This silver company is expected to grow at an annual rate of 46.9% over the next five years.
Pan American Silver Corp. (PAAS)
From Internet Wealth Builder
Vancouver-headquartered Pan American Silver is the world’s second largest primary silver miner. The company produced 24.8 million ounces of silver and 179,000 ounces of gold in 2018 at an all-in sustaining cost (AISC) of $10.73 per ounce of silver (figures in U.S. dollars). Silver currently trades at $14.99 per ounce.
The company owns a diversified portfolio of assets including properties in such mining-friendly jurisdictions as Mexico, Peru, Canada, Argentina, and Bolivia. Following its takeover of Tahoe, it also owns the Escobal mine in Guatemala that is currently not producing.
The shares are down by over one-third in the last year. However, over five years Pan American is up slightly against a fall of 25% in the silver price. That’s a tribute to Pan American’s profitability and competent management.
Pan American announced an agreed takeover of fellow silver and gold miner Tahoe Resources for $1.1 billion at the end of 2018. By doing so, it took advantage of the depressed silver price and Tahoe’s problems with the Escobal mine, where local protests saw the Guatemalan Supreme Court revoke its mining license. The takeover closed in February, with Pan American paying $275 million in cash and issuing 56 million shares, giving Tahoe shareholders 27% of the combined company.
This deal made Pan American the largest silver company in the world in terms of reserves and the largest publicly traded company by free float of shares.
In the first quarter ended March 31, Pan American produced 6.1 million ounces of silver and 80,000 ounces of gold at an AISC of $10.45 per ounce. Net income was $33.8 million ($0.19 per share) and adjusted net income was $8.5 million ($0.05 per share) on revenue of $232.6 million. At quarter end, Pan American had no debt and cash balances of $121.6 million.
For 2018, Pan American had net income of $12 million ($0.07 per share) and adjusted net income of $59.4 million ($0.39 per share) on revenues of $784.5 million. Net cash generated from operations was $155 million. The stock sells on a price/book value of one.
Pan American pays a quarterly dividend of $0.035 per share. The payout is eligible for the dividend tax credit for Canadians who hold the shares in a non-registered account.
Pan American is not merely the largest silver company by several measures but a very well- managed mining company that has taken advantage of the bear market in precious metals to substantially expand at an attractive price. While some investors have been worried about the suspension of Escobal, Tahoe’s only producing silver mine, Pan American structured the deal so that Tahoe shareholders received so-called contingent value rights (CVRs). Each CVR can be exchanged for 0.0497 of a Pan American share upon first commercial shipment of silver concentrate from Escobal following resumption of mining. The CVRs can be traded and have a 10-year life. If they are exercised, the percentage of Pan American owned by Tahoe shareholders rises from 27% to 32%.
In other words, Pan American will only end up paying for Escobal if it comes back into production. Escobal produced 21 million ounces of silver at an AISC of $8.63 during the last four quarters it was in operation. That was almost the same amount as Pan American’s total silver production.
Guatemala’s Constitutional Court has provided a process for resolution of the dispute that could lead to Escobal being reopened although there is no timeline at present. Pan American President and CEO Michael Steinmann made a point of noting when the deal closed: “We have a 25-year track record in Latin America of building partnerships with the communities around our operations…We welcome the opportunity to work with local communities around the new (i.e. Tahoe-owned) operations for the benefit of all stakeholders.”
Even without Escobal reopening, Pan American will enjoy strong growth from the Tahoe gold operations and its COSE and Joaquin silver mines in Argentina, which are opening later this year. It also has discovered a major new reserve at depth at its La Colorada mine in Mexico and will have its first reserve estimate later this year.
Buy.
Gavin Graham, in Gordon Pape’s Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, June 17, 2019