Can Pan American Silver Beat Out Hecla Mining and Coeur Mining?

Pan American Silver (PAAS -1.43%) will release its quarterly report on Thursday, and with silver prices having stubbornly remained low, few investors expect very encouraging news from the silver miner. Indeed, with rivals Coeur Mining (CDE -0.39%) and Hecla Mining (HL -1.60%) both having had challenges of their own, Pan American Silver investors largely hope simply that the company will be able to stay ahead of its competitors in a tough environment industrywide.

Like the rest of the mining industry, Pan American Silver got crushed when silver prices plunged, falling below the $20-per-ounce mark at one point and sending the iShares Silver Trust (SLV 0.12%) to its lowest levels in years. In addition, mining companies were already facing higher labor costs and other challenges to their businesses, making the price collapse particularly ill-timed. How will Pan American beat out Coeur, Hecla, and its other miners to make the most of the situation? Let's take an early look at what's been happening with Pan American Silver over the past quarter and what we're likely to see in its report.

Stats on Pan American Silver

Source: Yahoo! Finance.

How can Pan American Silver recover?
Analysts have adjusted their views on Pan American's earnings in both directions recently, but overall, they've boosted their projections slightly, with about a 10% gain expected in 2014. The stock has continued to fall, dropping another 18% since early August.

Pan American came into the quarter on an ugly note, badly missing estimates for its second-quarter earnings. The big drop in bullion prices really hurt the miner, leading to losses even on an adjusted basis. Yet production also dropped slightly, with drops in ounces produced at its Manantial Espejo and Dolores mines playing a major role in the drop.

Still, one benefit of Pan American is that its cash costs are lower than that of many of its competitors. The sub-$10 cost that silver streamer Silver Wheaton (WPM 0.95%) boasts isn't a fair comparison against a pure mining company, but when you compare Pan American to Hecla and Coeur, you'll find that Pan American's all-in sustaining costs are quite a bit lower than those of its peers. The company took a big impairment on its Dolores mine purchase back in August and might not reap the even lower-cost benefits of that mine, but still, Pan American seems to be on the right road to making the most of its resources.

Perhaps the most troubling news from Pan American came when it announced it had started a hedging program for about 20% of its gold and silver production. Locking in silver prices around $20 and gold at about $1,325, Pan American clearly didn't see bullion prices rising in the near future. Yet when investors took the hedges as a sign of weakness, Pan American CEO Geoff Burns quickly reversed the hedges. Hecla has gone even further, saying that it has started hedging all of its metals production to some extent.

In the Pan American earnings report, watch closely to see what the company does with its dividend. Given all the cost-cutting activity it has done, Pan American could be forgiven for eliminating a payout yielding 5%. But one could have said the same thing last quarter, yet Pan American's stubbornness in sustaining its payout might signal a desire to do so again this time around, continuing a key advantage over Hecla and Coeur.

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