Much more than “gold’s cheaper cousin,” silver is an industrial metal with enduring value. If you’re looking to capitalize on a rising silver price, a position in Pan American Silver (NASDAQ:PAAS) stock offers a highly favorable risk-reward profile.
Silver is known for being more volatile than gold, so investors need to choose silver mining stocks very carefully. The price moves in both directions can be swift and sizable. That’s why it’s important to be choosy in your stock-selection process.
Fortunately, Pan American Silver checks all of the right boxes. Given the company’s history of robust production and low cost of getting silver out of the ground, Pan American Silver is an ideal investment vehicle for beginners and experienced mining sector investors alike.
Prepare for a Demand Spike
Why invest in silver at all? After all, gold is the more popular metal, right? That’s a natural question to ask, and the simple answer is that investors should expect silver’s usefulness to catalyze an increase in demand.
Actually, Pan American’s primer on silver’s value proposition sums it up quite nicely. As the company explains, silver “is the most electrically conductive of all metals, has its “greatest demand for use in electrical and electronics applications,” and is increasingly used in solar-panel installations.
But in a time when the novel coronavirus is issue number one, silver’s most interesting use might involve medical applications. Specifically, silver “has antimicrobial qualities, and silver nanoparticles are an effective tool for killing disease-causing bacteria.”
The potential for medical applications could cause silver demand to spike in the near future. To capitalize on this possibility, investors can purchase shares of PAAS stock, as this is a miner that takes silver more seriously than most do.
If you search through the vast sea of mining companies, you’ll notice that many of them are focused on gold while silver is just an afterthought. In contrast, Pan American is potentially sitting on 557.2 million ounces of silver reserves. Furthermore, the company claims 25.9 million ounces of silver production.
Keeping Silver Front and Center
Pan American does have interests in gold, copper, and other metals besides silver. However, the company stays focused on silver, and just as importantly, strives to get it out of the ground at a low cost.
One way to measure this is through all-in sustaining cost, or AISC. This is a simplified gauge of how much it costs the company to get an ounce of silver out of the ground.
In fiscal year 2019, Pan American’s consolidated silver basis AISC was a remarkably low $4.44 for each silver ounce sold. As a basis of comparison, the spot price of silver stayed close to $15 per ounce throughout the month of April.
The combination of robust silver production and reduced per-ounce costs has paid dividends, both figuratively and literally. Pan American President and CEO Michael Steinmann explains how this business model benefited the company last year:
Strong, low cost production generated operational cash flow of $282 million in 2019, which allowed Pan American to retire $60 million of debt, dividend approximately $29 million to shareholders, invest in new projects … and increase our cash position.
The fourth quarter was particularly impressive for Pan American. In fact, the company posted quarterly adjusted earnings of 33 cents per share. The analyst community, in contrast, was anticipating only 22 cents per share.
Additionally, Pan American generated $404.4 million in revenues during the fourth quarter. For all of fiscal year 2019, the company’s revenues totaled $1,350.8 million. And if the silver price holds steady or rises this year, investors can expect Pan American to remain both productive and profitable.
The Final Word on PAAS Stock
Silver is a commodity that investors shouldn’t ignore. The potential medical uses during the coronavirus pandemic could enhance silver’s value. But to take a position in this, investors should focus on a company that takes silver production seriously.
Pan American does take silver very seriously. The company’s focus on low production costs puts PAAS stockholders in a great position. And if the price of silver increases, it’s a winning proposition for Pan American and anyone who owns the shares.
Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
