from Silver Doctors:

Silver miners just aren’t profitable, and generally haven’t been for years.  That’s a strike against them. Nevertheless, the better major silver miners…

by Adam Hamilton of Zeal LLC

The silver miners’ stocks have surged higher since mid-March’s COVID-19 stock panic, clocking in some big and fast gains.  Nevertheless, this long-struggling sector remains vexing.  By mid-May as their latest earnings season was wrapping up, the silver stocks were lagging the gold stocks’ powerful upleg.  And the silver miners’ Q1’20 operational and financial results were disappointing compared to the gold miners’.

Silver and its miners’ stocks have had one heck of a roller-coaster ride in recent months.  With primary silver miners a dying breed, and silver stocks languishing deeply out of favor for years, there are only a couple silver-stock ETFs trading in the US.  The leading one remains the SIL Global X Silver Miners ETF.  And it is still tiny, a rounding error with just $527m in net assets in mid-May.  Silver stocks are left for dead.

This sector naturally mirrors and amplifies material silver-price moves, and silver in turn is overwhelmingly driven by its dominant primary driver gold.  So silver and silver stocks followed gold’s violent V-bounce into and out of mid-March’s COVID-19 stock-panic lows.  Traders were warming to silver stocks again in late February, when SIL climbed to $33.11 as the metal they mine surged to $18.62 on a strong gold rally.

But silver started wavering even while gold initially fought the sharp stock-market selloff with the COVID-19 pandemic finally scaring American traders.  Their selling snowballed into a suffocating fear maelstrom fierce enough to suck in gold.  So by mid-March as the stock panic flared, silver had collapsed 35.8% in just several weeks!  That sledgehammer to the skull bludgeoned SIL 43.8% lower in a similar short span.

But after that extreme fear anomaly, both silver and its miners’ stocks V-bounced to mean revert higher with gold.  By mid-May, silver had powered 38.8% higher to $16.60.  But those post-panic gains were anemic, with this white metal still 10.8% lower than late February’s pre-panic levels.  While silver’s post-panic bounce amplified gold’s by a healthy 2.1x, gold had surged to 5.0% above its late-February high by mid-May.

The silver stocks as measured by SIL rocketed 89.0% higher in their similar 2.1-month post-stock-panic span ending May 15th, which sounds impressive.  Yet that lagged the leading GDX major-gold-stock ETF which enjoyed huge 92.5% gains over that same short span!  The major gold stocks are much larger and way less risky than silver stocks, which need to considerably outperform gold stocks to be worth trading.

The major silver miners’ Q1’20 results were released against this vexing backdrop of underperformance.  After every quarterly earnings season, I wade through the latest results from the top 17 SIL silver stocks.  That’s simply an arbitrary number that fits neatly into the table below, but still represents a commanding 94.3% of SIL’s total weighting.  Given the COVID-19 disruptions, these results were exceptionally important.

With these miners trading around the world, amassing this valuable dataset for analysis is challenging.  In different countries the major silver miners report different data in different ways.  Each individual company has its own unique reporting peculiarities that take time to understand.  And unlike the superior quarterly reporting in the US and Canada, half-year reporting is common globally necessitating splitting some data.

While most of the SIL-top-17 silver miners had reported their Q1’20 results by mid-May, a couple were dragging their feet.  That’s seriously disrespectful to their shareholders, who deserve timely quarterly results as early as possible.  The highlights of the SIL top 17’s latest results reported as of May 15th are included in this table.  Blank fields mean a company hadn’t reported that particular data by this essay’s cutoff.

Each company’s symbol and weighting within SIL is shown.  While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges.  These miners’ silver production in Q1’20 is followed by its year-over-year change from Q1’19.  Nearly all of the major silver miners also produce significant-to-large amounts of gold, which is increasingly important to them.

So their quarterly gold production is followed by a measure of their silver purity, approximating how much of their Q1’20 revenues were actually derived from silver.  The more silver-centric miners are, the more responsive their profits and stock prices are to major silver-price trends.  This gauge is mostly calculated by dividing miners’ quarterly silver sales, based on silver’s average price last quarter, by their total revenues.

Next cash costs and all-in sustaining costs per ounce reveal how much these SIL-top-17 miners spend to produce their silver.  That’s followed by the YoY changes in these companies’ operating cash flows and accounting earnings.  But raw underlying data is included instead if its percentage changes would be misleading or not meaningful, like if data shifts from positive to negative or vice versa from Q1’19 to Q1’20.

Or if both quarters show negative numbers.  Symbols highlighted in light-blue have newly climbed into the SIL-top-17 ranks over this past year.  Silver-purity percentages boldfaced in blue show the handful of true primary silver miners left, which actually generate over half their revenues from producing the white metal.  This entire dataset together offers a fantastic high-level read on how the silver miners are faring as a sector.

Unfortunately the major silver miners’ fundamentals deteriorated last quarter despite higher prevailing silver prices!  Government lockdowns to check COVID-19’s spread in major silver-producing countries were one reason.  Those blanket countrywide shutdown orders started in the second half of March.  They halted production at silver mines in affected countries, while raising costs to temporarily mothball them.

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