EX-99.2 3 paas06-30x2019mdaq2.htm EX-99.2 Document

Exhibit 99.2

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Management’s Discussion
and Analysis
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019




 

PAN AMERICAN SILVER CORP.
2


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
August 7, 2019
INTRODUCTION
This Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the significant factors that influence the performance of Pan American Silver Corp. and its subsidiaries (collectively “Pan American”, “we”, “us”, “our” or the “Company”) and such factors that may affect its future performance. This MD&A should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018 (the "2018 Financial Statements"), and the related notes contained therein, and the unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2019 (the “Q2 2019 Financial Statements”), and the related notes contained therein. All amounts in this MD&A, the 2018 Financial Statements, and the Q2 2019 Financial Statements are expressed in United States dollars (“USD”), unless identified otherwise. The Company reports its financial position, results of operations and cash flows in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board. Pan American’s significant accounting policies are set out in Note 3 of the 2018 Financial Statements.
This MD&A refers to various non-Generally Accepted Accounting Principles (“non-GAAP”) measures, such as “all-in sustaining costs per ounce sold", “cash costs per ounce sold”, “adjusted earnings” and “basic adjusted earnings per share”, "total debt", "capital", and “working capital", which are used by the Company to manage and evaluate operating performance at each of the Company’s mines and are widely reported in the mining industry as benchmarks for performance, but do not have standardized meaning under IFRS. To facilitate a better understanding of these non-GAAP measures as calculated by the Company, additional information has been provided in this MD&A. Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP) Measures” for a detailed description of “all-in sustaining cost per ounce sold”, “cash costs per ounce sold”, “adjusted earnings“ and “basic adjusted earnings per share”, "total debt", "capital", and “working capital” as well as details of the Company’s by-product credits and a reconciliation, where appropriate, of these measures to the Q2 2019 Financial Statements.
Any reference to “Cash Costs” in this MD&A should be understood to mean cash costs per ounce of silver or gold sold, net of by-product credits. Any reference to “AISC” in this MD&A should be understood to mean all-in sustaining costs per silver or gold ounce sold, net of by-product credits.
Except for historical information contained in this MD&A, the following disclosures are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of applicable Canadian provincial securities laws or are future oriented financial information and as such are based on an assumed set of economic conditions and courses of action. Please refer to the cautionary note regarding forward-looking statements and information at the back of this MD&A and the “Risks Related to Pan American’s Business” contained in the Company’s most recent Annual Information Form on file with the Canadian provincial securities regulatory authorities and Form 40-F on file with the U.S. Securities and Exchange Commission (the “SEC”). Additional information about Pan American and its business activities, including its Annual Information Form, is available on SEDAR at www.sedar.com


PAN AMERICAN SILVER CORP.
3


CORE BUSINESS AND STRATEGY
Pan American engages in silver and gold mining and related activities, including exploration, mine development, extraction, processing, refining and reclamation. The Company owns and operates silver and gold mines located in Peru, Mexico, Argentina, Bolivia, and Canada. We also own the Escobal mine in Guatemala that is currently not operating. In addition, the Company is exploring for new silver deposits and opportunities throughout the Americas. The Company is listed on the Toronto Stock Exchange (Symbol: PAAS) and on the Nasdaq Global Select Market (“NASDAQ”) in New York (Symbol: PAAS).
Pan American’s vision is to be the world’s pre-eminent silver producer, with a reputation for excellence in discovery, engineering, innovation and sustainable development. To achieve this vision, we base our business on the following strategy:
Generate sustainable profits and superior returns on investments through the safe, efficient and environmentally sound development and operation of silver assets.
Constantly replace and grow our mineable silver reserves and resources through targeted near-mine exploration and global business development.
Foster positive long-term relationships with our employees, our shareholders, our communities and our local governments through open and honest communication and ethical and sustainable business practices.
Continually search for opportunities to upgrade and improve the quality of our silver assets both internally and through acquisition.
Encourage our employees to be innovative, responsive and entrepreneurial throughout our entire organization.
To execute this strategy, Pan American has assembled a sector-leading team of mining professionals with a depth of knowledge and experience in all aspects of our business, which enables the Company to confidently advance early stage projects through construction and into operation.
Pan American is determined to conduct its business in a responsible and sustainable manner. Caring for the environment in which we operate, contributing to the long-term development of our host communities and ensuring that our employees can work in a safe and secure manner are core values at Pan American. We are committed to maintaining positive relations with our employees, the local communities and the government agencies, all of whom we view as partners in our enterprise.


PAN AMERICAN SILVER CORP.
4


Q2 2019 HIGHLIGHTS
Integration of Tahoe Resources Inc. ("Tahoe")
On February 22, 2019, the Company completed the previously announced transaction whereby Pan American acquired all of the issued and outstanding shares of Tahoe (the "Acquisition"). 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 principal mines: La Arena and Shahuindo in Peru; Timmins West and Bell Creek in Canada (together "Timmins"); and Escobal in Guatemala, where operations have been suspended since June 2017 (together the "Acquired Mines"). The Company now operates three gold mines as a result of the Acquisition. Consequently, the Company's operations have been divided into silver and gold segments for the purposes of reporting in this MD&A.
All production, operating and financial results of the Acquired Mines (including Cash Costs and AISC amounts) reported in this MD&A and included in the Company's consolidated results and updated guidance, reflect only the results from February 22, 2019 onwards. Further details of the Acquisition are provided in the "Acquisition of Tahoe" section of this MD&A.
Assets Held for Sale
As described in the "Acquisition of Tahoe" section of this MD&A, the Timmins assets and liabilities have been classified as held for sale and are presented separately under current assets and current liabilities on the Company's consolidated balance sheet. Further, the Timmins' net income after tax has been presented as a single and separate item on the Company's consolidated income statement. As such, the consolidated revenue for the three and six months ended June 30, 2019 excludes $57.5 million and $78.6 million of Timmins' revenue.
Operations
Silver production of 6.47 million ounces
Consolidated silver production for the three months ended June 30, 2019 ("Q2 2019") of 6.47 million ounces was comparable to the 6.29 million ounces produced in the three months ended June 30, 2018 ("Q2 2018"). Total production for the six months ended June 30, 2019 ("H1 2019") of 12.60 million was similar to the 12.40 million produced for the six months ended June 30, 2018 ("H1 2018").
Gold production of 154.6 thousand ounces
Consolidated gold production for Q2 2019 of 154.6 thousand ounces was 190% higher than the 53.4 thousand ounces produced in Q2 2018, reflecting additional production from the Acquired Mines. H1 2019 gold production of 235.1 thousand ounces was 135.5 thousand ounces higher than the comparable period in 2018.
Base metal production
Zinc production in Q2 2019 was 17.4 thousand tonnes, 17% higher than in the comparable quarter of 2018. Lead production was 6.8 thousand tonnes, 33% more than Q2 2018 production, while copper production of 2.1 thousand tonnes was 5% higher than in Q2 2018. Production in the quarter brought H1 2019 production to 34.2 thousand, 13.4 thousand, and 4.1 thousand for zinc, lead and copper, respectively, in-line with expectations and on-track to achieve Management's 2019 production guidance of 65.0 thousand to 67.0 thousand tonnes of zinc, 24.0 thousand to 25.0 thousand tonnes of lead, and 9.8 thousand to 10.3 thousand tonnes of copper.
Financial
Revenue and net income
Revenue in Q2 2019 of $282.9 million (excluding revenue from the Timmins mine of $57.5 million) was up 31% from Q2 2018, primarily due to higher gold sales from the Shahuindo and La Arena mines, partially offset by lower metal prices.
PAN AMERICAN SILVER CORP.
5


Net income for Q2 2019 was $18.5 million ($0.09 basic earnings per share) compared with earnings of $36.7 million ($0.24 basic earnings per share) in Q2 2018. The quarter-over-quarter decrease mainly reflects: (i) an $18.7 million decrease in mine operating earnings primarily from lower silver and base metal prices, lower grades from mine sequencing and NRV adjustments that increased costs at Dolores and Manantial Espejo, partially offset by positive mine operating earnings from Shahuindo and La Arena; (ii) a non-recurring dilution gain of $13.4 million recognized in Q2 2018; (iii) Escobal mine care and maintenance costs, and transaction and integration costs associated with the Acquisition, which totaled $9.3 million $10.5 million; and (iv) a $6.8 million increase in interest and financing costs, reflecting interest on the amounts drawn on the Company's $500 million revolving credit facility (the "Credit Facility"); which was partially offset by $14.6 million of net income generated by the Timmins' mines, classified as income from discontinued operations.
Adjusted income in Q2 2019 was $9.0 million ($0.04 basic adjusted earnings per share) compared with $35.4 million ($0.23 basic adjusted earnings per share) in Q2 2018, due primarily to the lower mine operating earnings described above.
Liquidity and working capital position
As at June 30, 2019, the Company had cash and short-term investment balances of $138.8 million, working capital of $793.1 million, and $165.0 million available under its $500.0 million revolving credit facility. Total debt of $378.8 million was related to the drawn portion of the Credit Facility ($335.0 million) and to the financing of lease liabilities ($43.8 million), which were partially attributable to the new lease accounting standard (IFRS-16) adopted on January 1, 2019.
Cash Costs per ounce sold
Silver Segment Cash Costs relate to the Company’s operations other than the Acquired Mines and were $6.67 per silver ounce sold for Q2 2019. H1 2019 Silver Segment Cash Costs of $6.08 per ounce were lower than the annual forecast range of $6.50 to $7.50 per ounce.
Gold Segment Cash Costs related to the Acquired Mines were $700 and $718 per gold ounce sold in Q2 2019 and H1 2019, respectively, lower than the annual forecast range of $740 to $810 per gold ounce sold.
Consolidated Negative Cash Costs per silver ounce sold for Q2 2019 and H1 2019 were $(4.19) and $(1.30), respectively, including by-product credits from the Acquired Mines' gold production, and were lower than and within the forecast of ($2.25) to $0.50 per ounce of silver sold, respectively.
Cash Costs is a non-GAAP measure, please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of this measure to the Q2 2019 Financial Statements.
All-In Sustaining Costs per ounce sold (“AISC”)
Silver Segment AISC for Q2 2019 and H1 2019 were $10.67 and $10.75 per silver ounce sold, respectively, in line with the 2019 Forecast of $9.75 to $11.25 per ounce.
Gold Segment AISC for Q2 2019 and H1 2019 were $980 and $1,007 per gold ounce sold, respectively, lower than the 2019 forecast of $1,025 to $1,125 per ounce.
Consolidated AISC for Q2 2019 and H1 2019 were $6.12 and $8.21 per silver ounce sold, respectively, which included by-product credits from the Acquired Mines' gold production, compared to the forecast range of $7.75 to $10.75 per silver ounce sold.
AISC is a non-GAAP measure, please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of this measure to the Q2 2019 Financial Statements.
Annual Forecast
Revised Cash Costs, AISC and Production Forecasts
Based on results to date and those expected for the remainder of the year, Management has revised the 2019 annual forecasts for consolidated Cash Costs, AISC and silver and gold production as discussed in the “Annual Operating Outlook” section of this MD&A. The revised 2019 annual Cash Cost and AISC ranges have been lowered to ($3.30) to ($1.80), and $7.00 to $9.00 per ounce of silver sold, respectively.
PAN AMERICAN SILVER CORP.
6


