Pan American Silver Corp.

PAAS Details

Key Positives:

Robust Metal Production, Negligible Leverage (Debt/Equity Ratio of 0.02x as of December 31, 2021, vs. Industry Median of 0.22x)

Key Negatives:

Metal Price Risk, Foreign Exchange Rate Risk, Legal Risk, Decline in Net Margin (6.0% in FY21 vs. 13.2% in FY20), Longer Cash Cycle (142 Days in FY21 vs. Industry Median of 64 Days)

Pan American Silver Corp. (NASDAQ: PAAS) is a silver and gold mining company that engages in the exploration, mine development, extraction, refining, and reclamation, among other activities. PAAS also produces and sells zinc, lead, and copper. The company owns and operates silver and gold mines in Peru, Mexico, Argentina, Bolivia, and Canada. As of September 30, 2021, the company's Escobal mine in Guatemala is still on care and maintenance, pending a consultation procedure conducted by Guatemala's Ministry of Energy and Mines.

Latest News:

• Updates on Drilling at Lucita: On April 13, 2022, PAAS announced an update on its Zacatecas silver project's Lucita property's recently completed 4,750-metre maiden drill campaign, which included drilling new zones of high-grade silver mineralization in the Zacatecas mining district. The drill programme is the first to be completed at Pan American Silver Corp.'s central Lucita asset, which is now under option. Drilling for the first phase has been finished, with assays for the remaining eight holes pending. The preliminary findings are quite promising and demand a lot of further investigation.

FY21 Results:

• Surge in Topline: PAAS reported YoY growth of 96% in revenues to USD 1.63 billion in FY21 compared to USD 1.34 billion in FY20 attributable to 8.29%  growth in Silver Production partially offset by lower average realized prices.
• Decline in Bottomline: Net income was USD 98.56 million in FY21 vs. USD 176.46 million in FY20.
• Silver Production: 28 million ounces (Moz) of silver were produced in FY21, up from 4.87 Moz in FY20.
• Gold Production: 7 thousand ounces (Koz) of gold were produced in FY21, up from 152.9 Koz in FY20.

Key Risk:

• Metal Price Risk: The global market for gold, silver, and other metals is highly volatile and unmanageable, which substantially impacts PAAS' operations. As a result, any adverse price movement could hurt the company's bottom line.

Outlook:

• PAAS anticipates to produce 19.0 - 20.5 Moz of silver and 550.0 - 605.0 Koz of gold in FY21. Silver segment cash costs and All-in Sustaining Costs (AISC) have been estimated to range between USD 10.70 to USD 12.20 and USD 970 to USD 1,070 respectively.
• The company's sustaining capital projections and project capital estimates have been lowered to a range of USD 200.0 to USD 210.0 million and USD 80.0 to USD 95.0 million.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

PAAS' share price has declined 14.51% in the past one month and is leaning towards the lower end of its 52-week range of USD 20.74 to USD 36.14. We have valued the stock using the Price/Earnings - based relative valuation methodology and arrived at a target price of USD 29.20.

Considering the correction in the stock price in the past one month, strong top line performance, low leverage, current valuation, and associated risks. We recommend a "Buy" rating on the stock at the current price of USD 24.03, down 2.99% as of May 02, 2022, 11:56 AM PDT.

One-Year Technical Price Chart (as on May 02, 2022, 11:56 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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