EX-99.1 3 paas03-31x2018financialsq1.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, 2018



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


 

March 31,
2018


December 31,
2017

Assets

 


 

Current assets

 


 

Cash and cash equivalents (Note 18)

$
167,282


$
175,953

Short-term investments (Note 5)

57,560


51,590

Trade and other receivables

115,639


109,746

Income taxes receivable

11,706


16,991

Inventories (Note 6)

235,819


218,715

Derivative financial instruments
 
1,232

 
1,092

Assets held for sale
 
—

 
7,949

Prepaid expenses and other current assets

12,970


13,434

 

602,208


595,470

Non-current assets

 


 
Mineral properties, plant and equipment (Note 7)

1,331,358


1,336,683

Long-term refundable tax

879


80

Deferred tax assets

2,682


2,679

Investment in associates (Note 9)

55,176


55,017

Other assets

341


346

Goodwill

3,057


3,057

Total Assets

$
1,995,701


$
1,993,332






 
Liabilities

 


 

Current liabilities

 


 

Accounts payable and accrued liabilities (Note 10)

$
123,468


$
139,698

Loans payable
 
—

 
3,000

Derivative financial instruments

38


1,906

Current portion of provisions (Note 11)

5,891


8,245

Current portion of finance lease (Note 12)

7,166


5,734

Income tax payable

16,908


26,131

 

153,471


184,714

Non-current liabilities

 


 

Long-term portion of provisions (Note 11)

62,450


61,248

Deferred tax liabilities

159,619


171,228

Long-term portion of finance lease (Note 12)

2,851


1,825

Deferred revenue (Note 9)

11,928


12,017

Other long-term liabilities (Note 13)

27,296


26,954

Share purchase warrants (Note 9)

14,386


14,295

Total Liabilities

432,001


472,281






 
Equity

 


 

Capital and reserves (Note 14)

 


 

Issued capital

2,318,418


2,318,252

Share option reserve

22,517


22,463

Investment revaluation reserve

(56
)

1,605

Deficit

(781,858
)

(825,470
)
Total Equity attributable to equity holders of the Company

1,559,021


1,516,850

Non-controlling interests

4,679


4,201

Total Equity

1,563,700


1,521,051

Total Liabilities and Equity

$
1,995,701


$
1,993,332

Commitments and Contingencies (Notes 4, 21)
See accompanying notes to the condensed interim consolidated financial statements
APPROVED BY THE BOARD ON MAY 9, 2018
"signed"
Ross Beaty, Director
"signed"
Michael Steinmann, Director

 
PAN AMERICAN SILVER CORP.
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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,
 
2018

 
2017

Revenue (Note 19)
$
206,961

 
$
198,687

Cost of sales
 
 
 
Production costs (Note 15)
(112,449
)
 
(129,223
)
Depreciation and amortization
(34,538
)
 
(29,353
)
Royalties
(4,850
)
 
(7,236
)
 
(151,837
)
 
(165,812
)
Mine operating earnings
55,124

 
32,875

 
 
 
 
General and administrative
(5,958
)
 
(5,759
)
Exploration and project development
(2,744
)
 
(3,524
)
Foreign exchange (losses) gains
(1,675
)
 
2,509

Gains on commodity, diesel fuel swaps, and foreign currency contracts (Note 4)
1,733

 
1,794

Gain on sale of mineral properties, plant and equipment
7,986

 
42

Share of income from associate and dilution gain (Note 9)
159

 
771

Other income
544

 
1,414

Earnings from operations
55,169

 
30,122

 
 
 
 
Loss on derivatives (Note 4)
(43
)
 
—

Investment income
1,898

 
59

Interest and finance expense (Note 16)
(2,358
)
 
(2,390
)
Earnings before income taxes
54,666

 
27,791

Income tax expense (Note 20)
(6,510
)
 
(7,841
)
Net earnings for the period
$
48,156

 
$
19,950


 
 
 
Attributable to:
 
 
 
Equity holders of the Company
$
47,376

 
$
19,371

Non-controlling interests
780

 
579

 
$
48,156

 
$
19,950


 
 
 
Earnings per share attributable to common shareholders (Note 17)
 
 
 
Basic earnings per share
$
0.31

 
$
0.13

Diluted earnings per share
$
0.31

 
$
0.13

Weighted average shares outstanding (in 000’s) Basic
153,311

 
152,757

Weighted average shares outstanding (in 000’s) Diluted
153,537

 
153,127

 
 
 
 
See accompanying notes to the condensed interim consolidated financial statements.
 
 
 

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


 
Three months ended
March 31,
 
2018

 
2017

Net earnings for the period
$
48,156

 
$
19,950

Items that may be reclassified subsequently to net earnings:
 

 
 

Unrealized net (losses) gains on short-term investments (Note 2b)
(net of $nil tax in 2018 and 2017)
(190
)
 
331

Reclassification adjustment for realized gains (losses) on short-term investments to earnings (Note 2b)
131

 
(52
)
Total comprehensive earnings for the period
$
48,097

 
$
20,229

 
 
 
 
Total comprehensive earnings attributable to:
 
 
 
Equity holders of the Company
$
47,317

 
$
19,650

Non-controlling interests
780

 
579

 
$
48,097

 
$
20,229

See accompanying notes to the condensed interim consolidated financial statements.

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


 
Three months ended
March 31,
 
2018

 
2017

Cash flow from operating activities
 
 
 
Net earnings for the period
$
48,156

 
$
19,950


 
 
 
Current income tax expense (Note 20)
18,135

 
11,958

Deferred income tax recovery (Note 20)
(11,625
)
 
(4,117
)
Interest expense (Note 16)
135

 
118

Depreciation and amortization
34,538

 
29,353

Accretion on closure and decommissioning provision (Note 11)
1,639

 
1,493

Unrealized losses (gains) on foreign exchange
1,977

 
(2,044
)
Gains on commodity, diesel fuel swaps, and foreign currency contracts (Note 4)
(1,733
)
 
(1,794
)
Gain on sale of mineral properties, plant and equipment
(7,986
)
 
(42
)
Other operating activities (Note 18)
(5,523
)
 
11,145

Changes in non-cash operating working capital (Note 18)
(11,320
)
 
(2,196
)
Operating cash flows before interest and income taxes
$
66,393

 
$
63,824


 
 
 
Interest paid
(513
)
 
(622
)
Interest received
764

 
112

Income taxes paid
(32,244
)
 
(24,745
)
Net cash generated from operating activities
$
34,400

 
$
38,569


 
 
 
Cash flow from investing activities
 
 
 
Payments for mineral properties, plant and equipment
$
(32,565
)
 
$
(31,938
)
Acquisition of mineral interests
—

 
(12,749
)
Net (purchase) proceeds from sales of short-term investments
(5,163
)
 
14,852

Proceeds from sale of mineral properties, plant and equipment
5,105

 
45

Net payments from commodity, diesel fuel swaps, and foreign currency contracts
(318
)
 
(3,139
)
Net cash used in investing activities
$
(32,941
)
 
$
(32,929
)

 
 
 
Cash flow from financing activities
 
 
 
