The prospects for the Zacks Mining - Silver industry look promising on the back of rising silver prices. Global industrial demand for silver is expected to reach record levels in 2024, driven by photovoltaics. Meanwhile, supply is expected to dip 1%. This suggests a fourth consecutive year of deficit for the silver market, which is likely to bolster prices.
We suggest keeping tabs on companies like Fresnillo FNLPF, Hecla Mining HL, First Majestic Silver AG, MAG Silver MAG and Vizsla Silver VZLA, which are poised to benefit from solid projects, improved operational efficiency and disciplined cost management.
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: Per the Silver Institute, total industrial demand for silver in 2024 is expected to surpass last year’s record of 654.4 million ounces and rise 9% year over year to 710.9 million ounces. Notably, industrial applications account for more than 50% of the total silver demand. Last year, higher-than-expected photovoltaic demand (which rose 64% year over year) and the faster adoption of new-generation solar cells boosted global electrical and electronics demand by 20%. Other green applications, including power grid construction and automotive electrification, contributed to the improvement. Riding on the same trends, the demand for electrical and electronics is expected to rise 9% year over year in 2024, fueled by 20% growth in photovoltaics. Demand in jewelry is expected to increase 4% year over year to 211.3 million ounces in 2024 and silverware demand is likely to be up 7% to 58.8 million ounces. Both are expected to gain from higher discretionary spending and recover from the declines seen last year. Overall, total demand for the metal is projected to grow 2% to 1,219 million ounces in 2024, indicating a recovery from the 7% decline in 2023. India’s silver imports are expected to double this year due to rising demand from the solar panel industry and investment demand. Increased demand from the world’s biggest silver consumer could boost silver prices.
Rising Silver Prices Bode Well: Silver has seen a solid year-to-date performance, gaining 20.5%. Silver prices have ranged from a low of $22.19 to a high of $33.05. The rally has been fueled by geopolitical uncertainties and increasing bets of U.S. interest rate cuts. Solid demand amid expectations of a tight supply will keep supporting prices. Per the Silver Institute, while demand remains high, mine production is expected to dip 0.8% year over year in 2024, as increased output from Mexico and the United States is expected to be negated by declines in Peru and China. This sets the stage for a deficit of 215.3 million ounces — the second-largest in more than 20 years. This will likely mark the fourth consecutive year of a deficit.
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.
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 #51, which places it in the top 20% 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 outperformed the sector over the past year but underperformed the Zacks S&P 500 composite over the same time frame.
The stocks in this industry have collectively grown 45% in the past year against the Basic Material sector’s decline of 0.9%. Meanwhile, the Zacks S&P 500 composite has risen 23.9%.
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 7.07X compared with the S&P 500's 13.75X and the Basic Material sector's forward 12-month EV/EBITDA of 6.74X. 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 17.20X and as low as 4.90X, the median being 8.05X.
5 Mining-Silver Stocks to Watch
MAG Silver: The company’s principal asset is the high-margin underground silver project Juanicipio in Zacatecas, Mexico. In the project, it has a 44% interest, with the remaining 56% held by Fresnillo. In the second quarter of 2024, Juanicipio achieved silver and silver-equivalent productions of 5 million ounces and 7.1 million ounces, respectively. Backed by the upbeat performance in the first half of 2024, MAG Silver expects Juanicipio to produce 16.3 million and 17.3 million silver ounces in 2024, higher than the previously stated 14.3-15.8 million silver ounces. This is expected to yield 14.5 million and 15.4 million payable silver ounces. An expanded exploration program is in place for Juanicipio to look for multiple highly prospective targets. MAG is also executing multi-phase exploration programs at the 100% earn-in Deer Trail Project in Utah and the 100% owned Larder Project, located in the historically prolific Abitibi region of Canada.
The Zacks Consensus Estimate for this Vancouver, Canada-based company’s 2024 earnings indicates 42.6% growth from the year-ago reported figure. The estimate has moved north by 17.5% over the past 90 days. MAG has a trailing four-quarter earnings surprise of 2.1%, on average. The company presently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price: MAG
Vizsla Silver: The company is advancing its flagship, 100%-owned high-grade Panuco silver-gold project in Sinaloa, Mexico, which is one of the highest-grade silver primary discoveries in the world. The preliminary economic assessment outlines a high-margin, underground silver primary mine with substantial production of 162.1 million silver-equivalent ounces over an initial 11-year mine life. The mine is projected to produce an average of 15.2 million silver-equivalent ounces annually, with exceptional free cash flow generation prospects. Vizsla Silver has already completed more than 380,000 meters of drilling at Panuco, leading to the discovery of several high-grade veins. In 2024, VZLA allocated funds for more than 45,000 meters of resource/discovery-based drilling aimed at upgrading and expanding the mineral resource and exploring other high-priority targets in the region.
