Pan American Silver Corp Stock is Waking Up For a Breakout

The world’s largest silver producer Pan American Silver Corp NASDAQ: PAAS stock has been consolidating for nearly a year setting the stage for a breakout. As the world puts the pandemic in the rear-view mirror as COVID-19 vaccinations accelerate prompting re-openings, inflation fears continues to grow. Shares of Pan American are highly correlated to spot silver prices, which tend to move with gold and other precious metals. Silver itself is used in many industries aside from jewelry. The most common use of silver is in electronics as it has 100% conductivity and the best thermal conductivity, with copper coming in second. It’s used mostly in industrial fabrication which includes everything from fuses, connector contacts, switches, semiconductors to solar panels. The pandemic caused demand to drop, but as the return-to-normal take share, demand for silver should improve especially as the world gets through the semiconductor shortage. With demand expected to rise with re-openings, prudent investors can watch for opportunistic pullback levels to consider entries into this inflation hedge.

Q1 2021 Earnings Release

On May 12, 2021, Pan American released Q1 Fiscal 2021 results for the quarter ending in March 2021. The Company reported earnings per share (EPS) of $0.18 excluding non-recurring items, missing consensus analyst estimates of $0.50, but may not be comparable. Revenues grew 2.7% year-over-year (YoY) to $368.1 million, missing analyst estimates for $459.85 million. Pan American Silver CEO, Michael Steinmann stated, “Q1 was a challenging quarter, as the COVID-19 pandemic continues to grip Latin America, impacting our workforce, communities and operations. At La Colorada, we experienced large inventory build-ups and a blockage of a ventilation project that occurred during commissioning, which reduced Q1 sales and production. These are transitory issues expected to be resolved during the remainder of 2021, with the roll-out of vaccinations in programs across out operating jurisdictions alleviating some of the impact of the pandemic.”

Conference Call Takeaways

CEO Steinmann set the tone, “Most of the zine and lab concentrate we produced at La Colorada in Q1 was not shipped until after the quarter closed, delaying base metal and silver sales… concentrated shipment resumed in early April 2021, and our site inventory levels have returned to normal levels with all of the withheld concentrate from Q1 2021 having been shipped.” He explained the near-term shortfall lowering the bar, “Due to delays in establishing ventilation at La Colorada and our expectation of prolonged shortfalls in workforce deployment at Manantial Espejo, we have revised our silver production forecast for 2021 to a range of between 20.5 million to 22 million ounces from our original guidance of 22.5 million to 24 million ounces.” He continued, “Correspondingly, our estimates for silver segment cash cost was increased to a range of $9.60 to $11.60 per ounce and $14.25 to $15.75 per ounce for all-in sustaining costs from previous guidance of $8.50 to $10 and $12.50 and $14, respectively.” Basically, CEO Steinmann set the bar very low but implied the potential for a rebound with the re-opening. The conference call and the cautionary stance was enough to rattle investors, but the technical patterns tell a different story as the stock chopped initially $36 and $29.50 after the earnings report. However, shares gave be consolidating in a tighter range coinciding inversely with the cryptocurrency crash as silver and precious metals carry something that cryptos don’t, which is intrinsic value.

PAAS Opportunistic Pullback Levels

Using the rifle charts on the monthly and weekly time frames provides a bird’s eye view of the longer-term playing field for PAAS shares. The monthly rifle chart is forming a monthly pup breakout as the flat  5-period moving average (MA) at $32.21 starts to curl back up on the stochastic cross up. The monthly 15-period MA is rising at $30.52 support. The monthly rifle chart peaked out twice at the $39.62 Fibonacci (fib) level but may set-up a breakout if it can squeeze up through the weekly market structure high (MSH) sell trigger at $35.67. The weekly rifle chart has been in a consolidation for near a year as the upper and lower BBs compress (turn inwards) to tighten the trading range. Breakouts (or breakdowns) form after extended periods of BB compression. The daily market structure low (MSL) buy triggered on the breakout through $30.45. Prudent investors can monitor opportunistic pullback levels at the $32.15 fib, $30.45 fib, $28.79  fib, $27.40 fib, $26.30 fib, and the $25.42 fib. The upside trajectories range from the $37.86 fib up towards the $50.77 fib level.