Digging into the top silver stocks
Silver Wheaton (NYSE:SLW) is an outlier in the group. It actually doesn't operate any silver mines; instead, as a streaming company it makes an upfront payment to a miner to fund the development of a mine, and in return it receives the right to purchase a fixed percentage of that mine's future silver and/or gold production at a set price. Because of that, it typically earns very high cash margins. Last quarter, for example, Silver Wheaton only paid $4.46 per ounce of silver, which it sold at $17.18 an ounce, realizing an operating cash margin of $12.72 per ounce. Unlike some producers, Silver Wheaton's costs will not rise along with the price of silver, which means that if silver rallies to $30 an ounce, Silver Wheaton stands to nearly double its profit margin per ounce.
Hecla Mining (NYSE:HL) is not only the largest primary silver producer in the U.S., but its silver production is surging, thanks to recent expansions. Last quarter its silver production was up a stunning 71% over the year-ago quarter after bringing its San Sebastian mine online and completing expansion projects at other mines. That rapidly rising silver production puts Hecla Mining in the position to deliver healthy cash flow in a rising silver price environment.
Coeur Mining (NYSE:CDE), likewise, is in a strong position to capture robust cash flows from higher silver prices. Last quarter the company satisfied the minimum ounce obligation on a royalty at one of its mines. As a result, the company reached a "watershed event," positioning that mine to be a "significant contributor of free cash flow going forward." Furthermore, Coeur Mining is using its rising cash flow and stock price to significantly reduce its outstanding debt, which gives it ample flexibility to pursue growth projects or acquisitions.
First Majestic Silver (NYSE:AG) has the most direct exposure to silver, given that it accounts for roughly 60% of production. Because of that, the company has a bit more upside than rival producers with less direct exposure should the price of silver rise to a greater degree than the price of gold. Furthermore, First Majestic Silver's exposure to silver should increase in the future now that the company has accelerated two growth projects. One project will allow it to recover an additional 1.5 million ounces of silver by reprocessing aboveground tailings, while the other will boost the production rate of one of its mines. That growing silver production in a rising price environment could create significant value for its investors.
Finally, Great Panther Silver (NYSEMKT:GPL) stands to profit from rising silver prices because of the significant drop in its cash costs. Last year its all-in sustaining cash costs were $13.76 an ounce. However, that dropped to just $8.10 per ounce in the first half because of higher gold by-product credits, a strengthening U.S. dollar, and the timing of capital expenditures and development plans. With those capex and development plans scheduled for the second half, it will drive up the company's AISC. That said, the company projects AISC to average $12 to $14 per ounce this year, which is below its initial forecast of $13 to $15 an ounce. Because of that, Great Panther Silver's cash flow would surge if silver hits $30 an ounce.
Investor takeaway
Rising silver prices would be a real boon to top silver producers. While the entire sector would benefit from that rise, producers with a combination of an outsized exposure to that metal, low production costs, and production upside should rise higher than the rest. That is what makes Silver Wheaton, Hecla Mining, Coeur Mining, First Majestic Silver, and Great Panther Silver the top silver stocks to buy for investors betting that the price of silver will continue to run higher.
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