Pan American Silver reports record financial results

It certainly wasn’t the case for a lot of mining companies, but 2009 proved to be a dazzling year for Pan American Silver (PAA-T, PAAS-X). The company not only reported its fourteenth consecutive year of silver production growth with record earnings and cash flow but the year marked the start of commercial production at two new mines.

Pan American began production at the Manantial Espejo mine in Argentina and the San Vicente mine in Bolivia. Other highlights included the acquisition of Aquiline Resources and its Navidad project, one of the largest undeveloped primary silver deposits in the world, and the signing of an agreement with Orko Silver to jointly advance the La Preciosa silver deposit in Mexico.

In the fiscal year ended Dec. 31, silver production climbed 23% year-on-year to a record 23 million ounces while gold production surged 297% to 100,704 ounces.

Consolidated cash costs fell 7% to US$5.53 per payable oz. silver, while mine operating earnings rose 35% to a record US$126 million and net income jumped 152% to US$62 million, or US71¢ per share.

Cash flow from operations increased 52% to a record US$151.7 million or US$1.73 per share, while sales increased 34% to a record US$454.8 million.

The strong financial results have enabled the company to declare the first dividend in its history, president and chief executive, Geoff Burns, outlined in a press release.

At year-end Pan American had cash and short-term investments of US$193.1 million, no debt and an undrawn US$70 million credit facility.

For next year the company expects silver production to increase to 23.4 million oz. at a cash cost of US$6.40 per oz. net of by-product credits. It also believes it can complete definition drilling, metallurgical tests and a feasibility report for La Preciosa as well as start definition drilling, metallurgical testing and complete an advanced feasibility study for Navidad.

In the fourth quarter alone, Pan American produced 6 million ounces of silver and 26,600 ounces of gold. San Vicente and Alamo Dorado were the company’s largest silver producing mines in the quarter, each producing 1.1 million ounces.

Manantial Espejo produced more than 1 million oz. silver and added 19,500 oz. gold during the quarter, while the La Colorada mine produced 0.95 million oz. silver. The company’s three Peruvian operations combined to post a solid quarter adding 1.9 million oz. silver to Pan American’s consolidated production.

Consolidated cash costs for the year were US$5.53 per oz. silver, net of by-product credits, a 7% improvement from the US$5.97  in 2008 and below Pan American’s annual guidance of US$6 per oz. for 2009.

Lower cash costs were due to costs-savings programs implemented in late 2008, higher by-product metal prices and low-cost production from Manantial Espejo.

This year the company expects to achieve a 2% increase in silver production to 23.4 million ounces. The increase will come from a full year of production from Manantial Espejo and San Vicente, that will help offset an expected production decline at Alamo Dorado.

Pan American anticipates zinc, lead and copper production to increase to 46,000 tonnes, 15,800 tonnes and 7,300 tonnes respectively, due to a full year’s production from San Vicente and an increase in throughput at Huaron.

Consolidated cash costs are expected to increase during 2010 to US$6.40 per oz. silver net of by-product credits. The expected increase is attributed largely to the strengthening of local currencies, higher royalties, fuel and energy prices.

Pan American expects to spend roughly US$16.5 million in the development and exploration of Navidad in 2010. The province of Chubut, where Navidad is located, currently has a ban on open-pit mining but the company says it believes it is “uniquely positioned to work with the provincial government and to advance the development” of the deposit into an operating mine, citing its successful track record in the South American country.

“The company’s success in permitting and developing the Manantial Espejo mine, also in Argentina, should prove extremely valuable in this effort,” the company stated in a press release.

Pan American has also earmarked about US$9 million for exploration and delineation drilling, metallurgical testing and engineering to produce a feasibility study before the end of 2010 for La Preciosa.

In addition, the company plans to invest about US$43.6 million in sustaining capital on its eight operating mines in Mexico, Peru, Bolivia and Argentina.

In Toronto Pan American is trading at $23.59 and over the past year has moved in a range of $16.19-$28.73 per share.

The Vancouver-based company has 106.9 million shares outstanding.