On May 13, 2008 Pan American Silver reported its unaudited financial and operating results for Q1/08.
Company Profile (from Reuters)
Pan American Silver Corp. (Pan American) is engaged in silver mining and related activities, including exploration, mine development, extraction, processing, refining and reclamation. The Company's primary product (silver) is produced in Peru, Mexico and Bolivia. The Company has project development activities in Argentina, Mexico and Bolivia, and exploration activities throughout South America and Mexico. Pan American's wholly owned and partially owned subsidiaries include Pan American Silver S.A. Mina Quiruvilca, Compania Minera Argentum S.A., Plata Panamericana S.A. de C.V., Minera Corner Bay S.A., Compania Minera PAS Bolivia S.A. and Compania Minera Triton S.A. All of the Company's operations are within the mining sector, conducted through operations in six countries. Its products include silver, zinc, lead and copper produced from mines located in Mexico, Peru and Bolivia.
On May 23, 2007, Pan American completed the acquisition of an additional 40% interest in Pan American Silver Bolivia S. A., the operator of the San Vicente Mine, from Empresa Minera Unificada S.A. (EMUSA). During the year ended December 31, 2007, the Company produced 17.1 million ounces of silver. At December 31, 2007, proven and probable reserves totaled 227.8 million ounces. Pan American operated seven mines in Mexico and South America during 2007. In Peru, the Company operates the Huaron mine (99.9% owned), the Morococha mine (89.4% owned), and the Quiruvilca mine (99.9% owned) and has rights to process certain Pyrite Stockpiles. The Alamo Dorado and La Colorada mines are located in Mexico and are 100% owned. Pan American also operates the San Vicente mine in Bolivia through its 95% ownership of the entity, which operates the mine through a joint venture agreement.
The Huaron silver-zinc underground polymetallic mine is the Company's silver producer. The property is located 320 km northeast of Lima in the Cerro de Pasco district. Pan American acquired the Morococha mine in Peru in August 2004. Morococha is an underground, polymetallic vein mine located 50 kilometers southwest of the Company's Huaron mine. The Quiruvilca mine is located approximately 130 kilometers inland from the coastal city of Trujillo. The silver stockpiles are located in the Cerro de Pasco mining district of Peru. Volcan Compania Minera, a Peruvian mining company, is the ore producer in this district. Alamo Dorado is Pan American's open-pit mine. It is located in the Mexican state of Sonora, approximately 200 miles from the state capital of Hermosillo. The mine began production on April 1, 2007. Pan American acquired the La Colorada mine consists of six contiguous blocks of exploration permits and exploitation claims totaling 2,230 hectares. The San Vicente silver-zinc mine is located in the Bolivian Andes. More than 20 bonanza type silver-zinc veins are known to occur over an area of 1.5 kilometers on surface and extend to at least 200 meters in depth. The project consists of 15 mining concessions totaling 8,159 hectares.
Takeaways From The Event
For Q1/08 Pan American Silver reported net income of $$30.2 million or $0.38/share. Mine operating earnings rose more than three fold, to a record $48.4 million. Cash flow from operations totalled $45.4 million (before changes in non-cash working capital). The company produced 4.5 million ounces of silver at cash costs of $3.70 per ounce. Sales increased 126% to a record $108.8 million and the company reported that contruction at its Manantial Espejo mine is 78% complete with start-up scheduled for the third quarter of 2008.
Responding to Pan American Silver’s earnings, RBC Capital Markets analyst Michael Curran writes “Backing out extra-ordinary and non-cash items, operating EPS was $0.36/sh in Q1/08, in line with our estimate, but slightly below consensus at $0.38/sh. CFPS of $0.56/sh was ahead of both our estimate ($0.50/sh) and consensus ($0.52/sh).” Curran goes on to say “During Q1/08 the company produced 4.5MM ounces of silver, in line with our estimate. Better than expected production at the new Alamo Dorado mine and Morococha mine was offset by slightly lower production at Huaron and Quiruvilca. Q1/08 cash costs were $3.70/oz, better than the $4.21/oz we were looking for. Cash costs benefited from high by-product credits, particularly gold, and increased silver production. Construction at the Manantial Espejo mine in Argentina is +75% completed, with initial production slated for Q3/08. Total capex is expected to be within 5% of the previous $185 million estimate. Pan American maintains full year 2008 production guidance of 19.5MMoz of silver at cash costs of $4.31/oz. At March 31, the company had $136 million in cash and short-term investments, and no debt.”
Curran maintains his Outperform (Average Risk) rating on Pan American Silver.
Another analyst who covers Pan American Silver is Richard Gray of Blackmont Capital and he writes “Pan American reported Q1/08 EPS of $0.38 and CFPS of $0.59, both in line with our respective $0.41 and $0.57 estimates. Production of 4.5mm oz silver was in-line with our estimate, while lower costs $3.70/oz vs our $4.18) were driven by strong performances at the Alamo Dorado and La Colarada mines. Also, after receiving $43.9mm from the exercise of warrants during the quarter, the company further bolstered its balance sheet ($136mm cash, $233mm working capital). The company is maintaining its 2008 guidance (as released in February) of 19.5mm oz production at a total cash cost of $4.31/oz, and remains on-track to start-up its Manantial Espejo mine in Argentina (~78% complete at the end of Q1/08).”
Gray maintains his Buy rating and target price of C$46.00/sh, which is derived from “1.5 times 2009E NAV and 15.0 times 2009E CFPS target multiples.” Gray reckons that investors should invest in Pan American Silver because it “Offers good exposure to the rising silver price,” has “achieved 13 consecutive years of production growth” and has “Long mine life and growing silver reserves and resources.”
Investment Risks
Without limitations, some of the risks include reserves and resource risk, development risks, permitting risks, off-take agreements, commodity price risks, geo-political risks, exchange rates, weather related impacts etc.
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