Pan American Silver's Q4 disappoints and mothballed Morococha hits 2022 guidance

Canada's Pan American Silver's fourth-quarter earnings missed analyst expectations and the company excluded its Peruvian Morococha mine from its 2022 guidance due to the operation being placed on care and maintenance. 

Nathan Richardson
Pan American Silver's Q4 disappoints and mothballed Morococha hits 2022 guidance

The company's adjusted earnings for Q4 were US$39.9 million, or US$0.19 basic adjusted earnings per share. That took the 2021 total to US$161.8 million, or US$0.77/share. 

BMO Capital Markets analyst Ryan Thompson said Q4 earnings missed consensus estimates of US$0.26/share. 

"Our guidance for 2022 assumes the COVID-19 impact will diminish over the course of the year, while incorporating the effect of lower workforce deployment levels in January and February due to the Omicron variant," Pan American's president and CEO, Michael Steinmann, said. 

"We are evaluating strategic alternatives for Morococha and have excluded the mine from our 2022 guidance, while placing the operation on care and maintenance," he added. 

Pan American has an agreement with Chinalco that requires the relocation of core Morococha facilitates to enable the gradual expansion of Chinalco's Toromocho copper mine. 

"In early 2022, we agreed with Chinalco to complete the closure of the Amistad plant and we will be placing the Morococha operation on care and maintenance as we evaluate alternative opportunities, including monetisation, a joint-venture operation of the asset, or accelerating exploration of prospective areas that could enhance the attractiveness of allocating capital to build a new processing facility," Pan American said. 

Canaccord Genuity Capital Markets analyst Dalton Baretto noted that this was the company's third asset on care and maintenance. The other two assets were the Escobal silver mine in Guatemala and Navidad silver project in Argentina. 

Pan American set 2022 production guidance of 19 million-20.5 million ounces of silver, 550,000-605,000oz gold, 35,000-40,000 tonnes zinc, 15,000-17,000t lead, and 5,500-6,500t copper. 

"With Morococha being placed on care and maintenance, we have trimmed our 2022 silver production estimate to 19.9Moz from 21.5Moz," Thompson said. 

BMO was previously at the high end of Pan American's gold guidance, with an estimate of around 600,000oz, and has subsequently trimmed that back towards the mid-point, he added. 

"Overall, sustaining capital guidance (US$176 million-$186 million) was roughly in line with our prior expectations, however, operating costs were higher and we updated our model to reflect inflationary pressures," Thompson said. 

He said that all-in sustaining costs guidance for the silver segment of US$14.5-US$16/oz and the gold segment of US$1,240-US$1,365/oz clearly showed "healthy margins at today's prices". 

"Positively, the company has released more encouraging exploration results at La Colorada skarn, bumped the dividend, and noted Escobal consultation meetings are ongoing," Thompson said. 

Separate to the Q4 results, Pan American announced a 20% increase in the cash dividend to US$0.12/share, which is payable on March 21. 

Pan American traded on the Toronto Stock Exchange on February 27 at C$29.59/share, which was down 2%. The company has a market capitalisation of C$6.23 billion. 

"We like [Pan American] for its scale, leverage to both Au and Ag, strong balance sheet, and organic growth optionality. That said, in our view the shares are fully valued at our current commodity price forecast, and offer limited upside absent a significant move upward in precious metal pricing," Baretto said.

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.


Mining Journal Intelligence Project Pipeline Handbook 2024

View our 50 top mining projects, handpicked using a unique, objective selection process from a database of 450+ global assets.


Mining Journal Intelligence Investor Sentiment Report 2024

Survey revealing the plans, priorities, and preferences of 120+ mining investors and their expectations for the sector in 2024.


Mining Journal Intelligence Mining Equities Report 2023

Access an exclusive, inside look on the quarterly mining IPOs and secondary raisings data and mining equities performance tables with an annual Stock Exchange Comparisons supplement.


Mining Journal Intelligence World Risk Report 2023 (feat. MineHutte ratings)

A detailed analysis of mining investment risks across 121 jurisdictions globally, built on 11 ‘hard risk’ metrics and an industrywide survey.