Proceeds from issue of equity shares
$
127

 
$
2,079

Distributions to non-controlling interests
(302
)
 
(181
)
Dividends paid
(5,366
)
 
(3,824
)
Repayment of short-term loans
(3,000
)
 
—

Payment of equipment leases
(1,540
)
 
(927
)
Net cash used in financing activities
$
(10,081
)
 
$
(2,853
)
Effects of exchange rate changes on cash and cash equivalents
(49
)
 
(59
)
Net (decrease) increase in cash and cash equivalents
(8,671
)
 
2,728

Cash and cash equivalents at the beginning of the period
175,953

 
180,881

Cash and cash equivalents at the end of the period
$
167,282

 
$
183,609

Supplemental cash flow information (Note 18).
See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
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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, 2016
 
152,334,652

 
$
2,303,978

 
$
22,946

 
$
434

 
$
(931,060
)
 
$
1,396,298

 
$
2,706

 
$
1,399,004

Total comprehensive earnings
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Net earnings for the year
 
—

 
—

 
—

 
—

 
120,991

 
120,991

 
2,460

 
123,451

Other comprehensive income
 
—

 
—

 
—

 
1,171

 
—

 
1,171

 
—

 
1,171

 
 
—

 
—

 
—

 
1,171

 
120,991

 
122,162

 
2,460

 
124,622

Shares issued on the exercise of stock options
 
307,266

 
3,604

 
(998
)
 
—

 
—

 
2,606

 
—

 
2,606

Shares issued as compensation
 
135,404

 
2,020

 
—

 
—

 
—

 
2,020

 
—

 
2,020

Share-based compensation on option grants
 
—

 
—

 
515

 
—

 
—

 
515

 
—

 
515

Acquisition of mineral interests
 
525,654

 
8,650

 
—

 
—

 
—

 
8,650

 
—

 
8,650

Distributions by subsidiaries to non-controlling interests
 
—

 
—

 
—

 
—

 
(87
)
 
(87
)
 
(965
)
 
(1,052
)
Dividends paid
 
—

 
—

 
—

 
—

 
(15,314
)
 
(15,314
)
 
—

 
(15,314
)
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 
(Note 2b)
 
—

 
—

 
—

 
(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 the 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

 
 
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, 2016
 
152,334,652

 
$
2,303,978

 
$
22,946

 
$
434

 
$
(931,060
)
 
$
1,396,298

 
$
2,706

 
$
1,399,004

Total comprehensive earnings
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 

Net earnings for the period
 
—

 
—

 
—

 
—

 
19,371

 
19,371

 
579

 
19,950

Other comprehensive income
 
—

 
—

 
—

 
279

 
—

 
279

 
—

 
279

 
 
—

 
—

 
—

 
279

 
19,371

 
19,650

 
579

 
20,229

Shares issued on exercise of stock options
 
246,358

 
2,922

 
(843
)
 
—

 
—

 
2,079

 
—

 
2,079

Share-based compensation on option grants
 
—

 
—

 
114

 
—

 
—

 
114

 
—

 
114

Acquisition of mineral interests
 
525,654

 
8,650

 
—

 
—

 
—

 
8,650

 
—

 
8,650

Distributions by subsidiaries to non-controlling interests
 
—

 
—

 
—

 
—

 
(27
)
 
(27
)
 
(154
)
 
(181
)
Dividends paid
 
—

 
—

 
—

 
—

 
(3,824
)
 
(3,824
)
 
—

 
(3,824
)
Balance, March 31, 2017
 
153,106,664

 
$
2,315,550

 
$
22,217

 
$
713

 
$
(915,540
)
 
$
1,422,940

 
$
3,131

 
$
1,426,071

 See accompanying notes to the condensed interim consolidated financial statements.

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(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 Silver Corp. is incorporated and 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 and base metals including copper, lead and zinc as well as other related activities, including exploration, extraction, processing, refining and reclamation. The Company’s primary product (silver) is produced in Peru, Mexico, Argentina and Bolivia. Additionally, the Company has project development activities in Peru, Mexico and Argentina, and exploration activities throughout South America and Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 
a.
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, 2017.
The Company’s interim results are not necessarily indicative of its results for a full year.
b.
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, 2017, except for the following:
Financial Instruments
On January 1, 2018, the Company adopted, retrospectively without restatement, IFRS 9 - Financial Instruments ("IFRS 9") which replaced IAS 39 - Financial Instruments: Recognition and Measurement (“IAS 39”). IFRS 9 provides a revised model for recognition and measurement of financial instruments with a single, forward-looking 'expected loss' impairment model and significant changes to hedge accounting. The standard is effective for annual periods beginning on or after January 1, 2018. There was no impact from IFRS 9 on the Company's classification and measurement of financial assets and liabilities except for equity securities as described below.
Under IFRS 9, subsequent to initial recognition, financial assets are classified and measured at either: amortized cost, fair value through other comprehensive income ("FVTOCI") or at fair value through profit or loss ("FVTPL"). The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets.
IFRS 9 introduced a single expected credit loss impairment model for financial assets measured at amortized cost and for debt instruments at FVTOCI, which is based on changes in credit quality since initial recognition. The adoption of the expected credit loss impairment model did not have a significant impact on the Company’s financial statements.
IFRS 9 changed the requirements for hedge effectiveness and consequently for the application of hedge accounting which did not impact the Company. As the Company does not apply hedge accounting, either under IAS 39 or IFRS 9, the adoption of IFRS 9 with regards to hedge accounting did not impact the Company or its accounting policies.
The Company has not restated comparative 2017 information for financial instruments in the scope of IFRS 9. Therefore, the comparative 2017 information is reported under IAS 39 and is not comparable to the information presented for 2018. Differences arising from the adoption of IFRS 9 have been recognized directly in retained earnings

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

as of January 1, 2018. The adoption of IFRS 9 did not result in a change in carrying value of any of our financial instruments on the transition date. The main area of change was the accounting for equity securities previously classified as available for sale.
In accordance with IFRS 9 guidance, investments in equity securities that are neither subsidiaries nor associates (“equity securities”) are categorized as FVTPL unless they are designated as FVTOCI. Further, investments in equity securities, previously classified as available for sale, are now classified at FVTPL. As of January 1, 2018 equity securities are measured at FVTPL, prior to this and under IAS 39 these assets were initially recorded at fair value with subsequent measurements recorded at FVTOCI. The Company continued to designate its short term investments other than equity securities as financial assets at FVTOCI. This change in measurement classification resulted in an adjustment to opening retained earnings on January 1, 2018 for the historical unrealized gains and losses on the Company’s existing equity securities investments. The adjustment was $1.6 million with a corresponding adjustment to accumulated other comprehensive income.
The following table summarizes the classification and measurement of the Company’s financial assets prior to January 1, 2018 in accordance with IAS 39, compared to the new classification as of January 1, 2018, in accordance with IFRS 9:
Financial Asset
 
