My Top 5 Silver Mining Investment Picks For 2018
Why invest in silver mining companies instead of just buying physical silver?
Well, any increase in the price of silver usually is exponentially additive to the price of the companies that mine it.
What I mean is that a silver price increase heads directly towards profit. The miners have tremendous amounts of overhead and production costs. So say they are getting silver out of the ground at a cost of $14/oz and the current price is $16. So they make $2/oz. If silver goes up just $1 to $17/oz, they have made 50% more profit! Usually that bodes well for the share price.
If you had a coin that you paid $16 for, and silver goes to $17 you are $1 richer – or 6.25%
Now if silver goes to $18, the miner has doubled their profits, while you have made just 12.5%.
I think you can see how well shares of a mining company can do if silver really takes off!
Now I always recommend that you hold physical precious metals, but at some point it makes sense to invest some of your hard earned money into the metal miners.
Now an investment in silver miners is mainly due to a belief that silver will rise in price. I believe that silver is due to rise in the not too distant future. The silver-to-gold ratio is at a peak and historically this makes for an excellent investing opportunity in silver.
Check out the history for the past twenty years:
Looks like time for the silver eagles to soar!
Here are my current top 5 silver mining picks and worthy of further research should you choose to pursue this avenue of investing.
Pan American Silver Corp (PAAS) – Market Cap of $2.42 Billion
Stats:
- Share Price - $15.86
- EPS - $0.61
- P/E – 26
- Cash on hand - $187.4M
- Long-Term Debt - $2.34M
- Free Cash Flow (Last Quarter) – $32.55M
First up is by far the largest on my list. Pan American Silver is a giant in the silver mining sector, with mines in Mexico, Peru, Bolivia, Argentina, and even one in the U.S.
While any returns will, most-likely, be less than others it is also a much safer investment. Still, should silver hit a price of $25/oz, this company could double from the current price.
They mined 25M/oz of silver and 160K/oz gold in 2017. They expect a small increase to those numbers in 2018.
With all-in costs between $10-12/oz and an operating margin of 18%, they still have plenty of meat on the bone.
What I really like is that they have their fingers in a lot of silver pies, they are investors in a lot of junior mining companies (Kootenay Silver, Maverix Metals, New Pacific, and other projects). They are also expanding their current operations by completing the mines at two new locations – La Colorada and Dolores.
All this, plus a small dividend makes for a solid investment and especially if silver prices rise.
Possible double.
Great Panther Silver (GPL) – Market Cap of $200 Million
Stats:
- Share Price - $1.22
- EPS - $0.01
- P/E – 108
- Cash on hand - $55.5M
- Long-Term Debt – N/A
- Free Cash Flow (Last Quarter) – ($1.68M)
Great Panther is a mid-level silver producer, with 4M/oz produced from two Mexican mines in 2017. They have an all-in cost around $11/oz
They are also in need of expansion, and so they recently made a great deal in Peru with the purchase of the Coricancha mine. It has 100 million oz. of silver + equivalents (equivalents just means other metals valued in ounces of silver) and with production slated to begin in 2018 it should add 2-3M/oz of silver per year.
Plenty of cash on hand and no debt means they have enough money to grow without having to dilute current shareholders to raise capital.
What I like about this company is that they are sitting on their long-term support of $1.20/sh range. There is very little downside risk and this could potentially see prices in the $4-5 range should silver spike.
Possible 4 bagger.
First Majestic Silver (AG) – Market Cap of $930 Million
Stats:
- Share Price - $5.68
- EPS - $0.03
- P/E – 186
- Cash on hand - $132.7M
- Long-Term Debt – $33.66M
- Free Cash Flow (Last Quarter) – $30.62M
First Majestic is committed to mining only in Mexico, they have 6 100% owned mines, one recent purchase, 2 in development, and one in exploration.
They get 60% of their revenue from silver, 30% from gold, and the rest from lead and zinc. In 2017 they mined 25.9M/oz of silver + equivalents. In 2018 they estimate they will increase production to 26.3-29.3M/oz. Of that, about 10M/oz was pure silver. They have a goal to double that amount and mine 20M+ oz's of pure silver.
One negative is their high all-in cost of around $16/oz. But with them pulling so many silver ounces out of the ground, they will certainly see the most benefit to their cash flow from any rise in the price of silver.
Possible 4 bagger.
Endeavor Silver (EXK) – Market Cap of $285 Million
Stats:
- Share Price - $2.21
- EPS - $0.02
- P/E – 112
- Cash on hand - $43.7M
- Long-Term Debt – N/A
- Free Cash Flow (Last Quarter) – ($7.44M)
In 2017, Endeavor Silver mined 4.9M/oz of silver and 53K oz of gold – a 60/40 revenue split. For 2018, they expect to increase production by 20% (5.8-6.4M/oz silver and 58-64K gold/oz).
