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Pan American: A "Home Run" in Silver

07/28/2020 5:00 am EST

Focus: COMMODITIES

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

It is not hard to understand why silver has been so strong recently. Silver has widespread industrial applications — including solar panels, medical equipment and consumer electronics, asserts Mark Skousen, growth stock expert and editor of Home Run Trader.

Giving the metal an extra lift, the coronavirus pandemic had disrupted mines in Latin America, the world’s main silver-producing region. (It also has made it harder to transport the metal to regions where demand is high.)

And, like gold, the metal is benefiting from soaring investment demand. After all, world governments and central banks have taken extraordinary steps to shore up economic growth during the coronavirus pandemic.

The supply of gold and silver is relatively fixed, while the supply of Treasuries is soaring. Deficit spending in the United States this year may top $5 trillion. That could stoke inflation eventually. And precious metals are a traditional inflation hedge.

The usual knock against these assets is that they provide no income. But that is essentially true of money market funds today. Even 10-year Treasuries yield just 0.6%. Plus, ultra-low interest rates reduce the cost of owning metals. So, I believe that gold and silver are headed higher.

That makes now a good time to own Pan American Silver (PAAS). Based in Vancouver, Pan American is the world’s premier silver mining company, with huge proven reserves and a diversified portfolio of producing mines located throughout the Americas.

It has more than 557 million ounces of proven silver reserves and produces 26 million ounces a year at a cost of just $6.39 per ounce.

Forty-three percent of the company’s revenue is generated in Peru, 31% in Mexico, 15% in Canada, 6% in Bolivia and 5% in Argentina. (The company also owns a mine in Guatemala that is not currently active.)

Pan American recently announced that it is moving its Huaron and Morococha operations in Peru into “care and maintenance” in response to several mineworkers testing positive for COVID-19. However, management indicated that normal operations will resume before long.

The firm has experienced management, plenty of operating expertise and a strong balance sheet. It is currently sitting on $239 million in cash. Pan American is also growing through acquisitions. 

Last year, it completed the buyout of Tahoe Resources; that acquisition made it the world’s largest publicly traded silver mining company. Its revenue is growing at a 41% annual rate. 

And I estimate that earnings will more than triple, rising from $0.62 a share this year to $1.94 in 2021. If silver continues its climb, of course, these numbers will prove too conservative.

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