IAS 39 Classification / Measurement
 
IFRS 9 Classification and Measurement
Cash and cash equivalents
 
Loans and receivables / Amortized cost
 
Amortized cost
Short-term investments - equity securities
 
Available-for-sale / FVTOCI
 
FVTPL
Short-term investments - other than equity securities
 
Available-for-sale / FVTOCI
 
FVTOCI
Trade receivables from provisional concentrates sales
 
FVTPL
 
FVTPL
Receivable not arising from sale of metal concentrates
 
Loans and receivables / Amortized cost
 
Amortized cost
Derivative financial assets
 
Held-for-trading / FVTPL
 
FVTPL
Additional disclosures have been presented in Note 4a of the Q1 2018 Financial Statements as a result of adopting IFRS 9.
Revenue Recognition
The Company adopted IFRS 15 which replaced IAS 11 - Construction Contracts; IAS 18 - Revenue, and other revenue interpretations.
IFRS 15 requires either a full retrospective application, whereby comparative information is restated in accordance with IFRS 15, or a modified retrospective application, whereby the cumulative impact of adoption is recognized in opening retained earnings, as of January 1, 2018, and comparative period balances are not restated. The Company elected to apply the modified retrospective approach, though the new standard had no cumulative impact as at January 1, 2018.
IFRS 15 establishes a single five-step model framework for determining the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer, and introduces a revenue recognition model under which an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This new framework did not result in a change in the way the Company recognizes or measures revenue. Further, the standard introduces the concept of performance obligations that are defined as ‘distinct’ promised goods or services, and requires entities to apportion revenue earned to the distinct performance obligations on a relative stand alone selling price basis.  The Company may from time to time enter into concentrate contracts where the Company is responsible for shipping and insurance costs necessary to bring the goods to a named destination after the date on which control of the goods is transferred to the customer.  Accordingly, under IFRS 15, a portion of the revenue earned under such contracts, representing the obligation to fulfill the shipping and insurance services, will be deferred and recognized over the time the obligations are fulfilled.  There were no such contracts in 2017, nor in the three month period ended March 31, 2018.

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

The Company's revenue recognition policy in accordance with IFRS 15 is as follows:
Revenue Recognition: Revenue associated with the sale of commodities is recognized when control of the asset sold is transferred to the customer. Indicators of control transferring include an unconditional obligation to pay, legal title, physical possession, transfer of risk and rewards and customer acceptance. This generally occurs when the goods are delivered to a loading port, warehouse, vessel or metal account as contractually agreed with the buyer; at which point the buyer controls the goods. In cases where the Company is responsible for the cost of shipping and certain other services after the date on which control of the goods transfers to the customer, these other services are considered separate performance obligations and thus a portion of revenue earned under the contract is allocated and recognized as these performance obligations are satisfied.
The Company’s concentrate sales contracts with third-party buyers, in general, provide for a provisional payment based upon provisional assays and quoted metal prices. Final settlement is based on applicable commodity prices set on specified quotational periods, typically ranging from one month prior to shipment, and can extend to three months after the shipment arrives at the smelter and is based on average market metal prices. For this purpose, the transaction price can be measured reliably for those products, such as silver, gold, zinc, lead and copper, for which there exists an active and freely traded commodity market such as the London Metals Exchange and the value of product sold by the Company is directly linked to the form in which it is traded on that market.
Sales revenue is commonly subject to adjustments based on an inspection of the product by the customer. In such cases, sales revenue is initially recognized on a provisional basis using the Company’s best estimate of contained metal, and adjusted subsequently. Revenues are recorded under these contracts at the time control passes to the buyer based on the expected settlement period. Revenue on provisionally priced sales is recognized based on estimates of the fair value of the consideration receivable based on forward market prices and estimated quantities. At each reporting date provisionally priced metal is marked to market based on the forward selling price for the quotational period stipulated in the contract. Variations between the price recorded at the date when control is transferred to the buyer and the actual final price set under the smelting contracts are caused by changes in metal prices resulting in the receivable being recorded at FVTPL.
IFRS 15 requires that variable consideration should only be recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur. The Company concluded that the adjustments relating to the final assay results for the quantity and quality of concentrate sold are not significant and does not constrain the recognition of revenue
Refining and treatment charges under the sales contracts are netted against revenue for sales of metal concentrate.
Other Narrow Scope Amendments
The Company has adopted IFRIC interpretation 22 - Foreign Currency Transactions and Advanced Consideration, and narrow scope amendments to IFRS 2 - Share-based Payment, which did not have a material impact on the Company’s unaudited condensed interim consolidated financial statements.
c.
Accounting Standards Issued But 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.
IFRS 16, Leases (“IFRS 16”) In January 2016, the IASB issued IFRS 16 - Leases 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 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 anticipates that the adoption of IFRS 16 will result in an increase in the recognition of right of use

 
PAN AMERICAN SILVER CORP.
9
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

assets and lease liabilities related to leases with terms greater than 12 months in our Statement of Financial Position at January 1, 2019. IFRS 16 will further result in increased depreciation and amortization on these right of use assets and increased interest on these additional lease liabilities. These lease payments will be recorded as financing outflows in our Consolidated Statements of Cash Flows.
The Company is in the process of identifying and collecting data relating to the existing agreements that may contain right-of-use assets and estimates the time to develop and implement the accounting policies, estimates and processes (including the information technology systems) will extend into the latter part of 2018.
d.
Basis of Consolidation
These unaudited condensed interim consolidated financial statements include the wholly-owned and partially-owned subsidiaries of the Company; the most significant at March 31, 2018 and December 31, 2017 are presented in the following table:
Subsidiary
 
Location
 
Ownership
Interest
 
Accounting
 
Operations and Development
Projects Owned
Pan American Silver Huaron S.A.
 
Peru
 
100
%
 
Consolidated
 
Huaron mine
Compañía Minera Argentum S.A.
 
Peru
 
92
%
 
Consolidated
 
Morococha mine
Minera Corner Bay S.A. de C.V.
 
Mexico
 
100
%
 
Consolidated
 
Alamo Dorado mine
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
Minera Tritón Argentina S.A.
 
Argentina
 
100
%
 
Consolidated
 
Manantial Espejo mine & COSE project
Minera Joaquin S.R.L.
 
Argentina
 
100
%
 
Consolidated
 
Joaquin project
Pan American Silver (Bolivia) S.A.
 
Bolivia
 
95
%
 
Consolidated
 
San Vicente mine
Minera Argenta S.A.
 
Argentina
 
100
%
 
Consolidated
 
Navidad Project
 
3. MANAGEMENT OF CAPITAL
 
 
The Company’s objective when managing its capital is to maintain its ability to continue as a going concern while at the same time maximizing the growth of its business and providing returns to its shareholders. The Company’s capital structure consists of shareholders’ equity (comprising issued capital plus share option reserve plus deficit, plus investment revaluation reserve) with a balance of $1.6 billion as at March 31, 2018 (December 31, 2017 - $1.5 billion). The Company manages its capital structure and makes adjustments based on changes to its economic environment and the risk characteristics of the Company’s assets. The Company’s capital requirements are effectively managed based on the Company having a thorough reporting, planning and forecasting process to help identify the funds required to ensure the Company is able to meet its operating and growth objectives. 
The Company is not subject to externally imposed capital requirements and the Company’s overall strategy with respect to capital risk management remains unchanged from the year ended December 31, 2017.

