Last close As at 05/08/2026
USD48.24
▲ 3.33 (7.41%)
Market capitalisation
USD20,120m
Research: Metals & Mining
Pan American’s Q3 results did not bring any major surprises at the group level, with lower EBITDA of US$159m, down 22% q-o-q, mainly a result of the continuing underperformance of La Colorada and lower-than-expected gold grades at El Penon. Yet the company reported flat (quarter-on-quarter) net operating cash flow of US$115m and broadly reiterated its FY23 operating guidance. We have revised downwards our near-term earnings estimates on the back of the results. However, our valuation has increased from US$22.0/share to US$22.7 due to updated longer-term gold price expectations. Although the shares have reacted negatively to the results, we expect a stronger Q4, while the commodity prices remain supportive against the backdrop of higher geopolitical risks.
Pan American Silver |
Q323: La Colorada continues to underperform |
Results update |
Metals and mining |
14 November 2023 |
Share price performance
Business description
Next events
Analysts
Pan American Silver is a research client of Edison Investment Research Limited |
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Pan American’s Q3 results did not bring any major surprises at the group level, with lower EBITDA of US$159m, down 22% q-o-q, mainly a result of the continuing underperformance of La Colorada and lower-than-expected gold grades at El Penon. Yet the company reported flat (quarter-on-quarter) net operating cash flow of US$115m and broadly reiterated its FY23 operating guidance. We have revised downwards our near-term earnings estimates on the back of the results. However, our valuation has increased from US$22.0/share to US$22.7 due to updated longer-term gold price expectations. Although the shares have reacted negatively to the results, we expect a stronger Q4, while the commodity prices remain supportive against the backdrop of higher geopolitical risks.
Year end |
Revenue |
EBITDA |
EPS* |
DPS |
EV/EBITDA |
Yield |
12/21 |
1,632.8 |
593.2 |
0.75 |
0.34 |
10.7 |
2.6 |
12/22 |
1,494.7 |
272.0 |
(0.54) |
0.45 |
23.3 |
3.4 |
12/23e |
2,303.3 |
674.6 |
0.21 |
0.41 |
7.9 |
3.1 |
12/24e |
2,645.3 |
908.7 |
0.38 |
0.40 |
4.9 |
3.0 |
Note: *EPS excludes exceptional items.
Q323: Lower results due to La Colorada and El Penon
PAAS’s total silver production was down 6% q-o-q to 5.7Moz, while the silver segment cash cost was up 41% q-o-q to US$13.1/oz. The gold segment performed better as it only saw a 2% reduction in production to 244koz and a 14% increase in cash costs to US$1,187/oz. As a result, revenues declined 4% q-o-q and EBITDA fell 22%. Persisting ventilation issues at La Colorada and lower gold grades at El Penon were mainly responsible for the weaker performance. Yet PAAS reported operating cash flow of US$115m, versus US$117m in Q2. Net debt fell from US$726m at H123 to US$423m. A quarterly dividend of US$0.10/share was in line with Q2.
Revised estimates, broadly maintained guidance
The company expects silver and gold production at the lower end of the earlier operating outlook. Silver segment costs are expected to come in marginally above the top end of the guidance ranges, while gold segment costs are guided within the ranges. We have updated our near-term estimates following the results, with FY23e and FY24e EBITDA down to US$675m (vs US$741m) and US$909m (vs US$1,085m). We expect a seasonally stronger Q4 with EBITDA of c US$197m as we see some cost and production normalisation and supportive commodity prices.
Valuation: Upgraded on higher commodity prices
While lower near-term earnings expectations weighed on the valuation, we have increased our NPV derived value of PAAS from US$22.0/share to US$22.7/share. The main reason behind the upgrade is our updated longer-term gold price expectations (see page 4). On our revised estimates, the stock trades on an FY23e EV/EBITDA multiple of 7.9x falling to just 4.9x in FY24e. While the share price reacted negatively to the Q3 results, we see a stronger Q4 and supportive commodity prices against the backdrop of increased geopolitical risks as positives.
