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Pan American Silver Corrects Adjusted Profit; Dividend Hiked

Editor's Note: Pan American Silver put out a news release Wednesday correcting adjusted earnings that were announced Tuesday. This story has been updated fix to reflect Pan American's new figures for adjusted earnings, which are in the third and fourth paragraphs. The company said the error was due to net realizable value adjustments on the heap pad inventory at the Dolores mine, which overstated adjusted earnings.

(Kitco News) - Pan American Silver Corp. (Nasdaq, TSX: PAAS), the world’s second-largest primary silver producer, reversed to a profit in the fourth quarter as output rose but costs per ounce fell.

The company also hiked its quarterly dividend and announced an increase in silver mineral reserves.

Pan American reported that adjusted net earnings were $19 million, or 12 cents per share, in the fourth quarter, a turnaround from an adjusted loss of $12.7 million, or 8 cents, in the same period a year ago. Net income increased to $22.3 million, or 14 cents per share, in the October-December period, compared with a net loss of $137 million, or 88 cents, in the fourth quarter of 2015, when the company reported a large impairment charge.

For full-year 2016, adjusted earnings were $86.6 million, or 57 cents, a reversal from a 2015 adjusted net loss of $41.3 million, or 27 cents. Full-year net income was $101.8 million, or 66 cents, in 2016, compared with a 2015 net loss of $231.6 million, or $1.49.

Pan American announced that a quarterly cash dividend of $0.025 per common share, for a total payout of $3.8 million, was approved by the board of directors. This is an increase from the 2016 quarterly dividend of $0.0125 per share. The dividend will be payable around March 10 to shareholders of record as of the close on Feb. 27.

"We achieved solid performance on all fronts in 2016, generating $215 million in net cash from operating activities and beating our original guidance for both costs and silver production," said Michael Steinmann, president and chief executive officer. "We achieved major milestones at our La Colorada and Dolores mine expansions in Mexico. We expect both expansions will be completed by the end of this year, which contributes to an improving outlook for costs and production over the next three years."

Revenue was $190.6 million in the fourth quarter, up from $163 million in the year-ago period. Annual revenue was up 15% to $774.8 million, largely due to higher metal prices, Pan American said. Realized silver prices per ounce averaged $17.65 in the fourth quarter and $17.35 for the full year, up from $14.66 and $15.53 in the 2015 respective periods.

The company previously released its mine output, reporting production of 6.3 million ounces of silver in the fourth quarter and 25.4 million for 2016. The full-year total exceeded the original guidance from January 2016 and was within the revised range of 25 million to 25.7 million issued Nov. 14.

Meanwhile, gold output was 43,900 ounces in the October-December period and a record 183,900 for the full year. Pan American also produces zinc, lead and copper.

All-in sustaining costs per silver ounce sold were $10.38 in the fourth quarter, compared with $14.76 in the prior-year period. For all of 2016, these costs were $10.17, down from $14.92 in 2015. The company said the year-on-year decrease reflects increased by-product credits, lower production costs, inventory valuation adjustments at Manantial Espejo and Dolores, and export incentives at Manantial Espejo.

As of Dec. 31, cash and cash equivalents and short-term investment balances were $217.6 million and working capital was $428.6 million. Total debt was $43.3 million after repayment of $5.9 million in short-term debt in the fourth quarter.

Pan American projects silver output of 24.5 million to 26 million ounces in 2017, plus gold production of 155,000 to 165,000 ounces.

Meanwhile, Pan American announced that the company's mineral reserves as of Dec. 31 were estimated at approximately 286 million ounces of silver and 2 million ounces of gold, compared with 280 million ounces of silver and 2.1 million ounces of gold as of the end of 2015.

"In 2016 we added 38.1 million ounces of new silver mineral reserves, more than replacing the 32.4 million ounces depleted through mining," said Christopher Emerson, Pan American's vice president for business development and geology. "We increased our exploration budget mid-year, investing a total of $14 million during 2016, and completed 136,000 meters of drilling on mine and near-site exploration, as well as 7,000 meters on regional projects."

Emerson said Pan American is planning a "more aggressive exploration program" this year, investing about $21 million to complete about 137 kilometers of diamond drilling at operating mines and another 22 kilometers of drilling at selected regional exploration projects.

Pan American Silver owns and operates seven mines located in Mexico, Peru, Argentina and Bolivia. Pan American also owns several development projects in the U.S., Mexico, Peru and Argentina.

By Allen Sykora of Kitco News;



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