Top 10 Silver Mining Stocks For 2018

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Includes: AG, BCEKF, CDE, EXK, FSM, GPL, HL, PAAS, SVM, USAS
by: Don Durrett
Summary

Best risk/reward silver stocks.

All have large resources.

All are highly undervalued.

Quality Silver Producers.

Stock Name

Symbol (US)

Category

Share Price (US)

FD Shares

FD Mkt Cap 2/11/18

Americas Silver Corp

USAS

Producer

$3.50

49M

$171M

Bear Creek Mining

BCEKF

Development

$1.61

110M

$177M

Coeur Mining

CDE

Producer

$8.20

181M

$1488M

Endeavour Silver

EXK

Producer

$2.11

133M

$280M

First Majestic Silver

AG

Producer

$5.15

202M

$1039M

Fortuna Silver

FSM

Producer

$4.28

160M

$684M

Great Panther

GPL

Producer

$1.14

185M

$210M

Hecla Mining

HL

Producer

$3.49

399M

$1392M

Pan American Silver

PAAS

Producer

$15.18

154M

$2337M

Silvercorp Metals

SVM

Producer

$2.37

175M

$414M

Above are my Top 10 silver mining stocks for 2018. All of these companies have large resources and are highly undervalued based on their cash flow potential at higher silver prices. They are on this list primarily because of their upside potential. These are all producers except for one development stock (Bear Creek Mining).

I feel strongly that silver is extremely undervalued versus its long-term price target. For this reason, silver could take off at any time, which would push the share price of the stocks on this list much higher. There is a strong possibility that the stocks on this list will no longer be cheap in a year or two.

These share prices are not at their 2016 lows, but they are close. Sure, we could go back down and retest the 2016 lows, or go lower from here. However, the risk/reward is looking very good for these current entry prices. I have my doubts that these low entry prices are going to be available for much longer. I have a feeling that my Top 10 list for next year, or the year after, is going to look much different.

Now is probably the last time to buy quality silver producers at low valuations. Once silver breaks out above $20, these stocks will no longer be cheap. In fact, I would expect many of them to nearly double in value once silver breaks above $20.

Below is my analysis from the GSD website for each stock on the list. Some of these analysis are not recent and the date of the analysis is included. For this reason, the data could be outdated. Please do your own due diligence.

Most of the stocks on this list are dependent on higher silver prices, and have significant risk if silver prices drop. If you are a believer in higher silver prices, then many of these stocks provide excellent leverage to higher silver prices.

Note: The link to each company's chart is their symbol in the list above. The link to the company's website is the company name in the analysis below.

Americas Silver Corp. (7/1/2017)

Americas Silver Corp. (formerly Scorpio Mining) is a mid-tier silver producer in Mexico and Idaho. They merged with U.S. Silver & Gold in 2014, who had the 54 million oz. Galena high-grade silver mine. They currently produce around 2.5 million oz. of silver with all-in costs (free cash flow) around $13 per oz. They have 105 million oz. (135 gpt) of resources. Cash costs are projected to drop substantially after they begin mining their San Rafael project in Mexico in 2017 (scheduled for Q3), providing significant cash flow.

Silver equivalent will increase from 5 million oz. to 7 million in 2018, and cash costs (for silver production) are projected to drop below $5 per oz. They will need to spend about $20 million for the San Rafael capex. I'm not sure how much they need to spend in 2017, although they are just about finished with construction.

They have $17 million in cash and $15 million in debt. They diluted severely in 2016, adding 150 million FD shares, more than 25% dilution. It's never a good sign of shareholder friendliness when you see severe dilution. They gave a lender 30 million warrants (now 2.5 million shares after the reverse split) at a 10 cent strike price to borrow $3 million in February. The lenders profit on that loan is going to be huge if silver spikes.

Their FD market cap has jumped from $43 million to $141 million the last 18 months. It's no longer cheap, but still has 5+ bagger potential with their resources. With their future cash flow at higher silver prices, they could become a growth company. The only red flag is perhaps management's lack of shareholder friendliness, although that might change with higher silver prices. They are currently well positioned with low debt and low cash costs (in 2018), as well as abundant resources.

