Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity

In This Article:

Introduction: A strong gold and silver contender.

Pan American Silver (NYSE:PAAS) is a long-term investment in the gold and silver mining sector that I have successfully owned and traded over the years despite its high stock volatility. Recently, I covered other companies on GuruFocus, including Newmont Corp. (NYSE:NEM), Barrick Gold (NYSE:GOLD), Agnico Eagle Mines (NYSE:AEM), and Kinross Gold (KGC).

The company released its third-quarter 2024 results on November 5, 2024. This article updates my Gurufocus article from April 15, 2024. In the fourth quarter of 2023, Pan American Silver concentrated on acquiring most of Yamana Gold's assets, with the exception of the 50% share of the Canadian Malartic mine that was purchased by Agnico Eagle Mines. With three quarters passed since then, it is time to evaluate the company's progress.

Pan American Silver has shown strong year-over-year performance, although it lags behind two of its peers, Kinross Gold and Agnico Eagle Mines. PAAS is up 45%, as we can see in the chart below:

Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity
Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity

PAAS outperformed gold, which is up about 30% year over year, and silver, which is up only about 10% year on year.

However, before analyzing the third quarter results, I want to clarify a major misconception about Pan American Silver. Many of you believe the miner is primarily a silver producer, which needs to be corrected. Since Pan American Silver acquired Tahoe Resources in 2019, the company has become mainly a gold producer despite owning an impressive silver reserve. Pan American Silver is comparable to Fortuna Silver Mines (NYSE:FSM), Hecla Mining (NYSE:HL), and Coeur Mining (NYSE:CDE), which are also silver producers but at a lower level.On September 11, 2024, PAAS reported mineral reserves and resources as of June 30, 2024, indicating probable and proven reserves of 468 Moz of silver and 6.893 Moz of gold, respectively. I noted a significant increase in gold mineral inferred resources of 1.2 Moz of gold, highlighting the potential of the La Colorada Skarn Project.

Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity
Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity

Source: PAAS Presentation December 2024.

In 3Q24, revenue came from two precious metals (gold and silver) and byproducts (zinc, lead, and copper). The revenues are made up of gold and silver, while the revenues from other metals or byproducts are used to offset costs. The revenue breakdown by metal in 3Q24 is shown below:

Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity
Pan American Silver: Potential Escobal Mine Reopening Offers Investing Opportunity

Gold represents approximately 72.1% of total revenues, whereas silver contributes only around 20.8%. However, this dynamic may shift if the Escobal silver mine in Guatemala is reopened after years of being on care and maintenance. The mine contains substantial silver reserves.The company said: