Pan American Silver Corp. (PAAS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Pan American Silver Fireside Chat Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Siren Fisekci, Vice President, Investor Relations and Corporate Communications for the Pan American Silver fireside. Please go ahead.

Thank you, operator, and welcome, everyone, to our 2023 ESG call. We are pleased you could join us for a fireside chat with Pan American's President and CEO, Michael Steinmann; and our Senior Vice President, Corporate Affairs and Sustainability Brent Bergeron, as they discuss Pan American's approach to environmental, social and governance performance. The conversation will be moderated by Siddharth Samarth, Managing Director and Head of Sustainable Finance with CIBC Capital Market. Siddharth has 15 years of experience in the banking sector. and is currently responsible for building CIBC's sustainable finance franchise. His focus is on advising clients on the integration [indiscernible] into the corporate and financing strategy. Following the fireside chat, senior members of Pan American Management Team will be available to respond to questions from investments and analysts. Please submit your questions through the webcast. Before we begin, please note that the call includes forward-looking statements. Please see the forward-looking statements advisory on Page 155 of our 2022 sustainability report, which is available on our website. I'll now pass the call over to Sid.

Thanks, Siren, and good morning, and thank you for joining us for Pan American Silver's ESG investor call. I'm pleased to have the opportunity to moderate this call. As Pan American approaches 30 years in the business, the company continues to grow, having earlier this year, completed the Yamana transaction, which makes them one of the leading producers of silver and gold in the Americas. Sustainability considerations is core to the value creation of a company, and Pan American Silver has taken a number of strides in this direction, including linking sustainable considerations to its credit facilities. I'm happy to be joined today by the President and Chief Executive Officer, Michael Steinmann; also alongside Brent Bergeron, Senior Vice President, Corporate Affairs and Sustainability. Good morning, Michael. Good morning, Brent.

Good morning, Sid.

Good morning, Sid.

Well, we're going to open up today's conversation with a few questions from my side. Just to reiterate a couple of housekeeping items. As the operator mentioned, please feel free to drop questions through the Q&A toggle and we'll attempt to address them through the call. And then lastly, I'm not intending to make any forward-looking statements on behalf of CIBC. Now with that, why don't we get into our discussion. Michael, ESG continues to be a top risk and opportunity for mining and metal companies. Companies are working to understand and integrate ESG into their corporate strategies. How is ESG integrated across the different levels and functions at Pan American Silver? Could you give us some insight into how ESG is considered in Pan American's business strategy and decision-making process?

Sure. Good morning, Sid, and good morning, everyone, on the call. Yes, happy to answer this question. And you know what, this is very similar to any very, very, very crucial and important issue that we deal in the company. And of course, ESG is in that category. So it really starts with the tone on the top. But at the end, all the projects and work is obviously done in our minds and with our communities, et cetera. So how do we achieve that to have that tone on the top and afterwards, people doing all the projects on site? Well, we have a start to all the way up at the Board level. We have a community and sustainability development committee at the Board level. That committee meets at least 4 or 5 times a year every quarter and discuss all the issues with management for the past quarter. But also looking forward, what we're going to do in the next few months, what we're going to do in the next year when it comes to budgeting, et cetera, et cetera. So and that's really the tone right from the Board and the importance that ESG plays in Pan American Silver, starting at the highest level of controls. That trickles then down to me as the CEO and our senior and executive management team. We have an ESG committee. Again, we meet at least once a quarter and discuss our issues. And there will be way more hands on, obviously, discussions than at that level. So that's the control from the CEO, senior and executive management level. And we have a lot of controls in place. Of course, we are a member of MAC. So we have all the toward sustainable mining initiative that we install and a lot of other support and systems in place that help us to put this really important framework in place. But then when it goes down, further down to the assets, we are a decentralized organization. We have our country managers in place in each country we are working in, and then of course, the mine managers and they're responsible really to implement and work with those frameworks that have been established on the corporate level. And there are lots of them. We put in a lot of SPIs, sustainability performance indicators. You see them actually in our reporting, and you will see them in our sustainability report, how we implement them, how we measure, I'll give you some examples probably, water use, energy use and greenhouse gas emission reductions, social risk management, community grievances and requests community investments, there's a long list of those SPIs. And we use them to plan our programs, and we use them also to look back and rate what we did in the past quarter and in the past year. So really, really important. As I said, those SPIs got [ chat ] again back with the Board, and that's kind of closing the loop with the Board every quarter. Some of them and quite a few of them of the ESG performance is actually related all the way to the compensation of -- for my compensation and compensation of senior executive management. Actually, at the moment, in 2023, it's about 33% of our incentive plan. This one way or the other related to ESG metrics. And for those details, I would refer you to our circular, which is, of course, available on SEDAR. Where you see every performance indicator and and how it's related to our compensation. Maybe, Brent, did I miss anything here? You would like to add?

