Pan American Silver (NASDAQ:PAAS) is a silver and gold miner mainly operating in South America. It also operates in Canada and has a mine in Guatemala currently out of action. As the Biden administration took office in the US, the market was bullish on silver at the turn of the year. That’s because silver is a vital commodity in electronics and the green revolution is a mainstay of the Biden agenda. But since then, the silver price has been fairly volatile. The Pan American Silver share price is down 20% year-to-date. So, does this dip in prices present a buying opportunity for me?
FY21 guidance lowered
As Covid-19 continues to hamper normal operations and ventilation constraints present a challenge at one of its mines, Pan American Silver has lowered its FY21 guidance.
In FY20, the company produced 17.3m ounces of silver and 522,000 ounces of gold.
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It now expects annual silver production of between 20.5m and 22m ounces, down from between 22.5m and 24m ounces predicted earlier. All-in sustaining costs (AISC) for silver are projected to come in between $14.25 to $15.75 per ounce, which is up from between $12.50 and $14 per ounce projected in January. Meanwhile, its gold production FY21 estimates remain unchanged at 605k to 655k ounces.
The company has a $5.6bn market cap, and its dividend yield is just under 1%.
Pan American Silver is the second-largest silver mining company in the world. After finishing 2020 clear of debt and with cash flow strong, Q1 results are disappointing shareholders. But until Covid-19 uncertainty lifts, it’s operating in a volatile segment.
Nevertheless, Pan American Silver remains the owner of the world’s largest silver reserve in the ground. Furthermore, Q1 and Q2 are its most costly quarters due to paying its taxes. Therefore, I expect things will pick up later in the year.
With no debt and strong cash flow, it intends to invest in projects with a long time horizon and decent long-term returns. It gave its La Colorada Skarn discovery as an example of the kind of exploration projects it seeks.
Would I buy shares in Pan American Silver?
Silver doesn’t appear to have had the rise in interest that alternative commodities such as copper are enjoying. But its price is now back around the $27 it reached at the beginning of January, after a dip to around $24 in March.
Mining shares are risky investments, and with Covid-19 still rampaging in South America, shareholders need to go in with their eyes open. Yet I think the more established heavyweights like PAAS present a more viable opportunity than the juniors.
I do think silver is a commodity that’s going to remain in high demand in the coming years and as Pan American Silver has the world’s biggest reserves, I find it a tempting pick to add to my Stocks and Shares ISA. The Pan American Silver share price is down 25% from its 52-week high, so I think this dip could be a good buying opportunity.
However, if I was more averse to mining stocks, an alternative way to access the silver market would be the iShares Silver Trust. This is listed on the New York Stock Exchange, with the ticker SLV, and it tends to be very closely correlated to the price of silver.
