EX-99.1 2 paas03-31x2019financialsq1.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

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Unaudited Condensed Interim Consolidated Financial Statements and Notes
 
 
 
 
FOR THE THREE MONTHS ENDING MARCH 31, 2019



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Condensed Interim Consolidated Statements of Financial Position
(unaudited, in thousands of U.S. dollars)


 

March 31,
2019


December 31,
2018

Assets

 


 

Current assets

 


 

Cash and cash equivalents (Note 20)

$
90,548


$
138,510

Short-term investments (Note 6)

31,011


74,004

Trade and other receivables

181,866


96,091

Income taxes receivable

18,098


13,108

Inventories (Note 7)

296,108


214,465

Derivative financial instruments (Note 5a)
 
2,452

 
640

Assets held for sale(1)
 
409,917

 
—

Prepaid expenses and other current assets

14,364


11,556

 

1,044,364


548,374

Non-current assets

 


 
Mineral properties, plant and equipment (Note 8)

2,236,674


1,301,002

Inventories (Note 7)
 
23,680

 
—

Long-term refundable tax

25,854


70

Deferred tax assets

11,359


12,244

Investment in associates (Note 10)

69,727


70,566

Other assets

1,043


2,163

Goodwill

3,057


3,057

Total Assets

$
3,415,758


$
1,937,476






 
Liabilities

 


 

Current liabilities

 


 

Accounts payable and accrued liabilities (Note 11)

$
200,287


$
131,743

Derivative financial instruments (Note 5a)

187


51

Current portion of provisions (Note 12)

5,086


5,072

Current portion of lease obligations (Note 13)

13,334


5,356

Liabilities relating to assets held for sale(1)
 
33,526

 
—

Income tax payable

20,235


8,306

 

272,655


150,528

Non-current liabilities

 


 

Long-term portion of provisions (Note 12)

139,137


70,083

Deferred tax liabilities

191,204


148,819

Long-term portion of lease obligations (Note 13)

14,767


1,320

Debt (Note 14)
 
335,000

 
—

Deferred revenue (Note 10)

13,062


13,288

Other long-term liabilities (Note 15)

27,743


25,425

Share purchase warrants (Note 10)

14,757


14,664

Total Liabilities

1,008,325


424,127






 
Equity

 


 

Capital and reserves (Note 16)

 


 

Issued capital

3,117,124


2,321,498

Reserves

94,756


22,573

Investment revaluation reserve

1


208

Deficit

(810,122
)

(836,067
)
Total Equity attributable to equity holders of the Company

2,401,759


1,508,212

Non-controlling interests

5,674


5,137

Total Equity

2,407,433


1,513,349

Total Liabilities and Equity

$
3,415,758


$
1,937,476

(1)
The Company determined that this met the definition of an asset held for sale upon acquisition (Note 4).
Commitments and Contingencies (Notes 5, 23)
See accompanying notes to the condensed interim consolidated financial statements
APPROVED BY THE BOARD ON MAY 8, 2019
"signed"
Ross Beaty, Director
"signed"
Michael Steinmann, Director
 

 
PAN AMERICAN SILVER CORP.
2
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Condensed Interim Consolidated Income Statements
(unaudited, in thousands of U.S. dollars except per share amounts)


 
 
Three months ended
March 31,
 
 
2019

 
2018

Revenue (Note 21)
 
$
232,643

 
$
206,961

Cost of sales
 
 
 
 
Production costs (Note 17)
 
(159,853
)
 
(112,449
)
Depreciation and amortization
 
(49,334
)
 
(34,538
)
Royalties
 
(6,262
)
 
(4,850
)
 
 
(215,449
)
 
(151,837
)
Mine operating earnings
 
17,194

 
55,124

 
 
 
 
 
General and administrative
 
(5,935
)
 
(5,958
)
Exploration and project development
 
(1,454
)
 
(2,744
)
Mine care and maintenance
 
(3,447
)
 
—

Foreign exchange losses
 
(2,845
)
 
(1,675
)
Gains on commodity and foreign currency contracts (Note 5d)
 
341

 
1,733

Gains on sale of mineral properties, plant and equipment
 
40

 
7,986

Share of income from associate and dilution gain (Note 10)
 
611

 
159

Transaction and integration costs (Note 4)
 
(1,403
)
 
—

Bargain purchase gain (Note 4)
 
30,492

 
—

Other income
 
107

 
544

Earnings from operations
 
33,701

 
55,169

 
 
 
 
 
Gain (loss) on derivatives (Note 5d)
 
1,771

 
(43
)
Investment income
 
12,283

 
1,898

Interest and finance expense (Note 18)
 
(4,724
)
 
(2,358
)
Earnings before income taxes
 
43,031

 
54,666

Income tax expense (Note 22)
 
(7,290
)
 
(6,510
)
Net earnings from continuing operations
 
35,741

 
48,156

Net loss from discontinued operations (Note 4)
 
(1,929
)
 
—

Net earnings for the period
 
$
33,812

 
$
48,156


 
 
 
 
Attributable to:
 
 
 
 
Equity holders of the Company
 
$
33,275

 
$
47,376

Non-controlling interests
 
537

 
780

 
 
$
33,812

 
$
48,156


 
 
 
 
Earnings per share attributable to common shareholders (Note 19)
 
 
 
 
Basic earnings per share
 
$
0.19

 
$
0.31

Diluted earnings per share
 
$
0.19

 
$
0.31

Weighted average shares outstanding (in 000’s) Basic
 
176,467

 
153,311

Weighted average shares outstanding (in 000’s) Diluted
 
176,594

 
153,537

See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
3
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Condensed Interim Consolidated Statements
of Comprehensive (Loss) Income
(unaudited, in thousands of U.S. dollars)


 
 
Three months ended
March 31,
 
 
2019

 
2018

Net earnings for the period
 
$
33,812

 
$
48,156

Items that may be reclassified subsequently to net earnings:
 
 

 
 

Unrealized net gains (losses) on short-term investments (net of $nil tax in 2019 and 2018) (Note 5c)
 
1

 
(190
)
Reclassification adjustment for realized (gains) losses on short-term investments to earnings (Note 5c)
 
(208
)
 
131

Total comprehensive earnings for the period
 
$
33,605

 
$
48,097

 
 
 
 
 
Total comprehensive earnings attributable to:
 
 
 
 
Equity holders of the Company
 
$
33,068

 
$
47,317

Non-controlling interests
 
537

 
780

 
 
$
33,605

 
$
48,097

See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
4
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Condensed Interim Consolidated Statements of Cash Flows
(unaudited, in thousands of U.S. dollars)


 
 
Three months ended
March 31,
 
 
2019

 
2018

Cash flow from operating activities
 
 
 
 
Net earnings for the period
 
$
33,812

 
$
48,156


 
 
 
 
Current income tax expense (Note 22)
 
14,295

 
18,135

Deferred income tax recovery (Note 22)
 
(7,005
)
 
(11,625
)
Interest expense (Note 18)
 
2,047

 
135

Depreciation and amortization
 
49,334

 
34,538

Accretion on closure and decommissioning provision (Note 12)
 
2,042

 
1,639

Unrealized losses on foreign exchange
 
2,495

 
1,977

Gain on sale of mineral properties, plant and equipment
 
(40
)
 
(7,986
)
Bargain purchase gain (Note 4)
 
(30,492
)
 
—

Other operating activities (Note 20)
 
(5,071
)
 
(7,256
)
Changes in non-cash operating working capital (Note 20)
 
(37,936
)
 
(11,320
)
Operating cash flows before interest and income taxes
 
$
23,481

 
$
66,393


 
 
 
 
Interest paid
 
(3,151
)
 
(513
)
Interest received
 
584

 
764

Income taxes paid
 
(33,825
)
 
(32,244
)
Net cash (used in) generated from operating activities
 
$
(12,911
)
 
$
34,400


 
 
 
 
Cash flow from investing activities
 
 
 
 
Payments for mineral properties, plant and equipment
 
$
(40,878
)
 
$
(32,565
)
Tahoe Resources Inc. ("Tahoe") acquisition (Note 4)
 
(247,479
)
 
—

Net proceeds from (purchase of) short-term investments
 
54,106

 
(5,163
)
Proceeds from sale of mineral properties, plant and equipment
 
47

 
5,105

Net proceeds (payments) from commodity, diesel fuel swaps, and foreign currency contracts
 
436

 
(318
)
Net cash used in investing activities
 
$
(233,768
)
 
$
(32,941
)

 
 
 
 
Cash flow from financing activities
 
 
 
 
Proceeds from issue of equity shares
 
$
—

 
$
127

Distributions to non-controlling interests
 
—

 
(302
)
Dividends paid
 
(7,330
)
 
(5,366
)
Proceeds from credit facility (Note 14)
 
335,000

 
—

Repayment of credit facility (Note 4)
 
(125,000
)
 
—

Repayment of short-term loans
 
—

 
(3,000
)
Payment of equipment leases
 
(3,990
)
 
(1,540
)
Net cash generated from (used in) financing activities
 
$
198,680

 
$
(10,081
)
Effects of exchange rate changes on cash and cash equivalents
 
37

 
(49
)
Net decrease in cash and cash equivalents
 
(47,962
)
 