Due to delays in the completion of the projects at COSE and Joaquin, Management has slightly reduced the annual guidance for 2019 silver production to 25.3 million to 26.3 million ounces and gold production to 550 thousand to 600 thousand ounces.

OPERATING PERFORMANCE
Silver and Gold Production 
The following table provides silver and gold production at each of Pan American’s operations for the three and six month periods ended June 30, 2019 and 2018, except for the Acquired Mines, which for the six months ended June 30, 2019 only include production from the February 22, 2019 acquisition date:
 Silver Production
(ounces ‘000s)
Gold Production
(ounces ‘000s)
 Three months ended
June 30,
Six months ended
June 30,
Three months ended
June 30,
Six months ended
June 30,
 2019 2018 2019 2018 2019 2018 2019 2018 
Operations:
La Colorada2,045 1,873 4,035 3,523 1.1 1.1 2.1 2.1 
Dolores1,226 1,088 2,339 2,290 28.5 39.8 58.5 74.1 
Huaron948 742 1,885 1,673 0.2 0.1 0.5 0.4 
Morococha(1)
615 652 1,313 1,383 0.3 0.7 0.9 1.5 
San Vicente(2)
940 976 1,790 1,740 0.1 0.1 0.2 0.3 
Manantial Espejo652 962 1,176 1,787 5.4 11.6 10.3 21.3 
La Arena(3)
— — 28.4 — 43.1 — 
Shahuindo(3)
35 — 45 — 46.8 — 61.3 — 
Assets held for sale:
Timmins (3)
— — 43.8 — 58.2 — 
Total (4)
6,474 6,294 12,599 12,396 154.6 53.4 235.1 99.6 
(1)Morococha data represents Pan American's 92.3% interest in the mine's production.
(2)San Vicente data represents Pan American's 95.0% interest in the mine's production.
(3)Reflects production results subsequent to the February 22, 2019 closing date of the Acquisition as described in the "Acquisition of Tahoe" section of this MD&A. The Timmins mines are classified as assets-held-for sale in the Company's Q2 2019 Financial Statements, as described in Note 4 of the Company's Q2 2019 Financial Statements and in the "Acquisition of Tahoe" section of this MD&A.
(4)Totals may not add due to rounding.
Silver Production 
Consolidated silver production in Q2 2019 of 6.47 million ounces was 3% higher than the 6.29 million ounces produced in Q2 2018. The higher production was driven from increased production at Huaron, La Colorada, and Dolores. The increases at Huaron and La Colorada were primarily related to increased throughput, whereas at Dolores, the increase was from higher recoveries due to leach pad kinetics. These increases were partially offset by decreased production at Manantial Espejo, due to anticipated lower grades and throughput. Each operation’s silver production variances are further discussed in the “Individual Mine Performance” section of this MD&A.
Gold Production 
Consolidated gold production in Q2 2019 of 154.6 thousand ounces was 190% higher than the 53.4 thousand ounces produced in Q2 2018. The increase was attributable to the production from the Acquired Mines during the quarter, which totaled 119.0 thousand ounces, partially offset by lower production at Dolores and Manantial Espejo as a result of anticipated lower grades and throughput. Each operation’s production variances are further discussed in the “Individual Mine Performance” section of this MD&A.
PAN AMERICAN SILVER CORP.
7


Base Metal Production
The following table provides the Company’s base metal production for the three-month and six-month periods ended June 30, 2019 and 2018:
 By-Product Production
Three months ended
June 30,
Six months ended
June 30,
2019 2018 2019 2018 
Zinc – kt17.4 14.9 34.2 29.6 
Lead – kt6.8 5.1 13.4 10.4 
Copper – kt2.1 2.0 4.1 4.9 
Zinc production in Q2 2019 was 17% higher than Q2 2018, driven primarily by higher throughput at the expanded La Colorada mine, higher throughput at Huaron, and higher grades at Morococha from mine sequencing.
Lead production in Q2 2019 was 33% higher than Q2 2018, resulting primarily from higher throughput at the expanded La Colorada mine, higher grades at Morococha from mine sequencing, and higher throughput at Huaron.
Copper production in Q2 2019 was 5% higher than Q2 2018, driven from higher throughput and grades at Huaron, partially offset by lower grades at San Vicente and Morococha from mine sequencing. Each operation’s by-product production variances are further discussed in the “Individual Mine Performance” section of this MD&A.
Cash Cost and AISC
The Company currently operates three gold mines as a result of the Tahoe Acquisition. Consequently, the Company's operations have been divided into silver and gold segments for the purposes of reporting Cash Costs and AISC, as set out in the table below. Based on the increased gold production, the Company has determined it necessary to adjust certain components of how cash costs per ounce and all-in-sustaining costs per ounce are calculated and reported. The quantification of both the current Cash Costs and AISC measures are described in detail, and where appropriate reconciled to the Q2 2019 financial statements, in the "Alternative (Non-GAAP) Performance Measures" section of this MD&A.
PAN AMERICAN SILVER CORP.
8


The following table reflects the Cash Costs and AISC net of by-product credits at each of Pan American’s operations for the three and six months ended June 30, 2019, as compared to the same periods in 2018 for the Silver Segment mines and since February 22, 2019 for the newly acquired Gold Segment mines:
 
 
Cash Costs(1)
 ($ per ounce)
AISC(1)
($ per ounce)
Three months ended
June 30,
Six months ended
June 30,
Three months ended
June 30,
Six months ended
June 30,
2019 
2018(2)
2019 
2018(2)
2019 
2018(3)
2019 
2018(3)
La Colorada2.82 1.13 2.48 0.50 5.07 3.46 4.20 2.65 
Dolores6.87 (6.70)5.24 (4.33)22.30 1.18 24.21 5.78 
Huaron1.64 2.27 3.00 0.48 4.45 7.88 6.48 5.24 
Morococha3.69 (6.19)1.11 (8.30)10.47 0.57 5.92 (3.37)
San Vicente10.18 10.69 10.21 10.12 10.60 13.16 10.90 12.35 
Manantial Espejo18.35 9.46 21.47 12.58 14.01 7.08 18.74 8.84 
Silver Segment Consolidated6.67 1.84 6.08 1.66 10.67 5.33 10.75 5.26 
Shahuindo546 — 557 — 719 — 709 — 
La Arena652 — 648 — 1,441 — 1,374 — 
Timmins(4)
884 — 910 — 946 — 992 — 
Gold Segment Consolidated700 — 718 — 980 — 1,007 — 
Consolidated metrics per silver ounce sold(5):
All Operations(4.19)1.84 (1.30)1.66 6.12 6.50 8.21 6.52 
All Operations before NRV inventory adjustments (4.19)1.84 (1.30)1.66 6.46 7.72 7.75 7.60 
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of this MD&A for a detailed description of these measures and where appropriate a reconciliation of the measure to the Q2 2019 Financial Statements.
(2)Silver Segment Cash Costs per ounce sold are calculated based on Cash Costs, net of by-product credits divided by per ounce of silver sold and they are therefore different from previously reported Q2 2018 "Cash Costs" which were calculated based on cash costs net of by-product credits divided by payable silver ounces produced. The Q2 2018 cash costs per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the Q2 2019 Cash Cost per ounce sold.
(3)2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the adoption of IFRS 16, and sustaining capital now includes lease payments. Previously, leased assets were included as sustaining capital in the period of acquisition, while future related lease payments were excluded.
(4)The Timmins mines are classified as assets-held-for sale in the Company's Q2 2019 Financial Statements, as described in the "Acquisition of Tahoe" section of this MD&A.
(5)Consolidated silver basis total is calculated per silver ounce sold with total gold revenues included within by-product credits. G&A costs are included in the consolidated AISC, but not allocated in calculating AISC for each operation.
Cash Costs
Consolidated Cash Costs on a silver basis were $(4.19) per ounce for Q2 2019, down $6.03 from Q2 2018, as a result of the increase in gold by-product credits from the newly acquired Gold Segment mines, which was only partially offset by increased Silver Segment cash costs due to a combination of lower by-product credits and higher smelting and refining charges on a per ounce basis. Consolidated Cash Costs are based on total silver ounces sold and are net of by-product credits from all metals other than silver.
AISC
Consolidated AISC on a silver basis for Q2 2019 were $6.12 per ounce, a $0.38 decrease from Q2 2018. The quarter-over-quarter increase was primarily the result of the aforementioned increase in Silver Segment cash costs, combined with increased NRV adjustments, and the addition of the Gold Segment capital expenditures, largely offset by the increase in gold by-product credits from the newly acquired Gold Segment mines. Consolidated AISC are based on total silver ounces sold and are net of by-product credits from all metals other than silver.
Individual Mine Performance
An analysis of performance at each operation in Q2 2019 compared with Q2 2018 follows. The project capital amounts invested in Q2 2019 are further discussed in the "Project Development Update" section of this MD&A.
PAN AMERICAN SILVER CORP.
9


