Pan American Silver reports on fourth quarter and full year 2013 financial results

(Unaudited Results. All amounts in US$ unless otherwise stated. Approximate production figures.)

VANCOUVER, Feb. 20, 2014 /CNW/ - Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA) (the "Company", or "Pan American"), posted a net loss of $293.1 million, or $1.94 per share during the fourth quarter of 2013, which included a non-cash impairment charge of $218.1 million (net of tax) on the carrying value of the Dolores mine, due to lower assumed long-term metal prices and increased taxes, and a non-cash deferred tax charge of $86.0 million, due to the recent tax changes in Mexico. Net cash flow from operating activities during the current quarter was $46.2 million or $0.30 per share, reflecting the excellent fourth quarter production results and continued cost control efforts. Cash and short term investments increased over the previous quarter to $422.7 million at December 31, 2013 even after the payment of our normal quarterly dividend of $18.9 million in early December, clearly exhibiting Pan American's ability to continue to generate positive cash flows at current silver prices.

Commenting on the Company's fourth quarter and full year 2013 performance, Geoff Burns, President & CEO said, "With the rapid decline in the price of silver and gold, 2013 became one of the most challenging years Pan American has faced. But I am proud of how we responded. We reduced our cash costs by 10% and our all-in sustaining costs by 18% year over year. We reduced our G&A expenses and our exploration expenditures, while at the same time completing critical long-term projects and recording new company records for silver and gold production. In short, we rebuilt Pan American to be a stronger company, able to continue to generate positive cash flows and pay meaningful dividends at current silver price levels". Burns continued, "Our fourth quarter financials were blemished by the need to recognize an impairment on our Dolores mine and non-cash deferred tax charges related to increased tax rates in Mexico. However, thanks to our excellent production and lower cost base we generated strong net operating cash flows of $0.40 per share during the quarter and were able to increase our year-end cash position to over $422 million, even after paying our industry-leading dividend. Our focus for 2014 is to again grow our silver and gold production, sustain the new cost levels we have achieved and to advance the expansion of the La Colorada mine, setting the stage for yet another leg of production growth."

Financial Results

During the fourth quarter of 2013 Pan American generated revenue of $192.4 million, 22% lower than in the last quarter of 2012, due mainly to sharply lower realized prices for silver and gold, partially offset by greater quantities of metals sold. For the full-year 2013, the Company generated $824.5 million in revenue, or 11% less than in 2012. During 2013, the average realized price of silver declined 25% to $23.29 per ounce compared to the previous year and the average realized price of gold declined 16% to $1,398 per ounce. The annual average prices of zinc, lead and copper declined as well to $1,909 per tonne, $2,141 per tonne and $7,251 per tonne, respectively. For the full year 2013, silver and gold contributed 71% and 19% of total revenue, respectively.

In the last quarter of 2013, Pan American recorded a net loss of $293.1 million, or $1.94 per share, due mainly to an impairment charge of $218.1 million (net of tax impact) reducing the book value of the Dolores mine and a deferred tax charge of $86.8 million relating to Mexican tax reforms that included new taxes and changes to income tax rates. The impairment charge at Dolores was primarily driven by lower long-term precious metals price assumptions of $22 per ounce of silver and $1,300 per ounce of gold used in the impairment test. For the full-year 2013, Pan American generated a net loss of $445.8 million, or $2.94 per share. The net loss was mainly attributable to non-cash impairment charges totaling $420.4 million (net of tax impact) on Dolores and a non-cash deferred tax charge of $86.8 million relating to Mexican tax reforms that included new taxes and changes to income tax rates. Also included in the fourth quarter were realized foreign exchange losses of $6.0 million on our treasury position due to the relative strengthening of the US dollar, offset by a gain of $6.0 million on the sale of other assets.

Mine operating earnings generated in the fourth quarter of 2013 declined to $19.0 million, which included a negative adjustment of $8.4 million for the net realizable value of in-process inventories. For the full-year 2013, Pan American generated $131.5 million in mine operating earnings, 58% lower than in 2012. The decline in annual and quarterly mine operating earnings was directly attributable to lower realized prices for silver and gold described above, partially offset by increased volumes of silver and gold sold. Operating cash flows during the fourth quarter of 2013 were $46.2 million or $0.30 per share, 43% lower year-on-year. Operating cash flows for the full-year 2013 were $119.6 million, or $0.79 per share, 38% lower than in 2012.