(8,671
)
Cash and cash equivalents at the beginning of the period
 
138,510

 
175,953

Cash and cash equivalents at the end of the period
 
$
90,548

 
$
167,282

Supplemental cash flow information (Note 20).
See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
5
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Condensed Interim Consolidated Statements of Changes in Equity
(unaudited, in thousands of U.S. dollars, except for number of shares)


 
 
Attributable to equity holders of the Company
 
 
 
 
 
 
Issued
shares
 
Issued
capital
 
Reserves(1)
 
Investment
revaluation
reserve
 
Deficit
 
Total
 
Non-
controlling
interests
 
Total
equity
Balance, December 31, 2017
 
153,302,976

 
$
2,318,252

 
$
22,463

 
$
1,605

 
$
(825,470
)
 
$
1,516,850

 
$
4,201

 
$
1,521,051

Impact of adopting IFRS 9(2)
 
—

 
—

 
—

 
(1,602
)
 
1,602

 
—

 
$
—

 
—

Balance, January 1, 2018 (restated)
 
153,302,976

 
$
2,318,252

 
$
22,463

 
$
3

 
$
(823,868
)
 
$
1,516,850

 
$
4,201

 
$
1,521,051

Total comprehensive earnings
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Net earnings for the year
 
—

 
—

 
—

 
—

 
10,294

 
10,294

 
1,747

 
12,041

Other comprehensive income
 
—

 
—

 
—

 
205

 
—

 
205

 
—

 
205

 
 
—

 
—

 
—

 
205

 
10,294

 
10,499

 
1,747

 
12,246

Cancellation of expired shares
 
(120,339
)
 
—

 
—

 
—

 
178

 
178

 
—

 
178

Shares issued on the exercise of stock options
 
125,762

 
1,367

 
(286
)
 
—

 
—

 
1,081

 
—

 
1,081

Shares issued as compensation
 
139,957

 
1,879

 
—

 
—

 
—

 
1,879

 
—

 
1,879

Share-based compensation on option grants
 
—

 
—

 
396

 
—

 
—

 
396

 
—

 
396

Distributions by subsidiaries to non-controlling interests
 
—

 
—

 
—

 
—

 
(1,209
)
 
(1,209
)
 
(811
)
 
(2,020
)
Dividends paid
 
—

 
—

 
—

 
—

 
(21,462
)
 
(21,462
)
 
—

 
(21,462
)
Balance, December 31, 2018
 
153,448,356

 
$
2,321,498

 
$
22,573

 
$
208

 
$
(836,067
)
 
$
1,508,212

 
$
5,137

 
$
1,513,349

Total comprehensive earnings
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net earnings for the period
 
—

 
—

 
—

 
—

 
33,275

 
33,275

 
537

 
33,812

Other comprehensive income
 
—

 
—

 
—

 
(207
)
 
—

 
(207
)
 
—

 
(207
)
 
 
—

 
—

 
—

 
(207
)
 
33,275

 
33,068

 
537

 
33,605

Tahoe acquisition consideration (Note 4)
 
55,990,512

 
795,626

 
72,040

 
—

 
—

 
867,666

 
—

 
867,666

Share-based compensation on option grants
 
—

 
—

 
143

 
—

 
—

 
143

 
—

 
143

Dividends paid
 
—

 
—

 
—

 
—

 
(7,330
)
 
(7,330
)
 
—

 
(7,330
)
Balance, March 31, 2019
 
209,438,868

 
$
3,117,124

 
$
94,756

 
$
1

 
$
(810,122
)
 
$
2,401,759

 
$
5,674

 
$
2,407,433

(1)
Includes reserves for share options and contingent value rights ("CVRs") (Note 4).
(2)
Adjustment upon the adoption of IFRS 9 for investments in equity securities described in Note 5a.
See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
6
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Condensed Interim Consolidated Statements of Changes in Equity
(unaudited, in thousands of U.S. dollars, except for number of shares)


 
 
Attributable to equity holders of the Company
 
 
 
 
 
 
Issued
shares
 
Issued
capital
 
Share
option
reserve
 
Investment
revaluation
reserve
 
Deficit
 
Total
 
Non-
controlling
interests
 
Total
equity
Balance, December 31, 2017
 
153,302,976

 
$
2,318,252

 
$
22,463

 
$
1,605

 
$
(825,470
)
 
$
1,516,850

 
$
4,201

 
$
1,521,051

Impact of adopting IFRS 9(1)
 
—

 
—

 
—

 
(1,602
)
 
1,602

 
—

 
$
—

 
—

Balance, January 1, 2018 (restated)
 
153,302,976

 
$
2,318,252

 
$
22,463

 
$
3

 
$
(823,868
)
 
$
1,516,850

 
$
4,201

 
$
1,521,051

Total comprehensive earnings
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Net earnings for the period
 
—

 
—

 
—

 
—

 
47,376

 
47,376

 
780

 
48,156

Other comprehensive loss
 
—

 
—

 
—

 
(59
)
 
—

 
(59
)
 
—

 
(59
)
 
 
—

 
—

 
—

 
(59
)
 
47,376

 
47,317

 
780

 
48,097

Shares issued on exercise of stock options
 
14,374

 
166

 
(39
)
 
—

 
—

 
127

 
—

 
127

Share-based compensation on option grants
 
—

 
—

 
93

 
—

 
—

 
93

 
—

 
93

Distributions by subsidiaries to non-controlling interests
 
—

 
—

 
—

 
—

 
—

 
—

 
(302
)
 
(302
)
Dividends paid
 
—

 
—

 
—

 
—

 
(5,366
)
 
(5,366
)
 
—

 
(5,366
)
Balance, March 31, 2018
 
153,317,350

 
$
2,318,418

 
$
22,517

 
$
(56
)
 
$
(781,858
)
 
$
1,559,021

 
$
4,679

 
$
1,563,700

(1)
Adjustment upon the adoption of IFRS 9 for investments in equity securities described in Note 5a.
See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
7
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

1. NATURE OF OPERATIONS
 
 
Pan American Silver Corp. is the ultimate parent company of its subsidiary group (collectively, the “Company”, or “Pan American”). Pan American is a British Columbia corporation domiciled in Canada, and its office is at Suite 1500 – 625 Howe Street, Vancouver, British Columbia, V6C 2T6.
The Company is engaged in the production and sale of silver, gold, zinc, lead and copper as well as other related activities, including exploration, extraction, processing, refining and reclamation. The Company’s major products are produced from mines in Canada, Peru, Mexico, Argentina and Bolivia. Additionally, the Company has project development activities in Canada, Peru, Mexico and Argentina, and exploration activities throughout South America, Canada and Mexico. As at March 31, 2019 the Company's Escobal mine in Guatemala continues to be on care and maintenance pending satisfactory completion of a consultation process with the Ministry of Energy and Mines in Guatemala.
Principle subsidiaries:
The principal subsidiaries, including those from the Tahoe Acquisition (Note 4), of the Company and their geographic locations at March 31, 2019 were as follows:
Subsidiary
 
Location
 
Ownership
Interest
 
Accounting
 
Operations and Development
Projects Owned
Lake Shore Gold Corp.
 
Canada
 
100
%
 
Consolidated
 
Bell Creek and Timmins mines
Plata Panamericana S.A. de C.V.
 
Mexico
 
100
%
 
Consolidated
 
La Colorada mine
Compañía Minera Dolores S.A. de C.V.
 
Mexico
 
100
%
 
Consolidated
 
Dolores mine
Pan American Silver Huaron S.A.
 
Peru
 
100
%
 
Consolidated
 
Huaron mine
Compañía Minera Argentum S.A.
 
Peru
 
92
%
 
Consolidated
 
Morococha mine
Shahuindo S.A.C.
 
Peru
 
100
%
 
Consolidated
 
Shahuindo mine
La Arena S.A.
 
Peru
 
100
%
 
Consolidated
 
La Arena mine
Pan American Silver (Bolivia) S.A.
 
Bolivia
 
95
%
 
Consolidated
 
San Vicente mine
Minera San Rafael S.A.
 
Guatemala
 
100
%
 
Consolidated
 
Escobal mine
Minera Tritón Argentina S.A.
 
Argentina
 
100
%
 
Consolidated
 
Manantial Espejo mine & Cap-Oeste Sur Este ("COSE") project
Minera Joaquin S.R.L.
 
Argentina
 
100
%
 
Consolidated
 
Joaquin project
Minera Argenta S.A.
 
Argentina
 
100
%
 
Consolidated
 
Navidad project
2. BASIS OF PREPARATION
 
 
These condensed interim consolidated financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”). As a result, these unaudited condensed interim consolidated financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the IASB have been condensed with certain disclosures from the Annual Financial Statements omitted. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2018.

The Company’s interim results are not necessarily indicative of its results for a full year.