La Colorada mine
 Three months ended
June 30,
Six months ended
June 30,
 2019 2018 2019 2018 
Tonnes milled – kt193.9 176.9 380.7 347.3 
Average silver grade – grams per tonne357 361 359 347 
Average zinc grade - %3.21 2.77 3.14 2.80 
Average lead grade - %1.68 1.36 1.64 1.39 
Production:  
Silver – koz2,045 1,873 4,035 3,523 
Gold – koz1.09 1.05 2.10 2.10 
Zinc – kt5.51 4.23 10.61 8.37 
Lead – kt2.86 2.11 5.49 4.23 
Cash Costs(1)
$2.82 $1.13 $2.48 $0.50 
Sustaining capital - (’000s)(2)
$3,631 $3,309 $5,843 $6,195 
AISC(1)
$5.07 $3.46 $4.20 $2.65 
Payable silver sold - koz1,965 1,486 4,012 3,030 
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
(2)Sustaining capital expenditures exclude $2.8 million and $4.4 million investing activity cash outflows for Q2 2019 and H1 2019, respectively (Q2 2018 and H1 2018: $1.5 million and $3.1 million respectively) related to investment capital incurred on the La Colorada projects, as disclosed in the “Project Development Update” section of this MD&A.
Q2 2019 vs. Q2 2018
Production:
Silver: 9% increase, driven primarily from higher sulphide ore throughput.
By-products: 30% and 36% increases in zinc and lead production, respectively, resulting from increased sulphide ore throughput.
Cash Costs: the $1.69 per ounce increase was primarily the result of lower by-product credits per ounce sold from lower base metal prices and higher treatment and refining charges, partially offset by higher silver and base metal production.
Sustaining Capital: primarily related to investments in equipment replacements and rehabilitation, lease payments for equipment and office leases, and near-mine exploration activities.
AISC: the increase was due to the same factors affecting Cash Costs.
PAN AMERICAN SILVER CORP.
10


Dolores mine
 Three months ended
June 30,
Six months ended
June 30,
 2019 2018 2019 2018 
Tonnes placed – kt1,593.5 1,664.0 3,433.9 3,561.9 
Average silver grade – grams per tonne32 31 30 33 
Average gold grade – grams per tonne0.52 1.03 0.51 0.94 
Production:    
Silver – koz1,226 1,088 2,339 2,290 
Gold – koz28.5 39.8 58.5 74.1 
Cash Costs(1)
$6.87 $(6.70)$5.24 $(4.33)
Sustaining capital - (’000s)(2)
14,965 11,245 28,032 25,616 
AISC(1)
$22.30 $1.18 $24.21 $5.78 
Payable silver sold - koz1,183 1,145 2,194 2,385 
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
(2)Sustaining capital expenditures exclude $nil and $0.4 million of investing activity cash outflow for Q2 2019 and H1 2019, respectively (Q2 and H1 2018: $4.1 million and $8.5 million, respectively) related to investment capital incurred on Dolores expansion projects, as disclosed in the “Project Development Update” section of this MD&A.
Q2 2019 vs. Q2 2018
Production:
Silver: 13% higher due to improved leach kinetics from better than expected recovery of partially leached pad 1 materials and increased pulp agglomeration throughput, partially offset by lower heap leach stacking rates.
Gold: 28% lower due to lower grades from mine sequencing, partially offset by the previously discussed improvement in leach kinetics from the pad 1 material.
Cash Costs: increased $13.57 per ounce due primarily to lower grades from mine sequencing, which resulted in a 26% drop in gold by-product credits. Additionally, open pit mining activities were higher in Q2 2019 than in Q2 2018, reflecting the temporary mine suspension in Q2 2018 to address access road security issues.
Sustaining Capital: comprised mainly of pre-stripping expenditures and leach pad expansions.
AISC: increased $21.12 per ounce, due to the same factors affecting Cash Costs, as well as a $5.3 million ($4.54 per ounce) increase in quarter-over-quarter cost increasing non-cash NRV adjustments and a $3.7 million increase in sustaining capital expenditures due to higher pre-stripping activities following the mine suspension in Q2 2018.
PAN AMERICAN SILVER CORP.
11


Huaron mine
 Three months ended
June 30,
Six months ended
June 30,
 2019 
2018(2)
2019 
2018(2)
Tonnes milled - kt250.2 203.6 490.2 438.3 
Average silver grade – grams per tonne139 137 141 143 
Average zinc grade - %2.54 2.58 2.41 2.44 
Average lead grade - %1.19 1.15 1.18 1.10 
Average copper grade - %0.79 0.57 0.76 0.72 
Production:  
Silver – koz948 742 1,885 1,673 
Gold – koz0.24 0.14 0.48 0.36 
Zinc – kt4.89 4.01 9.02 8.11 
Lead – kt2.31 1.75 4.40 3.56 
Copper – kt1.50 0.78 2.79 2.35 
Cash Costs(1)
$1.64 $2.27 $3.00 $0.48 
Sustaining capital - (’000s)$2,144 $3,359 $5,362 $5,973 
AISC(1)
$4.45 $7.88 $6.48 $5.24 
Payable silver sold – koz829 674 1,648 1,452 
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
(2)2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the adoption of IFRS 16, and sustaining capital now includes lease payments. Previously leased assets were included as sustaining capital in the period of acquisition, while future related lease payments were excluded.
Q2 2019 vs. Q2 2018
Production:
Silver: 28% higher, primarily due to higher throughput relative to Q2 2018 when processing activities were impacted by a roadblock.
By-products: 22%, 32% , and 93% increases in zinc, lead and copper production, respectively, primarily as a result of increased throughput. Copper production also benefited from higher grades due to mine sequencing.
Cash Costs: consistent with the prior period, as the decrease in base metal prices and increased treatment and refining charges were largely offset by higher production of all metals.
Sustaining Capital: related primarily to payments for equipment leases, near mine exploration, and equipment replacements and refurbishments. The decrease from Q2 2018 was related primarily to the completion of the tailings storage facility construction and mine deepening projects, both of which began in Q2 2018.
AISC: a decrease of $3.43 per ounce, primarily the result of the decrease in sustaining capital and exploration costs.
PAN AMERICAN SILVER CORP.
12


Morococha mine(1)
 Three months ended
June 30,
Six months ended
June 30,
 2019 
2018(2)
2019 
2018(2)
Tonnes milled – kt170.3 171.3 339.7 339.5 
Average silver grade – grams per tonne127 136 136 143 
Average zinc grade - %3.66 3.50 3.83 3.64 
Average lead grade - %1.15 0.83 1.24 0.85 
Average copper grade - %0.37 0.68 0.44 0.77 
Production:  
Silver – koz615 652 1,313 1,383 
Gold – koz0.27 0.66 0.90 1.46 
Zinc – kt5.48 5.18 11.26 10.60 
Lead – kt1.57 1.04 3.34 2.15 
Copper – kt0.34 0.88 0.91 2.01 
Cash Costs(3)
$3.69 $(6.19)$1.11 $(8.30)
Sustaining capital (100%) - (’000s)(4)
$3,715 $3,853 $5,649 $5,884 
AISC(3)
$10.47 $0.57 $5.92 $(3.37)
Payable silver sold (100%) - koz565 609 1,257 1,290 
(1)Production figures are for Pan American’s 92.3% share only, unless otherwise noted.
(2)2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the adoption of IFRS 16, and sustaining capital now includes lease payments. Previously leased assets were included as sustaining capital in the period of acquisition, while future related lease payments were excluded.
(3)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
(4)Sustaining capital expenditures exclude $0.5 million and $0.7 million of investing activity cash outflow for Q2 2019 and H1 2019, respectively (Q2 and H1 2018: $nil) related to investment capital incurred on Morococha plant studies, as disclosed in the “Project Development Update” section of this MD&A.
Q2 2019 vs. Q2 2018
Production:
Silver: 6% lower due to lower grades from mine sequencing.
By-products: a 51% and 6% increase in lead and zinc production, respectively, and a 61% decrease in copper production, all related to grades variances from mine sequencing.
Cash Costs: $9.88 per ounce higher, primarily because of lower by-product metal prices, lower silver and copper production, and higher treatment and refining charges.
Sustaining Capital: primarily related to near-mine exploration, equipment replacements and refurbishments, and equipment and office leases.
AISC: $9.90 per ounce higher due to the same factors affecting quarter-over-quarter cash costs.
PAN AMERICAN SILVER CORP.
13