Q323 results: La Colorada remains a drag
PAAS’s Q323 financial results did not bring any major surprises at the consolidated level, with revenues coming in at US$617m, down 4% q-o-q, and EBITDA falling 22% to US$159m (NB: Q2 EBITDA is adjusted upwards for US$32m in one-off PPA inventory revaluation on the Yamana assets acquisition). One of the main drivers behind the results was the continuing underperformance of the flagship La Colorada mine, which saw lower production coupled with higher costs. The overall silver production was down 6% q-o-q to 5.7Moz, while the silver segment cash cost was up 41% q-o-q to US$13.1/oz. The gold segment fared better as it only saw a 2% reduction in production to 244koz and a 14% increase in unit cash cost to US$1,187/oz, predominantly due to the lower-than-expected gold grades at El Penon and higher costs at Jacobina.
The overall Q3 silver production was at the lower end of the company’s earlier quarterly guidance, while all other production metrics came in below guidance and cost metrics above guidance. Also, despite the lower output, Q3 silver sales were strong, up 2% q-o-q in ounces terms. Further on the positive side, all main operating cost lines were down, with G&A falling 10% q-o-q and care and maintenance expenses dropping by as much as 22%. We expect the latter to further normalise in Q4 as the company has recently completed the divestment of MARA and Morococha. PAAS declared a dividend of US$0.10 per share, in line with Q223.
Net debt was reported at US$423m (including short-term investments and leases) versus US$726m at end Q223. The reduction was a result of the asset sale completion and a net repayment of debt to the tune of US$280m. At US$115m, net operating cash flow was broadly in line with Q2 thanks to the lower cash tax payment, while free cash flow increased from US$4m to US$6m.
Exhibit 1: PAAS Q323 results summary
US$m unless stated |
Q323 |
Q223 |
q-o-q, % |
Q123 |
Silver production, koz |
5,687 |
6,024 |
(5.6) |
3,891.0 |
Gold production, koz |
244.2 |
248.2 |
(1.6) |
122.7 |
|
|
|
|
|
Silver segment cash cost, US$/oz |
13.1 |
9.3 |
41.3 |
12.2 |
Silver segment AISC, US$/oz |
18.2 |
15.7 |
15.9 |
14.1 |
|
|
|
|
|
Gold segment cash cost, US$/oz |
1,187 |
1,045 |
13.6 |
1,120.0 |
Gold segment AISC, US$/oz |
1,451 |
1,342 |
8.1 |
1,196.0 |
|
|
|
|
|
Revenue |
616.6 |
639.9 |
(3.6) |
390.3 |
Cash production costs |
(402.2) |
(405.3) |
(0.8) |
(230.8) |
D&A |
(139.8) |
(150.0) |
(6.8) |
(73.1) |
Royalties |
(12.4) |
(14.0) |
(11.4) |
(9.2) |
Mine operating earnings |
61.9 |
70.6 |
(12.3) |
77.2 |
Care and maintenance |
(24.2) |
(26.9) |
(10.0) |
(22.0) |
Exploration |
(3.7) |
(6.1) |
(39.3) |
(1.0) |
G&A |
(15.0) |
(17.5) |
(14.3) |
(10.4) |
EBITDA* |
158.8 |
202.3 |
(21.5) |
116.9 |
Reported PBT |
3.5 |
(61.7) |
N/A |
25.2 |
Reported EPS, US$ |
(0.06) |
(0.13) |
(53.4) |
0.08 |
Adjusted EPS, company reported, US$ |
0.01 |
0.04 |
(25.0) |
0.10 |
Source: PAAS. Note: *Q2 EBITDA is adjusted for the US$32m in PPA inventory revaluation.
At the project level, the company’s flagship La Colorada mine operation continued to underperform as its mine EBITDA remained in negative territory in Q3. Production remains negatively affected by the ventilation constraints in the high-grade dip zone of the mine. Lower throughput resulted in a quarterly cash cost of US$24.5/oz versus US$11.6/oz in FY22. In the first nine months of the year (9M23), the project generated mine EBITDA of just US$8.3m, versus US$42m in 9M22. PAAS expects to complete the installation of two exhaust fans on the surface of the ventilation shaft that is currently being advanced in mid-2024.
