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Can Pan American Silver sustain its incredible rally, or is Wheaton Precious Metals your safe bet?
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Chemours Co will pay its quarterly dividend of $0.03 on 12/15/17, Bunge Ltd. will pay its quarterly dividend of $0.46 on 12/4/17, and Pan American Silver Corp will pay its quarterly dividend of $0.025 on 12/1/17.


Pan American Silver (NASDAQ: PAAS) is the world’s largest silver miner. [1] Pan American owns and operates seven silver mines in Peru, Mexico and Bolivia. The Company’s eighth mine, Manantial Espejo, in the southern Argentinean province of Santa Cruz commenced production in December 2008. Pan American has also finished construction of a 750 tpd processing facility at the San Vicente mine, in the silver-rich Bolivian province of Potosi.

Pan American's mission is to be the largest and lowest cost primary silver mining company, and to achieve this by constantly increasing silver production and silver reserves. The company’s growth strategy is based on the continued increase of low cost silver production through the efficient operation and expansion of its existing mines, an aggressive exploration program and the acquisition and development of new silver-rich deposits.

Company Overview

Pan American Silver is engaged in silver mining, including exploration, extraction, processing, refining and reclamation. The company mines silver in Peru, Mexico, Argentina and Bolivia.

The Company’s Huaron silver-zinc underground polymetallic mine is located 320 kilometers northeast of Lima in the heart of the Cerro de Pasco district.[2] Its Morococha is an underground, polymetallic vein mine located 50 kilometers southwest of the Company's Huaron mine. The Quiruvilca mine is located approximately 130 kilometers inland from the coastal city of Trujillo.[2] The stockpiles are located in the Cerro de Pasco mining district of Peru. Alamo Dorado is an open-pit mine located in the Mexican state of Sonora, approximately 320 kilometers from the state capital of Hermosillo.[2] Its La Colorada mine consists of six contiguous blocks of exploration permits and exploitation claims totaling 2,230 hectares.[2] The San Vicente silver-zinc mine is located in the Bolivian Andes. It consists of 15 mining concessions totaling 8,159 hectares.[2]

Business and Financial Metrics

Second Quarter 2010 Results[3]

During the second quarter of 2010, Pan American reported sales of $147.3 million, a 32% increase compared to the second quarter of 2009. The revenue increase was attributable to higher quantities of silver sold, combined with a significantly higher price environment for all the metals produced by the company. Mine operating earnings were $51.1 million, which was more than double what the company recorded in the comparable period in 2009. Net income increased 79% to $18.3 million or $0.17 per share. Pan American reported adjusted net income of $21.1 million or $0.20 per share.

During the quarter, silver production increased 18% to a record 6.9 million ounces. Gold production was 21,133 ounces.


In December 2009, Pan American completed the acquisition of a 93% interest in Aquiline Resources Inc., which controls the Navidad Project in Chubut, Argentina, a silver development project, as well as several other early stage development projects in Argentina and Peru.



Trends and Forces

Silver Prices Have Risen 175% Since 2003

Pan American is sensitive to the pricing of all the metals it mines (silver, copper, lead, zinc and gold), but silver makes up the majority of the company’s sales and is therefore the most influential. A rise in silver prices is generally benefits Pan American because it usually means an increase in the company’s margins. Silver demand has been rising due to increased usage from industrial applications like computers, TVs, cell phones, and many others. This demand has been augmented by the increasing inflation in the US because both silver and gold are used as inflation hedges. Demand for silver has been outpacing the annual production of silver since 1990. [4]

Base Metal Byproduct Production Makes Up About Half of Revenues

About 51.5% of the company's revenue comes from base metal byproduct production[5] - silver is separated from other base metals like copper, zinc, and lead. Therefore Pan American is more susceptible to changes in prices of these base metals than simply just silver prices. The mines with the most base metal production also have the lowest cash costs per ounce. Base metal production has helped Pan American keep costs lower, but if base metal prices fall too far then Pan American can do little to reduce their existing mining costs. The Alamo Dorado mine and the new mine in Argentina are more focused on silver mining and should take away some of the reliance on base metal production in the future. However, finding silver mines is becoming increasingly difficult and about 80% of the world's silver is coming from byproduct production.[6]

Political Risks Could Create Problems

While 41% of Pan American’s net asset value comes from its mines in the relatively stable Mexican mining economy, the other 59% comes from Peru, Bolivia, and Argentina. [7] The main risks associated with these countries are labor strikes and local mining opposition, as well as potential changes to the royalty and tax systems. There is also a possible risk of the nationalization of mining operations by the Bolivian government. Peru, Argentina, and Bolivia make up about 18%, 26%, and 15% of Pan American’s net asset value. [8]

Foreign Exchange Rates Affect Sales and Demand

Pan American is based in Canada while all of its mines are based in Latin America, posing a foreign exchange rate risk. Still, Pan American’s gain or loss of exchange rates has been below $1M in the last 3 years. However, foreign exchange rates also affect the demand for not only silver but the other metals as well. When the U.S. dollar falls, the cost for importing the metals rises and then demand falls.


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Pan American is the world's largest silver producer. It competes with other mining companies, primarily silver mining companies, and also competes with companies such as SILVER WHEATON CORP (SLW) which does not mine but rather buys silver from mining companies to sell to third parties. Pan American's main competitors include:
  • Silver Wheaton (SLW): Silver Wheaton has long term contracts with 5 different silver mining companies which allows Silver Wheaton to buy silver from these mines at an almost fixed purchase price. As a result, Silver Wheaton gets all of their revenues by then selling this silver in the market.
  • Silver Standard Resources (SSRI): Silver Standard acquires and develops mining properties. The company owns or has large stakes in several mines but does not directly mine silver itself. Silver Standard has 1.5 billion oz of silver from the these mines. Silver Standard could potentially be a silver miner as the company plans to start mining in Argentina. Silver Standard estimates that the Pirquitas mine in Argentina will produce 10M oz of silver per year.
  • Barrick Gold (ABX) is the largest pure gold mining company in the world, but the company also mines silver. ABX has four regional business units located in Australia, Africa, North America and South America. Barrick is currently undertaking mining and exploration projects in Papua New Guinea, the United States, Canada, Australia, Peru, Chile, Russia, South Africa, Argentina and Tanzania.


  1. PAAS 2007 Annual Report, pg.1,3,4
  2. 2.0 2.1 2.2 2.3 2.4 2.5 Reuters: PAAS Company Profile
  4. Silver Prices
  5. Scotia Capital, Silver Mining Sector, "The Silver Lining" pg.45
  6. Commodities Corner Silvers More Sparkle
  7. Newcrest Initiating Coverage, Bigger is Better, pg.79
  8. Newcrest Initiating Coverage, Bigger is Better, pg.79
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