Bear Creek Mining (7/2/2017)

I loved Bear Creek Mining until June 25, 2011. That was the day the President of Peru did the highly unusual act of revoking the mining rights at their Santa Ana project. He did this because of political pressure from local resistance to the project in Southern Peru. They still have their huge flagship project at Corani (300 million oz. at 50 gpt). Corani is on schedule for production around 2019, if they can finance the project ($625 million capex). The first 5 years of annual production will be 13 million oz. of silver. Production will then drop to 8-12 million oz. for the rest of the mine life (22 years). Currently they are seeking final permits, which should be received in 2017.

Because of base metal offsets (4.5 billion lbs. of lead and zinc), the cash costs at Corani are projected below $5, making it a cash cow at higher silver prices. In fact, for the first 5 years, cash costs are supposed to be negative. Even with low cash costs, the after-tax IRR is only 15% at $17 silver. This project probably needs $20 silver to get financing. In fact, they might have to scale back the size of the mine to get financing. This would delay when they begin construction.

If they can get Santa Ana back (a final court decision is due in 2017), this could be an exciting company with two large projects heading to production. Santa Ana will take 18 months and $70 million to begin production of 5 million oz. annually, if they get their mining rights back. The cash costs at Santa Ana are projected to be about $8 per oz.

It's hard to predict the outcome of Santa Ana, but it really doesn't matter that much. If they are left with only Corani, this stock is a likely 10+ bagger if they get financing and silver prices rise. Also, there is a chance they could get compensation for Santa Ana, which could be used toward financing Corani. A big risk is they could get taken out by a major. However, with Corani's low IRR, a buyout probably won't happen until silver reaches $22 or higher. Once silver blasts off, a major will attempt a takeover, which will likely succeed.

7/6/2016: Comments from the company to my question.

I thought you only had permitting left?

We do only have permitting left. The engineering plans are a component of the Construction Permit and there is no further feasibility work to be done. I would roughly estimate that the engineering plans will take 8 months, give or take, so we hope receive the Construction Permit in mid-late 2017. On a side note, there are a multitude of permits required to construct and operate a mine - the Construction Permit is the largest one, but there will also be a Water Permit, the ESIA (already approved), a Mine Plan Permit (drawn from the feasibility study, so no new work required for that), and dozens of smaller, fairly inconsequential permits. They are being secured as we speak and will be over the coming months, all in preparation for the Construction Permit application anticipated for next year.

Coeur Mining (9/4/2017)

Coeur Mining has underperformed since 2006. They have to reach $70 per share just to get back to where the share price traded in 2006. However, they have been aggressive, purchasing Orko Silver, Paramount Gold, and a mine from Gold Corp. In 2017, they will produce about 16 million ounces of silver and 350,000 ounces of gold. That is substantial and with rising gold and silver prices, cash flow could reach $1 billion annually. At 10x cash flow, they could reach a $10 billion market cap. That would make them a potential 3+ bagger from their current $1.6 billion FD market cap. The stock had been surging, rising from $2.48 to $14.94 in 2016, but is now back to $8.86 because of high costs.

They are currently producing about 35 million oz. of silver equivalent (including gold), with all-in costs (free cash flow) around $17 per oz. They lost money last quarter. So, they are a high-risk investment at low gold and silver prices. However, if silver prices take off, they will benefit big time.

I look for this stock to do well, although they need to find some production growth. Their new management team has focused on improving their balance sheet, and have reduced their debt to $284 million, while increasing their cash to $250 million. With some cash flow, they can find a way to grow.

Endeavour Silver (8/4/2017)

Endeavour Silver is an elite stock in the silver production category. They have 3 high grade silver mines in Mexico, with expected production of 9 million oz. (silver equivalent including gold) in 2017. They are expanding production and reserves, projecting 12 million oz. (silver equivalent) by 2019. They have moderate cash costs ($9 per oz.), but high all-in costs (free cash flow) around $17 per oz.

They have a good balance sheet with $52 million in cash and no debt. They are currently somewhat cheap, with future reserves valued at $2.33 per oz. There is some risk because their breakeven is around $17 per oz. I would expect them to survive, based on their past execution.

Strong silver producers like Endeavour could really fly if we have a mania in stocks, since there are so few elite silver producers. Look for Endeavour to use their cash flow and exploration to become a 12 million oz. producer long term.

Endeavour should be a 5 bagger if they continue to grow, with potential to go even higher depending on silver prices. Their management team and properties are solid. The only thing that could fatally hurt them is sub $15 silver prices for an extended period. This is a company that is extremely healthy with silver prices over $20.

