Last close As at 05/08/2026
USD48.24
▲ 3.33 (7.41%)
Market capitalisation
USD20,120m
Research: Metals & Mining
Pan American Silver (PAAS) delivered a robust set of Q224 results, with lower silver production offset by the stronger sales and commodity prices. This was coupled with good cost control in the gold segment and resulted in a 65% increase in mine operating earnings and 31% growth in EBITDA. Strong cash flow generation was the main highlight of the results, with free cash flow exceeding that of the whole of FY23. PAAS expects production to be more heavily weighted to Q4 and silver output to be towards the lower end of guidance. We have reduced our FY24e EBITDA by 3.6% but our valuation remains virtually unchanged at US$23.5 per share due to a slightly lower weighted average cost of capital (WACC).
Pan American Silver |
Q224 results: Steady progress |
Quarterly results |
Metals and mining |
14 August 2024 |
Share price performance
Business description
Next event
Analysts
Pan American Silver is a research client of Edison Investment Research Limited |
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Pan American Silver (PAAS) delivered a robust set of Q224 results, with lower silver production offset by the stronger sales and commodity prices. This was coupled with good cost control in the gold segment and resulted in a 65% increase in mine operating earnings and 31% growth in EBITDA. Strong cash flow generation was the main highlight of the results, with free cash flow exceeding that of the whole of FY23. PAAS expects production to be more heavily weighted to Q4 and silver output to be towards the lower end of guidance. We have reduced our FY24e EBITDA by 3.6% but our valuation remains virtually unchanged at US$23.5 per share due to a slightly lower weighted average cost of capital (WACC).
Year |
Revenue |
EBITDA |
EPS* |
DPS |
EV/EBITDA |
Yield |
12/22 |
1,494.7 |
272.0 |
(0.54) |
0.45 |
27.0 |
2.3 |
12/23 |
2,316.1 |
680.6 |
0.19 |
0.41 |
10.8 |
2.1 |
12/24e |
2,791.1 |
924.2 |
0.22 |
0.40 |
7.9 |
2.0 |
12/25e |
2,396.2 |
803.6 |
0.50 |
0.40 |
9.1 |
2.0 |
Note: *EPS excludes exceptional items.
Strong cash flow generation
Despite a 9% q-o-q reduction in silver production to 4,567koz, silver sales were up 12% in Q2, while gold sales were down 4% to 219koz on flat production. However, mixed sales numbers were more than offset by the stronger commodity prices, resulting in revenue growth of 14% to a record US$686m. Despite a double-digit increase in silver cash cost, cost control in the gold segment (main driver of financial performance) was good, with the gold cash cost falling 2% to US$1,186/oz. As a result, PAAS saw a 65% jump in mine operating earnings and a 31% increase in EBITDA to US$212m. One of the main highlights of the results was the impressive cash flow generation, with net operating cash flow reaching US$163m and free cash flow exceeding that for the whole of FY23. Net debt reduced from US$475m at end-Q124 to US$441m.
Guidance unchanged but more conservative in tone
PAAS has maintained its 2024 cost and operating guidance but noted that silver production will be toward the lower end of the 21–23Moz range and that production will be more heavily weighted to Q4. In light of these comments and Q2 results, we have taken a slightly more conservative view on operating performance at some of the projects, lowering our FY24 silver production estimate to 21Moz from 22Moz. With our production adjustments largely offset by the slightly higher commodity price assumptions, we have reduced our FY24e EBITDA by 3.6% to US$924m.
Valuation: Commodity prices remain supportive
Our valuation of PAAS remains virtually unchanged at US$23.5 per share as slightly lower earnings estimates were offset by the reduction in WACC on the back of the lower risk-free rate. Despite the overall healthy recovery in the share price mainly driven by the strong commodity prices and share buyback, we believe that the market reaction to the results was overly negative. Given the favourable commodity price environment, we see a further upside to the share price if the company continues to deliver on its operating guidance in 2024. Further progress on Escobal could be another strong catalyst for the shares.
