Pan American Silver Corp. (PAAS) Q1 2026 Earnings Report, Transcript and Summary

Welcome to the Pan American Silver First Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Siren Safety, Vice President, Investor Relations. Please go ahead, Mr. Seki .

Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our first quarter 2026 results. This call includes forward-looking statements and information and references non-GAAP measures. Please see the cautionary statements in our MD&A, Q1 news release, shareholder return framework news release and presentation slides for the period ended March 31, 2026. All of which are available on our website. I'll now turn the call over to Michael Steinmann, Pan American's President and CEO.

Good morning, everyone, and thank you for joining us today. I'm pleased to report another solid quarter of operating performance, delivering strong operating earnings, attributable silver production of 6.4 million ounces and attributable gold production of 169,000 ounces were in line with our outlook. Silver segment all-in sustaining costs of $6.63 per ounce came in well below guidance while gold segment all-in sustaining costs of $1,851 per ounce were consistent with expectations. . The performance on Silver segment costs was driven by the contribution of low-cost ounces from June CPO and the impact of higher gold prices. Revenue of $1.2 billion was impacted by the buildup of approximately 644,000 ounces of silver in inventory, primarily at La Colorada due to the timing of concentrate shipments. Net earnings were $456 million or $1.08 per share and adjusted earnings were $1.09 per share. We continue to generate strong levels of free cash flow, reflecting both our operating performance and favorable metal prices. In the first quarter, we generated $488 million of attributable free cash flow. This has further strengthened our balance sheet, and we ended Q1 with a record cash and short-term investment balance of over $1.8 billion, including cash attributable to our interest in QuaneCpO. The strength of our free cash flow generation and balance sheet has enabled us to introduce an enhanced shareholder return framework. The new framework targets the return of 35% to 40% of annual attributable free cash flow to shareholders through a combination of dividends and common share repurchases under our normal course issuer bid of up to $1 billion. We expect to pay aggregate dividends of approximately $305 million during 2026 equivalent to a quarterly dividend of $0.18 per common share based on the current share count and use approximately $700 million for share repurchases. By accelerating share repurchases, we aim to enhance long-term per share value by increasing each shareholders' exposure to our high-quality portfolio and supporting sustainable growth in dividends over time. This enhanced shareholder return framework reinforces our disciplined approach to capital allocation while maintaining sufficient cash for growth and M&A activities while providing resilient shareholder returns across commodity cycles. Focusing on growth. The release of the revised PA of the La Colorada expansion in March provides greater clarity on the capital requirements and long-term potential of this important organic growth project. The expansion is expected to produce an average of 19.1 million ounces of silver annually during the peak 5 years following construction and ramp-up. The revised PA represents a huge improvement over the original study with higher grades, lower capital intensity, stronger overall returns and reduced technical risk due to the use of a conventional long-haul open stope mining method. The project improved as a result of continued exploration success, which identified new high-grade veins east of the current mining area. Exploration drilling continues to intersect mineralization beyond current resources, highlighting the potential to further expand the resource base and extend peak production. The Board approved $265 million in project capital over the next 5 years to support development of a ramp to access the car monetization. We now expect to spend between $92 million to $95 million on the La Colorada can project in 2026 increasing consolidated 2026 project capital guidance to between $240 million and $255 million. We're also making progress at our Jacobina optimization project. During Q1, we completed construction of 2 new carbonate pulp tanks and implemented improvements to the tailings pump system. One of the most significant opportunities we see at Jacobina is simplifying and optimizing the process plant flow sheet. Conceptual engineering is nearing completion, and we will transition to basic engineering in the coming months. We also expect detailed engineering for a filtration plan, filter tailings stack and the temporary mine-based factory plant within the coming months. At Escobal, the government of Guatemala is continuing the ILO 169 consultation process and engagement has been ongoing, including recent site visits to review care maintenance activities and confirm compliance with the court order suspension. At this time, there is no time line for the conclusion of the Escobal ILO 169 consultation or for the restart of operations at the mine. Given our strong operating performance in the first quarter, we are maintaining our full year outlook for production, all-in sustaining costs and sustaining capital. We expect some gold production to shift into the fourth quarter of 2026. We are monitoring potential cost pressures, particularly related to fuel prices. Due to most of our mines being underground, our direct exposure to fuel is relatively limited, approximately 5% of total operating costs. Higher fuel prices can have broader inflationary effects including on labor and consumables. We remain focused on managing these pressures proactively. To recap, 2026 is off to an excellent start. We delivered another strong quarter. We are generating robust free cash flow, production and costs are in line with our guidance, and we have introduced an enhanced shareholder return framework that reflects the strong cash generation. And with that, I'll turn the call over for questions.

[Operator Instructions] Our first question is from Fahad Tariq with Jefferies.

