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, mainly driven by photovoltaics, while 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, Fortuna Silver Mines FSM, Pan American Silver PAAS, Hecla Mining HL and MAG Silver MAG, 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 (up 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. Also, per reports, India’s silver imports in January-April 2024 of 4,172 tons exceeded the total imports of 3,625 tons in 2023 mainly 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 performance year to date, gaining 29.3% and outpacing gold’s 14.5% climb, making it one of the year’s best-performing major commodities. So far in 2024, silver prices have ranged from a low of $21.94 to a high of $32.57. 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 prices supported. 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: The 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 #103, which places it in the top 41% 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 9.4% in the past year compared with the Basic Material sector’s rally of 4.4%. Meanwhile, the Zacks S&P 500 composite has risen 25.1%.
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 7.26X compared with the S&P 500’s 15.09X and the Basic Material sector’s forward 12-month EV/EBITDA of 7.02X. 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 16.58X and as low as 4.54X, the median being 7.68X.
5 Mining-Silver Stocks to Watch
Fresnillo: FNLPF reported attributable silver production of 13.5 million ounces in the first quarter of 2024, up 2.7% year over year, aided by increased contribution from Juanicipio, the higher ore grade at San Julián Veins, and increased volume of ore processed at Saucito. 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 shot up 700% in 90 days. The estimate suggests year-over-year growth of 54.8%. FNLPF carries a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price: FNLPF
Fortuna Silver: In the first quarter of 2024, the company achieved a gold-equivalent production of 112,543 ounces, marking a 20% increase from the year-ago quarter. The improvement was mainly attributed to the contribution of Séguéla. FSM expects to produce 343-385 thousand ounces of gold in 2024, and silver production is expected at 4-4.7 million ounces. Gold-equivalent ounces are expected to be 457,000-497,000. Capital allocation priorities for 2024 aim to enhance balance sheet flexibility through debt reduction and funding aggressive organic growth programs, with a focus on the Diamba Sud project and the Séguéla Mine. The company’s strategy focuses on maximizing production while maintaining operational efficiencies to lower cash costs. Its disciplined approach to seeking new deposits or pursuing mergers and acquisitions will drive growth.
The Zacks Consensus Estimate for Fortuna Silver’s 2024 bottom line is pegged at earnings of 37 cents, which indicates year-over-year growth of 68.2%. The estimate has improved from the loss of 12 cents mentioned 90 days ago. The company has a trailing four-quarter earnings surprise of 85.2%, on average. FSM currently carries a Zacks Rank of 2.
Price: FSM
Pan American Silver: The company’s acquisition of Yamana Gold, which was completed in 2023, was a transformational and strategic transaction that strengthened its position as a leader in silver and gold production in Latin America. 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 results, with production improving 28.7% for silver and 81.7% for gold in the first quarter of 2024. PAAS is on track to drive growth 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 a ventilation infrastructure in mid-2024. Its recent announcement to sell its La Arena asset in Peru will improve its financial position and is aligned with its strategy of continued portfolio optimization.
The Zacks Consensus Estimate for the company’s fiscal 2024 earnings indicates a year-over-year surge of 241.7%. The estimate has moved up 28% in the past 90 days. PAAS currently carries a Zacks Rank #3 (Hold).
Price: PAAS
Hecla Mining: The company produced 4.2 million ounces of silver in the first quarter of 2024. Production grew 3.7% year over year and 43% sequentially. The improvement reflects the consistent, strong performance at Greens Creek, the Lucky Friday mine reaching full production in March and the ongoing ramp-up at Keno Hill. HL expects to produce silver of 16.5-17.5 million ounces in 2024. 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. Hecla Mining currently mines nearly 50% of the silver in the United States, which makes it the largest U.S. silver producer. Once Keno Hill reaches full production, it 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 33.3%, on average. The Zacks Consensus Estimate for HL’s fiscal 2024 earnings indicates year-over-year growth of 500%. The estimate has moved up 300% in the past 90 days. HL currently carries a Zacks Rank #3.
Price: HL
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 first quarter of 2024, Juanicipio achieved silver and silver-equivalent productions of 4.5 million ounces and 6.4 million ounces, respectively. MAG Silver expects Juanicipio to produce 14.3-15.8 million silver ounces in 2024, thus yielding between 13.2 million and 14.6 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 21.3% growth from the year-ago reported figure. The estimate has moved north by 4% over the past 90 days. MAG has a trailing four-quarter earnings surprise of 6.1%, on average. The company presently carries a Zacks Rank of 3.
Price: MAG
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Fresnillo PLC (FNLPF) : Free Stock Analysis Report
Hecla Mining Company (HL) : Free Stock Analysis Report
Pan American Silver Corp. (PAAS) : Free Stock Analysis Report
Fortuna Silver Mines Inc. (FSM) : Free Stock Analysis Report
MAG Silver Corporation (MAG) : Free Stock Analysis Report
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