At the Cerro Moro project, silver production was affected by lower silver grades. However, this was partly offset by strong sales, of gold in particular, which resulted in increased by-product credits and helped to keep cash costs under control. Nevertheless, the project saw a reduction in estimated mine EBITDA from US$21.7m in Q2 to US$15.4m. Based on the reported data, we believe that the company may have already delivered the committed annual 1.2Moz of silver at 30% of the spot silver price (as per the Yamana transaction commitment to deliver 20% of the silver produced by the project at 30% of the spot price). We therefore expect a stronger quarter in Q423.
In the gold segment, we would highlight a reasonably strong performance from Dolores and Shahuindo, which delivered broadly flat mine EBITDA in Q3. However, this was offset by a visible increase in costs at the larger Jacobina mine and at El Penon.
Update on the Escobal project
In Q3, PAAS hosted three visits to the mine for Xinka indigenous representatives and their advisors and participated in several other meetings. At this stage, there is no clarity on the completion date of the consultation process, which currently remains in Phase 2. We note that the Guatemalan Ministry of Energy and Mines earlier expected the consultation process to be finalised in October 2023. After this, the consultation would move into the final phase, which is Supreme Court verification, which should pave the way for the project to be restarted. We continue to model the restart of Escobal in FY25, which we believe is a reasonable assumption allowing for the completion of consultation and the required preparations for the recommissioning of the project.
Earnings revisions: Expect a stronger Q4
We have updated our earnings estimates on the back of the Q3 results as well as to reflect up-to-date commodity prices and our revised longer-term gold price forecasts (see below). The company has broadly maintained its earlier FY23 production and cost outlook, noting that both silver and gold output are likely to come in at the lower end of the operating guidance (21–23Moz silver and 870–970koz gold). Further, it expects silver cash costs and all-in sustaining costs (AISC) to be slightly above the top end of the respective guidance ranges (US$10–12/oz and US$14–16/oz). Cash costs and AISC guidance for the gold segment was maintained. The main reasons for the slightly tweaked operating outlook are the weaker performance of the La Colorada mine and lower-than-expected gold grades at El Penon.
All in all, we now expect the company to generate US$675m in EBITDA in FY23 and US$909m in FY24. We have slightly adjusted upwards our cost estimates for both segments. In the silver segment, our cost assumptions were already at the upper end of the guided range and are now slightly above the indicated ranges, in line with guidance. Yet, while we prefer to take a more conservative view on costs and production following the Q2 and Q3 results and, more specifically, due to La Colorada’s continuing underperformance, we expect a better Q423, with EBITDA of US$197m versus US$159m in Q3. We note that Q4 is seasonally stronger for PAAS, in particular in gold, while favourable commodity prices should provide additional support.
