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Which Silver Miners Look Primed for a Rebound after a Dry Spell?

Anuradha Garg - Author

Nov. 12 2018, Updated 11:10 a.m. ET

Lowest valuation multiple

Of all the major silver stocks (SIL), Tahoe Resources (TAHO) is trading at the lowest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 3.3x, implying a huge discount of 61% to its trailing-five-year average and a discount of 45% to the peer 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, the Guatemalan constitutional court upheld the previous verdict of suspending its license. A favorable resolution could lead to the rerating of the stock. However, that’s not expected to happen until late 2019.

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Next comes Hecla Mining (HL) with a multiple of 5.8x, representing a discount of 4.5% to its peers. While the company reported a beat in its second-quarter earnings, its third-quarter earnings came in below analysts’ expectations. The company’s Lucky Friday mine strike has been going on for 19 months now.

Investors are also concerned about the decelerating production profile of Hecla’s San Sebastian mine, which could lead to a significant reduction in cash flows as well. The resolution of issues at its Lucky Friday mine could lead to a significant rerating of the stock.

Pan American Silver and Coeur Mining

Pan American Silver (PAAS) has a forward multiple of 6.1x, and Coeur Mining (CDE) is trading at forward multiple of 6.4x. There are ongoing issues at Pan American Silver’s mines in Mexico, but analysts seem to like the stock thanks to its strong financial position, improving operational performance, and lower costs.

Despite achieving a strong operational performance, CDE has been delivering poor cash flow results, thereby disappointing markets. It would take either higher precious metals prices or lower costs for the company to start reporting higher cash flows. The company is expected to reduce its per-unit costs after 2018 as its Wharf mine enters the high-grade area and Palmarejo’s production ramps up.

Valuation catalysts

First Majestic Silver (AG) is trading at the highest multiple of 8.8x, representing a premium of 45% 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.

You can read How Do Analysts rate Silver Miners? for more on analysts’ sentiments and estimates for silver miners.

Risk-tolerant investors may be interested in investing directly in silver miners 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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