First Majestic Silver (1/14/2018)

First Majestic Silver is a large silver producer in Mexico. They recently acquired Primero Mining for $320 million. I am assuming this deal will close. Their resources, production, shares, and debt reflect this deal closing. Their production will increase from around 17 million silver eq oz. in 2018 to around 25 million silver eq. oz. (their share). They have to give Wheaton Precious Metals 25% of the gold equivalent production at San Dimas at $600 per oz. Hopefully, their cash costs will be near the $600 number.

Investors didn't like the deal because First Majestic lost money last quarter with all-in costs (free cash flow) around $16 per oz. Without positive free cash flow, investors didn't like FM using up their cash to make this deal. They had to assume around $100 million in debt. Thus, FM no longer has a pristine balance sheet with no debt. However, for those who are forward-thinking, the cash flow potential of FM just jumped significantly. They now have the potential to create over $2 billion in free cash flow at $100 silver prices. At a 5x free cash flow valuation, FM should be worth at least $10 billion at $100 silver. My expectation is $12 billion as long as Mexico doesn't increase taxes and royalties, and FM hits their production and cost targets.

They will now have 7 producing mines in Mexico with 168 million oz. of silver eq. reserves and about 400 million oz. of resources. There is some risk with this stock because of their high all-in costs, but they have one of the best management teams in the business. Once silver reaches $18, they are going to be producing a lot of cash flow and investors will run to this stock. It has huge leverage to silver prices. They are one the few pure silver miners, with about 75% of revenue from silver.

Fortuna Silver (3/2/2017)

Fortuna Silver is a mid-tier producer in Mexico and Peru. Fortuna is very similar to First Majestic Silver and Endeavour silver. All of them performed very well in 2010 and 2011. They all have low cash costs, very little debt, and substantial cash. And all of them are growing. This is why none of them are very cheap. Fortuna is selling at an FD market cap of $772 million. They will produce 8 million oz. of silver in 2017, plus 50,000 oz. of gold. Their all-in costs should be around $14 per oz., making them profitable.

They have $175 million in cash, and are growing organically. Their only red flag, besides not being cheap, is future growth. With only 45 million oz. of silver reserves (150 gpt.), they need more resources to keep up their growth pace. They have 90 million oz. of silver resources, which is low for their market cap.

The key for this company is going to be exploration, or perhaps acquisitions. They have 9 exploration projects on their two large properties: Caylloma in Peru and San Jose in Mexico. They have a new high-grade discovery (Trinidad North) that looks exciting. They bought Goldrock Mines in 2016 and their 3 million oz. Lindero gold project. This will give them an additional 100,000 oz. of gold production at low cash costs under $700 per oz. (starting in 2018).

They are giving guidance to produce about 20 million oz. of silver equivalent in 2018 at about $16 per oz. all-in costs (free cash flow). A portion of this is from base metals. 8 million oz. is silver, plus 150,000 oz. for gold (9 million oz. silver equivalent at 60 to 1). If they hit their cost targets, I would expect Fortuna to do very well.

Great Panther Silver (7/4/2017)

Great Panther Silver is a mid-tier producer in Mexico. They have two producing mines in Mexico that produce 90% precious metals (silver and gold). They will produce 4 million oz. of silver equivalent in 2017. They have low resources in Mexico, but have several properties with exploration potential and have been able to replace reserves. Their costs have been erratic and difficult to predict. However, they can lower costs when they need to and have a good management team. They have $53 million in cash and no debt and are growing organically. Their all-in costs in 2017 should be around $16 to $18 per oz., but are likely to drop in 2018.

They recently made an excellent deal in Peru. They purchased the Coricancha gold/silver mine and mill. It has 100 million oz. of silver equivalent (including gold). They plan to resume production in 2018. Production should add 2 or 3 million oz. of silver equivalent (including gold). The cost of the mine is 15% of free cash flow for 5 years at a maximum payout of $10 million.

One thing they have going for them is their name and reputation. If we have a mania in silver stocks, they will benefit. If silver producers become highly valued, this will be one of those companies. Also, their pipeline is starting to improve. San Ignacio and Coricancha are both late state development. Plus, Horicon and Guadalupe Reyes are excellent exploration projects. This could give them 4 or 5 producing mines in the future.