San Vicente mine (1)
 Three months ended
June 30,
Six months ended
June 30,
 2019 
2018(2)
2019 
2018(2)
Tonnes milled – kt87.2 86.0 170.5 161.8 
Average silver grade – grams per tonne371 374 363 361 
Average zinc grade - %2.22 2.34 2.42 2.10 
Average lead grade - %0.13 0.33 0.10 0.33 
Average copper grade - %0.31 0.41 
Production:  
Silver – koz940 976 1,790 1,740 
Gold – koz0.13 0.14 0.22 0.27 
Zinc – kt1.50 1.43 3.30 2.49 
Lead – kt0.08 0.22 0.12 0.42 
Copper – kt0.22 0.30 0.40 0.59 
Cash Costs (3)
$10.18 $10.69 10.2110.12
Sustaining capital (100%) - (’000s)$414 $2,140 $1,404 $3,606 
AISC(3)
$10.60 $13.16 $10.90 $12.35 
Payable silver sold (100%) - koz1,152 893 2,273 1,676 
(1)Production figures are for Pan American’s 95.0% share only, unless otherwise noted.
(2)2018 AISC per ounce sold included in the table above have been calculated and presented as comparative amounts to conform to the methodology used by the Company to calculate the 2019 AISC per ounce sold. The change in methodology relates to the sustaining capital calculation to account for the adoption of IFRS 16, and sustaining capital now includes lease payments. Previously leased assets were included as sustaining capital in the period of acquisition, while future related lease payments were excluded.
(3)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
Q2 2019 vs. Q2 2018
Production:
Silver: 4% lower primarily from a decrease in recoveries due to ore characteristics.
By-products: the 5% increase in zinc and 62% and 27% decreases in lead and copper production, respectively, were the result of mine sequencing, as well as a reduction in the payability of lead in the silver concentrate sales contracts.
Cash Costs: $0.51 per ounce lower due largely to the timing of royalty expense recognition, which was partially offset by higher direct operating costs per ounce due to inflation in labour costs and consumables.
Sustaining Capital: Q2 2019 expenditures primarily relate to mine equipment replacements and rehabilitation, and near-mine exploration.
AISC: the $2.56 per ounce decrease was due primarily to lower sustaining capital expenditures, in addition to the factors that reduced cash costs.
PAN AMERICAN SILVER CORP.
14


Manantial Espejo mine
 Three months ended
June 30,
Six months ended
June 30,
 2019 2018 2019 2018 
Tonnes milled - kt152.6 197.1 341.2 399.9 
Average silver grade – grams per tonne139 177 119 163 
Average gold grade – grams per tonne1.19 1.91 1.04 1.79 
Production:  
Silver – koz652 962 1,176 1,787 
Gold – koz5.37 11.62 10.30 21.31 
Cash Costs(1)
$18.35 $9.46 $21.47 12.58
Sustaining capital - (’000s)$664 $1,094 $1,385 $1,627 
AISC(1)
$14.01 $7.08 $18.74 $8.84 
Payable silver sold - koz782 987 1,184 1,661 
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
Q2 2019 vs. Q2 2018
Production:
Silver and Gold: 32% and 54% decreases, respectively, primarily from lower throughput due to a temporary suspension of operations and the planned decrease in grades from processing of stockpiled ore. As previously announced on June 17, 2019 operations at Manantial Espejo were suspended for approximately 13 days during Q2 2019 following a fatal accident at the COSE project, operations recommenced in the last week of June.
Cash Costs: an $8.89 per ounce increase, primarily as a result of the following factors: (i) lower silver and gold sales due to lower throughput and grades; and, (ii) higher direct selling costs due to the introduction of an export tax in late 2018. Partially offsetting these factors were lower production costs due to the steep devaluation of the Argentine peso.
Sustaining Capital: Q2 2019 expenditures were primarily related to lease payments for diesel generators on site.
AISC: the $6.93 per ounce increase was due to the same factors described in cash costs, partially offset by an increase in non-cash NRV inventory adjustments.

PAN AMERICAN SILVER CORP.
15


Gold Segment Mines
The Gold Segment Mines were acquired on February 22, 2019, as such, the financial and operating results of these mines have only been reported, and included in the Company's consolidated results, from this date forward. All comparative 2018 period amounts for the Acquired Mines will be nil.
 
Three months ended
June 30,
Six months ended
June 30,
 ShahuindoLa Arena
Timmins(1)
ShahuindoLa Arena
Timmins(1)
Tonnes milled - kt3,212.7 2,296.7 411.3 4,450.6 2,915.9 593.0 
Average silver grade – grams per tonne7.22 0.41 — 7.30 0.40 — 
Average gold grade – grams per tonne0.59 0.42 3.28 0.61 0.43 3.13 
Production:
Silver – koz35.01 6.01 5.30 45.19 8.98 7.10 
Gold – koz46.83 28.42 43.78 61.29 43.13 58.17 
Cash Costs(2)
$546 $652 $884 $557 $648 $910 
Sustaining capital - (’000s)(3)
$6,835 $21,470 $2,074 $7,065 $31,926 $3,987 
AISC(2)
$719 $1,441 $946 $709 $1,374 $992 
Payable gold ounces sold 43,946 28,124 44,000 52,546 45,258 60,700 
(1)The Timmins mines are classified as assets-held-for sale in the Company's Q2 2019 Financial Statements, as described in the "Acquisition of Tahoe" section of this MD&A.
(2)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed reconciliation of these measures to cost of sales.
(3)Timmins sustaining capital expenditures exclude $0.9 million and $2.2 million of investing activity cash outflow for Q2 2019 and H1 2019, respectively, and related primarily to reduction in accounts payable balances from the Bell Creek shaft project completed prior to acquisition. Shahuindo sustaining capital expenditures exclude $1.8 million and $1.8 million of investing activity cash outflow for Q2 2019 and H1 2019, respectively, relating to project development.
Shahuindo
Production: gold production of 61.3 thousand ounces since the acquisition is consistent with Management's expectations and represents 41% of the midpoint of Management's 2019 annual forecast range of 135.0 thousand to 165.0 thousand ounces.
Cash Costs: were $557 per gold ounce in H1 2019, within Management's 2019 annual forecast range of $550 to $625 per ounce.
Sustaining Capital: sustaining capital was primarily comprised of leach pad construction and mining equipment, and was consistent with expectations.
AISC: in H1 2019 were $709, lower than Management's 2019 annual forecast range of $875 to $1,000, as a result of sustaining capital being back loaded into the second half of the year.
La Arena
Production: gold production of 43.1 thousand ounces since the acquisition is consistent with Management's expectations and represents 36% of the midpoint of Management's 2019 annual forecast range of 117.5 thousand to 122.5 thousand ounces.
Cash Costs: year-to-date were $648 per gold ounce, lower than Management's 2019 annual forecast range of $800 to $850 per ounce, due to the timing of capitalized pre-stripping activities.
Sustaining Capital: sustaining capital was primarily comprised of pre-stripping activities, leach pad construction, mine infrastructure, and land purchases, and was consistent with expectations.
AISC: year-to-date was $1,374, slightly higher than Management's 2019 annual forecast range of $1,275 to $1,325, due to the timing of capitalized pre-stripping activities.
PAN AMERICAN SILVER CORP.
16


Timmins
Production: gold production of 58.2 thousand ounces since the acquisition is consistent with Management's expectations and represents 37% of the midpoint of Management's 2019 annual forecast range of 155.0 thousand to 160.0 thousand ounces.
Cash Costs: year-to-date were $910 per gold ounce, and within Management's 2019 annual forecast range of $890 to $940 per ounce.
Sustaining Capital: sustaining capital was primarily comprised of exploration, equipment rebuilds and infrastructure upgrades, and was consistent with expectations.
AISC: year-to-date was $992, which is slightly below the lower end of Management's 2019 annual forecast range of $1,025 to $1,075.

2019 ANNUAL OPERATING OUTLOOK
These estimates are forward-looking statements and information that are subject to the cautionary note associated with forward-looking statements and information at the end of this MD&A. The following forecast amounts refer the updated annual 2019 forecasts as provided in the Company's Q1 2019 MD&A dated May 8, 2019, and include certain forecast amounts for the Acquired Mines from February 22, 2019 to December 31, 2019 (the "May 2019 Forecast" amounts).
Production Relative to Forecast:
The following table summarizes the H1 2019 metal production compared to the May 2019 Forecast amounts:
 H1 2019 ActualMay 2019 Forecast
% of 2019 Forecast (1)
Silver – Moz12.60 26.6 - 27.646%  
Gold(2) – koz
235.1 570.0 - 620.040%  
Zinc – kt34.2 65.0 - 67.052%  
Lead – kt13.4 24.0 - 25.055%  
Copper – kt4.1 9.8 - 10.341%  
(1)Percentage calculated based on mid-point of the guidance ranges in the table above.
(2)Timmins mines are classified as assets held for sale in the Company's Q2 2019 Financial Statements, as described in Note 4 of the Company's Q2 2019 Financial Statements, and in the "Acquisition of Tahoe" section of this MD&A. Gold production from the Timmins operations is included in the consolidated forecast pending resolution from the sale process.
Cash Costs and AISC Compared to Forecast:
The following table summarizes H1 2019 Cash Costs and AISC for each operation compared to the respective May 2019 Forecast amounts. These estimates are largely influenced by Management's assumptions and estimates for productivity, input costs, commodity prices and currency exchange rates.
PAN AMERICAN SILVER CORP.
17


