last year, there were some setbacks in terms of mining in Mexico, has that been fully resolved?

Let me start with the second part there first. The mining is running quite smoothly, the operation is running well, we still have the support of local law enforcement escorts on the access road, all that's working incredibly well for us. So the mine is operating very smoothly, we're very happy with that, we don't anticipate any changes to that going forward. Relative to the cost at COSE during the first half, great question. Actually, during the first half of the year, we moved just under 3 million tons of spent ore that was sitting on pad 1. Pad 1 was the old pad that mine finders had originally built, that had failed. And we are now approaching the point of the leach pad development at Dolores, where we want to expand into that pad 1 area and repair and upgrade what was there originally, so in order to do that, we have to remove that spent ore. There is actually some value in that spent ore, so we're removing it, like I say it took about 3 million tons out during the first half. And the team at the site, actually collaboratively, they were able to re–anticipated some production out of that ore, based on the grades and the recovery projections we had on that, they went through some pretty extensive testing and proved that by better cyanide management, better ph management, we could actually enhance the recoveries of that material. So a lot of those costs that you see in H1 is additional reagents that we use during the bad pad 1 relocation. As we move into H2 of 2019, that's going to drop way off. We slowed that way down, we just needed enough room to start or do technical work in repairing that [indiscernible] of pad 1 during the first half of the year. We're now – there we're building on that pad as we speak, so we’ve slowed that rate of movement of that spent ore way down, there is about 2 million tons left and we – it may take us as much as a year to move that next 2 million tons. So you won't see that cost impact moving into the second half that we had in the first half. Relative to the pulp agglomeration plant, we have now got the third set of filter expansion kits on, the plants running really well, we're consistently achieving about 5,000 tons a day through it, just under 5,000 tons a day, recoveries are at what we expected. The site really likes it because we get that recovery immediately versus out on the pad. As you know, we've got quite long leach cycles out there. So as we start to move into high-grade ores later in the year, we're really excited about that pulp agglomeration plant delivering returns right away for us.

Maybe a question for Michael here, Michael earlier this month at Escobal or in Guatemala or in the BC Courts, the case against or with Garcia was settled. Should we read into any kind of positive read-through and I'll ask this question anyways in terms of timing for Escobal, likely you can't answer me at this point in time, but I'll ask.

Sure. Look, I mean you shouldn't read more or less into it than what we had in the press release, on the Garcia you had there, my statement as well as I thought it was important to us to resolve that. We really hope that this is a step forward in repairing some of the relationships with the project communities in Guatemala. I don't think so that you should read more or less into that. Timing, I’d stay my core selflessly on the timing side as I said this will take time. I don't have the timing for it. So, stay tuned on this. As I – since November last year indicated, this will take a while and we'll get take the time to get this done, right. So you have to be patient. I think meanwhile you see what the other assets that we purchased in the site of Guatemala are capable to do, even at quite lower metal prices than what we see right now. So I’d say all starts with – interesting here looking forward, but we know that the government has to lead this through ILO 169 indigenous consultation process. And as I said, we will continue to put forth our best efforts towards establishing a peaceful dialogue with the communities. And that's probably all I have right now.

Yes. Thank. Thanks Michael. And I have one more question, falling up under divestitures of some of the non-core assets here. Maybe I'll ask the question a little bit differently with the, commodity prices being more robust in Q3, does that help in terms of interest in those assets? Have you seen an increased interest in those assets based on what's happening to the gold price?

I think that was always quite a good interest in it, it's just, as I said I want to be patient to get the right value for our shareholders out of it. I don't think so that everybody just – because of what is the – that’s aside a month, a month and a half of higher prices and that happened probably in most people summer vacation. So I think people will get back from vacation in September, look at the second half or last part of the year and probably update some of their price assumptions and we'll see what happens, what happens by then.

Great. Thanks Michael and Steve, those are all the questions I have.

Thank you, Cosmos.

The next question comes from Chris Thompson with PI Financial. Please go ahead.

Hi. Good morning guys. Thanks for hosting the call. Couple of quick questions, more specifically I guess – let's just look at Dolores. I am wondering if you could just maybe just unpack the components that make up the operation. I know that Cosmos asked the question relating to the agglomeration there, but what do you, what's the production rate on the underground right now?

Yes, we're – the last probably three or four months, Chris, we've been running about 1,000 tons a day out of the underground. We're still ramping that up. Our goal is to get to 1,500 tons a day towards the end of the year. It's ramping up well, costs are looking good. We're down below $50 a ton all-in costs and that includes all our development that's going underway right now. So we're very pleased with the ramp up. We're finally there to where it's ramping up quite nicely. Grades are coming in reasonably well. We're seeing above 2 gram gold equivalent type grades coming through. So overall it's performing well and we expect it to deliver according to our plans.

Great. Thanks for that Steve. So just remind me, the goal I guess was 20,000 ton a day of stacking rates on the pads. You are little short obviously this quarter, would that be the makeup you're looking for by the year-end or from the underground?

Yes, I mean a big part of that shortfall in stacking rates during the first half of the year is really the ore coming out of the pit. We're in that big stripping phase of that open pit Phase 8 and it's just – we're just not seeing, we didn't expect it. We're not seeing the order flow in the smooth, high-grade ore flow, it's just that periods of time of the stripping sequence. So as we moved towards later part of the year, I do expect we'll see us getting up to that 20,000 tons of days stacking rate again. And that'll include the 1,500 tons a day coming out of the underground.

