Pan American Silver Corp.

Pan American Silver Corp. (TSX: PAAS) is a mining company focused exclusively on the exploration and development of silver mines. The group’s operations are located mainly in Central and South America, and the byproducts from its silver mining operations, including zinc, lead, copper, and gold. 

Key Highlights:

• Strong Cash Flow Growth: The company reported elevated cash flows in the recent years, supported by a surge in gold and silver prices. Cash generated from operation surged almost three times during FY18 to FY20, while free cash flow stood at USD 323 million in FY20, up from USD 65 million in FY18.            

Source: Company Presentation

• Drilling Update: On May 12, 2021, the company presented results for new twenty-eight additional holes drilled at the La Colorada skarn deposit. The company reported 22,567 meteres of drilling in the last seven months, wherein ~80% of drilling focused on infill definition while the rest is for exploration testing the skarn limits. The company reported several higher-grade silver than the average inferred resource silver grade across the northern and western part of the skarn. The corporation also found higher chances of massive sulphide mineralization of 145 metres at 55 g/t Ag, 3.51% Pb and 5.95% Zn.
  

• Increase in Dividend Payment: Despite the ongoing pandemic, the company has increased its dividend distribution to USD 718 million in Q1FY21 compared to USD 10.500 million in Q1FY20, which is noteworthy.
  

Q1FY21 Financial Highlights:

• PAAS announced its quarterly result, wherein the group reported revenue of USD 099 million, as compared to USD 358.428 million in the previous corresponding period (pcp).
• Mine operating earnings stood at USD 89.964 million, significantly higher than USD 50.058 million in pcp. The increase was driven by lower production costs, partially offset by higher royalties.
• Earnings from operations soared to USD 73.296 million, from USD 10.700 million in the previous corresponding period (pcp).
• The group reported a net loss and comprehensive loss of USD 7.562 million, which is significantly lower than the net loss of USD 77.235 million in pcp.

Income Statement Highlights (Source: Company Report)

Risks: The group’s revenue is dependent on the international commodity prices, and price volatility would affect the company’s realization price and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects its silver production in between 20.50 - 22.00 Moz, while gold production is expected within 605.0 - 655.1 Moz. Within the silver production, AISC are expected within USD 12.50 - 14.00/per ounce, and cash costs are expected in between USD 8.50 - 10.00 per ounce. For the gold segment, the group expects its FY21 Cash Costs within USD 825 – 925 per 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 SSR Mining Inc, Coeur Mining Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 38.73 on June 07, 2021.

One-Year Technical Price Chart (as on June 07, 2021). Analysis by Kalkine Group

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

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.