Pan American Silver Corp. (TSX: PAAS) is a mining company, which is engaged in the exploration and development of silver mines. The company’s operating mines are primarily located in Central and South America.

Key Updates:

• Higher Gold production: In FY21, the company registered its gold production of 579.3 thousand ounces, more than 522.4 thousand ounces in FY20. This growth was driven by higher gold production from Dolores and La Arena mines during 2021. On the other hand, total silver production stood higher at 19,174 thousand ounces in FY21 as compared to 17,312 thousand ounces in FY20. Silver production was higher from Huaron, La Colorada, Morococha, San Vicente and Manantial Espejo mines.

Source: Company Report

• Result Update: The company will disclose its Q1FY22 result on May 11, 2022.

• Impressive prospects from Dolores mine: For FY22, the company expects its gold production in between 157.5 to 179.0 thousand ounces, which is higher than 160.1 thousand ounces in FY21. This is primarily due to an expected improved mid-point gold production over 2021. Additionally, the mine is expected to report its silver production within the range of 2.85 and 3.15 million ounces in 2022, significantly higher than 2.24 million ounces in FY21, driven by higher silver grades from an open pit mine.

• Prudent capital management: Despite operating in a capital-intensive business, the company reported a healthy balance sheet of 0.02x in FY21, which is better than the industry median of 0.20x. This indicates improved financial flexibility. Moreover, the company reported its long-term debt to total capital of 1.2% in FY21, which is significantly lower than the industry median of 12.4%, denoting lower balance sheet risk.

Risks associated with the Investment:

Volatility in international commodity prices is likely to dampen the realization of the company. Furthermore, any imposition of lockdown restrictions would dampen the company’s production.

FY21 Financial Highlights: (in thousands of USD)

      FY21 Income Statement Highlights (Source: Company Report)

• PAAS announced its full-year results, wherein the company posted its revenue of USD 1,632.7 million in FY21, higher than USD 1,338.8 million in FY20. The revenue increase was driven by higher metal prices coupled with a surge in sales volumes.

• The company reported an increase in the mine operating earnings at USD 367.9 million, improved from USD 360.1 million in FY20. The surge was primarily due to a higher income, partially offset by a surge in the cost of sales (USD 1,264.8 million in FY21 v/s USD 978.6 million in FY20).

• The company reported a prudent cost structure which resulted to a lower input cost and subsequently resulted in higher earnings from operations (USD 320.9 million in FY21 v/s USD 209.9 million in FY20).

• The company reported net earnings of USD 98.5 million in FY21, declined from USD 176.4 million in FY20. This was primarily attributable to a higher income tax expense of USD 146.4 million in FY21 v/s USD 75.5 million in FY20.
  

Valuation Methodology (Illustrative): Price to CF based

Analysis By Kaline Group

Stock Recommendation:

For FY22, the company expects its total gold production in between 550.0 to 605.0 thousand ounces, while its silver production is expected in between 19.00 to 20.50 million ounces. Cash cost in FY21 is expected in between 970 to 1,070/ ounce, while the company expects its AISC cost in between 1,240 to 1,365/ ounce. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered peers like Silvercorp Metals Inc, MAG Silver Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of PAAS at the last closing market price of CAD 31.63 on April 26, 2022.

One-Year Technical Price Chart (as on April 26, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.