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Pan American Silver (NASDAQ:PAAS)
Q3 2021 Earnings Call
Nov 10, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver third quarter 2020 results conference call. [Operator instructions] The conference is being recorded.

[Operator instructions] I would now like to turn the conference over to Siren Fisekci, vice president, investor relations, and corporate communications. Please go ahead, Ms. Fisekci.

Siren Fisekci -- Vice President, Investor Relations, and Corporate Communications

Welcome to Pan American Silver's third quarter 2021 conference call. Media and other participants on the call are invited to participate in listen-only mode. We released our third quarter results after yesterday's market close, and a copy of the news release, MD&A and presentation slides for today's call are available on our website. That material in today's call contains certain statements and information that constitute forward-looking statements and information.

Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent Form 40-F and Annual Information Form. Please also note that we use non-GAAP measures, please refer to the alternative performance, Non-GAAP Measures section of the news release and presentation for further information on these measures. Joining the call today from Pan American are: president and CEO, Michael Steinmann; Steve Busby, chief operating officer; Rob Doyle, chief financial officer; Martin Wafforn, senior VP, technical services and process optimization; and Chris Emerson, VP, business development and geology. I'll now turn the call over to Michael for a brief overview of the results before opening the call for questions.

Michael Steinmann -- President and Chief Executive Officer

Thank you, Siren, and thank you for joining us today to discuss our third quarter results. Revenue in Q3 of $460.3 million was a new quarterly record. The realized price per ounce for silver was $24.16 and $1,782 per ounce of gold. Net earnings were $20.2 million in Q3 or $0.10 per share, which included noncash mark-to-market losses on short-term investments of $25.3 million, primarily for our investment in New Pacific Metals Corp., realized gain on the sale of our Waterloo early exploration asset of $28.5 million, and income tax expense of $50.4 million.

The tax expense includes $6.8 million of expense related to the Waterloo sale and $9.9 million related to changes in deductible tax attributes driven by changes in foreign exchange rates. Adjusted earnings were $37.8 million or $0.18 per share. Strong Q3 cash flow from operations of $157 million was more than sufficient to fund sustaining capital investments and dividend payments and contributed to a $75 million increase to cash and short-term investment balance on September 30. Turning to operations.

We produced 4.8 million ounces of silver in Q3. Silver production for the last 18 months has been hindered by ventilation constraints at La Colorada, as disclosed previously. Early in Q3, we removed the blockage that had formed during the commissioning of a primary ventilation arrays. In Q3, we also completed several raise bore replacements and upgraded projects all being fully aligned with shotcrete ground support.

Overall mine ventilation air volumes now exceed pre-2019 rates by 44%, successfully lowering temperatures and humidity in many parts of the mine. We expect mine developments and mining rates at La Colorada to continue increasing over the coming quarters, steadily ramping up to the throughput rates of approximately 2,000 tonnes per day by mid-2022. The improvement in ventilation will also allow us to increase underground exploration drilling rates, particularly for the skarn deposit. We produced 142,600 ounces of gold in Q3.

At Timmins, we continue to mine at lower rates and grades as we adjust the mining methods and upgrade ground support systems to adapt to the wider ore extensions in this section of the mine plan. We will be debottlenecking and increasing the capacity of our new cement rock fill plant during Q4 2021, which has been limiting our mining rates in the wider ore zones to a greater extent than expected. At Dolores, we had an in-heap gold inventory buildup of 8,100 ounces during the quarter and 37,000 ounces year to date. The inventory build is the result of heap sequencing necessary to accommodate a delay in completing construction of Leach Pad 1 South, which results in leach sequencing into relatively deeper sections of the heap for longer periods than originally expected.

We will be loading ore on the new Pad 1 South by the end of November, which will benefit the heap kinetics in late 2021 and moving into early 2022. At Shahuindo, we had an increase in pad inventories of 5,900 ounces in Q3 for a total of 16,100 ounces for year-to-date 2021. We have been stockpiling fine grained material until we could mine the course of grained ore for mixing and placing on the heap. We have adjusted our mine sequencing and they're now accessing coarser ore, which is allowing greater blending for the finer grained ore, including blending in some of the previously stockpiled ores.

Silver segment cash costs in Q3 were $11.92 and all-in sustaining costs were $16.30 per silver ounce sold. Spending was elevated at La Colorada for the ventilation work, extensive shotcrete support and for mine mechanization toward greater long-hole stoping production rates. We believe the investment in mine mechanization will benefit safety, productivity, and costs over the next few years as we accelerate developments to capture the full benefits of long-hole stop mining methods. All-in sustaining costs at La Colorada should come down as throughput rates rise over the coming quarters.

Excluding net realizable value inventory adjustments, silver all-in sustaining costs were $16 per silver ounce sold. Gold segment cash costs in Q3 were $922 and all-in sustaining costs were $1,176 per gold ounce sold. Excluding net realizable value inventory adjustments, gold all-in sustaining costs were $1,168 per gold ounce sold. Overall, our operating performance is being impacted by qualified labor and supervision shortages, additional costs related to COVID protocols and cost inflation pressures, particularly for fuels and logistics.

