Silver Stocks with Dividends: The coronavirus pandemic continues to rattle the world as well as the United States economy.
The latest employment reports continue to paint a dismal picture, as the number of Americans seeking unemployment benefits continue to climb north. So far, a total of about 36.5 million applications for unemployment insurance have been filed, a little more than 18 percent of the entire U.S. civilian labor force, ever since the virus took hold in mid-March and forced a business shutdown.
Investors often seek out safe-haven investments, such as purchasing gold and silver stocks during times of economic distress. As such, shares of precious metal mining companies are gaining in the market.
Initially, investors weren’t sure what to make of the coronavirus pandemic. When the grim reality of the contagion finally set in, and people were told to stay at home unless absolutely unavoidable, and all economic activities came to a grinding halt, panic set in the market and spooked investors went on a selling spree.
The value of assets ranging from stocks to bonds to precious metals suffered a steep decline as another recession started to loom on the horizon.
While there is still a lot of volatility surrounding stocks and bonds, gold and silver prices have managed to reclaim their lost ground to a considerable extent.
Gold prices are now near 2013 highs, touched a peak of $1,700 an ounce for the first time in seven years, and 28% higher than what they were at the same time last year. Silver prices have been a bit slow in catching up, but nevertheless climbed to $15 per ounce from $12 per ounce in March.
Higher gold and silver prices mean enhanced revenue and profit for mining and streaming companies, which in turn will enhance their share value.
However, it should not be forgotten that mining operations have been suspended in certain locations to comply with local government orders related to COVID-19, which could have a bearing on a mining company’s overall productivity and profit.
Hecla Mining, in response to COVID-19 guidelines, suspended mining operations at its Casa Berardi (Canada) and San Sebastian (Mexico) mines. The company’s three U.S. mines deemed essential businesses are in operation though. Hecla Mining withdrew full-year 2020 guidance.
First Majestic Silver and Pan American Silver have either suspended or reduced operations in South America and Canada to comply with government orders.
As and when local quarantines end (or are scheduled to end, anyway), investors remain hopeful that mining operations will resume to full capacity and stock prices will go up, driven by higher precious metal price. Keeping all these factors in mind, we talk here about four major silver mining companies.
Rising Gold Prices A Boon For Wheaton
Wheaton Precious Metals Corp [TSE: WPM] is one of the largest precious metals streaming companies in the world.
It engages in the sale of precious metals and cobalt production. It operates through the following segments: Gold, Silver, Palladium, Cobalt, and Other.
The Company purchases silver and gold production from mines that it does not own and operate.
WPM’s production profile is driven by a portfolio of low-cost, long-life assets, including a gold stream on Vale’s Salobo mine, and silver streams on Glencore’s Antamina mine and Newmont Goldcorp’s Peñasquito mine.
The Vancouver, Canada-based precious metal streaming company currently has streaming agreements for approximately 19 operating mines and nine development stage projects.
Wheaton Precious Metals [NYSE: WPM] has witnessed its stock soar by more than 40% in the past one year led by expectations in revenue growth (after multi-year revenue decline), as gold prices pick up.
Wheaton Precious Metals is a streaming company, which means it provides financial assistance to mining companies in exchange for right to buy the metal produced at a discounted price.
This means the company’s revenue and profits are determined to an extent by the production level of the company to which it offers financing and the price the metal fetches in the open market.
Wheaton has been primarily concentrating on silver. It is the world’s largest silver streaming company, with fourteen silver purchase agreements. However, the company has been diversifying into other precious metals as well in recent times.
WPM has increased its share of gold production with new purchase agreements, and Palladium was a new addition to the company’s business in 2018.
The company’s precious metal interests produced 182,200 gold equivalent ounces in the first quarter of 2020, comprised of 94,700 ounces of gold, 6.7 million ounces of silver, and 5,300 ounces of palladium.
However, silver, which is an odd mix of industrial metal and precious metal, has not been performing well in recent times, which is the reason WPM’s total revenue has declined almost $100 million in the last two reported years, from $892 million in 2016 to $794 million in 2018.