 
PAN AMERICAN SILVER CORP.
10
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

4. FINANCIAL INSTRUMENTS
 
 
a)
Financial assets and liabilities by categories
March 31, 2018 (2)
 
Amortized cost
 
FVTPL
 
FVTOCI
 
Total
Financial Assets:
 
 
 
 
 
 

 
 

Cash and cash equivalents
 
$
167,282

 
$
—

 
$
—

 
$
167,282

Trade receivables from provisional concentrates sales(1)
 
—

 
49,824

 
—

 
49,824

Receivable not arising from sale of metal concentrates(1)
 
50,072

 
—

 
—

 
50,072

Short-term investments, equity securities
 
—

 
23,564

 
—

 
23,564

Short-term investments, other than equity securities
 
—

 
—

 
33,996

 
33,996

Derivative financial assets
 
—

 
1,232

 
—

 
1,232

 
 
$
217,354

 
$
74,620

 
$
33,996

 
$
325,970

Financial Liabilities:
 
 
 
 
 
 
 
 
Derivative financial liabilities
 
$
—

 
$
38

 
$
—

 
$
38

 
 
$
—

 
$
38

 
$
—

 
$
38

(1)
Included in Trade and other receivables.
(2)
Financial assets and liabilities by categories presented in accordance with IFRS 9 (see Note 2b)
December 31, 2017 (2)
 
Amortized cost
 
FVTPL
 
FVTOCI
 
Total
Financial Assets:
 
 
 
 
 
 

 
 

Cash and cash equivalents
 
$
175,953

 
$
—

 
$
—

 
$
175,953

Trade receivables from provisional concentrates sales(1)
 
—

 
51,952

 
—

 
51,952

Receivable not arising from sale of metal concentrates(1)
 
43,467

 
—

 
—

 
43,467

Short-term investments, equity securities
 
—

 
—

 
22,971

 
22,971

Short-term investments, other than equity securities
 
—

 
—

 
28,619

 
28,619

Derivative financial assets
 
—

 
1,092

 
—

 
1,092

 
 
$
219,420

 
$
53,044

 
$
51,590

 
$
324,054

Financial Liabilities:
 
 
 
 
 
 
 
 
Derivative financial liabilities
 
$
—

 
$
1,906

 
$
—

 
$
1,906

 
 
$
—

 
$
1,906

 
$
—

 
$
1,906

(1)
Included in Trade and other receivables.
(2)
Financial assets and liabilities by categories presented in accordance with IAS 39.
b)
Financial assets recorded at FVTPL
The Company’s short-term investments in equity securities are recorded at FVTPL. The gains (losses) from short-term investments in equity securities were recorded at FVTOCI for the three months ended March 31, 2017 but were recorded at FVTPL for the three months ended March 31, 2018 as follows:
 
 
Three months ended
March 31,
 
 
2018

 
2017

Unrealized net gain on short-term investments, equity securities(1)
 
$
1,056

 
$
—

Realized net loss on short-term investments, equity securities(1)
 
(18
)
 
—

 
 
$
1,038

 
$
—

(1)
Short-term investments in equity securities, previously classified as available for sale with fair value changes recorded through other comprehensive income, as of January 1, 2018, have been reclassified and measured as FVTPL.

 
PAN AMERICAN SILVER CORP.
11
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

c)
Financial assets recorded at fair value through other comprehensive income
The Company’s short-term investments other than equity securities are recorded at fair value through other comprehensive income. The unrealized (losses) gains from short-term investments other than equity securities for the three months ended March 31, 2018 and 2017 were as follows:
 
 
Three months ended
March 31,
 
 
2018

 
2017

Unrealized net (losses) gains on short-term investments, other than equity securities
 
$
(190
)
 
$
331

Reclassification adjustment for realized gains (losses) on short-term investments, other than equity securities to earnings
 
131

 
(52
)
 
 
$
(59
)
 
$
279

d)
Derivative instruments
The Company's derivative financial instruments are comprised of foreign currency, diesel fuel swap and commodity contracts. The net gains (losses) on derivatives for the three months ended March 31, 2018 and 2017 were comprised of the following:
 
 
Three months ended
March 31,
 
 
2018

 
2017

Gains on commodity and diesel fuel swap and foreign currency contracts:
 
 

 
 
Realized losses on foreign currency, diesel fuel swap and commodity contracts
 
$
(318
)
 
$
(3,139
)
Unrealized gains on foreign currency, diesel fuel swap and commodity contracts
 
2,051

 
4,933

 
 
$
1,733

 
$
1,794

Loss on derivatives:
 
 

 
 
Loss on warrants
 
$
(43
)
 
$
—

 
 
$
(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
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, 2018
 
At December 31, 2017
 
 
Level 1
 
Level 2
 
Level 1
 
Level 2
Assets and Liabilities:
 
 

 
 

 
 

 
 

Short-term investments
 
$
57,560

 
$
—

 
$
51,590

 
$
—

Trade receivables from provisional concentrate sales
 
—

 
49,824

 
—

 
51,952

Derivative financial assets
 
—

 
1,232

 
—

 
1,092

Derivative financial liabilities
 
—

 
(38
)
 
—

 
(1,906
)
 
 
$
57,560

 
$
51,018

 
$
51,590

 
$
51,138


 
PAN AMERICAN SILVER CORP.
12
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

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, 2017.
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 are 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 (“LME”) 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 principle 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.
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 and copper 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, 2018, the Company had receivable balances associated

 
PAN AMERICAN SILVER CORP.
13
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

with buyers of its concentrates of $49.8 million (2017 - $52.0 million). The vast majority of the Company’s concentrate is sold to five well-known concentrate buyers. 
Silver doré production from La Colorada, Dolores and Manantial Espejo is refined under long term agreements with fixed refining terms at three 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, 2018, the Company had approximately $30.0 million (2017 - $21.9 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 whilst 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, 2018.
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, 2018, the Company had no outstanding positions on its foreign currency exposure of MXN purchases. The Company recorded gains of $0.1 million on MXN derivative contracts for the three months ended March 31, 2018 (2017 - gains of $3.1 million).