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
a)
Changes in accounting policies
The accounting policies applied in the preparation of these unaudited condensed interim consolidated financial statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2018, except for the following:
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16 which replaces IAS 17 - Leases and its associated interpretative guidance, including IFRIC 4 and SIC 15. IFRS 16 applies a control model to the identification of leases, distinguishing between a lease and a non-lease component on the basis of whether the customer controls the specific asset. For those contracts that are or contain a lease, IFRS 16 introduces significant changes for lessees to the accounting for contracts that are or contain a lease, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term leases less than 12 months in duration or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15.
The Company has applied IFRS 16 using the modified retrospective approach from January 1, 2019 and has elected to record the transition date right-of-use assets at amounts equal to the present value of the minimum lease payments, on a lease by lease basis. Short-term and low-value recognition exemptions were applied, as well as certain practical expedients allowing for the use of hindsight to assess the lease term for contracts with extension options, the exclusion of initial direct costs from measurement of the Right-of-Use-Assets ("ROU Assets") and the exclusion of leases with a term of less than one year remaining at the transition date.
Policy applicable from January 1, 2019
Lease Definition
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. An identified asset may be implicitly or explicitly specified in a contract, but must be physically distinct, and must not have the ability for substitution by a lessor. The Company has the right to control an identified asset if it obtains substantially all of its economic benefits and either pre-determines, or directs how and for what purpose the asset is used.
Measurement of ROU Assets and Lease Obligations
At lease commencement, the Company recognizes a ROU Asset and a lease obligation. The ROU Asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease payments made at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives received.
The ROU Asset is subsequently amortized on a straight-line basis over the shorter of the term of the lease, or the useful life of the asset determined on the same basis as the Company’s property, plant and equipment. The ROU Asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initially measured at the present value of lease payments remaining at the lease commencement date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase, extension or termination option that the Company is reasonably certain to exercise.

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

The lease obligation is subsequently measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease obligation is remeasured, a corresponding adjustment is made to the carrying amount of the ROU Asset.
Recognition Exemptions
The Company has elected not to recognize ROU Assets and lease obligations for short-term leases that have a lease term of twelve months or less or for leases of low-value assets. Payments associated with these leases are recognized as an operating expense on a straight-line basis over the lease term within costs and expenses on the consolidated income statement.
Leases
The Company’s leased assets include land, buildings, vehicles, and machinery and equipment with a carrying value of $33.4 million at March 31, 2019. Effective January 1, 2019, the Company adopted IFRS 16 as outlined in Note 13, recognizing $21.4 million of ROU assets, $18.9 million of lease obligations and deferred tax assets/liabilities of $nil.
b)
Changes in accounting policies not yet effective
The Company has not early adopted any amendment, standard or interpretation that has been issued by the IASB but is not yet effective.
4. TAHOE ACQUISITION
 
 
On February 22, 2019, the Company completed the acquisition of 100% of the issued and outstanding shares of Tahoe (the "Acquisition"). Each Tahoe shareholder had the right to elect to receive either $3.40 in cash (the "Cash Election") or 0.2403 of a Common Share (the "Share Election") for each Tahoe share, subject in each case to pro-ration based on a maximum cash consideration of $275 million and a maximum number of Common Shares issued of 56.0 million. Tahoe shareholders who did not make an election by the election deadline were deemed to have made the Share Election. Holders of 23,661,084 Tahoe shares made the Cash Election and received all cash consideration in the amount of $3.40 per Tahoe share. The holders of 290,226,406 Tahoe shares that made or were deemed to have made, the Share Election were subject to pro-ration, and received consideration of approximately $0.67 in cash and 0.1929 of a Common Share per Tahoe share.
In addition, Tahoe shareholders received contingent consideration in the form of one CVR for each Tahoe share.  Each CVR will be exchanged for 0.0497 of a Common Share upon the first commercial shipment of concentrate following restart of operations at the Escobal mine (the "First Shipment"). The CVRs are transferable and have a term of 10 years. The First Shipment contingency is a discrete event upon which a fixed number of Common Shares will be issued. As there is no variability in the number of shares to be issued if the contingency is met the Company has concluded that the CVR consideration meets the ‘fixed-for-fixed’ requirement in IAS 32 - Financial Instruments: Presentation. As such the CVRs are classified as a component of equity, recognized initially at fair value with no remeasurement, and any subsequent settlement to be accounted for within equity.
As a result of the Acquisition, the Company paid $275 million in cash, issued 55,990,512 Common Shares, and issued 313,887,490 CVRs. After this share issuance, Pan American shareholders owned approximately 73%, while former Tahoe shareholders owned approximately 27%, of the shares of the combined company. The Company has determined that this transaction represents a business combination with Pan American identified as the acquirer. Based on the February 21, 2019 closing share price of Common Shares, the total consideration of the Acquisition is approximately $1.1 billion. The Company began consolidating the operating results, cash flows and net assets of Tahoe from February 22, 2019 onwards.

 
PAN AMERICAN SILVER CORP.
10
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

Tahoe was a mid-tier publicly traded precious metals mining company with ownership interests in a diverse portfolio of mines and projects including the following principle mines: Timmins West and Bell Creek in Canada; La Arena and Shahuindo in Peru; and Escobal in Guatemala (the "Acquired Mines"). The Escobal mine's operations have been suspended since June 2017.
The following table summarizes the consideration paid as part of the purchase price:
Consideration:
 
Shares Issued
 
Consideration
Fair value estimate of the Pan American Share consideration (1)
 
55,990,512


$
795,626

Fair value estimate of the CVRs (2)
 
15,600,208


71,916

Cash (1)
 
—


275,008

Fair value estimate of replacement options (3)
 
835,874


124

Total Consideration
 
72,426,594

 
$
1,142,674

(1)
The Pan American Share consideration value is based on an assumed value of $14.21 per share (based on the NASDAQ closing price on February 21, 2019).
(2)
Assumed fair value of the CVRs is based on the residual amount of the value of the Tahoe Shares acquired (based on the NYSE closing price closing of $3.64 on February 21, 2019) after deducting the cash consideration of $275 million and the fair value of the Company's share consideration paid (based on the February 21, 2019 Nasdaq closing price of $14.21).
(3)
Assumed fair value of 3.5 million Tahoe options that upon the Acquisition vested and converted into 835.8 thousand Pan American stock options (the "Replacement options"). The fair value of the Replacement options was determined using the Black-Scholes option pricing model, as at the Acquisition date, the assumptions of which are described in the Company's Q1 2019 Financial Statements.
Share price at February 21, 2019 (Canadian dollars)
$
19.01

Exercise price
$
11.67 - 97.26

Expected volatility
 
0.4075

Expected life (years)
 
0.2 - 1.0

Expected dividend yield
 
0.78
%
Risk-free interest rate
 
0.93
%
Fair value (CAD)
$
163,273.36

CAD to USD exchange rate at December 31, 2018
$
0.7578

Fair value (USD)
$
123,729.43


The following table summarizes the allocation of the purchase price to the identifiable assets and liabilities based on their estimated fair values at the date of the Acquisition:
Allocation of consideration:
 
Consideration
Cash and cash equivalents

$
27,529

Accounts receivable

17,854

VAT Receivable

87,268

Inventory

152,534

Other current assets

4,135

Mineral properties, plant and equipment

1,298,037

Other assets

3,450

Accounts payable and accrued liabilities

(159,675
)
Provision for closure and decommissioning liabilities

(70,119
)
Debt

(125,000
)
Net current and deferred income tax liabilities

(62,847
)
Bargain purchase gain

(30,492
)
 
 
$
1,142,674

As at March 31, 2019, the allocation of the purchase price has not been finalized. The Company is currently in the process of determining the fair values of identifiable assets acquired and liabilities assumed and measuring the associated deferred income tax assets and liabilities but will finalize the allocation of the purchase price no later than February 21, 2020.

 
PAN AMERICAN SILVER CORP.
11
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

Held for Sale Assets
Concurrent with the Acquisition, the Company formally initiated an active program to locate a buyer of Lake Shore Gold Inc. ("Lake Shore"), a subsidiary acquired by the Company as part of the Acquisition. Lake Shore's principal assets are the Bell Creek and Timmins mines (or "Timmins"). Based on management's assessment of the Company's sales process it was determined that Lake Shore meets the criteria, under IFRS 5 - Non-current assets held for sale and discontinued operations, to be a discontinued operation to be classified as held for sale upon acquisition. As such, upon the Acquisition and as at March 31, 2019, the assets and liabilities of Lake Shore were classified as assets and liabilities held for sale and are presented separately under current assets and current liabilities, respectively, and the post-tax profit or loss from the Lake Shore operations have been presented as a single and separate item on the Company's consolidated income statement.
5. FINANCIAL INSTRUMENTS
 
 
a)
Financial assets and liabilities by categories
March 31, 2019
 
Amortized cost
 
FVTPL
 
FVTOCI
 
Total
Financial Assets:
 
 
 
 
 
 

 
 

Cash and cash equivalents
 
$
90,548

 
$
—

 
$
—

 
$
90,548

Trade receivables from provisional concentrates sales(1)
 
—

 
60,485

 
—

 
60,485

Receivable not arising from sale of metal concentrates(1)
 
113,289

 
—

 
—

 
113,289

Short-term investments, equity securities
 
—

 
30,498

 
—

 
30,498

Short-term investments, other than equity securities
 
—

 
—

 
513

 
513

Derivative financial assets
 
—

 
2,452

 
—

 
2,452

 
 
$
203,837

 
$
93,435

 
$
513

 
$
297,785

Financial Liabilities:
 
 
 
 
 
 
 
 
Derivative financial liabilities
 
$
—

 
$
187

 
$
—

 
$
187

 
 
$
—

 
$
187

 
$
—

 
$
187

(1)
Included in Trade and other receivables.
December 31, 2018
 
Amortized cost
 
FVTPL
 
FVTOCI
 
Total
Financial Assets:
 
 
 
 
 
 

 
 

Cash and cash equivalents
 
$
138,510

 
$
—

 
$
—

 
$
138,510

Trade receivables from provisional concentrates sales(1)
 
—

 
40,803

 
—

 
40,803

Receivable not arising from sale of metal concentrates(1)
 
40,918

 
—

 
—

 
40,918

Short-term investments, equity securities
 
—

 
19,178

 
—

 
19,178

Short-term investments, other than equity securities
 
—

 
—

 
54,826

 
54,826

Derivative financial assets
 
—

 
640

 
—

 
640

 
 
$
179,428

 
$
60,621

 
$
54,826

 
$
294,875

Financial Liabilities:
 
 
 
 
 
 
 
 
Derivative financial liabilities
 
$
—

 
$
51

 
$
—

 
$
51

 
 
$
—

 
$
51

 
$
—

 
$
51

(1)
Included in Trade and other receivables.