Q224 results review: Strong cash flow generation
While PAAS’s Q224 results were somewhat masked by the below guidance silver production of 4,567koz (down 8.8% q-o-q), the company achieved an impressive 12% increase in silver sales of 4,771koz. According to PAAS, the weaker-than-expected silver production was mainly due to weather-related disruptions at Cerro Moro and Dolores. The gold production of 220koz was broadly flat q-o-q and was at a lower end of the quarterly guidance, with gold sales sliding 4% to 219koz. Given that silver contributed c 20% to Q2 production on an equivalent gold ounces basis, gold continues to drive the company’s financial performance. As such, a 12% q-o-q increase in realised gold price, coupled with a 24% jump in silver price and strong silver sales, more than offset the marginal reduction in gold sales. This resulted in revenues growing 14% q-o-q to a quarterly record of US$686m.
Despite a 14% q-o-q increase, the silver segment cash cost of US$14.5/oz was visibly below the quarterly guidance (see Exhibit 2), while the gold segment cash cost fell 1.6% to US$1,186/oz and was within the guidance range. Relatively good cost control, with cash production costs up 8% qoq in absolute terms, led to a 65% jump in mine operating earnings (US$117m) and 31% growth in EBITDA (US$212m). The bottom line was once again negatively affected by the non-cash currency and inflation related increases in taxation to the tune of US$53.2m. On a company adjusted basis, however, EPS grew from US$0.01 to US$0.11. One of the main highlights of the results was strong cash flow generation, with net operating cash flow (OCF) rising to US$163m (US$61m in Q124) and free cash flow of US$87m (net OCF less capex), exceeding that for the full FY23. PAAS finished the quarter with net debt of US$441m compared to US$475m at end FY23 and declared a dividend of US$0.1 per share, with respect to Q224.
Exhibit 1: Q224 results summary
US$m |
Q224 |
Q124 |
q-o-q % |
Q223 |
Silver production, koz |
4,567 |
5,009 |
(8.8) |
6,024 |
Gold production, koz |
220 |
223 |
(1.1) |
248 |
Silver segment cash cost, US$/oz |
14.5 |
12.7 |
14.4 |
9.3 |
Silver segment AISC, US$/oz |
19.1 |
15.9 |
20.0 |
15.7 |
Gold segment cash cost, US$/oz |
1,186 |
1,207 |
(1.7) |
1,045 |
Gold segment AISC, US$/oz |
1,584 |
1,580 |
0.3 |
1,342 |
Revenue |
686 |
601 |
14.1 |
640 |
Cash production costs |
(425) |
(392) |
8.3 |
(405) |
D&A |
(128) |
(124) |
3.2 |
(150) |
Royalties |
(16) |
(14) |
18.0 |
(14) |
Mine operating earnings |
117 |
71 |
64.6 |
71 |
Care and maintenance |
(9) |
(9) |
1.1 |
(27) |
Exploration |
(3) |
(3) |
14.3 |
(6) |
G&A |
(24) |
(22) |
5.8 |
(18) |
EBITDA (Edison)* |
212 |
162 |
31.3 |
202 |
Reported PBT |
72 |
4 |
1,892 |
(62) |
Reported EPS, US$ |
(0.06) |
(0.08) |
(28.8) |
(0.13) |
Adjusted EPS (company), US$ |
0.11 |
0.01 |
1,000 |
0.08 |
Source: PAAS, Edison Investment Research. Note: *EBITDA adjusted for US$2.4m restructuring costs at Dolores.
Guidance and earnings revisions
PAAS maintained its operational and cost guidance for FY24 that envisages production of 21–23Moz of silver and 880–1,000koz of gold (Exhibit 2). However, the company now expects silver production to be at the lower end of the range and sees both silver and gold production more heavily weighted towards Q4. The anticipated production recovery at La Colorada remains one of the main drivers behind the guided improvements in silver output and costs. The new ventilation infrastructure at the mine was installed in July, in line with the initial timeframe, and PAAS reported that ventilation conditions have been improving and mining rates from the higher-grade zone of the mine increasing. PAAS expects throughput rates at La Colorada to increase to 2,000tpd (c 730ktpa) by year end.
As we noted before, the company’s cost guidance is based on gold and silver price assumptions of US$1,950/oz and US$23.5/oz. Commodity prices continue to trade above these levels, which, along with the weakness in some of the local currencies, provide support to cost performance and make the cost guidance look increasingly conservative. The spot gold and silver prices are currently c US$2,440/oz and US$28.0/oz, which from a cost point of view should continue to benefit projects with large silver/gold by-product credits, such as Cerro Moro and El Peñon.
