Hop On the Pan American Highway

A year ago, I asked Fools to wake me up when silver mining became a profitable enterprise once more. It's a good thing I didn't oversleep, because my phone never rang.

If you're dialed into the silver market, then you're well aware that silver miners have catapulted back into profitability in a very big way. Silver Wheaton (NYSE: SLW  ) delivered a flawless third quarter, Coeur d'Alene Mines (NYSE: CDE  ) is singing in celebration, and Hecla Mining's (NYSE: HL  ) low production costs have made that miner a favorite among Foolish silver enthusiasts. With so many companies delivering exciting results, it's entirely too easy to overlook the considerable strength of Pan American Silver (Nasdaq: PAAS  ) .

Third-quarter numbers from Pan American were no less impressive than those of its (mostly smaller) rivals. With two recently commissioned developments performing beautifully, Pan American achieved: a 31% increase in silver production to a record 6.4 million ounces, a 331% increase in gold production, a 26% cost reduction to $4.91 per payable silver ounce, a 49% bump in revenue to a record $118.6 million, and a 172% increase in net earnings with $17.4 million -- all compared with year-ago numbers.

Thanks in part to robust operating cash flow of $43.3 million, the company's treasury of cash and short-term investments rose to $149.5 million. With mine commissioning complete at Manantial Espejo and the San Vicente expansion, Pan American's capital spending will remain minimal until a production decision is reached for the La Preciosa project about a year from now. That means that continued strength in silver prices is likely to translate into healthy free cash flow to drive shareholder value.

Meanwhile, Pan American awaits the result of its bid for a friendly takeover of Aquiline Resources that would bring another world-class silver mine into the company's fold. With measured and indicated resources of 632 million ounces of silver, Aquiline's Navidad project in Argentina would be "transformational to Pan American's growth profile and have the potential to propel our annual silver production to an entirely new level." With zero debt, working capital of $258 million, and valuable development experience in Argentina, Pan American is well positioned to drive this buried treasure into production.

Your spotlight on silver
Silver has continued to lag gold considerably since I first tagged the metal as a relative bargain some 20 months ago. Is the silver slingshot drawn and ready to fire? Will the iShares Silver Trust (NYSE: SLV  ) outperform the venerable SPDR Gold Shares (NYSE: GLD  ) over the coming years? Please take our Motley Poll and share your comments below.

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 user name TMFSinchiruna. Chris tweets. He owns shares of Coeur d'Alene Mines, Pan American Silver, Hecla Mining, and Silver Wheaton. The Fool owns shares of iShares Silver Trust and has written a strangle on it. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy is 0.999 pure.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 12, 2009, at 11:51 PM, qcw wrote:

    Silver and Gold and the US Dollar are going to do what they are going to do. One thing for sure Silver and Gold will not go to ZERO.

    The US can talk a strong dollar all they want, but that is designed to not having everyone heading for the door at the same time ... an orderly exit is required.

    End of the day, printing money is Inflation, the pun dents can chat all they want about inflation/deflation etc, but in the end, a low dollar and inflation is about the only thing that can help those trillions of borrowed dollars vanish :-)

    So, in the end, Im not worried about the Nominal value of silver or gold or the Dow or the US dollar. I just know that Silver and Gold will buy me more Food and Energy.

    -Q

  • Report this Comment On August 12, 2010, at 3:04 PM, mathgeek2 wrote:

    gcw: "The US can talk a strong dollar all they want, but that is designed to not having everyone heading for the door at the same time ... an orderly exit is required."

    Absolutely... But why go for something that's slightly undervalued (gold) when the "ugly sister metal" is grossly undervalued?

    If the gold and silver analysts who have been correct since their bull markets began in 2001 and 2004 respectively are still right, silver will outperform gold until the silver-to-gold ratio goes back to 20 to 1. Granted, the monetary ratio is about 15.5:1, but starting to get out earlier will let you rake in considerable profit before the risk really gets up there.

    That's why I've got a core 20% of my net worth in silver bullion, along with a much smaller speculative position.

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