Movements in silver have certainly been wilder than gold so far this year. This is because the grey metal plays an important role as both investment and industrial metal. Thus silver prices have been highly sensitive to signals concerning the fight against Covid-19 and the global economic recovery.

The price has been more robust, above $27 per ounce, in recent sessions. But the Pan American Silver share price hasn’t fared anywhere near as well. In fact, it plummeted following the release of first-quarter numbers on Thursday. At $29.82 per share, the company closed yesterday at its cheapest since 31 March, falling 11% on the day. However, it has recovered some ground since.

Results miss expectations

A falling stock price is hardly a shock when a company releases worse-than-expected financials. But Pan American Silver, the world’s second-largest primary silver producer, missed market predictions by quite a sizeable margin.

Adjusted earnings per share at the business — which operates a string of precious metals mines across Mexico, Peru, Canada, Argentina, Bolivia and Guatemala — clocked in at 18 cents for the three months to March. This was up 80% year-on-year. But this fell well short of analyst forecasts of around 30 cents.

Revenues at Pan American Silver, while up 2.7% year-on-year at $368.1m, were adversely impacted by an inventory build up in quarter one. The company’s realised average silver price for the period rose by a much more impressive 60.1% from the corresponding 2020 period. This clocked in at $26.41 per ounce. Realised gold prices meanwhile averaged $1,788 an ounce, up 13.2% year-on-year.

Pan American Silver downgrades forecasts

Those disappointing sales and earnings results aren’t the only downward drivers of Pan American Silver’s share price however. The mining giant also slipped after it downgraded production forecasts for the full year.

Pan American Silver now expects to produce between 20.5m and 22m ounces in 2021. This is down from the targeted 22.5m-24m ounces the company had previously earmarked. More happily, the business left its gold output expectations unchanged.

Production problems

At its La Colorada mine in Mexico, Pan American Silver suffered from “lower than originally anticipated workforce deployments” in the first quarter, due to coronavirus conditions in the region. Production has also been affected by a blockage that occurred during commissioning of a ventilation project.

La Colorada production in 2021 is expected to come in 20-25% shy of forecasts as a result of these problems. On top of this, output at its Manantial Espejo project in Argentina is predicted to come in between 8-10% short of earlier predictions, again because of coronavirus-related workforce shortfalls.

Chief executive Michael Steinmann said: “Quarter one was a challenging quarter, as the Covid-19 pandemic continues to grip Latin America, impacting our workforce, communities and operations.”

The post Why the Pan American Silver share price crashed this week appeared first on The Motley Fool UK.

FY21 guidance lowered

As Covid-19 continues to hamper normal operations and ventilation constraints present a challenge at one of its mines, Pan American Silver has lowered its FY21 guidance.

In FY20, the company produced 17.3m ounces of silver and 522,000 ounces of gold.

It now expects annual silver production of between 20.5m and 22m ounces, down from between 22.5m and 24m ounces predicted earlier. All-in sustaining costs (AISC) for silver are projected to come in between $14.25 to $15.75 per ounce, which is up from between $12.50 and $14 per ounce projected in January. Meanwhile, its gold production FY21 estimates remain unchanged at 605k to 655k ounces.

The company has a $5.6bn market cap, and its dividend yield is just under 1%.

Pan American Silver is the second-largest silver mining company in the world. After finishing 2020 clear of debt and with cash flow strong, Q1 results are disappointing shareholders. But until Covid-19 uncertainty lifts, it’s operating in a volatile segment.

Nevertheless, Pan American Silver remains the owner of the world’s largest silver reserve in the ground. Furthermore, Q1 and Q2 are its most costly quarters due to paying its taxes. Therefore, I expect things will pick up later in the year.

With no debt and strong cash flow, it intends to invest in projects with a long time horizon and decent long-term returns. It gave its La Colorada Skarn discovery as an example of the kind of exploration projects it seeks.

Would I buy shares in Pan American Silver?

Silver doesn’t appear to have had the rise in interest that alternative commodities such as copper are enjoying. But its price is now back around the $27 it reached at the beginning of January, after a dip to around $24 in March.

Mining shares are risky investments, and with Covid-19 still rampaging in South America, shareholders need to go in with their eyes open. Yet I think the more established heavyweights like PAAS present a more viable opportunity than the juniors.

I do think silver is a commodity that’s going to remain in high demand in the coming years and as Pan American Silver has the world’s biggest reserves, I find it a tempting pick to add to my Stocks and Shares ISA. The Pan American Silver share price is down 25% from its 52-week high, so I think this dip could be a good buying opportunity. 

However, if I was more averse to mining stocks, an alternative way to access the silver market would be the iShares Silver Trust. This is listed on the New York Stock Exchange, with the ticker SLV, and it tends to be very closely correlated to the price of silver.

The post The Pan American Silver share price fell 16% this week, is this stock a buy? appeared first on The Motley Fool UK.