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Inside Silver Miners’ Financial Leverage after 3Q16


Nov. 20 2020, Updated 5:25 p.m. ET

Leverage ratios

Investors in the precious metal mining industry need to know a company’s debt levels. High debt can strain a company’s credit rating. It’s important to note that during an industry downturn, companies with higher leverage usually underperform.

If metal prices recover, however, companies with higher leverage ratios can generally outperform those with lower leverages. This trend has been the case for silver miners since the start of 2016. Highly leveraged miner Coeur Mining (CDE), for example, has outperformed its less leveraged peers.

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The highest financial leverage

While Coeur’s management has been trying to reduce its debt during the past year, its financial leverage is still among the highest in the industry. It has a high debt-to-equity ratio of 64% as compared to the below peers:

  • Hecla Mining (HL): 35%
  • First Majestic Silver (AG): 9.2%
  • Pan American Silver (PAAS): 34%
  • Tahoe Resources (TAHO): 2.1%

Coeur’s debt-to-assets ratio also shows a similar trend. While most silver producers have been significantly deleveraged over the past several months, Hecla Mining (HL) has been slow to deleverage.

Beginning of financial indebtedness

Poor acquisition decisions at the peak of the cycle have led to debt escalation for companies such as Barrick Gold (ABX), Newmont Mining (NEM), Kinross Gold (KGC), and Coeur. Remember, companies with the strongest balance sheets can weather weakness longer than their highly leveraged peers.

Notably, Goldcorp and Newmont make up 13.4% of the VanEck Vectors Gold Miners ETF (GDX). The iShares Silver Trust ETF (SLV) is a good way to gain exposure to spot silver prices.

In the next part of this series, we’ll look at silver mining companies’ cash holdings and their near-term and long-term needs.


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