Silver Miners’ Q4’19 Fundamentals

The carnage in the silver miners’ stocks has been apocalyptic, fueled by the astounding COVID-19 stock panic. As terrified traders frantically dumped everything and ran for the hills, silver and its miners’ stocks crashed. That catastrophic anomaly has potentially created epic contrarian buying opportunities. The silver miners’ recently-reported Q4’19 results reveal whether their fundamentals support a massive rebound.

As long-time silver-stock traders are painfully aware, this tiny sector is no stranger to adversity. Only the most-hardened contrarians dare chasing the white metal’s occasional monster skyrocketings. Back in late February, silver was rallying nicely as gold surged over $1600 on mushrooming COVID-19 fears. But over the next 17 trading days silver collapsed 35.8%, with nearly 3/4ths of that loss in the final week alone!

Silver’s primary driver is gold, which plunged 9.3% in that devastating mid-March week crashing silver 28.5%. That blasted the Gold/Silver Ratio to a crazy new all-time-record high of 124.1x, silver had never been more undervalued compared to gold! In late February with gold near $1650, I had warned its $1600 breakout surge was peculiar and precarious lacking normal drivers. Risks were high for a major selloff.

While that would hammer silver lower like usual, its resulting 10.9-year secular low of $11.96 on March 18th was shocking. If sub-$12 silver somehow persisted, it would threaten the viability of many of the world’s silver mines. But if the silver miners’ latest fundamental results suggest they can likely weather this pandemic superstorm, their upside potential as silver mean reverts much higher relative to gold is huge!

Because most silver miners logically run calendar financial years, Q4 reporting has an extended deadline up to 60 days after quarter-end in the US. In other countries including Canada where silver stocks trade, the full-year due dates extend out to 90 days. Annual reports including final quarters are bigger, more complex, and must be audited by independent CPAs. Now major silver miners have finally reported Q4’19 results.

The definitive list of major silver stocks to analyze comes from this sector’s leading benchmark, the SIL Global X Silver Miners ETF. Launched way back in April 2010, it has maintained a big first-mover lead ever since. After every quarterly earnings season, I delve into the latest results from the top 17 SIL silver stocks. That arbitrary number fits neatly in the table below and represents a commanding 94.8% of SIL’s weighting.

With these miners trading around the world, amassing this valuable dataset for analysis is challenging. In different countries the major silver miners report different data in different ways. Half-year reporting is common across the globe, necessitating splitting data in half for quarterly approximations. And each SIL-top-17 company has its own unique reporting peculiarities, which take time to understand and make comparable.

The more quarterly iterations of this complex research thread I run, the better the results get. Q4’19 was my 15th quarter in a row of this deep fundamental SIL-silver-stock analysis, adding on to my massive spreadsheets. The highlights of the major silver miners’ latest results make it into the table below, where blank fields mean a company hadn’t reported that particular data as of this essay’s mid-month cutoff.

Each company’s symbol and weighting within SIL is shown. While most of these stocks trade on US exchanges, some symbols are listings from companies’ primary foreign stock exchanges. These miners’ silver production in Q4’19 is followed by its year-over-year change from Q4’18. Nearly all of the major silver miners also produce significant-to-large amounts of gold, which is increasingly important to them.

So their quarterly gold production is followed by a measure of their silver purity, approximating how much of their Q4’19 revenues were actually derived from silver. The more silver-centric miners are, the more responsive their profits and stock prices are to major silver-price trends. This gauge is simply calculated by dividing miners’ quarterly silver sales, based on silver’s average price last quarter, by miners’ total revenues.

Next, cash costs and all-in sustaining costs per ounce reveal how much these SIL-top-17 miners spend to produce their silver. That’s followed by the YoY changes in these companies’ operating cash flows and accounting earnings. But raw underlying data is included instead if its percentage changes would be misleading or not meaningful, like if data shifts from positive to negative or vice versa from Q4’18 to Q4’19.

Or if both quarters show negative numbers. Symbols highlighted in light-blue have newly climbed into the SIL-top-17 ranks over this past year. Silver-purity percentages boldfaced in blue show the handful of true primary silver miners left, which actually generate over half their revenues from producing the white metal. This entire dataset together offers a fantastic high-level read on how the silver miners are faring as a sector.

And despite silver’s COVID-19-spawned collapse, the major silver miners’ fundamentals greatly improved in Q4’19. Much-higher average silver prices certainly contributed, but a bigger factor was these miners really growing their gold outputs. That combined with much-higher average gold prices fueled way better financial results. And based on the SIL-top-17’s mining costs, they can indeed weather $12 silver prices.

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