Pan American Silver (PAAS) has been through a rough patch, observes Adrian Day, resources sector expert, money manager and editor of Global Analyst.
Over the past year, the company mined only 75% of previous silver output, mostly due to covid-restrictions in Peru and Mexico, as well as a ventilation problem at La Colorada mine in Mexico.
Repairs are well underway, allowing access to a high-grade portion of the mine, and the company expects production to ramp back up by the end of the year, and overall expects to be back to 2019 output by the first quarter. Gold production stayed steady.
Overall, the second quarter saw a small improvement on the first quarter, though still below previous expectations. However, the company should have a strong finish to the year, as these particular issues are resolved, and delayed shipments from the second quarter add to this quarter’s shipments and revenue.
In addition to lower production, year-end reserves fell sharply, silver by approximately the same as last year’s production and gold by one-and-a-half times production, some of this due to asset sales. The company is likely to continue to sell marginal assets to focus on its core mines; it favors high-grade and low capex projects.
The company has a strong balance sheet, with over $140 million net cash as well as shares in other companies, including Maverix Metals (MMX), a royalty company it helped spawn. The dividend was boosted by 3 cents to 10 cents a quarter, for a yield of 1.7%.
Though neither this year so far nor indeed last year were positive ones for Pan Am, two large, longer-term projects are slowly making progress. The Guatemalan government ordered a cultural and spiritual study, though the third public meeting on the issue was postponed from July because of covid.
The courts ruled that the government had not undertaken sufficient consultation with local people when it approved the Escobal mine under prior ownership. Pan Am has been very cautious of providing any timeline on when the mine, the third largest silver mine in the world, might restart.
In Argentina, where Pan Am owns the large, undeveloped Navidad project, the provincial legislature rejected a bill that would have prohibited mining in all the province. It has not yet voted on a bill to allow mining in some areas.
Navidad is in a less sensitive part of the province but has been caught up in a province-wide ban on open-pit mining which effectively prohibited the mine from moving forward. Navidad is one of the largest undeveloped silver mines in the world.
With strong management and solid balance sheet, recovery of production as La Colorada’s issues are fixed, Pan Am is a very strong buy at this level.
