Comparing Silver Miners’ Valuation




The EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple is a good measure for capital-intensive industries because it helps investors compare companies with various capital structures.

The chart above compares silver miners’ EV-to-forward-EBITDA multiples to their EBITDA margins in 2017. Remember, EV refers to the total market value of a company’s debt, equity, preferred shares, and minority interests (net cash, equivalents, and investments in associates).

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Is Coeur Mining cheap?

Coeur Mining (CDE) is trading at a forward EV-to-EBITDA of 5.7x, which is the lowest in its peer group (SIL). The lower multiple is probably due to its higher-than-average all-in sustaining costs and higher financial leverage.

As you can see in the above chart, Coeur’s EBITDA margin is only higher than Pan American Silver’s (PAAS). The difference is mainly due to higher costs, which result in a lower valuation multiple. In a weak precious metal environment, that gap is likely to persist.

Highest multiple: First Majestic Silver

First Majestic Silver (AG) is trading at the highest multiple in the peer group we’re looking at, at 10.3x. This multiple represents a 24% premium to the group average. First Majestic Silver has lowered its costs significantly. 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 lower costs. These positive catalysts warrant the company’s premium valuation.

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Other silver miners’ valuation catalysts

Hecla Mining (HL) also has a higher-than-average multiple, with 9.7x. It 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 warrant its premium valuation. Higher-than-expected growth could also lead to the stock being re-rated in 2017.

Tahoe Resources (TAHO) is trading at a multiple of 6.5x. This discount is likely due to its high geopolitical risk compared with peers. Its growth profile, however, remains strong. Investors with an appetite for high risk often invest in silver miners (SIL) and leveraged funds such as the ProShares Ultra Silver ETF (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).


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