What Could Drive Estimates Higher for Pan American Silver?



Production to remain constant

While analysts expect production to remain more or less constant in 2016 as compared to 2015, the costs are expected to go down as newer low-cost mines replace the production from higher cost mines. This is driving the analyst estimates for Pan American Silver (PAAS). While analysts have upgraded their revenue estimates for PAAS for the next four quarters by only 8% since the start of the year, the EBITDA (earnings before interest, tax, depreciation, and amortization) estimates, on the other hand, have seen an upward revision of 120%. The revenue estimates of $674 million for 2016 imply flat growth as compared to 2015 while the estimates for 2017 imply a decrease of 2.8% year-over-year.

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Lowest margin

Being a high-cost producer, Pan American Silver had EBITDA margins of just 10.5% in 2015, which is the lowest among its peers such as Coeur Mining (CDE), First Majestic Silver (AG), Tahoe Resources (TAHO), and Silver Standard Resources (SSRI). However, due to its cost profile and the improving precious metal prices outlook, analysts are expecting an EBITDA margin of 21.5% in 2016. As seen in the above graph, the margin should accelerate further in 2017 and 2018 by 29% and 39%, respectively.

What drives earnings?

Commodity producers’ earnings are sensitive to underlying commodity prices (USCI). Analysts’ recommendations and target prices are based on expected forward earnings.


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