Zacks Mining – Silver industry has been affected by weak demand for silver as the COVID-19 pandemic crippled the industrial sector last year. The pick-up in industrial activity seen earlier this year had pushed up silver prices. However, silver prices recently changed course amid growing concerns that the Omicron variant could throw a wrench in the works.
We suggest that you keep an eye out for some companies like First Majestic Silver Corp. (AG – Free report), Hecla mining company (HL – Free report) and Endeavor Silver Corp. (EXK – Free Report), which are poised to benefit from efforts to increase efficiency and cost management as well as growth plans.
About the industry
The Zacks Mining – Silver industry consists of companies which are engaged in the exploration, development and production of silver. These include large and small players operating mines of a wide variety of types and scales. Silver-bearing ores are mined in the open or underground, then crushed and ground. Miners continually seek opportunities to increase their reserves and resources through targeted near-mine exploration and commercial development. They strive to upgrade and improve the quality of their existing assets, internally and through acquisitions. Only 20% of the money comes from mining activities where money is the main source of income. The remaining 80% comes from projects where silver is a by-product of mining other metals, such as copper, lead and zinc. Thus, several companies in the silver mining industry are also engaged in the extraction of other metals.
What shapes the future of the mining and film industry
Omicron variant poses a threat: The unmatched characteristics of silver make it an indispensable component for many industrial products. With industrial applications accounting for around 60% of global silver consumption, the pandemic-induced slowdown in the industrial sector last year has severely affected the demand for silver. Manufacturing activity has picked up globally this year, fueling demand for silver and supporting prices. However, money has run out of steam in recent times as there are growing fears that the Omicron variant may again hamper industrial activity. Silver prices currently sit around $ 22 an ounce, having lost 15.7% of its value so far this year. A strong dollar and expectations that the Fed will continue with its tightening plans weighed on prices. With this performance, it seems likely that silver will post its worst annual loss since 2014, when it fell 19.6%.
Cost control and innovation to increase efficiency: Industry players are currently facing increased production costs, including electricity, wages, water and materials. Mining companies are heavy consumers of energy with around 50% of their production costs closely linked to energy prices. A shortage of skilled labor has resulted in higher wages. Without any control over the price of silver, the industry must focus on improving sales volumes while being profitable. Companies are investing heavily in R&D and using targeted technological innovations at nearly all levels of operations to increase efficiency, support growth and keep costs low.
Request to stay strong: The ongoing revolution in green technologies, aided by the exponential growth of new energy vehicles and investments in solar photovoltaic energy, will act as a major catalyst for money in the future. According to the Silver Institute, the consumption of silver in the global automotive sector is expected to reach 88 million ounces by 2025. The use of silver in electronic and electrical applications (excluding photovoltaics) will be approximately 246 million ounces. ounces in 2025, indicating a 10% increase over 2020. levels. Particularly promising is the printed and flexible electronics sector. Jewelry making, which accounts for around one-fifth of total silver demand, is expected to be a key enabler. India is likely to become a large consumer thanks to increasing investor interest and growth in the manufacture of jewelry, home decor and silverware. Silver also serves as a safe haven in times of uncertainty.
Zacks’ industry rankings show bleak outlook
The group’s Zacks Industry Rank, which is essentially the average of the Zacks Rank of all member stocks, indicates a bleak outlook for the near term. Zacks Mining Industry – Silver, which is a group of 10 stocks within Zacks’ larger commodities sector, currently carries a Zacks Industry Rank of # 242, which places it in the bottom 5% of the industry. 256 Zacks industries. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
Looking at the revisions to the overall earnings estimates, it appears that analysts are gradually losing confidence in the earnings growth potential of this group. So far this year, the industry’s profit estimate for the current year has plunged 52%.
Despite the gloomy short-term outlook, we will present a few Mining-Silver stocks that we can hold on to given their growth prospects. But it’s worth looking first at the industry’s shareholder returns and the current valuation.
Industry vs. larger market
The mining and silver industries have underperformed the S&P 500 and its sector over the past year. Shares in this industry have collectively fallen 19.3% in the past year against a 29.8% growth in the Zacks S&P 500. The Zacks commodities sector has advanced 6.9% in the past. of the last year.