 
PAN AMERICAN SILVER CORP.
14
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

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. At March 31, 2018, the Company has $10.0 million in lease obligations (2017 - $7.6 million), that are subject to an annualized interest rate of 2.2%.
The average interest rate earned by the Company during the three months ended March 31, 2018 on its cash and short-term investments was 1.28% (2017 - 0.31%).
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.
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, 2018, the Company had outstanding contracts to sell some of its base metals production.
5. SHORT-TERM INVESTMENTS
 
 
 
 
March 31, 2018
 
December 31, 2017
Available for Sale
 
Fair
Value
 
Cost
 
Accumulated
unrealized
holding gains
 
Fair Value
 
Cost
 
Accumulated
unrealized
holding gains
Short-term investments
 
$
57,560

 
$
54,958

 
$
2,602

 
$
51,590

 
$
49,985

 
$
1,605

 
6. INVENTORIES
 
 
Inventories consist of: 
 
 
March 31,
2018

 
December 31,
2017

Concentrate inventory
 
$
13,562

 
$
11,582

Stockpile ore (1)
 
14,163

 
16,209

Heap leach inventory and in process (2)
 
117,409

 
108,509

Doré and finished inventory (3)
 
42,876

 
35,054

Materials and supplies
 
47,809

 
47,361

 
 
$
235,819

 
$
218,715

(1)
Includes an impairment charge of $8.7 million to reduce the cost basis of inventory to NRV at Manantial Espejo mine (December 31, 2017 – $10.0 million at Manantial Espejo mine).
(2)
Includes an impairment charge of $9.2 million to reduce the cost basis of inventory to NRV at Manantial Espejo and Dolores mines (December 31, 2017 - $10.3 million at Manantial Espejo and Dolores mines).
(3)
Includes an impairment charge of $nil to reduce the cost basis of inventory to NRV at March 31, 2018. (December 31, 2017 - $2.9 million at Manantial Espejo mine).

 
PAN AMERICAN SILVER CORP.
15
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

7. MINERAL PROPERTIES, PLANT AND EQUIPMENT
 
 
Mineral properties, plant and equipment consist of:
 
 
March 31, 2018
 
December 31, 2017
 
 
Cost
 
Accumulated
Depreciation 
and 
Impairment
 
Carrying
Value
 
Cost
 
Accumulated
Depreciation 
and 
Impairment
 
Carrying
 Value
Huaron mine, Peru
 
$
198,646

 
$
(110,989
)
 
$
87,657

 
$
196,111

 
$
(107,970
)
 
$
88,141

Morococha mine, Peru
 
236,091

 
(139,811
)
 
96,280

 
230,932

 
(135,868
)
 
95,064

Alamo Dorado mine, Mexico
 
192,545

 
(192,545
)
 
—

 
194,023

 
(194,023
)
 
—

La Colorada mine, Mexico
 
282,613

 
(106,529
)
 
176,084

 
279,541

 
(100,970
)
 
178,571

Dolores mine, Mexico
 
1,504,815

 
(931,989
)
 
572,826

 
1,485,200

 
(908,651
)
 
576,549

Manantial Espejo mine, Argentina
 
367,005

 
(354,978
)
 
12,027

 
367,573

 
(353,322
)
 
14,251

San Vicente mine, Bolivia
 
132,204

 
(81,235
)
 
50,969

 
131,038

 
(79,595
)
 
51,443

Other
 
24,183

 
(16,536
)
 
7,647

 
24,174

 
(16,447
)
 
7,727

Total
 
$
2,938,102

 
$
(1,934,612
)

$
1,003,490

 
$
2,908,592

 
$
(1,896,846
)
 
$
1,011,746

 
 
 
 
 
 
 
 
 
 
 
 
 
Land and Non-Producing Properties:
 
 
 
 

 
 

 
 

 
 

 
 

Land
 
$
4,990

 
$
(1,234
)
 
$
3,756

 
$
4,990

 
$
(1,234
)
 
$
3,756

Navidad project, Argentina
 
566,577

 
(376,101
)
 
190,476

 
566,577

 
(376,101
)
 
190,476

Minefinders projects, Mexico
 
74,182

 
(17,155
)
 
57,027

 
73,956

 
(16,929
)
 
57,027

Morococha, Peru
 
9,674

 
—

 
9,674

 
9,674

 
—

 
9,674

Argentine projects
 
47,307

 
—

 
47,307

 
44,376

 
—

 
44,376

Other
 
30,885

 
(11,257
)
 
19,628

 
30,885

 
(11,257
)
 
19,628

Total non-producing properties
 
$
733,615

 
$
(405,747
)
 
$
327,868

 
$
730,458

 
$
(405,521
)
 
$
324,937

Total mineral properties, plant and equipment
 
$
3,671,717

 
$
(2,340,359
)
 
$
1,331,358


$
3,639,050

 
$
(2,302,367
)
 
$
1,336,683

  
Disposals
On January 31, 2018, the Company completed the sale of 100% of the shares of Minera Aquiline Argentina SA, which owns the Calcatreu project ("Calcatreu"), to Patagonia Gold Canada Inc for total consideration of $15 million in cash. The Company received $5 million at the date of sale with the remaining $10 million due on May 18, 2018. The Company recorded a gain of $8.0 million ($6 million, net of tax expense) on the sale of Calcatreu included in gain on sale of mineral properties, plant and equipment.
8. 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, 2018 no such indicators were noted, and no impairment charges or impairment charge reversals were required.

 
PAN AMERICAN SILVER CORP.
16
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

9. INVESTMENT IN ASSOCIATES
 
 
Investment in associates consist of:
 
 
March 31,
2018

 
December 31,
2017

Investment in Maverix (1)
 
$
53,726

 
$
53,567

Investment in other
 
1,450

 
1,450

 
 
$
55,176

 
$
55,017

(1)
The following table shows a continuity of the Company's investment in Maverix:
 
 
2018

 
2017

Balance of investment in Maverix, January 1,
 
$
53,567

 
$
48,284

Dilution gain
 
—

 
1,406

Adjustment for change in ownership interest
 
—

 
441

Income (loss) in associate
 
159

 
(635
)
Balance of investment in Maverix, March 31,
 
$
53,726

 
$
49,496


Investment in Maverix:
The Company's warrant liability representing in substance ownership interest in Maverix was $14.4 million as at March 31, 2018 (December 31, 2017 - $14.3 million). The Company's share of Maverix income or loss was recorded, based on its 40% interest for the three months ended March 31, 2018 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, 2018, the deferred revenue liability was $11.9 million (December 31, 2017 - $12.0 million).
During the three months ended March 31, 2018, $0.1 million (2017 - $nil) was recognized for the delivery of 591 ounces of gold (2017 - 492 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.
Income Statement Impacts:
The Company recognized dilution gains of $nil for the three months ended March 31, 2018 (2017 - $1.4 million gain), respectively, recorded in share of loss from associate and dilution gain.
For the three months ended March 31, 2018 the Company also recognized its share of income from associate of $0.2 million (2017 - $0.6 million loss) which represents the Company's proportionate share of Maverix's income (loss) during the period.

