Following the exploration results from the La Morocha deposit, the board of directors of Pan American Silver Corp. (PAAS, Financial) announced Dec. 21 it authorized a $37.8 million investment for the construction of the La Morocha underground mine.Ă‚ The mine is located in the Argentinian province of Santa Cruz.
With the aforementioned investment, Pan American also expects to cover all the necessary expenditures before La Morocha begins production.
The company will finance the development of the mine using operating cash flow.
Pan American Silver will prepare a technical report for the La Morocha deposit. The preliminary feasibility study, however, has provided investors with the basis for the economic analysis of the project: an after-tax net present value of $9.1 million, which has been calculated at a 5% discount rate, and an after-tax internal rate of return of 18%. Both estimates have been based on a price of $18.50 per ounce of silver and a price of $1,300 per ounce of gold.
President and CEO Michael Steinmann commented on the project:
"Developing Joaquin is a low-risk project that enhances the value of our Manantial Espejo processing plant and infrastructure assets. The ore from La Morocha will supplement ore feed from the underground mine and stockpiles at Manantial Espejo, as well as the feed from our COSE project. We expect the combined production from these sources to contribute approximately 21 million ounces of silver to Pan American's consolidated silver production over the 2018 to 2021 time period.”
This announcement should have a positive impact on the market value of Pan American Silver over the next several weeks.
Pan American Silver is trading around $15.66 per share on the Nasdaq stock exchange with a market capitalization of $2.37 billion, a price-book (P/B) ratio of 1.66 and an EV/EBITDA ratio of 8.80.
For the 52 weeks through Dec. 20, the stock is up 10% and is trading below the 200-day simple moving average line:
Pan American Silver's relative strength index is at the midpoint of a 35 to 75 range:
Analysts set a target price of $20.89 per share, which represents a hefty 34.3% upside in the current market value. The recommendation rating is 2.2 out of 5.
As of Dec. 31, 2016, Pan American Silver had 285.8 million ounces of silver, approximately 2.04 million ounces of gold, approximately 72,400 tonnes of copper, approximately 334,900 tonnes of lead and approximately 752,000 tonnes of zinc in proven and probable reserves.
The company has an enterprise value of $2.25 billion.
Disclosure: I have no position in Pan American Silver.
