Silver price outlook
As a result of the spread of the new coronavirus, global markets are experiencing volatility, against which investments in precious metals serve as a hedge.
Following the unexpected 50 basis point cut to the interest rate that the Federal Reserve made on March 3, analysts expect another interest rate cut at the next meeting on March 17-18, possibly sending the base rate below 1%.
Lower interest rates will push the price of precious metals higher, as they appeal more than bonds and other fixed-income securities in a low-yielding environment.
Thus, analysts predict that silver will prices will increase from current valuations of $17.20 to $17.40 per troy ounce as of March 5.
Gold is also projected to keep on gaining throughout 2020. The yellow metal traded at around $1,668 per troy ounce on the Comex futures market and $1,659.60 per troy ounce on the London bullion market at close on March 5.
Pan American Silver
In order to take advantage of the rise in the price of the precious metal, investors may want to consider buying shares of Pan American Silver Corp (PAAS, Financial), as this Canadian silver explorer, developer and miner outperforms has outperformed the industry in the past.
In the past year, when silver gained about 14% and gold added about 27%, Pan American Silver increased by 75%, topping the Global X Silver Miners exchange-traded funds (SIL, Financial) by 59% and the Van Eck Vectors Gold Miners exchange-traded funds (GDX, Financial) by 37%. The exchange-traded funds are benchmarks for the silver and gold mining industries, respectively.
Looking to the year ahead, Wall Street sell-side analysts issued an overweight recommendation rating for shares of the silver and gold miner with an average target price of $26.43 per unit. The price target reflects an 18.4% upside to hit within a year.
The share price of Pan American Silver Corp was $22.32 at close on Thursday for a market capitalization of $4.7 billion.
The 14-day Relative Strength Indicator of 48 suggests that this stock is neither oversold nor overbought. It has a price-book ratio of 1.91 compared to the industry median of 1.33 and an enterprise value-Ebitda ratio of 10.53 compared to the industry median of 8.16.
Pan American Silver doesn’t seem to trade at its cheapest, as the share price is above the 200- and 100-day simple moving average lines and only slightly below the 50-day SMA line. Further, it is well beyond the middle point ($18.23) of the 52-week range of $10.26 to $26.20.
However, I suggest a moderate buy rating on this stock due to the below analysis of the assets of the underlying company.
From its mineral reserves in Canada, Mexico, Guatemala, Argentina, Peru and Bolivia, the miner produced nearly 25.9 million ounces of silver and 559.2 thousand ounces of gold in 2019, enduring consolidated all-in sustain costs (aka AISCs) of $4.44 per ounce of silver.
Year over year, the silver output increased 4.5% while the gold output was up 212.6% due to robust activities and the successful incorporation of the assets of Tahoe Resources Inc. following its acquisition in February 2019.
Strong production growth at a reasonable cost and favourable precious metals price environments allowed Pan American Silver to accomplish a more than 80% year over year increase in 2019 operating cash flow to $282 million, which was partially used to bolster the balance sheet.
For Pan American Silver, it will thus be easier in 2020 to realize targets of 7% silver production growth and 16% gold production growth and sustain exploration activities and the development of mineral projects.
On June 30, 2019, Pan American Silver had proven and probable mineral reserves consisting of 557.2 million ounces of silver grading 77 grams of precious metal per ton of ore and 5.12 million ounces of gold grading 0.63 grams of precious metal per ton of ore.
Total indicated and measured mineral resources consisted of 797 million ounces of silver grading 122.8 grams of precious metal per ton of mineral and 10.63 million ounces of gold grading 0.38 grams of precious metal per ton of mineral.
On March 12, the company will pay a quarterly cash dividend of 5 cents per common share which, based on Thursday’s closing price, yields a 0.91% forward dividend. The company will send the payment to those who were already shareholders of Pan American Silver Corp before March 2. The quarterly dividend represents a 42.86% hike from the previous distribution.
Disclosure: I have no positions in any security mentioned.
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