You mentioned just now the impact of higher diesel potentially on consumables and labor. Can you maybe just mention have you started to see any consumable prices started to go up or anything that you're hearing from your suppliers?

Yes, Scott, can you take that, please? .

Yes. Not significantly, no. We've seen some increases in the cost of geosynthetics minor, very mines and cost staff transportation, where the increase in fuel cost has been passed on to us, but nothing to do in any of our operations. .

Okay. Great. And then maybe just 1 more for me. On the Silver segment ASIC, which was very low this quarter, in part because of the byproduct credits at Cerro Moro. Can you maybe just talk about it would have to trend quite a bit higher to get to the full year guidance. Maybe just talk about the -- like how that's going to happen and whether it's possible for ASIC to come in lower than the guidance range?

Yes, great quarter on the silver cost, as you say. Mostly driven, I think it's pretty clear which when you see strong production there. As you recall, that was 1 of the attraction of that mine that we have a strong silver production at compared with very low cost. And then as you mentioned, the back product credits, et cetera moderate been very strong this quarter. . Look, this is 1 quarter of the year, we'll obviously reassess midyear if we going to reguide our cost. But after 1 quarter, we just decided to leave it where it is. But a great start for the year on the cost side for sure.

The next question is from Ovais Habib with Scotiabank.

Really congrats on a good quarter, again, especially on the silver segment costs. Also, the shareholders' return program was a nice positive surprise as well. So -- that was great to see. A couple of questions from me. Maybe starting off with anasepio. Manasepio consistently has been showing some positive grade reconciliation over the last couple of quarters. How do you guys see this kind of grade kind of shaping up throughout the year? And then how should we look at things kind of moving on more in the future?

Yes. I will start, and we'll have the taking giving a little bit more detail on that. Absolutely. Look, we have seen this great outperformance at Juanicipio for many quarters. even before we purchased the asset. It's a great mines, as you know. And we -- I think 1 of the main reasons that we find some more tonnes higher up with higher grades. But just to remind me, these are very similar systems than what we see at La Colorada. So very high grade silver, some gold, high-grade gold, higher up to surface. The deeper down you go in to mine the deeper and higher grade, you could get into base metals and that's why like at La Colorada and the same will be valid for Juanicipio will be wanting to exploration, you discover additional veins that you plan in and you start mining higher up again, you bring in higher silver grades. So that's kind of the system, that's the geology of all these systems in that Silver belt of Mexico, Semconisivia. So as I said, the main structure, the grade will go into more base metals, more zinc and then later age when you go deeper down but as you see, very strong outperformance on the silver side up to now. And I think we'll see that, that decrease coming at 1 point, obviously, our decrease just on silver, and as I said, very strong increase in base metals. But at the moment, we are enjoying these high grades. And I think that, that slight decrease will be quite a bit slower than we probably anticipated.

And just maybe quickly, moving on to Lacurada. In regards to the PA that you announced, obviously, a lot of drilling was left out on that and there were some very high-grade results and good structures that you guys have delineated. Are you expecting to release some sort of an updated study incorporating these results? Or any sort of optimization work that you've been doing in the background? In the next couple of quarters?

Definitely, we'll put that exploration update and include, obviously, this data in our midyear reserve and resource update that we normally published somewhere in August. So there, you will get a new idea how it looks like. Just you said left out. We didn't really leave them out just there's a lot of work to obviously come up with an updated PEA and the whole mine plan and everything, while our geologists are very excited on that project and keep drilling a lot and create a lot of data. So there's always quite a long, I wouldn't call it lag, but backup data that comes in a bit later on. So that will continue as we have many drill rigs working at La Colorada, and there will be constantly new data coming in. So again, we will come out with updated exploration results and then include that in our updated reserve resource estimation.

I'll just tee has some more additional comments to that. Sorry, it's Steve -- but here. I just wanted to add -- so we won't -- we will delay the next report in terms of like a PFS update because we have such a long schedule for this initial development of the ramp and eventually the shaft those are kind of taking precedents of the development schedule. So we want to get those early works projects going and get those moving along -- and then we'll go back and start doing additional engineering and such for the plant and surface infrastructure. So as Michael said, we'll update resources along the way, but we won't come out with a new mine plan right now for a couple more years, at least.

But just to add to that, of -- as you probably saw in the press release, Board approved the first tranche of capital for the La Colorada scan. That's a great milestone for this really, really important and large project for us. La Colarada is going to be 1 of the biggest and lowest cost saver mine in the world. And we approved the first $265 million to advance a ramp down from the existing mine to the car. That's along with about the 5-year project to build that ramp. So you can imagine that in ground and conditions that we are very familiar with, we drive many ramps, but this ramp will be very special for us as it will access the Sharp is the first important part of capital spent on the La Colorada skarn project. And it was important to get that started because that's really kind of 1 of the slowest piece of the puzzle, if you want to say so, to put it all together. As Steve said, building the new plant and surface infrastructure, there is plenty of time later on.