Thank you, Michael, and good morning, everyone. I think you did a very good job of going over a lot of the aspects in terms of how we integrate the ESG part. The important part to me and something that we continue to working on is what I would consider to be the sustainability performance indicators. I think those are extremely important in terms of the sites, as you mentioned, Michael. The sites are being within a decentralized company. The sites themselves have to take a lot of decisions, but they have to do it within the framework of who our company is and what standards and what performances we expect from all of our sites. So I think that by having these indicators in place, whereby we can support our sites in terms of where we want to be as a company, how we want to be doing things from an ESG perspective and also how we want to be able to measure how our sites are actually improving in the areas that we want to see them. So we continue to develop these SPIs in terms of making sure that it is actually driving operational performance at site. As we know, these days with a lot of the issues that mining companies have with respect to community issues, it's important for us to be able to measure how our performance is moving forward, how our sites are actually managing a lot of the risk in these areas and how we can support them in terms of making sure that what we do at site from an operational perspective, what we do in the communities, in terms of our investments, in terms of our overall environmental performance is done in a way that will reduce the overall risk of how our company is actually managing and operating in different countries.

Thanks, Michael. Thanks, Brent. That was a very, very are like -- it's good to see the robust overall oversight that you've got, as well as then the decentralized management approach that you have with the guardrails that you've put in place for the teams to operate on in the various jurisdictions. Brent, perhaps you can -- just building on some of the sustained performance indicators. It's been a few months since Pan American Silver published its 2022 Sustainability Report. What were some of the company's key highlights and results from that report? And now also recognizing we're well into 2023, so how is the progress towards achieving some of its 2023 ESG goals coming along?

Okay. Thank you very much for that. And a really good question because we do put a lot of work in terms of publishing our sustainability report. The company has been doing it now for over 10 years. And really important information in terms of being able to get that information out to our stakeholders and also our investors, which we've seen over the past years, an increased interest in terms of how our performance is in this area. So in terms of 2022, we've exceeded a lot of our goals. But unfortunately, there was one goal that we missed and that had to do with our our most important goal in terms of achieving 0 fatalities. Unfortunately, we did have some fatalities at 3 of our sites over the period of 2022. And I think it's given the chance for the company to basically stop and reflect on what the company needs to be doing in terms of number one, achieving this goal, which is extremely important for us. As I mentioned, it's our #1 goal, but also taking a look at how we can do things differently. And this goes all the way to our COO and the entire team all the way to the Board that really wants to see how we can streamline, we can declutter, we can think differently. We can expand in terms of our training and technical abilities of our workforce, focus really on the aspect of our leadership at site which our leadership have to be the people that are actually pushing the aspect of working safely and making sure that our workers are falling in line in terms of making sure that when something is not right, that they do have the ability to raise their hand to say stop and actually discuss different items of risk that does affect their safety at site. So the entire team at the company is working on that right now. In terms of 2023, I can say that our record has been good. We're still looking at how we're working towards the different programs. And that's a journey for us right now, but we're paying a lot more attention in those areas. On the environmental side, we did achieve 6 of our 9 goals. And some of these goals sometimes are not that easy for us to achieve, simply because an important part about mining is that whether you're doing open pit or whether you're underground, every time that your mining process continues to move forward, you're either -- you're going deeper or you're moving further away from your actual plant facility. So therefore, the energy use that you're going to have usually is required to be higher, bringing water to those areas also in terms of how you're operating and how you're doing a lot of the processes requires more intensity. So I think that when we take a look at what we've been able to achieve in 2022, a 19% reduction in greenhouse gas emission, a 9% reduction in terms of energy use, 14% reduction in terms of water use. And that's all from our base case from 2022. What I think is really important in this area is that we've been able to do this by looking at better, more efficient, innovative ways of actually performing our work, but doing this with the caveat in the background that we're actually doing things that are -- is further away deeper in the mine. So therefore, we're also trying to achieve this goal by something that's actually requiring us to actually have more information. So more energy and more water in terms of the gas -- greenhouse gas emission. So I think that the company is on a good path in terms of making sure that we're moving towards these types of goals. For the current year, we are actually achieving some of those goals successfully also, and also trying to implement more ideas, working with the sites, supporting them in terms of finding out better ways and more efficient ways of handling the energy usage at our sites. In terms of environmental incidents, we had no significant environmental incidents in 2022. So that was very significant for us in terms of making sure that, that doesn't happen. We're also looking at how we're securing renewable energy at a lot of our sites. And I think that that's also helping us in terms of our greenhouse gas emissions targets. We were able to do this last year at 2 of our sites in Mexico, which was something that we have been working on for a while. And I think that, that is also very important on how we continue to move forward with all of our sites, and looking at this and how we're doing this with respect to the integration of some of the [ ex-Yamana ] sites that are coming in and looking at how they're bringing in also renewable energy sources. On the social side, we continue to make some significant investments in a lot of the communities where we operate. In 2022, the total amount was just under $15 million in all of our communities. And we're also looking at how we're doing this differently. We want to make sure that we're not just doing onetime donations. We're looking at this in terms of community investment projects. Community investment projects that are going to actually contribute to the closure activities that we have at the mine site, because we want these types of investments to survive when the mine site is not going to be operating anymore also. So a lot of good results in those areas. And I think it's also indicative coming out of a pandemic. It's also indicative of how we've seen our sites continue to operate even post pandemic, where we know that a lot of companies had some significant challenges with this in different countries. But we've been able to do this up to now with very minimal disruptions at our site. So I think it does speak to the relationship that we do have with our communities and our focus on very interesting and significant projects with them. So we keep moving towards that and looking at 2023, we have already year-to-date starting -- I'll go back to June because we're still getting some results back in at this point. But it's looking pretty good in terms of us being able to achieve a lot of our goals, both on the environmental and on the social side, especially in the areas of GHG emission reductions, looking at the aspect of social and community, the response times that we have in terms of the some of the grievances or we call them request for information coming in also. So I think we're moving in the right areas in terms of making sure that our teams are very focused in the areas that they need to be right now.