For the purposes of these comparisons, the symbols have the following meanings:
üüActual results were better than May 2019 Forecast range
üActual results met the May 2019 Forecast range
ûActual results were short of May 2019 Forecast range
Cash Costs(1)
($ per ounce)
AISC(1)
($ per ounce)
May 2019
Forecast(2)
H1 2019 Actual
May 2019
Forecast(2)
H1 2019 Actual
Silver Segment:
La Colorada2.50 - 3.50$2.48 üü3.50- 4.50$4.20 ü
Dolores4.50 - 5.505.24 ü14.00 - 16.00$24.21 û
Huaron6.00 - 7.003.00 üü7.50 - 9.25$6.48 üü
Morococha3.10 - 4.001.11 üü7.00 - 9.00$5.92 üü
San Vicente10.60 - 11.5010.21 üü12.25 - 13.50$10.90 üü
Manantial Espejo17.00 - 18.5021.47 û17.75 - 19.50$18.74 ü
Total(3)
6.50 - 7.506.08 üü
9.75 - 11.25(3)
$10.75 ü
Gold Segment:
Shahuindo550 - 625557 ü875 - 1,000$709 üü
La Arena800 - 850648 üü1,275 - 1,325$1,374 û
Timmins(4)
890 - 940910 ü1,025 - 1,075$992 üü
Total740 - 810$718 üü1,025 - 1,125$1,007 üü
Consolidated Silver Basis(5)
(2.25) - 0.50$(1.30)ü7.75 - 10.75$8.21 ü
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed description of these calculations and a reconciliation of these measures to the Q2 2019 Financial Statements. The cash costs and AISC forecasts assume metal prices of $14.50/oz for silver, $1,250/oz for gold, $2,600/tonne ($1.18/lb) for zinc, $1,950/tonne ($0.88/lb) for lead, and $6,150/tonne ($2.79/lb) for copper; and average annual exchange rates relative to 1 USD of 19.50 for the MXN, 3.33 for the PEN, 41.80 for the ARS, 6.91 for the BOL, and $1.30 for the CAD.
(2)Consolidated total is calculated per silver ounce sold with gold revenues included in the by-product credits.
(3)As shown in the detailed quantification of consolidated AISC, included in the “Alternative Performance (Non-GAAP) Measures” section of this MD&A, corporate general and administrative expense, and exploration and project development expense are included in consolidated (silver basis) AISC, but are not allocated amongst the operations and thus are not included in either the silver or gold segment totals.
(4)Timmins mines are classified as assets-held-for sale in the Company's Q2 2019 Financial Statements, as described in Note 4 of the Company's Q2 2019 Financial Statements, and in the "Acquisition of Tahoe" section of this MD&A. Gold production from the Timmins operations is included in the consolidated guidance pending resolution from the sale process.
(5)Consolidated silver basis is calculated by treating all revenues from metals other than silver, including gold, as a by-product credit.
PAN AMERICAN SILVER CORP.
18


Capital Expenditures Relative to Forecast:
The following table summarizes the H1 2019 capital expenditures compared to the May 2019 Forecast amounts:
2019 Capital Expenditures ($ millions) 
H1 2019
Actual 
May 2019
Forecast
% of
Annual Guidance (1)
La Colorada5.8 6.5 – 7.086%  
Dolores28.0 53.0 – 54.052%  
Huaron5.4 6.5 – 7.577%  
Morococha5.6 11.0 – 12.049%  
San Vicente1.4 6.5 – 7.520%  
Manantial Espejo1.4 1.5 – 2.080%  
Shahuindo7.1 47.5 - 49.015%  
La Arena31.9 54.0 - 56.058%  
Timmins(2)
4.0 16.5 - 18.023%  
Sustaining Capital Sub-total(2)
90.6 203.0 - 213.044%  
Morococha projects0.7 2.50 28%  
Mexico projects4.8 7.50 64%  
Joaquin and COSE projects12.9 20.00 65%  
Acquired Mines projects(2)
5.0 10.00 50%  
Project Capital Sub-total(2)
23.4 40.00 59%  
Total Capital(2)
114.0 243.0 - 253.046%  
(1)Percentage calculated based on mid-point of the related 2019 guidance range.
(2)Timmins mines are classified as assets-held-for sale in the Company's Q2 2019 Financial Statements, as described in Note 4 of the Company's Q2 2019 Financial Statements, and in the "Acquisition of Tahoe" section of this MD&A. The capital expenditures for the Timmins operations is included in the consolidated forecast pending resolution from the sale process.
August 2019 Forecast:
Based on cash costs and AISC achieved in H1 2019, increased gold price expectations and the expected results for the remainder of 2019, Management is reducing the consolidated silver basis cash costs and AISC to between ($1.80) and ($3.30) per ounce and between $7.00 and $9.00 per ounce, respectively. Please see the table below entitled "August 2019 Forecast" for a mine by mine breakdown.
Management is revising the full-year consolidated silver production estimate slightly to between 25.3 to 26.3 million ounces and annual gold production guidance to between 550.0 and 600.0 thousand ounces, as shown in the table below. The slight reduction is due to a postponement of commercial production from COSE and Joaquin by three months following the fatal ground fall accident, as disclosed on June 17, 2019, which is not expected to have a significant adverse impact on 2019 financial results. The Company is currently conducting an extensive evaluation of alternative mining methods to identify the optimal method for the ground conditions at COSE and the delay allows time for implementation and training. Also included in the revised guidance are mine scheduling adjustments at Morococha.
Based on H1 2019 capital expenditures and those expected for the remainder of the year, Management is increasing Project Capital by $5.0 million to $45.0 million as a result of the delayed development of the COSE and Joaquin projects.
PAN AMERICAN SILVER CORP.
19


The revised per mine 2019 annual forecast amounts for silver and gold production, cash costs and AISC ("Revised August 2019 Forecast") compared to the May 2019 Forecast amounts are set out in the following tables. The forecast for 2019 reflects a full year of production for the Silver Segment mines and from February 22, 2019, to December 31, 2019, for the Gold Segment mines:
 Silver Production
(million ounces)
Gold Production
(thousand ounces)
Revised
August 2019 Forecast
May 2019 ForecastRevised
August 2019 Forecast
May 2019 Forecast
Silver Segment
La Colorada8.0 - 8.28.0 - 8.24.1 - 4.84.1 - 4.8
Dolores5.2 - 5.55.2 - 5.5114.5 - 120.0114.5 - 120.0
Huaron3.6 - 3.73.6 - 3.70.5 0.5 
Morococha (92.3%)(2)
2.5 - 2.62.8 - 2.91.2 - 1.51.2 - 1.5
San Vicente (95.0%)(3)
3.5 - 3.73.5 - 3.70.3 0.3 
Manantial Espejo, COSE & Joaquin2.4 - 2.53.4 - 3.620.0 - 25.042.0 - 45.0
Total(4)
25.2 - 26.226.5 - 27.5140.5 - 152.5162.5 - 172.5
Gold Segment:
Shahuindo0.1 0.1 137.0 - 165.0135.0 - 165.0
La Arena— — 117.5 - 122.5117.5 - 122.5
Timmins(5)
— — 155.0 - 160.0155.0 - 160.0
Total(4)
0.1 0.1 409.5 - 447.5407.5 - 447.5
Total Production(6)
25.3 - 26.326.6 - 27.6550.0 - 600.0570.0 - 620.0

 
Cash Costs
($ per ounce)(1)
AISC
($ per ounce)(1)
Revised
August 2019 Forecast
May 2019 ForecastRevised
August 2019 Forecast
May 2019 Forecast
Silver Segment
La Colorada2.50 - 3.502.50 - 3.503.50 - 4.503.50 - 4.50
Dolores2.80 - 3.404.50 - 5.5015.00 - 17.0014.00 - 16.00
Huaron6.00 - 7.006.00 - 7.007.50 - 9.257.50 - 9.25
Morococha (92.3%)(2)
3.10 - 4.003.10 - 4.007.00 - 9.007.00 - 9.00
San Vicente (95.0%)(3)
10.60 - 11.5010.60 - 11.5012.25 - 13.5012.25 - 13.50
Manantial Espejo, COSE & Joaquin21.70 - 22.6017.00 - 18.5022.00 - 24.0017.75 - 19.50
Total(4)
6.50 - 7.506.50 - 7.509.75 - 11.259.75 - 11.25
Gold Segment:
Shahuindo550 - 625550 - 625875 - 1,000875 - 1,000
La Arena800 - 850800 - 8501,275 - 1,3251,275 - 1,325
Timmins(5)
890 - 940890 - 9401,025 - 1,0751,025 - 1,075
Total(4)
740 - 810740 - 8101,025 - 1,1251,025 - 1,125
Consolidated Silver Basis(3.30) - (1.80)(2.25) - 0.507.00 - 9.007.75 - 10.75
(1)Cash Costs and AISC are non-GAAP measures. Please refer to the section “Alternative Performance (Non-GAAP) Measures” of this MD&A for a detailed description of these measures and where appropriate a reconciliation of the measure to the Q2 2019 Financial Statements. The cash costs and AISC forecasts assume realized metal prices for H1 2019 and the following metal prices for the remainder of 2019: of $15.00/oz for silver, $2,400/tonne ($1.09/lb) for zinc, $1,950/tonne ($0.88/lb) for lead, $6,000/tonne ($2.72/lb) for copper, and $1,375/oz for gold; and average annual exchange rates relative to 1 USD of 19.50 for the Mexican peso ("MXN"), 3.33 of the Peruvian sol ("PEN"), 41.80 for the Argentine peso ("ARS"), 6.91 for the Bolivian boliviano ("BOL"), and $1.30 for the Canadian dollar ("CAD").
(2)Morococha data represents Pan American’s 92.3% interest in the mine's production.
(3)San Vicente data represents Pan American’s 95.0% interest in the mine's production.
(4)As shown in the detailed quantification of consolidated AISC, included in the “Alternative Performance (Non-GAAP) Measures” section of this MD&A, Corporate general and administrative expense, and Exploration and project development expense are included in Consolidated (silver basis) AISC, but are not allocated amongst the operations and thus are not included in either the silver or gold segment totals.
(5)Timmins mines are classified as assets held for sale in the Company's Q2 2019 Financial Statements, as described in Note 4 of the Company's Q2 2019 Financial Statements, and in the "Acquisition of Tahoe" section of this MD&A. The gold production from the Timmins operations is included in the consolidated guidance pending resolution from the sale process.