 
PAN AMERICAN SILVER CORP.
12
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

b)
Short-term investments in equity securities recorded at FVTPL
The Company’s short-term investments in equity securities are recorded at FVTPL. The net gains (losses) from short-term investments in equity securities for the three months ended March 31, 2019 and 2018 were as follows:
 
 
Three months ended
March 31,
 
 
2019

 
2018

Unrealized net gains (losses) on short-term investments, equity securities
 
$
11,320

 
$
(1,056
)
Realized net gains on short-term investments, equity securities
 
—

 
18

 
 
$
11,320

 
$
(1,038
)
c)
Financial assets recorded at FVTOCI
The Company’s short-term investments other than equity securities are recorded at fair value through other comprehensive income. The unrealized gains (losses) from short-term investments other than equity securities for the three months ended March 31, 2019 and 2018 were as follows:
 
 
Three months ended
March 31,
 
 
2019

 
2018

Unrealized net gains (losses) on short-term investments, other than equity securities
 
$
1

 
$
(190
)
Reclassification adjustment for realized (gains) losses on short-term investments, other than equity securities
 
(208
)
 
131

 
 
$
(207
)
 
$
(59
)
d)
Derivative instruments
The Company's derivative financial instruments are comprised of foreign currency and commodity contracts. The net gains (losses) on derivatives for the three months ended March 31, 2019 and 2018 were comprised of the following:
 
 
Three months ended
March 31,
 
 
2019

 
2018

Gains on foreign currency and commodity contracts:
 
 

 
 
Realized gains (losses) on foreign currency and commodity contracts
 
$
435

 
$
(318
)
Unrealized (losses) gains on foreign currency and commodity contracts
 
(94
)
 
2,051

 
 
$
341

 
$
1,733

Gain (loss) on derivatives:
 
 

 
 
Gain (loss) on warrants
 
$
1,771

 
$
(43
)
 
 
$
1,771


$
(43
)
e)
Fair value information
i)Fair Value Measurement
The categories of the fair value hierarchy that reflect the inputs to valuation techniques used to measure fair value are as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: Inputs for the asset or liability based on unobservable market data.

 
PAN AMERICAN SILVER CORP.
13
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

The levels in the fair value hierarchy into which the Company’s financial assets and liabilities that are measured and recognized on the Consolidated Statements of Financial Position at fair value on a recurring basis were categorized as follows:
 
 
At March 31, 2019
 
At December 31, 2018
 
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Assets and Liabilities:
 
 

 
 

 
 

 
 

Short-term investments
 
$
31,011

 
$
—

 
$
74,004

 
$
—

Trade receivables from provisional concentrate sales
 
—

 
60,485

 
—

 
40,803

Derivative financial assets
 
—

 
2,452

 
—

 
640

Derivative financial liabilities
 
—

 
(187
)
 
—

 
(51
)
 
 
$
31,011

 
$
62,750

 
$
74,004

 
$
41,392

The methodology and assessment of inputs for determining the fair value of financial assets and liabilities as well as the levels of hierarchy for the Company’s financial assets and liabilities measured at fair value remains unchanged from that at December 31, 2018.
ii)Valuation Techniques
 Short-term investments and other investments
The Company’s short-term investments and other investments are valued using quoted market prices in active markets and as such are classified within Level 1 of the fair value hierarchy and are primarily money market securities and U.S. Treasury securities. The fair value of the investment securities is calculated as the quoted market price of the investment and in the case of equity securities, the quoted market price multiplied by the quantity of shares held by the Company.
Derivative assets and liabilities
The Company’s derivative assets and liabilities were comprised of investments in warrants, commodity swaps and foreign currency contracts. The fair value of the warrants is calculated using an option pricing model which utilizes a combination of quoted prices and market-derived inputs. The Company's commodity swaps and foreign currency contracts are valued using observable market prices. Derivative instruments are classified within Level 2 of the fair value hierarchy.
Receivables from Provisional Concentrate Sales
A portion of the Company’s trade receivables arose from provisional concentrate sales and are valued using quoted market prices based on the forward London Metal Exchange for copper, zinc and lead and the London Bullion Market Association P.M. fix for gold and silver.
f)
Financial Instruments and related risks
The Company has exposure to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth and shareholder returns. The principal financial risks to which the Company is exposed are:
i)
Credit risk
ii)
Liquidity risk
iii)
Market risk
1. Currency risk
2. Interest rate risk
3. Price risk
The Company’s Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.

 
PAN AMERICAN SILVER CORP.
14
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

i)Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s trade receivables. The carrying value of trade receivables represents the maximum credit exposure. 
The Company has long-term concentrate contracts to sell the zinc, lead, copper and silver concentrates produced by the Huaron, Morococha, San Vicente and La Colorada mines. Concentrate contracts are common business practice in the mining industry. The terms of the concentrate contracts may require the Company to deliver concentrate that has a value greater than the payment received at the time of delivery, thereby introducing the Company to credit risk of the buyers of concentrates. Should any of these counterparties not honour supply arrangements, or should any of them become insolvent, the Company may incur losses for products already shipped and be forced to sell its concentrates on the spot market or it may not have a market for its concentrates and therefore its future operating results may be materially adversely impacted. At March 31, 2019, the Company had receivable balances associated with buyers of its concentrates of $60.5 million (2018 - $40.8 million). The vast majority of the Company’s concentrate is sold to five well-known concentrate buyers. 
Doré production from La Colorada, Dolores, Manantial Espejo, Shahuindo, La Arena, Bell Creek and Timmins is refined under long term agreements with fixed refining terms at four separate refineries worldwide. The Company generally retains the risk and title to the precious metals throughout the process of refining and therefore is exposed to the risk that the refineries will not be able to perform in accordance with the refining contract and that the Company may not be able to fully recover precious metals in such circumstances. At March 31, 2019, the Company had approximately $44.5 million (2018 - $19.7 million) of value contained in precious metal inventory at refineries. The Company maintains insurance coverage against the loss of precious metals at the Company’s mine sites, in-transit to refineries and while at the refineries. 
The Company maintains trading facilities with several banks and bullion dealers for the purposes of transacting the Company’s metal sales. None of these facilities are subject to margin arrangements. The Company’s trading activities can expose the Company to the credit risk of its counterparties to the extent that the trading positions have a positive mark-to-market value. However, the Company minimizes this risk by ensuring there is no excessive concentration of credit risk with any single counterparty, by active credit management and monitoring.
Refined silver and gold is sold in the spot market to various bullion traders and banks. Credit risk may arise from these activities if the Company is not paid for metal at the time it is delivered, as required by spot sale contracts.
Management constantly monitors and assesses the credit risk resulting from its refining arrangements, concentrate sales and commodity contracts with its refiners, trading counterparties and customers. Furthermore, management carefully considers credit risk when allocating prospective sales and refining business to counterparties. In making allocation decisions, management attempts to avoid unacceptable concentration of credit risk to any single counterparty.
The Company invests its cash and cash equivalents, which also has credit risk, with the objective of maintaining safety of principal and providing adequate liquidity to meet all current payment obligations. 
ii)Liquidity Risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company manages its liquidity risk by continuously monitoring forecasted and actual cash flows. The Company has in place a rigorous planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its expansion plans. The Company strives to maintain sufficient liquidity to meet its short-term business requirements, taking into account its anticipated cash flows from operations, its holdings of cash and short-term investments, and its committed loan facilities.
There was no significant change to the Company’s exposure to liquidity risk during the three months ended March 31, 2019.