Based on operating results year-to-date and expectations for the remainder of the year, we have revised our guidance for 2021. We now expect to produce 19 million to 20 million ounces of silver. The reduction from the guidance provided on May 12 is due to lower-than-expected silver grades at San Vicente due to narrowing vein structure, resulting in reduced productivity and increased dilution, the extensive shotcrete support and development advances at La Colorada and slower heap leach kinetics given the delay in completing construction of Pad 1 South leach pad at Dolores. We now expect to produce 560,000 to 588,000 ounces of gold in 2021.

The reduced estimate is primarily due to lower-than-expected production at Shahuindo and Bell Creek. At Shahuindo, the fine grained ore resulted in reduced solution application rates, which in turn led to a buildup in gold inventory in the heap leach pads. In addition to revision to the mine sequence and lower grades to encounter more coarse material for blending. At Bell Creek, additional ground support and increased cement rock fill was required in the wider areas of the ore body.

Silver segment cash costs are estimated to between $11.60 and $12.50 per ounce and all-in sustaining costs between $15.75 and $16.75. Gold segment cash costs are estimated to be between $825 to $925 per ounce and all-in sustaining costs between $1,135 to $1,250. The impact of our lower gold production estimate is offset by deferred spending on capital projects and timing and some discretionary spending within operating costs. We have also reduced our estimate for total capital spending to a range between $261 million and $271 million, including project spending of $43.5 million to $45 million.

Project capital is largely directed to advancing the exploration and development studies for the La Colorada Skarn project, advancing construction of the new concrete-lined ventilation shaft and the refrigeration plant at La Colorada and the Wetmore exploration project in Timmins. Details of our revised guidance are provided in our Q3 MD&A. Pan America is in a strong financial position. We have a total available liquidity of $815 million, comprised of a fully undrawn $500 million under our revolving credit facility and $315.4 million in cash and short-term investments at the end of Q3.

Operations are generating strong levels of free cash flow. And we expect a meaningful improvement in operating performance in Q4, in line with our revised guidance. Our capital allocation priorities remain on investing in high-return projects and returning cash to shareholders through dividends. Over the past 18 months, we have increased the dividend three times, returning $86.2 million to shareholders during that period.

Yesterday, we announced a quarterly dividend of $0.10 per share. We will continue to evaluate dividend payout levels in light of our requirement to fund growth projects that would deliver high returns to our shareholders. Yesterday, we also announced the results from 39 new infill and step-out holes at the La Colorada skarn. The expansion of the current skarn mineralization footprint is highlighted by the exceptional grade and thickness of S-62-21 and S-71-21 on the eastern side of the deposit, 200 meters from the nearest drill hole.

Exploration hole S-71-21 returned 77.1 meters of 119 grams per tonne silver, 7.7% lead and 13.62% zinc. Also, drillhole U-67-21 drilled to the west of the breccia expanded the resource 200 meters with 115-meter interval at 133 grams silver, 3.6% lead and 4.83% zinc. The deposit remains open to the West to the East and Southeast. In consideration of the expanded footprint of the mineral resource and the high grades in some of the step-out holes, Pan American has decided to expand the scope of the preliminary economic assessment and not release a technical report at year end as anticipated.

These studies will include additional drilling of the deposit and review of larger scale mining methods, such as sub-level caving versus long-hole open stoping. At the Escobal project, the third pre-consultation meeting was held in October and the next one is set for November 27. The Guatemala Ministry of Energy and Mines is resuming monthly meetings following a lengthy delay in holding the third meeting due to resurgence in COVID cases in Guatemala. The Ministry of Energy and Mines, who is leading this consultation, have set up a website as a repository for information related to the consultation.

The link to that website is provided on the slides that accompany this call. At the beginning of this year, we estimate that the impact of COVID on our operations would steadily reduce over the course of the year with no impact starting in Q1 2022. While vaccination rates have substantially improved in Latin America over the past few months, we are still experiencing COVID-related impacts in terms of lower workforce deployment levels, shipment delays, supply chain interruptions, and related cost pressures. These headwinds will continue at least to the first part of 2022 and will be taken into account in our budget and forecast for the next year.

Before we open the call to questions, I would like to thank Rob Doyle for his 18 years of service to the company. As we announced yesterday, Rob has informed us of his plans to retire as chief financial officer of the company effective March 31, 2022. Rob has been an integral part of our team and I have greatly appreciated his efforts, which have earned Pan American reputation for prudent financial management. We are following our succession plan to ensure an orderly transition.

And with that, I would like to open the call for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question is from Tyler Langton with JPMorgan. Please go ahead. 

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Morning. Thanks for taking my question. Best wishes for your retirement, Rob. I guess just to start with cost at La Colorada, I think you mentioned they were impacted by the ventilation upgrades, the shotcrete and the long-hole mining investments.

I mean do you have a rough sense to how much those added to costs in the quarter? And then should we expect those to sort of ease over the next several quarters? Or will some costs still remain sort of throughout the balance of 2022?

Steve Busby -- Chief Operating Officer

Yeah. Hi, Tyler. Steve here. Good morning.

Currently, we're kind of still putting our thoughts together for next year and our budgets for next year and trying to roll in our current understanding of some of the inflationary factors on some of our inputs. I think from a standpoint of catching up on the shotcreting, we should be seeing that start to taper off during Q1, Q2 of next year. And we're -- our investments on the long-hole mining, that's really pushing ramps out ahead, because it allows us to go basically three sub levels for each stop versus what we've been doing with the cut-and-fill mining methods. So that's going to take us most of 2022 to keep those ramps pushed out ahead on an accelerated basis.

