Silver shines brighter than gold
Silver outperformed gold in 2016. While gold prices rose 8% in 2016, silver prices (SLV) rose 15%, as silver is usually a levered play on gold prices. Silver has performed slightly better than gold and platinum on a YTD (year-to-date) basis as well. Silver had risen 8.8%, while gold and platinum had risen 7% and 7.4%, respectively, as of March 20. This leverage could work to the downside if gold prices are under prolonged pressure after the Fed’s rate hike.
Silver miners’ 4Q16 results and price performance
The divergence between silver prices and silver miners’ stock prices has continued due to company-specific factors and the leveraged nature of these companies. Most silver miners have fallen YTD. Tahoe Resources (TAHO) had fallen 25% as of March 23, 2017. Coeur Mining (CDE) followed with a fall of 18.7%, while Hecla Mining (HL) and First Majestic Silver (AG) fell 7.6% and 1.9%, respectively. Only Pan American Silver (PAAS) has gained, rising 14.4%.
Tahoe Resources’ (TAHO) stock has been under pressure after it gave disappointing guidance on January 5, 2017. Its guidance was lower than expected for production, whereas its costs and capex were on the higher side. Several analysts cut their target prices for the miner on the weaker-than-expected guidance. In a weak precious metal environment, the miner could come under renewed pressure.
Coeur Mining’s operational leverage is the major reason for its underperformance. In a weaker precious metal price scenario, this stock usually comes under pressure due to its higher costs. To learn more about Coeur Mining’s performance and outlook, please read Going Inside Coeur Mining: Performance, Leverage, Outlook.
Hecla Mining missed its earnings expectations for 4Q16, which led to pressure on its stock price. However, its growth profile looks strong as it has decided to advance its Rock Creek and Montanore mines. These initiatives should provide the company with the next leg of growth as it is also focusing on reducing costs. Pan American Silver beat its 4Q16 forecasts, making it the only silver stock of the five we’re discussing to have gained YTD.
The 4Q16 earnings season is over, and all silver miners have reported their earnings for the quarter. Now it’s time to find out which miners fared better than others. In this series, we’ll look at various factors affecting precious metal miners. The aforementioned five companies make up 37.2% of the Global X Silver Miners ETF (SIL).
We’ll also discuss factors such as cost profiles, cost reduction progression, production growth factors, and debt. Finally, we’ll see how these factors have affected stock performance amid the current metal prices. We’ll see which stocks are more levered to changes in precious metal prices. Let’s start by looking at silver miners’ geographical exposure in the next part of this series.