Pan American Silver Corp Q4 FY2025 Earnings Call

Thank you for waiting. This is the conference operator. Welcome to the Pan American Silver Fourth Quarter and Full Year End 2025 Results Conference Call. I would now like to hand the call over to Siren Fisekci, Vice President of Investor Relations. Please proceed.

Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our fourth quarter and full year 2025 results. This call includes forward-looking statements and information and references non-GAAP measures. Please see the cautionary statements in our MD&A, news release and presentation slides for the period ended December 31, 2025, 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. I'm glad you could join us to discuss Pan American's 2025 results and our outlook for 2026. I'll start with the headline. We delivered record financial results across the board in Q4 and for the full year 2025, reflecting strong execution of our business and meaningful margin expansion from higher metal prices. Net earnings were a record $452 million in Q4 or $1.07 per basic share, which included $61 million of income from our investment in Juanicipio. For the full year, net earnings were a record $980 million or $2.56 per basic share. On an adjusted basis, earnings were $470 million in Q4 or $1.11 per share, and for the full year, $959 million or $2.54 per share. The record financial results reflect both the operating strength of our assets and the leverage we have to metal prices. Importantly, that translates into record attributable free cash flow of $553 million in Q4 and $1.2 billion for the full year. Cash and short-term investments increased by $408 million from Q3, totaling $1.3 billion at year-end, or $1.4 billion including our 44% interest in cash at Juanicipio. To allow shareholders to participate directly in rising net cash levels, we declared a dividend of $0.18 per common share, our third dividend increase in a row. Turning to operating performance. Attributable silver production of 22.8 million ounces in 2025 exceeded the top end of the guidance range we increased in November, while attributable gold production of 742,200 ounces was within guidance. Silver segment all-in sustaining costs, excluding NRV inventory adjustments, were $9.51 per ounce in Q4 and $13.88 per ounce for the full year. Silver all-in sustaining costs in 2025 were below the decreased guidance. The key contributor here is Juanicipio, which has been performing better than expected since we acquired the mine in September 2025 through the MAG Silver transaction. For the gold segment, all-in sustaining costs, excluding NRV inventory adjustments, were $1,699 per ounce in Q4 and $1,621 per ounce for the full year, which was within our guidance for 2025. It's worth noting that both silver and gold segment costs in Q4 were impacted by higher royalties and worker participation expenditures reflecting the increase in metal prices. The silver segment is also affected by additional royalties at La Colorada related to mining and adjacent concessions, where we paid the concession owner a share of net profits earned on ores from their concession, which we treat as a royalty expense. Royalties are also impacted at San Vicente to reflect profit sharing with the state-owned mining company, COMIBOL. In 2025, we made good progress on our major projects, investing $94 million, in line with our guidance, to advance several major projects. Most notably, at La Colorada, where the discovery of multiple high-grade silver zones and the segment expansion of mineral resources have led us to reevaluate the development plans for the Skarn project. We now see an opportunity to integrate the mine plans and infrastructure of the La Colorada vein mine with this current project to a phased approach to development. The phased approach would allow us to focus on higher-grade, lower tonnage and less capital-intensive initial stages with the option to target lower-grade material in a future expansion. We are aiming to release an updated technical report for La Colorada in the second quarter of 2026 to include a preliminary economic assessment of the new development approach for the Skarn project. There are also continuing discussions with our potential partners on this project to include the proposed changes. At Jacobina, our investment in 2025 was directed at strengthening operational reliability and to advance long-term growth initiatives. We have provided more details on these initiatives in our MD&A, so I won't run through them item by item. But at a high level, they include plant upgrades, tailings filtration and filter stack and paste backfill plant. At Escobal, the Guatemalan Ministry of Energy and Mines continued meetings in Q4 2025 to advance the ILO 169 consultation process, and in December 2025, posted an update on progress for the October 2024 to November 2025 period. The ministry also conducted an inspection in Q4 and confirmed our activities are compliant with the court order and suspension of operations. As we have said previously, there is no timeline for completion of the consultation process and no date for restart. Turning to 2026 guidance. For silver, we are guiding attributable production of 25 million to 27 million ounces and silver segment all-in sustaining costs of $15.75 to $18.25 per ounce. The year-over-year increase in silver production reflects, in part, the full year contribution from Juanicipio, along with mine sequencing into higher silver grades at Cerro Moro. For gold, we are guiding attributable production of 700,000 to 750,000 ounces and gold segment all-in sustaining costs of $1,700 to $1,850 per ounce. We expect higher grades at Timmins, plus the full year of production from Juanicipio, offset by a lower contribution from Dolores as residual leaching declines and at El Peñón from the exhaustion of low-grade stockpiles and lower ore tonnes processed. Our all-in sustaining cost guidance for both the silver and gold segments reflects higher metal price assumptions, which flow through to royalties, worker participation payments and increased smelting and refining costs due to price participation. Needless to say, increased metal prices far outweigh these additional royalties and provide superior return to our business, as seen with record earnings and cash flow in Q4. Sustaining capital is expected to be similar to 2025 with the addition of capital for Juanicipio. We also plan increased project capital to advance La Colorada Skarn and Jacobina and at Timmins, with part of the increase directed toward satellite deposits, reflecting positive drill results and continued work on exploration and preliminary engineering. Please refer to our MD&A for further detail on our 2026 outlook, including an operating outlook by quarter. As we look ahead, we see several meaningful catalysts for 2026. First, with metal prices currently well above Q4 and last year's average, we see potential for strong free cash flow and high returns of capital to shareholders while also funding an expanded exploration program, internal growth projects and further strengthening of our balance sheet. Second, we expect to release an updated La Colorada Skarn PEA in Q2 2026, which we believe will demonstrate higher risk-adjusted returns than the original PEA for the project. And third, the Jacobina optimization study is advancing well, and we look forward to sharing findings and opportunities as the engineering work progresses. Before I wrap up my prepared remarks, I would like to provide a few thoughts on the metal price environment. This is an exceptionally fortunate period for Pan American Silver and our investors, as the increase in metal prices coincides with increased silver production, driving higher levels of free cash flow. Gold strength has been driven by sustained Central Bank purchases and renewed investor interest in a volatile geopolitical backdrop, U.S. policy uncertainty, and weakening confidence in fiat currencies, particularly the U.S. dollar. Those underlying drivers are similarly supportive for silver, in addition to supply/demand fundamentals, with the silver market expected to remain in a deficit for the sixth consecutive year in 2026. We are well positioned in this environment, remaining unhedged on both gold and silver, and with a focus on delivering margin expansion. To close, 2025 was a record year for Pan American: record revenue, earnings and free cash flow, paired with strong operating execution and a stronger balance sheet. We are entering 2026 from a position of strength with a clear plan: Execute safely and reliably, generate strong cash flow, advance our high-quality growth pipeline and return capital to shareholders in a disciplined way. And with that, I'd like to open the call for questions.

