PAAS Vs AG: Which Silver Mining Stock Shines Brighter in 2025?

Pan American Silver (PAAS) and First Majestic Silver (AG) are benefiting from rising silver and gold prices, with the Zacks Mining - Silver industry up 34.9% year-to-date. PAAS is acquiring MAG Silver Corp for $2.1 billion to expand its resource base, while AG completed the acquisition of Gatos Silver. Despite both stocks holding a Zacks Rank #3 (Hold), Pan American Silver appears to be a more compelling investment choice given its higher dividend yield, positive earnings estimate revisions, and attractive valuation.

Analysis

The silver mining sector is experiencing significant tailwinds, evidenced by a 28% year-to-date increase in silver prices and a 29% rise in gold prices, driven by safe-haven demand, geopolitical tensions, trade conflicts, resilient industrial demand, and projected supply deficits for the fifth consecutive year in 2025 (117.6 million ounces). This environment has propelled the Zacks Mining - Silver industry up 34.9% year-to-date, substantially outperforming the S&P 500's 1.2% gain. Pan American Silver (PAAS) and First Majestic Silver (AG) are key beneficiaries. PAAS reported a 28.6% year-over-year revenue increase to $773 million in Q1, with record mine operating earnings of $250.8 million and $112.6 million in free cash flow, driven by higher metal prices and lower costs; its Silver Segment AISC decreased to $13.94 per ounce from $16.63. PAAS is expanding through the $2.1 billion acquisition of MAG Silver, adding 58 million ounces to its mineral reserves (468 million ounces silver, 6.7 million ounces gold as of June 30, 2024) and aiming to lower costs. The company is on track for its 2025 guidance of 20-21 million ounces of silver and 735,000-800,000 ounces of gold. First Majestic Silver (AG) also saw record Q1 revenues of $243.9 million, up 130% year-over-year, largely due to the Gatos Silver acquisition which contributed 1.4 million ounces to its silver production, and higher silver prices. AG's total Q1 production reached 7.7 million silver-equivalent ounces, a 49% year-over-year increase. However, AG's total mine operating costs rose 69% year-over-year in the quarter, and its consolidated AISC was $19.24 per AgEq ounce, higher than PAAS's silver AISC. While both companies have expansion plans and benefit from market conditions, PAAS demonstrates stronger current year earnings estimate revisions (Zacks Consensus for 2025 at $1.47, up 86.1% YoY), a more attractive valuation with a forward P/S of 3.39X (versus AG's 4.48X and industry's 4.06X), a higher dividend yield (1.38% vs AG's 0.22%), and greater analyst price target upside (average 9% vs AG's -2%). Zacks assigns PAAS a VGM Score of A, while AG has a C, despite both holding a Zacks Rank #3 (Hold).

Key Decisions for Investors

• Given the strong commodity price environment and ongoing supply deficits, investors should consider the silver mining sector for potential upside, with Pan American Silver (PAAS) presenting a more compelling case based on its recent financial performance, lower AISC, positive earnings revisions, and more attractive valuation metrics compared to First Majestic Silver (AG).
• Investors in PAAS should monitor the integration of MAG Silver, focusing on its impact on production costs and output, as well as the company's ability to meet its 2025 production guidance, particularly the anticipated ramp-up in the second half of the year.
• For First Majestic Silver (AG), investors should exercise caution due to its higher relative valuation, the significant 69% year-over-year increase in Q1 mine operating costs, and downward trending earnings estimates for 2025 and 2026, despite its strong revenue and production growth.
• Despite both stocks having a 'Hold' rating, PAAS offers a better risk-reward profile based on its higher dividend yield, superior stock performance year-to-date (+40% vs AG's +30.7%), and more favorable analyst price targets, suggesting it may be a preferred choice for exposure to the silver sector's current momentum.