Pan American Silver Corp. (PAAS, Financial) beat expectations on third-quarter earnings by 2 cents, having closed the reporting period with an EPS of 15 cents.
The news release of Nov. 7, through which Pan American Silver informed its shareholders on earnings and other financial figures for the third quarter, can be found on the company’s website.
The figure for EPS of 15 cents is adjusted to one-time charges as well as the net profit of $23.3 million. The quarterly figure of adjusted EPS represented a 51.6% decrease on a year-over-year basis (YOY) and was backed on sales that came in at $190.8 million, an 18.3% decline compared to the prior-year quarter. The latter was a consequence of “the decline in quantities of silver and gold sold and realized prices for both metals,” the company reported.
The decline in silver sales volume weighed on the all-in sustaining cost (AISC) that – on a consolidated basis – was $8.69 per ounce of silver sold in the third quarter versus an AISC of $6.34 per ounce of silver sold in the third quarter of fiscal 2016.
The company also sells zinc, lead and copper; sales volumes and realized prices in the quarter were in question higher compared to the prior-year quarter, but these increments were not enough to completely counterbalance the decline in revenues of silver and gold.
The company missed expectations on revenue by $5.7 million.
Production of gold and silver (the company’s primary production) went down in the third quarter by 9,560 ounces (or nearly -19%) to 40,840 ounces of gold and by 470,000 (or -7.4%) to 5.89 million ounces of silver, compared to the third quarter of fiscal 2016.
The production of the gray metal was impacted by discontinued production from Alamo Dorado and decreased production at San Vicente and Manantial Espejo, the company says. These mines – including an operating Alamo Dorado asset – usually account for 30% to 34% of Pan American Silver’s total production.
The production of the yellow metal is at Pan American Silver’s operations secondary to the production of silver (main production) as well as the production of lead (5,300 tonnes in the third quarter; +6% YOY), zinc (14,100 tonnes in the third quarter; +6.8% YOY) and copper (3,700 tonnes in the third quarter; +15.6 YOY).
The increase in the production of base metals together with higher byproducts credits determined a 36% decline (YOY) in the cash cost per payable ounce of silver – on a consolidated basis and net of byproduct credits – to $3.12 in the third quarter.
The production and sale of base metals usually account for something like 33% to 36% of Pan American Silver’s total business.
Michael Steinmann – Pan American Silver’s president and CEO – commented on third-quarter figures: "We continued to generate strong earnings in the third quarter. In addition to fully funding our operations and growth capital projects, we repaid all of our bank debt and ended the third quarter with $186.3 million of cash and short-term investments. We see potential for robust cash flow generation with the ongoing ramp-up in production from our mine expansions in Mexico."
For full-fiscal 2017, the company expects to produce between 24.5 million ounces and 26 million ounces of silver; this is unchanged from the previous guidance. The AISC is forecasted by Pan American Silver to decline 9.8% on average to a range of $10.50 per ounce and $11.50 per ounce of the gray metal sold.
The Vancouver-based mining company expects that the capex will range between $155.5 million and $166.5 million for full-fiscal 2017, of which 52.8% will be used as sustaining capital and 47.2% will be used as project capital for the advancement of the Joaquin project and COSE project – both projects are located in Argentina – and for the expansion of the La Colorada mine and the Dolores mine. The company says that “2017 is expected to be the final year of spending on the La Colorada and Dolores mine expansion.”
Pan American Silver is trading at $15.04 per share on the Nasdaq stock exchange with a market capitalization of $2.29 billion, a price-book (P/B) ratio of 1.53 and an EV to EBITDA ratio of 6.88.
The stock is flat year to date and trading below the simple moving average line computed over the last 50 and 200 trading days:
As you can see in the chart above, Pan American Silver is downtrending since mid-September.
The Relative Strength Indicator (RSI) is 24.45; common interpretation says that Pan American Silver may be either oversold or undervalued by the stock market, signaling therefore either a change in the trend on the market or a correction in the stock’s price to the upside.
The average analyst set a target price of $21.18 per share of Pan American Silver, which represents a hefty 41% upside in the current market value. The recommendation rating is 2.5 out of 5.
As of Dec. 31, 2016, Pan American Silver had 285.8 million ounces of silver in proven and probable (P&P) reserves, about 2.04 million ounces of gold in P&P reserves, about 72,400 tonnes of copper in P&P reserves, about 334,900 tonnes of lead in P&P reserves and about 752,000 tonnes of zinc in P&P reserves.
The company has an Enterprise Value (EV) of $2.15 billion.
Disclosure: I have no position in Pan American Silver.
