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The Pan American Silver Corp. PAAS stock hit a 52-week high of $28.88 yesterday before closing the session a tad lower at $28.60.
The stock jumped 7.6% yesterday, fueled by silver prices climbing above $36 per ounce, the highest levels since February 2012. The rise was driven by soft U.S. economic data and a dovish stance from the Federal Reserve, boosting safe-haven demand. The rally lifted other silver miners as well, with Endeavour Silver Corp. EXK and Hecla Mining Company HL gaining 7.6% and 5.6%, respectively, yesterday.
Year to date, PAAS shares have gained 41.5%, outpacing the industry's 26.1% growth. In comparison, the Basic Materials sector has risen 9.2%, while the S&P 500 has inched up 0.9%.
Pan American Silver has also outscored Endeavour Silver’s and Hecla Mining Company’s year-to-date gains of 31.4% and 24.4%, respectively.
The Pan American Silver stock is trading above its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.
While this rally may tempt investors to jump in, it is important to assess the underlying drivers and its sustainability, as well as the company’s growth prospects and potential risks, before making any investment decision.
Solid Trend in Silver & Gold Prices: Silver prices have gained 25% year to date, supported by several factors like rising economic and geopolitical uncertainties, as well as solid demand amid expectations of a tight supply. Gold has also rallied 28% year to date, riding on the escalating tariff tensions and geopolitical uncertainties.
Weak U.S. economic data lifted both gold and silver safe-haven demand, pushing silver to $36.20 and gold to around $3,370 per ounce.
Per the Silver Institute, the silver market is expected to record another deficit in 2025 (117.6 million ounces) for the fifth consecutive year, which bodes well for silver prices. This demand-supply imbalance holds good for gold. Apart from this, gold prices are likely to continue to gain, aided by increased purchases by central banks, hopes of interest rate cuts and geopolitical tensions.
Pending Acquisition of MAG Silver: Pan American Silver recently inked a deal to acquire MAG Silver Corp. MAG for $2.1 billion. Through this move, PAAS will gain access to the large-scale, high-grade Juanicipio mine in Mexico, in which MAG Silver has a 44% stake.
The company sees growth opportunities through the significant exploration potential at Juanicipio, as well as MAG Silver’s Deer Trail and Larder properties.
The deal, expected to close in the second half of 2025, will position Pan American Silver as a leading Americas-focused silver producer. It will add 58 million ounces of silver to its proven and probable reserves.
Juanicipio is expected to produce 14.7-16.7 million ounces of silver in 2025 (or 6.5-7.3 million ounces on a 44% basis). It is expected to generate a free cash flow of $200 million in 2025 (on a 100% basis).
Solid Q1 Results: PAAS witnessed a 28.6% year-over-year increase in revenues to $773 million, attributed to higher gold and silver prices. Lower costs and higher metal prices resulted in a record $250.8 million in mine operating earnings and $112.6 million in free cash flow. Adjusted earnings per share were 42 cents, a significant improvement from earnings of 1 cent in the year-ago quarter.
Stronger Output Expected in 2H25: Silver production was 5 million ounces and gold output was at 182.2 thousand ounces in the first quarter. The company remains on track to meet its 2025 guidance of 20-21 million ounces of silver and 735,000-800,000 ounces of gold, with output expected to rise in the second half of the year.
Silver production is anticipated to ramp up as mining moves to higher-grade ore zones at Cerro Moro. Gold output is also forecast to climb later in the year, supported by higher grades at Cerro Moro and Minera Florida; increased throughput at Minera Florida; and leach sequencing at Shahuindo, resulting in higher recovery rates.
The Zacks Consensus Estimate for Pan American Silver’s earnings for 2025 and 2026 has moved up 20% and 11%, respectively, over the past 90 days. (Find the latest earnings estimates and surprises on Zacks Earnings Calendar.)
The consensus mark for 2025 earnings is pegged at $1.47, suggesting a year-over-year surge of 86%. The estimate for 2026 of $1.89 indicates an increase of 28.7%.
PAAS has solidified its position as a leading precious metal producer in the Americas with a diversified asset base. The company has been rationalizing its portfolio following the Yamana acquisition (in 2023), strategically investing in its producing mines while advancing organic opportunities.
Notable achievements include ventilation upgrades at its La Colorada silver mine in Mexico, which enabled a 51% increase in silver production and an 18% reduction in all-in-sustaining costs (AISC) in the second half of 2024 compared with the first half.
PAAS completed the construction of a new filter plant and filter-stack tailings storage facility at its Huaron mine in Peru, providing additional capacity while enhancing environmental performance. At the Timmins operation in Canada, the company completed the construction of a paste backfill plant at the Bell Creek mine. That plant is now fully operational and is expected to provide enhanced ground stability and increased mineral resource recovery.
Pan American Silver remains focused on progressing initiatives to further increase shareholder value, including the optimization study for Jacobina and the development of the La Colorada Skarn.
Pan American Silver owns the Escobal mine in Guatemala, which is regarded as one of the world’s top silver assets. Prior to its suspension in 2017, the mine delivered three consecutive years of annual output of around 20 million ounces, with AISC below $10 per ounce.
Operations were halted following a ruling by Guatemala’s constitutional court, which mandated that the ministry of energy and mines complete an ILO 169 consultation with the Xinka indigenous people before reinstating the mining license. Escobal remains on care and maintenance, with no clear timeline for the consultation’s conclusion or a potential restart of operations.
PAAS is currently trading at a forward 12-month price-to-earnings multiple of 17.45X, a premium to the industry average of 17.37X.
In comparison, Endeavour Silver offers a more discounted valuation at 14.65X. Meanwhile, Hecla Mining trades at a much higher multiple of 38.26X.
Pan American Silver is well-positioned to capitalize on the ongoing rally in gold and silver prices, along with its strong production outlook. The planned acquisition of MAG Silver and continued investment in growth initiatives strengthen its long-term prospects. However, uncertainty around the restart of the Escobal mine remains a risk.
Existing shareholders may consider holding their positions to benefit from PAAS’s long-term potential and exposure to precious metals. Given the stock’s premium valuation, new investors may prefer to wait for a better entry point. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
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