So it's -- I'm not -- we're not prepared to give an indication yet of what our costs are going to be next year. We'll do that in January. But those are some of the factors that we'll see. And it's just how much of that inflation is going to hit us overall.

We'll see that come January. We'll give some numbers.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

That's helpful. And then just sort of sticking with costs. I mean, do you have a rough sense, I know it's hard to quantify, but sort of the higher cost that you continue to see. Is that -- right now, at least, is that more from COVID-related restrictions? Or is it also sort of any impact from inflationary pressures?

Steve Busby -- Chief Operating Officer

Yes. I'd say COVID-related restrictions are really it's the protocols, the cost of doing the testing of that. That is starting to come off. We do anticipate that to drop off early part of next year pretty substantially from the levels we're at now.

So it's really mostly inflationary in these kind of catch-up projects, if you will, on the shotcreting and their ramp advancing.

Michael Steinmann -- President and Chief Executive Officer

But sorry, it's Michael. Just in general, for sure, we do like the whole world. We see some pressure on wages, call it, COVID related or after COVID related recovery, but we definitely see that. And just as a reminder to everyone, our exposure to foreign currencies is a big driver for cost up and down, obviously, depending where they go.

Foreign currency for us includes Canadian dollars as we report in U.S. dollars, and then the other two big ones are Mexican Peso, Peruvian Sol. So moving up and down with those currencies have an impact on our cost. We see some devaluation right now in Peru, which gives us some tailwind on the cost side with the Peruvian Sol.

Of course, if this kind of devaluation stay longer and are not just transitory, then we normally see kind of a clawback later on, especially on the wage side. So just keep that in mind when you look at the cost.

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Thanks so much.

Operator

The next question is from Cosmos Chiu with CIBC. Please go ahead. 

Cosmos Chiu -- CIBC World Markets -- Analyst

Hi. Thanks, Michael and team, and congrats, Rob. Maybe my first question is on -- as you talked about, you're currently in the process of budgeting. It sounds like you're putting out guidance in January 2022.

Michael, are you anticipating potentially giving out three-year guidance, longer-term guidance as well. I know it's more challenging given cost inflation and COVID-19 impacts. But is that something that you're considering?

Michael Steinmann -- President and Chief Executive Officer

I think once everything normalizes with COVID, we can start looking at that again. I mean as you remember, at the beginning of this year, we kind of had a straight line. We didn't really know in January 2021 where the pandemic is going, like nobody knows. And we assumed improvements, constant improvements during the year.

Of course, that happened in a certain way, but not in a straight line for sure. And probably not as fast as we all hoped for. We see now a really big catch-up on the vaccination rates in Latin America. So I really hope that after the first couple of quarters or so next year, we are at a new spot where we have less or nearly no impact from COVID, but I really don't know right now where it's going.

So we'll keep a really close eye on that. But I think we really have to have a normalized situation again from the pandemic before we can go to a lower -- longer guidance.

Cosmos Chiu -- CIBC World Markets -- Analyst

Of course. And then in terms of inflation, Michael, you're in a unique position. You have operations underground, open pit, in Latin America, in Canada. To the extent possible, could you maybe talk about inflationary pressures, where you're seeing it? Is it underground versus open pit? Or is it Canada versus say, in Mexico? Any comments that you can make?

Michael Steinmann -- President and Chief Executive Officer

I will make some general comments here and then pass it on to Steve as well. But as I said before, I mean, we, for sure, see some inflationary pressure on wages and it's -- that's just the shortage of people. As you experienced as everybody is experiencing in the world. We are not immune to that, and that puts pressure on wages -- as we come out of this pandemic and with the recovery, there's obviously going to be shortage.

A lot of activity in lots of countries, we are working while there are still a lot of restrictions in many countries we are working. So it is this kind of difficult situation where there's a lot of demand for people and there's a lot of restrictions still in place. So as I said, I really hope that end Q2 or somewhere middle next year, that, that starts to normalize. But as we all learned over the last two years, this pandemic has been very unpredictable and is new to all of us.

So we make predictions and then adapt to the reality of the advancement of the virus. But as I said, vaccination rates are advancing really strongly now in Latin America. So that's very encouraging. And I really believe that we're going to see a strong improvement here.

But then we see large disruptions in the world, supply chain disruption, transport disruption, shortage of shipping, ships and containers, etc., etc. I would say this is probably more a bit transitory. I think when that normalizes, that's hopefully normalizing with the recovery from the pandemic. And I don't think so that, that will be a longer-term issue.

Wage inflation is obviously a bit more difficult, right? Once you are there, it's not very easy to come back from it. When we look at other goods, I'll probably pass it on to Steve what he sees on, let's say, cyanide or other suppliers that we need.

Steve Busby -- Chief Operating Officer

Yes. I mean, next to labor, fuel and energy would be our next highest cost input for the company. And generally speaking, kind of the global fuel and energy costs are going up pretty dramatically. Now we do see some offsets to that in some of our jurisdictions.

We do have some subsidies that come in and kind of dilute that increase. And then beyond that, yes, some of our consumables, some of our reagents, particularly the transport to get reagents to the site. That cost is going up. We've seen some in the neighborhood of as high as, I'll say, 10% as kind of the projection for next year.