PAN AMERICAN SILVER CORP.
20


PROJECT DEVELOPMENT UPDATE
The following table reflects the amounts spent at each of Pan American’s major projects in Q2 2019 and H1 2019 as compared with Q2 2018 and H1 2018:
Project Development Capital (1)
Three months ended
June 30,
Six months ended
June 30,
(thousands of USD)
 2019 20182019 2018 
Mexico Projects
2,754 5,624 4,756 11,685 
Joaquin and COSE projects
7,047 7,051 12,901 11,068 
Morococha projects542 — 655 — 
Acquired Mines projects
3,112 — 5,017 — 
Total13,455 12,675 23,329 22,753 
(1)Amounts provided in the table above, including prior year amounts, reflect cash-outflows for project capital in the respective periods, amounts provided in similar tables provided in previous MD&As represented amounts capitalized as part of the projects in the period reported. As a result of periodic changes in accounts payable balances, the amounts capitalized for the projects during the period may be different than the project investment cash outflows in the period.
During Q2 2019, the Company achieved the following progress on its projects:
Mexico Projects:
The Company spent $2.8 million in Q2 2019 for exploration drilling activities relating to the La Colorada skarn deposit discovery announced last year.
Joaquin and COSE Projects:
The Company spent a combined $7.0 million on the Joaquin and COSE projects during Q2 2019. Development at both projects has been suspended following a fatal ground fall accident that occurred at COSE, as previously disclosed on June 17th, 2019. Careful efforts are being taken by Management to redesign the mining methods to address the poor ground conditions encountered. Development of these projects will remain suspended until the mining method redesign is fully evaluated and implemented later this year. Current expectations are that COSE production in late 2019 will be limited to development material rather than from steady state mine production.
Morococha Project:
Project capital spending at Morococha during Q2 2019 related to the installation of a new powerline to the existing processing plant and preliminary engineering and design work for a future plant relocation.
Acquired Mines Projects:
The Company spent $3.1 million primarily related to completing the crushing and agglomeration plant at Shahuindo and the mine shaft project at Bell Creek.

OVERVIEW OF Q2 2019 FINANCIAL RESULTS
Selected Annual and Quarterly Information
The following tables set out selected quarterly results for the past ten quarters as well as selected annual results for the past two years. The dominant factors affecting results in the quarters and years presented below are volatility of realized metal prices and the timing of sales, which varies with the timing of shipments.
PAN AMERICAN SILVER CORP.
21


2019 Quarter Ended
(In thousands of USD, other than per share amounts)March 31June 30
Revenue$232,643 $282,948 
Mine operating earnings (loss)$17,194 $36,140 
Earnings (loss) for the period attributable to equity holders $33,275 $18,371 
Basic earnings (loss) per share$0.19 $0.09 
Diluted earnings (loss) per share$0.19 $0.09 
Cash flow from operating activities$(12,911)$83,518 
Cash dividends paid per share$0.035 $0.035 
Other financial information


Total assets$3,422,095 
Total long-term financial liabilities(1)
$535,369 
Total attributable shareholders’ equity$2,413,388 
(1)Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant liabilities.
2018 Quarter EndedYear
Ended
(In thousands of USD, other than per share amounts)March 31June 30Sept 30Dec 31Dec 31
Revenue$206,961 $216,460 $187,717 $173,357 $784,495 
Mine operating earnings (loss)$55,124 $54,851 $(4,412)$(4,666)$100,897 
Earnings (loss) for the period attributable to equity holders $47,376 $36,187 $(9,460)$(63,809)$10,294 
Basic earnings (loss) per share$0.31 $0.24 $(0.06)$(0.42)$0.07 
Diluted earnings (loss) per share$0.31 $0.24 $(0.06)$(0.42)$0.07 
Cash flow from operating activities$34,400 $66,949 $41,699 $11,930 $154,978 
Cash dividends paid per share$0.035 $0.035 $0.035 $0.035 $0.140 
Other financial information
Total assets$1,937,476 
Total long-term financial liabilities(1)
$96,828 
Total attributable shareholders’ equity$1,508,212 
(1)Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant liabilities.
2017 Quarter EndedYear
Ended
(In thousands of USD, other than per share amounts)March 31June 30Sept 30Dec 31Dec 31
Revenue$198,687 $201,319 $190,791 $226,031 $816,828 
Mine operating earnings$32,875 $44,782 $47,818 $43,285 $168,760 
Earnings for the period attributable to equity holders $19,371 $35,472 $17,256 $48,892 $120,991 
Basic earnings per share$0.13 $0.23 $0.11 $0.32 $0.79 
Diluted earnings per share$0.13 $0.23 $0.11 $0.32 $0.79 
Cash flow from operating activities$38,569 $42,906 $63,793 $79,291 $224,559 
Cash dividends paid per share$0.025 $0.025 $0.025 $0.025 $0.100 
Other financial information
Total assets$1,993,332 
Total long-term financial liabilities(1)
$90,027 
Total attributable shareholders’ equity$1,516,850 
(1)Total long-term financial liabilities are comprised of non-current liabilities excluding deferred tax liabilities, deferred revenue, and share purchase warrant liabilities.

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Income Statement: Q2 2019 vs. Q2 2018
Net earnings of $18.5 million were recorded in Q2 2019 compared to $36.7 million in Q2 2018, which corresponds to basic earnings per share of $0.09 and $0.24, respectively.
The following table highlights the differences between net earnings in Q2 2019 compared with Q2 2018:
Net earnings, three months ended June 30, 2018
(in thousands of USD)
 $36,696 Note 
Revenue:  
Decreased realized metal prices$(17,301)
Higher quantities of metal sold95,859 
Increased direct selling costs(6,877)
Increased negative settlement adjustments(5,193)
Total increase in revenue66,488 (1)
Cost of sales:
Increased production costs and decreased royalty charges$(65,212)(2)
Increased depreciation and amortization(19,987)(3)
Total increase in cost of sales(85,199)
Total decrease in mine operating earnings(18,711)
Increased net income from discontinued operations14,634 (4)
Decreased dilution gain, net of share of income from associate(13,804)(5)
Decreased income tax expense7,577 (6)
Increased interest and finance expense(6,770)(7)
Increased care and maintenance costs(5,842)(8)
Decreased foreign exchange loss5,614 (9)
Increased investment income and other expense4,389 (10)
Increased transaction and integration costs(3,446)(11)
Increased net gain on asset sales, commodity contracts and derivatives2,915 
Increased exploration and project development expense(2,748)
Increased general and administrative expense(2,005)
Net earnings, three months ended June 30, 2019 $18,499 
1.Revenue for Q2 2019 was $66.5 million higher than in Q2 2018. The major driver was an estimated $95.9 million increase from larger quantities of metal sold for all metals other than copper. The quantity of gold sold increased by 109% or 56.5 thousand ounces, attributable to the Shahuindo and La Arena mines. Increased quantities of silver and lead sold was largely from higher production along with the timing of sales at La Colorada. The increased quantity of zinc sales was attributable to increased production at Huaron, and the timing of sales at San Vicente. The higher quantities of metal sold was partially offset by lower realized metal prices, which decreased revenue by approximately $17.3 million, mainly from a 9% decrease in realized silver and zinc prices, and a 21% decrease in realized lead prices.
The following table reflects the metal prices realized by the Company and the quantities of metal sold during each quarter:
 
Realized Metal Prices (1)
Quantities of Metal Sold (2)
 Three months ended
June 30,
Three months ended
June 30,
 2019 2018 2019 2018 
Silver
$14.90 $16.40 6,502 5,795 
Gold
$1,314 $1,304 108.5 52.0 
Zinc
$2,783 $3,045 15.3 13.0 
Lead
$1,875 $2,378 6.6 4.5 
Copper
$6,100 $6,840 1.7 1.9 
(1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper, inclusive of final settlement adjustments on concentrate sales.
(2) Metal quantities stated as koz for silver and gold and kt for zinc, lead and copper.
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2.Production costs in Q2 2019 were $67.6 million higher than in Q2 2018. The increase was mainly the result of: (i) additional production costs from the newly acquired Shahuindo ($29.6 million) and La Arena ($23.2 million) mines; (ii) increased production costs at La Colorada and San Vicente attributable to higher sales volumes; (iii) higher production costs at Dolores; and (iv) $4.8 million lower cost-reducing NRV inventory adjustments.
3.Depreciation and amortization ("D&A") expense was $20.0 million higher than in Q2 2018, largely as a result of additional depreciation expense from the newly acquired Shahuindo ($11.7 million) and La Arena ($4.2 million) mines, and increased depreciation at Dolores due to a higher asset base.
4.Net income from assets held for sale reflects the net after-tax operating results of the Timmins mines acquired as part of the Tahoe Acquisition. As described in the "Acquisition of Tahoe" section of this MD&A, the Company has concluded that the Timmins assets meet the criteria to be classified as assets held for sale and discontinued operations, and therefore are presented as a single line on the Company's consolidated statement of income.
5.Share of income from associate and dilution gains relate to the Company's investment in Maverix Metals Inc. ("Maverix") which is accounted for using the equity method whereby the Company records its portion of Maverix's net income based on Pan American's fully diluted ownership interest. The $13.8 million quarter-over-quarter decrease was attributable to Maverix issuing common shares in Q2 2018 to acquire certain royalty assets which diluted Pan American's ownership in Maverix and resulted in the recognition of a $13.4 million dilution gain.
6.Income tax expense of $8.9 million in Q2 2019 was $7.6 million lower than the $16.5 million income tax expense in Q2 2018. The lower taxes were largely attributable to the decrease in net earnings before tax, partially offset by the tax expense in Q2 2018 including tax benefits recognized with respect to certain intercompany debt restructuring, whereas no such benefits were recognized in the current quarter.
7.Interest and finance costs increased $6.8 million from Q2 2018, primarily reflecting the interest expense relating to the increased debt drawn on the Company's Credit Facility to partially fund the Tahoe Acquisition.
8.Care and maintenance costs of $5.8 million in Q2 2019, related primarily to the Company's Escobal mine, where operations are currently suspended.
9.Foreign exchange (“FX”) gains in Q2 2019 were $0.7 million compared to FX losses of $4.9 million in Q2 2018. The FX losses in Q2 2018 resulted primarily from the approximately 30% depreciation of the ARS and the approximately 8% devaluation of the MXN on the Company's ARS and MXN denominated monetary assets. Relatively stable currencies resulted in no such FX gains or losses in Q2 2019.
10.Investment income increased by $3.6 million from Q2 2018, reflecting the fair value mark-to-market adjustment of certain of the Company's equity investments, for which prices appreciated during the quarter.
11.Transaction and integration costs in Q2 2019 relate to costs incurred as part of the acquisition and integration of Tahoe.
Statement of Cash Flows: Q2 2019 vs. Q2 2018
Cash flow from operations in Q2 2019 totaled $83.5 million, $16.6 million more than the $66.9 million generated in Q2 2018. The increase was mainly driven by a $12.4 million increase in cash from working capital changes. Increased cash from mine operating earnings and from the Acquired Mines were largely offset by cash spent on care and maintenance costs, transaction and integration costs, and increased interest payments related to the Company's long-term debt.
Working capital changes in Q2 2019 resulted in a $20.1 million source of cash compared with a $7.8 million source of cash in Q2 2018. Inventory reductions drove the majority of the changes in both periods. A $17.5 million pay-down of working capital liabilities in Q2 2019 partially offset the source of cash from the working capital asset increases.
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Investing activities utilized $69.3 million in Q2 2019, inclusive of $12.5 million for the net purchase of short-term investments. The balance related primarily to $64.7 million spent on mineral properties, plant and equipment at the Company’s mines and projects, as previously described in the “Operating Performance” section of this MD&A. Cash from the sale of certain non-core assets in Q2 2019 and Q2 2018 was comparable and totaled $9.1 million and $10.4 million, respectively. In Q2 2018, investing activities utilized $39.9 million inclusive of $6.9 million used for the net purchase of short-term investments, with $35.9 million spent on mineral properties, plant and equipment at the Company’s mines and projects.
Financing activities in Q2 2019 used $12.3 million compared to $6.9 million in Q2 2018. Cash used in Q2 2019 mainly consisted of $7.3 million paid as dividends to shareholders and $4.9 million of lease repayments. In Q2 2018, cash used in financing activities consisted of $5.2 million in dividends to shareholders and $2.0 million of lease repayments.
Adjusted Earnings: Q2 2019 vs Q2 2018
Adjusted earnings is a non-GAAP measure. Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP) Measures” for a detailed description of “adjusted earnings”, and a reconciliation of these measures to the Q2 2019 Financial Statements.
Adjusted Income in Q2 2019 was $9.0 million, representing basic adjusted earnings per share of $0.04, which was $26.4 million, or $0.19 per share, lower than Q2 2018 adjusted earnings of $35.4 million, and basic adjusted earnings per share of $0.23, respectively.
The following chart illustrates the key factors leading to the change in adjusted earnings from Q2 2018 to Q2 2019
chart-14ec66b126dd434f.jpg

