PAAS

Pan American Silver Corp.

20.83
USD
1.86%
20.83
USD
1.86%
17.26 30.56
52 weeks
52 weeks

Mkt Cap 4.38B

Shares Out 210.30M

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Pan American Silver: Turning Attractive

Summary Pan American Silver's revenues were up 19.5% year-over-year to $439.89 million in 1Q22, and consolidated production costs were $278.83 million. Quarterly gold and silver production was 131.0K Au Oz and 4,619K Ag Oz. I recommend buying PAAS at or below $21.1 with potential lower support at $18. Looking for a helping hand in the market? Members of The Gold And Oil Corner get exclusive ideas and guidance to navigate any climate. Learn More » Introduction Vancouver-based Pan American Silver Corp. (NASDAQ: NASDAQ:PAAS) released its first-quarter 2022 results on May 11, 2022. 1 - 1Q22 results snapshot PAAS reported adjusted earnings per share of $0.15 in first-quarter 2022 or $32.0 million, missing analysts' expectations. Net income was $76.52 million or $0.36 per diluted share compared to a loss of $0.04 a year ago. Pan American Silver's revenues were up 19.5% year-over-year to $439.89 million in 1Q22, and consolidated production costs were $278.83 million. However, gold and silver production were severely impacted by COVID-19, as we will see later in this article. Michael Steinmann, President and Chief Executive Officer said in the conference call: The start of the first quarter was heavily impacted by the Omicron variant that was spreading quickly around the world. Throughout our operations, we experienced significant reductions in workforce deployments during January and early February. Fortunately, this was largely due to our COVID screening process and the government mandated isolation periods, and not because of serious illness. With the lack of visibility on how Omicron would play out, we delayed issuing our 2022 guidance until late February. Revenues from gold represented approximately 56% of the total revenues in 1Q22. However, the total mineral reserves for silver are 48%, while gold is 29%. We can deduce that PAAS is more a "gold" miner than a silver miner. I will stay valid until Escobal mine starts to produce again. 2 - Investment thesis PAAS is an excellent long-term investment in the gold and silver segment. Nothing has changed in this judgment since my preceding article. The slight negative issue is that PAAS is often trading as a silver stock by the market and tend to perform less because of that. PAAS has a solid balance sheet, with net cash of $315 million and substantial growth potential with the Escobal mine in Guatemala and the skarn project at the Colorada in Mexico. The Escobal mine is now on care & maintenance waiting for approval of the mine. Because of a highly volatile environment that distinguishes the gold and silver sector, your investment in PAAS needs short-term trading using the LIFO method to turn it profitable. The solution is to trade PAAS short-term LIFO using at least 50% of your entire position while keeping a core long-term position for a much higher target. This two-level strategy is recommended in my marketplace, "The Gold And Oil Corner," and I believe it is the most rewarding way to profit. Sadly, only US investors can use LIFO. Please read my note at the end of this article. 3 - Stock performance: PAAS is still underperforming PAAS suffered a steep selloff the past few months and is now down 10% on a one-year basis. PAAS is underperforming both iShares Silver Trust (SLV) and the VanEck Vectors Gold Miners (GDX). Total revenue in $ Million 368.10 382.13 460.35 422.17 439.89 Net income in $ Million -7.80 70.94 20.25 14.04 76.52 EPS diluted in $/SHARE -0.04 0.34 0.10 0.07 0.36 Operating cash flow in $ Million 29.85 87.14 157.02 118.10 68.76 CapEx in $ Million 47.97 63.17 62.19 70.15 61.45 Free cash flow in $ Million -18.12 23.97 94.83 47.95 7.30 Total cash $ Million 206.41 240.37 315.45 335.27 326.29 Dividend per share in $ 0.07 0.10 0.10 0.12 0.12 Shares outstanding (diluted) in Million 210.26 210.30 210.42 210.45 210.55 Silver production M oz 4.583 4.484 4.831 5.276 4.619 Gold price realized $/OZ 1,788 1,809 1,782 1,792 1,880 Silver price realized $/OZ 26.41 26.88 24.16 23.33 24.03 1 - Total Gold/Silver production 1.1 - Quarterly production was 131.0K Au Oz and 4,619K Ag Oz PAAS's gold and silver production for the 1Q22 was within the guidance range. As we can see above production was weaker YoY. 1.2 - Details per mine below We completed closure at that plant in Q1 and we are currently investigating alternative opportunities for Morococha, including monetization, joint venture operation or accelerating exploration of prospective areas that could enhance the attractiveness of allocating capital to build a new processing facility. 1.3 - The company produced zinc, lead, and copper, as indicated below Silver Segment Cash Costs and All-in Sustaining Costs ("AISC") per silver ounce was $13.41. Gold AISC was very high this quarter at $1,502 per ounce. 