Long-term production growth
After years of cutting back on sustained capital expenditure, silver miners (SIL)—like their gold mining peers—have started to refocus on production growth as precious metal prices (GLD)(SLV) remain buoyant in 2016. The increase in exploration and capital expenditure budgets remained one of the key themes of miners’ earnings in 2Q16. Sustained growth is one of the prerequisites for sustainable outperformance over the long term.
Upside from exploration
Coeur Mining (CDE) has increased its exploration spending guidance by $8 million. In its 2Q16 earnings call, Coeur Mining said that about half of the increased exploration guidance, ~$4 million, will be expensed for exploration. The company will try to use this total to try to add new resources at Kensington and Palmarejo in high-probability areas. It will also use this amount to fund early-stage exploration programs on properties in Nevada and Mexico. The company also has development stage assets, including Le Preciosa and Joaquin, which it could develop over the long term to extend its assets’ mine life. Coeur has the ability to create value through exploration over the medium to long term.
One of the primary growth drivers for Hecla Mining (HL) is the #4 shaft at Lucky Friday. It could increase output from the current 3 million ounces to 5 million ounces and also extend the mine life beyond 2030. In keeping with its peers, Hecla also increased its exploration budget from $15 million to $19 million. The increase is mainly allocated to San Sebastian. Its other assets also have strong exploration potential, which could help grow its reserves and extend its mine life.
Pan American Silver (PAAS) increased its exploration budget from $10.5 million to $14.5 million. It’s involved in mine expansion projects at La Colorada and Dolores, which are on time and on budget. The company’s production is expected to be relatively flat over the next few years as these expansions will only be able to offset the decline at Alamo Dorado and Manantial Espejo.
First Majestic Silver (AG) increased its capital expenditure budget by $21 million to expand underground development and exploration programs at La Encantada, La Guitarra, and Plomosas. These exploration programs should drive the company’s future production growth.
Tahoe Resources’ (TAHO) production growth going forward should mainly be driven by the Shahuindo heap leach, which will be ramping up and expanding further in 2018.