 
PAN AMERICAN SILVER CORP.
15
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

iii)Market Risk
1.Currency Risk
The Company reports its financial statements in USD; however, the Company operates in jurisdictions that utilize other currencies. As a consequence, the financial results of the Company’s operations as reported in USD are subject to changes in the value of the USD relative to local currencies. Since the Company’s sales are denominated in USD and a portion of the Company’s operating costs and capital spending are in local currencies, the Company is negatively impacted by strengthening local currencies relative to the USD and positively impacted by the inverse. 
At March 31, 2019, the Company had outstanding positions on its foreign currency exposure of MXN purchases. The Company recorded gains of $0.5 million on MXN derivative contracts for the three months ended March 31, 2019 (2018 - gains of $0.1 million).
2.Interest Rate Risk
Interest rate risk is the risk that the fair values and future cash flows of the Company will fluctuate because of changes in market interest rates. The average interest rate earned by the Company during the three months ended March 31, 2019 on its cash and short-term investments was 1.47% (2018 - 1.28%).
At March 31, 2019, the Company had $335.0 million in amounts drawn on its secured revolving credit facility (the "Credit Facility"), which had an average interest rate of 4.4%. There were no amounts drawn on the Credit Facility in 2018.
At March 31, 2019, the Company had $28.1 million in lease obligations (2018 - $6.7 million), that are subject to an annualized interest rate of 8.5% (2018 - 2.2%).
3.Price Risk
Metal price risk is the risk that changes in metal prices will affect the Company’s income or the value of its related financial instruments. The Company derives its revenue from the sale of silver, gold, lead, copper, and zinc. The Company’s sales are directly dependent on metal prices that have shown significant volatility and are beyond the Company’s control. Consistent with the Company’s mission to provide equity investors with exposure to changes in silver prices, the Company’s current policy is to not hedge the price of silver and gold.
The Company mitigates the price risk associated with its base metal production by committing some of its forecasted base metal production from time to time under forward sales and option contracts. The Board of Directors continually assesses the Company’s strategy towards its base metal exposure, depending on market conditions. At March 31, 2019, the Company had outstanding contracts to sell some of its base metals production.
6. SHORT-TERM INVESTMENTS
 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
Fair
Value
 
Cost
 
Accumulated
unrealized
holding gains
 
Fair Value
 
Cost
 
Accumulated
unrealized
holding gains
Short-term investments
 
$
31,011

 
$
19,690

 
$
11,321

 
$
74,004

 
$
73,796

 
$
208

 

 
PAN AMERICAN SILVER CORP.
16
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

7. INVENTORIES
 
 
Inventories consist of: 
 
 
March 31,
2019

 
December 31,
2018

Concentrate inventory
 
$
16,956

 
$
19,286

Stockpile ore (1)
 
34,821

 
3,945

Heap leach inventory and in process (2)
 
141,916

 
113,199

Doré and finished inventory (3)
 
47,115

 
30,736

Materials and supplies
 
78,980

 
47,299

Total inventories
 
$
319,788

 
$
214,465

Less: current portion of inventories
 
$
(296,108
)
 
$
(214,465
)
Non-current portion of inventories(4)
 
$
23,680

 
$
—

(1)
Includes an impairment charge of $10.8 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines at March 31, 2019 (December 31, 2018 – $11.2 million at Manantial Espejo and Dolores mines).
(2)
Includes an impairment charge of $34.1 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines at March 31, 2019 (December 31, 2018 - $28.9 million at Manantial Espejo and Dolores mines).
(3)
Includes an impairment charge of $10.8 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines at March 31, 2019. (December 31, 2018 - $7.5 million at Manantial Espejo and Dolores mines).
(4)
Inventories at the Escobal mine in Guatemala have been classified as non-current pending the restart of operations.
8. MINERAL PROPERTIES, PLANT AND EQUIPMENT
 
 
Mineral properties, plant and equipment consist of:
 
 
March 31, 2019
 
December 31, 2018
 
 
Cost
 
Accumulated
Depreciation 
and 
Impairment
 
Carrying
Value
 
Cost
 
Accumulated
Depreciation 
and 
Impairment
 
Carrying
 Value
Huaron mine, Peru
 
$
210,532

 
$
(115,765
)
 
$
94,767

 
$
207,360

 
$
(114,288
)
 
$
93,072

Morococha mine, Peru
 
246,339

 
(152,788
)
 
93,551

 
243,603

 
(149,120
)
 
94,483

Alamo Dorado mine, Mexico
 
71,724

 
(71,724
)
 
—

 
126,960

 
(126,960
)
 
—

La Colorada mine, Mexico
 
304,160

 
(127,204
)
 
176,956

 
301,706

 
(121,940
)
 
179,766

Dolores mine, Mexico
 
1,556,153

 
(1,007,892
)
 
548,261

 
1,529,751

 
(981,948
)
 
547,803

Manantial Espejo mine, Argentina
 
371,129

 
(363,538
)
 
7,591

 
367,105

 
(362,293
)
 
4,812

San Vicente mine, Bolivia
 
138,655

 
(88,530
)
 
50,125

 
137,394

 
(86,663
)
 
50,731

Tahoe mines
 
715,156

 
(10,562
)
 
704,594

 
—

 
—

 
—

Other
 
26,103

 
(16,556
)
 
9,547

 
23,994

 
(16,265
)
 
7,729

Total producing properties
 
$
3,639,951

 
$
(1,954,559
)

$
1,685,392

 
$
2,937,873

 
$
(1,959,477
)
 
$
978,396

 
 
 
 
 
 
 
 
 
 
 
 
 
Land and Non-Producing Properties:
 
 
 
 

 
 

 
 

 
 

 
 

Land
 
$
33,618

 
$
(1,096
)
 
$
32,522

 
$
4,677

 
$
(1,096
)
 
$
3,581

Navidad project, Argentina
 
566,577

 
(376,101
)
 
190,476

 
566,577

 
(376,101
)
 
190,476

Minefinders projects, Mexico
 
91,362

 
(36,975
)
 
54,387

 
91,362

 
(36,975
)
 
54,387

Morococha, Peru
 
9,674

 
—

 
9,674

 
9,674

 
—

 
9,674

Argentine projects
 
77,495

 
(25,295
)
 
52,200

 
69,774

 
(24,939
)
 
44,835

Tahoe non-producing properties
 
192,330

 
(279
)
 
192,051

 
—

 
—

 
—

Other
 
31,550

 
(11,578
)
 
19,972

 
30,908

 
(11,255
)
 
19,653

Total non-producing properties
 
$
1,002,606

 
$
(451,324
)
 
$
551,282

 
$
772,972

 
$
(450,366
)
 
$
322,606

Total mineral properties, plant and equipment
 
$
4,642,557

 
$
(2,405,883
)
 
$
2,236,674


$
3,710,845

 
$
(2,409,843
)
 
$
1,301,002

  

 
PAN AMERICAN SILVER CORP.
17
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

9. IMPAIRMENT OF MINERAL PROPERTIES, PLANT AND EQUIPMENT
 
 
Non-current assets are tested for impairment, or reversal of previous impairment charges, when events or changes in circumstance indicate that the carrying amount may not be recoverable, or previous impairment charges against assets are recoverable. The Company performs an impairment test for goodwill at each financial year end and when events or changes in circumstances indicate that the related carrying value may not be recoverable.
Based on the Company’s assessment with respect to possible indicators of either impairment or reversal of previous impairments to its mineral properties, the Company concluded that as of March 31, 2019 no such indicators were noted, and no impairment charges or impairment charge reversals were required.
10. INVESTMENT IN ASSOCIATES
 
 
 
 
March 31,
2019

 
December 31,
2018

Investment in Maverix(2)
 
$
69,727

 
$
69,116

Investment in other(1)
 
—

 
1,450

 
 
$
69,727

 
$
70,566

(1)
Reclassified equity investee carrying value of $1.5 million to assets held for sale as the Company subsequently sold its interest for $5 million.
(2)
The following table shows a continuity of the Company's investment in Maverix:
 
 
2019

 
2018

Balance of investment in Maverix, January 1,
 
$
69,116

 
$
53,567

Dilution gain
 
—

 
—

Adjustment for change in ownership interest
 
—

 
—

Income from associate
 
611

 
159

Balance of investment in Maverix, March 31,
 
$
69,727

 
$
53,726

Investment in Maverix:
The Company's warrant liability representing in substance ownership interest in Maverix was $14.8 million as at March 31, 2019 (December 31, 2018 - $14.7 million). The Company's share of Maverix income or loss was recorded, based on its 29% interest for the three months ended March 31, 2019 representing the Company’s fully diluted ownership.
Deferred Revenue:
Deferred revenue relates to precious metal streams whereby the Company will sell 100% of the future gold production from La Colorada and 5% of the future gold production from La Bolsa, which is in the exploration stage, to Maverix for $650 and $450 per ounce, respectively (the "Streams"). The deferred revenue liability recognized by the Company is the portion of the deferred revenue to be paid to Maverix owners other than Pan American through its ownership in Maverix.
The deferred revenue related to the Streams will be recognized as revenue by Pan American as the gold ounces are delivered to Maverix. As at March 31, 2019, the deferred revenue liability was $13.1 million (December 31, 2018 - $13.3 million).
During the three months ended March 31, 2019 $0.2 million (2018 - $0.1 million) was recognized for the delivery of 921 ounces of gold (2018 - 591 ounces) from La Colorada to Maverix. All transactions with Maverix were in the normal course and measured at exchange amounts, which were the amounts of consideration established and agreed to by the Company and Maverix.

