Integration Of Juanicipio And La Colorada Skarn Will Shape A Resilient Long Term Outlook

Catalysts

About Pan American Silver

Pan American Silver is a precious metals producer with a portfolio of silver and gold mines and development projects across the Americas.

What are the underlying business or industry changes driving this perspective?

• Integration of Juanicipio, with its low cash costs and contribution to attributable silver production and income, refines the cost base and can support higher segment margins and free cash flow generation.
• Ongoing optimization work at Jacobina, including tailings filtration, paste backfill and plant streamlining, targets operational bottlenecks, which can influence unit costs, recovery rates and ultimately segment earnings.
• The phased development approach at La Colorada Skarn, which combines high grade Skarn zones with the vein mine and shared infrastructure, is designed to moderate upfront capital intensity while seeking to support silver output and project level returns. This in turn can feed into future revenue and cash flow.
• Expanded inferred resources at La Colorada, with an additional 52.7 million ounces of silver, extend the resource base and can support mine life planning and higher throughput. This is relevant for long term revenue visibility and capital allocation.
• The board’s willingness to raise the dividend, together with high liquidity of US$1.7b and attributable free cash flow of US$251.7 million in Q3, supports a capital return framework that is funded from operating cash generation. This directly links to earnings resilience and balance sheet strength.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Pan American Silver's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.6% today to 37.8% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $4.65) by about July 2029, up from $1.3 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.5 billion in earnings, and the most bearish expecting $1.2 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 27.7x on those 2029 earnings, up from 14.7x today. This future PE is greater than the current PE for the US Metals and Mining industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is tying more of its future to La Colorada Skarn and related high grade zones, and any setback in the phased development plan, permitting, partnership negotiations or the planned PEA in Q2 2026 could delay additional production and add capital strain, which would affect revenue growth and future earnings.
• Optimization projects at Jacobina, including tailings filtration, paste backfill and plant streamlining, rely on complex brownfield work that needs careful execution and sequencing. Any cost overrun, delay or lower than expected efficiency gains would weaken the intended reduction in unit costs and could pressure net margins.
• Several gold operations, including Cerro Moro, El Peñon, Timmins and Minera Florida, are already dealing with technical and geotechnical challenges. If these issues last longer than management expects or require more development spending and external contractors, they could raise all in sustaining costs and weigh on segment earnings.
• The long term plan to use filter stack tailings at Jacobina to extend disposal capacity into the mid 2030s depends on successful design, permitting and construction of new facilities. Any regulatory delay or technical shortfall in tailings and paste backfill projects could limit future throughput and constrain revenue and cash flow.
• Base metals are currently a small share of revenue, but management expects that to change once La Colorada Skarn is in production. Any weaker long term pricing for zinc and lead than assumed when planning that project could reduce by product credits and lower overall net margins and earnings from the expanded operation.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$97.14 for Pan American Silver based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$118.35, and the most bearish reporting a price target of just CA$75.93.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $4.2 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 27.7x, assuming you use a discount rate of 7.8%.
• Given the current share price of CA$62.54, the analyst price target of CA$97.14 is 35.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.