Pan American Beats on Earnings and Revs in Q1 - Analyst Blog

Pan American Silver Corp. PAAS logged net earnings of $6.8 million (or 5 cents per share) on a reported basis in the first quarter of 2014, lower than net earnings of $20.1 million (or 13 cents a share) recorded in the year-ago quarter. Lower metals prices and higher cost of sales weighed on the bottom line.

The earnings in the reported quarter included a $2.3 million negative adjustment on the value of inventories at the Dolores mine and a $5.5 million foreign exchange loss.

Adjusted (excluding one-time items) earnings were $8.6 million or 6 cents per share in the reported quarter compared with adjusted earnings of $40 million or 26 cents earned in the year-ago quarter. The results beat the Zacks Consensus Estimate of 2 cents per share.

Revenues decreased roughly 14% year over year to $209.7 million in the reported quarter. The results, however, surpassed the Zacks Consensus Estimate of $194 million. The decrease in the top line was due to sharply lower prices for all metals produced by Pan American, partly offset by higher quantities of silver and gold sold during the quarter.

Realized silver and gold price declined 33.6% and 21.3% year over year to $19.99 per ounce of silver and $1,283 per ounces of gold, respectively, in the reported quarter.

Pan American produced 6.61 million ounces of silver in the reported quarter, up 5% year over year. The increase was attributable to production gains at Dolores, La Colorada and Manantial Espejo, partly neutralized by small production declines at Alamo Dorado.

Pan American produced a record 45,900 ounces of gold in the first quarter, an increase of 43% year over year. The increase was primarily due to improved production at Dolores and Manantial Espejo mines.

Zinc production rose 18% to 11,400 tons, lead production rose 16% to 3,600 tons and copper production rose 55% to 1,700 tons in the quarter due to higher throughput rates and grades at La Colorada, Morococha, Huaron and San Vicente.

Production costs per ounce of silver declined 13.6% year over year to $14.93 million from $17.29 million recorded in the year-ago quarter. Consolidated cash costs per ounce declined 27.2% year over year to $8.25 per ounce of silver (net of by-product credits). All-in sustaining costs per silver ounce sold also declined 20.2% year over year to $15.54 per ounce in the reported quarter.
 
Financial Overview

Cash and short-term investments decreased 19.5% to $394.4 million as of Mar 31, 2014, from $490.1 million as of Mar 31, 2013. Long-term debt stood at $40.3 million as of Mar 31, 2014.

Developmental Projects

During the first quarter, the La Colorada expansion project was initiated and work progressed as planned with the project. Work on phase two of Dolores' leach Pad 3 development advanced as planned during quarter.

Outlook
 
Pan American reiterated its 2014 production target of 25.75 million to 26.75 million ounces of silver and 155,000 to 165,000 ounces of gold. The company expects all-in sustaining costs per silver ounce sold (AISCSOS) to be in the range of $17.00 to $18.00 and cash costs of $11.70 to $12.70 per silver ounce, net of by-product credits.

The company remains optimistic that it will achieve or surpass its forecast for precious metals production (especially gold), as well as be near to the low end of annual guidance for AISCSOS and cash costs (provided metal prices remain near current levels).

Pan American also reaffirmed its outlook for  annual sustaining capital of $95.5 million and project investment capital of $67 million for 2014.

Pan American currently carries a Zacks Rank #3 (Hold).

Other companies in the mining industry worth considering include Gold Fields Ltd. GFI, Lake Shore Gold Corp. LSG and Alexco Resource Corporation AXU. All of them hold a Zacks Rank #2 (Buy).