Source: Pan American Silver Corp. La Colorada Mine.
Vancouver-based Pan American Silver Corp. (NYSE:PAAS) released its fourth quarter of 2020 on Feb. 17, 2021.
Pan American posted better-than-expected earnings in the fourth quarter as the surge in gold and silver prices mitigated the negative effects of COVID-19 induced mine suspensions and lower ore production. However, gold and silver production was below guidance.
The company is a good play in gold and silver (which took the spotlight recently).
However, as you can see, the market is extremely volatile and unpredictable. Hence it is crucial to trade a large part (about 40%) of your short-term position. I call it trading your long position.
PAAS follows the iShares Silver Trust ETF (NYSEARCA:SLV) and is up 56% on a one-year basis, as we can see below.
Reminder: Pan American Silver is now more a gold miner than a silver miner after acquiring Tahoe. It was a timely acquisition that paid off handsomely.
However, the recent rally in silver, which is now above $24, will benefit the stock even, so the silver price has retreated from its high at $29+ in August.
PAAS - Company Balance Sheet And Production In 4Q 2020 - The Raw Numbers
|Pan American Silver||4Q'19||1Q'20||2Q'20||3Q'20||4Q'20|
|Total revenue in $ Million||404.38||358.43||249.51||300.41||430.46|
|Net Income in $ Million||21.44||-76.81||20.06||65.74||168.89|
|EBITDA $ Million||135.76||57.18||87.72||148.91||239.86|
|EPS diluted in $/share||0.25||-0.37||0.10||0.31||0.80|
|Operating Cash flow in $ Million||129.47||114.05||62.75||114.94||170.57|
|CapEx in $ million||50.32||55.75||30.34||38.83||53.64|
|Free Cash Flow in $ Million||79.15||58.30||32.41||76.11||116.94|
|Total cash $ Million||238.34||239.17||261.57||231.63||279.06|
|Total debt in $ Million||316.21||299.23||299.23||129.8||0|
|Dividend per share in $||0.05||0.05||0.05||0.07||0.07|
|Shares outstanding (diluted) in Million||209.87||209.98||210.25||210.36||210.38|
|Gold Production K Oz||173.9||156.1||96.6||116.9||152.9|
|Silver Production M oz||6.622||5.561||2.791||4.087||4.872|
|AISC $/Oz by-product Silver||11.37||13.1||12.54||6.01||10.37|
|Gold price realized $/Oz||1,479||1,580||1,708||1,914||1,874|
|Silver price realized $/Oz||17.84||16.60||16.58||24.77||24.72|
Data Source: Company filing
Silver And Gold Production Details For The Third Quarter of 2020
Note: Please read my preceding article about the Q4 production.
1 - Total Gold/Silver production
Quarterly production was 152.9K Au Oz and 4,872K Ag Oz, or a total production for 2020 of 522.4K Au ounces and 17.3 million Ag ounces. Production for 2020 was below guidance due to the disruptions caused by COVID-19.
The Huaron and Morococha operations were halted for about three months through the third quarter of 2020. The Timmins operation in Canada continued to operate throughout 2020 at reduced rates to accommodate COVID-19 related protocols.
AISC (Ag) for the fourth quarter was $10.37 per ounce, and AISC (Au) was 1,023 per ounce.
The company posted 2020 silver and gold production of 17.3 million ounces and 522.4K ounces below guidance. It was a disappointment.
In the preceding third-quarter results, Michael Steinmann, CEO, said in the Q3 conference call:
We are maintaining our forecast for gold production of 525,000 to 575,000 ounces in 2020. We are expecting increased gold production in Q4 as replenishment of inventories on our heaps was complete in Q3. We do expect similar gold production from our Timmins operation in Q4 as we continue to address geotechnical conditions at the Bell Creek mine, where we have discovered wide zones of new resources adjacent to reserves.
Another matter is that the Escobal mine is still frozen by a bitter consultation in a country with a weak legal frame. The last news that I have read is not encouraging, and I wonder when the mine will be authorized to restart, if ever?
Patience will be needed for the shareholders who own the contingent value right ("CVR"), trading under PAASF around $0.93 now, which is high.
Unfortunately, I do not see a quick resolution for the mine and a potential restart within two or three years. However, PAASF had jumped more than 30% since its lows in December 2020.
2 - 2021 Guidance
The company is guiding higher in 2021 with a total of 22.5Moz - 24.0Moz for silver and 605K - 655.1K Oz for gold compared to 18 -19 Moz for silver and 525K - 575K Oz for gold in 2020.
CEO Michael Steinmann said in the conference call:
We are expecting production in 2021 to improve markedly over 2020 based on assumption that the impact of COVID-19 will diminish over the year as indicated in our guidance for 2021 issued on Jan. 19. That means production will be back-end loaded to the second half of 2021.
Pan American Silver: Financial Analysis
1 - Total revenue was $430.46 million in 4Q'20.
The Canadian company reported a fourth-quarter profit of $168.89 million ($0.80 earnings per share). The adjusted income was $0.57 per share or $120.5 million.
Net earnings in Q4 2020 were driven by record mine operating earnings of $137.2 million and the recognition of deferred income tax assets, including $41.0 million relating primarily to mine life extensions at the Timmins and La Arena operations.
The company announced a 40% increase in the quarterly dividend to $0.07 per share or a yield of 0.88%.
The graph above indicates that the company managed a free cash flow of $116.94 million in 4Q'20. 2020 free cash flow is $283.76 million.
The Board of Directors has approved a cash dividend of $0.07 per common share, or approximately $14.7 million in aggregate cash dividends, payable on or about March 11, 2021, to holders of record of Pan American's common shares as of the close on March 1, 2021.
3 - PAAS is debt-free
In 2020, Pan American repaid a net of $275 million on its revolving credit facility. On Dec. 31, 2020, the company had cash and short-term investment balances of $279.06 million, working capital of $495.2 million, and no amounts drawn on its $500 million credit facility.
Conclusion and Technical Analysis
Pan American Silver is a good long-term investment. The takeaways for 2020 are that the company took care of the debt and doubled the dividend.
The apparent weakness that the stock is experiencing now relates to the price of gold and silver weakening sharply from their high.
Unlike many analysts, I find this downtrend quite normal and healthy. If we look at the 10-year chart for gold (adjusted from inflation), we can see a bullish cup and handles pattern. We are now in the handle part, in search of lower support—no big deal. Hence, use these weaknesses to accumulate and wait for the rebound that will follow.
PAAS forms a symmetrical wedge pattern with resistance at $33 and support at $30.35. The symmetrical wedge is considered bearish if the pattern is entered the support, but it is not the case here. The short-term trading strategy is to accumulate between $31.50 and $30.70 and see if support is holding. The first selling zone is about $33-$34, where it should be reasonable to take 30% off.
Watch the gold and silver prices like a hawk.
Note: If you find value in this article and would like to encourage such continued efforts, please click the "Like" button below as a vote of support. Thanks!
Join my "Gold and Oil Corner" today, and discuss ideas and strategies freely in my private chat room. Click here to subscribe now.
You will have access to 57+ stocks at your fingertips with my exclusive Fun Trading's stock tracker. Do not be alone and enjoy an honest exchange with a veteran trader with more than thirty years of experience.
"It's not only moving that creates new starting points. Sometimes all it takes is a subtle shift in perspective," Kristin Armstrong.
Fun Trading has been writing since 2014, and you will have total access to his 1,988 articles and counting.