Owning mines exclusively in Mexico, they are working on expanding their operations from three mines to six in the next few years.
They are also working on reducing their high all-in costs, currently at $18/oz, they are aiming for $15.5 by this summer.
This is just a natural cycle of new mines, they cost more at the start and then the costs go down as you find ways to make the new operation run more smoothly. The market doesn't like thier high costs, but if you think they can find efficiencies and buy in now you could earn a decent return even without much of an increase in the price of silver.
Potential 5+ bagger.
Silvercorp Metals (SVM) – Market Cap of $430 Million
Stats:
- Share Price - $2.61
- EPS - $0.30
- P/E – 8.5
- Cash on hand - $113.25M
- Long-Term Debt - N/A
- Free Cash Flow (Last Quarter) – $19.99M
Wow! Look at those numbers, VERY good. No debt. Low P/E. It even pays a small dividend and they are buying back 5% of their outstanding shares!
This company gets half of its revenue by selling other metals it finds in pursuit of silver, namely lead and zinc.
It also has HUGE profit margins for a mining company. Gross profit margin is 54% and their all-in cost to mine an ounce of silver is just so low at $2.26/oz!
They estimate they will mine 80.3 million pounds of lead and zinc and 5.9 million ounces of silver in 2018.
The reason this company doesn't get more market notice is because their mines are in China. But If you don't mind a company that operates in China, this is a very promising stock.
Potential 6+ bagger.
Other Silver Mining Companies Worth Researching
Wildcard: SVCMF - SilverCrest Metals owns a mine they are exploring for development. Initial results are promising.
Honorable Mentions: HL CDE FSM
Great post! I was searching for info about silver here on steemit and i am very pleased, that i found your blog! I invest only in silver coins atm, but these stocks are very interesting! 4/5 are up since you posted this (while silver itself is virtualy unchanged) and your wildcard almost doubled! hope to read more similar posts about silver in the future!
Hey, thanks.
Silver and gold are so hated right now. I thought the prices were cheap at the beginning of the year, and now they are even more so. With so many people wanting nothing to do with the metals, a contrarian investment in them would seem like a prudent thing to do.
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This is sound logic and reasoning,
however, there are events that are going to transpire that will make mining stocks either the greatest investment or the worst.
Technologies are being worked on that require silver.
Things like wave guide wires.
Personal identification via personal resonance.
etc...
So the demand for silver is about to spike.
This spike will suck dry every source of silver.
The silver manipulation in the comex will be laid bare.
Silver will shoot to $1000 an ounce.
Countries will declare silver a strategic resources (thus, no export)
At this point, either the stocks will go through the roof, or those companies will get taken over by the govern-cements or some other nefarious force, and the stocks will be worth nothing.
My suggestion is to purchase silver in bar form and sit on it.
Even in that scenario, I place a high probability of having enough time and indicators to exit the trade. Sometimes investing in paper silver is a nice way to supplement physical holdings.
Judging by past events of this sort, you would have a week to exit the trade if you had inside information. Those without inside information wake up the next day holding nothing.
Look up bank bail-ins. Or what Mexico did when revaluing the peso.
Good points, it is a possibility assets could be nationalized. But honestly, as soon as these went up 10x in 2-3 days, I would be selling them and going to my LCS. I like the option of paper silver to make a play inside of tax advantaged accounts when I see an oppertunity.
True, operating in other nations with a less than stellar track record of property rights can sometimes cause a world of hurt to mining companies.
But still, I think that risk is slight and the potential for profit at this silver/gold price point is well worth it.
Oh my, that is quite the prediction. I've never heard of wave guide wires, what do they do?
Imagine a wire that conducts electrical frequencies better than a fiber optic cable conducts light frequencies.
Great analysis, First Majestic is actually one of my core positions. I bought a crap ton of it in December 2015 around $2.75, and it remains one of my larger positions. In hindsight I wish i'd bought more.
I currently have call options on Paas as well as AG. I actually wrote about this trade. Options are risky and I'm not recommending them to anyone, but I have had good luck buying call options at bottoms. Such as December pre-fed hike and just recently, I bought some Ag calls after this latest washout. I check the prices regularly when's there's capitulation in the metals prices.
For those who don't understand what an Option is, it's a risky "YES" or "NO" bet that the price of something will rise or fall within a certain period of time. Most options expire worthless, as people are generally unable to predict the future. They offer incredible leverage.