Probably on average, it's more like 6% or 7% for a lot of our inputs, spare parts and lime and cyanide and things like that.

Rob Doyle -- Chief Financial Officer

Steve, it's probably worth mentioning that we are partially hedged on our diesel consumption. We put in a 24-month program in 2020. So we do have some coverage on our diesel needs through this -- the balance of this year and across 2022 as well. So we do have an offset that sits in the derivative line.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks. Maybe switching gears a little bit here. Diving deeper into Dolores.

In Q3, I guess there was a continued build in inventory. As you said in Q2, I thought some of that was going to be recognized as production in the second half, but it seems like it's been delayed due to the Pad 1 South construction. Could you walk me through that again in terms of how that works? Is it -- are you now expecting it to be recognized as production in 2022? Is it more based on stacking of the Pad 1 South and so the leach time is going to be quicker? Or is it waiting for what you've been stacking on the old pad and waiting for that to come out in 2022 in due time? Could you maybe give me a bit more color?

Steve Busby -- Chief Operating Officer

Yes. Sure, Cosmos. It's a combination of the two. Obviously, when we go to stacking on the new pad directly on the liner, we'll put our highest-grade ore we can find on that.

So we get pretty quick recovery compared to where we're stacking now on Pad 3, we're up stacking kind of the final lifts of that pad. So we've got depths as much as 120, 130 meters of ore that we have to soak through to recover that at the bottom of the pad on that area. But what happens too is as we're stacking that Pad 3 on the final lifts, those cells that we're loading are fairly small in surface area. So we have to reduce our primary leach cycle time.

And what happens is we load, we start to leach, we have to stop that leaching early, because we don't have enough area and let it drain before we stack another load on. So we've got multiple lifts that have been partially leased. So as we start to stack on Pad 1 South, we'll be able to keep irrigation on full time on that Pad 3 that will start to release all those ounces that we built during the year in addition to getting the quicker ounces of Pad 1 South.

Cosmos Chiu -- CIBC World Markets -- Analyst

OK. I get it. So it's a combination of both. And maybe one last question, bigger picture.

Michael, we've seen sort of M&A pick up in the gold space. To the extent that you have any comments, -- Do you think that's going to translate? And do you think it's going to happen in the silver space as well?

Michael Steinmann -- President and Chief Executive Officer

Well, look, I mean, I'm a strong believer on stronger companies. I think we have proven that with the acquisition of Tahoe and what happened to Pan American. I would refer everybody to the slide, so they're attached to that call, and there's a -- there's a slide in there with total net cash position. And what happened since the acquisition of Tahoe, we improved our net position by $559 million while paying to our shareholders a $119 million dividend and put about $100 million into new projects, mostly exploration of the skarn at La Colorada.

So of course, you have less overhead, you save a lot of money on your G&A. When you build a bigger and stronger company, you have to find the right targets, of course. If not, it doesn't make any sense. You have to find a target that gives you that strong consolidation and savings.

So preferably in similar -- preferably in similar or close by jurisdictions, etc., etc. So there's not just a blanket answer to that. As you know, it's very complicated with timing. But in general, I think that will happen.

I think in the future, we're going to see the trend to larger and stronger company, not only in the gold, up on the silver side as well.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks again. 

Operator

The next question is from Trevor Turnbull with Scotiabank. Please go ahead. 

Trevor Turnbull -- Scotiabank -- Analyst

Yeah. Thank you. My first question, I guess, is related to La Colorada skarn and the update. You were talking about a potentially larger scope project and the investigation of bulk mining with sub-level caving. And I just wondered what this means in terms of the processing plant if there's upgrades in terms of capacity that you're considering or just general upgrades to the facilities that would have to go hand-in-hand with this.

So yes, whatever you can tell us a bit about that, please?

Michael Steinmann -- President and Chief Executive Officer

Sure, Trevor. We put out a press release this morning before market opened with some of the really astonishing drillholes. I think, I mean if you look at the width and the grades of these drill holes, it's amazing. And some of them are 200-meter step-outs [Inaudible] to the Northeast and Southwest.

So there's a large potential to increase that resource, hence, kind of we need to drill more right now and redo the resource and basically look at even bigger bulk minable ore body. So that's really what happened. So all good news there. It's the infill drilling, so very good continuity of the main ore body.

So very, very encouraging. Just to be clear, this is going to be -- if you look at the size of the ore body, not just an expansion of the current plant that's going to require, at one point, a much, much larger plant to treat that ore. So while we maybe can look at it at a shorter time -- shorter time line here, depending when we get access to the ore. But if you look at this large bulk mineable ore bodies, we cannot just increase the current plant by percentage and treat it there.

It will definitely require a new facility. Maybe Martin, you want to weigh in here?

Martin Wafforn -- Senior Vice President, Technical Services and Process Optimization

No. Absolutely, Michael. I completely agree with your comments. It's a blank page in terms of looking at new plant and new infrastructure for a project of this magnitude, and it just keeps getting bigger, which is leading us to look at these different alternatives in terms of the mining methods, but definitely much larger scale than we're doing now the existing La Colorada mine.

