Pan American Silver Corp. (PAAS)

[SsMurry]

Some equity research on Pan American Silver...

Daniel Earle has updated his view on Pan American Silver to HOLD. The company is believe is most-sensitive to the metal price and yet, even after a recent pullback, its share price has significantly outperformed the silver price over the last year.
The target price comes down to $15.00 (from $19.00) on lower multiples reflecting negative free cash flow and muted growth potential at spot silver prices, so he is downgrading our recommendation to HOLD (from BUY)

The impact is slightly negative.

The reduced target multiples are in line with those Daniel Earle used for First Majestic Silver, which he believe is the company’s closest peer. He had used premium multiples previously to reflect what he viewed as an attractive combination of free cash flow in Q2/14, some growth potential, a strong balance sheet, and the highest dividend in our precious metals coverage universe at ~4.1%.

Daniel Earle's analysis suggests that if the silver price does not rebound, the company's balance sheet may begin to be eroded quickly and that its growth prospects may be muted. For example, he expect the company to burn cash before paying its dividend in Q4/14 and 2015 at $18.00/oz silver and he would suggest its Dolores expansion, where a construction decision is expected within 9-12 months, may continue to be delayed.