Which Silver Miners Look Undervalued?



Silver miners

Silver miners’ price performances in 2017 year-to-date have been quite dismal. Despite silver prices (SLV) rising 7.7% in 2017, silver miners (SIL) have only risen 3.6%. This anomaly is probably due to the industrial attributes of silver playing a larger part than its precious metal attribute.

You can read These Silver Miners’ 2Q17 Earnings Speak Volumes for a detailed discussion on five major silver miners after their 2Q17 earnings.

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Highest multiple: First Majestic Silver

Among the four silver miners we’re looking at in this part of the series, First Majestic Silver (AG) has the highest forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 14.3x. That reflects a premium of 48.0% to its close peers. The stock has seen an upward revision of 41.0% year-to-date. AG has lowered its costs significantly and is on track to achieve its 2017 guidance of $11.96–$12.88 per ounce. There are more positive catalysts for the stock, including the installation of a roasting circuit, which has the potential to add ~1.5 million ounces of silver.

Other silver miners’ valuation catalysts

Hecla Mining’s (HL) valuation multiple is 23.0% higher than the average multiple of its peers. Its multiple has appreciated 19.0% year-to-date. The company lowered its financial leverage significantly in 2016. Also, it’s 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.

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Tahoe Resources (TAHO) is trading at the lowest multiple of 6.0x. That reflects a discount of 37.0% to its peers. Its multiple has fallen significantly in 2017 mainly due to the suspension of its Escobal mine, its flagship mine, by the Guatemalan government. The decision on the mining license will be the biggest catalyst for the stock going forward.

Will CDE continue to trade at a discount?

Coeur Mining is trading at a forward multiple of 8.6x. The lower multiple is likely the result of its higher-than-average all-in sustaining costs and concerns regarding falling production in the medium term. Its costs are also higher than its peers, leading to pressure on its margins. In a weaker precious metals environment, this gap is likely to widen. However, its Rochester expansion could lead to cost reductions and positive free cash flow generation for the company.

Investors who can tolerate high risk often invest in silver miners (SIL) as well as leveraged ETFs such as the ProShares Ultra Silver (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).


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