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Income Statement: H1 2019 vs. H1 2018
Net earnings of $52.3 million were recorded in H1 2019 compared to $84.9 million in H1 2018, which corresponds to basic earnings per share of $0.27 and $0.55, respectively.
The following table highlights the difference between net earnings in H1 2019 compared with H1 2018:
Net earnings, six months ended June 30, 2018
(in thousands of USD)
 $84,852 Note 
Revenue:  
Decreased realized metal prices$(42,425)
Higher quantities of metal sold140,456 
Increased direct selling costs(8,485)
Decreased negative settlement adjustments2,624 
Total increase in revenue92,170 (1)
Cost of sales:
Increased production costs and decreased royalty charges$(114,028)(2)
Increased depreciation and amortization(34,783)(3)
Total increase in cost of sales(148,811)
Total decrease in mine operating earnings(56,641)
Increased bargain purchase gain30,492 (4)
Increased investment income and other expense14,337 (5)
Decreased dilution gain, net of share of loss from associate(13,352)(6)
Increased income from discontinued operations12,705 (7)
Increased care and maintenance costs(9,289)(8)
Increased interest and finance expense(9,136)(9)
Decreased income tax expense6,797 (10)
Increased transaction and integration costs(4,849)(11)
Decreased net gain on asset sales, commodity contracts and derivatives(4,609)
Decreased foreign exchange loss4,444 
Increased general and administrative expense(1,982)
Increased exploration and project development expense(1,458)
Net earnings, six months ended June 30, 2019 $52,311 
1.Revenue for H1 2019 was $92.2 million higher than in H1 2018. The major factor for the increase was an approximately $140.5 million contribution from larger quantities of metal sold, primarily from the 86%, or 79.5 thousand ounce increase in gold sales, reflecting production from the newly acquired Shahuindo and La Arena gold mines. The quantity of silver ounces sold increased by 13% mainly from higher production and the timing of sales at La Colorada. Increased quantities of zinc sold mainly reflect higher production at La Colorada and the timing of sales at San Vicente. Increased lead sales volumes was driven by increased production at La Colorada, Morococha and Huaron. Copper sales decreased, reflecting lower production at Morococha. The overall higher quantities of metal sold was partially offset by lower realized metal prices, which decreased revenue by approximately $42.4 million, mainly from an 8% decrease in realized silver prices, and a 15% decrease in realized lead prices.
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The following table reflects the metal prices realized by the Company and the quantities of metal sold during each period:
 
Realized Metal Prices (1)
 Six months
June 30,
Six months
June 30,
 2019 2018 2019 2018 
Silver(1)
$15.20 $16.59 12,594 11,494 
Gold(1)
$1,309 $1,317 172.3 92.8 
Zinc(1)
$2,767 $3,252 30.1 25.5 
Lead(1)
$1,958 $2,419 13.4 9.4 
Copper(1)
$6,156 $6,931 3.6 4.6 
1) Metal price stated as dollars per ounce for silver and gold, and dollars per tonne for zinc, lead and copper, inclusive of final settlement adjustments on concentrate sales.
(2) Metal quantities stated as koz for silver and gold and kt for zinc, lead and copper.
2.Production and royalty costs in H1 2019 were $115.0 million higher and $1.0 million lower, respectively, than in H1 2018. The higher production costs were mainly due to: (i) additional production costs from the newly acquired Shahuindo ($37.1 million) and La Arena ($40.7 million) mines; (ii) increased production costs at Dolores, driven primarily by $15.0 million higher cost-increasing NRV inventory adjustments and increased gold sales volumes; and (iii) increased production costs at La Colorada and San Vicente attributable to higher sales volumes.
3.D&A expense was $34.8 million higher than in H1 2018, largely as a result of additional depreciation expense from the newly acquired Shahuindo ($13.5 million) and La Arena ($8.3 million) mines, and increased depreciation at Dolores due to a higher asset base.
4.A Bargain purchase gain was recognized as part of the purchase price allocation of the Tahoe Acquisition as described in the "Acquisition of Tahoe" section of this MD&A.
5.Investment income in H1 2019 was $14.8 million compared to $0.8 million in H1 2018, the increase reflects the fair value mark-to-market adjustment of certain of the Company's equity investments for which prices appreciated during 2019.
6.Share of income from associate and dilution gains were $0.9 million in H1 2019 compared to $14.3 million in H1 2018, as a result of a Maverix transaction in Q2 2018 that generated a $13.4 million dilution gain.
7.Net income from assets held for sale totaled $12.7 million in H1 2019 and reflects the net after-tax operating results of the Timmins mines, which are classified as assets held for sale and discontinued operations.
8.Care and maintenance costs totaled $9.3 million in H1 2019 and related primarily to the Company's Escobal mine where operations are currently suspended.
9.Interest and finance costs of $12.7 million in H1 2019 increased by $9.1 million from H1 2018, reflecting the interest expense relating to the increased debt drawn on the Company's Credit Facility.
10.Income tax expense of $16.2 million in H1 2019 was $6.8 million lower than in H1 2018. The lower taxes were largely attributable to the decrease in net earnings before tax.
11.Transaction and integration costs in H1 2019 of $4.8 million related to costs incurred as part of the acquisition and integration of Tahoe.

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Statement of Cash Flows: H1 2019 vs. H1 2018
Cash flow from operations in H1 2019 was $70.6 million, $30.7 million less than the $101.3 million generated in H1 2018. The decrease was mainly due to a $16.5 million decrease in operating cash before working capital changes and a $14.2 million increased use of cash from working capital changes. The decreased operating cash flows before working capital changes reflects lower silver and base metal prices, increased cash use for interest on long-term debt payments, care and maintenance costs, transaction and integration costs, and tax payments partially offset by increased cash flows from the Acquired mines.
Working capital changes in H1 2019 resulted in a $17.8 million use of cash reflecting a $56.3 million pay down of accounts payable and accrued liabilities partially offset by a $36.8 million draw-down of inventories. These working capital movements compared to the $3.5 million use of cash in H1 2018 which was driven by the settlement of liabilities, partially offset by accounts receivable collections.
Investing activities utilized $303.1 million in H1 2019, inclusive of $41.6 million for the net sale of short-term investments. The investing cash outflow reflects the $247.5 million investment (net of cash acquired) related to the Acquisition as described in the "Acquisition of Tahoe" section of this MD&A, and $105.6 million spent on mineral properties, plant and equipment at the Company’s mines and projects.
In H1 2018, investing activities utilized $72.8 million, primarily related to $68.5 million spent on mineral properties, plant and equipment at the Company’s mines and projects, as previously described in the “Operating Performance” section of this MD&A, and $7.5 million spent on the acquisition of the COSE project.
Cash from the sale of certain non-core assets in H1 2019 and H1 2018 totaled $9.1 million and $15.5 million, respectively.
Financing activities in H1 2019 generated a net $186.4 million compared to a $17.0 million net use of cash in H1 2018. Financing activities in H1 2019 were primarily related to financing the Tahoe Acquisition. The net cash generated consisted of $335.0 million drawn on the Company's Credit Facility, described in the "Liquidity and Capital" section of this MD&A, and $125.0 million used to settle Tahoe's previously drawn credit facility. In addition to these acquisition related financing activities, $14.7 million was paid as dividends to shareholders and $8.9 million of lease repayments were made in H1 2019. Financing activities in H1 2018 consisted of $10.6 million paid as dividends to shareholders, $3.5 million of lease repayments, and $3.0 million used to repay short-term loans.
Adjusted Earnings: H1 2019 vs H1 2018
Adjusted earnings is a non-GAAP measure. Please refer to the section of this MD&A entitled “Alternative Performance (Non-GAAP) Measures” for a detailed description of “adjusted earnings”, and a reconciliation of these measures to the Q2 2019 Financial Statements.
Adjusted Earnings in H1 2019 were $17.7 million, representing basic adjusted earnings per share of $0.09, which was $48.4 million, or $0.34 per share, lower than H1 2018 adjusted earnings of $66.1 million, and basic adjusted earnings per share of $0.43.
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The following chart illustrates the key factors leading to the change in adjusted earnings from H1 2018 to H1 2019:
chart-2f435b4706b34259.jpg

