Last close As at 05/08/2026
USD48.24
▲ 3.33 (7.41%)
Market capitalisation
USD20,120m
Research: Metals & Mining
Pan American Silver (PAAS) has announced a sale of the La Arena and La Arena II projects to Zijin Mining for US$245m in cash, US$50m in a contingent payment and a 1.5% NSR gold royalty. La Arena II is a copper and gold sulphide deposit that sits underneath the currently producing La Arena gold project. We view the transaction as positive for PAAS, given La Arena’s very short mine life, significant capex required to bring La Arena II into production and the fact that copper is not PAAS’s core commodity.
Pan American Silver |
La Arena divestment |
Project update |
Metals and mining |
2 May 2024 |
Share price performance
Business description
Analysts
Pan American Silver is a research client of Edison Investment Research Limited |
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Pan American Silver (PAAS) has announced a sale of the La Arena and La Arena II projects to Zijin Mining for US$245m in cash, US$50m in a contingent payment and a 1.5% NSR gold royalty. La Arena II is a copper and gold sulphide deposit that sits underneath the currently producing La Arena gold project. We view the transaction as positive for PAAS, given La Arena’s very short mine life, significant capex required to bring La Arena II into production and the fact that copper is not PAAS’s core commodity.
Year end |
Revenue |
EBITDA |
EPS* |
DPS |
EV/EBITDA |
Yield |
12/21 |
1,632.8 |
593.2 |
0.60 |
0.34 |
12.0 |
1.8 |
12/22 |
1,494.7 |
272.0 |
(0.54) |
0.45 |
26.3 |
2.4 |
12/23 |
2,316.1 |
680.6 |
0.19 |
0.41 |
10.5 |
2.2 |
12/24e |
2,578.0 |
764.6 |
0.24 |
0.40 |
9.3 |
2.2 |
Note: *EPS is normalised, excluding exceptional items.
On 1 May, PAAS announced the sale of the La Arena gold mine and La Arena II project in Peru to Zijin Mining. Zijin will pay US$245m upfront in cash and US$50m in contingent consideration on commencement of commercial production at La Arena II. PAAS will also retain a 1.5% net smelter return (NSR) royalty on gold from La Arena II. Subject to regulatory approvals, the transaction is expected to close in Q324. We believe it fits with the company’s strategy of optimising its project portfolio with a key focus on gold and silver.
La Arena is a producing gold operation with a remaining mine life of about two years. In FY23, it produced 97koz of gold (11% of group total) at a cash cost of US$1,237koz and generated revenues of US$190m (8%). FY24 guidance is for production of 83–95koz and a cash cost of US$1,400–1,470/koz. On an annualised basis, we estimate that the sale of La Arena would reduce PAAS’s FY24 guidance by c 9% for total gold production and c 3% for gold segment cash costs.
La Arena II is an exploration-stage gold and copper deposit located below and adjacent to the producing LA Arena mine. The project has measured and indicated mineral resources of 5.3Moz of contained gold and 2.6Mt of copper. The 2018 PEA estimated pre-production capex of c US$1.4bn, which is likely to be an optimistic assumption in light of the recent inflationary cost pressures. The projects have little infrastructure synergies apart from access to the grid and roads.
We will review our estimates and valuation of PAAS following the release of its Q124 results on 8 May. Our valuation of La Arena II is based on a book value of US$117m. We note that the carrying value for the producing mine was US$129m at end 2023. The cash payment of US$245m is therefore in line with the combined book value of the two assets. Overall, our initial take on the transaction is positive given La Arena’s very short mine life, the non-core nature of the La Arena II deposit and its significant development cost. The sale will also strengthen PAAS’s balance sheet by reducing its pro forma FY23 net debt to just US$116m.
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Research: TMT
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