Pan American Silver (PAAS, Financial) posted a healthy quarter in terms of production. Going forward, Pan American Silver is confident of increasing production in order to fulfill growing demand. The company is expected to gain good market share, attracting investors as the board recently approved an increase in the dividend to $0.125 per common share. Let's see why Pan American is a good investment.
The way ahead
For the future Pan American might face a topsy turvy ride. The company is expecting consolidated production and cost guidance between 25.75 million ounces of silver and 155,000 to 165,000 ounces of gold. However, Pan American Silver is anticipating the cash cost to be at lower ends of its guidance. However, the company is seeing some impressive improvement at its Peruvian mines which is giving it a lot of hope and being in line with this, it has posted an upbeat outlook for consolidated by-product base metal production forecast.
Pan American Silver however is not expecting any major changes in its production plans. It is expecting a lot from its La Colorada and San Vincente mines which are higher grade mines and are showing profitability even after the current soft metal pricing. But the company is still sticking to its capital guidance of $95.5 million. It is making reduction in the capital expenditure by about $50 million to achieve this target.
Moving on to the exploration, the company is investing its time and money in the exploration initiatives in search of new resources. Under this strategy, Pan American Silver is accelerating its programs at Huaron and Morococha to find more resources.
Pricing forecast
Let us now shift the spotlight to future gold prices. According to analyst George Gero, gold prices are expected to rise again. He further expects that gold will be considerably higher by next year, revealing a slow start of a recovery. Gold prices are also expected to touch all-time highs in the upcoming years.
The main reason behind this expected appreciation in gold prices is the recovering U.S. economy and the favorable monetary policy. Moreover, the insatiable demand for gold in countries such as India, China and other East Asian nations will further lead gold prices to rise. This clearly pictures a bright opportunity for Pan American Silver to grow its market share impressively in the future.
Conclusion
Now moving on the fundamentals, the company doesn’t have a trailing P/E as it is suffering due to weaker commodity prices. But the forward P/E of 512.00 shows strong growth in the earnings. But in the next five years the company is disappointing as its earnings are declining at a CAGR of -67.52% as compared to the industry average of 21.57%. It clearly indicates that in the long term prospects of the company are soft but the gold and silver prices are expected to increase in future. The company should seek ways to increase its production further to be back in the game. But as of now the investors can pick Pan American Silver as its growth in the near term looks strong.
