The setup in silver is as compelling as I have ever seen it, suggests Peter Krauth, a resource sector expert and editor of Silver Stock Investor.
Silver is a superb inflation hedge, but it’s also crucial to the green energy transition. Silver’s biggest industrial application is solar panels, which require 12% of annual silver supply. But it’s also irreplaceable in EVs, electronics, and medicine.
With all this in mind, I think Pan American Silver (PAAS) is an ideal way to play the huge upside in silver with relatively limited risk. Founded in 1994 by mining legend Ross Beaty, Pan American Silver is the world’s second largest primary silver mining company. It boasts a total 28 years of operations across Latin America and Canada.
Current production comes in at 19 million silver ounces annually, in addition to other metals like gold, zinc, lead and copper, with gold revenues about twice the silver revenues.
Together with Agnico Eagle Mines (AEM), Pan American is buying Yamana Gold. Agnico will keep Yamana’s Canadian assets, while Pan American will keep Yamana’s Latin American mines. These should all be profitable mines, and increase annual silver production by about 63% and gold production by about 104%.
There’s also the La Colorada Skarn project in Mexico, a major discovery adjacent to its largest silver producing mine, La Colorada. La Colorada Skarn contains about 227 million silver ounces in all resource categories, and is likely the company’s next source of silver growth.
I believe the market is also overlooking an important asset: Escobal in Guatemala, acquired when PAAS bought Tahoe Resources. With high grades and over 380 million silver ounces (in all categories), Ecobal is truly one of the world’s best silver mines.
This previously operating mine is currently proceeding through a consultation phase aimed at reopening with all stakeholders involved. Once operating, Escobal alone could double annual silver production for Pan American. The company also owns important shares of several royalty and development companies and projects offering tremendous upside potential.
In a rising silver price environment, which I expect, cash flow from Pan American’s four silver mines would soar, making the current valuation much too low. And higher silver prices would likely help move Escobal towards production a lot faster, boosting profits even more. That makes PAAS a great way to play higher silver prices, while getting an attractive 2.4% dividend in the meantime.
