Last close As at 05/08/2026
USD48.24
▲ 3.33 (7.41%)
Market capitalisation
USD20,120m
Research: Metals & Mining
Following our short update on the La Colorada Skarn preliminary economic assessment (PEA), we are revising our valuation of Pan American Silver (PAAS) to incorporate the Skarn’s risked NPV. We have also reflected up-to-date commodity prices and lower WACC thanks to the reduction in bond yields. Overall, our valuation of PAAS increases from US$22.7 to US$23.5/share. While the stock has recently been propped up by the strong gold price, we see the upcoming publication of the FY24 outlook and FY23 results as potential additional catalysts for the shares.
Pan American Silver |
Adjusting valuation on Skarn |
Valuation update |
Metals and mining |
3 January 2024 |
Share price performance
Business description
Next events
Analysts
Pan American Silver is a research client of Edison Investment Research Limited |
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Following our short update on the La Colorada Skarn preliminary economic assessment (PEA), we are revising our valuation of Pan American Silver (PAAS) to incorporate the Skarn’s risked NPV. We have also reflected up-to-date commodity prices and lower WACC thanks to the reduction in bond yields. Overall, our valuation of PAAS increases from US$22.7 to US$23.5/share. While the stock has recently been propped up by the strong gold price, we see the upcoming publication of the FY24 outlook and FY23 results as potential additional catalysts for the shares.
Year |
Revenue |
EBITDA |
EPS* |
DPS |
EV/EBITDA |
Yield |
12/21 |
1,632.8 |
593.2 |
0.75 |
0.34 |
10.5 |
2.1 |
12/22 |
1,494.7 |
272.0 |
(0.54) |
0.45 |
22.9 |
2.8 |
12/23e |
2,315.2 |
686.1 |
0.22 |
0.41 |
9.1 |
2.6 |
12/24e |
2,644.0 |
904.7 |
0.37 |
0.40 |
5.7 |
2.5 |
Note: *EPS excludes exceptional items.
Skarn PEA confirms the project’s early potential
The Skarn PEA envisages producing an average 17.2Moz of silver, 427kt of zinc and 218kt of lead pa over the initial 10 years of operation (life of mine of 17 years). With the construction period of six years and pre-production capital expenditure of US$2.8bn, PAAS expects Skarn to generate an after-tax IRR of 14% and estimates the project’s after-tax NPV8 at US$1,087m. Edison’s approach is to risk project valuations based on their development stage. We estimate that a typical PEA based valuation would attract an NPV8 discount of c 66% (see Gold stars and black holes). However, given our understanding that the Skarn PEA was completed at a much more detailed level (and hence higher accuracy) than a standard early-stage economic assessment, we have assumed a (still arguably conservative) 60% NPV8 discount, yielding a risked valuation of US$435m vs our previous EV/Resource based value of US$273m. While Skarn is a large-scale, early-stage, pre-funded project that sits under the currently producing mine, we note that PAAS has indicated its intention to bring in a development partner, as it is focused on silver within this large, primarily zinc deposit.
Revising FY23 estimates on stronger commodities
We have also brought our FY23 commodity prices up to date, with the actual Q4 gold price of US$1,977/oz slightly exceeding our earlier assumptions. As a result, our FY23 EBITDA estimate has increased to US$686m (from US$675m). We expect a seasonally strong Q4 with EBITDA of c US$208m on the back of some cost and production normalisation and strong commodity prices.
Valuation: Upgraded on Skarn, lower WACC
Slightly higher earnings estimates and the revised Skarn valuation have resulted in an increase in our PAAS valuation to US$23.5/share (from US$22.7). We have also lowered our WACC estimate by 0.2pp due to the reduction in long-term bond yields. While the PAAS stock has recently been supported by the strength of the gold price, we see the upcoming release of the FY24 outlook/FY23 production and full- year results as additional catalysts for the shares, potentially providing some evidence of improving consistency in project-level operational performance.
