Pan American Silver (NYSE:PAAS) outlined plans to advance its La Colorada skarn project in Mexico while returning an estimated 35% to 40% of free cash flow to shareholders, according to comments during a discussion with CIBC analyst Cosmos Chiu.
The company said it held about $1.8 billion in cash and approximately $3.5 billion in available liquidity. Management said it expects those resources, along with ongoing cash generation, to support construction of major expansions including La Colorada without compromising shareholder returns.
La Colorada Expansion Takes Shape
Management highlighted La Colorada as its largest growth project. The mine currently produces about 6 million ounces of silver annually, while the company’s updated preliminary economic assessment envisions expanding processing capacity from roughly 2,200 tonnes per day to 15,000 tonnes per day.
Under that scenario, La Colorada could produce between 19 million and 20 million ounces of silver annually over an extended period. The company said the first phase of the expansion would have a life of about 37 years, while management referred to a broader development horizon of roughly 41 years for the initial phase.
The skarn deposit currently contains about 450 million tonnes of resources, management said. The company expects capital spending of about $2 billion over the next four-and-a-half to five years to build the project. Production from the expanded operation is anticipated around 2030 to 2031.
Pan American’s board has approved an initial portion of the work: approximately 12 kilometers of underground development beginning from the bottom of the existing mine. The development includes a large ramp intended to access the skarn and connect with two planned shafts. The company said it expects to approve the shafts later this year and begin construction next year. One shaft is planned for ventilation and the other for production.
Management said the project’s estimated internal rate of return ranges from 17% to 25%, depending on metal-price assumptions, with an estimated net present value ranging from about $3 billion to as much as $6 billion. The company has 18 drill rigs operating at La Colorada and said it expects to release additional exploration results later this year.
Production, Costs and Capital Returns
Management said first-half production and costs were broadly on track, while noting that output is typically weighted toward the second half of the year. The company said the fourth quarter is generally its largest production period, particularly because of seasonal patterns at the Shahuindo mine in Peru.
Weather affected some gold operations during the first half, beginning in Chile, management said. The company also noted that the El Niño weather pattern could move northward toward Peru, potentially affecting operations including Shahuindo or Huaron later in the year.
For the full year, management said it expects silver all-in sustaining costs to be in the range of $17 to $18 per ounce. It attributed variations in silver costs partly to byproduct credits from gold and base metals. While costs have risen amid broader inflation and higher oil prices, management said cost increases have remained controlled.
The company said it has decided to return 35% to 40% of free cash flow to shareholders this year. Its plan includes a fixed annual dividend of $305 million and approximately $700 million allocated to share repurchases. Management said that as shares are repurchased, the dividend per share would increase because fewer shares would remain outstanding.
Timmins and Juanicipio Growth Opportunities
Pan American also pointed to its Timmins operations in Canada as a longer-term source of gold production. The company recently approved an extension of the Bell Creek shaft and said exploration success and additional satellite deposits could extend the Timmins operation into the mid-2040s or beyond.
Management said a preliminary economic assessment detailing the Timmins expansion, including capital requirements, costs and production profiles, is expected in the first half of next year.
At Juanicipio, where Pan American owns 44% following its acquisition of MAG Silver, management said realized silver grades have been higher than anticipated. However, it cautioned that grades are expected to decline as mining moves deeper into more base-metal-rich zones.
The company said it and joint-venture partner Fresnillo have more than doubled the exploration program at Juanicipio this year. Management said drilling has identified promising structures parallel to the main mineralized zone and that additional exploration could help support more stable silver production over time.
About Pan American Silver (NYSE:PAAS)
Pan American Silver Corp. is a precious metals mining company focused on the exploration, development, and operation of silver and gold mines. The company produces silver, gold, zinc, lead, and copper, with silver and gold representing its principal products.
Founded in 1994, Pan American Silver is headquartered in Vancouver, British Columbia, and has developed a portfolio of mining operations and projects across the Americas. Its activities have included operations in Canada, Mexico, Peru, Bolivia, Argentina, Brazil, and Chile, although its operating portfolio can change as assets are developed, acquired, or divested.
