Pan American Silver Corp. (PAAS:TSX; PAAS:NYSE) reported that its Q2 production and all-in sustaining costs (AISC) for both silver and gold aligned with quarterly expectations, Edison Analysts Andrew Keen and Andrey Litvin wrote in an updated research note on August 14.
Although there was a slight rise in costs and a minor dip in sales, stronger commodity prices contributed to a 10% increase in EBITDA and record operating cash flow, enhancing the net cash position and resulting in a 2-cent increase in the quarterly dividend.
The analysts said they have revised their estimates upward due to higher commodity prices and raised their discounted cash flow (DCF)-based valuation to US$38.0 per share. The acquisition of MAG Silver has received shareholder approval and is expected to be finalized in the second half of the year.
Q2 2025: Robust Cash Flow Generation
PAAS produced 5.1 million ounces silver (Moz Ag) and 179,000 ounces gold (Au) in Q2, meeting quarterly guidance. After better-than-expected cost performance in Q1, Q2 saw some cost increases in the silver segment, while gold segment costs remained consistent with Q1, the analysts said.
Nonetheless, AISC for both segments stayed comfortably within the guided ranges. Lower sales and higher costs were offset by stronger commodity prices, with EBITDA rising 10% quarter-on-quarter to US$362 million. Cash flow generation was a standout feature, with operating cash flow reaching a record US$293 million, boosting net cash to US$289 million. Consequently, the quarterly dividend was increased by 2 cents to US$0.12.
Upgraded Estimates and MAG Transaction Progress
Following the results, the analysts have upgraded their estimates based on stronger commodity price expectations, increasing our FY25e and FY26e EBITDA by 9% and 18%, respectively. On July 10, MAG shareholders approved the acquisition by PAAS, with the transaction expected to close in the second half of 2025.
MAG's primary asset, a 44% stake in the large-scale, low-cost Juanicipio mine in Mexico, will enhance PAAS's silver exposure and reduce costs. In the first half of 2025, Juanicipio generated US$279 million in EBITDA and US$173 million in net profit at a negative cash cost of US$2.4/oz and an AISC of just US$1.4/oz, distributing US$62 million in cash to MAG Silver.
Valuation: Increased to US$38 per Share Pre-MAG
We have adjusted our valuation of PAAS (excluding MAG) from US$33.7 per share to US$38 per share. Despite the share price increase post-results, PAAS remains attractively valued on a standalone basis, trading at an FY25e EV/EBITDA of 7.3x, decreasing to 6.5x in FY26.
"We see further upside as earnings momentum continues to build through the seasonally stronger H2, supported by favorable commodity prices," Keen and Litvin said. "PAAS valued 44% in Juanicipio at US$1.9 billion, citing significant exploration potential and a bullish silver outlook."
The firm's modeling, based on the current mine plan and latest mineral reserves, provided a more conservative value for MAG of approximately US$2 per PAAS share, serving as a floor valuation.
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- MAG Silver Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$3,000 and US$6,000.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Pan American Silver Corp.
- Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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Disclosures for Edison, Pan American Silver Corp., August 14, 2025:
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