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 7.2% of the VanEck Vectors Gold Miners ETF (GDX).
Read Silver Miners in 2017: Which Offer the Most Value? for an in-depth analysis of silver miners.
Highest multiple: First Majestic Silver
First Majestic Silver is trading at the highest EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple among its peers at 12.3x. This multiple represents a 37% premium to the group average multiple. AG has lowered its costs significantly and is on track to achieve its 2016 guidance of $11.50–$12.35 per ounce. It also has a strong balance sheet, which should support its future growth.
Moreover, there seem to be positive catalysts for the stock in 2017. These include the installation of a roasting circuit, which could add ~1.5 million ounces of silver to its annual production and could also lead to a fall in costs. These positive catalysts likely warrant the company’s premium valuation.
Other silver miners’ valuation catalysts
Hecla Mining also has a higher-than-average multiple of 11.2x. It has brought down its financial leverage significantly in 2016. It’s also looking to start various growth projects, which should support its long-term growth.
The attractive geographical location of its assets is also a big differentiator for the company. Collectively, these factors likely warrant a premium valuation. Higher-than-expected growth could also lead to the stock’s re-rating in 2017.
Tahoe Resources is trading at a multiple of 6.9x. This discount is likely due to its high geopolitical risk compared to its peers. Its growth profile, however, remains strong.
Will CDE continue to trade at a discount?
Coeur Mining is trading at a forward multiple of 9.0x. This lower multiple is likely the result of its higher-than-average all-in sustaining costs and concerns regarding production falls in the medium term.
As you can see in the chart above, Coeur’s EBITDA margin is higher than only Pan American Silver’s. Their difference is mainly the result of higher costs. In a weaker precious metals environment, this gap is likely to widen.
For a deeper dive into Coeur’s fundamentals, read Can Coeur Mining Continue to Outperform Peers in 2017?