We're mining these fairly small veins, and we're 2,000 tonnes a day kind of size frame. We're looking at significantly larger than that for either long-hole stoping or as it continues to grow and continues to expand and get bigger and bigger, even more larger or more bulkier, less selective type mining methods like sub-level caving would require another incremental gain in the size of that -- the processing and the infrastructure that we would need to put in place to deal with that.

Michael Steinmann -- President and Chief Executive Officer

Yes. So just to be short, what we really do right now is focus on the drilling, you see, we have. I think we have 16 rigs on site. A lot of drilling going on.

You see there in the numbers in the press release and a lot of drilling plan for next year as well, which obviously will give further step out and more information to the engineers and for Martin's group to answer all those questions.

Trevor Turnbull -- Scotiabank -- Analyst

I appreciate that, Michael. I was trying to get a sense also kind of thinking about the M&A question that was asked. Something like this would transform La Colorada to such a degree that potentially it would help with sustainability across the board with your assets. Maybe one last question just on La Colorada.

You talked about the twin ramps coming down to the top of the ore body. Do you have a time line for how long that might take to get down there and -- or any cost scoped out just for those declines?

Steve Busby -- Chief Operating Officer

Trevor, Steve here. We're still working on those plans. So we're not prepared to put time lines out yet. We're kind of developing that.

And as Martin said, we're looking at different ways to approach that mine. That mining method may dictate how we actually enter into it, too. So how long those ramps will be, where we want to access that ore body, it's still kind of up in the air. So we don't want to put any time lines.

Yes.

Michael Steinmann -- President and Chief Executive Officer

But to be clear, that we know where we want to start with the ramps. There's a very clear starting point. And as you can imagine, this is going to be a long-term project to bring these ramps down there. So the sooner we start, the further ahead we get with the breccia.

So that's really the thinking here.

Trevor Turnbull -- Scotiabank -- Analyst

And I guess we would see at least some capex starting to get allocated as early as next year's budget for getting these -- getting moving on this.

Michael Steinmann -- President and Chief Executive Officer

Well, the ramp and also the ventilation shaft, the concrete shaft that we discussed last quarter, if you remember.

Trevor Turnbull -- Scotiabank -- Analyst

Right. Then I only have one last question, and that's about Escobal and the consultation process. You talked about in the MD&A that there, I think, has been -- there's been three meetings, and I think they were referred to as pre-consultations. And I just wondered what the difference between the pre-consultation meetings and what I assume are the full consultation meetings are? And if you have any sense of how many of each of those type of meetings need to happen before that process is concluded?

Michael Steinmann -- President and Chief Executive Officer

Yes. So under ILO 169, what happens is you have a pre-consultation phase where you come to certain agreements like in our case, definition, how the consultation will be run exactly and the time lines, etc. And there is no -- and then you go into the consultation. So there's no preset amount of meetings for either the pre-consultation or the consultation.

That's really depending on how that advances. And as it's run by the Ministry of Mines and not by us, as I said, I can't give you the timing or a number of meetings that are required. I'm encouraged that we continue these meetings, obviously. I mentioned we had one in October.

November 27 will be the next one. So it looks like we are back on kind of a monthly schedule here. There was definitely a lengthy delay because of COVID. These meetings are in person, in large groups.

So there was an obvious delay because of COVID, but I think we are back on this monthly schedule. And so looking forward to continue with this very inclusive meetings and supporting them for sure.

Trevor Turnbull -- Scotiabank -- Analyst

And so just trying to understand a bit better, with the pre-consultations, it sounds like you mentioned these are kind of a chance to set out the parameters with, I guess, the leadership of the Xinka communities. And then the consultations will be what more of a public forum where people then can come in using the guidelines that have been agreed to, to voice their concerns or to ask questions?

Michael Steinmann -- President and Chief Executive Officer

I think, no. I think it's the same people are involved in the pre-consultation and consultation group that the group is defined and has meetings together. It's more like to end of meetings. And I would encourage everyone to go on the website that ma'am actually set up, where you get all the details on each of the meetings -- Definition of who is doing what kind of technical reports to deliver for the future meetings, who is doing that, when they will be delivered, etc., and in what form and that will all form part of the information that will be provided for the consultation meeting.

So it's more this kind of definition of structure and then timing.

Trevor Turnbull -- Scotiabank -- Analyst

OK. I'll leave it there. Thank you very much, Michael. 

Operator

Our next question is from John Tumazos with John Tumazos Very Independent Research. Please go ahead.  

John Tumazos -- John Tumazos Very Independent Research -- Analyst

So Rob, I hope that Mike paid you enough and you made enough on the Pan-Am stock that you can ride your bike with a police escort, so some motorist doesn't wipe you out. Good luck. 

Rob Doyle -- Chief Financial Officer

Thank you, John.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

And Mike, some of these earlier questions about M&A stuff upset me. I'm a shareholder. And I hope that you don't have a minute to look at M&A because there's nothing better than building La Colorada skarn, getting your assets up to capacity, restarting Escobal and building Navidad. So those guys with the M&A fees, you don't have to listen to that.

All you got to is run your own business. And everybody is going to be so happy.

Michael Steinmann -- President and Chief Executive Officer

There's obviously a reason why we didn't do anything, because I agree with you that we have a very strong pipeline. This question, I mean, these M&A questions are always very general because, of course, even if I would look at something, I would not talk about it in this forum.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Sure. It is a distraction.

