What are we looking for?
The price of silver has been holding above US$30 an ounce since early September and is up more than 40 per cent from one year ago. Returns on silver stocks over the last 12 months reflect this move as well. We are also seeing acquisitions in this space. Let’s see what the stockcalc models are telling us.
The screen
We used stockcalc’s screener to select the top 10 listed silver mining companies by market capitalization on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V). We then used stockcalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see if it is undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value for each share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value for each share by its 10-year average price-to-book ratio.
- If we have analyst coverage, we may consider the consensus target price.
More about stockcalc
stockcalc is a fundamental valuation platform with tools to calculate and report on value for each share for thousands of public companies listed on major North American stock exchanges. stockcalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to stockcalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent close price and its intrinsic value. The “stockcalc valuation” column is a weighted calculation derived from our models and analyst target data if used.
As a bit of background here, in 2023, 28.3 per cent of silver production originated from mines where silver was the main product, 30.8 per cent as a byproduct from lead and zinc mining operations, 18 per cent from recycling with the balance from other mines, the Silver Institute reports. The all-in sustaining costs (AISC) for primary silver mines was $19.44 an ounce in 2023, with companies reporting AISC upward of $24 for the first half of 2024. Almost half of silver demand goes into industry, especially for solar-cell production. The gold-silver ratio currently sits near 80, meaning the price of gold is 80 times that of the price of silver. Over the past 25 years, the average ratio of the price of gold to the price of silver has been 68. Higher ratios, such as what we currently see, imply silver is undervalued relative to gold.
Acquisitions are happening in this space as well. On Sept. 5, First Majestic Silver Corp AG-T and Gatos Silver Inc. GATO-T announced they entered into a definitive merger agreement pursuant to which First Majestic will acquire all of the issued and outstanding common shares of Gatos at 2.55 AG shares for each Gatos share. On Oct. 4, Coeur Mining Inc. reached an agreement to acquire Silvercrest Metals Inc. SIL-T in an all-share deal valued at US$1.7-billion or US$11.34 a share. I left our models in place in the table for comparison noting our valuations are in Canadian dollars.
Let’s look at a couple of other companies on the list:
Pan American Silver Corp. PAAS-T is principally engaged in the operation and development of, and exploration for, silver- and gold-producing properties and assets in North and South America. Its operating mines consist of La Colorada, Dolores, Huaron, Morococha, Shahuindo, La Arena, Timmins West, Bell Creek, Manantial Espejo and San Vicente. Wall Street analysts expect Pan American Silver to post quarterly earnings of US$0.21 a share in its upcoming report, a year-over-year increase of 2,000 per cent. Revenue is expected to be US$743.03-million, up 20.6 per cent from the year-ago quarter. Going forward, our valuation shows more upside for PAAS-T with the analyst target considerably higher than our models.
Endeavour Silver Corp. EDR-T is a Canadian mineral company engaged in the evaluation, acquisition, exploration, development and exploitation of precious metal properties in Mexico and Chile. The company has three producing silver-gold mines in Mexico and three exploration projects in northern Chile. Our models show EDR-T has a bit more upside from here.
Investing involves risk. stockcalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of stockcalc, a Canadian finTech based in Miramichi, N.B.