November 13, 2008 / 5:15 PM / 10 years ago

UPDATE 2-Pan American Silver Q3 profit falls; cuts jobs, pay

(In U.S. Dollars, unless noted)

* Q3 adj shr $0.11, before items, misses estimates

* Q3 sales $79.5 million

* To cut 500 jobs

* Senior executives to take 10 pct pay cut

* Shares at new year-low (Adds details, analyst, conference call comments)

By Sakthi Prasad

BANGALORE, Nov 13 (Reuters) - Pan American Silver Corp PAA.TO posted a lower-than-expected quarterly profit, hurt by falling silver and zinc prices, and said it will axe 500 jobs.

The silver miner also said its senior executives will take a 10 percent pay cut.

The company also became the latest miner to defer projects to preserve cash during a period of weak base metals prices. This follows top gold producer Barrick Gold Corp’s (ABX.TO) consideration to defer some projects.

Pan American, which has operating mines in Mexico, Peru and Bolivia, said it would axe 500 jobs and would rollback 10 percent of wages for all senior executives, due to fall in silver prices.

“I don’t know what that would mean in terms of cost savings but its fairly substantial. It’s a positive that they are proactively looking to cut costs, but unfortunately for the employees it’s not good news,” analyst Steven Butler of Canaccord Adams said by phone.

“They don’t pay as much labor in South America as they would here but still it has to be reasonable savings,” Butler added.

Pan American said it has deferred almost all of its greenfield exploration programs, significantly reduced its brownfield exploration and cancelled all “discretionary” capital expenditures.

“These are challenging times for the global mining industry. We have responded by retooling our business plans to reduce costs and adjust to the new pricing environment,” Chief Executive Geoff Burns said in a statement.

Burns said quarterly results were hurt by decline in base metal and silver prices that started in the middle of the third quarter.

Silver XAG= normally tracks gold, which has lost 30 percent in value since hitting a record due to weaker oil prices, a firm dollar and losses in equities that forced investors to cash in to cover losses.

Silver spiked to a 27-year high of $21.24 in March when gold struck a record above $1,000.

Shares of the company were trading down 50 Canadian cents at C$11.74 in noon trade on the Toronto Stock Exchange, after touching a year-low of C$11.61 earlier in the session


The silver mining company earned $6.4 million, or 8 cents per basic share for the third quarter, compared with $23.9 million, or 31 cents per basic share, a year ago.

Quarterly adjusted net income, before items, was 11 cents a share.

“They slightly exceeded our estimates. It’s a slight positive that they had a little bit more production than we had expected in the quarter,” Canaccord Adams’ Butler said. He has a “hold” rating on the stock.

The company produced 4.9 million ounces in the quarter and maintained its 2008 production forecast of 18.8 million ounces of silver.

Consolidated cash costs for the quarter almost doubled to $6.61 per ounce of silver

“Our costs were negatively impacted by higher energy costs at our mine in Peru which alone contributed nearly 33 cents an ounce of additional costs to our overall company-wide cash costs,” COO Steve Busby said in a conference call with analysts.

For the press release, please double click [ID:nCCNDFFuCa] For the alerts, please double click [ID:nWNAB3032]. (Editing by Jarshad Kakkrakandy)

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