Which Silver Miners Look Reasonable at Current Valuations?



Lowest and highest valuation multiples

Of all the stocks we’ve covered in this series, Tahoe Resources (TAHO) is trading at the lowest enterprise-value-to-forward-EBITDA multiple of 3.5x. This multiple also implies a huge discount of 61% 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. At the beginning of September 2018, the Guatemala constitutional court upheld the previous verdict of suspending its license. A favorable resolution could lead to the re-rating of the stock. However, that is not expected to happen until late 2019 now.

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Pan American Silver and Coeur Mining

Coeur Mining (CDE) and Pan American Silver (PAAS) have similar forward multiples of 6.2x and 6.0x, respectively. These multiples imply a discount of 13% and 20% to their historical multiples, respectively. Despite achieving a strong operational performance, CDE has been delivering poor cash flow results, thereby disappointing markets. It would either take higher precious metal prices or lower costs for the company to start reporting higher cash flows.

Valuation catalysts

Hecla Mining (HL) is trading at a higher-than-average multiple of 6.9x, representing a premium of 9.3% 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, as 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.

First Majestic Silver (AG) is trading at the highest multiple of 9.0x, representing a premium of 42% to its peers. It has 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 risen. Its latest acquisition of Primero Mining provided it with a prized asset, the San Dimas mine, which should lead to higher production at lower costs.

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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