Pan American Silver Corp (TSX: PAAS) is mining company based in British Columbia, focusing exclusively on exploration and development of silver mines. The company majorly operates in Central and South America and sells the byproducts from its silver mining operations, including zinc, lead, copper, and gold. 

Key highlights

• Increased Production: The company has reported increase in production mainly in all the precious metals, where silver production for the Q3 2021 increased to 4,831 Koz from 4,087 Koz in the pcp. Also, the gold production up to 142.6 Koz during the quarter form 116.9 Koz from pcp. In the similar fashion, production trend has been up for Zinc, Lead and Copper.

• Revised Production Guidance: The company’s management has revised the consolidated precious metals production estimates which ranges in between 19.0 million and 20.0 million ounces of silver and 560.0 to 588.0 thousand ounces of gold.
  

• Strong Financial Position: Company has built itself financially strong which includes cash and short-term investments of USD 315.4 million, company also invested through equity in Maverix Metals Inc. having market value of USD 116.1 million, and USD 500.0 million available under Sustainability-Linked Credit Facility as on September 30, 2021.
  

• Capital Expenditure Guidance: The company has down its estimates for sustaining capital in the range of USD 217.5 to USD 226 million and project capital to USD 43.5 to USD 45.0 million.
  

Risks associated with investment           

Since, the company competes in a highly competitive market, it must adapt to and compete with rapid changes in global metal prices, volatility of commodity prices, governmental actions, and interruption of production. This could result in significant increase in cost, which might bring high variations in metal prices.

Financial overview of Q3 2021 (In thousands of USD, except share and per share amounts)

Source: Company’s Filings

• The company of the company has increased its revenue by 53.23% to USD 460.34 million in Q32021 from USD 300.41 million in Q3 2020. A graph of revenue from past quarters is below

• The company’s net cash generated from operations was USD 157.0 million in September 2021 and includes USD 23.0 million source of cash from working capital changes.
  

• Company’s Silver production has increased by 18.2% to 4831 thousand ounces and La Colorada was largely responsible for increased production relative to the first and second quarters of 2021. Also, gold production of the company has come to 142.6 thousand ounces in this quarter and 116.9 thousand ounces in Q3 2021.

Valuation Methodology (Illustrative) EV to EBITDA Based

  Analysis by Kalkine Group 

Stock recommendation

The company provides enhanced exposure to silver through a large base of silver reserves and resources, as well as major catalysts to grow silver production. Based on YTD 2021 production results and the expected production for the balance of the year. Further, company is earning a leading reputation for sustainability performance, operational excellence, and prudent financial management. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 30.09 on January 5, 2022.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Technical Summary Analysis

One-Year Price Chart (as on January 5, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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