However if sentiment is particularly bad, and you think the option is mispriced, you can find some ridiculous deals. I recently bought some $6 AG calls for $.35 a share! If the price goes to $7 I'll make 185%. If it's goes to $10 I'll make 1000%. If the price does not change I will lose my investment.
So it is not for the faint of heart, but something to consider when an equity reaches an extreme one way or the other.
That is what I love about options investing though. You determine your max possible loss when you put on the position and yeah, there is that opportunity for big % returns.
Over all my years of investing in many asset classes, the use of options is still my favorite.
Yeah, me too @scaredycat. It can be an emotional rollercoaster though, so from a piece of mind perspective, I much prefer stocks and the physical metal, but man I've hit some real winners and judging by today's market action I'm crossing my fingers that I'll be right again. Either way, I'll write an article in 2 months as to whether I did or did not lose my ass on this trade! 😅
I have always like the idea of Call options as a great way to get exposure to potential upside while limiting your downside to the options cost. Highly likely you will lose it all but like you said, leveraged when it hits.
I just picked up a few more shares of First Majestic today.
I've never used options before, but have been learning about them here and there for the past year.
Nice! Ag has taken a beating lately with the strike last year, which in turn suspended production, which in turn lowered earnings. If that wasn't bad enough, the silver price slid and Ag become a favorite victim for the shorts. Any shorts left however I think are about to get squeezed... hard over the next two months.
As for options, they are a good way to lose money unless you are writing them! (for income) Being on the buying side, puts you at an inherent disadvantage. For me, I'll only buy an option when my conviction level is EXTREMELY high, and the price is very cheap.
And so it arrives! I shall be weeding through this tonight :-)
P.S. - I reference that gold/silver ratio everytime I talk to someone about silver now.
I mean it can go sideways like this for awhile, but it always has ended up making a nice return to those that buy and wait.
Thank you for posting this information @getonthetrain.
A thorough well written article on the subject....have been wondering where to start looking for details on the subject.....those who are in the business are usually not able to expand on the subject outside their realm of expertise.
All the best.
Cheers.
Thanks @bleujay,
I love to invest, and precious metals hold a close piece of my heart.
Thanks for stopping by and if you have any questions about these companies feel free to ask.
Have you considered sharing with the community updates on your portfolio?
I think probably the most interesting one for steemit would be the crypto portfolio, but I am sure there are people interested in anything!
I would like to ask, why you choose silver instead of going full gold? I suppose it is just for the sake of diversification?
I wrote about why silver is a better investment than gold at the moment. It is also shown in the first chart picture here.
The silver/gold ratio is at the point where it historically makes silver the better investment. Over 75 to 1 you only want silver. It is currently 80 or so to 1.
This is a great analysis of everything we need to get into the silver minning sector. Actually I had never looked into this side of investing. Thanks to steemit where people are willing to share ideas for others to benefit. These are tremendous profits that no one can just ignore after looking at them.
Am actually planning to get into the silver minning @getonthetrain. Am only investing in cryprocurrency and I feel this is the best other alternative I can take to fetch some big money.
Great Panther Silver is my best pick for the start with a share price that is easily affordable.
Great Panther earned me a very nice return in the past and I expect it will do so again should silver head north. Diversifying your investments, especially into silver at its current low price, is a prudent action.
How much is the dividend BTW? I would love to expand into the stock market, atm i only have cryptos, i only want to invest in dividend stocks, i would like to reinvest the dividends at least until i'm 40, passive income is the king of all kings!!
Two of these pay small dividends. Pan American pays 10 cents per share per year and SilverCorp pays 2 cents.
Dividends are great, who doesn't like money they don't have to work for! But growth investing can really juice up the amount of money you have available to put into dividend companies at a later date, albeit riskier usually.
My main top picks, even though i still haven't invested because of lack of money, are all tech companies that are going to be powerhouses in the future, Nvidia, Intel, AMD, the future is in tech, chips will be used everywhere, probably even in our selves, so the stock price will surely rise and shares will surely split
I must say that I appreciate your investment analysis for the fact that it often leaves the normal Steemit ruts on cypto.
I also had never looked at the financial overviews of silver mines until today. It's a great hedge on holding physical silver, especially for its liquidity.
Hey @steemmatt, grats on hitting 60 recently. I am glad you are finding success here.
Thank you @getonthetrain for the informative post. I invested in some silver coins a few years ago, I will have look at holding some shares now.
Remember in precious metals investments you don't buy and hold forever. You have to sell when the price is right. Commodities go in cycles, right now silver it at or close to its bottom.
Sell when that silver/gold ratio is at 50 or below.