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Pan American Silver's Loss Narrows, Revenues Beat Estimates

Zacks Equity Research

Pan American Silver Corp. (PAAS) posted a net loss of $5.7 million or 4 cents per share on a reported basis in the second quarter of 2014, narrower than net loss of $187.1 million or $1.23 a share recorded in the year-ago quarter. A sizable impairment charge weighed on the bottom line a year ago.

The reported loss includes a $10 million negative adjustment on the value of inventories at the Dolores mine along with a high income tax expense.

Adjusted (excluding one-time items) earnings were $1.8 million or a penny per share in the reported quarter compared with adjusted loss of $18.6 million or 12 cents per share in the year-ago quarter. However, adjusted earnings missed the Zacks Consensus Estimate of 2 cents per share.

Revenues increased 14.4% year over year to $200.8 million in the reported quarter. Revenues surpassed the Zacks Consensus Estimate of $189 million. The increase is attributable to higher quantities of metals sold by Pan American, partly offset by lower prices of silver, gold and copper sold during the quarter.

Realized silver and gold price declined 13.7% and 9.4% year over year to $19.58 per ounces of silver and $1,289 per ounces of gold, respectively, in the reported quarter. Silver and gold contributed 56% and 25%, respectively, to consolidated revenues.

Pan American produced 6.56 million ounces of silver in the reported quarter, up 6% year over year. The increase was attributable to production gains at all operations of the company except Alamo Dorado and Morococha. Production increased 0.3 million ounces at Dolores and 0.1 million ounces at La Colorada, Huaron and Manantial Espejo, partly offset by a decline of 0.2 million ounces at Alamo Dorado.

Pan American produced a record 37,700 ounces of gold in the second quarter, an increase of 26% year over year. The increase was primarily due to additional 3,500 ounces of production at Dolores and Manantial Espejo mines.

Zinc production rose 7% to 11,400 tons, lead production rose 13% to 4,000 tons and copper production rose 49% to 1,900 tons in the quarter.

Production costs per ounce of silver increased 5.8% year over year to $18.71 from $17.69 recorded in the year-ago quarter. Consolidated cash costs declined 0.3% year over year to $12.06 per ounce of silver (net of by-product credits). All-in sustaining costs per silver ounce sold also declined 14% year over year to $18.23 in the reported quarter.

Financial Overview

Cash and short-term investments decreased 13.3% to $381.6 million as of Jun 30, 2014, from $440.2 million as of Jun 30, 2013.  Total debt stood at $47.4 million as of Jun 30, 2014.

Developmental Projects

The La Colorada expansion progressed in the second quarter as planned. Dolores' leach Pad 3 is scheduled to be completed by the end of this year with less than 10% of the surface area of the pad to be lined.

Pan American remains consistent with its 2014 production target of 25.75 million to 26.75 million ounces of silver and 155,000 to 165,000 ounces of gold. The company also expects all-in sustaining costs per silver ounce sold (:AISCSOS) to be in the range of $17.00 to $18.00 and cash costs of $11.70 to $12.70 per silver ounce, net of by-product credits.

Pan American also reaffirmed its outlook for annual sustaining capital of $95.5 million and project investment capital of $67 million for 2014.

Pan American currently carries a Zacks Rank #3 (Hold).

Better-ranked companies in the mining space include Silver Standard Resources Inc. (SSRI), Harmony Gold Mining Company Limited (HMY) and NovaGold Resources Inc. (NG). While Silver Standard Resources sports a Zacks Rank #1 (Strong Buy), Harmony Gold Mining and NovaGold Resources hold a Zacks Rank #2 (Buy).

Read the Full Research Report on SSRI
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