Q126 results: Strong delivery and cash generation

Q126 reported revenue was up 49% y-o-y to US$1.15bn, with attributable revenue, including PAAS’s 44% share of Juanicipio, reaching US$1.33bn, up 73% versus Q125. EBITDA increased 127% y-o-y to US$757m, implying a 65.6% margin, while adjusted EPS was US$1.09, up 160% y-o-y. Production was in line with PAAS’s quarterly guidance, with attributable silver and gold output of 6.44Moz and 169koz, respectively. Silver segment AISC of US$6.63/oz was significantly below guidance, driven by strong by-product credits and low-cost ounces from Juanicipio. The result translated into attributable free cash flow of US$488m and boosted end-Q126 net cash to US$769m, from US$467m at end-FY25. PAAS declared a record quarterly dividend of US$0.18/share.

Enhanced shareholder returns

Strong cash flow generation has led PAAS to introduce an enhanced shareholder distribution policy, targeting returns of 35–40% of annual attributable free cash flow through dividends and buybacks. The stated return of up to US$1bn in 2026 implies attributable free cash flow of c US$2.5–2.9bn, or attributable operating cash flow of c US$2.8–3.2bn. With US$305m earmarked for dividends, the remaining cash of c US$700m could be directed to buybacks. At the current share price, this would imply the repurchase of c 12m shares and c 2% EPS accretion, with further upside if the average buyback price is lower. In Q126, PAAS returned a total of US$101m to shareholders, comprising US$76m in dividends and US$25m in share repurchases.

Valuation: Upgraded on stronger earnings outlook

Following the Q1 results and recent upward revisions to consensus precious metal price expectations, we have upgraded our earnings estimates, raising our FY26 EBITDA forecast by 5% to US$3.2bn. Consequently, we have increased our DCF-based valuation of PAAS, before any P/NPV premium, from US$63.3/share to US$65.0/share. On our updated estimates, the stock trades on an FY26e P/E of 14.6x, a significant discount to the post-COVID average 12-month forward multiple of 22.7x. The shares also continue to lag both silver and gold prices.

Q126 results: Strong cash flows boost shareholder returns

PAAS delivered a strong set of Q126 results, supported by robust precious metal prices, disciplined cost performance in the silver segment and the first full quarterly contribution from Juanicipio. Reported revenue increased 49% y-o-y to US$1.15bn, while attributable revenue, including PAAS’s 44% share of Juanicipio, rose 73% to US$1.33bn. EBITDA more than doubled to US$757m, implying a 65.6% margin, while adjusted EPS increased 160% y-o-y to US$1.09.

The strong operating result translated into reported cash flow from operations of US$505m and attributable free cash flow of US$488m (attributable operating cash flow of US$582m less sustaining capex of US$94m), boosting end-Q1 cash and short-term investments to a record US$1.6bn, excluding US$199m in attributable cash at the Juanicipio level. As a result, the company’s net cash position increased to US$769m at end-Q126, from US$467m at end-FY25.

Production was in line with PAAS’s quarterly guidance, with attributable silver output of 6.44Moz (guidance of 6.1–6.6Moz), up 29% y-o-y, and attributable gold production of 169koz (164.5–175.5koz), down 7% y-o-y. The silver segment all-in sustaining cost (AISC) of US$6.63/oz was significantly below the company’s quarterly outlook of US$14.75–17.00/oz and down 52% y-o-y, reflecting very strong by-product credits from higher gold and base metal prices and the contribution of low-cost ounces from Juanicipio. The gold segment AISC of US$1,851/oz was in line with guidance ( US$1,775–1,925/oz), albeit 25% higher y-o-y.

The silver segment was the key driver of Q1 cost outperformance. Juanicipio contributed 1.75Moz of attributable silver production at a negative AISC of US$3.1/oz, while Cerro Moro delivered a particularly strong cost outcome, with AISC reaching negative US$70.4/oz, supported by higher gold by-product credits and higher grades. La Colorada’s silver production increased 13% y-o-y on higher throughput and grades, although AISC rose to US$37.0/oz due to higher royalty payments, reduced sales volumes (inventory build of 741koz) and higher sustaining capital. Huaron and San Vicente also saw higher AISC, mainly due to lower grades, higher costs and royalty effects, partially offsetting the strong performances at Juanicipio and Cerro Moro.

In the gold segment, production was lower y-o-y, mainly reflecting the continued phasing out of Dolores and lower production at El Peñon, partly offset by the 5koz contribution from Juanicipio. The segment’s cost performance was mixed. El Peñon’s AISC fell sharply to US$137/oz on higher silver by-product credits, while Jacobina, Timmins, Shahuindo and Minera Florida recorded higher unit costs, largely due to higher sustaining capital, maintenance, labour, haulage, consumables and the impact of lower grades or lower production volumes.

At La Colorada Skarn, the company invested US$8m in Q126, largely on exploration and in-fill drilling and advancing engineering work. PAAS has also approved US$265m of initial capital over the next five years for the 588 Decline Project, which will provide underground access to the skarn mineralisation from the existing La Colorada vein mine and form the backbone of the Skarn development. Including the 588 Decline, PAAS now expects to spend US$92–95m on La Colorada Skarn in 2026, while continuing engineering work ahead of further staged investment decisions. We covered the recently published updated PEA on the Skarn project in more detail in our report dated 31 March.

