Pan American Silver — FY23 results: Follow the cash flow

Pan American Silver (NYSE: PAAS)

Last close As at 24/04/2024

USD18.62

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Research: Metals & Mining

Pan American Silver — FY23 results: Follow the cash flow

Pan American Silver (PAAS) has released its FY23 financial results, which are in line with our estimates at the EBITDA level, an encouraging outcome given the operationally challenging year. While the bottom line was once again affected by non-cash one-offs, cash flow generation was robust, with FY23 operating cash flow of US$450m. We have slightly adjusted our FY24 estimates and rolled the model forward, resulting in a marginally updated valuation of US$22.2/share. The company’s decision to launch a buyback should partly compensate for the weak share price performance, which we believe does not reflect supportive gold market fundamentals and what is likely to be a year of more consistent operating performance.

Written by

Andrey Litvin

Energy and Resources Analyst

Metals & Mining

Pan American Silver

FY23 results: Follow the cash flow

Results update

Metals and mining

27 February 2024

Price

US$12.7

Market cap

US$4,631m

Net debt (US$m) at Q423, including short-term investments of US$41m

361

Shares in issue

364.7m

Free float

100%

Code

PAAS

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

%

1m

3m

12m

Abs

(9.3)

(14.8)

(15.4)

Rel (local)

(12.5)

(23.4)

(33.8)

52-week high/low

US$19.49

US$12.26

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. Following the acquisition of selected assets as part of the Yamana transaction, the company owns 11 producing operations, the currently suspended top-tier Escobal silver mine and several large-scale advanced exploration and development projects.

Next events

Q124 financial results

May 2024

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) has released its FY23 financial results, which are in line with our estimates at the EBITDA level, an encouraging outcome given the operationally challenging year. While the bottom line was once again affected by non-cash one-offs, cash flow generation was robust, with FY23 operating cash flow of US$450m. We have slightly adjusted our FY24 estimates and rolled the model forward, resulting in a marginally updated valuation of US$22.2/share. The company’s decision to launch a buyback should partly compensate for the weak share price performance, which we believe does not reflect supportive gold market fundamentals and what is likely to be a year of more consistent operating performance.

Year

end

Revenue
(US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

EV/EBITDA
(x)

Yield
(%)

12/21

1,632.8

593.2

0.75

0.34

8.4

2.6

12/22

1,494.7

272.0

(0.54)

0.45

18.3

3.4

12/23

2,316.1

680.6

0.19

0.41

7.3

3.2

12/24e

2,578.0

764.6

0.24

0.40

6.5

3.

Note: *EPS is Edison normalised and excludes all exceptional items.

FY23: Strong cash flow generation

PAAS delivered FY23 EBITDA of US$681m (adjusted for PPA inventory revaluation), in line with our estimate of US$679m, with Q4 EBITDA of US$202m benefiting from the record gold sales reported earlier. While the bottom line was affected by one-offs to the tune of US$104m, resulting in a reported EPS loss of US$0.32, company adjusted EPS was US$0.12. More importantly, PAAS achieved an impressive operating cash flow of US$167m in Q4 and US$450m for the full year, with FY23 free cash flow of US$71m. As a result of strong cash flow generation, net debt reduced from US$423m in Q3 to US$361m in FY23. The company declared a quarterly dividend of US$0.1/share, with an FY23 dividend of US$0.41/share, yielding 3.2% at the current share price.

FY24: A year of two halves

As expected, the silver segment FY23 cash cost of US$13.1/oz (Q4: US$19.3/oz) was above earlier guidance, mainly due to the well-publicised ventilation issues at La Colorada, while the gold segment cash cost of US$1,113/oz (Q4: US$1,096/oz) was marginally above guidance. PAAS has also released its quarterly operational outlook for FY24, which suggests the current year production and especially cost performance will be visibly second half weighted, mainly due to the timing of the anticipated operational recovery at La Colorada. We have slightly updated our FY24 estimates, raising our EBITDA forecast by 4% to US$765m.

Valuation: Buyback to sweeten shareholder returns

Having tweaked our FY24 estimates and rolled the model forward, we have revised our valuation of PAAS from US$22.0 to US$22.2/share. We keep our commodity price assumptions unchanged. PAAS’s decision to launch a share buyback of up to 5% shares (up to c US$234m at current price) should at least partly compensate for the subdued share price performance and depressed relative valuations, which we believe neither reflect the prevailing favourable gold market fundamentals nor the anticipated gradual normalisation of operating performance in FY24.

Exhibit 1: Financial summary

$'m

2020

2021

2022

2023

2024e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

1,338.8

1,632.8

1,494.7

2,316.1

2,578.0

Cash production costs

(696.7)

(925.5)

(1,094.4)

(1,479.2)

(1,640.2)

DD&A

(254.5)

(303.0)

(316.0)

(484.2)

(496.2)

Royalties

(27.5)

(36.4)

(35.9)

(55.9)

(61.6)

Gross Profit

360.2

367.9

48.4

296.8

380.0

G&A

(36.4)

(34.9)

(29.0)

(61.4)

(72.5)

Other operating costs

(109.2)

(42.9)

(63.5)

(96.8)

(39.0)

Operating profit (before amort. and excepts.)

