Pan American Silver Set For Consolidation After Deutsche Bank Upgrade (PAAS)

After two consecutive months of rising share prices, Pan American Silver (NASDAQ: PAAS) looks to consolidate at $21.00 per share owing to a stock upgrade from Deutsche Bank last week. The share price, which had a run up due to impressive second-quarter results backed by a rise in the production of silver and gold, had been trading in the range of $21.00-$22.00 for the last few weeks.

The Canadian exploration and mining company has eight operating mines located in Mexico, Peru, Argentina and Bolivia. As the price of silver started to tumble in the month of April 2011, the share price of Pan American Silver drifted downwards from a peak of around $40.00 per share. The share price hit a low of $14.91 on July 9, 2012, soon after silver attained a 19-month low of $26.66 per troy ounce. Pan American Silver still had a gross profit margin of 58.4%, operating margin of 34.5% and a net margin of 34.7%.

On July 10, 2012, a report published by Seeking Alpha recommended the stock based on key financial figures. As silver started to rebound on strong demand in the second half of July, the precious metal mining stocks posed a reversal. The second-quarter results reported on August 14, 2012, pointed to a record high gold production of 32,444 ounces, and a second highest quarterly silver production of 6.4 million ounces. Even with a 23% decline on the price of silver on a year-on-year basis, Pan American Silver was still able to report net earnings of $44 million. The company had a working capital of $768.8 million by the end of second-quarter. Pan American Silver also declared a cash dividend of $0.20 per share, which represents a 33% increase on an annualized basis.

On August 15, 2012, the company provided an update on the successful La Colorada mine exploration program. A day later, S&P Capital IQ, which tracks Wall Street recommendations, opined a “hold” on Pan American Silver stock with a target price of $25.82 per share.

Following the purchase of nearly 5.4 million of the company’s shares at a price of $23.14 under the issuer bid program announced on August 26, 2011, the company announced its intention to purchase an additional 7.6 million shares of its common stock between September 4, 2012 and September 3, 2013. On September 3, 2012, another Seeking Alpha report stated that the stock remained undervalued. Pan American Silver was trading at around $18.00 per share on September 4, 2012. Following the stimulus measures announced by central banks around the globe in mid-September and the fall of US dollar, investors sought safe haven in gold and silver. This acted as a catalyst for further rise in Pan American Silver’s shares. The company’s shares touched a high of $22.46 per share on September 24, 2012.

Beginning September 17, 2012, the share price of Pan American Silver continued to trade in the range of $21.00 to $22.00. On October 2, 2012, Deutsche Bank upgraded Pan American Silver to “buy” from “hold” on expectations of a rise in the company’s cash flow in 2013 due to higher silver prices. Deutsche Bank raised the target of Pan American Silver’s share price to $26.00 from $22.00. Today, a report published on Seeking Alpha targets a price as high as $39.50 per share. The third-quarter results and the price of silver hold the key for further uptrend in the company’s share price.

Pan American Silver ended the day at $21.19 per share, down $0.30 or 1.4% on a volume of 2.7 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.