Pan American Silver (PAAS) is the second-largest producing silver miner and one of the two largest by market capitalization ($5.3 billion). It operates silver and gold mines in friendly jurisdictions such as Mexico, Peru, Canada, Argentina, and Bolivia, notes Gordon Pape, Canadian stock expert and editor of Internet Wealth Builder.
Its acquisition of Tahoe Resources in 2018 gave it 500,000 oz. of gold production annually, primarily from the Dolores mine. The Escobal silver mine in Guatemala, which it also acquired in the deal, is currently not operating but produced as much silver as all of Pan American’s existing mines in its last year of production in 2018.
Meanwhile, Pan American announced disappointing results in the second quarter (to June 30) due to production issues at Dolores. The share price dropped sharply as a result. It was recently 30% below its all-time high of $38.51, reached after the Russian invasion of Ukraine, but still looks promising longer-term.
The biggest development affecting the outlook for Pan American is its proposed merger with Yamana Gold in association with Agnico Eagle, which was approved by shareholders on Jan. 31. The merged Pan American/Yamana company will sell Canadian gold mining assets, including Yamana’s 50% stake in the Canadian Malarctic mine in Quebec, while retaining its Latin American operations.
The deal will add four additional mines and two new countries (Chile and Brazil) to Pan American’s existing portfolio, as well as increase silver production by 9.5 million oz. (50%) and double gold production. It will result in an expected lower cost structure, with an all-in sustaining cost (AISC) of US$981 per GEO, while increasing earnings per share and cash flow per share.
The transformational nature of the Yamana deal will result in lower production costs and higher cash flow. This can be used to internally fund the further development of its major mine, the La Colorada Skarn, plus the likely resolution of the Escobal adjudication in the first quarter of this year. This would add a further large increase in silver production should it be favourable for Pan American. The stock remains a Buy.
