Bluechip silver miner perfectly positioned for global supply squeeze

Pan American Silver is operating on a truly grand scale, with 11 producing mines across the Americas. They have provided 2023 production guidance to the tune of 21Moz-23Moz of silver at an AISC of US$14-US$16/oz and 870koz-970koz of gold at an AISC of US$1,275/oz-US$1,425/oz.

The company traces its roots back to the mid 90’s where the acquisition of a Peruvian silver mine catapulted PAAS onto the Nasdaq from the TSX. The next decade was spent acquiring and constructing mines throughout Bolivia, Peru, Argentina and Mexico, before the company paid its first cash dividend in 2010.

Discussing the miners diversified and successful operations, Roscoe Widdup stated: “What we like about this one is that it’s the world’s leading silver miner. Its competitive advantage comes from prolific reserves and a proven track record operating and developing in some of the most difficult parts of the world – which is where silver tends to come from.”

Pan American Silver Proven and Probable mineral reserves were estimated at 514.9Moz of silver and 3.6Moz of gold (30/6/22), with the Yamana acquisition adding an additional 112Moz of silver reserves (31/12/22) and four producing mines.

PAAS has extensive expertise in South America. It derived 53% of its revenue from Argentina, Peru and Bolivia in 2022, with a workforce of 8,530 across the three countries. The US$826.6 million in working capital available to the company as of 31/3/23 is an arsenal of liquidity that has come in handy during the optimisation of assets acquired from Yamana. The company states that it has significantly increased production after a short period of ownership, and is targeting US$40-US$60 million of annual post-tax synergies.

While the company has been categorised as carrying medium ESG risk by Sustainalytics, with a score of 27.9 (Range of 0-40, with 40 being severe), PAAS ranks reasonably well in terms of precious metals producers – coming in at 27th least riskiest out of 119 companies. They do not rank rank in Sustainalytics Global Universe of companies, ranking 9,377 out of 15,614. 

As at 31 March 2023, Pan American Silver has a US$750 million Sustainability-Linked Revolving Credit Facility (SLRC), of which US$425 million is available. The borrowing costs under the Company’s SLRC are based on the PAAS’ leverage ratio subject to pricing adjustments based on the company’s sustainability performance ratings and scores. The rates can vary from either LIBOR plus 1.825% to 2.8%, or The Bank of Nova Scotia’s base rate on US dollar denominated commercial loans plus 0.825% to 1.8%.

Often referred to as gold’s poorer cousin, silver has a dual role in the economy as a precious metal and industrial commodity. It currently trades around US$23/oz, but demand for physical supply is a lurking threat that could subject it to volatile price swings. Changes to solar panel technology, which are using more of the metal to increase efficiency – are already squeezing silver supply channels.

Roscoe recognises this as a huge opportunity, stating: “In actual fact, it’s far more of an industrial metal than it is a precious metal. Its greatest uses today are in solar power and electric vehicles, which account for 20% and 10% of industrial demand, respectively. Both are growing at about 20% per annum.

Click here to view more videos from Roscoe Widdup’s The Insider: Meet the Fund Manager session.

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