One-year price performance
Current industry assessment
Based on the 12-month forward EV / EBITDA ratio, which is a multiple commonly used to value silver mining companies, we see that the industry is currently trading at 6.272X compared to the S&P 500’s 14.76X. and at the forefront of the basic materials sector. 12-month EV / EBITDA of 5.42X. This is illustrated in the graphics below.
Enterprise Value / EBITDA (EV / EBITDA) ratio F12M
Enterprise Value / EBITDA (EV / EBITDA) ratio F12M
Over the past five years, the industry has traded as low as 16.58X and as low as 6.16X with the median at 8.32X.
3 silver-mining stocks to watch
First majestic: The acquisition of the Jerritt Canyon gold mine earlier this year enhanced its geographic operating platform, while adding a production asset in a world-class jurisdiction, with Nevada considered one of the most attractive jurisdictions for mining operations. The company expects higher grades to boost production growth at San Dimas, Jerritt Canyon and Santa Elena in the fourth quarter of 2021 and through 2022. It has invested in two major investment projects at Jerritt Canyon which will help reduce costs from the fourth quarter. , driven by higher production, lower capital costs and continuous improvements in operational efficiency. The company recently announced the filing of the updated technical report for the Santa Elena mine and the positive results of a pre-feasibility study carried out for the 100% owned Ermitaño project, which is close to the Santa Elena processing plant. . Including this project, the proven and probable mineral reserves at the Santa Elena mine increased by 59% to 51 million ounces of silver equivalent and increased the life of the mine. On the strength of this, the company’s shares appreciated 2.3% in one year.
Zacks’ consensus estimate for FY2021 earnings for First Majestic suggests year-over-year growth of 5.6%, while the same for 2022 indicates an improvement of 160%. AG currently wears a Zacks Rank # 3 (Hold).
Price and consensus: AG
Hecla mining: On the strength of its strong operational performance, the company increased its silver dividend for the second time this year and returned approximately 20% of its free cash flow to its shareholders. At the same time, the company executed the largest exploration program in its history. Hecla Mining has a diversified portfolio of assets in jurisdictions favorable to mining. Its mines have the highest reserve grades, long life and are low risk. The company is one of the cheapest US silver producers, producing around 40% of the silver mined in the country. This is expected to increase as the Lucky Friday mine in Idaho ramps up. Testing of a new method of drilling and blasting at the Lucky Friday mine shows good performance in controlling seismicity and improving safety with the potential to increase productivity. The stock has gained 1.2% in the past year.
Zacks’ consensus estimate for Hecla Mining’s earnings for fiscal 2021 suggests 175% year-over-year growth. The consensus mark for 2022 shows year-over-year growth of 120%. The company has an estimated long-term earnings growth rate of 1%. Zacks’ No.3-ranked stock has a surprise four-quarter profit surprise of 13%, on average.
Price and consensus: HL
Strive for money: The company produced 2.1 million ounces of silver equivalent in the third quarter of 2021, 22% more than a year ago, thanks to record production at the Guanacevi mine. The company raised its consolidated production guidance for 2021 to 7.7-8.0 million ounces of silver equivalent to reflect the continued strong performance of Guanacevi due to higher than expected grades and milled tonnage. According to the company, silver-equivalent production at each mine is on track to meet or exceed 2021 production plans. EXK recently acquired the Bruner gold project in Nevada for $ 10 million, adding an additional project to exploration at an advanced stage in a jurisdiction favorable to its portfolio. The company recently announced that it was achieving exceptional drilling results on the El Curso and Santa Cruz Sur systems at the Guanacevi silver mine, indicating a longer mine life. On the strength of these developments, its share price has jumped 19.7% over the past year.
Zacks’ Consensus Estimate for Endeavor Silver’s FY2021 earnings suggests 1,500% year-over-year growth. The consensus mark for 2022 shows 54% year-over-year growth. EXK currently wears Zacks Rank 3.
Price and consensus: EXK