Silver is valued both as an industrial metal and a precious metal. Many investors use it as a haven in times of economic and stock market uncertainties and as a hedge against inflation. Consequently, silver had a solid run in 2020, delivering more than 48% returns, its best since 2010. In fact, the white metal’s run surpassed gold’s 24.6% rally in the same period.
Silver is particularly hot currently because of the growing green revolution. The metal plays a diversified role in modern technologies, with applications in rechargeable batteries and solar energy panels. Moreover, silver’s use in5G-infrastructure, artificial intelligence (AI), and electric vehicles should help drive strong demand. According to the Silver Institute, about 50% of the world’s silver supply is used for industrial purposes. Hence, as the manufacturing sector resumes production this year, with rising demand, silver should gain even more traction.
Also, the demand for the precious metal as a safe-haven asset will probably not decrease this year because the stock market is expected to remain volatile with continued concerns over the spread of COVID-19, particularly the new strain.
So, we think it could be a good idea to bet on silver mining stocks like Pan American Silver Corp. (PAAS), First Majestic Silver Corp. (AG) and Americas Silver Corporation (USAS) that will likely benefit directly from the metal’s bull run. Let us take a closer look.
Pan American Silver Corp. (PAAS)
As the world’s second largest primary silver producer with the largest silver reserve base globally, PAAS engages in the exploration, development, extraction, processing, refining, and reclamation of silver mines in Canada, Mexico, Peru, Argentina, and Bolivia. The company also produces and sells gold, zinc, lead, and copper.
The majority of PAAS’ silver is extracted from its La Colorada mine in Mexico. In August 2020, the company announced that exploration drilling, in a span of 18 months, led to an increased inferred mineral resource estimate for the skarn deposit of 100.4 million tons, containing an estimated 141.0 million ounces of silver, implying a 38% increase from its previous estimate.
PAAS produced 4.1 million attributable ounces of silver in the third quarter of 2020. Revenue for the quarter declined 17% year-over-year to $300.4 million, primarily reflecting lower quantities of metal sold, partially offset by strong precious metal prices. However, mine operating earnings came in at $124.6 million, surging 95% year-over-year. PAAS reported an adjusted EPS of $0.34, which was relatively stable compared to the year-ago value.
PAAS is benefiting from low operating costs and strong precious metal prices and, consequently, has gained nearly 63% in the past year. Moreover, analysts expect PAAS’ current year revenue and EPS to grow 58.8% and 182.6%, respectively.
How does PAAS stack up for the POWR Ratings?
A for Peer Grade
A for Buy & Hold Grade
A for Overall POWR Rating.
It is also ranked #1 of 15 stocks in the Miners – Silver industry.
First Majestic Silver Corp. (AG)
AG engages in the acquisition, exploration, development, and production of mineral properties with a focus on silver production in Mexico. The company operates the San Dimas Silver/Gold Mine that comprises 119 concessions in Durango; the Santa Elena Silver/Gold Mine consists of 17 concessions in Sonora, and La Encantada Silver Mine comprises 22 concessions in Coahuila.
AG recently adopted a dividend policy under which it intends to pay quarterly dividends of 1% of its net revenues beginning after the completion of the first quarter of 2021. This signifies the company’s belief in generating strong and sustainable cash flows going forward.
In the third quarter, AG achieved record quarterly revenues of $125.9 million, representing a 30% year-over-year increase. Total production hit 5.2 million silver equivalent ounces, consisting of 3.2 million ounces of silver,contributed primarily by high mining rates at the La Encantada and San Dimas mines. Mine operating earnings were $48 million, growing 73% due to higher metal prices and the sale of stockpiled inventory. Its adjusted EPS came in at $0.24, rising 43% year-over-year.
AG is benefitting from higher commodity prices through agile management and operational efficiency. Consequently, the stock has gained 17.2% in the past year. AG’s focus on technological innovation has lowered its cost of production and driven efficiencies. AG’s management expects higher milling rates going forward this year and expects to see higher grades especially from its Santa Elena mine.
AG is rated “Strong Buy” in our POWR Ratings system, consistent with its strong momentum. It also holds an “A” in Trade Grade and Buy & Hold Grade. It is ranked #2 of 15 stocks in the Miners – Silver industry.
Americas Silver Corporation (USAS)
USAS engages in the acquisition, evaluation, exploration, development, and operation of precious and polymetallic mineral properties in North America. The company explores for silver, lead, zinc, copper, and gold deposits. It holds 100% interests in the Cosalá Operations consisting of 67 mining concessions in Mexico and manages the 60%-owned Galena Complex in Idaho. Additionally, it owns the Relief Canyon mine located in Nevada.
USAS recently announced that its Galena Complex mine had a strong finish to the year with fourth quarter production of approximately 295,000 ounces of silver. The company is also in the middle of a recapitalization plan at the Galena Complex, and recently reported continued strong drilling results from its Phase 1 drilling program.
For the third quarter, USAS reported revenue of $7.3 million, rising nearly 60% sequentially. Silver contributed more than $5 million to its top-line, as silver production from the Galena Complex mine increased by 25% year-over-year during the quarter because of the recapitalization plan. However, USAS did report a loss of $0.05 per share. But that represented a significant improvement from the year-ago loss of $0.11 per share.
With continued strong silver prices, USAS has gained 8.6% in the past year. The company is targeting a production increase at the Galena Complex, in a range of 1.8 to 2 million ounces of silver per year in 2022, by replacing the Galena hoist. Moreover, the company’s newest asset, the Relief Canyon mine, is expected to ramp up to full production over the course of 2021.
It is no surprise that USAS is rated “Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, and a “B” for Buy & Hold Grade. It is ranked #8 of 15 stocks in the same industry.
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PAAS shares were trading at $35.64 per share on Friday afternoon, down $2.66 (-6.95%). Year-to-date, PAAS has gained 3.27%, versus a 1.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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