Pan American Silver Corp. 2026 Q2 Earnings Call

Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our second 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, Q2 news release, and presentation slides for the period ended June 30, 2026, all of which are available on our website. I will now turn the call over to Michael Steinmann, Pan American's President and CEO.

Good morning, everyone, and thank you for joining us today for our Q2 2026 conference call. Q2 delivered strong financial results, strong silver production, and meaningful progress on our growth projects. We generated $344 million of attributable free cash flow, returned a record of $300 million to shareholders, and reached an important milestone at La Colorada in early August with the first cut of the 588 decline to access the skarn deposit. Attributable silver production of 6.5 million ounces in Q2 was at the high end of our quarterly guidance range, driven by continued strong performance at La Colorada and Juanicipio. We remain on track to achieve our full year silver production guidance of 25 million-27 million ounces. Q2 silver segment all-in sustaining costs were $17.80 per ounce, primarily reflecting higher cost ounces from the inventory drawdown that had accumulated at La Colorada in the first quarter of 2026.

Higher royalties at La Colorada from mining more tons than initially planned from the adjacent third-party concession, unfavorable currency exchange rates, and higher labor-related costs. Attributable gold production was approximately 166,000 ounces, which was below the quarterly outlook issued in February. We expect Q2 to be the weakest gold production quarter of the year, with production more heavily weighted to the fourth quarter as we indicated in Q1. Gold segment all-in sustaining costs were $1,984 per ounce in Q2, slightly above our quarterly outlook due to the lower-than-forecasted production as well as labor and materials inflation. Importantly, for the first half of the year, all-in sustaining costs were below the low end of our guidance range for silver and in line with our guidance range for gold.

Based on performance to date, we are reaffirming our full year 2026 operating outlook ranges for silver and gold production, silver segment and gold segment all-in sustaining costs and sustaining capital. Within that outlook, we now expect full-year gold production to be at the low end of the 700,000 to 750,000 ounce guidance range. We have also revised our third quarter gold outlook to approximately 3,000 to 6,000 ounces below the low end of the quarterly guidance range of 178,500 to 192,000 ounces of gold. The change in our near-term gold outlook primarily reflects lower-than-expected production at Jacobina and El Peñón. At Jacobina, gold production is now expected to be approximately 10,000 ounces below the low end of the original annual guidance range of 181,000 to 191,000 ounces, reflecting changes to mining sequencing.

The mining method employed at Jacobina over the last 40 years has been open-stoping with very few of the stopes backfilled. Over the last several years, Jacobina has experienced seismic events. While these events have not resulted in any injuries or infrastructure damage, after reassessing the risk associated with seismicity, we have implemented measures in Q2 that include leaving larger pillars, reducing production rates in some higher grade areas, and increasing development rates to open more mining zones. These measures will result in overall mining grades coming in closer to average mineral reserve grade. Longer term, we are evaluating alternative Avoca-type mining methods in certain areas with waste rock backfill and cemented backfill as part of the optimization of the Jacobina operation. Jacobina continues to be a standout performer in generating cash flow with a long reserve life and significant optimization potential.

We are advancing several process plant upgrades, including installation of new carbon-in-pulp tanks and electrical control systems, both of which are expected to be commissioned this year. We are also advancing conceptual engineering to streamline and simplify the process plant flow sheet, which will feed into a trade-off study to evaluate whether upgrading the existing process plant circuitry and removing obsolete equipment or building a new state-of-the-art processing facility is the optimal choice for this long-life asset. At El Peñón, silver production is expected to remain within the original annual guidance range of 3.65 to 3.95 million ounces. Gold production is now expected to be approximately 10,000 ounces below the low end of the original annual guidance range of 104,000 to 111,000 ounces, reflecting lower-than-expected continuity in certain secondary structures.

Across the portfolio, we expect gold production to improve over the balance of the year, weighted to the fourth quarter, as previously indicated. Second half production is expected to benefit from higher gold grades and higher throughput at Timmins and Shahuindo. We are also managing the effects of El Niño at our operations in Chile and Argentina. Extreme rainstorms have affected site access for key personnel in July and into August. Our teams are actively managing these conditions, with safety remaining the top priority. Turning to our financial results. Revenue was $1.1 billion, and attributable revenue, including our 44% interest in Juanicipio, was $1.3 billion. Net earnings were $305 million, or $0.72 per share, which includes a tax expense of $179 million. Adjusted earnings were $0.73 per share. Cash flow from operations was $320 million, after $205 million of income tax paid and $17 million used for working capital.

Attributable cash flow from operations was $418 million, and attributable free cash flow was $344 million, including our share from Juanicipio. Q2 is expected to be the highest period for taxes paid in 2026, due to final settlement of taxes for 2025. Higher metal prices have increased profitability and tax payments. As a result, we have increased our 2026 guidance range for income taxes paid to be between $585 million to $635 million. Our financial position remains very strong. We ended the quarter with $1.8 billion of cash and short-term investments, including cash attributable to Juanicipio. in July, we renewed and amended our five-year senior unsecured revolving credit facility, doubling its size to $1.5 billion and adding a $750 million accordion feature. The facility remains undrawn, and our total available liquidity is approximately $3.2 billion.

This financial strength gives us substantial flexibility to invest in our operations, advance organic growth projects, and return capital to shareholders. At La Colorada, development of the 588 decline to access the skarn deposit is underway. This is a key step in advancing the planned expansion outlined in the revised PEA released in March. Engineering for the material handling system and ventilation shaft is also progressing, with the design, cost, schedule, and recommendation expected before year-end. At Timmins, we are advancing the first phase of the Timmins Camp project, including the Bell Creek shaft extension and two exploration drifts to access Vogel and Samson deposits. We plan to release updated mineral resource and mineral reserve estimates in the third quarter and a preliminary economic assessment for the Timmins Camp project in the first half of 2027. At Escobal, the ILO 169 consultation process continues.

Government representatives visited the mine in May. We met with representatives of the Ministry of Energy and Mines and the Vice Minister of Sustainable Development in June, and a bilateral meeting between the government and the Xinka representatives was held in July. There remains no timeline for conclusion of the consultation process and no date for the restart of Escobal. Our strong free cash flow is translating into meaningful shareholder returns. in Q2, we returned a record of $300 million in share repurchases and dividends. To date, in 2026, we have repurchased over 7 million shares under our normal course issuer bid. We have also declared a Q2 dividend of $0.184 per common shares. The enhanced shareholder return framework we announced in May is operating as intended.

Repurchases reduce the share count, increasing dividends per share and each shareholder's exposure to our asset base and future free cash flow generation. That free cash flow generation remains robust, and we will continue to balance shareholder returns with investments in our growth portfolio. With that, I will turn over for questions.