At December 31, 2013, Pan American had $422.7 million in cash and short-term investments, an increase from the previous quarter, and working capital of $689.0 million.

During the fourth quarter of 2013, Pan American paid $18.9 million in cash dividends to holders of common shares. In 2013, the Company returned a total of $75.8 million in cash dividends to its shareholders.

Production and Operations

During the fourth quarter of 2013, Pan American produced 6.8 million ounces of silver and a record 46,200 ounces of gold. For the full year 2013, Pan American achieved production records of 26 million ounces of silver and 149,800 ounces of gold, 4% and 33% more than in 2012, respectively. The new silver production record was accomplished due to production gains at La Colorada, Huaron, Morococha and San Vicente, partially offset by a decline in silver ounces produced at Alamo Dorado and Manantial Espejo due to lower grades and recoveries. As anticipated, gold production soared on account of significant production improvements at Dolores due to more tonnes processed and higher recoveries and at Manantial Espejo due to higher grades and recoveries.

During the three months ended December 31, 2013, Pan American's operations performed as expected. In Mexico, silver production at La Colorada rose 14% to 1.2 million ounces due to higher throughput, while silver production at Alamo Dorado declined 20% due to mine sequencing, and production at Dolores was practically flat year-on-year. For the full year 2013, La Colorada's silver production rose 3% to 4.6 million ounces on higher throughput, Alamo Dorado's production declined 5% to 5.1 million ounces on lower grades and Dolores' production increased 32% to 3.5 million based on a full year of production compared to three quarters in 2012.

The Company's Peruvian operations produced a total of 1.5 million ounces of silver during the fourth quarter of 2013. At Huaron, higher milling rates boosted production by 17% year-on-year to 0.9 million ounces and at Morococha, production rose 16% year-on-year to 0.6 million ounces on better grades and recoveries. In 2013, Huaron produced 3.3 million ounces of silver and Morococha produced 2.4 million ounces of silver, 14% and 15% more than in 2012, respectively. The annual production growth was driven by increased mechanized mining rates at Huaron and higher grades and recoveries at Morococha from improved mine developments.

The San Vicente mine in Bolivia had another solid quarter and produced 1.0 million ounces of silver during the final three months of 2013. Production was slightly ahead compared to the last quarter of 2012 as better recoveries offset lower grades. For the full-year 2013, San Vicente contributed 4.0 million ounces to the Company's consolidated silver production on account of higher mining and milling rates and better recoveries.

Silver production at the Manantial Espejo mine in Argentina fell 16% during the fourth quarter of 2013, to 0.9 million ounces. The production decline was in line with expectations due to the lower silver grade ore mined in accordance with the mine plan sequence. Manantial Espejo's silver production for the full-year 2013 fell 13% to 3.1 million ounces on account of less tonnes processed and lower grades, partially offset by better recoveries.

Pan American's consolidated 2013 full-year gold production rose 33% to 149,800 ounces compared to 2012 on account of 65,230 ounces produced at Dolores and 60,820 ounces produced at Manantial Espejo. Dolores' production increase of 50% compared to the previous year was due to having only three quarters of ownership included in 2012, more tonnes processed, better grades, and better recoveries, while Manantial Espejo's 40% increase compared to 2012 was due to higher 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 mainly due to greater production from the Company's Peruvian mines and from the La Colorada mine.

Consolidated cash costs during the fourth quarter of 2013 decreased 19% to $9.56 per ounce of silver, net of by-product credits, as compared to the same period in 2012. Cash costs for the full-year 2013 were $10.81 per ounce of silver, net of by-product credits, or 10% below cash costs in 2012. The Company's cost savings measures implemented earlier in 2013 proved to have the greatest success at San Vicente and the Company's Peruvian operations, where significant cost reductions were achieved. These reductions were partially offset by cost increases at Alamo Dorado, where lower grades had a negative effect on production and costs, and at Dolores, where costs rose mainly on pre-stripping expenditures.

AISCSOS for the three months ended December 31, 2013 were $17.03, net of by-products, 33% lower year-on-year. AISCSOS for the full-year 2013 were $18.33, net of by-products, which was 18% lower than in 2012. For a reconciliation of the calculation of AISCSOS, please refer to the table on the final page of this news release.

