TORONTO Pan American Silver Corp, (PAA.TO) said on Thursday it plans to focus on funneling excess cash directly to shareholders, helping to drive its shares up more than 6 percent a day after it said it was more than doubling its quarterly dividend.
The increased dividend payout may have softened the fourth-quarter loss that Pan American reported late on Wednesday, reflecting an impairment charge to write down part of the value of its Navidad project in Argentina.
The silver miner shelved the project last year as business conditions in the country deteriorated. With its existing mines generating strong cash flows and no new projects to build right now, the company boosted its dividend by 150 percent to 12.5 cents, up from 5 cents.
The new dividend reflects a 3.2 percent yield on Pan American's Wednesday's closing share price and could prompt return-hungry investors to gravitate to the stock, BMO Capital Markets analyst Andrew Kaip said in a note to clients on Thursday.
"However, BMO Research believes the increased dividend policy, combined with impairment charge for Navidad, signals a stalled growth strategy and continued dependence on high-cost mines," he wrote.
Capital costs have soared in the mining industry, prompting many miners to defer expensive and risky new projects. At the same time, shareholders are demanding companies return more cash flows to them, rather than pump funds into costly new builds.
Despite the $100 million writedown at Navidad, Pan American said it remains committed to eventually developing the project, which is one of the world's largest untapped silver deposits.
With seven operating mines generating strong cash flows, and no major development plans, the company has more than enough cash to fund its current capital needs, Chief Executive Geoff Burns said on a conference call with investors.
"On that backdrop, it only makes sense to increase the distribution directly to our shareholders," he said. "Going forward we are going to continue to focus on directly distributing excess cash to our shareholders."
Pan American raised its quarterly dividend by 150 percent to 12.5 cents, up from 5 cents a share. The Vancouver-based company also repurchased some 598,000 shares in the quarter under its normal course issuer bid.
The miner posted a net loss of $29.4 million, or 19 cents a share, in the quarter ended December 31. That compared with a profit of $95.5 million, or 89 cents a share, in the year-ago period.
Adjusted to remove one-time items, including the Navidad impairment charge, earnings were $55.8 million, or 37 cents a share, in line with the average analyst estimate of 37 cents a share, according to Thomson Reuters I/B/E/S.
Revenue rose 16 percent to $247.3 million on higher silver and gold production.
Shares rose 6.11 percent to C$16.85 on Thursday afternoon on the Toronto Stock Exchange.
With no major construction projects on the horizon, Pan American is planning just $157 million in capital spending in 2013, with the bulk going to sustaining capital for its existing mines.
The company is exploring possible expansions at two of its mines in Mexico, Dolores and La Colorada, with a study on the La Colorada expansion expected to be completed this year.
Pan American produced 6.9 million ounces of silver in the fourth quarter, an increase of 29 percent over the same quarter of 2011, and 32,400 ounces of gold, a boost of 88 percent.
The company, which owns mines throughout the Americas, produced some 25.1 million ounces of silver in full-year 2012 and expects to produce 25 million to 26 million silver ounces in 2013.
(Reporting by Julie Gordon; editing by Matthew Lewis and Leslie Adler)