Pan American Silver Corp

Pan American Silver Corp. (NYSE: PAAS) is a Canada-based producer of silver and gold in the Americas, operating mines in Canada, Mexico, Peru, Brazil, Bolivia, Chile and Argentina. The Company is engaged in silver and gold mining and related activities, including exploration, mine development, extraction, processing, refining and reclamation.

Key Business & Financial Updates

• Silver and Gold Production Impact: During Q2 2024, silver production totaled 4.57 million ounces, but this was hindered by ventilation challenges at La Colorada and weather-related disruptions at both Dolores and Cerro Moro. The Company anticipates an improvement in silver production during the second half of 2024, attributed to the commissioning of new ventilation infrastructure at La Colorada. Gold production, on the other hand, reached 220.4 thousand ounces, with weather-related issues at Dolores and Minera Florida being significant contributing factors. A notable increase in gold production is expected in the latter half of 2024, owing to the back-end loaded production schedule.
• Financial Performance and Net Loss: Pan American recorded a revenue high of USD 686.3 million in Q2 2024, but experienced a net loss of USD 21.4 million, equivalent to a USD 0.06 loss per share. This loss was largely due to a USD 93.1 million income tax expense, driven by a USD 42.4 million foreign currency devaluation effect on deductible tax attributes and a USD 10.8 million tax charge stemming from inflation adjustments in Argentina. The Company also encountered a USD 26.7 million increase in costs due to net realizable value ("NRV") inventory expenses. Despite these challenges, adjusted earnings amounted to USD 40.0 million, or USD 0.11 per share, inclusive of the USD 10.8 million tax impact caused by inflation in Argentina.
• Cash Flow and Segment Costs: Pan American achieved record operational cash flow before working capital changes, reaching USD 203.3 million in Q2 2024, despite the payment of USD 31.3 million in cash taxes. Free cash flow for the quarter was USD 102.1 million. In the silver segment, cash costs per ounce, excluding NRV adjustments, stood at USD 14.49, while all-in sustaining costs ("AISC") were USD 18.12 per ounce. In the gold segment, cash costs per ounce were reported at USD 1,186, with AISC amounting to USD 1,465 per ounce. The Company reaffirmed its 2024 operating outlook for production, cash costs, AISC, and capital expenditures, although it expects silver production to fall toward the lower end of its annual guidance.
• Financial Position and Debt Structure: As of June 30, 2024, Pan American’s cash and short-term investments increased by USD 37.2 million, totaling USD 368.6 million. The Company’s working capital stood at USD 692.0 million, inclusive of cash and investments, with an additional USD 750.0 million available through its revolving Sustainability-Linked Credit Facility ("SL-Credit Facility"). Total debt amounted to USD 809.5 million, largely comprising two senior notes, lease liabilities, construction loans, and other loans payable. On August 7, 2024, the Company declared a cash dividend of USD 0.10 per common share, payable on August 30, 2024, to shareholders of record as of August 19, 2024. Cash dividends for Q2 2024 totaled USD 36.3 million, qualifying as eligible dividends for Canadian income tax purposes.
• Project Developments and Progress: At La Colorada, Pan American allocated USD 9.8 million in project capital during Q2 2024, primarily for exploration and engineering of the Skarn project, and for completing new ventilation infrastructure. The installation of two exhaust fans on the surface of the Guadalupe ventilation shaft in July contributed to improved ventilation within the mine. As a result, mining rates in the higher-grade Candelaria zone have increased, and the Company expects throughput to rise to approximately 2,000 tonnes per day by the end of 2024.
• Consultation Process at Escobal: At Escobal, Pan American continued to engage with Guatemalan government institutions throughout Q2 2024 and into the third quarter, advancing the ILO 169 consultation process. The key government entities involved include the Ministries of Economy, Finance, Environment, and Energy and Mines. Compliance inspections related to the care and maintenance program at Escobal were conducted during this period by the Ministry of Energy and Mines and the Ministry of Environment. The appointment of a Vice Minister of Sustainable Development, who will oversee the consultation process, remains pending.

Underlying Commodities Analysis:

Gold surged above USD 2,520 per ounce, driven by Federal Reserve Chair Jerome Powell's Jackson Hole speech, which reinforced expectations of an interest rate cut in September. Powell indicated the Fed’s readiness to adjust policy based on economic data, highlighting increased labor market risks and diminishing inflation concerns. With inflation nearing the 2% target, markets are divided on whether the Fed will implement a 25 or 50 basis point cut, with an anticipated total reduction of 100 basis points this year, lowering the opportunity cost of holding non-interest-bearing assets like gold.

Silver also climbed, trading above USD 29.5 per ounce, supported by similar expectations for policy easing and bolstered by safe-haven demand amidst rising geopolitical tensions in the Middle East. Both metals benefited from heightened uncertainty and a favorable macroeconomic environment.

Technical Observation (on the daily chart):

The Relative Strength Index (RSI) over a 14-day period stands at a value of 53.02, upward trending, with the expectations of upward momentum if the current important support levels of USD 18- USD 20 hold. Additionally, the stock's current positioning is above both 50-Day SMA and 200-Day SMA, which can act as a short to medium term support levels.

As per the above-mentioned price action, momentum in the stock over the last month, current macroeconomic scenarios, recent business & financial updates, and technical indicators analysis, a ‘Speculative Buy’ rating has been given to Pan American Silver Corp. (NYSE: PAAS) at the closing market price of USD 21.33 as of August 23, 2024.

Individuals can evaluate the stock based on the support and resistance levels provided in the report in case of keen interest taking into consideration the risk-reward scenario.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Related Risk: This report may be looked at from a high-risk perspective and a recommendation is provided for a short duration. This report is solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is August 23, 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.s

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the New York Stock Exchange (NYSE), NASDAQ Capital Markets (NASDAQ), and or REFINITIV. Typically, all sources (NYSE, NASDAQ, or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.