 

 

214.6

290.2

(44.1)

196.4

268.5

EBITDA

 

 

469.1

593.2

272.0

680.6

764.6

Other operating expenses

(5.5)

30.7

(6.4)

3.4

0.0

Exceptionals

0.0

0.0

(211.8)

(103.9)

0.0

Reported operating profit

209.1

320.9

(262.3)

38.1

268.5

Net Interest and other finance related expense

(20.1)

(16.2)

(22.5)

(91.4)

(94.0)

Profit Before Tax (norm)

 

 

189.0

304.7

(73.0)

108.4

174.5

Investment income (loss)

63.0

(59.7)

(16.2)

(5.5)

0.0

Profit Before Tax (reported)

 

 

252.0

245.0

(301.0)

(58.8)

174.5

Reported tax

(75.6)

(146.4)

(39.1)

(46.1)

(87.2)

Profit After Tax (norm)

113.4

158.3

(112.1)

62.3

87.2

Profit After Tax (reported)

176.5

98.6

(340.1)

(104.9)

87.2

Minority interests

(1.4)

1.1

1.7

(1.2)

0.8

Net income (normalised)

114.9

157.2

(113.8)

63.5

86.4

Net income (reported)

177.9

97.4

(341.8)

(103.7)

86.4

Average Number of Shares Outstanding (m)

210

210

211

327

365

EPS - basic normalised ($)

 

 

0.55

0.75

(0.54)

0.19

0.24

EPS - normalised fully diluted ($)

 

 

0.55

0.75

(0.54)

0.19

0.24

EPS - basic reported ($)

 

 

0.85

0.46

(1.62)

(0.32)

0.24

Dividend ($)

0.22

0.34

0.45

0.41

0.40

BALANCE SHEET

Fixed Assets

 

 

2,577.0

2,517.4

2,444.1

5,823.1

5,697.4

Tangible assets

2,415.0

2,344.6

2,226.4

5,675.1

5,549.4

Investments

71.6

78.7

121.2

0.0

0.0

Other

90.4

94.2

96.6

148.0

148.0

Current Assets

 

 

856.9

1,001.2

804.4

1,390.0

1,416.6

Inventories

406.2

500.5

471.6

711.6

728.0

Receivables

127.8

128.2

136.6

138.0

148.3

Cash

167.1

283.6

107.0

399.6

399.5

ST investments

111.9

51.7

35.3

41.3

41.3

Other

43.9

37.3

53.8

99.5

99.5

Current Liabilities

 

 

(361.8)

(387.7)

(380.8)

(624.2)

(597.3)

Creditors

(281.9)

(306.1)

(308.1)

(498.0)

(516.8)

Short term borrowings and leases

(12.8)

(14.1)

(27.3)

(52.4)

(6.7)

Other

(67.0)

(67.5)

(45.5)

(73.8)

(73.8)

Long Term Liabilities

 

 

(466.3)

(494.9)

(666.0)

(1,816.4)

(1,802.1)

LT debt and leases

(20.7)

(31.8)

(199.5)

(749.2)

(794.9)

Other long term liabilities

(445.5)

(463.1)

(466.5)

(1,067.2)

(1,007.2)

Net Assets

 

 

2,605.8

2,636.0

2,201.6

4,772.5

4,714.7

Minority interests

(3.3)

(4.5)

(6.1)

(11.8)

(12.6)

Shareholders' equity

 

 

2,602.5

2,631.6

2,195.5

4,760.7

4,702.1

CASH FLOW

Operating Cash Flow

176.5

98.6

(340.1)

(104.9)

87.2

D&A, exceptionals, other

280.5

498.9

555.2

663.5

677.4

Working capital movement

97.0

(71.1)

(42.0)

68.9

(7.9)

Tax

(81.6)

(129.2)

(137.8)

(149.4)

(137.2)

Net Interest

(10.0)

(5.1)

(3.4)

(27.9)

(55.5)

Net operating cash flow

 

 

462.3

392.1

31.9

450.2

564.0

Capex

(178.6)

(243.5)

(274.7)

(379.0)

(372.5)

Acquisitions/disposals

22.5

45.8

8.7

759.3

0.0

Equity financing

4.7

0.6

0.9

0.0

0.0

Dividends

(46.2)

(71.5)

(94.7)

(130.4)

(145.9)

Other

59.1

(2.3)

20.0

(15.3)

(45.7)

Net Cash Flow

323.8

121.2

(307.9)

684.8

(0.1)

Opening net debt/(cash), including ST investments

 

 

77.9

(245.5)

(289.4)

84.5

360.7

FX and other

(0.5)

(77.3)

(66.0)

(961.0)

0.0

Closing net debt/(cash), including ST investments

 

 

(245.5)

(289.4)

84.5

360.7

360.8

Closing net debt/(cash), excluding ST investments

(133.5)

(237.7)

119.9

402.0

402.1

Source: Pan American Silver accounts, Edison Investment Research


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 2024 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

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 2024 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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