Pan American Silver Corp. PAAS has decided to suspend its La Colorada and Dolores mining operations to comply with Mexico’s Ministry of Health mandate to halt non-essential business until Apr 30 on account of the coronavirus pandemic. This follows the suspension of mining operations in Peru, Argentina and Bolivia.
The company has also started to reduce throughput by 10-20% at its Timmins operation in Canada, in order to enhance physical distancing throughout the operation, offices and personnel transport systems.
Mining companies are halting their operations in an attempt to contain spread of the coronavirus outbreak. Metal producers worldwide are temporarily halting their operations and suspending production as several governments are imposing restrictions to combat the spread of coronavirus. These companies are also cutting non-essential travel of office employees to protect them. Many countries have imposed travel and border restrictions, and other measures such as constrained movement and quarantines to limit the spread.
The governments in Peru, Argentina and Bolivia have extended their quarantine periods till Apr 12, 13 and 15 respectively. These quarantine periods might be further extended if any unfavorable situation develops. Notably, so far, there have been no confirmed cases of coronavirus at any of the company’s operations.
Peru is a global mining powerhouse — ranking third in global copper production, second for silver and sixth for gold, and also boasts significant reserves of zinc, lead, iron ore and tin. The country’s mining ministry has allowed the mining sector to carry out critical operations during this period, while maintaining safety, health and environmental conditions. As a result, Newmont Corporation NEM, Freeport-McMoRan Inc. FCX, along with other miners, have halted their operations in the country. Newmont also planned to ramp down operations at Peñasquito mine in Mexico. Apart from this, in Canada, Brazilian miner Vale S.A. VALE is slashing its output in Voisey’s Bay copper mine.
Pan American Silver continues to conduct care and maintenance at its suspended mining operations, in order to sustain safety and environmental systems, while also ensuring operational flexibility so that it can safely resume operations when the government restrictions are lifted. The company’s underground mines have affected by the suspensions and ceased to produce metals during this period, which resulted in limited production at the open pit mines from circulation of process solutions on the heap leach pad.
The company’s strong financial position poises it well to navigate through this turbulent period. It has $120.6 million cash in hand as of Dec 31, 2019. Additionally, the company has credit facility of $500 million till Feb 1, 2023. At Dec 31, 2019, the company withdrew credit facility of $275 million out of which, $15 million was repaid in early of this year. The company has also deferred some capital expenditures and exploration spending in order to provide additional liquidity.
As the coronavirus-led crisis is rapidly evolving, it is difficult for the company to determine the impact on its current-year operating guidance at the moment. It continues to implement measures to protect health and safety of its personnel.
The outbreak has dealt a severe blow to both commodity and stock markets. Silver prices have slumped 22% so far this year, primarily due to the pandemic, which has disrupted global economic activity, in turn weakening consumption of industrial raw materials. The situation has only been aggravated by the fact that silver is already in oversupply.
The company currently carries a Zacks Rank #2 (Buy) and is part of the Mining – Silver industry. Its shares have gained 19.9% over the past year against the industry’s decline of 27.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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