Silver Isn’t Gold, Buy Pan American Silver Stock on the Dip

Buy Pan American Silver Stock on the Dip
Published on: Jun 11, 2024

Recently, with countries around the world starting to cut interest rates, the prices of gold and silver have been falling as well. However, silver is not gold. While the attractiveness of gold as an investment to hedge against inflation and interest rate risks decreases, silver offers an additional layer of protection due to its industrial uses. Therefore, even though silver prices are declining, and the stock price of the Canadian silver company Pan American Silver (TSX: PAAS) has also dropped, investors shouldn’t panic. Instead, this presents an opportunity to buy the dip.

The stock price of Pan American Silver fell by about 5% last week, with a current dividend yield of 1.84%. To understand and assess the investment potential of Pan American Silver, the outlook for silver is key.

Silver is not just a precious metal; it is also an industrial metal. Industrial demand dominates global silver demand, driven by sectors such as electronics, solar power, and automobiles. According to related statistics, industrial demand accounted for over 50% of global silver demand in 2023, with the photovoltaic sector making up about 20%, followed by the power (16%) and automotive industries (14%).

Therefore, even though silver prices are currently falling, many analysts expect silver prices to rebound with the recovery and growth in industrial demand. Additionally, silver often benefits from its dual role as an industrial metal and a safe-haven asset, allowing it to hedge against economic uncertainty and inflation pressures. Looking ahead, Pan American Silver remains cautiously optimistic, predicting that silver prices will rise driven by growing industrial demand and potential supply constraints.

Besides the silver market, Pan American Silver’s own fundamentals are also a significant factor in determining the stock price trend.

The company reported quarterly revenue of 390.3 million CAD, a slight decline from the same period last year, mainly due to the fall in actual prices of silver and other metals. Net income was 21.5 million CAD, or 0.10 CAD per share, down from 37.7 million CAD and 0.18 CAD per share in the same period last year. The decrease in net income was attributed to the decline in metal prices and the rise in production costs.

Pan American Silver’s quarterly silver production was 4.6 million ounces, and gold production was 147,000 ounces. The All-In Sustaining Cost (AISCs) per ounce of silver rose from 11.30 CAD to 13.15 CAD. Quarterly operating cash flow decreased from 88 million CAD to 65 million CAD year over year, and free cash flow dropped from 53 million CAD to 32 million CAD. Fortunately, the company’s balance sheet remains robust, with cash and cash equivalents of 285 million CAD and total debt of 340 million CAD, indicating decent liquidity.

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