Brent. And really, really comprehensive view of what's going on across and the progress that's being made across those key sustainable pillars. And good to hear about the progress made so far in 2023. You touched upon Yamana. And Michael, perhaps if I could come back to you. Both Pan American Silver and Yamana Gold have had strong ESG commitments and employee leading ESG practices. However, each have had a different approach and strategy. So how are you integrating the 2 companies' ESG strategies and programs? And has there been a change in approach since the acquisition of Yamana?

Yes. look, I think you're right. And the approach was probably a little bit different. Probably not that much as it looked from further away. But at the end, the initiatives and goals, of course, that we have are very, very similar, right? I mean it's, of course, health and safety, emission reduction, our workforce investment in socioeconomic development for our local communities, et cetera. So those goals have not changed. It's just a way to get there. It's a little bit different. Yamana is a bit more centralized. We are a bit more decentralized as I explained. We have that kind of Board and senior management oversight. That kind of circles back at the end. But we really have our local teams. You know that live in a country that mostly from those countries, they understand the communities, they are in constant communication. This is really the right group to build on these projects and have that interaction. And so that's just, I think, really the only difference that as I said, Yamana was running it more centralized. We're doing it more decentralized. The goals really have not changed. I think we put the management teams together. The integration is basically complete. And we really had a great chance here to put the best from both sides together, and form even stronger teams and build on those goals that we had. And as I said, and as Brent said, a lot of effort on greenhouse gas emission reductions, et cetera. And very similar than what Yamana already had in place before. So not only on the ESG side, but also on the operational side. Probably the smoothest integration that I have seen in my career. And as I said, that goes across the Board, including our ESG efforts.

Thanks, Michael. And good to hear about the lens that you're using, and talking about leveraging best practices with the wealth of knowledge across [ the human ] capital perspective, also something to leverage on. So thank you for those insights. Brent, if we could go back to you, what do you consider are the key ESG risks facing Pan American Silver, and what is your approach to managing them? In particular, how are you considering there's lots of focus on climate risk and the potential impact on operations from that perspective, just given the year that we've had so far?