 
PAN AMERICAN SILVER CORP.
17
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 
Accounts payable and accrued liabilities consist of: 
 
 
March 31,
2018

 
December 31,
2017

Trade accounts payable(1)
 
$
43,120

 
$
47,138

Royalties payable
 
5,718

 
4,896

Other accounts payable and trade related accruals
 
33,694

 
29,690

Payroll and related benefits
 
22,825

 
29,329

Severance accruals
 
1,804

 
1,092

Other taxes payable
 
4,148

 
3,439

Other
 
12,159

 
24,114

 
 
$
123,468

 
$
139,698

(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.
11. PROVISIONS
 
 
 
 
Closure and
Decommissioning
 
Litigation
 
Total

December 31, 2017
 
$
65,396

 
$
4,097

 
$
69,493

Revisions in estimates and obligations incurred
 
(396
)
 
—

 
(396
)
Charged (credited) to earnings:
 
 
 
 
 
 

-new provisions
 
—

 
423

 
423

-change in estimate
 
—

 
(2
)
 
(2
)
-exchange gains on provisions
 
—

 
57

 
57

Reclamation expenditures
 
(2,873
)
 
—

 
(2,873
)
Accretion expense (Note 16)
 
1,639

 
—

 
1,639

March 31, 2018
 
$
63,766

 
$
4,575

 
$
68,341

 
Maturity analysis of total provisions:
 
March 31,
2018

 
December 31,
2017

Current
 
$
5,891

 
$
8,245

Non-Current
 
62,450

 
61,248

 
 
$
68,341

 
$
69,493

 

 
PAN AMERICAN SILVER CORP.
18
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

12. FINANCE LEASE OBLIGATIONS
 
 
 
 
March 31,
2018

 
December 31,
2017

Lease obligations(1)
 
$
10,017

 
$
7,559

 
 
March 31,
2018

 
December 31,
2017

Maturity analysis of finance leases:
 
 

 
 

Current
 
$
7,166

 
$
5,734

Non-Current
 
2,851

 
1,825

 
 
$
10,017

 
$
7,559

(1)
Represents equipment lease obligations at several of the Company’s subsidiaries. A reconciliation of the total future minimum lease payments at March 31, 2018 and December 31, 2017 to their present value is presented in the table below.
 
 
March 31,
2018

 
December 31,
2017

Less than a year
 
$
7,366

 
$
5,879

2 years
 
2,892

 
1,845

3 years
 
—

 
—

4 years
 
—

 
—

5 years
 
—

 
—

 
 
10,258

 
7,724

Less future finance charges
 
(241
)
 
(165
)
Present value of minimum lease payments
 
$
10,017

 
$
7,559

13. OTHER LONG TERM LIABILITIES
 
 
Other long term liabilities consist of: 
 
 
March 31,
2018

 
December 31,
2017

Deferred credit(1)
 
$
20,788

 
$
20,788

Other income tax payable
 
2,162

 
2,082

Severance accruals
 
4,346

 
4,084

 
 
$
27,296

 
$
26,954

(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.
19
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

14. SHARE CAPITAL AND EMPLOYEE COMPENSATION PLANS
 
 
Transactions concerning stock options are summarized as follows in CAD: 
 
 
Stock Options
 
 
 
 
Shares
 
Weighted
Average Exercise
Price CAD$
As at December 31, 2016
 
1,310,864

 
$
16.81

Granted
 
91,945

 
$
18.64

Exercised
 
(307,266
)
 
$
11.24

Expired
 
(61,891
)
 
$
40.22

Forfeited
 
(97,529
)
 
$
23.60

As at December 31, 2017
 
936,123

 
$
16.56

Granted
 
—

 
—

Exercised
 
(14,374
)
 
$
11.10

Expired
 
—

 
—

Forfeited
 
—

 
$
—

As at March 31, 2018
 
921,749

 
$
16.64

 
Long Term Incentive Plan
During the three months ended March 31, 2018, 14,374 common shares were issued in connection with the exercise of options (2017 – 246,358 common shares), nil options expired (2017 - nil) and nil options were forfeited (2017 – 21,212). 
Share Option Plan 
The following table summarizes information concerning stock options outstanding and options exercisable as at March 31, 2018. The underlying option agreements are specified in Canadian dollar amounts. 
 
 
Options Outstanding
 
Options Exercisable
Range of Exercise
Prices
CAD$
 
Number Outstanding as at March 31, 2018
 
Weighted Average
Remaining
Contractual Life
(months)
 
Weighted
Average
Exercise Price
CAD$
 
Number Exercisable as at March 31, 2018
 
Weighted
Average
Exercise
Price CAD$
$9.76 - $11.57
 
325,931

 
53.33

 
$
9.98

 
325,931

 
$
9.98

$11.58 - $17.01
 
99,742

 
48.03

 
$
11.81

 
99,742

 
$
11.81

$17.02 - $18.53
 
124,188

 
23.46

 
$
18.38

 
124,188

 
$
18.38

$18.54 - $24.90
 
371,888

 
33.48

 
$
23.19

 
257,093

 
$
24.79

 
 
921,749

 
40.72

 
$
16.64

 
806,954

 
$
16.22

 
For the three months ended March 31, 2018 the total employee share-based compensation expense recognized in the income statement was $1.0 million (2017 - $0.7 million).
Performance Share Units 
Compensation expense for PSUs was $0.3 million for the three months ended March 31, 2018 (2017 - $0.3 million) and is presented as a component of general and administrative expense. 

 
PAN AMERICAN SILVER CORP.
20
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(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, 2018, the following PSU’s were outstanding:  
PSU
 
Number Outstanding
 
Fair Value
As at December 31, 2016
 
141,790

 
$
2,152

Granted
 
54,962

 
823

Paid out
 
(30,408
)
 
(875
)
Forfeited
 
—

 
—

Change in value
 
—

 
511

As at December 31, 2017
 
166,344

 
$
2,611

Granted
 
—

 
—

Paid out
 
—

 
—

Forfeited
 
—

 
—

Change in value
 
—

 
89

As at March 31, 2018
 
166,344

 
$
2,700

 
Restricted Share Units 
Compensation expense for RSU’s was $0.6 million for the three months ended March 31, 2018 (2017 – $1.0 million) and is presented as a component of general and administrative expense. 
At March 31, 2018, the following RSU’s were outstanding:
RSU
 
Number Outstanding
 
Fair Value
As at December 31, 2016
 
315,423

 
$
4,764

Granted
 
184,187

 
2,698

Paid out
 
(222,006
)
 
(3,257
)
Forfeited
 
(15,591
)
 
(243
)
Change in value
 
—

 
136

As at December 31, 2017
 
262,013

 
$
4,098

Granted
 
—

 
—

Paid out
 
—

 
—

Forfeited
 
—

 
—

Change in value
 
—

 
140

As at March 31, 2018
 
262,013

 
$
4,238

 
Issued share capital 
The Company is authorized to issue 200,000,000 common shares of no par value.
Dividends 
The Company declared the following dividends for the three months ended March 31, 2018 and 2017:
Declaration Date
 
Ex-dividend date
 
Dividend per common share
May 9, 2018 (1)
 
May 22, 2018
 
$
0.0350

February 20, 2018
 
March 5, 2018
 
$
0.0350

February 17, 2016
 
February 29, 2016
 
$
0.0125

(1)
These dividends were declared subsequent to the quarter ended March 31, 2018 and have not been recognized as distributions to owners during the period presented.

