Pan American (PAAS) reported its first-quarter financial results, which excluded the assets acquired from Yamana, although that company’s cash and debt is included in its quarter-end balance sheet, notes Adrian Day, editor of Global Analyst.

Results were mixed, with production of both gold and silver down, the former by 25% over the prior quarter, but in both cases were higher than the market expected. Production was down primarily because of restricted mining rates at La Colorada mine until the new shares project is complete. The company re-iterated the guidance it released after closing with Yamana.

Costs for the quarter were reasonable. Its All-In Sustaining Costs (AISC) were strong at $14.33 for silver and $1,196 for gold, although cash costs less so, $12.19 for silver (good) but a rather high $1,120 for gold. With the incorporation of Yamana’s mines, these costs should drop for the balance of the year. The company’s estimates for G&A, care and maintenance costs, and exploration costs going forward were all higher than expected.

The integration with Yamana is going well, and the company is already harvesting synergies. A PEA on Mexico's La Colorada skarn project, the company’s next major project, is expected later this year. Consultations with the local community around the suspended Escobal project in Guatemala continue, and are expected to conclude in October. There is no projected date for a restart of operations.

Pan American has cash of $513 million (including over $200 million held at the MARA project in Argentina) plus over $400 million available on its credit facility. It assumed two notes from Yamana, in aggregate $783 million, bringing its total debt to $1.8 billion.

CEO Michael Steinmann said he had always liked a conservative balance sheet, and the priority for cash flow will be to pay back the line of credit. He noted that the Yamana notes, expiring in 2027 and 2031, had very attractive rates of interest, and he was comfortable with those. Following the merger with Yamana, we should expect some disposals, though the company has not yet reviewed all projects and made specific decisions.

Pan American has a solid balance sheet and strong management. Troubled operations have been turning around, while the accretive acquisition of Yamana will lower average costs, and add some attractive growth projects. The stock, while up sharply in March, has given back half its gain in the last month. Pan American is a buy.

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