Pan American Silver: Time to Buy

Pan American Silver (PAAS) was doing well even when the global commodity demand and pricing environment was weak. The company has been continuously increasing both gold and silver production from its mines while successfully optimizing its cost structure to sustain its daily operations profitably. Now as the silver market is getting better, the company’s financials should start improving.

Investing in the right areas

Pan American has invested nearly $48.2 million for the expansion of La Colorada in 2015 with about $66.1 million of total investment already done since the start of the project.

The metals Mining Corporation had invested nearly $11.3 million during 2015 for the Dolores expansion project with about $12.8 million invested till date since starting the project.

Pan American seems quite positive about the long-term growth prospects of its key mines at La Colorada and Dolores and therefore, the company is continuously growing its total investments for these projects and employing advanced mining technologies to explore highest quality production at minimal costs.

The key metals exploration company has also provided the production and capital expenditures forecast for the complete fiscal year 2016 at each of its strategic mines and suggests that the company is primarily focused on growing its high-quality production while minimizing the core capital expenditures for the forthcoming fiscal year 2016, which again converges well with Pan American’s strategy to enhance profitability through expanded production and lowered expenditures.

A strong asset base  

Going forward, Pan American expects to grow its average yearly silver production by 69% to 7.7 Moz during 2018 from 4.6 Moz of average annual production recorded in 2013 with improved rate of production to 1,800 tpd from 1,250 tpd.
Pan American Silver: Time to Buy
Image by tookapic / Pixabay
Moreover, the project has significant scope for development with the deployment of an innovative 600-metre deep mine shaft laid between the Estrella and Candelaria structures.

There’s solid plan for the development of an innovative sulphide floatation facility and the setup of a new power line having 115 kv capacity to sustain enhanced operations. The notable organic growth at La Colorada development project demands an additional nearly $80 million of key growth capital with overall investments of approximately $163.8 million required over the period ranging from 2014 till 2017 and including sustaining capital. The company has uniquely achieved 300% of reserve growth from 2010 till 2016.

The strategically planned and well-optimized production growth at La Colorada in addition to the continued cost-control efforts of Pan American is expected to drive sustainable long-term company growth while, offering attractive shareholder returns, going forward.

Pan American impressively declared 40% estimated growth in average yearly silver production to 6.3 Moz from 4.5 Moz with about 52% projected expansion in average yearly gold production to 205.7 koz from 135.1 koz. The expected LOM net silver production grew to 50 Moz from 41 Moz and forecasted LOM net gold production grew to 1.5 Moz from 1.3 Moz. Moving ahead, Pan American targets on minimizing cash costs by achieving superior operating efficiency and improved gold production.

Further, the project has significant scope for development with the start of new 1,500 tpd capacity underground mine and fresh 5,600 tpd capacity pulp agglomeration facility. The project expansion scope for 2015 till 2018 includes the deployment of additional growth capital of approximately $112.4 million and employment of nearly $173.9 million of LOM sustaining capital in addition to attractive costs minimization.

The visibly significant improvement in productions at the key mines of the company along with attractive cost control implemented all through the company operations highlights a uniquely focused growth strategy of Pan American amid tough global operating environment.

Conclusion

Overall, the investors are advised to “Hold” their position in Pan American Silver Corp. considering the company’s solid long-term growth prospects being supported by a robust balance sheet with significant total cash of $226.64 million against smaller total debt position of $59.78 million, encouraging the company to make future growth investments. The PEG ratio of 0.44 suggests weak company growth and the profit margin of -33.59% seems disappointing and indicate no profit but loss.
Published on Sep 27, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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