 
PAN AMERICAN SILVER CORP.
21
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

15. PRODUCTION COSTS
 
 
Production costs are comprised of the following: 
 
 
Three months ended
March 31,
 
 
2018

 
2017

Consumption of raw materials and consumables
 
$
44,520

 
$
42,205

Employee compensation and benefits expense
 
42,705

 
39,375

Contractors and outside services
 
22,670

 
20,964

Utilities
 
5,228

 
6,241

Other expenses
 
9,040

 
9,799

Changes in inventories (1)
 
(11,714
)
 
10,639

 
 
$
112,449


$
129,223

(1)
Includes NRV adjustments to inventory to reduce production costs by $5.3 million for the three months ended March 31, 2018 (2017 - increase by $11.2 million).
16. INTEREST AND FINANCE EXPENSE
 
 
 
 
Three months ended
March 31,
 
 
2018

 
2017

Interest expense
 
$
135

 
$
118

Finance fees
 
584

 
779

Accretion expense (Note 11)
 
1,639

 
1,493

 
 
$
2,358


$
2,390

17. EARNINGS PER SHARE (BASIC AND DILUTED)
 
 
For the three months ended March 31,
 
2018
 
2017
 
 
Earnings
(Numerator)
 
Shares (000’s)
(Denominator)
 
Per-Share
Amount
 
Earnings
(Numerator)
 
Shares (000’s)
(Denominator)
 
Per-Share
Amount
Net earnings (1)
 
$
47,376

 
 

 
 

 
$
19,371

 
 

 
 

Basic EPS
 
$
47,376

 
153,311

 
$
0.31

 
$
19,371

 
152,757

 
$
0.13

Effect of Dilutive Securities:
 
 

 
 

 
 

 
 

 
 

 
 

Stock Options
 
—

 
226

 
 

 
—

 
370

 
 

Diluted EPS
 
$
47,376

 
153,537

 
$
0.31

 
$
19,371

 
153,127

 
$
0.13

(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, 2018 were 279,943 out-of-the-money options (2017 – 372,446).

 
PAN AMERICAN SILVER CORP.
22
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

18. 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
 
2018

 
2017

Adjustments for non-cash income statement items:
 
 
 
 
 
Share-based compensation expense
 
$
962

 
$
701

 
Gain on securities held
 
(1,038
)
 
—

 
Loss on derivatives (Note 4)
 
43

 
—

 
Share of income from associate and dilution gain (Note 9)
 
(159
)
 
(771
)
 
Net realizable value adjustment for inventories
 
(5,331
)
 
11,215

 
 
 
$
(5,523
)
 
$
11,145

 
 
Three months ended
March 31,
Changes in non-cash operating working capital items:
 
2018

 
2017

Trade and other receivables
 
$
4,373

 
$
385

Inventories
 
(6,740
)
 
288

Prepaid expenses
 
464

 
451

Accounts payable and accrued liabilities
 
(6,068
)
 
(1,505
)
Provisions
 
(3,349
)
 
(1,815
)
 
 
$
(11,320
)
 
$
(2,196
)
 
 
Three months ended
March 31,
Significant non-cash items:
 
2018

 
2017

Assets acquired by finance lease
 
$
3,998

 
$
1,400

Shares issued as consideration for Joaquin
 
$
—

 
$
8,650

 
Cash and Cash Equivalents
 
March 31,
2018

 
December 31,
2017

Cash in banks
 
$
106,525

 
$
160,001

Short-term money markets investments
 
60,757

 
15,952

Cash and cash equivalents
 
$
167,282

 
$
175,953

19. SEGMENTED INFORMATION
 
 
All of the Company’s operations are within the mining sector, conducted through operations in four 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 to make decisions about resources to be allocated to the segments and to assess their performance. The Corporate office provides support to the mining and exploration activities with respect to financial, human resources and technical support. Major products are silver, gold, zinc, lead and copper produced from mines located in Mexico, Peru, Argentina and Bolivia.

 
PAN AMERICAN SILVER CORP.
23
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(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:
 
 
Three months ended, March 31, 2018
 
 
Peru
 
Mexico
 
Argentina
 
Bolivia
 
Canada
 
 
 
 
 
 
Huaron
 
Morococha
 
Dolores
 
Alamo
Dorado
 
La
Colorada
 
Manantial
Espejo
 
Navidad
 
San Vicente
 
Pas Corp
 
Other
 
Total
Revenue
 
$
32,650

 
$
33,647

 
$
62,894

 
$
—

 
$
40,482

 
$
21,868

 
$
—

 
$
15,420

 
$
—

 
$
—

 
$
206,961

Depreciation and amortization
 
$
(3,183
)
 
$
(3,708
)
 
$
(19,433
)
 
$
—

 
$
(5,298
)
 
$
(1,364
)
 
$
(21
)
 
$
(1,444
)
 
$
(31
)
 
$
(56
)
 
$
(34,538
)
Exploration and project development
 
$
(357
)
 
$
(122
)
 
$
(646
)
 
$
—

 
$
(49
)
 
$
58

 
$
(724
)
 
$
—

 
$
(579
)
 
$
(325
)
 
$
(2,744
)
Interest income
 
$
9

 
$
14

 
$
—

 
$
2

 
$
—

 
$
152

 
$
41

 
$
—

 
$
469

 
$
77

 
$
764

Interest and financing expenses
 
$
(209
)
 
$
(142
)
 
$
(350
)
 
$
(127
)
 
$
(118
)
 
$
(775
)
 
$
(16
)
 
$
(64
)
 
$
(540
)
 
$
(17
)
 
$
(2,358
)
Gain (loss) on disposition of assets
 
$
—

 
$
—

 
$
1

 
$
177

 
$
34

 
$
—

 
$
—

 
$
(138
)
 
$
195

 
$
7,717

 
$
7,986

Share of loss from associate and dilution gain
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
159

 
$
159

Loss on derivatives
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(43
)
 
$
—

 
$
(43
)
Foreign exchange (losses) gains
 
$
(48
)
 
$
(39
)
 
$
(641
)
 
$
56

 
$
(344
)
 
$
180

 
$
(582
)
 
$
170

 
$
(700
)
 
$
273

 
$
(1,675
)
Gain on commodity, fuel swaps and foreign currency contracts
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,733

 
$
—

 
$
1,733

Earnings (loss) before income taxes
 
$
10,061

 
$
13,261

 
$
2,810

 
$
(33
)
 
$
18,462

 
$
2,956

 
$
(1,552
)
 
$
3,620

 
$
(3,987
)
 
$
9,068

 
$
54,666

Income tax (expense) recovery
 
$
(3,587
)
 
$
(4,336
)
 
$
9,342

 
$
26

 
$
(2,943
)
 
$
(88
)
 
$
(41
)
 
$
(1,419
)
 
$
(1,073
)
 
$
(2,391
)
 
$
(6,510
)
Net earnings (loss) for the period
 
$
6,474

 
$
8,925

 
$
12,152

 
$
(7
)
 
$
15,519

 
$
2,868

 
$
(1,593
)
 
$
2,201

 
$
(5,060
)
 
$
6,677

 
$
48,156

Capital expenditures
 
$
1,927

 
$
1,187

 
$
18,822

 
$
—

 
$
4,496

 
$
4,551

 
$
11

 
$
1,458

 
$
68

 
$
45

 
$
32,565

 
 