Yes. Very good questions. And it is something that we're really trying to integrate within our different processes that we have here at Pan American. We've just completed a trip with our operations, finance, environmental, social teams, which is part of our normal budget trips that we take, visiting the sites and talking to the different management teams at site in terms of how their budgets are going to look. And one of the things that we really try and incorporate in terms of what they're doing, of course, operational excellence is what drives everything that we do, starting from the resources at site and how we're drilling everything, how we're moving forward with that part, which is extremely important to us. But we're also looking at how we're integrating those different types of risk, and you mentioned some of them now, the social risk, of course, it is something that is becoming a lot more important to our industry, not just the Pan American Silver, but all of the companies that are operating in different jurisdictions. Because we know that from the social side, if we do have stakeholders, if we do have partners in communities that are not happy with the way that we're actually operating in those areas, that it does lead in certain countries, it does lead to blockades, it does lead to conflicts in different areas. So the way our teams manage the different social aspects of what we do in terms of making sure that we are interacting, we are getting information from them in terms of what's important to them, and not only what's important from the relationship directly to the mine site. But in terms of also what are they doing in their communities? How can we live together, how can we operate in an area together, whereby everybody is gaining a benefit from the operations that -- itself? So taking a look at how we're investing in different types of industries, such as the agricultural industry. How we're investing in infrastructure in different areas where we operate. And what we see is that we see that the social risk expand in terms of the ecosystem within which we're operating. And I think that, that's what we're trying to support our teams when we're doing, for example, these budget tours to make sure that they're also looking at those types of risk, especially on the social side. On the environmental side, climate change is definitely something that is affecting our sites. We are seeing more drastic rain events, storm events happening in different jurisdictions where we operate. So how are we managing that from an operational aspect also. How are we including that type of risk in terms of how we're currently operating, how we're expanding the mine. We know water is a significant issue for us at site. It's a significant issue for the communities where we operate. So we need to be able to manage that within a system within a footprint that actually allows us to live together. And I think that, that's an important aspect of what we continue to look at when we're talking to the sites and when we're supporting them. And we're seeing that right now in terms of how they are -- for example, we do have a country risk process that we do. It's an assessment that we do on a quarterly basis with all of our sites. It has 10 different categories, of course, legal, taxation, environmental industry risk that all comes into play. So we want our sites to actually be thinking about these types of risk in a way that it's not just what's contained from within the footprint of the mine itself, but what's happening also on the outside and how those types of risk can actually come in and affect the operation. So we've been working on implementing that not just at the Pan American sites, but also now at the [ ex-Yamana ] sites, and it's actually something that is being welcomed by all sites in terms of that interaction that we're having, that chance to actually look back and reflect on certain risks that may be coming up, and also in terms of how we're going to be managing these risks. Some of these risks are very difficult to manage. Some of them we can put plans in place to be able to do this. And that gives a lot more comfort also to our senior management team, to our Board of Directors in terms of if these risks are being identified as something that may or may not be material to us, how are we actually managing them going forward and how do we give the comfort to also our Board of Directors, our shareholders in terms of how the company is actually moving these types of risk forward. So a lot of work is being done in these areas.

Thanks Sid. I -- If I may jump here, because I know we actually had this plan to go to this fireside and then answer all the questions. But I just -- well, Brent was explaining what we do on the risk side. I saw quite a few questions coming in on the risk side as well. And maybe it's a good place to be a bit more interactive here and answer some of those questions. What we do, especially with our community and workforce to control risk and to be sure that we understand what we are dealing with. And I can tell you, we do like an annual community of interest survey. It's a very big survey that we do corporate wide. In each country that we operate, it's very detailed with normally thousands of answers from different stakeholders. There's a participatory baseline perception studies and community programming. So a lot of interaction working with the community and understand where the people coming from, and that obviously helps us to identify where our risks lie. There is an annual worker well-being survey. Again, a survey with a lot of participation and the people sending and gives us a good idea what people think and going on. And last but not least, there is obviously agreements mechanism in place for community and workers on each of our side, each of our office where people can voice good or bad or what they want to change or what their questions are. And that will be, again, circling all back to the Board and discussed in our quarterly meeting. So I think that's very important to make this statement here. But I've seen a few of the questions also how we -- how it relates in handling human right risks. And maybe Christopher Lemon, our General Counsel, so you can jump in here as we're just talking about risk, it's probably good to explain here some of our listeners, how we deal with the human rights and human rights risks in the company. Christopher, are you on?

Hello?

Yes. Now we can hear you, Chris.