Exhibit 2: PAAS forecast changes
FY23e |
FY24e |
FY23 |
|||
US$m unless stated |
New |
Old |
New |
Old |
guidance |
Total silver production, Moz |
21.4 |
22.8 |
24.5 |
25.7 |
21–23 |
Total gold production, koz |
883 |
922 |
1,145 |
1,108 |
870–970 |
|
|||||
Silver segment cash cost, US$/oz |
12.2 |
11.7 |
9.9 |
9.2 |
10–12 |
Silver segment AISC, US$/oz |
17.4 |
16.0 |
14.5 |
13.3 |
14–16 |
Silver price, US$/oz |
23.1 |
23.3 |
23.5 |
24.3 |
|
|
|||||
Gold segment cash cost, US$/oz |
1,101 |
1,068 |
1,012 |
972 |
975–1,100 |
Gold segment AISC, US$/oz |
1,405 |
1,395 |
1,222 |
1,194 |
1,275–1,425 |
Gold price, US$/oz |
1,930 |
1,932 |
1,896 |
1,928 |
|
|
|||||
Revenue |
2,303.3 |
2,439.1 |
2,645.3 |
2,873.2 |
|
Cash production costs |
(1,440.7) |
(1,483.7) |
(1,545.1) |
(1,577.9) |
|
D&A |
(508.0) |
(516.5) |
(578.1) |
(557.1) |
|
Royalties |
(48.7) |
(62.2) |
(55.4) |
(64.4) |
|
Exploration, care and maintenance |
(99.6) |
(101.7) |
(63.0) |
(64.0) |
|
G&A |
(59.0) |
(68.0) |
(68.0) |
(70.0) |
|
EBITDA |
674.6 |
740.7 |
908.7 |
1,085.0 |
|
Reported EPS, US$ |
(0.12) |
0.07 |
0.38 |
0.74 |
|
Adjusted EPS (Edison), US$ |
0.21 |
0.36 |
0.38 |
0.74 |
|
Source: PAAS, Edison Investment Research
Valuation: Upgraded on higher commodity prices
We continue to value PAAS using a discounted cash flow (DCF) approach over the mine life of projects based on the reported mineral resources. These project level cash flows are combined into a single consolidated cash flow, which we discount at a CAPM-derived WACC. As shown in Exhibit 4, our updated valuation of the company now stands at US$22.7/share (from US$22.0). While lower estimates weighed on the valuation, the main reason for the upgrade is our revised gold price expectations. For more details on our new gold price forecasts, see Edison’s recent report Gold: Shades of the 1970s, September 1979 revisited.
Exhibit 3: Revised commodity price assumptions, US$/oz
|
FY23e |
FY24e |
FY25e |
FY26e |
FY27e |
FY28e* |
New gold price |
1,930 |
1,896 |
2,004 |
2,105 |
2,239 |
1,912 |
Old gold price |
1,932 |
1,928 |
1,836 |
1,765 |
1,674 |
1,674 |
New silver price |
23.1 |
23.5 |
23.0 |
23.0 |
23.0 |
23.0 |
Old silver price |
23.3 |
24.3 |
24.0 |
23.5 |
23.0 |
23.0 |
Source: Edison Investment Research. Note: *FY28 is a long-term real price assumption. All other prices are nominal.
In addition to the above-mentioned changes, we have slightly updated our nominal WACC from 7.8% to 7.9% largely due to the higher risk-free rate of 3.7% versus 3.5%. Our long-term real discount rate (post FY28e) moves to 4.9% using the unchanged long-term inflation assumption of 3.0%.
On our revised estimates, PAAS trades on an EV/EBITDA multiple of 7.9x for FY23 and 4.9x for FY24. On Refinitiv consensus estimates these multiples are 7.3x and 4.9x respectively.
While the PAAS share price has been weak following the results, we believe that expectations of the stronger end to the year, plus strong commodity prices on the back of the increased geopolitical risks, should be supportive of the stock. We also note that the upcoming release of the skarn project preliminary economic assessment (PEA) could crystalise some value for the project, which we currently value on a resources multiple.
Exhibit 4: PAAS DCF valuation summary (FY29–54e not shown)
US$m |
FY23e |
FY24e |
FY25e |
FY26e |
FY27e |
FY28e |
EBITDA |
674.6 |
908.7 |
1,459.3 |
1,498.9 |
1,581.0 |
1,271.0 |
EBIT |
166.5 |
330.6 |
972.5 |
1,025.7 |
1,150.6 |
853.2 |
Tax on EBIT |
(66.6) |
(132.2) |
(340.4) |
(359.0) |
(402.7) |
(298.6) |
D&A |
508.0 |
578.1 |
486.8 |
473.2 |
430.4 |
417.8 |
Working capital |
7.6 |
(3.6) |
(54.2) |
44.2 |
2.9 |
29.9 |
Capex |
(357.7) |
(305.9) |
(287.4) |
(242.6) |
(229.6) |
(210.1) |
Free cash flow |
257.9 |
467.0 |
777.4 |
941.5 |
951.6 |
792.2 |
Discount rate (%) |
7.9 |
7.9 |
7.9 |
7.9 |
7.9 |
4.9 |
Discount factor (x) |
1.0 |
0.9 |
0.9 |
0.8 |
0.7 |
0.7 |
Discounted free cash flow |
257.9 |
432.6 |
667.3 |
748.7 |
701.1 |
556.2 |
Sum of DFCF |
8,377 |
|
|
|
|
|
Exploration/development assets |
702.5 |
|
|
|
|
|
Net debt, FY23e |
441.4 |
|
|
|
|
|
Implied equity value |
8,638.0 |
|
|
|
|
|
Number of shares* (m) |
380.0 |
|
|
|
|
|
Value per share, US$ |
22.7 |
|
|
|
|
|
Source: Edison Investment Research. Note: *Includes shares to be issued on restart of Escobal.