Exhibit 1: Financial summary
$m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
1,338.8 |
1,632.8 |
1,494.7 |
2,315.2 |
2,644.0 |
Cash production costs |
(696.7) |
(925.5) |
(1,094.4) |
(1,453.9) |
(1,553.1) |
||
DD&A |
(254.5) |
(303.0) |
(316.0) |
(508.0) |
(578.1) |
||
Royalties |
(27.5) |
(36.4) |
(35.9) |
(48.8) |
(55.2) |
||
Gross Profit |
360.2 |
367.9 |
48.4 |
304.5 |
457.6 |
||
G&A |
(36.4) |
(34.9) |
(29.0) |
(59.0) |
(68.0) |
||
Other operating costs |
(109.2) |
(42.9) |
(63.5) |
(99.6) |
(63.0) |
||
Operating profit (before amort. and excepts.) |
|
|
214.6 |
290.2 |
(44.1) |
178.1 |
326.6 |
EBITDA |
|
|
469.1 |
593.2 |
272.0 |
686.1 |
904.7 |
Other operating expenses |
(5.5) |
30.7 |
(6.4) |
27.2 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
(211.8) |
(67.4) |
0.0 |
||
Reported operating profit |
209.1 |
320.9 |
(262.3) |
105.7 |
326.6 |
||
Net Interest and finance expense |
(20.1) |
(16.2) |
(22.5) |
(94.3) |
(98.2) |
||
Profit Before Tax (norm) |
|
|
189.0 |
304.7 |
(73.0) |
110.9 |
228.4 |
Investment income (loss) |
63.0 |
(59.7) |
(16.2) |
(8.8) |
0.0 |
||
Profit Before Tax (reported) |
|
|
252.0 |
245.0 |
(301.0) |
2.5 |
228.4 |
Reported tax |
(75.6) |
(146.4) |
(39.1) |
(41.9) |
(91.4) |
||
Profit After Tax (norm) |
113.4 |
158.3 |
(112.1) |
69.0 |
137.0 |
||
Profit After Tax (reported) |
176.5 |
98.6 |
(340.1) |
(39.4) |
137.0 |
||
Minority interests |
(1.4) |
1.1 |
1.7 |
(1.4) |
1.0 |
||
Net income (normalised) |
114.9 |
157.2 |
(113.8) |
70.4 |
136.0 |
||
Net income (reported) |
177.9 |
97.4 |
(341.8) |
(38.0) |
136.0 |
||
Average Number of Shares Outstanding (m) |
210 |
210 |
211 |
326 |
364 |
||
EPS - basic normalised ($) |
|
|
0.55 |
0.75 |
(0.54) |
0.22 |
0.37 |
EPS - normalised fully diluted ($) |
|
|
0.55 |
0.75 |
(0.54) |
0.22 |
0.37 |
EPS - basic reported ($) |
|
|
0.85 |
0.46 |
(1.62) |
(0.12) |
0.37 |
Dividend ($) |
0.22 |
0.34 |
0.45 |
0.41 |
0.40 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
2,577.0 |
2,517.4 |
2,444.1 |
6,019.2 |
5,747.0 |
Tangible assets |
2,415.0 |
2,344.6 |
2,226.4 |
5,846.8 |
5,574.6 |
||
Investments |
71.6 |
78.7 |
121.2 |
0.0 |
0.0 |
||
Other |
90.4 |
94.2 |
96.6 |
172.4 |
172.4 |
||
Current Assets |
|
|
856.9 |
1,001.2 |
804.4 |
1,465.7 |
1,667.5 |
Inventories |
406.2 |
500.5 |
471.6 |
702.7 |
721.0 |
||
Receivables |
127.8 |
128.2 |
136.6 |
155.4 |
163.0 |
||
Cash |
167.1 |
283.6 |
107.0 |
330.1 |
505.9 |
||
ST investments |
111.9 |
51.7 |
35.3 |
38.5 |
38.5 |
||
Other |
43.9 |
37.3 |
53.8 |
239.1 |
239.1 |
||
Current Liabilities |
|
|
(361.8) |
(387.7) |
(380.8) |
(643.6) |
(666.4) |
Creditors |
(281.9) |
(306.1) |
(308.1) |
(477.7) |
(500.5) |
||
Short term borrowings and leases |
(12.8) |