Future prospects, though, look bright for the company as its total revenue is expected to increase by 11% to $881 million, an increase of 11%, and further by 8.4% to climb up to $955 million by 2020. The higher revenue that the company expects is likely to be driven by rising gold and palladium prices.
Revenue for the first quarter of 2020 amounted to $255 million, representing a 13% increase relative to Q1 2019. Of this revenue, 63% was attributable to gold, 33% was attributable to silver, and 4% was attributable to palladium.
Basic earnings per share increased 62% to $0.21 compared to $0.13 per share in the preceding year.
Operating cash flow for the first quarter of 2020 amounted to $178 million or $0.40 per share compared to $118 million or $0.27 per share in the prior year, representing a 48% increase on a per share basis.
Based on the company’s dividend policy, the company’s Board has declared a dividend of $0.10 a share. Wheaton Precious Metals has lifted its dividend by approximately 14% a year on average.
All in all, the future prospects look bright for WPM. It has been doing well on the diversification front, expanding into new areas and adding cobalt-and platinum-group metals to the mix.
The company is shifting focus to its gold division, and gold revenue is expected to witness a sharp rise with the segment adding ~$175 million by 2020.
Shipment is also expected to increase in the near term, but, more importantly, what is going to further help the precious metal company is the global rise in gold prices, driven by Covid-19 induced uncertainty.
Tahoe Acquisition By Pan American Silver A Win
Tahoe Resources [formerly, NYSE: TAHO] is a Canadian mining company engaged in the exploration and development of mineral properties with silver and gold mines in Canada, Guatemala and Peru.
Tahoe Resources operates in the United States, Canada, and Guatemala. Incorporated in British Columbia, Canada, the company’s U.S. headquarters is located in Reno, Nevada.
The company was formerly known as CKM Resources Inc. and changed its name to Tahoe Resources Inc. in January 2010. On 14 November 2018, it was announced that Pan American Silver [PAAS] would be acquiring Tahoe Resources for $1.1 billion in a stock-and-cash deal. Under the friendly agreement, Tahoe shareholders were given the right to receive US$3.40 in cash or 0.2403 Pan American shares for each Tahoe share.
The purchase agreement gave Tahoe investors a unique opportunity to hold stocks of what would be the world’s largest publicly traded silver miner.
The decision to purchase Tahoe could not have come at a better time for its investors as its share price had tumbled close to 25% after the Government of Guatemala suspended its license to operate the Escobal mine.
The company was accused of using “Guatemalan police and army violence to force its mining operation on the local communities.”
The stock at one time had tumbled more than 50% before the decision by rival silver miner Pan American Silver [NASDAQ: PAAS] agreed to acquire the company in a cash-and-stock deal.
The transaction structure meant that investors in Tahoe would be entitled to some cash as well as shares of Pan American. The gist of the matter is that the fortunes of Tahoe Resources are now tied with that of Pan American. As such, we discuss more about Pan American in the following section.
Pan American to benefit from increasing exposure to Gold
Pan American Silver Corp [NASDAQ: PAAS] is a mining company, which engages in silver mining and related activities, including exploration, mine development, extraction, processing, refining, and reclamation.
The Company owns and operates silver mines located in Mexico, Peru, Bolivia, and Argentina. In addition, the Company is exploring new silver deposits and opportunities throughout North and South America.
It is principally engaged in the operation and development of, and exploration for, silver producing properties. The Company has seven operating mines in Mexico, Peru, Argentina and Bolivia and several development projects in USA, Mexico, Peru and Argentina.
It produces more than 26 million ounces of silver annually and has proven and probable reserves of more than 317 million ounces.
Before we delve further, it is important to understand a bit in depth about gold-to-silver ratio. Both gold and silver are precious metals, but they generally do not trade in tandem, and the ratio captures difference between their price movements.
To put it in perspective, the gold-to-silver ratio describes how many ounces of silver you need to buy one ounce of gold. In the 1800s, the gold-to-silver ratio was right around 15-to-1, implying that gold was 15 times more expensive than silver. The gap has continued to widen and today it is more than 100 to 1.
