TORONTO (miningweekly.com) – Precious metals miner Pan American Silver on Thursday reported a narrower net profit for the three months ended September 30.

The Nasdaq- and TSX-listed miner’s decision to start hedging its precious metals in August, after second-quarter earnings disappointed, and then backing away from the hedges a month later, saying hedging was not part of its fundamental philosophy, cost it dearly, as third-quarter earnings slid 37% year-on-year.

Net earnings were impacted by lower revenue, higher depreciation and amortisation, and higher losses on commodity and foreign currency contracts, mainly associated with the cancelled gold and silver forward contracts, which was partially offset by gains in foreign exchange.

Pan American reported net earnings of $14.2-million, or $0.09 a share, compared with net earnings of $22.6-million, or $0.15 a share.

Adjusted earnings for the quarter were $12.2-million, or $0.08 a share, beating analyst expectations of $0.01 a share on revenue of $183.27-million.

Adjusted earnings were calculated by adjusting for several non-recurring items, most notably an unrealised gain of $7.8-million in foreign exchange and $6.3-million in unrealised and realised losses for the cancellation of the precious metals forward contracts.

Pan American reported revenue of $213.6-million during period, 15% lower year-on-year, owing to lower precious metals prices, partially offset by greater quantities of all metals produced by the company.

On average, during the quarter Pan American realised a 30% lower price of $20.52/oz for silver and a 19% lower price of $1 319/oz for gold.

Zinc and copper prices remained stable at $1 862/t and $7 146/t, respectively.

In contrast, the lead price rose 9% from a year ago to $2 100/t. Silver accounted for 61% of quarterly revenue while gold accounted for 23%. Zinc, lead and copper contributed only 9%, 3% and 4%, respectively, to the consolidated quarterly revenue.

Operating cash flow generated during the third quarter was $40.7-million, or $0.27 per share, compared with $79.5-million a year ago, and $500 000 generated in the second quarter.

Pan American produced 6.7-million ounces of silver during the quarter, 7% more year-on-year, thanks to significant production gains at its Dolores, Huaron, Morococha and San Vicente, but this was slightly offset by small production declines at La Colorada and Manantial Espejo.

During the quarter, Pan American lifted its year-on-year zinc output 24% to 10 600 t, lead output 27% to 3 400 t and copper output 52% to 1 500 t.

Pan American's quarterly consolidated cash costs were $10.40/oz of silver, net of by-product credits, 25% lower when compared with the third quarter of 2012 and 14% lower than in the second quarter of 2013.

The decrease resulted from the company's cost control strategy implemented earlier this year and from higher quantities of by-product metals sold during the quarter, partially offset by lower by-product credits on lower metals prices, with the exception of lead.

The company said it had $421-million in cash and short-term investments, $63.7-million in debt, and working capital of $699.3-million.

Pan American said it was confident that it would achieve its full-year 2013 guidance of 25-million to 26-million ounces of silver and 125 000 oz to 135 000 oz of gold at cash costs below the original forecast of $11.50/oz to $12.80/oz, net of by-product credits.

It also expected to produce 38 500 t to 41 500 t of zinc, 12 500 t to 13 500 t of lead and 4 500 t to 5 000 t of copper.

The company’s TSX-listed stock on Thursday closed up 7.81% to C$11.59 apiece.