(14.1) |
(27.3) |
(54.4) |
(54.4) |
||
Other |
(67.0) |
(67.5) |
(45.5) |
(111.5) |
(111.5) |
||
Long Term Liabilities |
|
|
(466.3) |
(494.9) |
(666.0) |
(1,958.9) |
(1,873.5) |
LT debt and leases |
(20.7) |
(31.8) |
(199.5) |
(754.7) |
(769.3) |
||
Other long term liabilities |
(445.5) |
(463.1) |
(466.5) |
(1,204.2) |
(1,104.2) |
||
Net Assets |
|
|
2,605.8 |
2,636.0 |
2,201.6 |
4,882.5 |
4,874.6 |
Minority interests |
(3.3) |
(4.5) |
(6.1) |
(58.8) |
(59.8) |
||
Shareholders' equity |
|
|
2,602.5 |
2,631.6 |
2,195.5 |
4,823.7 |
4,814.8 |
CASH FLOW |
|||||||
Operating Cash Flow |
176.5 |
98.6 |
(340.1) |
(39.4) |
137.0 |
||
D&A, exceptionals, other |
280.5 |
498.9 |
555.2 |
655.4 |
767.7 |
||
Working capital movement |
97.0 |
(71.1) |
(42.0) |
6.8 |
(3.1) |
||
Tax |
(81.6) |
(129.2) |
(137.8) |
(161.9) |
(191.4) |
||
Net Interest |
(10.0) |
(5.1) |
(3.4) |
(39.0) |
(57.8) |
||
Net operating cash flow |
|
|
462.3 |
392.1 |
31.9 |
421.9 |
652.5 |
Capex |
(178.6) |
(243.5) |
(274.7) |
(367.1) |
(305.9) |
||
Acquisitions/disposals |
22.5 |
45.8 |
8.7 |
716.8 |
0.0 |
||
Equity financing |
4.7 |
0.6 |
0.9 |
0.0 |
0.0 |
||
Dividends |
(46.2) |
(71.5) |
(94.7) |
(133.6) |
(145.8) |
||
Other |
59.1 |
(2.3) |
20.0 |
(11.5) |
(25.0) |
||
Net Cash Flow |
323.8 |
121.2 |
(307.9) |
626.5 |
175.8 |
||
Opening net debt/(cash), including ST investments |
|
|
77.9 |
(245.5) |
(289.4) |
84.5 |
440.6 |
FX and other |
(0.5) |
(77.3) |
(66.0) |
(982.5) |
(14.6) |
||
Closing net debt/(cash), including ST investments |
|
|
(245.5) |
(289.4) |
84.5 |
440.6 |
279.3 |
Closing net debt/(cash), excluding ST investments |
(133.5) |
(237.7) |
119.9 |
479.1 |
317.8 |
Source: Pan American Silver accounts, Edison Investment Research
|
|
Research: Healthcare
Mendus wrapped up FY23 with a clinical pipeline update. Management is maintaining its plans to explore ilixadencel in soft tissue sarcomas (STS), with the Phase II trial due to start in H124 and the MERECA trial (ilixadencel) in metastatic renal cell carcinoma (mRCC) no longer being pursued. The MERECA long-term follow-up has confirmed findings from the initial study (no significant survival difference between the monotherapy and combination arms). Our valuation remains unchanged as our estimates did not include considerations for mRCC. Mendus has announced the completion of patient enrolment in the Phase I ALISON trial in ovarian cancer (OC) for its lead asset vididencel, with survival data expected in H224. Management also reiterated the recently presented positive data from the ADVANCE II trial and confirmed plans for the combination trial with Onureg (oral azacitidine) for acute myeloid leukaemia (AML), with patient enrolment due to start in early 2024.