 
PAN AMERICAN SILVER CORP.
18
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

Income Statement Impacts:
The Company did not recognize any dilution gains or losses during either the three months ended March 31, 2019, or the comparative period in 2018. Dilution gains are recorded in share of loss from associate and dilution gain.
For the three months ended March 31, 2019 the Company also recognized its share of income from associate of $0.6 million (2018 - income of $0.2 million) which represents the Company's proportionate share of Maverix's income (loss) during the period.
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 
Accounts payable and accrued liabilities consist of: 
 
 
March 31,
2019

 
December 31,
2018

Trade accounts payable(1)
 
$
89,963

 
$
52,201

Royalties payable
 
18,304

 
2,004

Other accounts payable and trade related accruals
 
43,113

 
32,896

Payroll and related benefits
 
29,327

 
26,817

Severance accruals
 
3,819

 
1,791

Other taxes payable
 
5,973

 
4,044

Other
 
9,788

 
11,990

 
 
$
200,287

 
$
131,743

(1)
No interest is charged on the trade accounts payable ranging from 30 to 60 days from the invoice date. The Company has policies in place to ensure that all payables are paid within the credit terms.
12. PROVISIONS
 
 
 
 
Closure and
Decommissioning
 
Litigation
 
Total
December 31, 2018
 
$
70,587

 
$
4,568

 
$
75,155

Revisions in estimates and obligations incurred
 
7,392

 
—

 
7,392

Acquired from Tahoe (Note 4)
 
60,207

 
261

 
60,468

Charged (credited) to earnings:
 
 
 
 
 
 

-new provisions
 
—

 
437

 
437

-change in estimate
 
—

 
(57
)
 
(57
)
-exchange gains on provisions
 
—

 
(43
)
 
(43
)
Charged in the year
 
—

 
(225
)
 
(225
)
Reclamation expenditures
 
(946
)
 
—

 
(946
)
Accretion expense (Note 18)
 
2,042

 
—

 
2,042

March 31, 2019
 
$
139,282


$
4,941

 
$
144,223

 
Maturity analysis of total provisions:
 
March 31,
2019

 
December 31,
2018

Current
 
$
5,086

 
$
5,072

Non-Current
 
139,137

 
70,083

 
 
$
144,223

 
$
75,155

 

 
PAN AMERICAN SILVER CORP.
19
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

13. LEASES
 
 
a.
ROU Assets
The following table summarizes changes in ROU Assets for the three months ended March 31, 2019 which have been recorded in mineral properties, plant and equipment on the Condensed Interim Consolidated Statements of Financial Position:
 
 
March 31,
2019

Cost
 
 
Balance, January 1, 2019(1)
 
$
34,983

Additions after January 1, 2019
 
2,082

Assets acquired from Tahoe (Note 4)
 
3,871

Balance, March 31, 2019
 
40,936

 
 
 
Balance at January 1, 2019
 
(4,780
)
Amortization
 
(2,725
)
Effect of movements in exchange rates
 
1

Balance, March 31, 2019
 
(7,504
)
Carrying Amounts
 


At January 1, 2019
 
30,203

At March 31, 2019
 
$
33,432

(1)
Includes $21.4 million in newly recognized ROU assets.
b.
Lease obligations
The following table presents a reconciliation of the Company's undiscounted cash flows at March 31, 2019 and December 31, 2018 to their present value for the Company's lease obligations:
 
 
March 31,
2019

 
December 31,
2018

Within one year
 
$
14,816

 
$
5,488

Between one and five years
 
15,829

 
1,335

Beyond five years
 
428

 
—

Total undiscounted lease obligations
 
31,073

 
6,823

Less future interest charges
 
(2,972
)
 
(147
)
Total discounted lease obligations
 
28,101

 
6,676

Less: current portion of lease obligations
 
(13,334
)
 
(5,356
)
Non-current portion of lease obligations
 
$
14,767

 
$
1,320

When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019.  The weighted average rate applied is 8.5% (2018 - 2.2%).
The following table reconciles the Company’s lease commitments disclosed in the consolidated financial statements as at and for the year ended December 31, 2018, to the lease obligations recognized on initial application of IFRS 16:
Operating lease commitments at December 31, 2018
 
$
19,260

Discounted using the incremental borrowing rate at January 1, 2019
 
(2,819
)
Recognition exemptions for short-term and low-value leases
 
(455
)
Variable payments not included in lease liabilities
 
(233
)
Lease obligations recognized at January 1, 2019 related to operating lease commitments at December 31, 2018
 
$
15,753


 
PAN AMERICAN SILVER CORP.
20
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

14. DEBT
 
 
 
 
March 31,
2019

 
December 31,
2018

Credit Facility
 
$
335,000

 
$
—

The Company's four-year, $300.0 million secured revolving credit facility, which was due to mature on April 15, 2020, was increased to $400.0 million on February 1, 2019 and increased to $500.0 million on February 22, 2019 with maturity on February 1, 2023 and resulted in additional upfront costs of $2.0 million. These amendments were made as part of the Tahoe Acquisition.
The upfront costs have been recorded as an asset under the classification Prepaid expenses and other current assets and are being amortized over the life of the Credit Facility. The Credit Facility can be drawn down at any time to finance the Company’s working capital requirements, acquisitions, investments and for general corporate purposes. 
The financial covenants required the Company to maintain a tangible net worth (exclusive of any prospective write-downs of certain assets) of greater than $1,036.4 million plus 50% of the positive net income from and including the fiscal quarter ended March 31, 2016. As part of the amendment, after March 31, 2019 the financial covenants requires the Company to maintain a minimum tangible net worth (exclusive of any prospective write-downs of certain assets) of greater than 70% of its tangible net worth as of March 31, 2019 plus 50% of positive net income from and including the fiscal quarter ended June 30, 2019. In addition, the financial covenants continue to include the requirement for the Company to maintain: (i) a leverage ratio less than or equal to 3.5:1; and (ii) an interest coverage ratio more than or equal to 3.0:1. As of March 31, 2019, the Company was in compliance with all covenants required by the Credit Facility. 
At Pan American's option, amounts can be drawn under the revolving facility and will incur interest based on the Company's leverage ratio at either (i) LIBOR plus 1.875% to 2.750% or; (ii) The Bank of Nova Scotia's Base Rate on U.S. dollar denominated commercial loans plus 0.875% to 1.750%. Undrawn amounts under the revolving facility are subject to a stand-by fee of 0.4219% to 0.6188% per annum, dependent on the Company's leverage ratio. During the three months ended March 31, 2019, the Company drew down $335 million under the Credit Facility, under LIBOR-based interest rates to fund, in part, the cash purchase price under the Tahoe arrangement and to repay, in full, and cancel Tahoe's second amended and restated revolving facility, under which $125 million had been drawn.
During the three months ended March 31, 2019, the average interest rate incurred by the Company on the Credit Facility was 4.4%. The Credit Facility was not drawn in 2018. During the three months ended March 31, 2019, the Company incurred $0.3 million (2018 - $0.3 million) in standby charges on undrawn amounts and $1.5 million (2018 - $nil) in interest on drawn amounts under this Facility.
15. OTHER LONG TERM LIABILITIES
 
 
Other long term liabilities consist of: 
 
 
March 31,
2019

 
December 31,
2018

Deferred credit(1)
 
$
20,788

 
$
20,788

Other income tax payable
 
198

 
227

Severance accruals
 
6,757

 
4,410

 
 
$
27,743

 
$
25,425

(1)
As part of the 2009 Aquiline transaction the Company issued a replacement convertible debenture that allowed the holder to convert the debenture into either 363,854 Pan American Shares or a Silver Stream contract related to certain production from the Navidad project. Regarding the replacement convertible debenture, it was concluded that the deferred credit presentation was the most appropriate and best representation of the economics underlying the contract as of the date the Company assumed the obligation as part of the Aquiline acquisition. Subsequent to the acquisition, the counterparty to the replacement debenture selected the Silver Stream alternative. The final contract for the alternative is being discussed and pending the final resolution of this discussion, the Company continues to classify the fair value calculated at the acquisition of this alternative, as a deferred credit.

 
PAN AMERICAN SILVER CORP.
21
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

16. SHARE CAPITAL AND EMPLOYEE COMPENSATION PLANS
 
 
a.
Stock options and common shares issued as compensation ("Compensation Shares")
For the three months ended March 31, 2019 the total share-based compensation expense relating to stock options and Compensation Shares was $0.8 million (2018 - $1.0 million) and is presented as a component of general and administrative expense.
i.
Stock options
During the three months ended March 31, 2019, the Company granted nil stock options (2018 – nil).
ii.
Replacement options
Following completion of the Acquisition (Note 4), the Company issued 835,874 replacement options to eligible Tahoe option holders. These replacement options were fully vested with 12 months of remaining contractual life upon issuance and various exercise prices between $20.52 and $97.26 CAD$.
The following table summarizes changes in stock options for the three months ended March 31, 2019 and year ended December 31:
 
 
Stock Options
 
 
 
 
Shares
 
Weighted
Average Exercise
Price CAD$
As at December 31, 2017
 
936,123

 
$
16.56

Granted
 
149,163

 
17.53

Exercised
 
(125,762
)
 
11.14

Expired
 
(211,614
)
 
24.90

Forfeited
 
(49,523
)
 
19.49

As at December 31, 2018
 
698,387

 
$
15.00

Granted pursuant to the Tahoe Acquisition (Note 4)
 
835,874

 
48.47

Expired
 
(19,533
)
 
48.08

Forfeited
 
(9,173
)
 
18.62

As at March 31, 2019
 
1,505,555

 
$
33.13

 
The following table summarizes information about the Company's stock options outstanding at March 31, 2019:
 
 
Options Outstanding
 
Options Exercisable
Range of Exercise Prices
CAD$
 
Number Outstanding as at
 
Weighted Average
Remaining
Contractual Life
(months)
 
Weighted
Average
Exercise Price
CAD$
 
Number Outstanding as at
 
Weighted
Average
Exercise
Price CAD$
$9.76 - $23.61
 
692,768

 
49.25

 
$
14.98

 
501,362

 
$
13.92

$23.62 - $35.21
 
134,798

 
10.99

 
$
28.03

 
134,798

 
$
28.03

$35.22 - $46.53
 
241,482

 
12.16

 
$
41.69

 
241,482

 
$
41.69

$46.54 - $54.15
 
245,483

 
9.60

 
$
51.69

 
245,483

 
$
51.69

$54.16 - $97.26
 
191,024

 
9.38

 
$
67.86

 
191,024

 
$
67.86

 
 
1,505,555

 
28.35

 
$
33.13

 
1,314,149

 
$
35.37

 
b.
PSUs
Compensation expense for PSUs was $0.2 million for the three months ended March 31, 2019 (2018 - $0.3 million) and is presented as a component of general and administrative expense. 