ACQUISITION OF TAHOE
The Company completed the Acquisition on February 22, 2019 (the "Closing Date").
In aggregate, Pan American paid Tahoe shareholders $275.0 million in cash, issued 55,990,512 Pan American shares, and issued contingent consideration in the form of 313,887,490 contingent value rights (CVRs). Each CVR will be exchanged for 0.0497 of a Pan American share upon first commercial shipment of concentrate following restart of operations at the Escobal mine. The CVRs are transferable and have a term of 10 years. Upon closing of the Arrangement, existing Pan American and former Tahoe shareholders owned approximately 73% and 27% of Pan American, respectively. Upon satisfaction of the payment conditions under the terms of the CVRs, Pan American and Tahoe shareholders will own approximately 68% and 32%, respectively, of the combined company (based upon the number of Pan American shares outstanding as at the Closing Date).
Revolving credit facility increase and draw-down
The Company amended and extended its Credit Facility. The Credit Facility was increased by $200.0 million to $500.0 million in Q1 2019, and now matures on February 1, 2023. At Pan American's option, amounts can be drawn under the Credit 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 Credit Facility are subject to a stand-by fee of 0.4219% to 0.6188% per annum, dependent on the Company's leverage ratio.
In conjunction with the Acquisition, the Company drew down $335.0 million on the Credit Facility in Q1 2019 under LIBOR-based interest rates to fund, in part, the cash purchase price under the Arrangement and to repay Tahoe's revolving facility, under which $125.0 million was outstanding at the date of acquisition.
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Consolidation of Tahoe
As described in Note 4 of the Q2 2019 Financial Statements, the Company determined that the Acquisition represents a business combination with Pan American identified as the acquirer. Based on the February 21, 2019, closing share price of Pan American's common shares on the NASDAQ, the total consideration of the acquisition was approximately $1.14 billion. We commenced the consolidation of the operating results, cash flows and net assets of Tahoe from February 22, 2019 onwards. As such, all production, operating and financial results of the Acquired Mines (including Cash Costs and AISC amounts) reported in this MD&A and included in the Company's consolidated results reflect only the results from February 22, 2019 onwards.
The following table summarizes the consideration paid as part of the purchase price:
Consideration:Shares Issued/IssuableConsideration
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 Consideration72,426,594 $1,142,674 
(1)The Pan American share consideration value is based on an assumed value of $14.21 per Pan American common 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 common 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 Closing Date, the assumptions of which are described in the Company's Q2 2019 Financial Statements.
The following table summarizes the allocation of the purchase price to the identifiable assets and liabilities based on their estimated fair values at the Closing Date of the Acquisition:
Allocation of consideration:Consideration
Cash and cash equivalents$27,529 
Accounts receivable17,854 
VAT Receivable87,268 
Inventory152,534 
Other current assets4,135 
Mineral properties, plant and equipment1,298,037 
Other assets3,450 
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 June 30, 2019, the allocation of the purchase price had 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, and will finalize the allocation of the purchase price no later than February 21, 2020.
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 Timmins mines. 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 classified as held for sale upon Acquisition. As such, upon the Acquisition, and as at June 30, 2019, the assets and liabilities of Lake Shore were classified as assets and liabilities held for sale and are presented
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separately under current assets and current liabilities, respectively, and the post-tax profit or loss from the Lake Shore operations has been presented as a single and separate item on the Company's consolidated income statement.

LIQUIDITY AND CAPITAL POSITION
Liquidity and Capital Measures (in $000s)June 30, 2019March 31, 2019Dec. 31, 2018Q2 2019
Change
H1 2019
Change
Cash and cash equivalents ("Cash")$92,221 $90,548 $138,510 $1,673 $(46,289)
Short-term Investments$46,594 $31,011 $74,004 $15,583 $(27,410)
Cash and Short-term investments$138,815 $121,559 $212,514 $17,256 $(73,699)
Working Capital$793,090 $771,709 $397,846 $21,381 $395,244 
Credit Facility committed amount$500,000 $500,000 $300,000 $— $200,000 
Credit Facility amounts drawn$335,000 $335,000 $— $— $335,000 
Shareholders' equity$2,418,929 $2,407,433 $1,513,349 $11,496 $905,580 
Total debt (1)
$378,758 $363,101 $6,676 $15,657 $372,082 
Capital (2)
$2,658,872 $2,648,975 $1,307,511 $9,897 $1,351,361 
(1)Total debt is a non-GAAP measure calculated as the total of amounts drawn on the Revolving Credit Facility, finance lease liabilities and loans payable. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed description of the calculations.
(2)Capital is a non-GAAP measure and consists of shareholders’ equity and debt net of cash and cash equivalents and short term investments. Please refer to the “Alternative Performance (Non-GAAP) Measures” section of this MD&A for a detailed description of the calculations.
Liquidity and Capital Resources
The Company's cash and short term investments increased by $17.3 million during Q2 2019. Operating cash flows of $83.5 million, which included $18.0 million in tax payments and a $20.1 million source of cash from working capital changes, more than funded the Company's investing and financing activities in the quarter. The working capital changes, primarily reflect a reduction in inventories built up at the Company's newly acquired Gold Segment mines during Q1 2019 and a reduction in accounts receivables from concentrate sales, partially offset by a decrease in accounts payables at the newly Acquired Mines as working capital is normalized at these operations.
Pan American’s investment objectives for its cash balances are to preserve capital, to provide liquidity and to maximize returns. The Company’s strategy to achieve these objectives is to invest excess cash balances in a portfolio of primarily fixed income instruments with specified credit rating targets established by the Board of Directors of the Company (the "Board of Directors"), and by diversifying the currencies in which it maintains its cash balances. The Company does not own any asset-backed commercial paper or other similar, known, at-risk investments in its investment portfolio.
Working capital of $793.1 million at June 30, 2019 was an increase of $21.4 million from March 31, 2019 working capital of $771.7 million. Working capital at June 30, 2019 includes $375.8 million of the Timmins net assets, currently classified as held for sale as described in the "Acquisition of Tahoe" section of this MD&A (March 31, 2019: $376.4 million). The working capital increase was the result of the previously discussed increase in cash and short-term investments and reduction in accounts payables, as well as an increase in income tax receivables, partially offset by the aforementioned reductions in inventories and trade receivables.
The Company's four-year $500.0 million secured revolving credit facility that matures on February 1, 2023, remains drawn for a total of $335.0 million as of June 30, 2019. Liquidity of $165.0 million remains available to the Company under the Credit Facility. As of June 30, 2019, the Company was in compliance with all covenants required by the Credit Facility.
The Company’s financial position at June 30, 2019, and the operating cash flows that are expected over the next twelve months, lead Management to believe that the Company’s liquid assets are sufficient to satisfy our 2019 working capital requirements, fund currently planned capital expenditures, and to discharge liabilities as they come due. The Company remains well positioned to take advantage of strategic opportunities as they become available. Liquidity risks are discussed further in the “Risks and Uncertainties” section of this MD&A.
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In the normal course of business, the Company enters into contracts that give rise to commitments for future minimum payments, details of which are described in Note 8(e)(ii) of the 2018 Financial Statements, and in the Liquidity and Capital Position section of the Company's annual 2018 Management Discussion and Analysis (the "2018 Annual MD&A"). 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 part of the Tahoe acquisition as described in the purchase price allocation table included in the "Acquisition of Tahoe" section of this MD&A.
The impact of inflation on the Company’s financial position, operational performance, or cash flows over the next twelve months cannot be determined with any degree of certainty.
Outstanding Share Amounts
As at June 30, 2019, the Company had approximately 1.4 million stock options outstanding (each exercisable for one common share of the Company), with exercise prices in the range of CAD $9.76 to CAD $97.26 and a weighted average life of 27 months. Approximately 1.2 million of the stock options were vested and exercisable at June 30, 2019, with an average weighted exercise price of CAD $33.81 per share.
The following table sets out the common shares and options outstanding as at the date of this MD&A:
 Outstanding as at
August 7, 2019
Common shares209,481,845 
Options1,350,902 
Total210,832,747 


CLOSURE AND DECOMMISSIONING COST PROVISION
The estimated future closure and decommissioning costs are based principally on the requirements of relevant authorities and the Company’s environmental policies. The provision is measured using Management’s assumptions and estimates for future cash outflows. The Company accrues these costs, which are determined by discounting costs using rates specific to the underlying obligation. Upon recognition of a liability for the closure and decommissioning costs, the Company capitalizes these costs to the related mine and amortizes such amounts over the life of each mine on a unit-of-production basis except in the case of exploration projects for which the offset to the liability is expensed. The accretion of the discount due to the passage of time is recognized as an increase in the liability and a finance expense.