Pan American Silver Corp. (PAAS) reported adjusted earnings (excluding non-recurring items) of 8 cents per share in third-quarter 2013, compared with earnings of 25 cents per share in the year-ago quarter. The results exceeded the Zacks Consensus Estimate of 5 cents.
On a reported basis, Pan American logged a net profit of $14.2 million, or 9 cents per share in the reported quarter, a decrease of roughly 37% from a net profit of $22.6 million or 15 cents per share in the prior-year quarter. The decrease was due to lower revenues, higher depreciation and amortization costs, and higher losses on commodity and foreign currency contracts, primarily related to the cancellation of gold and silver forward contracts declared previously, partly offset by favorable currency impact.
Revenues decreased roughly 15% year over year to $213.6 million in the third quarter from $251.8 million registered in the year-ago quarter. The results were ahead of the Zacks Consensus Estimate of $194 million. The decrease in the top line was due to lower metals prices, partly offset by higher volumes of all metals produced by the company.
Realized silver and gold price declined 30% and 19% year over year to $20.52 per ounce of silver and $1,319 per ounces of gold, respectively.
Silver production increased 7% year over year to 6.7 million ounces. The increase was attributable to considerable production gains at Dolores, Huaron, Morococha and San Vicente, slightly offset by small production declines at La Colorada and Manantial Espejo.
Record gold production of 41,600 ounces represents an increase of roughly 48% from 28,162 ounces recorded in the prior year quarter. The year over year increase was primarily due to improved production at Dolores and Manantial Espejo mines as a result of improved grades and recoveries.
Production costs decreased 8% year over year to $130 million from $142 million recorded in the last year quarter. Consolidated cash costs declined 25% year over year to $10.40 per ounce of silver (net of by-product credits) from $13.87 per ounce in the year ago quarter. All-in sustaining costs per silver ounce sold also declined 33% year over year to $16.26 per ounce in the reported quarter.
The decrease in the costs was due to the cost reduction measures implemented earlier this year and to higher quantities of by-product metals sold during the quarter, partly offset by lower by-product credits on lower metals prices, with the exception of lead.
Financial Overview
Cash and short term investments decreased 23% to $421 million as of Sep 30, 2013, from $548 million as of Sep 30, 2012. Cash flow generated from operating activities was $40.7 million during the reported quarter.
Developmental Projects
Expansion study at the La Colorada mine has progressed significantly and is expected to complete in near future. The expansion study of the mine has led to an increase in proven and probable mineral reserves to 65 million ounces of silver at the start of 2013, from 18 million ounces of silver in 2009. It has also extended a hosting shaft to increase mine capacity which will result in the expansion of the sulphide floatation plant.
Pan American will be spending $3 million for an expansion study at the Dolores mine and plans to install a new crushing, grinding and pulp agglomeration plant that will increase silver and gold recoveries of high grade ores and enhance overall processing capacity.
Outlook
Pan American expects to achieve its 2013 production target of 25 million to 26 million ounces of silver and 125,000 to 135,000 ounces of gold at cash costs below the original forecast of $11.50 to $12.80, net of by-product credits.
It further expects to produce 38,500 to 41,500 tons of zinc, 12,500 to 13,500 tons of lead and 4,500 to 5,000 tons of copper in 2013.
Pan American currently carries a Zacks Rank #3 (Hold).
Other companies in the mining industry with a favorable Zacks Rank include Silvercrest Mines Inc. (SVLC), Franco-Nevada Corp. (FNV) and Pretium Resources Inc. (PVG). All of them carry a Zacks Rank #1 (Strong Buy).
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