Will PAAS Unlock More Value Through Its MAG Silver Acquisition?

Pan American Silver Corp.  PAAS is set to acquire MAG Silver Corp. MAG in a $2.1 billion deal aimed at boosting reserves, enhancing cash flows and further solidifying its position in the silver mining industry. This will add to PAAS’ solid track record of acquisitions, Yamana Gold in 2023 and Tahoe Resources in 2019, which significantly added to its scale and improved profitability.

MAG Silver is scheduled to hold a special shareholder meeting on July 10 to approve the deal, which has already received the green signal from the boards of both companies. Regulatory approvals remain, including antitrust clearance from Mexican authorities.  

The cornerstone of the acquisition is MAG’s 44% stake in the Juanicipio project, known as the world’s largest-scale, highest-grade and lowest-cost primary silver mine. For Pan American, the MAG Silver acquisition presents a transformative opportunity not only through Juanicipio’s production profile but also its long-term exploration potential as well as additional assets like Deer Trail and Larder.

Juanicipio is forecasted to produce 14.7-16.7 million ounces of silver in 2025.  Pan American's 44% share will translate to approximately 6.5–7.3 million ounces. This will add to PAAS’ guided 2025 production of 20–21 million ounces (excluding Juanicipio). 

Juanicipio is also expected to drive a meaningful reduction in Pan American Silver’s all-in sustaining costs (AISC) for the silver segment. The company reported a silver segment AISC of $13.94 per ounce in the first quarter of 2025 and guided a higher $16.25-$18.25 for 2025, levels that the low-cost Juanicipio mine could help ease.

Juanicipio is expected to add 58 million ounces to PAAS’ proven and probable silver reserves, which stood at 468 million ounces as of June 30, 2024. It is expected to contribute a free cash flow of $98 million to Pan American Silver this year. The figure is expected to grow 23% over the next three years. 

Recent Consolidation Activity Among Silver Miners

In January, First Majestic Silver AG acquired Gatos Silver, Inc. With this move, First Majestic gained 70% interest in the high-quality and long-life Cerro Los Gatos Silver underground mine.

In February, Coeur Mining CDE completed the acquisition of Silvercrest. The acquisition added SilverCrest's high-grade, low-cost Las Chispas underground mine in Sonora, Mexico, to Coeur Mining's portfolio, improving its cost and margin profile. 

The Pan American Silver and MAG Silver combination will create a company with a combined market capitalization of around $12.6 billion, way higher than First Majestic and Coeur Mining.

PAAS’ Price Performance, Valuation & Estimates

Year to date, PAAS shares have gained 41.8%, outpacing the industry's 34.8% growth. In comparison, the Basic Materials sector has risen 10.1%, while the S&P 500 has moved up 2.1%.

PAAS is currently trading at a forward 12-month price-to-earnings multiple of 17.25X compared with the industry average of 18.47X.

The Zacks Consensus Estimate for Pan American Silver’s earnings for 2025 and 2026 has moved up 20% and 7%, respectively, over the past 90 days. The consensus mark for 2025 earnings is pegged at $1.47 per share, indicating a year-over-year surge of 86%. The estimate for 2026 of $1.89 indicates an increase of 28.7%.

PAAS stock currently carries a Zacks Rank #3 (Hold).

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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