At Jacobina, PAAS spent US$12m of project capital in Q126, focused on infrastructure upgrades, plant improvements and long-term optimisation studies. Work included two new carbon-in-pulp tanks, improvements to the tailings pump system and engineering for upgrades to the main substation and motor control centre, while the process plant optimisation programme continued to advance through conceptual engineering.

Enhanced shareholder returns: Cash flow and EPS implications

Robust cash flow generation and balance sheet strength have led PAAS to formalise an enhanced shareholder return framework. The company is targeting distributions of 35–40% of annual attributable free cash flow (defined as attributable operating cash flow less attributable sustaining capex) to shareholders through dividends and share repurchases and, assuming the current strong free cash flow generation continues, expects to return up to US$1bn in 2026. Under the framework, PAAS expects to pay US$305m in dividends in 2026, equivalent to US$0.18/share per quarter, with excess attributable free cash flow to be directed to buybacks at the company’s discretion. In Q126, PAAS returned a total of US$101m to shareholders, comprising US$76m in dividends at US$0.18/share and US$25m in share repurchases (0.46m shares at an average price of US$54/share).

The announced shareholder return framework has two immediate financial implications: it indicates the company’s confidence in its cash flow generation this year and points to potential EPS accretion from share buybacks. First, the total maximum distribution of US$1bn and the 35–40% range imply an attributable free cash flow of up to US$2.5–2.9bn. At the mid-point of guided attributable sustaining capex of US$330m ( US$320–340m), this implies attributable operating cash flow of US$2.8–3.2bn for FY26. This compares to Q126 attributable operating cash flow of US$582m (including US$79m from Juanicipio) and implies US$2.2–2.6bn for the remainder of the year.

Second, with US$305m in guided dividend payments, the maximum US$1bn distribution implies c US$700m in potential share buybacks. With US$25m repurchased in Q1, this leaves c US$675m for the rest of the year. As a rough indication, at the current share price of c US$60, this would imply the repurchase of c 11.3m additional shares, or c 12m for the full year. This would reduce the total number of shares at end FY26 to c 410m and translate into a weighted average number of shares for the year of c 416m, indicating a c 2% EPS accretion. A lower average repurchase price would increase the potential EPS accretion. We note that the repurchase of 12m of shares would fall comfortably within the company’s normal course issuer bid, which authorises PAAS to repurchase up to 21.1m shares by 5 March 2027.

Maintained guidance, upgraded estimates and valuation

PAAS reiterated its FY26 operating outlook, except for the increase in guided consolidated project capital to US$240–255m from US$195–210m as a result of higher spend at La Colorada Skarn, as discussed above. This increases overall consolidated capital expenditure guidance for FY26 to US$560–595m. The company expects to produce 25–27Moz of silver and 700–750koz of gold this year, albeit gold production should now be more heavily weighted to the fourth quarter. Despite the strong cost performance in Q1, FY26 AISC guidance was maintained at US$15.75–18.25/oz for the silver segment and US$1,700–1,850/oz for the gold segment.

We have slightly updated our estimates following the Q1 results and given the current backdrop of strong commodity prices. Consensus gold and silver price expectations have been revised materially upwards recently, to c US$4,800/oz and US$75/oz, respectively. Our FY26 assumptions of US$4,725/oz for gold and US$75/oz for silver are broadly in line with consensus, albeit slightly more conservative on gold, reflecting persistent volatility amid heightened geopolitical and macroeconomic uncertainty. Based on average prices year-to-date and assuming spot prices for the rest of the year, FY26 gold and silver prices would average US$4,740/oz and US$81/oz, respectively, implying a gold-silver ratio of 58x versus our current 63x assumption and 86x for FY25. We see upside risk to our estimates should commodity prices remain at current elevated levels.

Overall, our EBITDA estimates increase by 5% to US$3,208m for FY26 and by 10% to US$3,114m for FY27. These revisions include a slightly higher equity contribution from Juanicipio, which continues to demonstrate stronger-than-expected operating and financial performance. We have also revised upwards our expectations for dividend distributions from Juanicipio, which accumulated US$453m in cash and cash equivalents at end-Q1. This had a positive impact on our net cash estimates, although for FY26 it was partly offset by the higher assumed project capital spend. Finally, we have raised our FY26 dividend forecast to US$0.72/share, in line with PAAS’s increased shareholder return expectations, which implies a payout ratio of c 17% on our upgraded EPS estimate of US$4.25.

Having revised our estimates upwards, we have also upgraded our DCF-based valuation of PAAS from US$63.3/share to US$65.0/share, before applying any P/NPV premium. On our updated estimates, the stock trades at an FY26e P/E of 14.6x, which implies a significant discount to historical averages (Exhibit 4), in particular the post-COVID average 12-month forward P/E of 22.7x. The shares also continue to visibly lag both gold and silver prices (Exhibit 3). We believe the prevailing favourable commodity price environment, coupled with anticipated share buybacks and strong operating execution through the year, should continue to support the share price. In addition, the stock currently yields 1.2%, excluding any potential additional shareholder returns from share repurchases.