Pan American Silver Corp.

PAAS Details

Pan American Silver Corp. (NASDAQ: PAAS) is a silver and gold mining firm that, among other things, participates in exploration, mine development, extraction, refining, and reclamation. Zinc, lead, and copper is also produced and sold by PAAS. In Peru, Mexico, Argentina, Bolivia, and Canada, the corporation owns and runs silver and gold mines.

Latest News:

• Extends Mineralization at Skarn Project: PAAS released findings for 43 fresh infill and exploration drill holes totalling 38,460 metres on May 9, 2022, all of which had multiple skarn and breccia intercepts. Infill hole U-04-22 had 233.70 metres of 44 g/t Ag, 4.05% Pb, and 5.04% Zn, whereas step-out hole U-08-22 had 174.95 metres of 40 g/t Ag, 0.17% Pb, and 7.95% Zn, and 46.95 metres of 78 g/t Ag, 3.84% Pb, and 8.79% Zn.
• Release of Sustainability Report: PAAS released its 2021 Sustainability Report on May 5, 2022, which outlines PAAS's 2022 environmental, social, and governance targets. Notably, the report recognizes the need to lower GHG emissions by including a Climate Change Policy Statement, a goal of reducing GHG emissions by at least 30% by 2030 from our 2019 baseline emissions.
• Announced Dividend: Pan American has declared a cash dividend of USD 0.12 per common share, payable on or about June 3, 2022.

Q1 FY22 Results:

• Strong Revenue Growth: The business generated revenue of USD 439.88 million in Q1 FY22, up19.50% from USD 368.10 million in Q1 FY21. Revenue includes inventory drawdowns of 531.6 thousand ounces of silver and 17.6 thousand ounces of gold.
• Robust Bottom-Line Performance: The Cash flow from operations was USD 68.8 million, minus USD 58.3 million in tax payments. The company's net income in Q1 FY22 was USD 76.83 million, compared to a loss of USD 7.5 million in Q1 FY21.
• Strong Balance Sheet: As of March 31, 2022, Pan American has USD 620.7 million in working capital, including USD 326.3 million in cash and short-term investments, USD 124.7 million in a long-term investment in Maverix, and USD 500.0 million under the sustainability-linked credit facility. As of March 31, 2022, total debt was USD 47.0 million, resulting in a Debt Equity Ratio of 0.02x, significantly lower than the industry median of 0.22x.
• Production Highlights for Q1 FY22: In Q1 FY22, 4.6 million ounces of silver and 131.0 thousand ounces of gold were produced. Details of Other production figures are given below.

(Source: Company Filings)

Key Risks:

• Metal Price Risk: PAAS is exposed to adverse movement in the underlying commodities, especially gold and silver. As any sharp plunge in the underlying commodities prices would have weigh on the company’s financial performance and stock price as well.
• Macro-Economic Risk: The company is also exposed to macro-economic risks including, stronger dollar index against basket of majors, rise in Treasury Bond yield which will impact underlying commodity prices, rate hike and others.
  

Outlook:

(Source: Company Filings)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

PAAS’s share price has decreased by 33.23% in the past twelve months and is currently leaning towards the 52-week low of USD 34.69 to USD 20.59. The stock is currently trading below its 50 and above 200 DMA levels. We have valued the stock using the EV / Sales multiple based relative valuation methodology and arrived at a target price of USD 25.85.

Silver futures are recovering from the recent bottom of USD 20.42/oz and now trading USD 22/oz, implies a recovery of ~8%. The leading momentum indicator, the Moving Average Convergence Divergence (MACD) is rising, with silver now trading above its 12-day EMA. Further the 14-Period RSI is also recovering from oversold zone and hovering in a neutral zone. Also, RSI has recorded a bullish reversal, as it moved above 40 for the first time after April 22, 2022, implies a positive momentum in the commodity.

Considering the company's balance sheet strength, production highlights, production guidance for FY22, higher net margins, recovering the underlying commodity prices, and valuation done. We recommend a “Hold" rating on the stock at the current price of USD 22.34, down 0.63% as of May 25, 2022, at 11:24 AM PDT.

1-year technical chart (as of May 25, 2022, at 11:24 AM PDT). Source: REFINITIV. Analysis by Kalkine group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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