Currency in USD
Last close As at 26/05/2023
USD14.98
▲ −0.35 (−2.28%)
Market capitalisation
USD5,459m
Research: Metals & Mining
Pan American Silver (PAAS) has upgraded its total mineral resources estimate at the La Colorada Skarn project to 227Moz in contained Ag from 141Moz (albeit at a lower silver grade), promoting a significant part of the resource into the indicated category. Despite the slight net positive effect of the resource upgrade on the valuation, we maintain our combined value of PAAS at US$27.5/share against the current backdrop of heightened commodity price volatility. While the silver price appears well supported at the current levels, gold remains under pressure due to the current environment of aggressive interest rate hikes.
Pan American Silver |
Significant resources upgrade at Skarn |
Project update |
Metals and mining |
16 September 2022 |
Share price performance Business description
Analyst
Pan American Silver is a research client of Edison Investment Research Limited |
Pan American Silver (PAAS) has upgraded its total mineral resources estimate at the La Colorada Skarn project to 227Moz in contained Ag from 141Moz (albeit at a lower silver grade), promoting a significant part of the resource into the indicated category. Despite the slight net positive effect of the resource upgrade on the valuation, we maintain our combined value of PAAS at US$27.5/share against the current backdrop of heightened commodity price volatility. While the silver price appears well supported at the current levels, gold remains under pressure due to the current environment of aggressive interest rate hikes.
Year end |
Revenue (US$m) |
EBITDA |
EPS* |
DPS |
P/E |
Yield |
12/20 |
1,338.8 |
469.1 |
0.57 |
0.22 |
28.2 |
1.4 |
12/21 |
1,632.8 |
593.2 |
0.60 |
0.34 |
26.8 |
2.1 |
12/22e |
1,614.9 |
400.1 |
0.17 |
0.47 |
94.7 |
2.9 |
12/23e |
1,581.1 |
509.5 |
0.61 |
0.64 |
26.4 |
4.0 |
Note: *EPS is normalised, excluding exceptional items.
PAAS reported a significant increase in the mineral resources estimate at its large-scale, advanced exploration stage La Colorada Skarn project, with overall contained silver of 227.3Moz at 29g/t compared to 141.0Moz at 44g/t reported in August 2020. In addition, a significant part of the resource was promoted from the inferred to the indicated category, which now represents 42% of the combined resources estimate. The reported resources are based on 190,000m of drilling and do not take into account an additional 40,000m of drilling completed after the cut-off date (see our flash note covering the drill results announced on 16 July 2022). PAAS continues its exploration work and preliminary engineering studies and plans to release an update on resources and a preliminary economic assessment on the project during the course of 2023. This should provide first indications of the project’s development routes and its cash flow-based valuation potential.
At present, we value the Skarn project using a peer group-derived EV/resources multiple. On a standalone basis, our valuation of the project would increase as the lower valuation multiple (US$0.9/oz of contained Ag versus US$1.2/oz before) is more than offset by the increase in mineral resources. However, given the prevailing volatility in commodity prices, we maintain our combined valuation of PAAS at US$27.5/share. The shares remain depressed, as the market continues to focus on the near-term macroeconomic challenges, and in our view do not fully reflect the company’s exposure to silver as an energy transition metal through its quality project portfolio and the relatively long life and low-cost nature of its core silver operations.
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Research: Industrials
Mytilineos is well placed to benefit from several energy transition-related themes. Mytilineos’s proactive management team has shown foresight in its investment decisions on decarbonisation over the last few years. It has built a renewable portfolio of c 8.6GW, including 2.4GW in Greece and 6.2GW of international projects that are mostly being developed for sale; it is decarbonising its integrated aluminium production facility, such that it should benefit from ‘low carbon’ aluminium branding from 2025; and it is increasing its activities in sustainable infrastructure projects. We estimate the share of earnings (EBITDA) derived from energy transition activities will increase from 26% in 2021 to 57% in 2025 (and 60% from 2026), which will help drive a four-year group EPS CAGR of 18%, with Mytilineos continuing to achieve superior returns (c 14% ROCE). It is well funded to support its investment in the energy transition, with financial flexibility of c €1.5bn augmented by strong operating cash flow in all business areas.
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