Pan American Silver (PAAS, Financial) continues to reel under the pressure of lower metal prices, which weighed on its financials in the first quarter. Further adding to this headwind the silver ounces sold also declined, but it managed to offset some this negative impact with higher sales of copper and gold. However, the company has a long way to go for a real turnaround. Led by these challenges, the stock has declined considerably in the past one year. Starting with its numbers, let’s see what should be our take on Pan American in the days ahead.
Difficult times
Its revenue for the quarter fell 15% from a year ago period to $178.1 million, while it turned to a loss of 13 cents a share compared to an EPS of 8 cents last year. Analysts were expecting a loss of 7 cents per share on revenue of $180.1 million. It is not very surprising that the numbers came below expectations, since its earnings have lagged behind the analysts’ consensus by a significant margin for the past three quarters.
Also, reducing dividends is a negative for investors but it will provide the capital required for Dolores expansion. Considering a weak pricing environment it seems to be the right thing to do as it will be able to optimally utilize its cash to improve its asset base by investing in good return, low risk projects that will ultimately increase production and reduce overall unit operating cost.
What next?
Along with this, the expansion project at the La Colorada mine is also progressing well, which once completed is expected to increase the mines silver production by 2.8 million ounces annually. In the future, both these projects should generate excellent returns even at current silver and gold prices. Moreover, even as the Alamo Dorado mine exhausts over the next couple of years, these projects combined should offset the production loss in connection to Alamo Dorado.
All in all, Pan American has improving prospects in the days ahead. Although the company does not have any trailing or forward P/E because of its year over year losses but the initiatives it undertook could yield promising results in the future. Also it’s P/S multiple of 1.86 is better than some its peers indicating that the stock is undervalued at current levels. In the light of these facts, Pan American Silver seems to be a good long term bet.
