A noncash after-tax impairment charge of $218.1 million on the Delores Mine and a noncash $86 million deferred tax charge prompted by recent tax increases in Mexico resulted in a substantial fourth-quarter 2013 loss for Pan American Silver.
During a conference call Thursday, PanAm CFO Robert Doyle told analysts, “This impairment charge, as well as the net realizable value charge on Dolores stockpile I just mentioned, were triggered by our decision to reduce our long-term price assumptions used in our impairment testing to $22 for silver and $1,400 for gold…”
“The next large item impacting earnings is buried in the income tax recovery line and is a charge of $86 million related to the deferred taxes caused by recent Mexican tax changes, specifically the introduction of a 7.5% mining royalty and a change in the tax rate of 30%,” he added. “We have not adjusted this noncash item out of our adjusted earnings for the period, consistent with our internal policy not to adjust for effects of changes and taxes.”
For the fourth-quarter 2013, Pan American Silver posted a net loss of $293.1 million or $1.94 per share. For the full-year 2013, the company generated a loss of $445.8 million or $2.94 per mainly due to non-cash impairment charges of $420.4 million on Delores and the $86 million deferred tax charge related to Mexican tax law changes. This compares to a fourth-quarter 2012 net loss of $31.535 million or 18-cents per share and a full-year 2012 net profit of $78.355 million or 56-cents per share.
Adjusted loss for the fourth-quarter 2013 was $84.31 million, compared to a profit of $55.12 million in the same quarter of 2012. For the full-year 2013 the adjusted net loss was $45.5 million, down substantially from a profit of $166.8 million for the full-year 2012.
SOME GOOD NEWS
Pan American achieved record silver and gold production last year including 26 million ounces of silver and 149,800 ounces of gold at consolidated cash costs of $10.81 per silver ounce, net of by-product credits, down 10% year-on-year from $12.03 in 2012. This compares to 25,075,298 ounces of silver and 112,283 gold ounces in 2013.
All-in sustaining costs per silver ounce sold for 2013 were $18.33 net of by-products, down 18% from 2012.
The new silver production record was due to production gains at La Colorado, Huaron, Morococha and San Vicente, which were offset by production declines at Alamo Dorado and Manatial Espejo due to lower grades and recoveries.
The company’s full-year 2013 base metals production came in above guidance at 42,100 tonnes of zinc, 13,500 tonnes of lead and 5,500 tonnes of copper, which was 14%, 10% and 33% more than in 2012, respectively. The increases were attributed to greater output from Peruvian mines and from La Colorada.
This year, Pan American expects to produce 25.75 million to 26.75 million ounces of silver and 155,000 to 165,000 ounces of gold at consolidated cash costs ranging between $11.70-$12.70 per silver ounce, net of by-product credits. The company anticipates all-in sustaining costs per silver ounce to be in the range of $17-$18, net of by-product credits.
Meanwhile, when asked by an analyst to comment on the future of the Navidad project, PanAm CEO Geoff Burns said he sees signs of noted improvement “in our operating environment and in the attractiveness of making investments” in Argentina.
“There was a new chief of cabinet installed…now a couple of months ago,” he observed. “And he certainly seems to be driving a more business-friendly environment, or at least, pushing for a more business-friendly environment.”
“I was down there [in Argentina] just a couple of weeks ago, and I would say I am more optimistic than I have been in the last couple of years about the future of Argentina and the future of mining investment in Argentina,” Burns advised.
“On the Chubut side, we’re still in a situation where we need the government to modify the mining law to allow for open-pit development,” he noted. “We’re continuing our discussions, and we’re still hopeful that we’ll see some movement in a positive direction this year and really in the hope that from the Argentine side, that they will see companies like ours come back with strength and with commitment to bring foreign capital in and invest again in Argentina, which I think is a desirable result, both for the province and for the national government.”