Pan American Silver (PAA-T, PAAS-Q) had a strong year in 2012, helped by record silver and gold output in the fourth quarter, and is forecasting 2013 to be another “record setting-production year.”
The company, which operates seven silver mines in the Americas, produced 6.9 million oz. silver in the fourth quarter, lifting its annual silver production to a company-high of 25.1 million oz., in line with its guidance of 24.25–25.5 million oz.
Gold output for the quarter came in at 32,381 oz., bringing full-year production to 112,283 oz. While that’s a record, it fell shy of the 114,000 oz. target.
Total cash costs for the quarter and the full-year were US$11.75 and US$12.03 per oz. silver, net of byproduct credits, and in line with the US$11.50–US$12.50 guidance.
“2012 was an excellent production year for Pan American,” Geoff Burns, the company’s president and CEO, said in a release, noting the Vancouver-based producer was able to reach its silver output and cash costs targets in the fourth quarter and the full year, mainly because of the recently acquired Dolores silver-gold mine in northern Mexico.
Pan American added Dolores to its fold after taking over the mine’s previous owner, Minefinders, in early 2012 for about $1.5 billion.
The mine contributed 2.7 million oz. silver and 43,500 oz. gold last year at total costs of US$4.05 per oz. silver, minus by-product credits, becoming the firm’s lowest cost mine.
The firm’s Alamo Dorado and La Colorada mines in Mexico and the San Vicente mine in Bolivia also had strong performances in 2012, producing 5.4 million oz., 4.4 million oz. and 3.7 million oz. silver, respectively.
“Overall, we view the results as encouraging as the company’s operations appear to show signs of stabilizing,” Raymond James analyst Brad Humphrey writes in a note.
Pan American is now gearing up for an even better year in 2013, where it expects to produce more silver and gold ounces at cash costs similar to 2012.
For 2013, Pan American is guiding production of 25–26 million oz. silver — an increase of up to one million oz. from 2012 — and 140,000–150,000 oz. gold, up 34% from a year ago. Annual cash costs are anticipated at US$11.80–US$12.80 per oz. silver.
“Although the guided cash costs are in part from improved costs at Dolores which is positive, they also look to be benefiting from the increased by-products credits expected for next year with a 34% increase in gold production,” Humphrey notes.
While the company anticipates more gold ounces in 2013, it predicts base-metal production to be similar to 2012’s levels, where it churned out roughly 36,800 tonnes of zinc, 12,300 tonnes of lead and 4,200 tonnes of copper.
This year it is forecasting 36,000–39,600 tonnes zinc, 11,500–12,500 tonnes lead and 3,500–4,000 tonnes copper.
Capital expenditures for 2013 are estimated at US$157 million, higher than usual, as the producer has several initiatives planned for the year.
Nearly half or US$68 million of that will go towards the Dolores mine, where it intends to build a new leach pad and rehabilitate the mining fleet. The remainder will be spent on other projects, including tailings dam expansions at San Vicente, La Colorada and the Huaron mine in Peru, as well as an open pit push back at Alamo Dorado.
Pan American gained nearly 2% in Toronto to close Jan. 22 at $18.69.
Humphrey has a US$28.50 target and “outperform 2” rating on the stock, while BMO Nesbitt Burns analyst Andrew Kaip has a similar rating and US$30 target.
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