Silver Miners’ Q4’20 Fundamentals

The silver miners’ stocks have mostly consolidated high over the past half-year or so, mirroring resilient price action in the metal they produce. But this relative strength has been overshadowed by the extended correction in gold, which forced gold stocks lower. The resulting bearish sentiment engulfed silver stocks, leaving them out of favor. But their recently-reported Q4’20 results reveal they are fundamentally strong.

There aren’t many major silver miners in the world, and only a handful are primary silver producers that derive over half their revenues from silver. With such a small population, there are only a few silver-stock ETFs. The leading and dominant one is the SIL Global X Silver Miners ETF, which is this tiny sector’s best benchmark. But nearing the end of Q4’20’s earnings season in mid-March, it only held $1.2b in net assets.

SIL’s super-volatile price action since early 2020 reflects the wild ride this sector has seen. A bit over a year ago, the silver stocks got sucked into the broader stock panic fueled by government lockdown fears. In just a few weeks into mid-March, SIL plummeted 43.8%! The major silver miners were following silver, which cratered a brutal 35.2% over a slightly longer span. And silver in turn was amplifying gold’s panic plunge.

But just as traders assumed this sector was doomed, the precious metals reversed hard to soar into huge post-panic uplegs. Over the next 4.8 months into early August, SIL skyrocketed 176.9% higher! That was far better than the +134.1% clocked in by GDX, the leading gold miners’ ETF. Normally silver stocks do follow gold stocks, as gold’s fortunes are silver’s primary driver. Thus silver stocks are usually slaved to gold.

Indeed SIL corrected with the gold stocks into late November, retreating 23.5% over 3.6 months. But the silver miners have proven far more resilient since, well outperforming the gold miners. Into early January with silver handily besting gold, SIL surged 26.2% in 1.4 months. And unlike gold stocks which suffered a failed correction-low retest in late February and early March, SIL’s original late-November low has mostly held.

The main reason was outsized silver strength in late January fueled by speculation Reddit’s famous wallstreetbets’ traders would attempt to force a silver short squeeze. Thus unlike gold stocks which have ground lower on balance since their last bull upleg peaked in early August, the silver stocks have been consolidating high. Do their latest Q4’20 operational and financial fundamentals support such outperformance?

For 19 quarters in a row now, I’ve painstakingly analyzed the major silver miners’ latest quarterly results soon after they are reported. While SIL contained a crazy 42 component stocks in mid-March, I’m limiting my analysis to its top 15 holdings. These are the world’s biggest and best silver miners, which command a dominant 87.9% of SIL’s total weighting. The lion’s share of capital chasing silver stocks ends up in them.

Unfortunately, Q4 results closing out calendar years arrive much later than normal quarterlies. Since the annual reports containing Q4 numbers are bigger, more complex, and must be audited by independent CPAs, securities regulators grant extended filing deadlines. Those are 60 days after year-ends in the US and a ridiculous 90 days in Canada where many of the world’s silver stocks trade! So Q4 analysis runs later.

Some Canadian silver miners rather disrespectfully force their shareholders to wait three full months for Q4 results, after Q1 is nearly finished! The major silver miners trade in the US, UK, Mexico, and Canada, which makes amassing this data somewhat challenging. There are different financial-reporting requirements around the globe, and even within the same country miners report different data in different ways.

Some annual reports are well-laid-out and easy to parse, while others seem intentionally opaque requiring lots of digging and calculations to tease out comparable data. The United Kingdom requires half-year reporting instead of quarterly, although its silver miners usually still give supplemental quarterly updates. But in cases where six-month data was all that was available, it is split in half to approximate Q4’20 results.

This table summarizes the operational and financial highlights from the SIL top 15 in Q4’20. These elite silver miners’ symbols are listed, some of which are from their primary foreign stock exchanges. That is preceded by their ranking changes in terms of SIL weightings from Q4’19. Then their current weightings as of mid-March follow those stock symbols. This ETF generally weights silver stocks by market capitalizations.

Next, each company’s quarterly silver and gold production in ounces is shown, followed by their year-over-year changes from Q4’19. Their silver output can be used to gauge relative silver purity. The higher miners’ percentage of quarterly revenues derived from silver production, the more responsive their stock prices are to silver price action. Traders buy silver stocks because they want leveraged exposure to silver.

So the next column reveals how silver-centric miners actually were last quarter. It is mostly calculated by multiplying companies’ quarterly silver outputs by silver’s average price in Q4, then dividing those results by quarterly revenues. When sales aren’t reported, this ratio can be approximated by dividing implied silver revenues by implied gold-plus-silver sales. But that isn’t optimal since it excludes base-metals byproducts.

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