The stock of Pan American Silver, the "world's leading silver producer," is considered severely undervalued and a potential runaway winner when precious metals prices rise. Is the stock already a buy and how did it fare in previous gold and silver rallies? Our analysis.
Pan American: More gold than silver!Pan American Silver ($PAAS) was founded over 25 years ago by the now legendary Ross Beaty and is now one of the established names in the mining business. The company brings around 5.7 billion US$ to the stock exchange scales. Through the takeover of Yamana Gold's Latin American activities, which was completed at the end of March, silver production has increased by 55 percent, while gold production has more than doubled. Pan American Silver - like all its major competitors - is now more of a gold company, despite the "silver" in its name. In 2023, 21 to 23 million ounces of silver and 870,000 to 970,000 ounces of gold are to be produced. Taking the respective average of these forecasts, silver worth $506 million and gold worth $1.775 billion will be mined this year. This calculation assumes a silver price of US$23 per ounce and a gold price of US$1,930 per ounce.
The reorientation from silver to gold of many former "silver companies" is easy to understand. At a gold price of US$1,500/ounce, most are still making money. At silver prices below 20 US dollars/ounce, on the other hand, the companies are threatened with bankruptcy. Of course, the same calculation works the other way around: the profit of a metal producer with a high silver content increases disproportionately when the silver price rises sharply.
Graph: Pan American Silver's stock has experienced major bull and bear phases over the past 20 years.In the process, the share considerably leverages the development of the silver price.The investor (almost) doesn't need a warrant anymore. Spectacular gains and lossesFor a long-term investor in the precious metals sector, the royalty company Franco-Nevada has been the ideal stock over the past twenty years. The stock slightly lagged the market in bull market phases, but hardly fell during the bear markets, which often lasted several years. Pan American Silver, on the other hand, is not a stock that can be bought and then forgotten (see chart above). It has been tops in ...
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