Michael Steinmann -- President and Chief Executive Officer

I see -- I just see in general that there's lots of single-asset companies out there or, let's call it, companies that need more help on their financial side. And in general, I see that there will be consolidation in one form or the other in the industry just to find a home for those assets and build bigger companies. That was really my comment.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Concerning the delayed technical study on Colorada skarn. Is it purely a third resource statement to upgrade the 100.4 million metric tons inferred, so that you have M&I to understand design and understand the mining method or would it be a PEA or pre fees to?

Michael Steinmann -- President and Chief Executive Officer

Well, yes. We need more information, definitely. I mean, I think the current resource we have out there is 100 million tonnes. I think it's pretty easy when you look at the drill results there to see the potential for further growth of that resource.

And that's really where when you look at the results and the wide intercepts and the really very high grades that we hit over the last few months, that want us focus on some of those areas of expansion and drill more holes and definitely move some of that resource or as much as we can into higher geological categories. 

John Tumazos -- John Tumazos Very Independent Research -- Analyst

So is it too early to try to guess how many tonnes per day in the mining method and do a PEA or definitive fees until you get the third resource out?

Michael Steinmann -- President and Chief Executive Officer

It's -- I mean, when we do more drilling, we can release a new resource for sure, but it's definitely too early right now to put a pin on in a mining method. That's exactly one of the reasons why it got so big. And as Martin mentioned, we can really look at much bigger, much more bulk mining methods like sub-level caving and see what that would do, how that would work. So it's just too early, right, to put a pin in on that.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Should we be putting the La Colorada skarn mine into our models as first output 2025, because it's so big and requires so much study and the bigger it is, the more drilling and infill drilling and ramping you have to do, what year?

Michael Steinmann -- President and Chief Executive Officer

Well, that's all part of the study. 2025 will come pretty quick here, but give us the time next year to drill further come out with a new resource. I think that really will define much better the size of this ore body and give a bit more time to Martin to come up with the mining method. That will dictate how much development we have to do underground and how we best access that ore.

Do we need to access it first to actually define a mining method? Or can we do that without the access and then go straight with the ramp to the right spot and start underground development. So there's a lot of open questions as you can see. And I think a lot of them can be answered in 2022.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

I have real simple algebra question about the 19.5 million ounce guidance. That -- at midpoint, that implies 5.6 million ounces for the fourth quarter. And we just came in at 4.83 million ounces in the September quarter. So I guess we're going to get almost 0.75 million ounce bump this quarter.

Is it going to come mostly from Dolores or La Colorada or usually, you don't stick your neck out that far, Mike, but you're saying this quarter is going to be a lot better.

Steve Busby -- Chief Operating Officer

Yes, John. This is Steve. Just to add on to that. I mean, we have seen October numbers and September was pretty strong for us.

So we are predicting a strong quarter in Q4. I think the location of where that silver is going to come from is fairly spread through the organization through our asset, our silver assets. La Colorada, we're anticipating -- it had a great ramp up in Q3 from Q2. We think we got a little bit more to go in Q4 there.

Dolores, certainly with the leach pad, we will start to see that release from that inventory build that we have. Silver is a slow leach there, so it takes some time. But most of that will come in 2022, but we'll see a little bit there. And we're having some pretty good runs in Morococha and more on  as well.

So I think in Manantial included, I think we'll see a spread of those additional ounces in Q4.

John Tumazos -- John Tumazos Very Independent Research -- Analyst

If I could ask one last one. In these tough years, 2020 and 2021, Manantial Espejo has been the one mine that produced more. But it's the one that has the least documented life with satellites. What are the odds that we continue in 2024, '25, '26 and find a little more in Argentina?

Michael Steinmann -- President and Chief Executive Officer

Well, you're right that this Manantial did quite well on the production side because of the high grades that we mine, especially [Inaudible], we knew that the satellites are high grade. That's why we were able to mine them and track them to the mine. They are relatively small ore bodies. And I mean, our reserves are obviously out there at Manantial.

And we're still exploring in some places and see what we can do to expand it. At the moment, as you said, it has a pretty short mine life.

Operator

Our next question is from Lawson Winder with Bank of America. Please go ahead. 

Lawson Winder -- Bank of America Securities -- Analyst

Hello. Good morning and thank you for the update. Rob, congratulations on an outstanding career with Pan American and definitely all the best in the future.

Rob Doyle -- Chief Financial Officer

Thank you, Lawson. 

Lawson Winder -- Bank of America Securities -- Analyst

Yes. If I might, I would like to turn back to the La Colorada skarn and just maybe follow up on anything you've learned from the 36,000 meters of additional infill drilling that you guys have done. For example, have you learned any more about the continuity? Perhaps, is it more connected of an ore body than you thought or perhaps less?

Chris Emerson -- Vice President, Business Development and Geology

Yes. Absolutely, it's Chris here. Through last couple of years and the resources that come out in 2020, the infill drilling as we were driving toward the resource in the PEA, but obviously, with extended step-out drilling of the exploration. We have seen that the continuity is there.

Our model works, which is really pleasing as a geologist. And obviously, the really pleasing is the western portion of this deposit as it builds out from the breccia going west. And now we're seeing more skarn and these higher grades, which potentially gives us another center. So all to play for.

