PanAm Silver chief says size will matter

Scale matters in the gold equities space. It certainly matters increasingly in the silver arena, Pan American Silver’s CEO since 2016, Michael Steinmann, said at the company’s 2026 investor day. “I’m a very firm believer in building stronger, bigger companies in the mining space. The future will require that,” he told the meeting.

Steinmann has led the New York and Toronto-listed silver major through its most significant period of acquisition-led growth and portfolio optimisation, culminating in its current circa-US$20 billion market value and top-tier production, reserve and earnings profile.

Notwithstanding the sector’s precious metals price buoyancy there is ample current evidence to support chief operating officer Scott Campbell’s assertion this week that the “best years of Pan American Silver are yet to come”.

Steinmann and his team outlined their case for sustained expansion of current silver production levels above – well above – this year’s forecast 25-27 million ounces (plus 730,000oz of gold contributing up to 60% of Pan American’s revenues at current prices) at a time when the company is also looking to sustain high capital returns to shareholders.

“We’re looking to continue to grow that [silver production],” Steinmann said.

“Obviously if we could get Escobal back at 21Moz [per annum] we would be the biggest silver producer in the world. We have already the biggest silver reserve. You need the biggest silver reserve if you want to be the biggest producer.

“Already, too, we have the best [equity] correlation to the silver price and I think it’s based on the assets we have, the projects we have and the large reserve base that we hold.”

While there are no guarantees for Escobal in Guatemala – mired in a protracted landowner-led suspension – or at similarly large-scale Navidad in Argentina, waiting on provincial mining law change, Pan American does have in its growth pipeline the major La Colorada Skarn underground project advancing in Zacatecas, Mexico, production upside at Jacobina in Brazil and Timmins in Canada, and now exposure to Juanicipio in what Steinmann calls “the biggest silver producing district on the planet” in Mexico.

Pan American is spending $135 million this year on exploration, mainly brownfield, and has a track record of replacing 65% of the silver it has mined in the past 20 years at an average cost of about 80c/oz (reserves, not resources).

It has equity investments in promising silver plays in Bolivia (via New Pacific Metals) and the broader Timmins Porcupine gold camp in Ontario (Galleon Gold Corp). It has a growing portfolio of gold and other metal royalties on previously owned assets it has shown previously it can successfully monetise.

And it retains a healthy appetite and balance-sheet capacity for M&A that adds more high-margin ounces, potentially allowing it to displace lesser assets in its portfolio and continue to grow free cash generation and investor returns.

Pan American business development senior VP Sam Drier said “transformational M&A” remained a pillar of the company’s growth plans. She described attractive opportunities in the silver space as scarce, saying Pan American wanted to “continue to be opportunistic but really disciplined and [focused on] quality”.

Steinmann said quality meant long-life assets with indicative exploration upside “that make money at way lower metal prices”. Returning to the bigger-is-better thesis, with the qualifier of scale needing to come with sector-leading returns, he said the combination was historically rare. Creating new, high-calibre unions was therefore clearly tricky.

In Pan American’s case other riders were its regional (Americas) and silver-ratio (35-55% silver revenue over time) preferences.

However, Steinmann said consolidation was needed to accelerate silver supply at a rate the world hadn’t ever seen before, at a time of probably unprecedented geopolitical uncertainty and one of structural change in the industry.

“When you look at the industrial demand it’s now 60-or-65% of the silver that is use ... On the industrial side we are in a shortfall now for the next six years,” he said.

“What makes the story so interesting is when you look at mine supply it is not increasing ... because 71% of silver production is a by-product of gold, copper [and] lead-zinc production. We cannot just produce more silver in the world. There is not an abundance of primary silver mines.

“So on the producing side of silver I think we are going to see a flat or declining picture while on the demand side we are obviously going to see an increase.”

Moreover, said Steinmann, mining was not getting any less technically or socioeconomically complicated.

“There’s not a lot of people out there that are successfully doing it,” he said.

“Capital is not scarce right now but it will be again and it’s not easy to build these big assets out over time. The capital numbers will increase substantially because everything is going to go underground. In 20 years we will have probably mined most of the openpits in the world, or at least discovered them, and you’re going to have to build very, very large underground operations like the La Colorado Skarns through very productive mining methods. So a lot of technical knowledge [will be] needed.

“You also can’t just count on shareholders continuously injecting money into this business. I know the exploration business works like that. But it’s getting harder there as well. We as a large company have responsibility to inject money to make sure these projects get discovered and developed for the future.

“The last time we had to go to our shareholders to help build on of our assets was in 2009. I have no intention to go back to our shareholders for financing of a project. I have a firm belief that we generate enough cash to build any size of project.

“And obviously [our preference is] to have better, higher-quality assets that have longer mine life. You can find them in your portfolio. I think it’s amazing that we found a world-class asset at La Colorado. I am a geologist: I’ve never seen that before [where] you just discover a huge deposit below your existing mine.

“When you put that all together it is not possible to continue [on the required] trajectory without M&A.”

On getting the right balance between investing and returning capital, and timing portfolio optimisation moves, Steinmann said Pan American finished the March quarter with c$1.8 billion of cash “and that’s still growing fast”.

“We announced after Q1 that we plan to return $1 billion to our shareholders this year [$305 million in dividends and c$700 million in share buybacks],” he said.

“We are full steam ahead with capital returns [and will] still have far enough cash available to go to all the builds and expansions. I really hope we can do this for many years to come – obviously depending on metal prices.”

The CEO said Pan American was “a proven mine builder” and “not many companies can say that”. Despite a history of political and economic volatility in the region, he believes Latin America is the world’s best address to build sectoral leadership.

“I think it’s important to show you not only know how to operate your mines; you also know how to build them,” he said.

“We see diversification in Latin America as a strength. [Pan American is] not too exposed to any one election cycle or any issue in one of the countries. 

“If you want to have exposure to Latam, which is one of the biggest metal producers on the planet, Pan American is an excellent way to play that exposure.”