Pan American Silver — FY22 results beat consensus expectations

Pan American Silver (NYSE: PAAS)

Last close As at 18/04/2024

USD19.06

0.16 (0.85%)

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Research: Metals & Mining

Pan American Silver — FY22 results beat consensus expectations

Pan American Silver (PAAS) reported an encouraging set of Q4/FY22 results, with Q4 EBITDA of US$92.3m exceeding consensus expectations by c 21% and FY22 EBITDA coming in at US$272m, c 6% above consensus. The bottom line was negatively affected by US$157.3m of one-off costs relating to the Yamana transaction, which is expected to be completed in Q123. Our valuation and forecasts remain under review.

Written by

Andrey Litvin

Energy and Resources Analyst

Metals & Mining

Pan American Silver

FY22 results beat consensus expectations

FY22 results update

Metals and mining

1 March 2023

Price

US$14.9

Market cap

US$3,136m

Net debt (US$m) at Q422, excluding short-term investments

118

Shares in issue

210.5m

Free float

100%

Code

PAAS

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(18.5)

(9.3)

(37.1)

Rel (local)

(16.3)

(6.8)

(30.7)

52-week high/low

US$29.95

US$13.64

Business description

Pan American Silver is one of the largest global primary silver producers and a sizeable gold miner with operations in North, Central and South America since 1994. The company owns seven producing operations, the currently suspended top tier Escobal silver mine and a number of large-scale advanced exploration projects.

Next events

Completion of the Yamana transaction

Q123

FY23 operating and cost guidance

Q123

Analysts

Andrey Litvin

+44 (0)20 3077 5700

Andrew Keen

+44 (0)20 3077 5700

Pan American Silver is a research client of Edison Investment Research Limited

Pan American Silver (PAAS) reported an encouraging set of Q4/FY22 results, with Q4 EBITDA of US$92.3m exceeding consensus expectations by c 21% and FY22 EBITDA coming in at US$272m, c 6% above consensus. The bottom line was negatively affected by US$157.3m of one-off costs relating to the Yamana transaction, which is expected to be completed in Q123. Our valuation and forecasts remain under review.

Year end

Revenue
(US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/20

1,338.8

469.1

0.57

0.22

25.8

1.5

12/21

1,632.8

593.2

0.60

0.34

24.6

2.3

12/22

1,494.7

272.0

(0.51)

0.45

N/A

3.0

Note: *EPS is normalised, excluding exceptional items.

FY22 results above consensus at the operating level

PAAS had already reported FY22 production of 18.5Moz for silver and 552.5koz for gold, both within the revised and original guidance, respectively. Silver and gold segment cash costs were reported earlier at US$12.7/oz (AISC of US$16.6/oz) and US$1,113/oz (US$1,459/oz). FY22 EBITDA came in at US$272m versus consensus expectations of c US$256m, while revenues of US$1,495m were affected by the inventory build-up of c US$45-50m in Q4. The bottom line was distorted by US$212m of exceptionals, including US$157m in one-off costs associated with the Yamana transaction. Excluding Yamana costs, FY22 company adjusted net profit came in at US$17.9m (US$4.8m in adjusted net loss in Q422). PAAS has swung into net debt of US$118m (US$82m including ST investments; FY21 net cash of US$238m) after raising US$160m in debt to fund the Yamana/ Gold Fields termination fee. However, its liquidity should be boosted by the sale of Maverix shares in January, realising US$105m in net proceeds. A Q422 dividend of US$0.10/share implies a full-year paid dividend of US$0.45, a healthy 3% yield.

Project update: Escobal ILO 169 remains on track

PAAS reported that the ILO 169 process at the Escobal project continues to progress with two meetings held in Q422. Further, in December the Ministry of Energy and Mines and Xinka representatives delivered a progress report on the consultation process to the Guatemalan Supreme Court of Justice. We continue to expect Escobal to be recommissioned in FY24. In other news, PAAS has put the Manatial Espejo project in Argentina (3.5Moz of silver in FY22) on care and maintenance due to the end of the mine’s life.

Valuation: Solid fundamentals intact

PAAS share price remains weak, despite the generally supportive performance of gold and silver prices and the accretive nature of the Yamana transaction. While the Yamana deal has some execution risks attached to it, primarily associated with the different approach to cost accounting, we believe the upcoming release of combined guidance by PAAS might provide some welcome visibility for investors. The stock is currently trading at a consensus FY23e EV/EBITDA of 10x (FY24e 4.2x), which appears to be an undemanding multiple, especially in light of the transformative Yamana deal. Our estimates and valuation remain under review.