And certainly, we've -- we're looking forward to next year and continue the drilling.

Lawson Winder -- Bank of America Securities -- Analyst

Thanks very much. And Chris, also could you maybe give us an idea of like what percent of the -- this ore body is going to be breccia and what percent is going to be sort of more competent skarn?

Chris Emerson -- Vice President, Business Development and Geology

Yes, absolutely. I mean, obviously, it's an inferred resource at the moment and the infill drilling as we drill through that center toward the skarn area to that East. We could certainly be looking at a potential split of around 50-ish at the moment, 50% either way. But of course, with this [Inaudible] drilling, that's going to change completely.

And that's something that we'll be working toward as we build it out.

Michael Steinmann -- President and Chief Executive Officer

But in general, yes, the skarn obviously mineralized high grade, the breccia mineralized that they're both fairly confident rocks down there. We are not in the day side anymore. We are far and down into the limestones. So it doesn't really -- I mean if your question is breccia or the skarn on competency of the rock, there's -- that's not a big difference.

Chris Emerson -- Vice President, Business Development and Geology

Absolutely. As you mentioned, look, it's really down to that grade. And certainly, from the recent drilling, we're seeing that really high grade, which is that's skarn.

Lawson Winder -- Bank of America Securities -- Analyst

Yes. That's super helpful, guys. Thank you. And then maybe just a quick one on Timmins.

Obviously, it's been impacted by the ground conditions. So you had to spend more money on support. You mentioned that you're having to use a lot more consolidated or cemented rock fill. With the increased spending, do you see the scope for the grade to start to pick up in the fourth quarter? Or is the grade going to continue to trend sort of where it's been trading for the first nine months of the year?

Steve Busby -- Chief Operating Officer

Yes, Lawson. Steve here. we're not expecting to see a great increase there. It's pretty flat in our mine plants.

It's really tonnage that we're after and the tonnes are being hampered by the cemented rock fill, as you mentioned, and trying to get that plant up to full capacity. So that's really where we're focused.

Lawson Winder -- Bank of America Securities -- Analyst

OK. So then that begs the question then, do you expect in the fourth quarter, you could start to see a pickup in that tonnage? Or is that something we would expect to happen more in 2022?

Steve Busby -- Chief Operating Officer

Right now, we're kind of pushing that off into 2022. We're actually looking at bringing a second rock fill -- cement the rock fill plant in to help boost production there. That's going to take us a little bit more time. So we're not expecting a big change in Q4 then.

Lawson Winder -- Bank of America Securities -- Analyst

OK. Great. That's helpful, Steve. And then finally, I just wanted to follow up on one comment you made about ESG and your greenhouse gas emission reduction target.

You mentioned there was a policy change at the federal government level in Mexico. Can you maybe just elaborate on what that policy change was? And also, how that actually impacts the timing? So now when you expect to hit those greenhouse gas emission reductions? That's it for me. Thanks. 

Michael Steinmann -- President and Chief Executive Officer

Yes. I think you're referring to the potential law change and CFE or if it's that, I can give you an update on that. It's actually not done, it is not approved. So it's -- there's no final change or law that we can discuss.

I think at the moment, the government is trying to give more control to the government-owned power company, CFE, and everything would run through there. While at the moment, you actually have private providers of most of the renewable power as well that you can purchase and that we purchase or -- and try to purchase obviously as well. And so we'll have to wait a bit and see how that law changes and then what the change is going to be to purchase that renewable power through CFE or if it continues that it can purchase is from private providers. So it's a bit too early.

We don't know yet what the law change. If it's going to change to where it's going. But I will guess over the next quarter or two, we should have more clarity on that side from the government, and then we'll update.

Lawson Winder -- Bank of America Securities -- Analyst

Thanks very much guys. 

Operator

Our next question is from Don DeMarco with National Bank Financial. Please go ahead. 

Don DeMarco -- National Bank Financial -- Analyst

Well, thank you, operator, and good morning, team. Well, I think I'll ask a couple of questions on the skarn, if I may. I mean it's -- I think all my other questions have been answered already. But guys, can you provide some indication on the timing of the release of the skarn PEA? And I apologize if you've answered this previously.

Michael Steinmann -- President and Chief Executive Officer

No. I didn't answer it because right now, I don't have a final answer to that. As you saw in the press release, this is growing so quickly and so much and especially on the grade side, the really, really big improvement that we need to drill quite a bit next year to get a new understanding and make a new resource and then kind of decide on the mining method. So it will take a bit more time.

But there will be, of course, information coming out during the year, advancing that project. It's one -- for sure, the biggest and most important project, one of the most important projects we have. And all eyes are on that exploration and for the engineering team on definition on mining methods and access, etc. So it's a little bit early to give you the timing right now.

Don DeMarco -- National Bank Financial -- Analyst

OK. Fair enough. Well, we look forward to those updates and updated resource. And I think just a number of questions on this just reflects our curiosity and we were looking forward to details in the PEA, but certainly, the reasons to postpone it are certainly valid.

But just in an attempt to maybe get a little color, is there any other mining projects across the current landscape that you might consider as an analog to the skarn? Like, for example, I look to Arizona mines tailored deposit at similar large tonnage sub-level open [Inaudible] proposed mining method. And I see the capex there was about $500 million or so, will this goes back a few years ago. Are there analog? And are we kind of in terms of capex? Like is that order of magnitude? Is there any at this early stage? Can you provide color as we await further details to be confirmed later?

