How gold is helping Pan American Silver to shine

Gold is shining right now, largely due to weak US jobs data and a falling dollar. After breaking the $2,000 per ounce level on Tuesday, the metal’s next move will be decided by what the Fed says and does regarding rates. Pan American Silver is primed to take advantage, following its acquisition of Yamana.

• Pan American Silver acquired Yamana Gold on Monday.
• The price of gold has once again broken above $2,000 per ounce.
• Pan American is the top holding in the VanEck Junior Gold Miners ETF following the Yamana acquisition.

Canadian miner Yamana Gold reported fourth quarter (Q4) 2022 earnings last week ahead of the completion of its acquisition by Pan American Silver [PAAS.TO].

The Toronto-based company swung to a loss of $1.1bn or $1.18 per share from a profit of $109.7m in the year-ago quarter. Adjusted EPS for the final three months of 2022 were $0.07 per share, versus the $0.06 per share expected by analysts polled by Zacks. Revenue of $457.2m was down from $503.8m in the year-ago quarter.

For the full fiscal year, Yamana reported losses totalling $982.3m or $1.02 per share, while revenue was flat year-over-year at $1.8bn.

Novagold [NG] reported after markets closed on Tuesday. Its net losses for the three months to the end of February were $10.7m, versus a loss of $10m in the year-ago quarter.

Shares in Yamana were delisted from the Toronto Stock Exchange and New York Stock Exchange following the merger on 31 March. The Pan American Silver share price is up 17% in the past month and 3.4% in the past week. The Novagold share price is up 14.4% and 6.4% in the respective periods.

Yamana to bolster Pan American’s production

The acquisition of Yamana will see Pan American take control of several key assets, including the Jacobina mining complex in Brazil, the El Peñón and Minera Florida mines in Chile, and the Cerro Moro mine in Argentina.

Yamana’s gold production in 2022 was 894,820 ounces, exceeding guidance expectations of 870,000 ounces. Silver production was 9,201,700 ounces. The assets are forecast to lift Pan American’s annual silver production by 50%, to up to 30 million ounces, and double gold output to 1.2 million ounces, according to an update from the company when it delivered the offer last November.

“This acquisition is transformative for Pan American, significantly increasing the scale of our operations in Latin America where we have been operating for nearly three decades,” said president and CEO Michael Steinmann in a statement. The move is “firmly aligned with our strategy of creating value by pursuing attractive growth opportunities, improving operating margins and extending mine life,” he added.

Novagold is yet to start mining, but its Donlin Gold project in Alaska is “one of the largest, highest-grade, and most prospective known open-pit gold deposits in the world”, with 39 million ounces, the company said in its Q1 2023 earnings release.

The outlook for 2023

Beyond the earnings reports, weak US jobs data is helping gold to shine. The price of the metal broke above the $2,000 per ounce level again on Tuesday. It previously topped that mark in March, after the Fed signalled that it might pause its rate hike to rein in inflation after the collapse of two major US banks.

“We’re in this very positive backdrop for gold in which we have the slowing of economic data along with inflationary pressures remaining elevated,” David Meger, director of metals trading at High Ridge Futures, told Reuters.

Novagold hopes a construction decision on its Donlin Gold project is reached this year. It has plenty of capital to tide it over—it ended Q1 2023 with $116m in cash and term deposits, and is due to receive $25m from Newmont Corporation [NEM] in July. This will keep the company “in a healthy financial position to advance the Donlin Gold project up the value chain”.

Funds in focus: VanEck Junior Gold Miners ETF

The short-term future of the gold price will hinge on what the Fed says and does in terms of its policy and fiscal tightening. But with the central bank appearing to be nearing the end of its rate hike cycle and the US dollar falling, things are looking up for the metal.

The iShares Physical Gold ETC [SGLN] offers exposure to the gold spot price. The fund is up 1.2% in the past week and up 5% in the past month.

The iShares MSCI Global Gold Miners ETF [RING], which holds neither Novagold or Pan American, is up 6% in the past week and has surged 21% in the past month.

Following the Yamana acquisition, Pan American is the top holding in the VanEck Junior Gold Miners ETF [GDXJ] with 7.02% of net assets as of Tuesday. The fund, which has allocated Novagold 1.22% of its portfolio, is up 6.8% in the past week and 20.7% in the past month.