For Immediate Release
Chicago, IL – May 8, 2023 – Today, Zacks Equity Research discusses Pan American Silver PAAS, Fortuna Silver Mines FSM and Endeavour Silver EXK.
Industry: Mining - Silver
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 Pan American Silver, Fortuna Silver Mines andEndeavour Silver, 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 Mining-Silver Industry
Rising Silver Prices Bode Well: Silver prices were around $24 per ounce at the beginning of 2023 and are currently trending around $26 per ounce, registering an 8.2% gain so far this year. Prices have been increasing as renewed turmoil in the U.S. financial sector has prompted investors to flock to safe-haven assets like gold and silver. Apart from concerns of financial instability, signs of a slowing job market have fueled expectations of multiple rate cuts by the Federal Reserve this year. This will put pressure on the dollar and lower the opportunity cost of holding non-interest-bearing assets like gold and silver.
Demand to Remain Strong: Silver demand reached a global record of 1.242 billion ounces in 2022. Industrial demand, which accounts for nearly half of the total silver demand, rose 5% year over year, physical silver investment was up 22%, jewelry increased 29% and silverware surged 80%. Jewelry and silverware demand was solid in India and is expected to be so throughout this year, as employment and incomes have returned to the pre-pandemic levels.
Overall, the combination of high demand and lower mine production led to a 237.7-million-ounce deficit for silver in 2022. Silver demand in all key sectors is expected to remain upbeat this year. 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. Silver physical investment will continue to be supported by ongoing macroeconomic uncertainties and inflationary pressures.
Efforts to Combat Inflationary Costs to Aid Margins: The industry players are currently 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. The companies 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 10-stock group within the broader Zacks Basic Materials sector, currently carries a Zacks Industry Rank #107, which places it in the top 43% of 250 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 lost 12.3% in the past year compared with the Zacks S&P 500's drop of 1.7% and the Zacks Basic Material sector's fall of 7.4%.
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 10.79X compared with the S&P 500's 19.75X and the Basic Material sector's forward 12-month EV/EBITDA of 10.79X.
Over the past five years, the industry has traded as high as 14.10X and as low as 6.72X, with the median being 8.33X.
3 Mining-Silver Stocks to Keep an Eye On
Fortuna Silver: The company reported Gold equivalent production of 94,110 ounces in the first quarter of 2023. It has been on track to achieve the 2023 guidance. FSM maintained its production guidance for 2023 at 6.3-6.9 million ounces of silver and 282-320 thousand ounces of gold. This translates to 412,000-463,000 gold-equivalent ounces, including lead and zinc by-products.
The company also stated that as of the end of March, the Seguela project was 96% complete and on track to initiate gold production in May 2023. Fortuna Silver's share price has increased 11.6% year to date. The company will continue to gain from its focus on maximizing production, while simultaneously maintaining operational efficiencies to lower cash costs. Its disciplined strategy of locating new deposits or pursuing mergers and acquisitions will continue to drive growth.
The Zacks Consensus Estimate for Fortuna Silver's 2023 earnings has moved up 84% over the past 90 days. The estimate indicates year-over-year growth of 133%. FSM currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Pan American Silver: The company recently closed the much-awaited acquisition of Yamana Gold Inc. This is a transformational and strategic transaction for PAAS, which will strengthen its position as the leader in silver and gold production in Latin America. This deal will add long-life, low-cost assets, and boost the company's portfolio to 12 operating mines. This includes the Cerro Moro gold-silver mine and the Mara copper project in Argentina, the El Peñón gold-silver operation and Minera Florida gold mine in Chile, and the Jacobina gold complex in northeastern Brazil.
Silver production is expected to increase 50%, whereas gold production will double. Considering the strong cash flow generating abilities of these assets, the deal will strengthen PAAS' financial position. Per the company, the integration is progressing well and it is on track to realize the targeted $40-$60 million in annual synergies.
The Zacks Consensus Estimate for the company's current-year earnings has moved up 24.5% over the past 90 days. PAAS currently carries a Zacks Rank #3 (Hold).
Endeavour Silver: The company produced 2.4 million silver-equivalent ounces in the first quarter of 2023, which came in 18% higher than the year-ago quarter. This was mainly driven by an upbeat production at the Guanacevi mine. The performance at Bolanitos remained strong. The company recently provided a construction update for its Terronera Project in Jalisco state, Mexico. Per EXK, it is on track to start production in the fourth quarter of 2024.
The Zacks Consensus Estimate for Endeavour Silver's fiscal 2023 earnings suggests year-over-year growth of 275%. The consensus mark has moved up 7% over the past 90 days. EXK currently carries Zacks Rank #3.
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