Precious metals miners with substantial exposures to silver are usually classified as silver miners. Tahoe Resources (TAHO), Coeur Mining (CDE), Hecla Mining (HL), Pan American Silver (PAAS), and First Majestic Silver (AG) make up 6.1% of the VanEck Vectors Gold Miners ETF (GDX).
Silver outperforms gold
This group has also shown a significant correlation to gold prices, at 0.86 from the start of 2013 to September 21, 2016. It’s worth noting that silver prices have a strong correlation to gold prices. Gold’s YTD (year-to-date) correlation with silver as of September 21 has also been high at 0.91.
Notably, silver has outperformed gold YTD. While gold prices have risen 24%, silver prices (SLV) have risen 43%. This is mainly because silver is usually a levered play on gold prices.
Coeur outperforms significantly
The divergence between silver prices and silver miners’ stock prices, however, has continued due to company-specific factors and the leveraged nature of these companies. Coeur has significantly outperformed its peers, rising 438% YTD as of September 21.
Coeur is highly leveraged operationally compared to its closest peers. It’s a high-cost operator, and its operational leverage is the major reason for its outperformance. Following months of precious metals price gains, the company’s fundamentals have started to improve.
To learn more about Coeur’s outperformance and outlook, read, Could Coeur Mining’s Impressive Upward Climb Continue?
First Majestic Silver (AG) has also returned a handsome 270% YTD. By comparison, Pan American Silver (PAAS), Hecla Mining (HL), and Tahoe Resources (TAHO) have risen 173%, 221%, and 61%, respectively.
Coeur and First Majestic are highly leveraged operationally compared to their closest peers. They’re also relatively high-cost operators, which can lead to disproportionate gains. Coeur took the hardest hit in 2015 when silver prices fell 12.4%. It underperformed its peers, falling 51.5%.
Currently, silver is a good way of playing gold’s leverage to an upside. However, investors looking for a long-term, high-quality company could also look at Tahoe Resources. While its leverages to gold and silver prices are low, it has strong fundamentals.
Read Silver Miners: Which Stocks Could Offer Upside Potential? for an in-depth discussion on these silver miners.
Note here that the ProShares Ultra Silver ETF (AGQ) is another way of getting leveraged exposure to silver prices for risk-tolerant investors. AGQ has risen 90% YTD as of September 21.
In the next and final part, we’ll take a look at what’s driving South African precious metals miners.