Silver Miners’ Q3’20 Fundamentals

The silver miners’ stocks have been grinding lower on balance since early August in a healthy correction. This necessary rebalancing is achieving its mission of dampening enthusiasm, paving the way for this sector’s next bull upleg. Rebounding from governments’ COVID-19 lockdowns, operating and financial results improved dramatically in the recently-reported Q3. Better fundamentals justify more stock-price gains.

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 it only held $1.0b in net assets in mid-November at the end of Q3’20’s earnings season.

SIL’s super-volatile price action this year reflects the wild ride silver stocks have had. Over 4.8 months into early August, this ETF skyrocketed 176.9% higher out of mid-March’s stock panic! That left silver stocks extremely overbought, thus due for a correction to rebalance sentiment. And that is exactly what has happened since, with SIL’s total selloff extending to 23.5% at worst over 3.6 months so far by late November.

The silver miners’ stock prices naturally mirror and amplify the underlying moves in the metal they mine, which overwhelmingly drives their profitability. And silver in turn leverages gold’s fortunes, which is the white metal’s dominant primary driver. So silver’s ongoing correction won’t give up its ghost until gold’s does, and silver stocks’ next bull-market upleg is waiting on silver’s own. Silver miners are at the mercy of gold.

This yellow metal’s rebalancing selloff has matured, after making great strides in rebalancing sentiment since gold shot parabolic last summer. American stock traders’ heavy gold-ETF-share buying that fueled that powerful upleg has rolled over into serious selling in November. And the positioning of gold-futures speculators has been excessively-bullish, leaving a risky selling overhang for the oversold US dollar to trigger.

But even if these gold-driven silver and silver-stock corrections haven’t fully run their courses yet, traders need to stay abreast of the silver miners’ fundamentals. The stronger they are, the greater this sector’s upside potential in its next bull-market upleg. The silver miners’ recently-reported Q3’20 results showed huge fundamental improvements from the prior quarter, which suffered widespread national lockdowns.

This was my 18th quarter in a row analyzing how the world’s biggest and best silver miners are faring fundamentally. While SIL included 40 component stocks in mid-November as Q3’s earnings season was wrapping up, I limited my research to its top 15 holdings. They commanded a dominant 89.8% 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. Half-year reporting is common outside the US, and Q3s are off-cycle quarters seeing shorter updates. The highlights of all those 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 Q3’19 to Q3’20. And it is followed by these major silver miners’ current SIL weightings as the Q3 earnings season concluded in mid-November. Then each company’s quarterly silver and gold production in ounces is shown, followed by their year-over-year changes from Q3’19. 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. 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 Q3, then dividing those results by quarterly revenues. When sales aren’t reported, this can instead be approximated.

For half-year-reporting silver miners where Q3 was an interim quarter, those implied silver revenues can be divided by implied gold-plus-silver sales. But that method is inferior since it excludes base-metals byproducts. According to the Silver Institute, only 29% of all the silver mined worldwide in 2019 came from primary silver mines. 32% was a byproduct from mining lead and zinc, with another 23% from copper.

The rare primary silver miners’ silver-purity percentages are highlighted in blue. Their stock prices usually show the highest leverage to silver. That is followed by cash costs and all-in sustaining costs per ounce, along with their year-over-year changes. They reveal how much it costs the SIL-top-15 silver miners to blast their metal loose from the earth and process it. Finally comes quarterly revenues and hard GAAP profits.

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