- Silver is once more challenging the $33-an-ounce mark
- That leaves it within touching distance of last autumn’s 12-year high
- Silver miners’ shares trade nowhere near 2012’s peaks
- Pan American Silver’s swoop for MAG Silver struck at a higher valuation than that currently afforded to Fresnillo
“Government bond yields are on the rise in the USA and Japan, either down to fears over inflation, an upward spiral in national debts, or both, and precious metals are also reflecting these concerns,” says AJ Bell investment director Russ Mould.
“Gold and silver are rising again, after a pause for breath, and mining management teams are paying attention, too, as Pan American Silver is bidding for MAG Silver, at a price that makes other listed silver miners look potentially undervalued.
“Gold is nudging its way back to $3,300 an ounce, after a pullback from April’s all-time high, and silver is having another go at forging above $33 an ounce, which would be the next step on a potential return to last October’s 12-year high near $35.
Source: LSEG Refinitiv data
“The fresh gains by silver are helping to push Fresnillo and Hochschild Mining to the top of the FTSE 100 and FTSE 250 leaderboards, as the higher silver goes, the higher their profits and cash flow are likely to be, given that their all-in sustained costs (AISC) of producing an ounce of silver in 2024 were $22 and $20 respectively.
“Granted, Fresnillo’s output is expected to decline slightly from 2024’s 56.3 million ounces, but a surge in silver prices should more than compensate for that, and any input cost inflation across its Mexican mines.
Source: Company accounts, management guidance for 2025E and 2026E
“Hochschild Mining should benefit too across its mines in Peru, Brazil and Argentina. However, the share prices of both miners trades below where they did in 2012, when silver last challenged the $35-an-ounce mark.
Source: LSEG Refinitiv data
“It may be of little consolation to the London-listed silver producers, but this lack of interest in miners seems to be global. The New York-listed Global X Silver Miners exchange-traded fund (ETF), which tracks and delivers the share price performance of a basket of the world’s largest silver producers, also stands way below 2012 levels.
Source: LSEG Refinitiv data
“This may be why Pan American Silver pounced on another New York-listed miner, MAG Silver, last week, with a cash-and-stock offer that valued the target at $2.1 billion.
“MAG Silver’s main asset, alongside two exploration projects, is a 44% stake in the Juanicipio silver mine in Mexico, where the owner of the other 56% is none other than Fresnillo, which also operates the site. The price tag values MAG at 3.5 times historic net asset, or book, value, while Fresnillo trades on just 2.4 times and Hochschild 2.8 times.
“Fresnillo has seven other producing sites, so it is not a pure play on Juanicipio, but that mine generates just under a fifth of Fresnillo’s output and revenues and the offer price for MAG Silver does suggest that the FTSE 100 index member is cheap by comparison.
“Moreover, book value should continue to rise if the silver price stays firm and takes profits higher at the miners.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
Source: Company accounts, Marketscreener, consensus analysts’ forecasts
