Valuation Catalysts Silver Miners Should Watch for in 2018



Lowest and highest valuation multiples

Among the stocks we’ve discussed throughout this series, Tahoe Resources (TAHO) is trading at the lowest forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 4.7x. The stock is trading at a huge discount of 60% to its trailing-five-year average.

Tahoe Resources’ stock price, as well as analysts’ corresponding estimates, took a severe dive after the Guatemalan government’s decision to suspend its Escobal mine license on July 5, 2017. Its valuation multiple has also fallen 27% since July. A favorable resolution to this mining issue could lead to the re-rating of its stock.

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Coeur Mining (CDE), on the other hand, has the highest forward EV-to-EBITDA multiple of 9.6x. Its current multiple implies a 35% premium to its trailing-five-year average. It’s also trading at a premium of 42.4% to the peer average. Its efforts at debt reduction and production growth are helping its multiple.

First Majestic Silver

First Majestic Silver (AG) is trading at an EV-to-EBITDA multiple of 7.6x. This multiple represents a premium of 12.2% to its peers’ average multiple and a discount of ~10% to its trailing-five-year average multiple. On average, the company has lower unit costs than its peers, resulting in the highest margin in its peer group.

Recent issues at its mine have affected AG’s multiple. There have been positive catalysts for its stock, however, including its installation of a roasting circuit, which has the potential to add ~1.5 million ounces of silver to its production.

Valuation catalysts

Hecla Mining (HL) is also trading at a higher-than-average multiple of 7.3x. The company has significantly lowered its financial leverage in the last one to two years. Hecla Mining’s long-term growth outlook also looks strong, as it has started several growth projects in the past few years.

Risk-tolerant investors may want to invest directly in silver miners (SIL) or in leveraged funds such as the ProShares Ultra Silver ETF (AGQ) and the Direxion Daily Gold Miners Bull 3X ETF (NUGT).


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