The price of gold and silver has been dropping recently as interest rates around the world have started to come down. What once looked like a strong buy to hedge inflation and interest rates now does not look as secure.
However, while this might be argued for gold, silver is another story. Silver has more of a purpose than gold. This is why when shares of Pan American Silver (TSX:PAAS) dipped, investors may have sat up at attention.
Today, let’s look at why PAAS stock looks like a buy as shares dip and the dividend yield looks higher.
The market
To understand why PAAS looks like such as strong buy, let’s consider the silver market in general first off. The outlook for silver is pivotal in evaluating the investment potential of Pan American Silver.
Silver is not only a precious metal but also an industrial one, with significant demand stemming from various sectors, including electronics, solar energy, and automotive industries. The push towards green energy and the increasing adoption of electric vehicles is expected to drive demand for silver, which is a crucial component in photovoltaic cells and electrical contacts.
Despite the current downturn, many analysts predict a rebound in silver prices as industrial demand recovers and possibly grows. Additionally, silver often benefits from its dual role as both an industrial metal and a safe-haven asset. This can provide a hedge against economic uncertainties and inflationary pressures.
The earnings
Now, let’s turn our attention to PAAS stock itself. In the most recent quarter, Pan American Silver reported revenue of $390.3 million. This represented a slight decline compared to the previous year, primarily due to lower realized prices for silver and other metals. The company’s net earnings were reported at $21.5 million, or $0.10 per share, down from $37.7 million, or $0.18 per share, in the same quarter last year. This decline in net earnings was attributed to both the decrease in metal prices and an increase in production costs.
The company’s silver production for the quarter was 4.6 million ounces. This is slightly higher than the previous quarter but lower than the same period last year. Gold production was also reported at 147,000 ounces, showing a similar trend. The all-in sustaining costs (AISC) per silver ounce, a critical metric for mining companies, increased to $13.15 from $11.30. This reflects higher input costs, including labour, energy, and materials, as well as investments in sustaining capital.
PAAS stock generated an operating cash flow of $65 million, down from $88 million in the same period last year. Free cash flow was also impacted, resulting in $32 million, down from $53 million previously. Despite these declines, the company maintained a strong balance sheet with cash and cash equivalents of $285 million and total debt of $340 million, indicating a healthy liquidity position.
Bottom line
PAAS stock now offers a dividend yield of 1.84%, after shares dipped back about 5% to end out last week. It now looks like a strong buy as the price in silver dips for a short period of time. The company remains cautiously optimistic about the future. It anticipates a recovery in silver prices driven by increased industrial demand and potential supply constraints. Management has reiterated its focus on cost management and operational efficiency to navigate the current volatility and position the company for long-term growth.
Overall, PAAS stock’s recent earnings report reflects the impact of lower silver prices and higher costs on its financial performance. However, the company’s robust production capabilities, strategic initiatives, and solid balance sheet provide a foundation for potential recovery. Investors should weigh these factors along with the broader market outlook for silver when considering an investment in Pan American Silver.