As at March 31, 2018
 
 
Huaron
 
Morococha
 
Dolores
 
Alamo
Dorado
 
La
Colorada
 
Manantial
Espejo
 
Navidad
 
San Vicente
 
Pas Corp
 
Other
 
Total
Total assets
 
$
122,756

 
$
136,908

 
$
827,554

 
$
16,336

 
$
230,653

 
$
131,621

 
$
193,827

 
$
85,975

 
$
218,581

 
$
31,490

 
$
1,995,701

Total liabilities
 
$
41,593

 
$
38,108

 
$
158,834

 
$
5,670

 
$
49,746

 
$
39,095

 
$
1,396

 
$
34,652

 
$
28,893

 
$
34,014

 
$
432,001

 
 
Three months ended, March 31, 2017
 
 
Peru
 
Mexico
 
Argentina
 
Bolivia
 
 
 
 
 
 
Huaron
 
Morococha
 
Dolores
 
Alamo
Dorado
 
La
Colorada
 
Manantial
Espejo
 
Navidad
 
San Vicente
 
Other
 
Total
Revenue
 
$
31,673

 
$
25,390

 
$
46,237

 
$
6,646

 
$
43,152

 
$
28,638

 
$
—

 
$
16,951

 
$
—

 
$
198,687

Depreciation and amortization
 
$
(3,219
)
 
$
(2,385
)
 
$
(15,829
)
 
$
—

 
$
(4,791
)
 
$
(1,287
)
 
$
(21
)
 
$
(1,735
)
 
$
(86
)
 
$
(29,353
)
Exploration and project development
 
$
(628
)
 
$
(274
)
 
$
(414
)
 
$
—

 
$
(38
)
 
$
—

 
$
(1,276
)
 
$
—

 
$
(894
)
 
$
(3,524
)
Interest income
 
$
13

 
$
3

 
$
(533
)
 
$
1

 
$
—

 
$
106

 
$
—

 
$
—

 
$
522

 
$
112

Interest and financing expenses
 
$
(217
)
 
$
(145
)
 
$
(294
)
 
$
(90
)
 
$
(116
)
 
$
(678
)
 
$
(25
)
 
$
(56
)
 
$
(769
)
 
$
(2,390
)
Gain (loss) on disposition of assets
 
$
—

 
$
—

 
$
1

 
$
—

 
$
(360
)
 
$
—

 
$
—

 
$
12

 
$
389

 
$
42

Share of loss from associate and dilution gain
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
771

 
$
771

Foreign exchange (loss) gain
 
$
(102
)
 
$
(47
)
 
$
573

 
$
129

 
$
334

 
$
(225
)
 
$
162

 
$
213

 
$
1,472

 
$
2,509

Loss on commodity, fuel swaps and foreign currency contracts
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,794

 
$
1,794

Earnings (loss) before income taxes
 
$
10,616

 
$
8,164

 
$
(8,328
)
 
$
(18
)
 
$
15,157

 
$
(9,907
)
 
$
(1,647
)
 
$
4,904

 
$
8,850

 
$
27,791

Income tax (expense) recovery
 
$
(3,392
)
 
$
(1,854
)
 
$
6,174

 
$
396

 
$
(2,013
)
 
$
(14
)
 
$
(11
)
 
$
(1,684
)
 
$
(5,443
)
 
$
(7,841
)
Net earnings (loss) for the period
 
$
7,224

 
$
6,310

 
$
(2,154
)
 
$
378

 
$
13,144

 
$
(9,921
)
 
$
(1,658
)
 
$
3,220

 
$
3,407

 
$
19,950

Capital expenditures
 
$
2,165

 
$
1,811

 
$
19,628

 
$
—

 
$
5,649

 
$
1,098

 
$
—

 
$
1,566

 
$
21

 
$
31,938


 
PAN AMERICAN SILVER CORP.
24
paaslogo2017a01.jpg
 
Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

 
 
As at December 31, 2017
 
 
Huaron
 
Morococha
 
Dolores
 
Alamo
Dorado
 
La
Colorada
 
Manantial
Espejo
 
Navidad
 
San Vicente
 
Pas Corp
 
Other
 
Total
Total assets
 
$
116,138

 
$
131,180

 
$
833,397

 
$
17,125

 
$
231,205

 
$
125,088

 
$
194,225

 
$
85,869

 
$
210,286

 
$
48,819

 
$
1,993,332

Total liabilities
 
$
46,184

 
$
36,058

 
$
176,464

 
$
8,163

 
$
65,145

 
$
43,408

 
$
1,296

 
$
30,819

 
$
28,939

 
$
35,805

 
$
472,281

 
 
Three months ended
March 31,
Product Revenue
 
2018

 
2017

Refined silver and gold
 
89,894

 
86,233

Zinc concentrate
 
42,516

 
29,262

Lead concentrate
 
36,490

 
44,225

Copper concentrate
 
26,134

 
24,775

Silver concentrate
 
11,927

 
14,192

Total
 
206,961

 
198,687

 
20. INCOME TAXES
 
 
Components of Income Tax Expense
 
 
Three months ended
March 31,
 
 
2018

 
2017

Current income tax expense
 
$
18,135

 
$
11,958

Deferred income tax recovery
 
(11,625
)
 
(4,117
)
Income taxes expense
 
$
6,510

 
$
7,841

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 an effective tax rate that varies considerably from the comparable period. The main factors that affected the effective tax rate for the three months ended March 31, 2018 and the comparable period of 2017 were foreign exchange fluctuations, changes in the non-recognition of certain deferred tax assets, mining taxes paid, and withholding taxes 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.

 
PAN AMERICAN SILVER CORP.
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Notes to the Condensed Interim Consolidated Financial Statements
As at March 31, 2018 and December 31, 2017, and for the
three month periods ended March 31, 2018 and 2017
(Unaudited tabular amounts are in thousands of U.S. dollars except number of shares, options, warrants, and per share amounts, unless otherwise noted)

Reconciliation of Effective Income Tax Rate
 
 
Three months ended
March 31,
 
 
2018

 
2017

Earnings before taxes and non-controlling interest
 
$
54,666

 
$
27,791

Statutory Canadian income tax rate
 
27.00
%
 
26.00
%
Income tax expense based on above rates

$
14,760


$
7,226

Increase (decrease) due to:
 
 
 
 
Non-deductible expenditures
 
930

 
1,176

Foreign tax rate differences
 
(1,070
)
 
(1,764
)
Change in net deferred tax assets not recognized:
 
 
 
 
   - Argentina exploration expenditures
 
744

 
577

   - Other deferred tax assets
 
(8,347
)
 
446

Non-taxable portion of net earnings of affiliates
 
(844
)
 
(1,188
)
Tax on sale of royalty
 
—

 
1,400

Effect of other taxes paid (mining and withholding)
 
5,295

 
4,691

Effect of foreign exchange on tax expense
 
(12,046
)
 
(8,376
)
Non-taxable impact of foreign exchange
 
8,151

 
2,945

Other
 
(1,063
)
 
708

Income tax expense
 
$
6,510


$
7,841

Effective income tax rate
 
11.91
%

28.21
%
 
21. 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. There have been no significant changes to contingencies from those disclosed in the Company's audited consolidated financial statements for the year ended December 31, 2017.
22. 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, 2018 and 2017 have been disclosed in these condensed interim consolidated financial statements. Transactions with Maverix, an associate of the Company, have been disclosed in Note 9 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.
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