Our first question today comes from Cosmos Chiu from CIBC.

Maybe my first question is on Juanicipio. Michael, as you mentioned, very strong results so far. So it's been about half a year now. How would you describe your overall experience with the asset so far? And what has exceeded expectations? Is it throughput? Or is it grade? Or is it both? And is that sort of outperformance sustainable?

Yes, it's been just under six months since we took over in mid-September from MAG. The experience has been excellent, and I'm quite pleased with the results. As I observe Juanicipio's production, I note that the geological profile of these deposits, including La Colorada, shows a clear distribution of metals. From precious metals at the surface to base metals like lead and zinc deeper down, with copper found even further below. Over time, we expect this geological change, and exploration efforts, like at La Colorada and nearby Juanicipio mines, continue to uncover new veins that typically yield higher precious metal content at the surface, transitioning to base metals at greater depths. Therefore, while we anticipate a decrease in silver grades and an increase in base metal grades in the long term, our current performance shows that we are still a strong silver producer at a very low cost.

Perfect. I'm glad you mentioned La Colorada. I wanted to ask about La Colorada Skarn. As you noted, a new technical report is expected in Q2 2026. However, I'm curious what you can share, Michael. Regarding the phased approach, what different tonnages are you evaluating? What size are you considering at this time? What cost/benefit analysis are you looking at currently? What can we anticipate when the report is released?

Sure, Cosmos. And yes, you need to be patient a little bit more. In a few more months here, it's coming soon. And it's a very exciting project. And that phased approach really has changed the project quite a bit. If you recall, the original PEA called for up to 50,000 tonnes a day. Very, very large bulk minable ore body. Of course, that's still the case. It's still a very, very large, even bigger now, bulk minable ore body. But over the last 2 years, we have discovered a lot of high-grade material inside the Skarn and also between the Skarn and the surface in additional structures. And that's really what we're going to mine in Phase 1. So it's going to be quite a long time for Phase 1. It's going to be way more than a decade. And when you look at tonnage, I don't have to file the numbers yet, but you should probably expect somewhere in the 10,000 to 15,000 tonne kind of range for Phase 1, but substantially higher grades than what we showed in the very large bulk kind of cave method in the first PEA. So it will be higher grade, less capital, and really, a focus on silver production for quite a long time before it will go to a more bulk minable, much bigger tonnage and more base metal-rich production after that.

And then maybe one last question. When I look at your 2026 guidance, I look at the asset level production compared to 2025 guidance. One asset that is expected to increase year-over-year is Cerro Moro. I guess this is your only asset in Argentina, but Argentina looks to be getting better as a country for mining. So I guess my question is, is this a country or an asset where you might be willing to commit more time and resources to it? Or how should we look at it?

