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Understanding the Long-Term Growth Drivers for Silver Miners

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Nov. 20 2020, Updated 3:30 p.m. ET

Long-term sustained 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 rise in exploration and capital expenditure budgets remained one of the key themes of miners’ earnings in 2016. Remember, sustained growth is one of the prerequisites for sustainable outperformance over the long term.

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Focus on exploration sharpening

Coeur Mining (CDE) increased its exploration spending guidance by $8 million from its 2Q16 results to $30 million–$34 million. Although this spending guidance is still less than what the company spent prior to 2013, it’s 82% higher than its 2015 exploration spending.

Approximately 85% of the exploration budget is expected to be allocated to drilling at or near the company’s existing operations. Coeur’s exploration activities have yielded positive results to date. The company’s most active exploration efforts have been at Palmarejo. At the Independencia site, it has achieved encouraging results on definition drilling to help in mine planning.

One of the primary growth drivers for Hecla Mining (HL) is its #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. The company expected to begin commissioning the shaft by the end of 2016. Exploration drilling at its San Sebastian project could also provide an immediate growth option for the company. Its other assets also have strong exploration potential, which could help grow its reserves and extend its mine life.

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Pan American Silver (PAAS) is also 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.

Growth projects

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.

The company’s goal is to achieve more than 20 million ounces of annual silver production. It currently produces ~11 million ounces of silver annually.

Tahoe Resources’ (TAHO) production growth going forward should mainly be driven by the Shahuindo Heap Leach project, which will be ramping up and expanding further in 2018.

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