Exhibit 1: Financial summary

$'m

2020

2021

2022

31-December

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

1,338.8

1,632.8

1,494.7

Cash production costs

(696.7)

(925.5)

(1,094.4)

DD&A

(254.5)

(303.0)

(316.0)

Royalties

(27.5)

(36.4)

(35.9)

Gross Profit

360.2

367.9

48.4

G&A

(36.4)

(34.9)

(29.0)

Other operating costs

(109.2)

(42.9)

(63.5)

Operating profit (before amort. and excepts.)

 

 

214.6

290.2

(44.1)

EBITDA

 

 

469.1

593.2

272.0

Other operating expenses

(5.5)

30.7

(6.4)

Exceptionals*

0.0

0.0

(211.8)

Reported operating profit

209.1

320.9

(262.3)

Net Interest and finance expense

(20.1)

(16.2)

(22.5)

Profit Before Tax (norm)

 

 

194.5

274.0

(66.6)

Investment income (loss)

63.0

(59.7)

(16.2)

Profit Before Tax (reported)

 

 

252.0

245.0

(301.0)

Reported tax

(75.6)

(146.4)

(39.1)

Profit After Tax (norm)

118.9

127.6

(105.7)

Profit After Tax (reported)

176.5

98.6

(340.1)

Minority interests

(1.4)

1.1

1.7

Net income (normalised)

120.4

126.5

(107.4)

Net income (reported)

177.9

97.4

(341.8)

Average Number of Shares Outstanding (m)

210

210

211

EPS – basic normalised ($)

 

 

0.57

0.60

(0.51)

EPS – normalised fully diluted ($)

 

 

0.57

0.60

(0.51)

EPS – basic reported ($)

 

 

0.85

0.46

(1.62)

Dividend ($)

0.22

0.34

0.44

BALANCE SHEET

Fixed Assets

 

 

2,577.0

2,517.4

2,444.1

Tangible assets

2,415.0

2,344.6

2,226.4

Investments

71.6

78.7

121.2

Other

90.4

94.2

96.6

Current Assets

 

 

856.9

1,001.2

806.5

Inventories

406.2

500.5

471.6

Receivables

127.8

128.2

136.6

Cash

167.1

283.6

109.1

ST investments

111.9

51.7

35.3

Other

43.9

37.3

53.8

Current Liabilities

 

 

(361.8)

(387.7)

(380.8)

Creditors

(281.9)

(306.1)

(308.1)

Short term borrowings and leases

(12.8)

(14.1)

(27.3)

Other

(67.0)

(67.5)

(45.5)

Long Term Liabilities

 

 

(466.3)

(494.9)

(666.0)

LT debt and leases

(20.7)

(31.8)

(199.5)

Other long term liabilities

(445.5)

(463.1)

(466.5)

Net Assets

 

 

2,605.8

2,636.0

2,203.7

Minority interests

(3.3)

(4.5)

(6.1)

Shareholders’ equity

 

 

2,602.5

2,631.6

2,197.6

CASH FLOW

Operating Cash Flow

176.5

98.6

(340.1)

D&A, exceptionals, other

280.5

498.9

555.2

Working capital movement

97.0

(71.1)

(42.0)

Tax

(81.6)

(129.2)

(137.8)

Net Interest

(10.0)

(5.1)

(3.4)

Net operating cash flow

 

 

462.3

392.1

31.9

Capex

(178.6)

(243.5)

(274.7)

Acquisitions/disposals

22.5

45.8

8.7

Equity financing

4.7

0.6

0.9

Dividends

(46.2)

(71.5)

(92.6)

Other

59.1

(2.3)

20.0

Net Cash Flow

323.8

121.2

(305.8)

Opening net debt/(cash), including ST investments

 

 

77.9

(245.5)

(289.4)

FX and other

(0.5)

(77.3)

(66.0)

Closing net debt/(cash), including ST investments

 

 

(245.5)

(289.4)

82.4

Closing net debt/(cash), excluding ST investments

(133.5)

(237.7)

117.8

Source: Pan American Silver, Edison Investment Research. *Note: Exceptionals include impairments, the Yamana termination fee and income from equity investees.

General disclaimer and copyright

This report has been commissioned by Pan American Silver and prepared and issued by Edison, in consideration of a fee payable by Pan American Silver. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Pan American Silver and prepared and issued by Edison, in consideration of a fee payable by Pan American Silver. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for ‘wholesale clients’ within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are ‘wholesale clients’ for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a ‘personalised service’ and, to the extent that it contains any financial advice, is intended only as a ‘class service’ provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘FPO’) (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the ‘publishers' exclusion’ from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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