Mirror, Mirror on Pan American's Wall

Who's the fairest of all the silver miners? The competition is heating up alongside silver prices, and now it's Pan American Silver's (Nasdaq: PAAS  ) turn in front of the magic mirror.

Like the queen in Snow White, Pan American appreciates its own beauty as reflected in the silver-coated glass. The miner aims to become the “world's largest and lowest cost” primary silver producer, and the second-quarter results offered a timely and dramatic makeover.

Pan American achieved company records for silver production, gold production, and revenue during the period. The Manantial Espejo mine in Argentina, formerly co-owned by Silver Standard Resources (Nasdaq: SSRI  ) , has performed "well above expectations" since achieving commercial production in January. (Espejo is Spanish for mirror, but the name translates as Silver Spring.) Major expansion of the San Vicente mine in Bolivia recently came online, and is already approaching design capacity.

With these two sources of production growth in play, Pan American produced 5.8 million ounces of silver, and 25,000 ounces of gold, at a cash cost for silver of just $5.99 per ounce. Those operating costs came in below initial 2009 guidance of $6.28 per ounce, but Fools are reminded to track the equally relevant all-in cost of production, which includes mine acquisition and development costs. Pan American's all-in cost stands at $10.10 per ounce of silver; substantially higher than the essentially fixed cost structure of the fairest producer in this Fool's mirror: Silver Wheaton (NYSE: SLW  ) .

All-in costs are significant not only to the miners, but to the industry as a whole, since collectively they form a virtual floor beneath long-term prices. After metal prices plummeted last year, I offered the all-in costs of major gold producers like Barrick Gold (NYSE: ABX  ) and Gold Fields (NYSE: GFI  ) as a golden threshold beneath which prices could not sustainably dip. The line held, as gold tested the $700 level before reversing course convincingly.

Playing favorites
The uncanny parallels between Pan American and resurgent rival Coeur d'Alene Mines (NYSE: CDE  ) are unmistakable. Coeur also completed two critical development projects just in time for stronger silver prices, and likewise posted company records for both production and revenue. While I consider the two miners near mirror images of each other, I believe Coeur d'Alene's storied journey yields a relative bargain, while Pan American's debt-free balance sheet is truly a thing of beauty. Like a magic mirror, I find beauty in each of the major silver producers, and encourage Fools to have a look.

The price ratio of gold to silver stands around 65-to-1, forming a key tenet of this Fool's expectation that silver will outperform gold. Whether you think silver is a golden opportunity or a fool's errand, the community of investors at Motley Fool CAPS is eager to know your thoughts. CAPS is free, so join today!

Fool contributor Christopher Barker carries a silver coin that reads: "Honest value never fails." He can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Coeur d'Alene Mines, Pan American Silver, Silver Standard Resources, and Silver Wheaton. The Motley Fool's disclosure policy is 0.999 pure.


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