To The Moon

Summary

• Pan American Corp. is one of the largest primary silver producers in the world and is well positioned to profit from the coming Silver Bull Market.
• It has a healthy cash position which enables it to pursue opportunities via the merger and acquisitions route.
• The precious metals market is not for the faint-hearted so expect a fair amount of volatility in the years ahead.

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Introduction

Pan American Silver Corp (NYSE:PAAS) had experienced an increase in value of 36.31% in one month when I last analyzed it in April 2024. I am a silver bug and this company forms part of my core position, but I will do my best not to be biased towards it. My first article to be published on SA was back on 05 April, 2007, my word, how time flies, and I’m a still a fan of Pan American.

Fundamentals

In order not to repeat all of the good reasons as to why we need silver in this modern world, may I refer you to my recent coverage of silver and its structural deficit published on 20 July, 2014 for background reading.

Pan American is one of the world's largest producers of silver, and as I am Long this stock, the latest Q2 results were received with some excitement on my part. This company is headquartered in Vancouver, Canada and generates its income from mining operations in Peru, Argentina, Chile, Canada, Brazil, Bolivia, and Mexico.

Second Quarter 2024 Highlights

We will start with a statement from Michael Steinmann, President and Chief Executive Officer, as follows:

“Operations generated record cash flow before working capital changes of $203.3 million in Q2 2024, with solid performance on costs, which were below our expected ranges for both the silver and gold segments in the quarter. This resulted in free cash flow of $102.1 million in Q2 2024,” So we are off to a fairly positive start. He also added that “We expect silver production to increase in the second half of the year, which will bring annual silver production to within our guidance range based on first half 2024 results. We are also on track to meet our annual production outlook for gold, zinc, lead, and copper.”

It is reassuring for investors to see that they are on track in terms of guidance as failure to meet guidance can result in a loss of confidence in the investment community resulting in the stock being sold off.

The standouts that interest me include:

Production for this period is reported as follows, Silver production of 4.57M/Ozs and Gold production of 220.4K/Ozs however, inclement weather and ventilation constraints have had an impact on output. That said, they do expect to increase production in the second of 2024 from a back-end loaded production profile. There is a myriad of difficulties in any mining operation, so this is something that we need to keep a keen eye on going forward. Nevertheless, revenue came in at a record of $686.3 million.

There is a Net loss of $0.06 per share due to tax expense, and the effect of the devaluation of foreign currency exchange rates, etc.; therefore adjusted earnings are $0.11 per share. Free cash flow of $102.1 million has been achieved.

On the dividend front, a cash dividend of $0.10 per common share for Q2 2024 has been declared. My interest tends to be more focused on the capital growth of a company than the interest paid on the shares. This is because for years the precious metals producers went through some hard times and many didn’t pay a dividend. However, times are changing, and dividend payments do add a little icing to the cake.

Production costs are always a major factor when analyzing these results and the All-in Sustaining Costs (AISC) excluding NRV inventory adjustments, per silver ounce is $18.12, and for the Gold Segment AISC, excluding NRV inventory adjustments, it stands at $1,465 per gold ounce, respectively. The spot price for silver as I write is $26.60/Oz. Now, if they can reduce the cost of silver production and increase production in the second half, coupled with a resumption of the silver Bull Market, then the future does look rather good.

However, a problem-free future rarely eventuates, so please do your own investigations and satisfy yourself that this sort of investment meets your needs, as it will be a white-knuckle ride from here on in. For instance, in Guatemala the Escobal mine is still on care and maintenance as they await the appointment of the Vice Minister of Sustainable Development to oversee the consultation process, so it is difficult to estimate when this issue will be resolved and normal working can resume.

Financials

Pan American has a market capitalization of $7.662B, a 52-week trading range of $12.16 - $24.27, and an EPS (TTM) of -0.48.

Now, if we take a look at Seeking Alpha's Quants figures, we have forward projections of P/E (FWD) 31.81 and an EPS (FWD) of 0.66, and they give this stock a "Strong Buy" rating. As for Seeking Alpha's Quant Ranking, Pan American is ranked in Industry at 1 out of 9 with a score of 4.88 which places Pan American best in class when compared with other silver producers. Wall Street scores Pan American at 4.37 with a Buy rating, and SA Analysts score is 3.00 with a Hold rating. So we have food for thought in the above ratings and the differences are what make a market tick, without them, we would all have the same view and trading would be sluggish at best.

The liquidity is good with an average volume of 4,267,812, so short-term traders can enter and exit out of this stock comfortably.

Pan American is listed on the NYSE: PAAS and the TSX: PAAS

A Quick Look At The Chart Of Silver Prices

Having gained nearly $10/Oz in just 3 months, a correction has arrived, with silver now about $4.00 off its peak.

Silver One Year Progress Chart (Stockcharts)

The technical indicators have now unwound from the overbought zone. The MACD is on the floor, suggesting that an upward correction could be on the cards in the near term. This is just one of my quirks, but please note that there is a small gap at the $26.00 level, which silver could backfill before this correction is over.

A major threat worthy of consideration is that the market in general has been a tad jittery of late, and the possibility of a serious recession cannot be ruled out. No doubt the central banks and the politicians will try their best to avert a recession, but if it does land on us then the demand for EVs, electronic goods, flat screen TVs, etc., could dry up which would be problematic for silver producers.

A Quick Look At The Chart Of Pan American Silver Corp

PAAS has rallied from $12.00 to $24.00 in five months, following silver's breakout. However, PAAS is now correcting in line with silver's correction.

Pan American Silver Corp One Year Progress Chart (stockcharts)

The RSI was above the '70' level, suggesting that it was overbought and so a correction has arrived. The MACD and the Stochastics have also pulled back from the overbought zone.

Stock Comparison Chart

The following table compares Pan American Silver Corp with four other silver producing stocks. The chart below covers a six-month period and as we can see, Pan American has held up well with a 52% capital gain, not the best, but a good thumping effort in my opinion.

Pan American Silver Corp Comparison Chart (Google Finance)

I should say at this point that the selection of a different time period and different stocks would paint a different picture. However, Pan American’s performance so far is good enough for me to continue holding it.

Conclusion

Pan American Corp is one of the largest primary silver producers in the world and is well positioned to service the needs of those who depend upon silver for the manufacture of their products.

Pan American is a well-managed company with substantial reserves that can be mined for a moderately low cost and has a healthy cash position which enables it to pursue opportunities via the merger and acquisitions route.

My readers are aware that I am Long both physical silver and gold and that I own a portfolio of gold, silver and uranium mining stocks in the precious metals space, including but not limited:

Mega Uranium Limited (MGA)

Laramide Resources (LAM)

Denison Mines Corp (DNN)

Wheaton Precious Metals Corp. (WPM)

Agnico Eagle Mines Limited (AEM)

SSR Mining Inc. (SSRM)

Endeavour Silver Corp (EXK)

Fortuna Silver Mines Inc (FSM)

First Majestic Silver Corp. (AG)

IMPACT Silver Corp. (IPT:CA)

Pan American Silver Corp. (PAAS)

Sandstorm Gold Ltd. (SAND),

Silvercorp Metals Inc. (SVM)

Please do your own Due Diligence to ensure that you are making the right investments that fit your own unique criteria, aversion to risk, etc.

And If you can spare the time, your opinion is very much appreciated so please fire in your comments whether you agree with me or not, thanks, Bob K