Pan American Silver (NYSE:PAAS) reported its first-quarter results on May 7, 2025. This article updates my Gurufocus article from April 15, 2024, in which I analyzed the fourth quarter of 2023.
Pan American Silver is a reliable mining company specializing in gold and silver. It stands out as a strong option for savvy investors, though there are some general considerations to keep in mind, which will be discussed in this article. As a result, I have included Pan American Silver among my top recommendations for secure investments in gold and silver, alongside Newmont Corporation (NYSE:NEM), Barrick Gold (GOLD), Agnico Eagle Mines (NYSE:AEM), and Kinross Gold (NYSE:KGC). This article on Pan American Silver is the final piece in this selection.
Pan American Silver: A Bright Outlook
Pan American Silver is a gold and silver producer.
As previously mentioned, Pan American Silver is not a pure gold miner like the other four companies. Although silver production is significant, it is not the primary source of revenue. As shown in the chart below, silver accounts for only 21% of the total revenue in 1Q25.
Pan American Silver: A Bright Outlook
However, the company can generate much greater revenue from silver if it restarts its mine, Escobal, near San Rafael Las Flores in southern Guatemala. The mine began commercial production in January 2014 and operated until 2017, producing approximately 20 million ounces of silver annually. The mine has been suspended (on care and maintenance status) due to a ruling by Guatemala's Constitutional Court, which found that the Xinka Indigenous people were not properly consulted before its development.
Unfortunately for Pan American Silver, the deadline for reopening the mine is not established until the Xinka community grants its approval, which remains elusive. The elevated arsenic levels in nearby water sources are the primary issue causing the Indigenous population to oppose the mine's reopening despite pressures and death threats.
Here we are in May 2025, and nothing has changed. Therefore, I no longer have as much faith in Escobal reopening anytime soon. There is an inexpensive way to gamble for those confident in the mine's reopening. It is called the PAASF, or Pan American Silver Warrants, issued as part of the acquisition of Tahoe Resources Inc. If the mine reopens, you may hit the jackpot.
The gold and silver production in 1Q25 was solid, driven by two significant recent acquisitions: Tahoe Resources in 2019 and large parts of Yamana Gold in March 2023. After an initial jump in 2Q22, production has been mainly constant until now, as shown in the graph below:
Pan American Silver: A Bright Outlook
Michael Steinmann, President and Chief Executive Officer, said:
We are on track to achieve our guidance for 2025, with production levels expected to increase over the coming quarters from a back-end loaded production profile. We remain focused on progressing our initiatives to further increase shareholder value, including the optimization study for Jacobina, development of the La Colorada Skarn, and the consultation process for Escobal.
Below is the graph detailing production per mine in 1Q25:
Pan American Silver: A Bright Outlook
Note: Pan American Silver completed the sale of its interest in La Arena S.A. on December 2, 2024.All-in-sustaining costs (AISC) are also kept below $1,500 per ounce and have decreased slightly over the last three quarters, which is encouraging. However, inflation pressure may rise as a result of the ongoing tariff war between the United States and China.
Pan American Silver: A Bright Outlook
According to its first quarter 2025 results, the company owns 10 producing mines in the Americas and declared a mineral reserve of 468 million ounces of silver and 6.70 million ounces of gold. Reserves decreased significantly year over year.
Pan American Silver: A Bright Outlook
Source: PAAS 4Q24 presentation.
In 2024, Pan American Silver recorded its highest-ever yearly revenue of $2.819 billion, a 21.71% increase over 2023. The graph below shows the progress in metal production and revenue for the last six years. Gold production accounted for roughly 75% of the total revenue in 2024. Silver accounted for approximately 21% of the revenue, while the rest was generated from other metals, including zinc, lead, and copper. 2025 may be even better.
Pan American Silver: A Bright Outlook
Investors frequently struggle to understand why the stock is not keeping pace with the sharp increase in gold and silver's performance.
Pan American Silver: A Bright Outlook
Even though oil stocks face the same technical challengessuch as growing production costs, operational issues, and debt levelsthe correlation is noticeably stronger than oil stocks. This may be because oil is merely a commodity and offers no protection from a currency collapse.
