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Silver Shines Bright, Time for These Mining Stocks?

Zacks Equity Research

Silver is on a tear this year with prices shooting higher as part of a broader rally in precious metals. The shiny white metal has raked in a solid gain of around 42% so far in 2016, even trouncing gold’s roughly 27% gain.

Silver’s strong momentum is backed by a spate of factors including robust safe haven demand due to Britain’s recent market-shattering decision to exit the European Union (EU), the U.S. Federal Reserve’s dovish stance, a weaker U.S. dollar and increased volatility in equity markets.

What’s Driving the Silver Rally?

Silver racked up its biggest weekly gain in almost three years and closed on a high note last Friday as investors continued to flock to safe haven assets amid intense uncertainties brought forth by Brexit.

Silver futures for September delivery on the New York Mercantile Exchange’s Comex division climbed more than 5% to settle at $19.54 an ounce last Friday. Prices gained around 9.9% last week, the biggest weekly jump since 2013, largely driven by the post-Brexit vote turbulence in the global financial markets.

The momentum continued on Monday with prices of the metal further gaining to cross the $21 an ounce threshold for the first time in two years, before paring some gains to close the day flat at $19.54. Strong physical buying in China, a weakened greenback and prospects of further monetary easing by global central banks to avert economic damages from Brexit also supported the spurt in prices.

The Gold-Silver ratio, which measures how many ounces of silver are needed to buy an ounce of gold, slipped to its lowest level since Sep 2014 on Monday as gains in silver outshone those for gold. Silver’s lower costs vis-à-vis gold makes it more attractive and affordable to individual investors.  

The U.S. Federal Reserve’s move to keep interest rates steady is another key factor behind silver’s recent rally. The Fed, last month, left benchmark interest rates unchanged citing the lackluster May jobs report that triggered doubts about the strength of the labor market and the health of the U.S. economy. The central bank also noted that it needs a clearer economic picture before increasing rates again.

A delay in raising interest rates elevates demand for precious metals, including silver, which produce no income but rely on price appreciation to lure investors. Introduction of negative interest rates by several of the world’s central banks (including Japan) have also turned the tables in favor of silver. Prices of the metal are also finding support from its wide industrial usage and increasing demand in solar panels.

What's Next for Silver?

Uncertainties stirred up by Brexit and concerns surrounding global economic growth are expected to continue to drive investors’ appetite for safe haven assets including silver moving forward. Moreover, Brexit and the vulnerability of the U.S. economy in the wake of global economic turmoil seem to have taken an interest rate hike off the table for now. A low interest rate environment bodes well for silver.

Price appreciation will also be supported by strong demand for the metal. Silver has multiple industrial applications and is thus driven by industrial demand. Industrial demand for the metal is set to rise this year. The booming solar industry could account for more than 13% of total industrial demand for silver in 2016. Moreover, demand from ethylene oxide producers is expected to jump more than 25% year over year.

Demand in jewelry fabrication is also expected to go up and coin demand will be healthy in 2016. Rising interest in safe haven assets will also boost physical silver investment demand.

Moreover, a potential silver deficit will provide a strong ground for further gains in silver prices this year. Global mine supply production is forecast to dip 5% in 2016 – the first fall in global silver mine production since 2002 – as prolonged weakness in the metal’s pricing had deterred producers to invest in expanding capacity at existing operations. Silver scrap supply, which has been on the decline for several years, is also expected to further weaken in 2016.

5 Shining Silver Stocks to Buy

With prospects of rising demand and constrained supply accompanied by Brexit-induced macroeconomic uncertainties, the stage is set for further rise in silver prices. As such, it would be a prudent idea to invest in some attractive silver mining stocks now that seems to be on the right curve to deliver healthy returns to shareholders. Our selection is backed by a good Zacks Rank.

First Majestic Silver Corp. AG    

Vancouver, Canada-based First Majestic Silver engages in the acquisition, exploration, development, and production of mineral properties with a focus on silver projects in Mexico.

First Majestic holds a Zacks Rank #1 (Strong Buy). The earnings estimate for the current year has recovered radically over the last 60 days from a loss of 3 cents to earnings of 12 cents. The company has expected earnings growth of around 212% for the current year. The stock has also logged a massive gain of around 353% year to date.

Compania de Minas Buenaventura S.A.A. BVN    

Headquartered in Lima, Peru, Compania de Minas Buenaventura explores, mines and processes gold, silver, lead, zinc, and copper metals in Peru. This Zacks Rank #2 (Buy) stock has surged roughly 189% so far this year. Its earnings estimate for 2016 has improved 96% over the last 60 days. The stock has expected earnings growth of around 143% for the current year.

Avino Silver & Gold Mines Ltd. ASM

Vancouver-based Avino Silver & Gold Mines is engaged in exploration of mineral properties. It mainly explores for silver, gold, copper and lead.

This Zacks Rank #2 stock has surged roughly 193% so far this year. Its earnings estimate for 2016 has improved around 12% over the last 60 days. The stock has expected earnings growth of around 833% for the current year.

Hecla Mining Co. HL

Idaho-based Hecla Mining is a leading low-cost U.S. silver producer with operating mines in Alaska and Idaho, and is a growing gold producer with an operating mine in Quebec, Canada. It also has exploration and pre-development properties in five world-class silver and gold mining districts in the U.S., Canada, and Mexico, and an exploration office and investments in early-stage silver exploration projects in Canada.

This Zacks Rank #2 stock has surged roughly 188% year to date. The earnings estimate for 2016 has recovered over the last 60 days from a loss of a penny to earnings of 3 cents. The stock has expected earnings growth of around 133% for the current year.

MAG Silver Corp. MAG

Vancouver-based MAG Silver focuses on acquiring, exploring, and developing district scale projects located mainly in the Mexican Silver Belt. The company explores copper, gold, silver, lead and zinc deposits.

MAG Silver carries a Zacks Rank #2 and has gained around 77% year to date. Over the past 60 days, the Zacks Consensus Estimate has narrowed from a loss of 12 cents to a loss of 5 cents for the current year. The stock has expected earnings growth of around 81% for the current year.

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BUENAVENTUR-ADR (BVN): Free Stock Analysis Report
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MAG SILVER CORP (MAG): Free Stock Analysis Report
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