In 2013, Pan American spent $159.4 million in sustaining and longer-term capital at its seven operations, primarily for open pit pre-stripping at Dolores, Alamo Dorado and Manantial Espejo, in addition to underground developments at Manantial Espejo, Huaron and Morococha, tailings dam or leach pad expansions at La Colorada, Huaron and Dolores, and equipment replacements and rebuilds, infrastructure upgrades and mine-site exploration across all seven mines.

On December 18, 2013, Pan American announced its decision to proceed with the production expansion project at the La Colorada mine, based on the results of a positive preliminary economic assessment ("PEA"). The PEA demonstrates a solid, relatively low-risk expansion project that has the potential to provide robust after-tax economic returns using a long-term price of $19.00 per silver ounce. The expansion will increase the mine's silver production rate to approximately 7.7 million ounces of silver annually by the end of 2017, for an incremental capital investment of $80 million, the majority of which will be spent from 2014 until 2017.

2014 Outlook

In 2014, Pan American expects to produce 25.75 to 26.75 million ounces of silver and 155,000 to 165,000 ounces of gold at consolidated cash costs of between $11.70 and $12.70 per ounce of silver, net of by-product credits. The Company also expects to produce 39,500 to 42,500 tonnes of zinc, 12,700 to 13,700 tonnes of lead and 5,200 to 5,700 tonnes of copper.

The Company also plans to invest $95.5 million in sustaining capital. The sustaining capital is primarily for open pit pre-stripping at Dolores and Manantial Espejo, tailings dam expansion at La Colorada, underground developments at Huaron and Morococha and mine-site exploration across all seven mines. The Company also expects to spend $67.0 million on long-term projects, primarily for advancing the La Colorada mine expansion, as well as for the expansion of leach pad 3, the power line project and some production expansion studies at Dolores.

For details of the Company's 2014 forecast production and capital expenditures by mine, please refer to the news release dated January 20, 2014.

In 2014, Pan American expects AISCSOS in the range of $17.00 to $18.00, net of by-product credits. The Company has adopted the reporting of AISCSOS as a measure of a silver mining company's consolidated operating performance and the ability to generate cash flow from all operations collectively. The Company believes it is a more comprehensive measure of the cost of operating our consolidated business than traditional cash and total costs per ounce as it includes the cost of replacing ounces through exploration, the cost of ongoing capital investments (sustaining capital), general and administrative expenses, as well as other items that affect the Company's consolidated earnings and cash flow. The following table details Pan American's expected range of AISCSOS for this year:

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About Pan American

Pan American Silver's mission is to be the world's pre-eminent silver producer, with a reputation for excellence in discovery, engineering, innovation and sustainable development. The Company has seven operating mines in Mexico, Peru, Argentina and Bolivia. Pan American also owns several development projects in the USA, Mexico, Peru and Argentina.

Technical information contained in this news release with respect to Pan American has been reviewed by Michael Steinmann, P.Geo., Executive VP Corporate Development & Geology, and Martin Wafforn, P.Eng., VP Technical Services, who are the Company's Qualified Persons for the purposes of NI 43-101.

Pan American will host a conference call to discuss these results on Thursday, February 20, 2014 at 1:00 pm EST (10:00 am PST). To participate in the conference, please dial toll number 1-604-638-5340.

NON-GAAP MEASURE - CASH COSTS PER OUNCE, NET OF BY-PRODUCT CREDITS

THIS NEWS RELEASE PRESENTS INFORMATION ABOUT OUR CASH COSTS OF PRODUCTION OF AN OUNCE OF SILVER FOR OUR OPERATING MINES. CASH COSTS PER OUNCE PRODUCED, NET OF BY-PRODUCT CREDITS IS CALCULATED AS FOLLOWS:

• EXCEPT AS OTHERWISE NOTED, CASH COSTS PER OUNCE PRODUCED IS CALCULATED BY DIVIDING TOTAL CASH COSTS, NET OF BY-PRODUCT CREDITS BY TOTAL SILVER OUNCES PRODUCED AT THE RELEVANT MINE OR MINES.
  
