Pan American Silver (PAAS) reported a somewhat disappointing quarter as it missed earnings expectations mainly on lower-than expected production (which included some net inventory build), and costs higher than expected, notes Adrian Day, money manager and editor of Global Analyst.

This was the fifth quarter in a row with disappointing results on the back of operational difficulties. Costs were higher as foreign currencies (of countries in which it operates) appreciated. In addition, ongoing covid restrictions added to costs. Gold all-in sustaining costs (AISC) were $1,176, up 16% on the quarter, while silver cash costs were $16.30, flat on the quarter but higher than expected.

Though the company lowered its full year guidance, the guidance still indicates very strong production in the current quarter, which the company confirmed. The ventilation shaft issues at La Colorada in Mexico have been fixed, resulting in lower on-going capital and higher throughout. At Dolores, another Mexico mine that has experienced difficulties, a new pad should see higher production though not till Q1.

At La Colorada's skarn deposit, the company reported results of recent drilling, 39 holes in all, both in-fill and step-out holes. These are some of the highest-grade intercepts drilled here. Because of the potential for expansion, the company decided to postpone the preliminary economic assessment planned for completion by the end of the year.

CEO Michael Steinmann called them “really astonishing drill holes,” exclaiming “the width, it’s amazing.” The company now considers it has potential to increase the resource significantly. Another 60,000 metres of drilling is planned for 2022.

Game-changers for the company are now awaiting the go-ahead. The company has available liquidity of $815 million, including $315 million in cash and minimal debt. The operational difficulties that have plagued Pan American at several mines are all in the process of being resolved.

It has significant growth potential at three properties; in addition to La Colorada, it has two projects currently awaiting permission to mine, Escobal in Guatemala, and Navidad in Chubut, Argentina. At the former, the government-led consultation process is now advancing again, after several covid-related delays. There is no timetable.

We like Pan American for its top management, reasonably conservative approach, and game-changing upside from these two projects, not valued in the stock price. Pan American is a top buy at this price.

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