Silver Miners’ Q2’20 Fundamentals

The silver miners’ stocks have had a roller-coaster ride of a year, getting sucked into March’s stock panic before skyrocketing out in a massive upleg. While much-higher prevailing silver prices radically improve silver-stock fundamentals, Q2’s national economic lockdowns to fight COVID-19 wreaked havoc on this sector. The silver miners’ latest quarterly results recently released revealed unprecedented challenges.

The silver-stock realm is tiny, as there aren’t many major silver miners in the world. Only a handful are primary silver producers, companies deriving over half their revenues from silver. So in mid-August as silver miners finished reporting their latest Q2’20 operational and financial results, this sector’s leading benchmark and trading vehicle only held $1.1b in net assets. It is the SIL Global X Silver Miners ETF.

2020’s silver-stock price action has proven neck-snappingly violent. In just several weeks into mid-March, SIL plummeted 43.8% as silver got entangled in that government-lockdown-spawned stock panic That climaxed in a full-blown crash, with SIL cratering 27.4% in the final couple trading days alone! Silver and its miners’ stocks were extraordinarily out of favor, an exceptional buying opportunity for contrarian traders.

Silver ferociously V-bounced out of those extreme stock-panic lows, sending silver stocks stratospheric. Over the next 4.8 months into early August, SIL skyrocketed 176.9% higher!While any sector nearly tripling in such a short period of time is incredible, the silver stocks were actually underperforming. The metal they mine blasted 142.8% higher during that span, so SIL’s upside leverage was quite weak at 1.2x.

In late July, silver started shooting parabolic as stock traders flooded into its leading SLV ETF. That left silver exceedingly overbought, so a correction was necessary to bleed off the euphoria and rebalance sentiment. That started with a bang, silver cratering 15.2% in a single trading day! That hammered SIL 13.1% lower by mid-August, silver stocks entered their own correction as their Q2 results were being released.

And they sure weren’t going to be pretty! Last quarter’s national-economic-lockdown orders to slow the spread of COVID-19 hit major silver-producing countries disproportionally hard. According to the latest comprehensive data from the venerable Silver Institute, the world’s top two silver-mining jurisdictions are Mexico and Peru.In 2019 they accounted for 23% and 16% of the total global mined silver output, 4/10ths!

Unlike the Silver Institute which only publishes global silver supply-and-demand numbers annually, the World Gold Council updates its best-available gold fundamental data quarterly.In its Q2 Gold Demand Trends report, WGC analysts revealed the stunning magnitude of the countrywide lockdowns officials imposed on Mexico and Peru. Their gold production plummeted a catastrophic 62% and 45% YoY in Q2!

Mining in Mexico was suspended for a jaw-dropping 60 days last quarter! And with that leading silver-producing country being the primary mining destination for American and Canadian silver miners, their forced production hits were colossal. Adding to Q2’s unprecedented operational challenges, silver prices were relatively anemic. While silver did soar 30.7% in Q2 proper, its quarterly average price merely rose 9.9% YoY.

That way underperformed the enormous 30.9% gain in average gold prices from Q2’19 to Q2’20! The recent parabolic fireworks in silver didn’t start until mid-July after quarter-end. Of that gargantuan 142.8% silver upleg after the stock panic, only 1/4th happened during Q2. With silver averaging just $16.36 last quarter, I started my usual deep dive into the major silver miners’ latest results with plenty of trepidation.

This was my 17th quarter in a row analyzing how the world’s biggest and best silver miners are faring fundamentally. While SIL included 27 component stocks in mid-August as Q2’s earnings season was wrapping up, I limited my research to its top 15 holdings. They commanded a dominant 90.8% of SIL’s total weighting. These silver giants mostly trade on stock exchanges in the US, UK, Canada, and Mexico.

That makes amassing their quarterly data somewhat challenging, with reporting varying considerably in different countries and companies. In cases where half-year data was all that was offered, I split it in half to approximate Q2 results. The highlights of all those quarterly reports are included in this table. Stock symbols are listings from companies’ primary exchanges, with the majority of the SIL top 15’s outside the US.

That’s preceded by their ranking changes in terms of SIL weightings between Q2’19 to Q2’20. And it is followed by these major silver miners’ current SIL weightings as the Q2 earnings season concluded in mid-August. Then each company’s quarterly silver and gold production in ounces is shown, followed by their year-over-year changes from Q2’19. Their silver output can be used to gauge relative silver purity.

The higher their percentage of quarterly revenues derived from silver production, the more responsive miners’ stock prices are to silver price action. The next column shows this metric of silver-centricness. It is mostly calculated by multiplying companies’ quarterly silver outputs by silver’s average price in Q2, then dividing those results by quarterly revenues. When sales aren’t reported, this can instead be approximated.

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