2023-08-13 09:59:05 ET
Summary
- Pan American Silver Corp. released its second-quarter 2023 results, showing a significant transformation in scale due to the Yamana Gold acquisition.
- Pan American Silver's revenues were up 87.9% year-over-year to $639.90 million in 2Q23.
- I recommend accumulating PAAS between $15.40 and $15, with possible lower support at $14.10.
Introduction
Vancouver-based Pan American Silver Corp. ( PAAS ) released its second-quarter 2023 results on May 10, 2023.
Note: I have been covering PAAS regularly quarterly since June 2019. This article is an update of my preceding article, published on March 23, 2023.
Reminder: On March 31, 2023, Pan American Silver completed the Yamana Gold acquisition.
Michael Steinmann, Chief Executive Officer of Pan American, said in the conference call:
The second quarter is the first period we are reporting results inclusive of the assets acquired through the Yamana transaction, which closed on March 31st. The results clearly deliver on the benefits we had expected through the strategic acquisition enhancing both the scale and quality of our portfolio.
It is a significant transformation in scale, which is well explained in the Map presentation below:
After the Yamaha acquisition, PAAS is now a more prominent company with a strong presence in South America.
Revenue and production are expected to increase significantly in 2023, with 21-23 Moz of Silver and 870-970 Koz of Gold, including 9 months of Production from Yamana Operations. (Pan American produced 552.5K Au ounces and 18.456 Ag Moz in 2022).
Also, on July 31, 2023, the Company announced the divestiture of certain non-core assets:
- PAAS' 56.25% interest in the MARA project in Argentina for $475 million cash ,
- PAAS' 92.3% interest in Morococha Mine in Peru for $25 million cash ,
- and PAAS' 57.75% interest in the Agua de la Falda project in Chile for $45.55 million in cash.
All three transactions are expected to be completed in 3Q23. The company is expected to receive $593 million .
Michael Steinmann, Chief Executive Officer of Pan American, said in the conference call:
Our financial position improves further with the divestment of non-core assets we announced on July 31, 2023. The sale of our interest in the MARA project in Argentina, the Morococha mine in Peru and the Agua de la Falda project in Chile, together with the divestment of non-core equity investments, is expected to yield total cash proceeds of $593 million.
1 - 2Q23 Results Snapshot
PAAS reported a loss per diluted share of $0.13 (basic adjusted earnings per share of $14.7 million or $0.04 per share ) in the second quarter of 2023.
Pan American Silver's revenues were up 87.9% year-over-year to $639.90 million in 2Q23.
The company said the consolidated silver and gold production 2Q23 was within the guidance range. Gold production was 248.2K Au Oz , and silver production was 6,024 Ag Koz.
The company reaffirmed its operating outlook.
Also, PAAS repaid $55.4 million of debt in 2Q23 and ended the quarter in a strong financial position with $470 million available under the Sustainability-Linked Credit Facility and cash and short-term investment of $404.2 million, including the $192.9 million of cash that is restricted to the MARA project.
Michael Steinmann, Chief Executive Officer, said in the conference call:
With the contribution of the new assets, production in Q2 was up 102% for gold and 55% for silver relative to Q1. Consolidated Q2 silver production of 6 million ounces was at the high-end of our 2023 quarterly guidance and consolidated record gold production of 248,200 ounces also approach the upper end of the range.
2 - Investment Thesis
I consider PAAS a long-term investment in the gold and silver segment, and the recent acquisition of part of Yamana Gold assets supports the long-term narrative. I was quite impressed with the strong production this quarter.
I am often reticent to recognize the benefit of such acquisitions, but I believe it was a good move in this case.
Furthermore, PAAS offers a good growth prospect, with the Escobal Silver Mine potentially re-opening by the end of 2024.
Steinmann said in the conference call:
At the Escobal mine in Guatemala, three meetings were held in the second quarter under the ILO 169 consultation process being led by the Guatemalan government...
Following the meeting, we responded to request for additional information and continue to work with MEM, the Ministry of Energy and Mines in the process... The MEM considers that the information transfer process for phase 2 of the consultation is complete. The MEM has established several dates for working meetings with the parties involved in the consultation.
Note: For those interested in the Escobal Mine, you can invest in the Pan American Silver Corp Contingent Value Rights ( PAASF ), trading at $0.545 per share.
Finally, I am more optimistic about the gold and silver outlook with the recent CPI number, even if we may get one more 25-point increase in 2023. Gold and silver dropped recently to $1,920 per ounce. However, we may have found good support, from which I believe a new uptrend with a crossing of $2,000 could materialize in 4Q23.
As I said in my prior article, we deal with a highly volatile environment. Thus, your investment in PAAS must include short-term trading using the LIFO method to turn it profitable and, above all, less risky.
The solution is to trade PAAS short-term LIFO using at least 50%-60% of your entire holding, while keeping a core long-term position for an eventual higher target.
