Pan American Silver — Positive non-core assets divestment

Pan American Silver (NYSE: PAAS)

Last close As at 21/05/2024

USD22.22

−0.23 (−1.02%)

Market capitalisation

USD7,512m

More on this equity

Research: Metals & Mining

Pan American Silver — Positive non-core assets divestment

Pan American Silver (PAAS) announced divestment of a number of non-core assets, including MARA and Morococha. The sale is in line with the company’s intention to optimise its project portfolio following the acquisition of Yamana’s Latin American assets earlier this year. It will generate combined cash proceeds of US$593m, plus net smelter return (NSR) royalties, resulting in a stronger balance sheet as well as a significant reduction in care and maintenance (C&M) costs. We will update our estimates and valuation following the release of the Q223 financial results scheduled for 9 August.

Written by

Andrey Litvin

Energy and Resources Analyst

Metals & Mining

Pan American Silver

Positive non-core assets divestment

Asset sale update

Metals and mining

1 August 2023

Price

US$16.88

Market cap

US$6,151m

Net debt (US$m) at Q123 (including short-term investments, but excluding asset divestments)

674

Shares in issue

364.4m

Free float

100%

Code

PAAS

Primary exchange

TSX

Secondary exchange

NYSE

Share price performance

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 11 producing operations, the currently suspended top-tier Escobal silver mine and a number of large-scale advanced exploration/development projects.

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) announced divestment of a number of non-core assets, including MARA and Morococha. The sale is in line with the company’s intention to optimise its project portfolio following the acquisition of Yamana’s Latin American assets earlier this year. It will generate combined cash proceeds of US$593m, plus net smelter return (NSR) royalties, resulting in a stronger balance sheet as well as a significant reduction in care and maintenance (C&M) costs. We will update our estimates and valuation following the release of the Q223 financial results scheduled for 9 August.

Year end

Revenue
(US$m)

EBITDA
(US$m)

EPS*
(US$)

DPS
(US$)

P/E
(x)

Yield
(%)

12/21

1,632.8

593.2

0.60

0.34

28.1

2.0

12/22

1,494.7

272.0

(0.51)

0.45

N/A

2.7

12/23e

2,437.7

733.7

0.37

0.41

45.60

2.4

12/24e

2,895.8

1,099.0

0.78

0.40

21.6

2.4

Note: *EPS is normalised, excluding exceptional items.

On 31 July PAAS announced the sale of the following assets:

A 56.25% interest in the MARA project to Glencore (which will now own 100%) for US$475m in cash and a life of mine transferrable copper NSR royalty of 0.75%. Completion is expected in Q323. We valued MARA at US$581m, excluding NSR and C&M costs, based on the Glencore’s earlier acquisition of Newmont’s 18.75% interest in the project, to which we added a 25% premium for control.

A 92.3% interest in Morococha, which was put on care and maintenance in early 2022, for US$25m to Alpayana, a Peruvian mining company. The transaction is expected to complete in Q323 subject to regulatory approvals. We valued Morococha at book value, which at Q123 was reported at US$78m. As a result, the company will incur an impairment charge of US$42.4m (pre-tax).

Other divestments include a 57.75% interest in the historical Jeronimo project in Chile, acquired as part of the Yamana transaction, to Rio Tinto for US$45.6m and certain NSR royalties; as well as a number of non-controlling equity interests for US$47.1m. The Jeronimo transaction is expected to close in Q323.

The overall cash proceeds from these transactions were reported at US$593m (c 10% of PAAS’s market cap), excluding royalties, and should further strengthen the company’s balance sheet. In addition, the divestment of MARA and Morococha will significantly reduce the company’s C&M costs, which amounted to US$11.5m in Q223 for MARA (c US$45m annualised) and US$13.2m in H123 for Morococha. We estimated the company’s FY23 C&M costs at US$90m prior to the divestment.

While the announced divestment of non-core assets is clearly positive for PAAS, we believe the next key catalyst for the stock could be the upcoming release of the consolidated Q223 financial results, which will include contributions from the assets acquired as part of the Yamana transaction. We will update our estimates and valuation following the release of the results.

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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.

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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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