Well, Cosmos, in general, I'm always happy to commit time on exploration to any of our assets. We have been incredibly successful over the last 20 years in replacing reserves and adding additional value through our brownfield exploration programs, and La Colorada Skarn is the best example in the company's history with a potential huge value creation through the drill bit. So I'm always happy to continue to drill and explore our assets. And of course, in the current metal price scenarios, that's even more so. So you've probably seen that we assigned quite an increase of capital to our exploration programs for 2026, and that includes, for sure, Cerro Moro as well. So as you say, lots of positive changes in Argentina and a place that we are active and working for many, many years. And yes, looking forward to more positive exploration results from Cerro Moro as the year goes on.

Our next question comes from Francesco Costanzo from Scotiabank.

I just wanted to ask a follow-up on one of Cosmos' questions actually, just on La Colorada Skarn. Have discussions on a potential partner progressed in the last quarter? And is there any update you can provide us on what the economic terms might look like given the new phased approach or timing of when we might see a deal signed?

Yes. Look, the discussions have progressed. But as you can imagine, with the change we made here on this phased approach compared to the single approach we had before, there has to be quite some changes in how we look at that partnership and in that discussion on how that would fall out. So discussions are in full swing. So I don't really want to share right now, details yet on it. But we included that change on the approach and are in full discussions.

Okay. Fair enough. And then just switching gears slightly. With record silver prices, there's obviously a lot of value sitting in the ground at Escobal. So I'm just wondering if you're able to provide us any insights on your view of how the consultation process has progressed in recent months? And whether you feel that things are beginning to reaccelerate compared to this time last year?

Well, in general, of course. And we see it worldwide, right, that there is much stronger emphasis on mining and mining projects. High metal prices, of course, are helping that. A lot of declaration of critical minerals across the globe and countries that try to secure future metal production for their own use. So that will accelerate from now on, and I'm sure about that. And we'll bring additional projects into production across the globe. Let me have Sean giving us some more details on Escobal, especially.

Yes. We've been meeting with the Ministry of Energy and Mines through Q4 and a few times earlier this year. And we're standing by for the next updates for meetings and schedules for activities. So there's not a change in the activity that we've seen in the past. But certainly, the engagement continues. And I think the report that was published by the Ministry of Energy and Mines at the end of the year is encouraging, that they are providing some information from the government on their commitment to the process and the status of the process and the fact that it's ongoing. So we're looking forward to meetings here in the coming months and progressing with the process.

Our next question comes from Don DeMarco from National Bank.

Just a couple of financial bookkeeping questions. First off, how often are the Juanicipio dividends paid? I mean, I see that there was a line item in the Q4 financials, full-year financials, but none on the Q3 financials. And I remember back in the MAG Silver days, there were some agreements at the JV level just to pay out those dividends once a year, although there were some discussions to maybe change that more quarterly. But I'm just wondering what the current arrangement is at this point?

Don, it's Ignacio here speaking. The payments from Juanicipio are in the form of dividends, and there was a payment in the fourth quarter. Pan American's share of that payment was approximately $44 million. Currently, the dividends are being paid out of tax paid retained earnings, and we are waiting for Juanicipio to pay its taxes and finalize its tax return, which will occur sometime in the first quarter. Soon after that, we expect another dividend from Juanicipio, which should be higher than the one we received in the fourth quarter. At this point, it is simply following the regular cycle of financial statements and tax returns in Mexico.

Okay. Got it. Ignacio, I see you have senior notes maturing, $278 million at a 4.6% coupon. With your free cash flow and cash balance increasing, would you consider repaying early? The August 31 notes have a very favorable interest rate, so there might not be an incentive there, but I'm curious about the 2027s.

Yes, we periodically evaluate that. As you mentioned, the bonds will mature in 2027. We are aware that they lack liquidity. If a bondholder expressed interest in selling, we would definitely consider it. However, this ties into larger capital allocation decisions that we will be addressing this year. So if a chance arose to buy back some of those 2027 bonds, we would definitely look into it. That being said, our bonds have not been trading with much liquidity in the market.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Michael Steinmann for any closing remarks.

Thanks, operator. Strong production and cost control in Q4 in combination with high metal prices resulted in record financial results across the board, as you have seen in the press release. And I'm really proud of what we have achieved in 2026, including the very swift and quick integration of the 44% of the low-cost Juanicipio mine. So please keep in mind that the average metal prices in Q4 were only around $58 for silver and I think a bit more than $4,100 for gold. So we have seen substantially higher metal prices in the new year so far. And additionally, we will be increasing our silver production again by about 14%, largely driven again by the low-cost production of Juanicipio. And to top that, we'll release the updated PEA in La Colorada Skarn in Q2 and further information on the Jacobina optimization as the year advances. So you can imagine, I'm really looking forward to 2026, and I'm looking forward to give you an update on Q4 in our May call. Until then, have a good time. Thanks, everyone, for calling in.

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