Great. Thanks for that Steve. Just, I guess moving over to the other heap leach operation in the Shahuindo here. Again – can you just give us a little info on the agglomeration there, the component what do you – puts putting through the agglomeration plant right now? What's running in mind? How that's working out for you?

Yes. Right now we are not operating the crushing and agglomeration circuit at Shahuindo. We are processing all ores run a mine. We just simply are not seeing yet the high-grade ore that requires a crushing agglomeration. We expect that in the future. We're still revising our geologic models to try to better understand that distribution. But as I mentioned, I think last quarter, all of this year and probably most of next year, we're not really anticipating much to start that plant up. So the plants are idle, we haven't really staffed it, we're not really putting any costs to it. We're running all run a mine. We're very pleased with that operation. We're building leach pads. The waste dumps are coming together well. And I think, I still feel there are some decent upsides at the moment.

Yes and definitely. And then just quickly moving on to La Arena, again a little light I guess on the tons placed there. I think historically, you're looking at about what's 30,000 ton a day operation here. Are we going to see that sort of improve or what's your sense there?

Yes, absolutely. Chris, another one, we have to hit Dolores and La Arena at the same time and as stripping sequence. So this is effect of that Phase 7 stripping and it's simply because it's run of mine leaching all the ore of that mine goes directly to leach pad. So that's just the ore flow that's coming out as we strip that Phase 7. So towards the end of the year we've actually, I don't know if you recall, but actually, the life that had increased the permit levels to 45,000 tons a day. I think as we moved through the rest of the year, you're going to see that ore flow once we get back into that ore, in the next couple of months jump up to the 45,000 tons a day rate.

, :

Yes. Good question, Chris, as I've mentioned before both Huaron and Morococha, we're doing nearly 25 kilometers of underground development every year. These mines require a massive amount of development and some of those developments have got many, many phases going at one time and some are exceeding plans, some are not meeting plan. And unfortunately into some of the higher silver grade ores of La Colorada[ph] we're short on that development and we didn't get into the higher grade silver ores we had planned for this year. So to offset that we've moved to ores where we've had better results in underground development and those ore have higher zinc grade but lower silver. Unfortunately I think that's going to remain that way for the rest of the year and that also was factored into our new guidance when we put in the new guidance.

Got it. Steve, thank you very much for your comprehensive answers to my questions. Thanks guys.

Thanks Chris.

Thank you. [Operator Instructions] The next question comes from Lawson Winder with Bank of America Merrill Lynch. Please go ahead.

Hi everybody. Thanks so much for taking my questions. Just two for me, one first on La Colorada, the cash cost guidance of 250 to 350. I'm just going to work into those numbers. I mean the implication is that in H2 the cost per ton is going to go up quite materially, but I mean that just doesn't make a lot of sense to me, is there a reason why that might be happening or is it something else where perhaps it's just that byproduct production is anticipated to go down a lot? Thanks.

Yes. Lawson, this is Steve and I think you're getting close to where we're at there, but the real issue is the base metal prices, we're projecting lower base metal prices moving into the second half. So it's that byproduct credit due to pricing not due to production. Our unit cost per ton, we're not anticipating any change really from H1.

Okay. That's very helpful. Thanks Steve. And then, just my other question was on the depreciation, there was a lot of movement in the depreciation per ounce at several of the mines in Q2 versus Q1. I'm just curious you guys are expecting to see any substantial moves at any of the assets into the second half versus Q2. And that's it for me. Thanks.

Hi Lawson, Rob Doyle here, we don't anticipate any changes from Q2. Obviously we're going through the purchase price allocation process for the Tahoe assets that we've just bought onto the balance sheet. So as we finalize that process, there may be some change in carrying values which would impact depreciation, but nothing material anticipated there. So I think what's important to bear in mind is sales volumes, that's a key driver for the depreciation that we recognize. Obviously it's all triggered by revenue recognition. So, just make sure that you're looking at sales volumes as opposed to production volumes when you're doing that calculation.

Yes, definitely. Okay. So I mean, Q2 can be taken then as a fairly sensible a run rate?

It should be a good proxy going forward. Yes.

Okay. That's very helpful. And I know I said I ask only two questions, you guys wouldn't mind asking one more, just with Shahuindo, how are the grades reconciling versus your models?

Yes, thanks Lawson. Yes, very solidly. I mean we're still outperforming our model where we got our teams, our Geologic Teams Chris and his group looking very hard with it along with Martin, as we go to build our new reserve. Like I said, I think this reserve is going to capture some of the upsides we'd been seeing. As we open up the Phase 2 of that pit, we're just opening it up here in the last couple of months. It's too early to really call if it's going to carry through to Phase 2 yet, but I would say year-to-date, we're still running about 15% ahead of the reserve amount of silver. We're optimistic looking forward.

Thanks so much.

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

Thank you, Operator. And thank you very much for calling in today. I'm looking forward to give you an update on Q3 in November, that's already. Enjoy the rest of the summer everybody and talk to you soon. Thank you very much, bye.

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