1.4 - Escobal mine encouraging news: The Contingent Value Right (CVR) trading under PAASF has dropped sharply and looks attractive below $0.68. Often, shareholders who own the contingent value right ("CVR") trading under PAASF in the OTC must be patient. The contingent value right is attached to the Escobal mine's uncertain re-opening. The stock closed at $0.63, and I suggest buying it now. RSI shows an oversold situation at 31. Progress is slow but looks positive. In my opinion, this process will take about a year and a half before the company is allowed to restart the silver mine. At Escobal, the inclusive ILO-169 consultation process continues with the pre-consultation meeting held on May 9th and the next meeting planned for June 5th. Below is the TA Chart: 2 - 2022 guidance The Company reaffirms its 2022 operating outlook for silver and gold production, as given in the Company's 2021 Annual MD&A dated February 23, 2022. The company expects 19.0 Moz-20.5 Moz for silver and 550K-605K Oz for gold. It was no change from the preceding quarter. Silver segment cash costs are anticipated to be $10.7-$12.20 per Ag ounce, and AISC for silver is $14.50-$16.00. For the gold segment, cash costs are expected between $970 and $1,070 per ounce, with AISC between $1,240 and $1,365 per ounce. Part 2 - Pan American Silver: Financial Analysis 1 - Total revenue was $439.89 million in 1Q22 The Canadian company reported a first-quarter income of $76.52 million ($0.36 earnings per diluted share). Revenues were $439.89 million in 1Q22, up 19.5% from the same quarter last year. The adjusted income was $32.0 million or $0.15 basic adjusted earnings per share compared to $37.43 million or $0.18 per share last year. It is worth noticing that PAAS declared a $44.6 million one-time gain for Pan American's investment in Maverix Metals Inc. in the press release: On March 31, 2022, the Company determined that it no longer held significant influence over Maverix due to declining to exercise its right to nominate a representative to serve as a director on Maverix’s Board of Directors and accordingly the Company no longer has the power to participate in the financial and operating policy decisions of Maverix. As a result, the Company recorded a $44.6 million gain concurrent with the redesignation of its investment in Maverix from Investment in Associate, accounted using the "equity method" whereby the Company's recorded into income its ownership proportion of Maverix estimated earnings, into a long-term financial asset recorded at FVTOCI. The value of the FVTOCI was $124.677 million as of March 31, 2022. 2 - Free cash flow was $7.30 million in 1Q22 Trailing 12-month free cash flow is $174.05 million, with $7.3 million in the first quarter of 2022. The Board of Directors has approved a cash dividend of $0.12 per common share in 1Q22. 3 - PAAS is net debt-free, and the total cash is up to $326.29 million in 1Q22. LT debt was $11.05 million. As of March 31, 2022, the company had cash and short-term investment balances of $326.3 million. The total debt, including equipment leases, is $47 million. Available liquidity is now $826.3 million. PAAS has $500.0 million available under its revolving credit facility. Limited LT debt of $11.90 million and $47 million is related to leasing liabilities and construction loans. Part 3 - Technical Analysis And Commentary Note: The chart is adjusted for the dividend. PAAS forms an ascending channel pattern with resistance at $26.5 and support at $21. The trading strategy is to trade LIFO about 50% of your position and keep a core long-term position for $31-$33. I recommend accumulating PAAS at or below $21.1 and selling about 20% of your position at the mid-resistance at $24.5. If the mid-resistance is crossed, the next resistance or selling range is $26 to $26.7. If the gold price turns bullish above $1,875 per ounce, the next target is $29.6, assuming silver follows. I do not consider this scenario very likely. Conversely, if the gold price turns bearish due to the Fed's hawkish action against inflation, then I think PAAS could drop to $18. Watch gold and silver prices like a hawk. Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long term and one for short-term trading. Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can. Author's note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks. Join my "Gold and Oil Corner" today, and discuss ideas and strategies freely in my private chat room. Click here to subscribe now. You will have access to 57+ stocks at your fingertips with my exclusive Fun Trading's stock tracker. Do not be alone and enjoy an honest exchange with a veteran trader with more than thirty years of experience. "It's not only moving that creates new starting points. Sometimes all it takes is a subtle shift in perspective," Kristin Armstrong. Fun Trading has been writing since 2014, and you will have total access to his 1,988 articles and counting. This article was written by I am a former test & measurement doctor engineer (geodetic metrology). I was interested in quantum metrology for a while. I live mostly in Sweden with my loving wife. I have also managed an old and broad private family Portfolio successfully -- now officially retired but still active -- and trade personally a medium-size portfolio for over 40 years. “Logic will get you from A to B. Imagination will take you everywhere.” Einstein. Note: I am not a financial advisor. All articles are my honest opinion. It is your responsibility to conduct your own due diligence before investing or trading. Disclosure: I/we have a beneficial long position in the shares of PAAS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: I trade short-term PAAS and PAASF as well. Comment

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