The next question is from Cosmos Chiu with CIBC. .

Michael and team and congrats on the strong start to 2026. Maybe on Skarn again, good to see that you've committed $265 million for the initial internal ramp. Could you remind us in terms of the dimensions of the internal rep, is it going to be sufficient for production? Will it eventually be used for production or most of the hosting is going to be coming from the East hoisting shaft. Could you maybe help us picture it in terms of how this is going to eventually work? .

Sure. It's Martin Walton here. Yes, the decline we're driving at 5.5 meters by 6 meters. So a big decline with the intention of putting big-size trucks in the order of 50 tonne capacity trucks, and we use those to hold up to the 588 and then we'll use other trucks to take of waste that we're generating from this is actually 12.4 kilometers of development that we're going to do over the next 5 years. That will all go up to surface via the other decline. Our long-term production, we all go up the East production shaft. That's the plan. But we will have this ramp that's available as well. But a long-term plan, as I said, is to just use the shaft for hosting the order service.

Great. And then the other part of capital returns Michael, as you mentioned, great to see the new enhanced shareholder return framework now in place. I guess my question is, is it as simple -- when we try to figure out how many shares you might buy in each quarter. Should I -- for example, in Q1, you generated $488 million in free cash flow. As an estimate, can I multiply that by like 35% or 40% of subtract of what you would normally kind of give out in each quarter to figure out how many shares you could -- of course, it's going to be dependent on the levels of Pan American Silver shares but is that kind of like the sort of how we would execute on that framework?

Yes. Look, I mean, what we announced is up to $1 billion of return on part is dividend. The dividend is kind of fixed at a total amount of $305 million for the year. So while we're buying back shares, the return on the dividend per share we slightly and slowly increase with more buybacks in place. So that's another additional interesting addition here to our capital return framework. We looked at the past returns we had. Of course, we increased the dividend 3x over the last quarter. But our cash flow generation is so strong right now and the big projects that we are building, there is enough capital or our growth as well, and you probably saw we are already at about $1.8 billion between cash and short-term investments, so the Board believes that we can return up to $1 billion. I believe that, obviously, too, we are right on track for that. And that's kind of the plan. So how many shares we can buy well, that, as you said, will depend on the share price for that. But we'll really try to aim for the $1 billion return this year.

And then I guess on that, I noticed that in Q1, you utilized -- not a lot of it. You bought back about 460,000 common shares in Q1, which is not a lot given that if you want to hit those some of those numbers I just mentioned you might need to kind of buy back 10 million shares for the rest of 2026. So I guess my question is, in Q1, why were there not more shares being bought back? Was it due to a level in terms of where you were trading at as you mentioned in the press release. The share buybacks were $54.04 a share in Q1? Or was it just due to the fact that in Q1, you did not have this enhance shareholder return framework put in place just yet?

Really, a combination of the framework wasn't in place and very important to remember, we put out updated PEA, and there was quite a while we were in a blackout and I couldn't really repurchase shares for a while. So until we had all that information out. As soon as that happened, started repurchasing shares. So that was the reason for that kind of delay. But as you can imagine that we will step up that repurchase pretty strongly to get to that total $1 billion return for the year.

Maybe 1 last question in the same press release, you talked about other projects, including the Timmins project, the extension of the Bell Creek shaft, not didn't really get a lot of airtime, but I think it could be important. So maybe if you can touch on that a little bit as well as some of the exploration opportunities that you have mentioned for that area?

Yes, definitely important. And there's so much room in the press release. We will, of course, give a lot of details on that during our Investor Day, but very exciting to lower the chest and had many, many years of future production to Tim and so maybe, Martin, you want to give us some more color on the shelf extension?

Yes, great project delighted that it's announced, actually, the idea is that we're going to extend the shaft by another 625 meters from the current 1080 level down to $17.05 million -- it's actually going to be developed using Alumacrasers. So we'll come in Alimak up from 2 levels as we go. It's a $131 million total investment -- and it allows extension of Bell Creek well into 2040. Actually, we think right now around about -- depending on how the reserves go, but what will be on 2040 -- 2046 as to what we used in the the economics of the shaft extension. So exciting project. It definitely helped as well with the voyage costs because we're mining right now quite a bit below the ramp. So that's going to help us with the cost there as well.

The next question is from Jeffrey Hung with Ingildsen Snyder.

I apologize. I don't have a question at this time.

The next question is from Don DeMarco with National Bank Financial. .