  
• TOTAL CASH COSTS INCLUDE MINE OPERATING COSTS SUCH AS MINING, PROCESSING, ADMINISTRATION, ROYALTIES AND OPERATING TAXES, BUT EXCLUDE AMORTIZATION, RECLAMATION COSTS, FINANCING COSTS AND CAPITAL DEVELOPMENT AND EXPLORATION. CERTAIN AMOUNTS OF STOCK-BASED COMPENSATION ARE EXCLUDED AS WELL.

CASH COST PER OUNCE OF SILVER PRODUCED, NET OF BY-PRODUCT CREDITS IS INCLUDED IN THIS NEWS RELEASE BECAUSE CERTAIN INVESTORS USE THIS INFORMATION TO ASSESS OUR PERFORMANCE AND ALSO TO DETERMINE OUR ABILITY TO GENERATE CASH FLOW FOR USE IN INVESTING AND OTHER ACTIVITIES. THE INCLUSION OF CASH COSTS PER OUNCE PRODUCED MAY ENABLE INVESTORS TO BETTER UNDERSTAND YEAR-OVER-YEAR CHANGES IN OUR PRODUCTION COSTS, WHICH IN TURN AFFECT PROFITABILITY AND CASH FLOW. CASH COSTS PER OUNCE, NET OF BY-PRODUCT CREDITS DOES NOT HAVE A STANDARDIZED MEANING OR A CONSISTENT BASIS OF CALCULATION PRESCRIBED BY CANADIAN ACCOUNTING STANDARDS. INVESTORS ARE CAUTIONED THAT CASH COSTS PER OUNCE PRODUCED, NET OF BY-PRODUCT CREDITS SHOULD NOT BE CONSIDERED IN ISOLATION OR CONSTRUED AS A SUBSTITUTE TO COSTS DETERMINED IN ACCORDANCE WITH CANADIAN ACCOUNTING STANDARDS AS PRESCRIBED UNDER IFRS AS AN INDICATOR OF PERFORMANCE. OUR METHOD OF CALCULATING CASH COSTS PER OUNCE PRODUCED, NET OF BY-PRODUCT CREDITS MAY DIFFER FROM THE METHODS USED BY OTHER ENTITIES AND, ACCORDINGLY, OUR CASH COSTS PER OUNCE PRODUCED MAY NOT BE COMPARABLE TO SIMILARLY TITLED MEASURED USED BY OTHER ENTITIES.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN OF THE STATEMENTS AND INFORMATION IN THIS NEWS RELEASE CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF APPLICABLE CANADIAN PROVINCIAL SECURITIES LAWS. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, ARE FORWARD-LOOKING STATEMENTS OR INFORMATION. FORWARD-LOOKING STATEMENTS OR INFORMATION IN THIS NEWS RELEASE RELATE TO, AMONG OTHER THINGS: OUR PRODUCTION OF SILVER, GOLD AND OTHER METALS IN 2014; OUR ESTIMATED CASH COSTS PER OUNCE OF SILVER IN 2013 AND FORECAST CASH COSTS PER OUNCE OF SILVER IN 2014; OUR ESTIMATED AISCSOS FOR 2014; OUR ANTICIPATED CAPITAL INVESTMENTS FOR 2014; THE ABILITY OF THE COMPANY TO SUCCESSFULLY COMPLETE ANY CAPITAL INVESTMENT PROGRAMS AND PROJECTS AND THE IMPACTS OF ANY SUCH PROGRAMS AND PROJECTS ON THE COMPANY; AND ANY ANTICIPATED LEVEL OF FINANCIAL AND OPERATIONAL SUCCESS IN 2014.

THESE STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS THAT, WHILE CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY SUBJECT TO SIGNIFICANT OPERATIONAL, BUSINESS, ECONOMIC AND REGULATORY UNCERTAINTIES AND CONTINGENCIES. THESE ASSUMPTIONS INCLUDE: TONNAGE OF ORE TO BE MINED AND PROCESSED; ORE GRADES AND RECOVERIES; PRICES FOR SILVER, GOLD AND BASE METALS; CAPITAL, DECOMMISSIONING AND RECLAMATION ESTIMATES; OUR MINERAL RESERVE AND RESOURCE ESTIMATES AND THE ASSUMPTIONS UPON WHICH THEY ARE BASED; PRICES FOR ENERGY INPUTS, LABOUR, MATERIALS, SUPPLIES AND SERVICES (INCLUDING TRANSPORTATION); NO LABOUR-RELATED DISRUPTIONS AT ANY OF OUR OPERATIONS: NO UNPLANNED DELAYS IN OR INTERRUPTIONS IN SCHEDULED PRODUCTION; ALL NECESSARY PERMITS, LICENCES AND REGULATORY APPROVALS FOR OUR OPERATIONS ARE RECEIVED IN A TIMELY MANNER; AND OUR ABILITY TO COMPLY WITH ENVIRONMENTAL, HEALTH AND SAFETY LAWS. THE FOREGOING LIST OF ASSUMPTIONS IS NOT EXHAUSTIVE.

