Pan American Silver Corp. (PAAS, Financial) – the Canadian precious metal producer and explorer – closed the second quarter of fiscal 2017 with an EPS – adjusted to one-time charges – of 15 cents or an adjusted net profit of $22.3 million, a 25% increase year over year.
Pan American Silver beat expectations on earnings by 5 cents and produced a positive surprise of 50% since analysts forecasted the Canadian miner would report an adjusted EPS of 10 cents.
Source: Yahoo Finance
Second quarter of fiscal earnings are backed on revenue that came in at $201.3 million, a 4.7% increase year over year.
The company beat analysts’ expectations on revenue by $12.83 million.
The company says that year-over-year increases in silver and zinc prices played a key role in the company’s quarterly revenue improvement. For the sale of one ounce of silver Pan American Silver realized an average price of $17.21 in the second quarter versus an average price of $16.78 realized from the sale of one ounce in the comparable quarter of 2016. Zinc was sold at an average price of $2,596 per tonne while in the same quarter one year ago the metal was sold at a price of $1,918 per tonne.
Pan American Silver produced approximately 6.30 million ounces of silver, flat year over year, and 37,700 ounces of gold, a 22.1% decline from the second quarter of 2016. The decrease in the production of the yellow metal, writes Pan American, “was primarily the result of lower ore grades at Manantial Espejo and Dolores together with the shutdown of Alamo Dorado operations.”
The company produced 13,700 tons of zinc in the second quarter, which represents a nearly 8% increase year over year.
Gold, zinc, lead and copper are derived from the company’s production of silver.
The all-in sustaining cost (AISC) per ounce of silver sold – on a consolidated basis – decreased by 5.1% to $10.73 in the second quarter from $11.31 in the second quarter of fiscal 2016, thanks to the company’s progression on the expansion of its Mexican mines – at La Colorada where the throughput rates are half a year ahead of the miner’s plan and at Dolores where the new pulp agglomeration plant’s commissioning has started – enabling Pan American Silver to produce the metals at a lower production cost. A lower AISC per ounce of metal sold was also the result of a decrease – on a year-over-year basis – in the amount of funds used by Pan American Silver as capex.
The upside in silver and zinc prices, along with the improvement at operations following the Mexican assets expansion, was not enough to fully counterbalance the effects on the operating cash flow due to changes in the working capital and an increase in the amount of taxes paid by the company during the quarter. The net operating cash flow decreased 35% from $66 million in the second quarter of 2016 to $42 million in the comparable quarter of 2017.
The Canadian miner closed the second quarter with a total amount of $198.2 million in cash on hand and securities after having used about $20 million for investments on mineral properties, plant and equipment, for the purchase of the COSE project, for the payment of dividends to the shareholders and for lease repayments.
Pan American can also count on a credit facility that together with the amount of cash on hand and securities the company believes is enough to meet 2017 business’ requirements and pay back financial obligations as they mature.
Concerning silver production for full fiscal 2017, Pan American says that it is on track to achieve its 24.5 million to 26 million ounces targeted range while the production of the yellow metal is targeted to range between 155,000 and 165,000 ounces reaffirmed by the company based on a gold production that at Dolores mine is expected to be higher in the second half of fiscal 2017.
Concerning AISC for full fiscal 2017, the company lowered its previous estimate by approximately 10% to $10.50 per ounce to $11.50 per ounce of metal sold range from a $11.50 per ounce to $12.90 per ounce of metal sold prior range, mainly because of the benefits coming from the mines’ expansions mentioned before.
Pan American Silver is currently trading at $17.64 per share with a market capitalization of $2.696 billion, a price-book (P/B) ratio of 1.90, a price-earnings (P/E) ratio of 22.82 and a price-sales (P/S) ratio of 3.31. The forward P/E ratio is 22.62. The recommendation rating is 2.3 out of 5, and analysts’ average target price of $20.77 per share represents approximately a $3 per share upside from the current market valuation analysts foresee the silver stock will hit within 12 months.
Disclosure: I have no position in Pan American Silver.