Exhibit 2: FY24 quarterly guidance
|
Q124 |
Q224 |
Q324 |
Q424 |
FY24 |
Silver production, Moz |
4.75–5.30 |
5.36–5.78 |
5.44–5.97 |
5.45–5.95 |
21.0–23.0 |
Gold production, koz |
204–231 |
221–252 |
229–258 |
226–259 |
880–1,000 |
Silver segment cash cost, US$/oz |
16.5–18.5 |
15.5–17.5 |
10.5–12.9 |
4.6–7.7 |
11.7–14.1 |
Silver segment AISC, US$/oz |
21.3–23.3 |
20.2–22.2 |
15.6–18.0 |
7.7–11.0 |
16.0–18.5 |
Gold segment cash cost, US$/oz |
1,270–1,370 |
1,170–1,240 |
1,140–1,220 |
1,080–1,160 |
1,165–1,260 |
Gold segment AISC, US$/oz |
1,500–1,700 |
1,500–1,590 |
1,460–1,570 |
1,400–1,500 |
1,475–1,575 |
Source: PAAS
We have updated our estimates for the Q224 results and made a number of small operating and cost adjustments at the projects level. In line with the company’s guidance, we continue to assume that the La Arena sale will complete at the end of Q324 and that the project will only contribute for three quarters this year. La Arena is a relatively high-cost mine and its sale should result in a marginal reduction in the gold segment costs in FY25. While we model a visible improvement in production rates at La Colorada in H224 as ventilation issues are gradually resolved, we maintain a relatively cautious view and expect the project’s FY24 cash cost to be at the top end and production at slightly below the lower end of the respective guidance ranges. Similarly, following the Q2 results, we took a more conservative view on the H2 performance at Cerro Moro and see its FY24 silver production slightly below the guidance range. Overall, we have lowered our estimated FY24 silver production from 21.9Moz to 21.0Moz and gold production from 922koz to 913koz (9m La Arena contribution). Our FY24 silver segment cash cost estimate increased from US$12.7/oz to US$13.2/oz. Our gold segment cash cost estimate remains broadly unchanged at US$1,191/oz.
We have also slightly updated our commodity price assumptions for the year, mainly due to the continuing strength in the gold price. Our FY24 gold price estimate is 3% higher at US$2,290/oz, while our silver price assumption is broadly unchanged at US$26.5/oz. We make no changes to our commodity price assumptions beyond FY24 for now.
Overall, our FY24 revenue estimate is 2% higher but our EBITDA forecast is 4% lower. The logic behind these changes is that the lower production was offset by higher commodity prices at the topline level but resulted in higher unit costs that drove earnings slightly lower. While consensus estimates have recently caught up with our more ambitious estimates, we are now c 2% below the market at the EBITDA level for FY24.
Exhibit 3: Changes to financial estimates
|
FY24e |
FY25e |
||||
US$m |
New |
Old |
% change |
New |
Old |
% change |
Revenue |
2,791 |
2,744 |
1.7 |
2,396 |
2,400 |
(0.2) |
Cash production costs |
(1,671) |
(1,603) |
4.2 |
(1,414) |
(1,402) |
0.8 |
D&A |
(501) |
(492) |
1.7 |
(391) |
(396) |
(1.4) |
Royalties |
(64) |
(64) |
(0.6) |
(54) |
(58) |
(6.2) |
Exploration, care and maintenance |
(45) |
(40) |
13.0 |
(41) |
(38) |
7.1 |
G&A |
(90) |
(78) |
15.4 |
(84) |
(75) |
12.0 |
EBITDA |
924 |
959 |
(3.6) |
804 |
828 |
(2.9) |
Reported EPS, US$ |
0.20 |
0.55 |
(63.1) |
0.50 |
0.54 |
(8.3) |
Normalised EPS* (Edison), US$ |
0.22 |
0.58 |
(61.3) |
0.50 |
0.54 |
(8.3) |
Source: Edison Investment Research. Note: *Normalised EPS excludes investment profit/loss.
