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
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Silver Prices in 2023
According to the article, silver prices experienced a 1% decline in 2023. This decline was attributed to several factors, including rising interest rates, a stronger dollar, and diminished industrial demand. The combination of positive U.S. economic data, reduced expectations of immediate monetary easing by the Federal Reserve, and concerns about China's economic condition also contributed to the downward pressure on silver prices.
Companies Poised to Benefit
The article suggests that companies like Pan American Silver (PAAS), Hecla Mining (HL), Vizsla Silver Corp. (VZLA), and Avino Silver Mines (ASM) are poised to benefit from enhanced operational efficiency, disciplined cost management, and solid projects. These companies are recommended based on their potential to navigate the challenging silver market and deliver positive results.
Zacks Mining - Silver Industry
The Zacks Mining - Silver industry comprises companies engaged in the exploration, development, and production of silver. This industry includes both big and small players operating mines of varying types and scales. Silver-bearing ores are mined using open-pit or underground methods, and then crushed and ground. Companies in this industry continually seek opportunities to expand their reserves and resources through targeted near-mine exploration and business development. They also focus on upgrading and improving the quality of their existing assets, both internally and through acquisitions. It's worth noting that only 20% of silver comes from mining activities where silver is the primary revenue source, while the remaining balance comes from projects where silver is a by-product of mining other metals such as copper, lead, and zinc. Therefore, several companies in the silver mining industry are also engaged in mining other metals.
Factors Shaping the Future of the Mining-Silver Industry
The article highlights several factors that are shaping the future of the mining-silver industry:
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Volatility in Prices: Silver prices exhibited fluctuations in 2023, ranging from a low of $19.83 per ounce to a high of $26.44 per ounce, with an average price of $23.54. Factors such as higher interest rates, a strong dollar, and a contraction in the industrial sector due to muted customer spending and supply-chain constraints contributed to the pressure on prices. Industrial demand, which makes up more than half of silver's demand, was particularly affected.
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Efforts to Combat Inflationary Costs: Mining companies in the silver industry are facing escalating production costs, including electricity, wages, water, and materials. To combat these costs, companies are focusing on improving sales volumes while being cost-effective. They are investing in research and development (R&D) and resorting to technological innovations to increase efficiency and rein in costs.
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Strong Demand: Despite the challenges, industrial demand for silver is expected to grow due to ongoing vehicle electrification, the rising adoption of 5G technologies, and the focus on green infrastructure. Solid demand is also expected in India, driven by employment and income returning to pre-pandemic levels. The demand for silver in solar panel technology is also expected to accelerate, especially in China.
Zacks Industry Rank and Prospects
The Zacks Industry Rank for the Zacks Mining - Silver industry is currently #234, placing it in the bottom 5% of 238 Zacks industries. The industry's Zacks Industry Rank indicates lackluster prospects in the near term. Analysts have been gradually losing confidence in the industry's earnings growth potential, with earnings estimates for the current year moving down 8% in the past three months. Despite these challenges, the article suggests a few mining-silver stocks that may be worth considering for investment.
Industry Performance and Valuation
The Mining-Silver industry has underperformed the S&P 500 and its sector in the past year, with collective stock declines of 24.3%. In comparison, the Zacks S&P 500 rose by 21%, while the Zacks Basic Material sector declined by 6.9% during the same period. Based on the forward 12-month EV/EBITDA ratio, which is commonly used to value silver-mining companies, the industry is currently trading at 5.88X, lower than the S&P 500's 11.28X and the Basic Material sector's 6.58X.
Mining-Silver Stocks to Watch
The article highlights four mining-silver stocks that investors may want to keep an eye on:
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Hecla Mining (HL): Hecla Mining reported a 1% increase in silver production in 2023, driven by strong performance at Greens Creek. The company aims to reach a silver production level of 20 million ounces by 2025 and is the largest and highest-grade silver reserve base in the United States. The Zacks Consensus Estimate for HL's fiscal 2024 earnings indicates significant year-over-year growth.
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Pan American Silver (PAAS): Pan American Silver completed the acquisition of Yamana Gold in 2023, strengthening its position as a leader in silver and gold production in Latin America. The company expects to increase silver and gold production in 2024, with a full-year contribution from the acquisition and higher production at La Colorada. The Zacks Consensus Estimate for PAAS's fiscal 2024 earnings indicates substantial year-over-year growth.
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Vizsla Silver Corp. (VZLA): Vizsla Silver is focused on advancing its high-grade Panuco silver-gold project in Mexico. The project has indicated mineral resources of 155.8 million ounces of silver equivalent. The company has completed significant drilling and plans to continue resource/discovery-based drilling in 2024 to upgrade and expand the mineral resource. The Zacks Consensus Estimate for VZLA's 2024 earnings indicates a slight improvement from the previous year.
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Avino Silver Mines (ASM): Avino Silver Mines recently signed a long-term land-use agreement for the development of La Preciosa in Mexico, which hosts one of the largest undeveloped primary silver resources in the country. The company has witnessed an increase in grade and recovery at its flagship Avino mine and expects this trend to continue. The Zacks Consensus Estimate for ASM's 2024 earnings indicates significant year-over-year growth.
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