The Zacks Consensus Estimate for this Vancouver, Canada-based player’s 2024 bottom line is pegged at a loss of 4 cents per share, which indicates a slight improvement from the loss of 6 cents reported in fiscal 2023. The estimate has moved down from the loss of 5 cents projected for the company 90 days ago. It has a trailing four-quarter earnings surprise of 12.50%, on average. VZLA currently carries a Zacks Rank of 2.
Price: VZLA
First Majestic Silver: The company recently inked a deal to acquire Gatos Silver, Inc. With this deal, AG will gain 70% interest in the high-quality and long-life Cerro Los Gatos underground mine. It will solidify First Majestic’s position as an intermediate primary silver producer with a strong balance sheet and margins. The acquisition is expected to immediately boost its free cash flow and lead to meaningful synergies. In the second quarter of 2024, First Majestic’s total production reached 5.3 million silver-equivalent ounces, which consisted of 2.1 million silver ounces and 39,339 gold ounces. On a sequential basis, silver production grew 7% and gold production increased 9%. The rise was driven by higher silver production at La Encantada and increased production of silver-equivalent ounces at Santa Elena. To reflect upbeat production results in the second quarter, the company updated its 2024 outlook. AG expects silver production of 8.9-9.5 million ounces compared with the prior mentioned 8.6-9.6 million ounces. Gold production is projected between 150,000 and 158,000 ounces compared with the prior stated 150,000-167,000.
The Zacks Consensus Estimate for this Vancouver Canada-based company’s current-year earnings has shot up 267% in 90 days. First Majestic currently carries a Zacks Rank #3 (Hold).
Price: AG
Hecla Mining: The company produced 4.5 million ounces of silver in the second quarter of 2024. Production grew 3.7% year over year and 43% sequentially. The silver production increased 6% sequentially, reflecting the consistent, strong performance at Greens Creek, a full quarter of production at Lucky Friday with record throughput, and higher throughput at Keno Hill. Gold production rose 2% to 37,324 ounces from the first quarter of 2024. HL expects to produce silver of 17 million ounces in 2024, whereas it produced 14.3 million ounces in 2023. The company intends to take this up to 20 million ounces of silver by 2026. Driven by its relentless focus on continuous improvement and innovation, Hecla Mining has achieved a 25% increase in silver reserves, a 38% rise in silver production and 27% growth in revenues in the past five years. HL currently mines nearly 50% of silver in the United States, which makes it the largest silver producer in the country. Once Keno Hill reaches full production, the company will be the largest silver producer in Canada as well.
The Coeur d'Alene, ID-based company has a trailing four-quarter earnings surprise of 50%, on average. The Zacks Consensus Estimate for HL’s fiscal 2024 earnings indicates year-over-year growth of 500%. The estimate has been unchanged in the past 90 days. HL currently carries a Zacks Rank #3.
Price: HL
Fresnillo: FNLPF reported an attributable silver production of 14.6 million ounces in the second quarter of 2024, up 8.4% sequentially. This was due to the increase in the volume of ore processed and improved ore grade at Saucito; the higher volume of ore processed, ore grade and recovery rate at Juanicipio; and enhanced ore grade at Ciénega. Silver-equivalent ounces are expected to be 101-112 million in 2024. The new Juanicipio project has now been fully ramped up and is expected to boost the company’s silver production while lowering consolidated group costs. Fresnillo is investing in several projects to boost production and ensure steady growth in the coming years. Its focus on improving operational performance and efficiency is expected to reduce costs. FNLPF’s high-quality assets, ample mineral resources, competitive margins and disciplined approach to development will continue to drive growth.
The Zacks Consensus Estimate for this Mexico-based company’s current-year earnings has moved up 8% in 90 days. The estimate suggests year-over-year growth of 68%. FNLPF carries a Zacks Rank #3.
Price: FNLPF
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