3 - Stock Performance
PAAS is now down 11% on a one-year basis and is not performing extremely well at the moment.
PAAS - Balance Sheet and Production History Until 2Q23 - The Raw Numbers
Pan American Silver | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
Total revenue in $ Million | 340.47 | 338.89 | 375.47 | 390.3 | 639.9 |
Net income in $ Million | -173.98 | -71.53 | -172.76 | 16.4 | -46.8 |
EBITDA $ Million | -91.42 | 9.82 | -71.69 | 101.1 | 106.8 |
EPS diluted in $/share | -0.83 | -0.34 | -0.82 | 0.08 | -0.13 |
Operating cash flow in $ Million | 20.84 | 54.42 | -112.10 | 51.3 | 117.0 |
CapEx in $ Million | 71.80 | 69.07 | 72.36 | 38.5 | 113.0 |
Free cash flow in $ Million | -50.97* | -14.66 | -184.46 | 12.8 | 4.00 |
Total cash $ Million | 241.26 | 187.17 | 142.34 | 513.1 | 404.2 |
Total debt in $ Million | 63.22 | 68.47 | 226.8 | 1,088.1 | 1,039.0 |
Dividend per share in $ | 0.11 | 0.11 | 0.10 | 0.10 | 0.10 |
Shares outstanding (diluted) in Million | 210.51 | 210.53 | 210.58 | 210.70 | 364.44 |
Gold/Silver Production | 2Q22 | 3Q22 | 4Q22 | 1Q23 | 2Q23 |
Gold production K Oz | 128.3 | 128.8 | 164.4 | 122.7 | 248.2 |
Silver production M oz | 4.537 | 4.537 | 4.763 | 3.891 | 6.024 |
AISC $/Oz by-product Silver | 17.30 | 17.97 | 17.79 | 14.13 | 15.70 |
Gold price realized $/Oz | 1,850 | 1,705 | 1,736 | 1,895 | 1,975 |
Silver price realized $/Oz | 22.03 | 18.72 | 21.17 | 22.75 | 23.45 |
Data Source: Company filings
Part 1 - Second Quarter 2023 Gold and Silver Production Commentary
Second Quarter of 2023 Production of Gold and Silver and Details Per Mine
The second quarter production was 248.2K Au ounces and 6.024 million Ag ounces.
It was a solid quarter of production, including the new mines from Yamana Gold, as shown in the chart above.
PAAS is producing gold and silver from eleven mines indicated below:
As previously disclosed, Manantial Espejo has been placed on care and maintenance after the completion of mining at the end of last year.
PAAS also produces by-product metals (zinc, lead, and copper). Production per metal is indicated below:
Note: A metric Tonne/Ton is 2,204.6 pounds.
Part 2 - Pan American Silver: Financial Analysis
1 - Total Revenue was $639.9 Million in 2Q23
The Canadian company reported a second-quarter loss of $46.80 million ( $0.13 per diluted share). This compares to a net loss of $174.0 million, or $0.83 per share in 2Q22.
Revenues were $639.90 million in 2Q23, up 87.9% from last year's quarter and up 64% sequentially.
The adjusted income was $14.7 million, or $0.04 basic adjusted earnings per share.
2 - Free Cash Flow was $4.0 Million in 2Q23
Note: Generic free cash flow is the cash flow from operation minus CapEx.
Trailing 12-month free cash flow is a loss of $182.32 million , with a gain of $4.0 million in the second quarter of 2023.
The Board of Directors has approved a cash dividend of $0.10 per common share in 2Q23.
3 - Total Cash was $404.20 Million, and Total Debt was $1,039 Million in 2Q23.
As of June 30, 2023, the company had cash and short-term investment balances of $404.20 million. The Long term debt, including current, is $1,039 million . Available liquidity is $879.2 million.
$55.4 million was used in debt repayments in 2Q23.
IMPORTANT: The company is about to receive $593 million from the three divestitures indicated earlier in my article, which will raise the total cash to nearly $1 billion.
Part 3 - Technical Analysis And Commentary
Note: The chart is adjusted for the dividend.
PAAS forms an ascending channel pattern, with resistance at $17.40 and support at $15.25.
Generally, ascending channel patterns are short-term bullish, but these patterns often form within longer-term downtrends as continuation patterns, which means a retracement is possible after retesting the resistance.
The strategy is to trade about 50%-60% of your position LIFO and keep a core long-term for a retest of $25 and above, probably after the restart of Escobal, hopefully in 2024.
I recommend accumulating PAAS between $15.40 and $15 , with possible lower support at $14.10 . Conversely, I suggest selling about 50% of your position, between $16.45 and $17.5, with possible higher resistance at $18.25.
Watch gold and silver prices and the Fed like a hawk.
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.
For further details see:
Pan American Silver: Solid Production Quarter