Valuation Catalysts for Silver Miners in 2018 and Beyond

Lowest and highest valuation multiples

Among the stocks we’ve covered in this series, Tahoe Resources (TAHO) is trading at the lowest enterprise-value-to-forward-EBITDA multiple of 4.4x. That multiple also implies a huge discount of 80% to its trailing-five-year average. Its stock price, analysts’ estimates, and its multiple took a severe hit after the Guatemalan government’s decision to suspend its Escobal mine license in July 2017.

Valuation Catalysts for Silver Miners in 2018 and Beyond

Its valuation multiple has also fallen~40% since July. A favorable resolution to this mining issue could lead to a re-rating of the stock.

First Majestic Silver and Coeur Mining

Coeur Mining (CDE) and First Majestic Silver (AG) have the same forward multiples of 7.9x. While CDE’s multiple suggests a premium of 10% to its historic multiple, AG’s multiple implies a discount of 4.4%. CDE’s efforts at debt reduction and production growth are helping its multiple.

First Majestic Silver (AG), on the other hand, has average lower unit costs than its peers, resulting in one of the highest margins in its peer group. Since its recent investments have started to generate value, its valuation multiple has also gained.

Valuation catalysts

Hecla Mining (HL) is trading at a higher-than-average multiple of 7.1x, representing a premium of 1.4% to its peers. It has significantly lowered its financial leverage in the last one to two years. Its long-term growth outlook also looks strong since it has started several growth projects in the past few years. The resolution of issues at its Lucky Friday mine could lead to a significant re-rating of the stock.

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).