Commodity prices continue to support valuation
Our valuation of PAAS remains virtually unchanged at US$23.5 per share. We have updated our WACC estimates from 7.4% to 7.2% (nominal) and 5.0% to 4.7% (real) to reflect the reduction in risk-free rate (10-year Canadian government bond). Our valuation includes the sale of the La Arena project, which we assume will complete at the end of Q324, and the recent share buybacks. On our updated forecasts, the shares trade at FY24e EV/EBITDA of 7.9x.
Despite the recent healthy recovery in the share price, driven by the strength in the commodity prices and the share buyback, we believe the market reaction to the Q2 results was overly negative. Given the favourable commodity price environment, gold in particular, we see further upside to the share price if PAAS continues to deliver on its operating outlook throughout 2024. Any progress on bringing the Escobal project back into production could be an additional strong catalyst for the share price.
Exhibit 4: PAAS valuation summary
WACC nominal (FY24–28e) |
7.2% |
|
WACC real (from FY28e) |
4.7% |
|
Tax on EBIT |
40% |
|
Number of shares outstanding, including share buyback |
363.0m |
|
US$m |
US$ per share |
|
Sum of discounted free cash flow, currently producing operations |
5,786 |
15.9 |
Add exploration/development assets |
748 |
2.1 |
Add Escobal |
2,122 |
5.8 |
Less FY23 net debt, adjusted for La Arena sale |
116 |
0.3 |
Implied equity value |
8,539 |
23.5 |
Source: Edison Investment Research
Exhibit 5: Financial summary
US$m |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1,494.7 |
2,316.1 |
2,791.1 |
2,396.2 |
Cash production costs |
(1,094.4) |
(1,479.2) |
(1,670.5) |
(1,413.5) |
||
DD&A |
(316.0) |
(484.2) |
(500.5) |
(390.5) |
||
Royalties |
(35.9) |
(55.9) |
(63.6) |
(54.4) |
||
Gross Profit |
48.4 |
296.8 |
556.5 |
537.8 |
||
G&A |
(29.0) |
(61.4) |
(90.0) |
(84.0) |
||
Other operating costs |
(63.5) |
(96.8) |
(45.2) |
(40.7) |
||
Operating profit (before amort. and excepts.) |
|
|
(44.1) |
196.4 |
421.3 |
413.1 |
EBITDA |
|
|
272.0 |
680.6 |
924.2 |
803.6 |
Other operating expenses |
(6.4) |
3.4 |
0.0 |
0.0 |
||
Exceptionals |
(211.8) |
(103.9) |
0.0 |
0.0 |
||
Reported operating profit |
(262.3) |
38.1 |
421.3 |
413.2 |
||
Net Interest and other finance expense |
(22.5) |
(91.4) |
(88.3) |
(81.8) |
||
Profit Before Tax (norm) |
|
|
(73.0) |
108.4 |
333.0 |
331.3 |
Investment income (loss) |
(16.2) |
(5.5) |
(7.8) |
0.0 |
||
Profit Before Tax (reported) |
|
|
(301.0) |
(58.8) |
325.2 |
331.3 |
Reported tax |
(39.1) |
(46.1) |
(250.4) |
(149.1) |
||
Profit After Tax (norm) |
(112.1) |
62.3 |
82.6 |
182.2 |
||
Profit After Tax (reported) |
(340.1) |
(104.9) |
74.8 |
182.2 |
||
Minority interests |
1.7 |
(1.2) |
1.0 |
2.4 |
||
Net income (normalised) |
(113.8) |
63.5 |
81.6 |
179.8 |
||
Net income (reported) |
(341.8) |
(103.7) |
73.8 |
179.8 |
||
Average Number of Shares Outstanding (m) |
211 |
327 |
363 |
363 |
||
EPS - basic normalised ($) |
|
|
(0.54) |
0.19 |
0.22 |
0.50 |
EPS - normalised fully diluted ($) |
|
|
(0.54) |
0.19 |
0.22 |
0.50 |
EPS - basic reported ($) |
|
|
(1.62) |
(0.32) |
0.20 |
0.50 |
Dividend ($) |
0.45 |
0.41 |
0.40 |
0.40 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,444.1 |