 
PAN AMERICAN SILVER CORP.
22
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

At March 31, 2019, the following PSUs were outstanding:  
PSU
 
Number Outstanding
 
Fair Value
As at December 31, 2017
 
166,344

 
$
2,611

Granted
 
117,328

 
1,532

Paid out
 
(73,263
)
 
(1,528
)
Change in value
 
—

 
476

As at December 31, 2018
 
210,409

 
$
3,091

Change in value
 
—

 
(286
)
As at March 31, 2019
 
210,409

 
$
2,805

 
c.
RSUs
Compensation expense for RSUs was $0.4 million for the three months ended March 31, 2019 (2018 – $0.6 million) and is presented as a component of general and administrative expense.
At March 31, 2019, the following RSUs were outstanding:
RSU
 
Number Outstanding
 
Fair Value
As at December 31, 2017
 
262,013

 
$
4,098

Granted
 
244,961

 
3,207

Paid out
 
(156,715
)
 
(2,181
)
Forfeited
 
(21,436
)
 
(313
)
Change in value
 
—

 
(1,187
)
As at December 31, 2018
 
328,823

 
$
3,624

Forfeited
 
(8,902
)
 
(118
)
Change in value
 
—

 
746

As at March 31, 2019
 
319,921

 
$
4,252

 
d.
Issued share capital
The Company is authorized to issue 400,000,000 common shares without par value.
e.
Dividends
The Company declared the following dividends for the three months ended March 31, 2019 and 2018:
Declaration Date
 
Record Date
 
Dividend per common share
May 8, 2019 (1)
 
May 20, 2019
 
$
0.0350

February 20, 2019
 
March 4, 2019
 
$
0.0350

February 20, 2018
 
March 5, 2018
 
$
0.0350

(1)
These dividends were declared subsequent to the quarter ended March 31, 2019 and have not been recognized as distributions to owners during the period presented.
f.
CVRs
The Company issued 313,887,490 CVRs as part of the Tahoe Acquisition which are convertible into 15,600,208 common shares following the First Shipment upon the restart of operations at the Escobal mine (Note 4).

 
PAN AMERICAN SILVER CORP.
23
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

17. PRODUCTION COSTS
 
 
Production costs are comprised of the following: 
 
 
Three months ended
March 31,
 
 
2019

 
2018

Consumption of raw materials and consumables
 
$
57,165

 
$
44,520

Employee compensation and benefits expense
 
48,634

 
42,705

Contractors and outside services
 
25,462

 
22,670

Utilities
 
7,157

 
5,228

Other expenses
 
821

 
9,040

Changes in inventories (1)(2)
 
20,614

 
(11,714
)
 
 
$
159,853


$
112,449

(1)
Includes NRV adjustments to inventory to increase production costs by $8.1 million for the three months ended March 31, 2019 (2018 - reduce by $5.3 million).
(2)
Includes $8.7 million in amortization, for the three months ended March 31, 2019, on the fair value increases recognized on select Tahoe inventories following the Acquisition. There was no comparable amount recorded in 2018.
18. INTEREST AND FINANCE EXPENSE
 
 
 
 
Three months ended
March 31,
 
 
2019

 
2018

Interest expense
 
$
2,047

 
$
135

Finance fees
 
635

 
584

Accretion expense (Note 12)
 
2,042

 
1,639

 
 
$
4,724


$
2,358

19. EARNINGS PER SHARE (BASIC AND DILUTED)
 
 
For the three months ended March 31,
 
2019
 
2018
 
 
Earnings
(Numerator)
 
Shares (000’s)
(Denominator)
 
Per-Share
Amount
 
Earnings
(Numerator)
 
Shares (000’s)
(Denominator)
 
Per-Share
Amount
Net earnings (1)
 
$
33,275

 
 

 
 

 
$
47,376

 
 

 
 

Basic earnings per share
 
$
33,275

 
176,467

 
$
0.19

 
$
47,376

 
153,311

 
$
0.31

Effect of Dilutive Securities:
 
 

 
 

 
 

 
 

 
 

 
 

Stock Options
 
—

 
127

 
 

 
—

 
226

 
 

Diluted earnings per share
 
$
33,275

 
176,594

 
$
0.19

 
$
47,376

 
153,537

 
$
0.31

(1)
Net earnings attributable to equity holders of the Company.
Potentially dilutive securities excluded in the diluted earnings per share calculation for the three months ended March 31, 2019 were 1,175,629 out-of-the-money options and CVRs potentially convertible into 15,600,208 common shares (Note 4)(2018 – 279,943 and nil, respectively), respectively.

 
PAN AMERICAN SILVER CORP.
24
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

20. SUPPLEMENTAL CASH FLOW INFORMATION
 
 
The following tables summarize other adjustments for non-cash income statement items, changes in operating working capital items and significant non-cash items: 
 
 
 
Three months ended
March 31,
Other operating activities
 
2019

 
2018

Adjustments for non-cash income statement items:
 
 
 
 
 
Share-based compensation expense
 
$
837

 
$
962

 
Gains on securities held
 
(11,320
)
 
(1,038
)
 
Gains on commodity and foreign currency contracts (Note 5d)
 
(341
)
 
(1,733
)
 
(Gain) loss on derivatives (Note 5d)
 
(1,771
)
 
43

 
Share of income from associate and dilution gain (Note 10)
 
(611
)
 
(159
)
 
Net realizable value adjustment for inventories
 
8,135

 
(5,331
)
 
 
 
$
(5,071
)
 
$
(7,256
)
 
 
Three months ended
March 31,
Changes in non-cash operating working capital items:
 
2019

 
2018

Trade and other receivables
 
$
(9,963
)
 
$
4,373

Inventories
 
10,830

 
(6,740
)
Prepaid expenses
 
946

 
464

Accounts payable and accrued liabilities
 
(38,889
)
 
(6,068
)
Provisions
 
(860
)
 
(3,349
)
 
 
$
(37,936
)
 
$
(11,320
)
 
 
Three months ended
March 31,
Significant non-cash items:
 
2019

 
2018

Assets acquired by finance lease
 
$
23,433

 
$
3,998

 
Cash and Cash Equivalents
 
March 31,
2019

 
December 31,
2018

Cash in banks
 
$
90,548

 
$
77,735

Short term money markets
 
—

 
60,775

Cash and cash equivalents
 
$
90,548

 
$
138,510

21. SEGMENTED INFORMATION
 
 
All of the Company’s operations are within the mining sector, conducted through operations in six countries. Due to geographic and political diversity, the Company’s mining operations are decentralized in nature whereby Mine General Managers are responsible for achieving specified business results within a framework of global policies and standards. We have determined that each producing mine and significant development property represents an operating segment. Country corporate offices provide support infrastructure to the mines in addressing local and country issues including financial, human resources, and exploration support. The Company has a separate budgeting process and measures the results of operations and exploration activities independently. Operating results of operating segments are reviewed by the Company’s chief operating decision maker ("CODM") to make decisions about resources to be allocated to the segments and to assess their performance. Segment performance is evaluated by the CODM based on a number of measures including mine operating earnings.

