BMO Capital Markets Analyst Matthew Murphy announced in a September 4 research note that his firm was resuming coverage of Pan American Silver Corp. (PAAS:TSX; PAAS:NYSE) after the completion of its acquisition of MAG Silver Corp. (MAG:TSX; MAG:NYSE American).
The inclusion of MAG's Juanicipio asset adds approximately 5 million ounces (Moz) per year of attributable silver production to Pan American's portfolio, representing a roughly 22% increase.
This acquisition is expected to contribute around US$170 million in annual free cash flow at current prices, lower the company's all-in sustaining costs (AISC), and increase silver's share of revenue to about 22% amid strong silver price performance. Murphy raised BMO's target price to CA$45 and maintained its Market Perform rating.
Juanicipio a 'Sensible Add' to Portfolio
Juanicipio's performance in 2024 established it as the largest and lowest-cost primary silver mine globally, Murphy wrote. Its low costs are driven by significant by-product credits, with AISC projected at US$6-8 per ounce this year. Murphy estimated the mine could generate nearly US$100 million in free cash flow in Q4 2025 at current prices, with US$43 million attributable to Pan American, leading to an annualized total nearing US$400 million (US$170 million attributable to Pan American).
Incorporating Juanicipio's production into BMO's model reduces Pan American's estimated 2026 silver AISC from about US$10.50 per ounce to approximately US$9.10 per ounce, the analyst noted. The acquisition adds 58 Moz of attributable silver reserves to Pan American's existing 203 Moz of operating asset reserves, along with an additional 19 Moz of attributable measured and indicated resources and 35 Moz of attributable inferred resources. According to Murphy, the asset holds significant exploration potential, with only 10% of the property explored and the Valdecanas vein system offering further upside.
Ongoing Company Catalysts
Beyond Juanicipio, efforts to advance mine and plant optimization studies continue at Jacobina, and partnership opportunities for the La Colorada Skarn project are being explored, Murphy wrote.
The potential for Escobal to return to production remains uncertain as Pan American addresses concerns raised by the Xinka people.
Attractive Free Cash Flow Yield
Pan American is trading at a 2026/2027 free cash flow yield of 8.5%/11.8% at current prices, compared to gold peers' yields of 7.9%/8.9%, the analyst noted. The company is poised to grow free cash flow consistently through 2028, potentially reaching just under US$2 billion at current spot prices.
Murphy maintained the firm's Market Perform rating and increased his price target to CA$45 per share, which is "based on 1.5x P/NAV (BMO metal prices and 5% discount rate) and 10.0x P/CF (NTM+1) multiples, weighted 50/50%."
He continued, "With insufficient upside to target we resume coverage at Market Perform."
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