Michael Steinmann -- President and Chief Executive Officer

Well, there -- it's tough to keep it analog, because there's not many deposits in that size and grade to look at in the world. It's also a deep-seated deposit, like many new deposits are deep seated. Of course, over the last 100 years as a mining industry [Inaudible] a lot of the deposits closer to surface, and we go deeper and deeper down. So that changes and complicate obviously, situations for all the deposits.

So it's kind of a bit difficult to just to compare one with the other because there are so different situations of the geology of the ground conditions, the size, etc. So I think I really would look at each separate. I don't have all the details on the tailored deposit for sure. We're looking at it to kind of pair a bit later on size and grade.

If you look at sizes of this kind of deposits, and I don't want to jump ahead here for Martin, but I'm pretty sure that $500 million will not do to develop any of these kind of deposits, right? That's far north of that, but we don't have a number yet to share with you.

Don DeMarco -- National Bank Financial -- Analyst

Thank you very much. 

Operator

Our next question is from Craig Hutchison with TD Securities. Please go ahead. 

Craig Hutchison -- TD Securities -- Analyst

Good morning, guys. Just in terms of the lower-than-expected silver grades you had in San Vicente, obviously, that was due to narrowing vein structures. This is a very high-grade resource. When do you guys expect to kind of get back into more high-grade material? Or is this narrow-vein structure is expected to persist through Q4 and kind of into next year?

Steve Busby -- Chief Operating Officer

Yes. Good question, Craig. As we mentioned in the release, the ore deposits are narrowing. And right now, we're looking at -- the equipment we have deployed at San Vicente was really designed for the larger even plus five meterwide veins.

And so we're looking at some alternative mining methods. I hate to use the word potentially resuing mining methods even to try to bring that grade back from what we've seen over the last quarter or two. We're not ready to predict what that may turn out for us yet. As we come out with our projections for 2022 in January, you'll get a better feel for that, we'll have a better sense.

But right now, it's coming down to how can we mine that best given the equipment that we got deployed there.

Craig Hutchison -- TD Securities -- Analyst

OK. And then just turning to La Colorada, we're beating the dead horse here, but just some of the best trial results you've had or you reported this morning are kind of 200-meter step-outs. How long is it going to sort of take to get a resource update? Should we expect it to be toward the back half of next year, just given how much drilling you plan for 2022?

Michael Steinmann -- President and Chief Executive Officer

Yes. Look, a lot. I mean, in January, normally we come out mid-January with the forecast for the year, we will have all our budget, all the drilling. That will be, for sure, a big program, again, for drilling at La Colorada.

You're not beating a dead horse here. It's really, really a live horse and an unbelievable discovery and deposit. As you know, we published the first hole in that only, what was it, 3.5 years ago, probably. So when we discovered with the first hole that's gone, so -- and it goes beyond our imagination on size, and now on grade that we hit as well.

So it will take a while to drill that out. But I definitely planned to give you kind of an updated resource at one point next year. And that will just be another point in time. I'm sure that that deposit will just continue to surprise us and will grow bigger because as we know and as I mentioned in the call, it's still open on most sites even after those step-outs that we're going to follow up with the current program.

Craig Hutchison -- TD Securities -- Analyst

OK. Great. Thanks. And maybe just one last question.

You guys were planning to put the PEA out sort of kind of Q4 here. Can you give us a sense of what throughput you were looking at originally in that PEA?

Michael Steinmann -- President and Chief Executive Officer

Well, it was -- again, that will all change again. So I don't want to really be pinned down at the tonnage, but it's multiple of what we do now. Well, probably somewhere, let's call it as a starting point at maybe 8,000 to 10,000 tonnes, somewhere in that grade -- range. But as I said, this is all subject to change.

That's because we're looking at a bigger and potentially high-grade deposit and different mining methods. So that will all change next year.

Craig Hutchison -- TD Securities -- Analyst

I appreciate the color and great results this morning. That's great. Thanks.

Operator

This concludes the question-and-answer session. I'd like to turn the conference back over to Michael Steinmann for closing remarks.

Michael Steinmann -- President and Chief Executive Officer

Thank you, everyone, for calling in. Looking forward to -- well, that will be Q4 and next year. So have a good end of the year. Stay safe and stay healthy.

Thank you, everyone.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Siren Fisekci -- Vice President, Investor Relations, and Corporate Communications

Michael Steinmann -- President and Chief Executive Officer

Tyler Langton -- JPMorgan Chase and Company -- Analyst

Steve Busby -- Chief Operating Officer

Cosmos Chiu -- CIBC World Markets -- Analyst

Rob Doyle -- Chief Financial Officer

Trevor Turnbull -- Scotiabank -- Analyst

Martin Wafforn -- Senior Vice President, Technical Services and Process Optimization

John Tumazos -- John Tumazos Very Independent Research -- Analyst

Lawson Winder -- Bank of America Securities -- Analyst

Chris Emerson -- Vice President, Business Development and Geology

Don DeMarco -- National Bank Financial -- Analyst

Craig Hutchison -- TD Securities -- Analyst

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