Silver Miners’ Q3’20 Fundamentals

But regardless of prevailing AISCs, far-higher silver prices radically improved the profitability of this small sector. Q3’20’s average silver price of $24.39 rocketed up 43.7% YoY, way outpacing gold’s own 29.8% gain! That was the highest quarter for silver since Q1’13, after which silver collapsed with gold on the Fed’s extreme QE3 levitating the stock markets. Silver languished for long years after that brutal thrashing.

Looking at the major silver miners’ average AISCs compared to average prevailing silver prices is a great proxy for industry profitability. And with impressively-high silver prices and super-low AISCs last quarter, unit earnings naturally exploded. The SIL top 15 enjoyed enormous profits of $14.77 per ounce, which soared a stupendous 137.2% YoY! Both metrics proved the best by far in the 18 quarters I’ve been doing this.

Over the previous 17 quarters before Q3’20, silver-mining profitability per this proxy averaged just $4.46. And the silver miners are almost certain to continue generating huge earnings in this currently underway Q4’20. By mid-November, as Q3’s earnings season wrapped up, silver was still averaging $24.26 quarter-to-date. That’s right in line with Q3’s $24.39!And even if silver keeps correcting, prices should remain high.

While gold governs the extent of silver corrections, silver’s 200-day moving average is strong support for major bottomings. Mid-month that was running $20.17 and rising. If silver challenges that at some point before Q4 ends, it would still be hard to imagine this quarter’s average silver price falling under $22 or so. And if SIL-top-15 AISCs climb back up near $12, that implies major silver miners still earning $10 per ounce.

If these mid-quarter estimates are in the ballpark, these elite silver miners’ unit earnings would soar yet another 63.7% YoY in this current quarter! Unless silver craters which is incredibly unlikely, we shouldn’t see any scenarios where silver-mining earnings don’t remain really strong. The higher this sector’s profits and the more sustainable they are, the greater silver stocks’ upside potential during silver’s next upleg.

On the hard-financial-results front under Generally Accepted Accounting Principles reported to securities regulators, or their foreign equivalents, the major silver miners achieved a great quarter financially in Q3’20. The SIL top 15’s total revenues surged 18.6% YoY to $3.9b! The much-higher prevailing silver and gold prices easily overcame the COVID-19-hobbled lower production of these two precious metals.

In actual bottom-line accounting-earnings terms, these major silver miners collectively reported earning a very-strong $374m in profits! That skyrocketed 182.9% YoY from Q3’19’s total, confirming that silver mining is very lucrative at these relatively high price levels. Both quarters’ earnings numbers came from normal ordinary operating results too, with no big non-cash charges or gains distorting these sector totals.

Naturally, the high silver prices also fueled massive operating-cash-flow-generation growth. Q3’20’s total OCFs reported by the SIL-top-15 silver miners soared 82.0% YoY to almost $1.5b! That helped these companies grow their treasuries by 35.7% YoY to $3.4b. They will likely deploy a large fraction of this big windfall to help expand existing mines, upping their future production. That’s really bullish for silver-stock prices.

With the major silver stocks sporting such strong fundamentals in Q3 and almost certainly again in Q4, their next bull-market upleg has strong potential to balloon to more outsized gains. But first, this sector has to weather this necessary and healthy in-progress correction, which is controlled by gold’s own. This is the time to do your silver-stock homework, crafting a buy list for the bargains to come as this selloff climaxes.

The bottom line is the major silver miners reported strong Q3 results. Their collective gold and silver outputs rebounded sharply from Q2’s lockdowns. But lingering COVID-19 impacts still left production considerably lower than the comparable prior-year quarter. Yet somehow the miners still managed to cut costs in that challenging environment, contributing to outstanding earnings in both unit and bottom-line terms.

The highest prevailing silver prices in the better part of a decade fueled big growth in profits, sales, and operating cash flows. And with silver remaining high despite being in a healthy correction, silver miners’ super-bullish trend of fast-improving fundamentals is likely to continue. That portends much-higher silver-stock prices as their metal’s next bull-market upleg gets underway. This silver-stock bull has lots of room to run.

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