 
PAN AMERICAN SILVER CORP.
25
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

Significant information relating to the Company’s reportable operating segments is summarized in the table below:
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Segment/Country
Mine
 
Revenue
 
Production costs and royalties
 
Depreciation
 
Mine operating earnings
 
Capital expenditures
Silver segment:
 
 
 
 
 
 
 
 
 
 
 
Mexico
Dolores
 
$
58,624

 
$
55,679

 
$
26,565

 
$
(23,620
)
 
$
12,561

 
La Colorada
 
48,397

 
19,570

 
6,231

 
22,596

 
3,801

Peru
Huaron
 
29,804

 
18,829

 
3,269

 
7,706

 
2,397

 
Morococha
 
31,179

 
18,545

 
3,863

 
8,771

 
793

Bolivia
San Vicente
 
21,738

 
15,343

 
2,091

 
4,304

 
981

Argentina
Manantial Espejo
 
9,636

 
13,144

 
954

 
(4,462
)
 
5,853

Guatemala
Escobal
 
—

 
—

 
—

 
—

 
644

Gold segment:(1)
 
 
33,265

 
25,005

 
6,079

 
2,181

 
13,781

Other segment:
 
 
 
 
 
 
 
 
 
 
 
Canada
Pas Corp
 
—

 
—

 
121

 
(121
)
 
9

Argentina
Navidad
 
—

 
—

 
 
 
—

 
7

Other
Other
 
—

 
—

 
161

 
(161
)
 
51

 
 
 
$
232,643

 
$
166,115

 
$
49,334

 
$
17,194

 
$
40,878

(1)
Includes assets held for sale (Note 4).
For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
Segment/Country
Mine
 
Revenue
 
Production costs and royalties
 
Depreciation
 
Mine operating earnings
 
Capital expenditures
Silver segment:
 
 
 
 
 
 
 
 
 
 
 
Mexico
Dolores
 
$
62,894

 
$
39,108

 
$
19,433

 
$
4,353

 
$
18,822

 
La Colorada
 
40,482

 
16,013

 
5,298

 
19,171

 
4,496

Peru
Huaron
 
32,650

 
18,665

 
3,183

 
10,802

 
1,927

 
Morococha
 
33,647

 
16,499

 
3,708

 
13,440

 
1,187

Bolivia
San Vicente
 
15,420

 
9,925

 
1,444

 
4,051

 
1,458

Argentina
Manantial Espejo
 
21,868

 
17,089

 
1,364

 
3,415

 
4,551

Other segment:
 
 
 
 
 
 
 
 
 
 
 
Canada
Pas Corp
 
—

 
—

 
31

 
(31
)
 
68

Argentina
Navidad
 
—

 
 
 
21

 
(21
)
 
11

Other
Other
 
—

 
—

 
56

 
(56
)
 
45

 
 
 
$
206,961

 
$
117,299

 
$
34,538

 
$
55,124

 
$
32,565


 
PAN AMERICAN SILVER CORP.
26
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

A reconciliation of segment mine operating earnings to the Company’s earnings before income taxes per the Condensed Interim Consolidated Income Statements is as follows:
 
 
Three months ended
March 31,
 
 
2019

 
2018

Mine operating earnings
 
$
17,194

 
$
55,124

 
 
 
 
 
General and administrative
 
(5,935
)
 
(5,958
)
Exploration and project development
 
(1,454
)
 
(2,744
)
Mine care and maintenance
 
(3,447
)
 
—

Foreign exchange losses
 
(2,845
)
 
(1,675
)
Gains on commodity and foreign currency contracts (Note 5d)
 
341

 
1,733

Gains on sale of mineral properties, plant and equipment
 
40

 
7,986

Share of income from associate and dilution gain (Note 10)
 
611

 
159

Transaction and integration costs (Note 4)
 
(1,403
)
 
—

Bargain purchase gain (Note 4)
 
30,492

 
—

Other income
 
107

 
544

Earnings from operations
 
33,701

 
55,169

 
 
 
 
 
Gain (loss) on derivatives (Note 5d)
 
1,771

 
(43
)
Investment income
 
12,283

 
1,898

Interest and finance expense (Note 18)
 
(4,724
)
 
(2,358
)
Earnings before income taxes
 
$
43,031

 
$
54,666



 
PAN AMERICAN SILVER CORP.
27
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

At March 31, 2019
 
 
 
 
 
 
Segment/Country
Mine
 
Assets
 
Liabilities
 
Net assets
Silver segment:
 
 
 
 
 
 
 
Mexico
Dolores
 
$
784,078

 
$
144,312

 
$
639,766

 
La Colorada
 
226,976

 
49,811

 
177,165

Peru
Huaron
 
123,193

 
44,049

 
79,144

 
Morococha
 
105,319

 
40,635

 
64,684

Bolivia
San Vicente
 
82,707

 
34,465

 
48,242

Argentina
Manantial Espejo
 
87,565

 
30,043

 
57,522

Guatemala
Escobal
 
270,149

 
20,488

 
249,661

Gold segment:(1)
 
 
1,299,906

 
235,872

 
1,064,034

Other segment:
 
 
 
 
 
 
 
Canada
Pas Corp
 
137,688

 
358,507

 
(220,819
)
Argentina
Navidad
 
193,091

 
1,559

 
191,532

 
Other
 
105,086

 
48,584

 
56,502

 
 
 
$
3,415,758

 
$
1,008,325

 
$
2,407,433

(1)
Includes assets held for sale (Note 4).
At December 31, 2018
 
 
 
 
 
 
Segment/Country
Mine
 
Assets
 
Liabilities
 
Net assets
Silver segment:
 
 
 
 
 
 
 
Mexico
Dolores
 
$
791,485

 
$
150,003

 
$
641,482

 
La Colorada
 
230,736

 
56,206

 
174,530

Peru
Huaron
 
119,015

 
44,055

 
74,960

 
Morococha
 
126,755

 
40,183

 
86,572

Bolivia
San Vicente
 
83,686

 
38,169

 
45,517

Argentina
Manantial Espejo
 
20,839

 
24,994

 
(4,155
)
Other segment:
 
 
 
 
 
 
 
Canada
Pas Corp
 
247,792

 
30,221

 
217,571

Argentina
Navidad
 
193,777

 
1,546

 
192,231

 
Other
 
123,391

 
38,750

 
84,641

 
 
 
$
1,937,476

 
$
424,127

 
$
1,513,349

 
 
Three months ended
March 31,
Product Revenue
 
2019

 
2018

Refined silver and gold
 
$
105,846

 
$
89,894

Zinc concentrate
 
41,805

 
42,516

Lead concentrate
 
47,844

 
36,490

Copper concentrate
 
20,988

 
26,134

Silver concentrate
 
16,160

 
11,927

Total
 
$
232,643

 
$
206,961

 

 
PAN AMERICAN SILVER CORP.
28
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

22. INCOME TAXES
 
 
Components of Income Tax Expense
 
 
Three months ended
March 31,
 
 
2019

 
2018

Current income tax expense
 
$
14,295

 
$
18,135

Deferred income tax recovery
 
(7,005
)
 
(11,625
)
Income tax expense
 
$
7,290

 
$
6,510

Income tax expense differs from the amount that would result from applying the Canadian federal and provincial income tax rates to earnings before income taxes. These differences result from the items shown on the following table which results in effective tax rates that vary considerably from the comparable period. The main factors that affected the effective tax rates for the three months ended March 31, 2019 and the comparable period of 2018 were foreign exchange fluctuations, changes in the recognition of certain deferred tax assets, changes in the non-deductible portion of reclamation liabilities, mining taxes paid, and withholding taxes remitted on payments from foreign subsidiaries. The Company continues to expect that these and other factors will continue to cause volatility in effective tax rates in the future.
Reconciliation of Effective Income Tax Rate
 
 
Three months ended
March 31,
 
 
2019

 
2018

Earnings before taxes, discontinued operations, and non-controlling interest
 
$
43,031

 
$
54,666

Statutory Canadian income tax rate
 
27.00
%
 
27.00
%
Income tax expense based on above rates

$
11,618


$
14,760

Increase (decrease) due to:
 
 
 
 
Non-deductible expenditures
 
911

 
930

Foreign tax rate differences
 
149

 
(1,070
)
Change in net deferred tax assets not recognized:
 
 
 
 
   - Argentina exploration expenditures
 
574

 
744

   - Other deferred tax assets
 
(5,400
)
 
(8,347
)
Non-taxable portion of net earnings of affiliates
 
(30
)
 
(844
)
Non-taxable bargain purchase gain
 
(8,233
)
 
—

Effect of other taxes paid (mining and withholding)
 
4,396

 
5,295

Effect of foreign exchange on tax expense
 
(3,780
)
 
(12,046
)
Non-taxable impact of foreign exchange
 
1,593

 
8,151

Change in non-deductible portion of reclamation liabilities
 
5,257

 
291

Other
 
235

 
(1,354
)
Income tax expense
 
$
7,290


$
6,510

Effective income tax rate
 
16.94
%

11.91
%
 

 
PAN AMERICAN SILVER CORP.
29
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2019 and December 31, 2018, and for the
three month period ended March 31, 2019 and 2018
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

23. CONTINGENCIES
 
 
The Company is subject to various legal, tax, environmental and regulatory matters that arise in the ordinary course of business activities. Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved unfavorably to the Company. In the opinion of management none of these matters are expected to have a material adverse effect on the results of operations or financial conditions of the Company. Since December 31, 2018, there have been no significant changes to these contractual obligations and commitments other than the new liabilities and provisions assumed as described in the purchase price allocation table included in the Tahoe Acquisition (Note 4).
24. RELATED PARTY TRANSACTIONS
 
 
The Company’s related parties include its subsidiaries, associates over which it exercises significant influence, and key management personnel. During its normal course of operation, the Company enters into transactions with its related parties for goods and services. All related party transactions for the three months ended March 31, 2019 and 2018 have been disclosed in these condensed interim consolidated financial statements. Transactions with Maverix, an associate of the Company, have been disclosed in Note 10 of these condensed interim consolidated financial statements.
These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the parties.

 
PAN AMERICAN SILVER CORP.
30