THE COMPANY CAUTIONS THE READER THAT FORWARD-LOOKING STATEMENTS AND INFORMATION INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS AND DEVELOPMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS OR INFORMATION CONTAINED IN THIS NEWS RELEASE AND THE COMPANY HAS MADE ASSUMPTIONS AND ESTIMATES BASED ON OR RELATED TO MANY OF THESE FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION: FLUCTUATIONS IN SILVER, GOLD AND BASE METALS PRICES; FLUCTUATIONS IN PRICES FOR ENERGY INPUTS, LABOUR, MATERIALS, SUPPLIES AND SERVICES (INCLUDING TRANSPORTATION); FLUCTUATIONS IN CURRENCY MARKETS (SUCH AS THE CANADIAN DOLLAR, PERUVIAN SOL, MEXICAN PESO AND BOLIVIAN BOLIVIANO VERSUS THE U.S. DOLLAR); OPERATIONAL RISKS AND HAZARDS INHERENT WITH THE BUSINESS OF MINING (INCLUDING ENVIRONMENTAL ACCIDENTS AND HAZARDS, INDUSTRIAL ACCIDENTS, EQUIPMENT BREAKDOWN, UNUSUAL OR UNEXPECTED GEOLOGICAL OR STRUCTURAL FORMATIONS, CAVE-INS, FLOODING AND SEVERE WEATHER); RISKS RELATING TO THE CREDIT WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS AND OTHER PARTIES WITH WHOM THE COMPANY DOES BUSINESS; INADEQUATE INSURANCE, OR INABILITY TO OBTAIN INSURANCE, TO COVER THESE RISKS AND HAZARDS; EMPLOYEE RELATIONS; RELATIONSHIPS WITH, AND CLAIMS BY, LOCAL COMMUNITIES AND INDIGENOUS POPULATIONS; OUR ABILITY TO OBTAIN ALL NECESSARY PERMITS, LICENSES AND REGULATORY APPROVALS IN A TIMELY MANNER;CHANGES IN LAWS, REGULATIONS AND GOVERNMENT PRACTICES IN THE JURISDICTIONS WHERE WE OPERATE, INCLUDING ENVIRONMENTAL, EXPORT AND IMPORT LAWS AND REGULATIONS; DIMINISHING QUANTITIES OR GRADES OF MINERAL RESERVES AS PROPERTIES ARE MINED; INCREASED COMPETITION IN THE MINING INDUSTRY FOR EQUIPMENT AND QUALIFIED PERSONNEL; AND THOSE FACTORS IDENTIFIED UNDER THE CAPTION "RISKS RELATED TO PAN AMERICAN'S BUSINESS" IN THE COMPANY'S MOST RECENT FORM 40-F AND ANNUAL INFORMATION FORM FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CANADIAN PROVINCIAL SECURITIES REGULATORY AUTHORITIES. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS NOT TO BE AS ANTICIPATED, ESTIMATED, DESCRIBED OR INTENDED. INVESTORS ARE CAUTIONED AGAINST UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS AND INFORMATION. FORWARD-LOOKING STATEMENTS AND INFORMATION ARE DESIGNED TO HELP READERS UNDERSTAND MANAGEMENT'S CURRENT VIEWS OF OUR NEAR AND LONGER TERM PROSPECTS AND MAY NOT BE APPROPRIATE FOR OTHER PURPOSES. THE COMPANY DOES NOT INTEND, NOR DOES IT ASSUME ANY OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS AND INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, CHANGES IN ASSUMPTIONS, FUTURE EVENTS OR OTHERWISE, EXCEPT TO THE EXTENT REQUIRED BY APPLICABLE LAW.