Pan American expects increased silver and gold output in 2021

Americas-focused precious metals producer Pan American Silver (TSX: PAAS; NASDAQ: PAAS) has reported its 2020 production results and provided guidance for 2021.

Last year’s silver and gold output – at 17.3 million silver oz. and 522,400 gold oz. – came in just below prior forecasts for 18 to 19 million oz. of silver and 525,000 to 575,000 oz. of gold. (In the fourth quarter of 2020, Pan American generated 4.9 million silver oz. and 152,900 gold oz.) The company also produced 40,200 tonnes of zinc, 15,700 tonnes of lead and 5,200 tonnes of copper in 2020.

This year’s production guidance calls for 22.5 to 24 million oz. of silver and 605,000 to 655,100 oz. of gold, at silver-based on all-in sustaining costs of negative US$2.8 to positive US$2.7 per ounce.

The latest AISC guidance for 2020 was at negative US$3 to positive US$75¢ per oz. of silver produced.

“We are expecting a 35% increase in silver production relative to 2020 and record gold production in 2021, despite our assumption that Covid-19 will continue to have an impact on operations,” Michael Steinmann, president and CEO of Pan American, commented in a news release. “Under our 2021 guidance assumptions, we expect to be generating robust levels of free cash flow.”

The 2021 guidance numbers incorporate the impact of Covid-19 protocols, which are expected to increase costs and reduce throughputs, especially at underground operations. These impacts are expected to lessen throughout this year.

In October, the company published an updated resource for the La Colorada skarn nearby its La Colorada underground mine in Zacatecas state, Mexico. This deposit features an inferred resource of 100.4 million tonnes, grading 44 grams silver per tonne, 0.2% copper, 1.77% lead and 4.29% zinc, containing 141 million oz. of silver, 199,000 tonnes of copper, 1.8 million lb. of lead and 4.3 million tonnes of zinc.

Pan American is budgeting US$50 to US$55 million in its 2021 capital forecast for the deposit, with plans for additional drilling.

The producer closed out 2020 with US$279.1 million in cash and short-term investments and no debt. Pan American holds nine operating mines.

Complete fourth-quarter and 2020 financial results are expected on Feb. 17.

In Toronto, Pan American Silver’s shares closed at $37.60 per share, down a penny. Over the last year the company has traded in a range of $14.22 and $53.30 per share.

Ryan Thompson of BMO Capital Markets trimmed his target price on the company following the news from $42 per share to $38 per share. 

“For the year, silver production of 17.3 million oz. missed the guided range of 18-19 million oz. and gold production of 522koz was just below the range of 525-575koz,” he wrote in a research note to clients. “La Colorada continued to deal with ventilation issues (prohibiting access to high-grade ore) which was the key contributor to the miss on the silver side. Manantial Espejo (Argentina Covid restrictions) also contributed to the miss.”

This year, he noted, the company “is guiding to silver production of 22.5-24 million oz., which is lower than our prior forecast of 26.1 million ounces. The gold side of the business is expected to produce 605-655koz., also  lower than our previous estimate of 672koz.”