Pan American Silver shares fall as profit drops

Wed Aug 15, 2012 11:29am EDT

* Q2 profit drops 61 percent on lower metal prices

* Earnings miss analyst estimates

* Company slows development at Navidad in Argentina

* Shares retreat 3.55 percent to C$14.66

TORONTO, Aug 15 (Reuters) - Shares of Pan American Silver Corp fell more than 3 percent on Wednesday, the day after the miner reported a 61 percent drop in quarterly earnings on lower realized silver prices, missing analyst expectations.

Shares dropped 3.55 percent to C$14.66 on Wednesday morning on the Toronto Stock Exchange as second-quarter net earnings fell to $44 million, or 29 cents a share, compared with $113.5 million, or $1.04 a share, in the year-earlier period.

Adjusted to remove one-time items, earnings were $17.1 million, or 11 cents a share, in the quarter ended June 30. That was well below the average analyst expectation of 32 cents a share, according to Thompson Reuters I/B/E/S.

Pan American also said it slowing development efforts at its massive Navidad silver mine in the Chubut province of Argentina until a new provincial mining law is passed and the economic impacts of the legislation can be measured.

While the legislation proposed in July would allow the open-pit project to proceed, it boosts provincial royalties and imposes government involvement in mining projects, making the project uneconomical, the miner said.

"Without a clear potential for positive economic returns, it is impossible to justify further investment in this world-class silver development project," the company said in a statement.

While no firm decision has been made on Navidad, RBC Capital Markets analyst Dan Rollins highlighted the growing uncertainty around the project in a note to clients.

"The company has not written down the project yet, but we highlight the risk that Pan American may write off a portion of $560 million carrying value if the legislation is not amended," he said.

Pan American's revenue fell 13 percent to $200.6 million in the quarter as its realized silver price dropped 23 percent to $29.53 an ounce. Costs, meanwhile, rose 29 percent to $11.85 an ounce.

The Vancouver-based miner said it is boosting its quarterly dividend by 33 percent to 5 cents a share.

Pan American, which owns projects in Mexico, Peru, Argentina and Bolivia, produced 6.4 million ounces of silver and 32,244 ounces of gold in the quarter.