Thank you, operator, and good morning, Michael, and -- maybe just continuing on the discussion on the skarn. Of course, we saw the Board approved a 12-kilometer decline over 5 years. Does this represent a formal go forward on the project? Or would that be something that we might expect after the PFS update that was mentioned maybe in a couple of years from now?

Yes. Look, this is a very -- it's a project that needs by a few years, but this is definitely the start of our corn development. This is not just an exploration ramp down to see how that can looks like. We obviously have a lot of information we drilled on this car since 2018 when we did the discovery. And you just heard Mark is saying that we're driving down around of 5.5 or 6.5 meters, which will fit 50-ton trucks. So this is definitely the first spend of a great project and the great big mine that we're going to build in an American.

Okay. And of course, like the revised PEA came out a couple of months ago and showed CapEx of $1.9 billion. Just can you remind us, I think at this point, you're talking about funding this within Pan American exclusively. Is that right?

That's correct. As I said, our cash and short-term investment balance right now is $1.8 billion. Of course, it's -- there will be a lot of cash flow coming in over the coming quarters and years while we built this asset plenty of funds available for us to fund this project and continue with our return to our shareholders at the same time.

Yes. And I guess that's a good segue into my next question. I mean the shareholder return program is very timely. I mean it's a real step-up in the share buybacks and coincides with the discounted valuation. But I see it is weighted to buyback. That's pretty common in the sector. Can you share your thoughts on how you decided on the allocation between shares and dividend amounts?

Yes. When we -- I mean when we look at the historic returns we have between share buybacks and dividends, we returned somewhere around mid-30% of our free cash flow to shareholders. Historically, probably higher weighted to dividends. Now we achieved such a high level of cash flow and as I said, increased our dividend already 3x every last past 3 quarters. So we all believe that at this point, the strong share -- share repurchase is a better and stronger use of our cash and return to our shareholders than just continuously increasing the dividend. So it's a great mix, I think. I think it's was a great day when we proved the building and return to our shareholder yesterday.

The next question is from John Tumazos with John Tumazos -- very Independent Research. .

Congratulations on all the cash and good things. In the updated scaring PEA, the CapEx fell by about $1 billion upfront capital. Could you describe the subzones of Skarn where I'm presuming that the updated PEA accesses a higher grade perhaps less a deep part of the car that needs less capital has more revenue. Maybe it's lower temperature maybe it needs a little less ventilation. But my sense is that some parts of the skarn are richer and easier than other parts of the scoring?

Yes. Thanks for the question, John. Absolutely, you're right that the big decrease in capital between the 2 PAs was really that initially it was a way very bigger sublevel caving project. Remember at the beginning, we envisioned up to 50,000 tonnes a day. During the years following years, we discovered more and more high-grade material, not only in the car, but also closer to surface in some additional veins, and I would like to refer everybody to a number of press releases that we put out over the last 2 years on those high-grade wide intersects that encountered within the car ore bodies and this really high-grade structures that we discovered close to surface. So when you put all that high grade together that we discovered over the last few years, we had the chance to build a smaller, higher grade starter, if you want to call, I'm not sure starter manages the right work because the project we put out is at least 37 years long, but we will definitely mind, first, those higher silver grades and that's why the tonnage decreased from that kind of initially around 50,000 tonnes to about 15,000 tonnes a day at just and just uses conventional long-haul open stoping. So with that change, obviously, it's a smaller mine to build smaller plant to build and less development for the underground much simpler straightforward mining method that we apply in most of our underground operations, that combination brought the capital requirement down by $1 billion.

This concludes the question-and-answer session. I'd like to turn the conference back over to Michael Simon for any closing remarks.

Thank you, operator, and thanks, everyone, for calling in. Another great quarter, strong production, low cost, especially in our silver mines, a great combination. Obviously, combined with very high metal prices as well and as a result, very high cash flows. So in light of those strong free cash flows, as you saw in the press release, we adopted a new shareholder return framework targeting to return up to $1 billion between dividends and share repurchases for 2026. . We also approved some really important capital spending, as we just discussed here with the people on the call for Jacobina, Timmins and of course, most importantly for La Colorada, which really marks the first large approved capital spending to develop our great car deposit at La Colorada with the first $265 million approved to in lower that access large access ramp to the deposit. We will be hosting our Investor Day in Toronto on June 1. So there will be an ample time there with lots of maps and cross actions to explain and dive really deep into all these projects like Colorada, Jacobina and Timmins together with many other exciting projects that Pan American has on the development and exploration side. And really looking forward if you could join us for that event. Again, it's on June 1 in Toronto that will be available, obviously, in person if you're in Toronto or via webcast. Looking forward to talking to everyone at that event. Have a great time until June 1. Thank you very much.

This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.