Put simply, gold has been the better performing metal and this has been the primary reason why silver-focused miners have been gradually increasing their exposure to gold. Pan American Silver, despite its name, has been treading the same path, and today it derives a larger portion of its revenue from gold.
Net cash generated from operations was $114.1 million for the first quarter ended March 31, 2020, whereas the total net loss came at $77.2 million ($0.37 basic loss per share).
The Board of Directors approved a cash dividend of $0.05 per common share. The company suspended normal operations at its mines in Mexico, Peru, Argentina and Bolivia, in the latter part of March 2020 to comply with mandatory national quarantines imposed in response to the COVID-19 pandemic. Gold production totaled 156.1 thousand ounces.
The suspensions of the Huaron, Morococha, Manantial Espejo and San Vicente operations and the failure of an underground ventilation circuit at the La Colorada operation saw silver production drop to 5.6 million ounces. The company withdrew its guidance for 2020.
The critical supply availabilities and delivery logistics so far have remained largely uninterrupted. The company said that restarting of the operations will be under a phased and careful approach.
All in all, the financial health and growth prospects of PAAS demonstrate its potential to outperform the market as investors flock to precious metals stocks amid worries that the coronavirus could disrupt global growth.
Hecla Mining Is The Low-Cost Producer
Hecla Mining Company [NYSE: HL] operates as a low-cost silver mining company with growing interests in gold. It is a leading, low-cost silver producer with operating silver mines in Alaska (Greens Creek), Idaho (Lucky Friday), and Mexico (San Sebastian) and is a growing gold producer with operating mines in Quebec, Canada (Casa Berardi) and Nevada (Fire Creek).
Established in 1891, Hecla is headquartered in Coeur d’Alene, Idaho, and has a sister office in Vancouver, B.C. The Company and its subsidiaries provide precious and base metals to the United States and around the world.
Hecla Mining Company [NYSE: HL] is a good bet for investors as heightened economic uncertainty and volatility in the market is driving gold prices as investors purchase gold and other safe-haven assets to protect the value of their wealth.
Hecla generated $136.9 million in sales in Q12020. The mining company reported a loss of $0.03 per share, an improvement upon a loss of $0.05 per share that it incurred in the same period of the previous year.
Hecla sold fewer ounces of gold and silver year over year, though the average realized gold prices were up by 20%, but average realized silver prices were down by 8%. Shuttering of mines, owing to the Covid pandemic, also had a bearing on the overall results.
The Board elected to declare a quarterly cash dividend of $0.0025 per share of common stock, payable on or about June 2, and a quarterly cash dividend of $0.875 per share of preferred stock.
Casa Berardi Mine in Quebec, Canada, where gold is mined, was shut down as the country grappled to contain the spread of the coronavirus. It was partially opened in April, but is unlikely to swing back to pre-Covid production levels before May. Also, the San Sebastian Mine in Mexico, where silver is mined, was shut down by the government but is likely to resume production by the end of May.
Assuming that both the two important mines go into the full production mode by the third quarter, the second half of the year should bring some glad tidings for the mining company.
Hecla is expected to get a further boost with the opening of Lucky Friday Mine, which had been embroiled in a long-running labor dispute. The matter is resolved and it is all set to resume operations.
While Hecla confronted many impediments in the first quarter, it hopes to get back into its groove by the time the third quarter starts.
Hecla did not come firing on all cylinders in its second-quarter results. But if things keep moving forward as expected, there is a lot that Hecla has to offer in another three to six months.
With an active exploration and development program, the company has exploration and pre-development properties in eight of the most prolific mineral areas of North America and Mexico.
The threat of the coronavirus has slowed down a bit, but it has not completely vanished. Industrial applications account for roughly 60% of the global silver consumption.
The demand and price of silver is going to rise once the situation stabilizes and industrial activities get back to normal. With gold prices already at an all-time high, the rise in silver prices will be an icing on the cake for Hecla.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.