Pan American Silver Corp Q1 FY2026 Earnings Call

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

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 Juanicipio 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 interests in joint ventures. 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 shareholder's 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 and providing resilient shareholder returns across commodity cycles. Focusing on growth, the release of the revised PEA 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 five years following construction and ramp-up. The revised PEA 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 stoping 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 five years to support development of a ramp to access the skarn mineralization. We now expect to spend between $92 million to $95 million on the La Colorada skarn 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 two 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 flowsheet. Conceptual engineering is nearing completion, and we will transition to basic engineering in the coming months. We also expect detailed engineering for a filtration plant, filter tailings stack and the temporary mine-based processing 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 and maintenance activities and confirm compliance with the court order suspension. At this time, there is no timeline 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. Because most of our mines are 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.

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 mention have you started to see any consumable prices start to go up or anything that you're hearing from your suppliers?

Yes, Scott, can you take that, please?

Yes. Not significantly. We've seen some increases in the cost of geosynthetics, minor increases at various mines and increased costs for staff transportation where the increase in fuel cost has been passed on to us, but nothing material at any of our operations.

Okay. Great. And then maybe just one more for me. On the Silver segment AISC, 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 how that's going to happen and whether it's possible for AISC 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 when you see strong production there. As you recall, that was one of the attractions of that mine: we have strong silver production at comparatively very low cost. And then, as you mentioned, the byproduct credits were very strong this quarter. Look, this is one quarter of the year; we'll obviously reassess midyear if we decide to reguide our costs. But after one quarter, we decided to leave guidance where it is. It's 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 shareholder return program was a nice positive surprise as well. That was great to see. A couple of questions from me. Maybe starting off with Juanicipio. Juanicipio consistently has been showing some positive grade reconciliation over the last couple of quarters. How do you guys see this kind of grade shaping up throughout the year? And then how should we look at things moving forward?

Yes. I will start, and we'll have Scott give a little bit more detail on that. Absolutely. Look, we have seen great outperformance at Juanicipio for many quarters, even before we purchased the asset. It's a great mine, as you know. One of the main reasons is that we find more tonnes with higher grades closer to surface. Just to remind you, these are very similar systems to what we see at La Colorada: very high-grade silver and some gold closer to surface. The deeper you go in the mine, you can get into more base metals, and that's why, like at La Colorada and similarly at Juanicipio, we want to continue exploration, discover additional veins that we can plan into production and start mining higher up again, which brings higher silver grades. So that's kind of the system — that's the geology of these systems in the silver belt of Mexico. As I said, the main structural change is that grades tend to shift into more base metals as you go deeper. But at the moment we are enjoying these high grades, and I think any decrease will be slower than we probably anticipated. And just to add, we will continue to provide updates on exploration performance and include this data in our midyear reserve and resource update that we normally publish around August.

I'll just add some additional comments to that. We will delay the next report in terms of a PFS update because we have a long schedule for the initial development of the ramp and eventually the shaft — those are taking precedence in the development schedule. We want to get those early works projects going and moving along, and then we'll go back and start doing additional engineering 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, as you probably saw in the press release, the Board approved the first tranche of capital for the La Colorada skarn. That's a great milestone for this important and large project for us. La Colorada is going to be one of the biggest and lowest-cost silver mines in the world. We approved the first $265 million to advance a ramp down from the existing mine to the skarn. That's the first important capital spend on the La Colorada skarn project. It was important to get that started because that's one of the slowest pieces of the puzzle to put it all together. As Steve said, building the new plant and surface infrastructure can be done later.

The next question is from Cosmos Chiu with CIBC.

Michael and team, 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 ramp? Is it going to be sufficient for production? Will it eventually be used for production or will most of the hoisting be coming from the East hoisting shaft? Could you help us picture how this is going to eventually work?

Sure. It's Martin Wafforn here. The decline we're driving is approximately 5.5 meters by 6 meters, so a large decline with the intention of putting big-size trucks in, in the order of 50-tonne capacity trucks. We'll use those to haul ore and then we'll use other trucks to take out waste that we're generating. This is actually about 12.4 kilometers of development that we're going to do over the next five years. That material will all go up to surface via the production decline. Our long-term production will go up the East production shaft. That's the plan. But we will have this ramp available as well.

Great. And then, on 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 each quarter, should I, for example, take Q1 attributable free cash flow and multiply by 35% or 40%, subtract what you would normally give out in each quarter to estimate how many shares you could repurchase? Of course, it will depend on the share price, but is that the sort of execution we should expect under that framework?

Yes. What we announced is up to $1 billion of returns. The dividend is fixed at a total amount of $305 million for the year, so while we're buying back shares, the dividend per share will slowly increase with more buybacks in place. We looked at the past returns we had. Of course, we increased the dividend three times over the last few quarters. Our cash flow generation is very strong right now and we have the major projects we're building. There's enough capital for our growth, and as you probably saw we are already at about $1.8 billion in cash and short-term investments, so the Board believes that we can return up to $1 billion, and we are on track to do that. How many shares we can buy will depend on the share price, but we'll aim for the $1 billion return this year.