Exhibit 5: Financial summary
$'m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
1,338.8 |
1,632.8 |
1,494.7 |
2,303.3 |
2,645.3 |
Cash production costs |
(696.7) |
(925.5) |
(1,094.4) |
(1,453.7) |
(1,550.1) |
||
DD&A |
(254.5) |
(303.0) |
(316.0) |
(508.0) |
(578.1) |
||
Royalties |
(27.5) |
(36.4) |
(35.9) |
(48.7) |
(55.4) |
||
Gross Profit |
360.2 |
367.9 |
48.4 |
292.9 |
461.6 |
||
G&A |
(36.4) |
(34.9) |
(29.0) |
(59.0) |
(68.0) |
||
Other operating costs |
(109.2) |
(42.9) |
(63.5) |
(99.6) |
(63.0) |
||
Operating profit (before amort. and excepts.) |
|
|
214.6 |
290.2 |
(44.1) |
166.5 |
330.6 |
EBITDA |
|
|
469.1 |
593.2 |
272.0 |
674.6 |
908.7 |
Other operating expenses |
(5.5) |
30.7 |
(6.4) |
27.2 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
(211.8) |
(67.4) |
0.0 |
||
Reported operating profit |
209.1 |
320.9 |
(262.3) |
94.1 |
330.6 |
||
Net Interest and finance expense |
(20.1) |
(16.2) |
(22.5) |
(94.3) |
(98.2) |
||
Profit Before Tax (norm) |
|
|
189.0 |
304.7 |
(73.0) |
99.4 |
232.4 |
Investment income (loss) |
63.0 |
(59.7) |
(16.2) |
(8.8) |
0.0 |
||
Profit Before Tax (reported) |
|
|
252.0 |
245.0 |
(301.0) |
(9.0) |
232.4 |
Reported tax |
(75.6) |
(146.4) |
(39.1) |
(31.4) |
(93.0) |
||
Profit After Tax (norm) |
113.4 |
158.3 |
(112.1) |
68.0 |
139.4 |
||
Profit After Tax (reported) |
176.5 |
98.6 |
(340.1) |
(40.4) |
139.4 |
||
Minority interests |
(1.4) |
1.1 |
1.7 |
(1.4) |
1.0 |
||
Net income (normalised) |
114.9 |
157.2 |
(113.8) |
69.4 |
138.4 |
||
Net income (reported) |
177.9 |
97.4 |
(341.8) |
(39.0) |
138.4 |
||
Average Number of Shares Outstanding (m) |
210 |
210 |
211 |
326 |
364 |
||
EPS - basic normalised ($) |
|
|
0.55 |
0.75 |
(0.54) |
0.21 |
0.38 |
EPS - normalised fully diluted ($) |
|
|
0.55 |
0.75 |
(0.54) |
0.21 |
0.38 |
EPS - basic reported ($) |
|
|
0.85 |
0.46 |
(1.62) |
(0.12) |
0.38 |
Dividend ($) |
0.22 |
0.34 |
0.45 |
0.41 |
0.40 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
2,577.0 |
2,517.4 |
2,444.1 |
6,009.8 |
5,737.6 |
Tangible assets |
2,415.0 |
2,344.6 |
2,226.4 |
5,837.4 |
5,565.2 |
||
Investments |
71.6 |
78.7 |
121.2 |
0.0 |
0.0 |
||
Other |
90.4 |
94.2 |
96.6 |
172.4 |
172.4 |
||
Current Assets |
|
|
856.9 |
1,001.2 |
804.4 |
1,464.0 |
1,667.3 |
Inventories |
406.2 |
500.5 |
471.6 |
702.6 |
719.7 |
||
Receivables |
127.8 |
128.2 |
136.6 |
154.6 |
163.1 |
||
Cash |
167.1 |
283.6 |
107.0 |
329.3 |
507.0 |
||
