4 Silver Mining Stocks to Watch Amid Industry Challenges
In 2023, silver prices witnessed a 1% decline amid rising interest rates, a stronger dollar and diminished industrial demand. This, in turn, impacted the Zacks Mining - Silver industry’s performance. The combination of positive U.S. economic data, reduced expectations of immediate monetary easing by the Federal Reserve and apprehensions about China's economic condition further contributed to the downward pressure on silver prices this year.
Amid this scenario, we suggest companies like Pan American Silver PAAS, Hecla Mining HL, Vizsla Silver Corp. VZLA 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.
What's Shaping the Future of the Mining-Silver Industry
The Volatility in Prices is Concerning: Throughout 2023, silver exhibited fluctuations, ranging from a low of $19.83 per ounce to a high of $26.44 per ounce, with an average price of $23.54 in 2023. Although silver found support on safe-haven demand stemming from the banking crisis earlier in the year and the Israel-Hamas conflict later on, higher interest rates, along with a strong dollar, kept silver prices in check. The contraction in the industrial sector due to muted customer spending and supply-chain constraints aggravated the pressure on prices, considering that industrial demand makes up more than half of silver’s demand. Due to these factors, silver prices dipped 1.2% in 2023. Prices are currently at around $22.50 per ounce, having lost 7.7% of its value so far this year. An upbeat U.S. retail sales report has raised doubts about whether the Fed would initiate interest rate cuts in March. Also, China’s weaker-than-expected GDP for the fourth quarter of 2023 dimmed the industrial outlook for silver.
Efforts to Combat Inflationary Costs to Aid Margins: 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.
Demand to Remain Strong: Industrial demand for silver is expected to grow, as ongoing vehicle electrification, the rising adoption of 5G technologies and the governmental focus on green infrastructure will drive demand. Silver demand is expected to remain solid in India, as employment and income have returned to pre-pandemic levels. 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 a major portion of silver consumption. The upside will mainly stem from China, as the country is expected to install more panels. Solid demand in all key sectors amid tight supply is expected to support silver prices.
Zacks Industry Rank Indicates Lackluster Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates gloomy 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 #234, which places it in the bottom 5% of 238 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. In the past three months, the industry’s earnings estimates for the current year have moved down 8%.
Despite bleak near-term prospects, we will present a few Mining-Silver stocks that one can add to one's portfolio, given their prospects. But it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Versus Broader Market
The Mining-Silver Industry has underperformed the S&P 500 and its sector in the past year. The stocks have collectively declined 24.3% in the past year compared with the Zacks S&P 500's rise of 21%. Meanwhile, the Zacks Basic Material sector has declined 6.9%.
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 5.88X compared with the S&P 500's 11.28X and the Basic Material sector's forward 12-month EV/EBITDA of 6.58X. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
In the past five years, the industry has traded as high as 16.58X and as low as 4.54X, with the median being 8.04X.
4 Mining-Silver Stocks to Keep an Eye on
Hecla Mining: The company recently reported production numbers for 2023. Silver production inched up 1% year over year to 14.3 million ounces despite the halt in operations at the Lucky Friday mine since August 2023. The upside was driven by strong performance at Greens Creek. Keno Hill produced 1.5 million ounces in 2023, with the Bermingham deposit achieving the highest mined tonnage in December. The Lucky Friday mine restarted production earlier this month and is expected to ramp up to full production in the first quarter. HL maintains its target of reaching the silver production level of 20 million ounces in 2025. The company already produces 45% of the U.S. silver and has the largest and highest-grade silver reserve base in the United States. It is gearing up to be Canada’s largest silver producer by 2024.
The Coeur d'Alene, Idaho-based company has a trailing four-quarter earnings surprise of 25%, on average. The Zacks Consensus Estimate for HL’s fiscal 2024 earnings indicates year-over-year growth of 317%. The estimate has moved up 29% in the past 30 days. HL currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: HL
Pan American Silver: The company’s acquisition of Yamana Gold, which was completed in 2023, is a transformational and strategic transaction that will strengthen its position as the leader in silver and gold production in Latin America. The integration is progressing well and Pan American Silver is on track to realizing the targeted $40-$60 million in annual synergies. This deal added long-life, low-cost assets and boosted the company’s portfolio to 12 operating mines. This was evident in the company’s 2023 results, with production improving 11% for silver and 60% for gold. PAAS seems poised to deliver a further increase in silver and gold production in 2024, with a full-year contribution from the acquisition and higher production at La Colorada following the completion of the new ventilation infrastructure last year. The company is selling its non-core assets in sync with its ongoing endeavor to optimize its portfolio. This will also help lower its annual project development, reclamation and care and maintenance costs.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings indicates year-over-year growth of 222%. PAAS currently carries a Zacks Rank #3 (Hold).
Price & Consensus: PAAS
Vizsla Silver: VZLA is focused on advancing its flagship, 100%-owned high-grade Panuco silver-gold project in Sinaloa, Mexico, one of the highest-grade silver primary discoveries in the world. The project benefits from power, water and road access. The project has indicated mineral resources of 155.8 million ounces of silver equivalent and inferred mineral resources of 169.6 million ounces of silver equivalent (as of Jan 9, 2024). About 90% of the value of the mineral resource estimate comprises precious metals, including 56% from silver. So far, Vizsla Silver has completed more than 350,000 meters of drilling at Panuco, leading to the discovery of several high-grade veins. VZLA has budgeted more than 60,000 meters of resource/discovery-based drilling in 2024, designed to upgrade and expand the mineral resource and test other high-priority targets across the region.
The Zacks Consensus Estimate for this Vancouver, Canada-based player’s 2024 earnings is pegged at a loss of 5 cents per share, which indicates a slight improvement from the loss of 6 cents reported in fiscal 2023. The company has a trailing four-quarter earnings surprise of 25%, on average. VZLA currently carries a Zacks Rank of 3.
Price & Consensus: VZLA
Avino Silver Mines: The company recently signed a long-term land-use agreement with a local community for the development of La Preciosa in Durango, Mexico. La Preciosa hosts one of the largest undeveloped primary silver resources in Mexico. Also, La Preciosa’s proximity to the Avino mine and infrastructure could yield numerous financial and operational synergies. The pre-feasibility study for the Oxide Tailings project is expected to be released soon. This project is expected to play a significant role in ASM’s target to become an intermediate silver producer in Mexico. At its flagship Avino mine, the company witnessed a noticeable increase in grade and recovery lately and this trend is expected to continue.
The Zacks Consensus Estimate for this Vancouver, Canada-based player’s 2024 earnings has been unchanged over the past 60 days. The estimate indicates year-over-year growth of 150%. ASM currently carries a Zacks Rank #3.
Price & Consensus: ASM
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Pan American Silver Corp. (PAAS) : Free Stock Analysis Report
Hecla Mining Company (HL) : Free Stock Analysis Report
Avino Silver (ASM) : Free Stock Analysis Report
Vizsla Silver Corp. (VZLA) : Free Stock Analysis Report
