Silver mining stocks are not exactly known for their dividends. The precious metal they produce has mostly been in free fall since the beginning of the year. These miners have to preserve liquidity in the face of these challenges, so it’s no surprise that only four out of twelve silver stocks listed on American exchanges are currently paying dividends. However, Pan American Silver Corp. (USA) (NASDAQ:PAAS) is yielding a hefty 3.7%. Is it worth your attention?
Sustainability of the Dividend
Pan American Silver Corp. (USA) (NASDAQ:PAAS) finished the second quarter with an adjusted net loss of $9.9 million. Yet the company has paid $18.9 million in dividends to its shareholders this quarter. Is this sustainable? I think so. Pan American Silver Corp. (USA) (NASDAQ:PAAS) had $440 million in cash on its balance sheet at the end of the second quarter. This is more than enough to continue to deliver the dividend while silver prices remain depressed.
The company had to take a one time impairment charge of $185.2 million against the goodwill that arose from the purchase of the Dolores mine in 2012, lowering earnings but not affecting the cash position.
Just like any other company in the sector, Pan American Silver Corp. (USA) (NASDAQ:PAAS) had to take cost-cutting measures. The company has managed to cut the cost of producing a ton of ore by 2% compared to a year ago. However, this was not enough to pull Pan American Silver Corp. (USA) (NASDAQ:PAAS) into profitable territory. The decline in silver prices was just too big. In addition to that, the company has recorded a $9.9 million foreign currency loss on its Canadian dollar bank balances and a $13.2 million writedown on inventory due to lower silver prices.
Other miners are more active on the cost-cutting front. Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) has eliminated 25% of positions in its corporate office. The company also reduced its exploration budget. Silver Standard Resources Inc. (USA) (NASDAQ:SSRI) recorded $221.7 million of impairment changes and writedowns. Most of the impairment was related to the Pirquitas mine in Argentina, and, just as in Pan American’s case, the move was forced by lower silver prices.