And then I noticed in Q1 you only bought back about 460,000 common shares, which is not a lot relative to the $1 billion target. Was that because the framework wasn't in place yet or because you were in a blackout period before the PEA update? Or was it related to the price you were trading at, which I think was $54.04 a share in Q1?

It was a combination. The framework wasn't in place early in the quarter and importantly we were in a blackout period while we prepared and released the updated PEA, so we couldn't repurchase shares for a while. As soon as that period ended and we had the information public, we started repurchasing shares. You can imagine we'll step up repurchases pretty strongly to get to that total $1 billion return for the year.

Maybe one last question in the same press release: you talked about other projects, including the Timmins project, extension of the Bell Creek shaft — which didn't get a lot of airtime but seems important. Could you touch on that a little bit as well as some of the exploration opportunities in that area?

Yes, definitely important. There's a lot to cover and we'll give more detail during our Investor Day, but it's very exciting at Timmins — we see many years of future production there. Martin, perhaps you want to give some more color on the shaft extension?

Yes, great project, delighted it's announced. The idea is that we're going to extend the shaft by another 625 meters from the current 1080 level down to 1705 meters. It's going to be developed using Alimak raise methods. So we'll come in using Alimaks from two levels as we go. It's a $131 million total investment and it allows extension of Bell Creek well into the 2040s — depending on how reserves evolve, we modeled to around 2040 to 2046 in the economics of the shaft extension. It's an exciting project and it will help with operating costs because we're currently mining quite a bit below the ramp, so the extension will help improve costs 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. Maybe just continuing on the discussion on the skarn: you saw the Board approved decline development over five years. Does this represent a formal go-forward on the project, or might that be something we would expect after a PFS update in a couple of years?

Yes. This is definitely the start of our core development. This is not just an exploration ramp; we have a lot of information — we discovered this skarn in 2018 and have drilled extensively since. As Mark said, we're driving a decline around 5.5 by 6 meters to fit 50-tonne trucks. This is the first stage spend of a very large project and a very big mine that we're going to build in the Americas.

Okay. And the revised PEA came out a couple of months ago showing CapEx of $1.9 billion. Can you remind us: you're talking about funding this within Pan American exclusively, is that correct?

That's correct. Our cash and short-term investment balance right now is about $1.8 billion. There will be a lot of cash flow coming in over the coming quarters and years while we build this asset, so there are plenty of funds available for us to fund this project and continue returning capital to shareholders at the same time.

That’s a good segue into my next question. The shareholder return program is timely and a step-up in buybacks. It’s weighted toward buybacks, which is common in the sector. Can you share how you decided the allocation between shares and dividend amounts?

When we looked at historic returns, we typically returned around the mid-30% of free cash flow to shareholders historically, probably with higher weighting to dividends. Now, with the high cash flow and after increasing the dividend multiple times, we believe strong share repurchases are the better use of cash at this time to enhance per-share value, while maintaining a meaningful dividend. It's a balanced approach and we think it's the right mix.

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

Congratulations on all the cash and good results. In the updated skarn PEA, CapEx fell by about $1 billion upfront. Could you describe the subzones of the skarn where the updated PEA accesses higher-grade, perhaps less deep parts of the skarn that need less capital, have more revenue — some parts richer and easier than others?

Thanks, John. Absolutely: the big decrease in capital between the two PEAs was driven by a change in mine design and the discovery of more high-grade material closer to surface and in additional veins. Initially, the project envisioned a much larger sublevel caving operation at up to 50,000 tonnes per day. Over the years we encountered very high-grade wide intersections in the skarn ore bodies and other high-grade structures closer to surface. That allowed us to design a smaller, higher-grade starter — not a starter in the sense of a short-life operation, because the project is long-life (we put out a multi-decade plan), but the revised approach uses a smaller throughput, about 15,000 tonnes per day, and conventional long-haul open stoping. That change to a smaller, higher-grade operation with a much simpler, more conventional mining method significantly reduced initial capital by about $1 billion.

This concludes the question-and-answer session. I'd like to turn the conference back over to Michael Steinmann 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, combined with very high metal prices and, as a result, very high cash flows. In light of those strong free cash flows, we adopted a new shareholder return framework targeting to return up to $1 billion between dividends and share repurchases for 2026. We also approved important capital spending, as we discussed, for Jacobina, Timmins and most importantly La Colorada, which marks the first large approved capital spending to develop our skarn deposit at La Colorada with the first $265 million approved to develop the access ramp to the deposit. We will be hosting our Investor Day in Toronto on June 1. There will be ample time with lots of maps and cross sections to explain and dive deep into all these projects like La Colorada, Jacobina and Timmins together with many other exciting projects that Pan American has on the development and exploration side. We look forward to seeing you at that event. Again, it's on June 1 in Toronto, and it will be available in person 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.