Since gold and silver stocks are not truly independent from the global economy and do not provide the same degree of fundamental security (refuge), investors clearly do not view PAAS and other gold stocks at the same level as the metal. Furthermore, Pan American Silver's silver revenue is roughly 21%, which weakens PAAS's appeal. In 2025, silver vastly underperformed gold (please look at the chart above).
Furthermore, according to John Hathaway of Sprott Asset Management, there is doubt regarding the long-term viability of the gold price, which pushes investors to be cautious and focus on more physical gold investments.
Finally, the dividend paid by PAAS is quite small. At a yield of 1.57%, the quarterly dividend is $0.10 per share. Nevertheless, a 25% tax deduction will be applied since PAAS is a Canadian stock, resulting in a 1.16% net yield.
On the plus side, depending on PAAS's net cash position, the yield could increase to about 2.1% net if variable dividends start to kick in - they could add $0.04 to $0.32 annually, depending on PAAS's net cash position.
The company bought back 909,012 shares in 1Q25 at a cost of $22 per share, which is quite low considering 362.41 million shares outstanding diluted in 1Q25. In March 2025, the company announced the renewal of its Normal Course Issuer Bid (NCIB) to repurchase up to 18,232,990 shares, representing approximately 5% of its issued and outstanding shares.
In 1Q25, Pan American reported approximately $118.6 million in net cash, down from $178.5 million in 4Q24. The company had $923.0 million in cash, cash equivalents, and marketable securities, while its long-term debt, including current liabilities, totaled $884.4 million.
Overall, the total available liquidity amounted to $1.637 billion. The company's debt situation is now strong, and it successfully demonstrated a net cash position during the last reported quarter.
Pan American Silver: A Bright Outlook
Two elements have contributed to this notable progress.
First, the prices of gold and silver have surged to new highs, as shown in the chart below, which illustrates the prices of gold and silver realized by PAAS. This trend will continue in 2Q25, with an average now around $3,200-$3,400 per troy ounce.
Pan American Silver: A Bright Outlook
Second, higher metal prices have led to an increase in free cash flow. In the first quarter of 2025, the company reported a free cash flow of $106.7 million. With cash flow from operations at $174.80 million and capital expenditures (CapEx) at $67.90 million. For 2Q25, I anticipate a free cash flow of about $235 million.
Pan American Silver: A Bright Outlook
The business is thriving, and the stock price should reflect this positive financial situation. However, this is not guaranteed, and PAAS shareholders have often faced disappointment.
Technical Analysis: Ascending channel pattern.
Pan American Silver: A Bright Outlook
Note: The chart has been adjusted for dividends.
Pan American Silver forms an ascending channel pattern, with resistance at $28.5 and support at $24.5. At 48, the relative strength index (RSI) shows that things are moving in a bearish direction, which could accelerate if gold starts to retrace.
An ascending channel can be viewed as bullish; however, it may result in either a bullish or bearish breakout as a continuation pattern. Volatility is extreme, with the Trump administration's decision-making bordering on the irrational. Unpredictability is draining confidence, leading to quick and profound stock fluctuations. You can capitalize on this situation by adopting the right strategy and avoiding victimization. Gold is now just above $3,400, and it could go even higher. However, if tariff negotiations start to take center stage, I see gold retracing below $3,100.
An important consideration here is the possibility of a gray swan brought on by the Trump administration's unpredictable actions on the world economy. I suggest you click this link to read my article about it.
When or if the stock price rises above $28-$28.75, it might be prudent to sell some shares. Since the chart shows that the downside can be severe and swift, 20% to 30% is reasonable, assuming you have a short-term gain. Importantly, avoid selling at a loss under any circumstances. Please look at the chart above for more insight.
Selling part of your position using the LIFO (Last In, First Out) method is essential, particularly if the stock experiences a false bullish/bearish breakout followed by a quick retracement. On the other hand, I advise beginning to accumulate once more below the 50MA at about $24.65, all the way down to $23$22.50 (200 MA).
Note: It is important to update the technical analysis chart on a regular basis.
