These Windfall Profits for Silver Miners Are Just Warming Up
I took a moment last month to reflect upon the explosive profit growth that investors can anticipate from silver miners now that silver has promptly doubled in price from year-ago levels. I used First Majestic Silver (NYS: AG) as a convenient case study, but every last operator in the industry is carving itself a slice of this dramatic windfall.
Watching the shares of silver miners plunge lower in the recent equity sell-off that has roiled financial markets worldwide, it seems the investment world has yet to come to grips with the notion that these elevated silver prices are here to stay. In fact, once silver and gold have a chance to catch their breath at these higher elevations, I expect both metals to deliver remarkable upside price momentum as their immutable safe-haven properties become more universally recognized.
On a broader scale, I join precious-metals commentator Lawrence Williams in anticipating a "quantum shift in the gold and silver stock sentiment to match that in the metals themselves." Because silver stocks have been particularly hard-hit to the downside, that is where I perceive some of the greatest upside potential. As a result, I take this opportunity to reiterate my prediction that the Global X Silver Miners ETF (NYS: SIL) will have outperformed the S&P 500 by at least 200% before I close my active selection of the ETF within my silverminer CAPS portfolio.
The price of silver averaged $38 per ounce during the second quarter of 2011, hurdling small-cap producer Endeavour Silver (ASE: EXK) to a 553% surge in operating cash flow. Popular favorite (and deservedly so!) Silver Wheaton (NYS: SLW) steered its winning business model into a dazzling 181% increase in profit. Major producer Pan American Silver (NAS: PAAS) saw its adjusted earnings skyrocket nearly 17-fold to $76 million, while the miner's cash position climbed 94% year over year to $461 million. Incredibly, after a tumultuous rise and fall, Pan American shares have dipped to about 9% beneath where they stood when I highlighted the company as a compelling bargain last October. At that time, it's worth noting, silver stood more than 35% beneath its current price!
Meanwhile, shares of Hecla Mining (NYS: HL) have underperformed the entire group so far this year. And yet, sharply higher metal prices salvaged a decline in production to yield a 95% increase in net profit over the prior-year period. Hecla built its cash hoard to $377 million, permitting investors to look past the company's disappointing litigation settlement liability and focus instead on the stock's valuation and powerful future prospects. Extracting silver at an incredibly low cost of just $0.52 per ounce, Hecla continues to command one of the industry's elite operating margins. Looking ahead, Hecla intends to expand production by at least 50% over the next five years.
With a battered share price, a buried treasure in silver reserves, and an outlook for rapidly expanding low-cost production as the bull market for silver matures, I consider Hecla Mining a heavy favorite to produce one of the industry's more noteworthy advances over the years to come.
- Add Hecla Mining to My Watchlist.
- Add Silver Wheaton to My Watchlist.
- Add Global X Silver Miners ETF to My Watchlist.
- Add Endeavour Silver to My Watchlist.
- Add First Majestic Silver to My Watchlist.
At the time this article was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of Endeavour Silver, Hecla Mining, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
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