The prospects for the Zacks Mining - Silver industry look bright at the moment on the back of improving silver prices. Industrial demand for the metal is expected to be strong, mainly driven by the ongoing vehicle electrification and the intensifying global focus on green infrastructure. The impending demand-supply imbalance is expected to help elevate silver prices.
We suggest keeping tabs on companies like MAG Silver MAG, Endeavour Silver EXK and Avino Silver Mines ASM, which are poised to benefit from enhanced operational efficiency, disciplined cost management and solid projects.
About the Industry
The Zacks Mining - Silver industry comprises companies that are engaged in the exploration, development and production of silver. These include big and small players operating mines of widely varying types and scales. Silver-bearing ores are mined by open-pit or underground methods, and then crushed and ground. Miners continually look for opportunities to expand their reserves and resources through targeted near-mine exploration and business development. They strive to upgrade and improve the quality of their existing assets, internally and through acquisitions. Only 20% of silver comes from mining activities, wherein silver is the primary revenue source. The balance comes from projects, wherein silver is a by-product of mining other metals, such as copper, lead and zinc. Thus, several companies in the silver mining industry are engaged in mining other metals as well.
What's Shaping the Future of the Mining-Silver Industry
Demand to Remain Strong: Silver demand reached a global record of 1.242 billion ounces in 2022. Industrial demand (nearly half of the total silver demand) rose 5% year over year, jewelry increased 29% and silverware surged 80%. Physical silver investment rose for the fifth consecutive year to a high of 332.9 million ounces, with India reporting a 188% surge. Silver demand is expected to remain solid in India in 2023 as well, as employment and incomes have returned to the pre-pandemic levels. The Silver Institute expects industrial fabrication to peak at an all-time high in 2023, aided by continued gains in photovoltaic (PV) applications, as well as other industrial segments. Industrial demand is expected to grow, as ongoing vehicle electrification, the rising adoption of 5G technologies and the governmental focus on green infrastructure will drive demand. The silver physical investment will continue to be supported by ongoing macroeconomic uncertainties and inflationary pressures. Changes to solar panel technology are accelerating the demand for silver and are expected to make up 14% of silver consumption this year, according to the Silver Institute. The rise will mainly stem from China, as the country is expected to install more panels this year. Solid demand in all key sectors amid tight supply is expected to support silver prices.
Rising Silver Prices Bode Well: Silver prices were around $24 per ounce at the beginning of 2023. The same is currently trending at $24.58 per ounce. Silver has registered a 2.4% gain so far this year, ranging from a low of $19.83 to a high of $26.44. Prices gained earlier this year as the turmoil in the U.S. financial sector prompted investors to flock to safe-haven assets like gold and silver. Solid demand amid expectations of a tight supply will keep prices supported. Last year’s supply-demand gap was a record-high of 253 million ounces. This year, the industry is likely headed for a 99-million-ounce deficit.
Efforts to Combat Inflationary Costs to Aid Margins: The industry players are facing escalating production costs, including electricity, wages, water and materials. Mining companies are major consumers of energy, with around 50% of their production costs closely linked to energy prices. A shortage of skilled workforce spiked wages. With no control over silver prices, the industry must focus on improving its sales volumes, while being cost-effective. Players are investing heavily in R&D and resorting to technological innovations required at almost every level of operation to increase efficiency, sustain growth and rein in costs.
Zacks Industry Rank Indicates Bright Prospects
The group's Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Mining - Silver industry, a nine-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #73, which places it in the top 29% of 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few Mining-Silver stocks that can be retained in one’s portfolio, it is worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Versus Broader Market
The Mining-Silver Industry has underperformed the S&P 500 and its sector over the past year. The stocks in this industry have collectively grown 12.8% in the past year compared with the Zacks S&P 500's rise of 16.8% and the Zacks Basic Material sector’s rally of 20.7%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing silver-mining companies, we see that the industry is currently trading at 5.55X compared with the S&P 500's 11.64X and the Basic Material sector's forward 12-month EV/EBITDA of 6.67X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the past five years, the industry has traded as high as 16.58X and as low as 5.32X, with the median being 8.14X.
3 Mining-Silver Stocks to Bet on
Endeavour Silver: The company recently announced that it produced 2.3 million silver equivalent ounces in the second quarter of 2023, which was 9.5% higher year over year. Consolidated silver production was up 10% year over year, aided by increased silver production at the Guanacevi mine. Gold production rose 6% year over year, driven by increased throughput at the Guanacevi and Bolanitos mines. Supported by its performance so far in 2023, the company anticipates 8.6-9.5 million silver-equivalent ounces for the year. Improved grades at Guanacevi are expected to boost production. The company recently provided a construction update for its Terronera Project in Jalisco state, Mexico. Per EXK, construction progress is 30% complete and initial ore access is expected in the first quarter of 2024. The mine is expected to double the company’s production. High grade and low costs make the project attractive. The company’s shares have gained 5.4% in a year.
The Zacks Consensus Estimate for Endeavour Silver’s fiscal 2023 earnings suggests year-over-year growth of 275%. The consensus mark has moved up 25% over the past 90 days. EXK currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: EXK
Avino Silver Mines: The company recently announced that its silver-equivalent production was 1265,564 ounces in the first half of 2023, which marked a 14% increase from the last year. The silver output was up 20%, while gold surged 77%. ASM stated that output at the Avino mine recently had been impacted by mining in lower-grade areas and certain mill equipment delivery delays, which are not expected to hurt production henceforth. The company has been implementing upgrades to the haulage ramp, which have helped it outperform the original underground maximum haulage rates. With these upgrades, ASM expects production to pick up in the second half of the year. Also, the company announced the results of three holes from below Level 17, the current deepest workings at the Elena Tolosa (“ET”) area of the Avino system. This mineralized intercept is exceptionally wide, has high silver, gold and copper grades, and is deemed to be the best drill intercept in the company history at the Avino mine. Backed by these developments, ASM shares have gained 21.7% in the past year.
The Zacks Consensus Estimate for this Vancouver, Canada-based player’s 2023 earnings has moved up 17% over the past 90 days. ASM currently carries a Zacks Rank of 2 (Buy).
Price & Consensus: ASM
MAG Silver: MAG’s principal asset is the high-margin underground silver project Juanicipio located in Zacatecas, Mexico, in which it has 44% interest, with the remaining 56% helld by Fresnillo Plc (FNLPF). The Juanicipio project achieved commercial production on Jun 1, 2023, which is a milestone for the company as it marks its transition from a developer to a producer. As reported to Fresnillo, 377,018 tons of mineralized material was processed through the Juanicipio, Saucito and Fresnillo plants in the second quarter at an average silver head grade of 498 grams per ton. Total production for the quarter totaled 5,275 thousand silver ounces, 10,639 gold ounces, 3,402 tons of lead and 5,418 tons of zinc. Production increased sequentially for all metals, led by silver, which surged 134% sequentially. The Juanicipio mill is currently operating at roughly 85% of its 4,000-ton-per-day design capacity, with silver recovery consistently surpassing 88%. MAG anticipates the production to steadily increase through the third quarter of 2023, when the plant will operate at full capacity.
The Zacks Consensus Estimate for this Vancouver, Canada-based player’s 2023 earnings indicates 339% growth from the year-ago reported figure. MAG currently carries a Zacks Rank of 2.
Price & Consensus: MAG
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