ST investments |
111.9 |
51.7 |
35.3 |
38.5 |
38.5 |
||
Other |
43.9 |
37.3 |
53.8 |
239.1 |
239.1 |
||
Current Liabilities |
|
|
(361.8) |
(387.7) |
(380.8) |
(643.5) |
(665.4) |
Creditors |
(281.9) |
(306.1) |
(308.1) |
(477.6) |
(499.5) |
||
Short term borrowings and leases |
(12.8) |
(14.1) |
(27.3) |
(54.4) |
(54.4) |
||
Other |
(67.0) |
(67.5) |
(45.5) |
(111.5) |
(111.5) |
||
Long Term Liabilities |
|
|
(466.3) |
(494.9) |
(666.0) |
(1,948.9) |
(1,863.5) |
LT debt and leases |
(20.7) |
(31.8) |
(199.5) |
(754.7) |
(769.3) |
||
Other long term liabilities |
(445.5) |
(463.1) |
(466.5) |
(1,194.2) |
(1,094.2) |
||
Net Assets |
|
|
2,605.8 |
2,636.0 |
2,201.6 |
4,881.5 |
4,876.0 |
Minority interests |
(3.3) |
(4.5) |
(6.1) |
(58.8) |
(59.8) |
||
Shareholders' equity |
|
|
2,602.5 |
2,631.6 |
2,195.5 |
4,822.7 |
4,816.2 |
CASH FLOW |
|||||||
Operating Cash Flow |
176.5 |
98.6 |
(340.1) |
(40.4) |
139.4 |
||
D&A, exceptionals, other |
280.5 |
498.9 |
555.2 |
644.9 |
769.3 |
||
Working capital movement |
97.0 |
(71.1) |
(42.0) |
7.6 |
(3.6) |
||
Tax |
(81.6) |
(129.2) |
(137.8) |
(161.4) |
(193.0) |
||
Net Interest |
(10.0) |
(5.1) |
(3.4) |
(39.0) |
(57.7) |
||
Net operating cash flow |
|
|
462.3 |
392.1 |
31.9 |
411.7 |
654.4 |
Capex |
(178.6) |
(243.5) |
(274.7) |
(357.7) |
(305.9) |
||
Acquisitions/disposals |
22.5 |
45.8 |
8.7 |
716.8 |
0.0 |
||
Equity financing |
4.7 |
0.6 |
0.9 |
0.0 |
0.0 |
||
Dividends |
(46.2) |
(71.5) |
(94.7) |
(133.6) |
(145.8) |
||
Other |
59.1 |
(2.3) |
20.0 |
(11.5) |
(25.0) |
||
Net Cash Flow |
323.8 |
121.2 |
(307.9) |
625.7 |
177.8 |
||
Opening net debt/(cash), including ST investments |
|
|
77.9 |
(245.5) |
(289.4) |
84.5 |
441.4 |
FX and other |
(0.5) |
(77.3) |
(66.0) |
(982.5) |
(14.6) |
||
Closing net debt/(cash), including ST investments |
|
|
(245.5) |
(289.4) |
84.5 |
441.4 |
278.2 |
Closing net debt/(cash), excluding ST investments |
(133.5) |
(237.7) |
119.9 |
479.9 |
316.7 |
Source: Pan American Silver accounts, Edison Investment Research
|
|
Research: Industrials
Braemar announced today that it would be releasing its FY23 results and its 2023 Annual Report and Accounts on 16 November, followed by its H124 results for the period to 31 August on 29 November. This unusual situation follows the suspension of the shares in July, pending an investigation into a historical transaction. It will be seeking a relisting of the shares after the FY23 announcement.