[indiscernible] hearing now. Sorry, and thank you, Michael, and good morning, everybody. Yes, I mean, we conduct human rights due diligence and human rights assessments on an ongoing basis. We do that mainly in-house, and that's by intent. And it's transversal. And by transversal, I mean it intersects everything we do. And we've already talked about a lot of the mechanisms that we use for our human rights due diligence. And the point is to -- for us to identify, assess, avoid and mitigate potential human rights impacts and risks. And we have a global human rights policy that specifically sets out that we need to conduct ongoing human rights due diligence. And we also recognize that human rights risks differ at each of our operations. And that's why it's really important, as Michael mentioned, to engage with our communities of interest. And we have site-specific processes that help us identify what our potential human rights risks and impacts may be. Michael talked a little bit about the [ participant ] processes that we have including baseline studies, cultural studies, perception assessments, and these help us understand what the priorities and concerns of our host communities are. We also have community and employee response mechanisms. And this helps us understand what our communities and our employees, what their concerns are about human rights. And then at the site level, we work with local professionals, including social workers, teachers, health practitioners. And again, the intent is to identify concerns and risks that we can address. We also -- obviously, we have labor unions at our sites, and we have labor negotiations in a collective bargaining process. And this further helps us understand what their concerns are with respect to human rights so that we can address those. And we do assessments on an annual or quarterly basis with respect to health and safety risks and environmental risk. And again, this goes back to making sure we understand what our human rights risks are. And we have some specific processes in place for screening human rights risks. We specifically screen for child and forced labor risk at our operations, and we have new legislation coming in, in Canada on January 1, that will require us to prepare reports that are approved by the Board and to file with the Canadian government in May on our human rights performance with respect to child and forced labor. Again, we do the country level risk assessment that Brent talked about. We screen our suppliers. We have a very sophisticated and comprehensive supplier and contractor screening system. And then finally, we have our compliance with the voluntary principles on security and human rights, and we do specific security and human rights assessments. When we do an acquisition, such as we did with Tahoe and with -- subsequently, we do proper due diligence on our acquisitions and our joint ventures. And of course, we did that with Yamana. We also appointed a human rights officer that lives in Latin America and she conducts and helps coordinate this transversal human rights assessment process across all our operations.

And then, of course, overarching this is our human rights policy. That is kind of the overarching guideline for us that we all follow us on. Thanks, and Sid, back to you.

Very, very robust discussion. Just if you can perhaps build on this. Mike, like key creation for value generation is certainly linked to ESG and the Escobal mine in particular. Can you provide us any updates just on the ILO consultation process? We've got a couple of questions on the chat line related to that.

Yes. Yes. No, I saw that there are some questions coming in. I'm happy to give you an update here. And we also have so much clear on the call. So I will ask John afterwards to fill in any more details on the process that is working already for quite a while. There was, of course, some delay with COVID, but it's an ILO 169 consultation with the Xinka population around the Escobal mine. It's a process that's held by the government. It's run by the Minister of Mines together with indigenous group. Of course, we are party to it, but it's not run by Pan American Silver. I think in Q2 2023, that information transfer process that is described in Phase 2 of the consultation timeline was completed. Everything is posted by the way, on a website by the government. You can find the link to this website on our website as well with all the details there. So it's a great, open discussions there. I think at the moment, the next step will be that the Xinca Parliament representatives will review the old information with their consultants, go back to the community and then come back with further discussions and concerns, impact mitigation measures, et cetera, of the project. I'm very pleased that we hosted several visits with -- on our side, actually, with this -- with members of the Xinka Parliament, which is a very, very important way to have this dialogue and also showcase the mine. It's modern installations are top of the line, fully water recycling, et cetera. I mean, there's a lot of really very modern top of the line installations on the site, especially when it comes to dry stack tailings. So there's no conventional tailings standard. There's -- so it's a full water recycling of the -- from the tails, et cetera. So very interesting. I think there's no time line, because we're not controlling the process. As I said, it's between the Ministry of Mines and the Xinka Parliament. We probably -- most people know that there will be a change of government mid of January in Guatemala. So it's always a bit difficult when that happens in any place in the world, I guess, to exactly predict how this is going to impact the process. But we had some meetings with the incoming party and they assured us that and they would support, obviously, a responsible company like Pan American Silver in Guatemala. But as I said, no, we'll see when that change happens. Maybe, Sean, do you want to give some more background to this? And by the way, Sean is running our efforts in Guatemala. Sorry, Sean. We can't hear you. And maybe Sid, if we're going to go ahead and then we bring Sean in later on. Let me sort the technical issue.

Yes. Appreciate the update over that. And perhaps one question -- one more last for me, and then I'll hand it over to Siren, who's going to moderate the questions which are coming in for all of us here. Look, in terms of, I would say, just silver, it's used in terms of the decarbonization strategy and you're seeing a big focus on decarbonization. So how are you thinking about that from your mining operations? And then also, can you talk about the role that the product plays in some of these decarbonization efforts, just given the focus on climate change and the requirement to decarbonize industries as quickly as possible.