October 21, 2018 by Francisco Castillo
I have been following this Canadian silver mining company for a little while now. It caught my attention around 2015 when I saw and improvement of metrics on a very consistent basis.
The aspect that intrigued me was its ability to keep lowering production costs very consistently in most of the mines they operate in Mexico and South America. Silver mining is a tricky business. Just like in many other areas, the price at which you can sell an ounce of silver is set by the market. That puts a ceiling on how much revenue you can generate. This being the case, the opportunity lies in increasing output while decreasing operating costs. No matter how low the silver price per ounce gets, you are still able to reach a healthy margin. And this is what Pan American has been able to achieve in the past few years.
Another thing I have been looking at closely, for pedagogical purposes mainly, is the transition from one CEO to the next. This is to estimate how long it takes to see the new CEO’s ideas get into the operations of the company and its financial statements.
Pan American has had only three CEOs since its inception. Ross Beaty (1994-2003), Geoff Burns (2004-2015) and Michael Steinmann (2016-present). Mr. Beaty is the founder, and currently he continues to be the Chairman of the board. I would like to see some more skin in the game from a share ownership perspective, but that is just my opinion.
From the latest releases, it seems that the company is going all-in with potentially one of the greatest projects the company has had since its foundation in 1994.
A potential development in the province of Chubut, Argentina called “Proyecto La Navidad” is considered one of the largest silver reserves in the world. The company has been making slow intermittent progress since 2010 when it performed the initial feasibility assessment.
From a behavioral stand point, I think this is a great exercise to see whether management has considered all angles of the project. Perhaps there could be a confirmation bias with recent legislative developments going on in the Chubut province. This may mean that there may not be any other substantial alternative to grow the company other than putting la Navidad to work. Perhaps the conviction, temperament, and vision of management is rightly focused, and based on their operating principles, they see it prudent to go all-in with La Navidad in 2018.
As many things in life, only time will tell. But as of now, Pan American will continue to enhance its operations by continuing to follow a judicious approach. It can have a strong year if La Navidad project doesn’t come along, and it can have a stellar year if things do materialize. We shall see.
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