5,823.1 |
5,502.6 |
5,437.4 |
Tangible assets |
2,226.4 |
5,675.1 |
5,354.6 |
5,289.4 |
||
Investments |
121.2 |
0.0 |
0.0 |
0.0 |
||
Other |
96.6 |
148.0 |
148.0 |
148.0 |
||
Current Assets |
|
|
804.4 |
1,389.9 |
1,629.3 |
1,702.2 |
Inventories |
471.6 |
711.6 |
768.9 |
735.8 |
||
Receivables |
136.6 |
138.0 |
145.3 |
131.3 |
||
Cash |
107.0 |
399.5 |
574.3 |
694.3 |
||
ST investments |
35.3 |
41.3 |
41.3 |
41.3 |
||
Other |
53.8 |
99.5 |
99.5 |
99.5 |
||
Current Liabilities |
|
|
(380.8) |
(624.2) |
(615.9) |
(598.7) |
Creditors |
(308.1) |
(498.0) |
(489.7) |
(472.5) |
||
Short term borrowings and leases |
(27.3) |
(52.4) |
(52.4) |
(52.4) |
||
Other |
(45.5) |
(73.8) |
(73.8) |
(73.8) |
||
Long Term Liabilities |
|
|
(666.0) |
(1,816.4) |
(1,837.0) |
(1,822.0) |
LT debt and leases |
(199.5) |
(749.2) |
(749.2) |
(749.2) |
||
Other long term liabilities |
(466.5) |
(1,067.2) |
(1,087.8) |
(1,072.8) |
||
Net Assets |
|
|
2,201.6 |
4,772.4 |
4,678.9 |
4,719.0 |
Minority interests |
(6.1) |
(11.8) |
(12.8) |
(15.2) |
||
Shareholders' equity |
|
|
2,195.5 |
4,760.6 |
4,666.1 |
4,703.7 |
CASH FLOW |
||||||
Operating Cash Flow |
(340.1) |
(104.9) |
74.8 |
182.2 |
||
D&A, exceptionals, other |
555.2 |
663.5 |
804.9 |
593.1 |
||
Working capital movement |
(42.0) |
68.9 |
(105.3) |
29.8 |
||
Tax |
(137.8) |
(149.4) |
(197.3) |
(164.1) |
||
Net Interest |
(3.4) |
(27.9) |
(54.0) |
(53.5) |
||
Net operating cash flow |
|
|
31.9 |
450.2 |
523.1 |
587.6 |
Capex |
(274.7) |
(379.0) |
(373.0) |
(272.4) |
||
Acquisitions/disposals |
8.7 |
759.3 |
0.0 |
0.0 |
||
Dividends |
(94.7) |
(130.4) |
(145.2) |
(145.2) |
||
Other |
20.0 |
(15.3) |
171.0 |
(50.0) |
||
Net Cash Flow |
(307.9) |
684.8 |
175.9 |
120.0 |
||
Opening net debt/(cash), including ST investments |
|
|
(289.4) |
84.5 |
360.8 |
186.1 |
FX and other |
(66.0) |
(961.1) |
(1.1) |
0.0 |
||
Closing net debt/(cash) |
|
|
84.5 |
360.8 |
186.1 |
66.1 |
Closing net debt/(cash), excluding ST investments |
119.9 |
402.1 |
227.4 |
107.4 |
Source: Pan American Silver accounts, Edison Investment Research
|
|
Research: Metals & Mining
Sylvania’s Q424 results were negatively affected by a delayed recovery in production following the 22-day strike during Q324. This resulted in 21% lower revenue than expected and EBITDA of only US$2.8m, 68% below our expectation. We have reduced our near-term platinum group metals (PGM) price assumptions on the back of elevated surface inventories and sustained South African production, but bolstered our long-term forecasts due to an expected higher demand for platinum and palladium on the back of fibreglass, hydrogen economy and hybrid vehicle demand. We forecast a recovery in production for Sylvania from FY25 with somewhat higher costs after the recent US dollar depreciation. We have cut our EPS estimates by 17.3% in FY25 and 25.7% in FY26, but see a positive impact from our higher long-term PGM forecasts thereafter. As a result, we have reduced our valuation by 6.5% from 120p/share to 112.2p/share. With exploration assets valued at book and conservatism in our Thaba joint venture (JV) valuation, our overall valuation offers upside as projects graduate from exploration to production over the coming years.