Hecla Mining (4/2/2017)

Hecla Mining has two large low-cost high-grade silver mines: Lucky Friday in Idaho and Greens Creek in Alaska. They will produce 16 million oz. of silver in 2017 at cash costs around $5 per oz. Plus, Greens Creek, Casa Berardi, and San Sebastian will produce 230,000 oz. of gold. They have 450 million oz. of high-grade silver (8 opt), 200 million oz. of low-grade silver (2 opt), and 8.5 million oz. of gold resources (3 gpt). This makes them a long-term money making machine at higher gold and silver prices.

They have an FD market cap of $2.1 billion, but I still think it is undervalued. They have recently purchased two very large silver projects. They acquired Rock Creek in Montana (183 million oz.) from Revett Minerals. Then they acquired Montanore in Montana (148 million oz.) from Mines Management. Both projects are dependent on copper offsets and higher silver prices. Production isn't until 2023 or 2024. Hopefully silver prices will explode before then so they can finance them organically.

They have $500 million in debt, but it does not mature until 2021. They will have free cash flow in 2017 to add to their $198 million cash balance. This is one of my favorite stocks, although their upside potential is somewhat limited. They have solid properties and a management team that continues to execute. I'm hoping that in the near future there is a mania in silver mining stocks and they get valued at 20x cash flow. If anyone gets valued at 20x cash flow, it should be a company like Hecla with low cash costs.

Pan American Silver (6/6/2017)

Pan American Silver is one of the best silver producers. They plan to increase silver production from 25 million oz. to 30 million oz. As long as silver prices stay high, they are going to be a cash flow machine. Cash costs in 2017 will be around $7 per oz. I would estimate all-in costs (free cash flow) around $13 per oz. They have $205 million in cash and only $43 million in debt. They are extremely leveraged for higher silver prices with such a good balance sheet. They will be able to grow and pay a high dividend.

They are no longer cheap, selling at $2.75 per oz. for future reserves. There are really no red flags with this stock. They do have mines in Bolivia and Argentina, which creates location risk. They could lose production from their Bolivian mine at 3 million oz. per year (if it were to be nationalized), but they can make up for that from their 5 development projects. Also, I expect them to buy a few projects with their cash flow. Plus, they have 5 million oz. of gold resources, producing 150,000 oz. annually, which they are using to reduce their cash costs.

If silver mining stocks come into favor for investors, this stock could do really well. It's trading at $18.08 today, but reaching $100 would not be that big of a surprise. Pan American, First Majestic, Endeavour Silver, and Hecla Mining are all basically the same: strong companies that are likely 3-5 baggers. At its current valuation, Pan American might be the best bet from a risk/reward standpoint.

Long term at $100 silver, you could get 30 million oz. x $75 per oz. free cash flow = $2 billion in cash flow. If they get valued at 10x cash flow, that will make them a potential $20 billion market cap at $100 silver. The FD market cap is currently $2.7 billion. The stock bottomed in January 2016 at $5.63.

Silvercorp Metals (6/8/2017)

Silvercorp is a mid-tier producer in China. They have large resources with 250 million oz. at 200 gpt. Their cash costs for the last quarter were under $4 per oz. All-in costs were below $8 per oz. (free cash flow). Thus, they are profitable at very low silver prices and extremely profitable at high silver prices. Plus, they have $96 million in cash and no debt. Production for 2017 will be about 5.5 million oz. (silver).

Their FD market cap is $511 million, and their future reserves are valued at $3.40 per oz., so it's a bit pricey. However, their share price was $15 in 2011 and is currently $2.93. Thus, they could be a 5 bagger at high silver prices, and their share structure is not highly diluted. For these reasons, it is a favorite stock of many mining investors.

They are not giving guidance for future production, but with their resources, they should reach 7 million oz. of annual production. If they buy another company, it could be much higher. If silver prices take off, and with their low all-in costs, their cash flow could be huge. One other red flag, besides their location, is their reliance on base metals for low cash costs. 40% of sales comes from zinc and lead. However, with their high silver grade, even if base metal prices collapse, they will still be profitable at higher silver prices.

Disclosure: I am/we are long AG, CDE, EXK, FSM, GPL, HL, PAAS, SVM, BCEKF, USAS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.