Analysing the Financial Landscape of Silver Miners in H1 2023: Profits, Debt, and Market Valuations

#Silver prices realised by silver miners during the first half of 2023 were 20% off five-year highs, but remained relatively strong at an average of US$22.6 per ounce.

As a result, silver miners across the board booked high revenues and positive adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA), however there was a strong range in the profitability of the silver miners with EBITDA margins (EBITDA/Revenue) ranging from a minimal 6% for Coeur Mining, Inc. , 17% for Endeavour Silver Corp , to a massive 37% for Silvercorp Metals Inc. and 57% for SilverCrest Metals Inc. .

Interestingly, many of the higher value silver miners are located the towards the bottom end of adjusted EBITDA margins, and it appears that some of the larger silver miners are struggling to get their production and operating costs under control despite the buoyant silver price market.

The balance sheets of silver miners also display a huge variation in relative health, with debt heavy companies like Coeur Mining, Hecla Mining Company and Pan American Silver Corp. showing the strain from many years of capital investment, while other companies such as Silvercorp Metals Inc. and SilverCrest Metals have been able to invest in growth, keep their balance sheets debt free and build up significant cash positions.

While many of the smaller silver miners, and even some of the larger miners, are not paying dividend, a small group are, with yields based on dividends paid for the preceding 12 months varying from 0.2% for First Majestic Silver Corp. to 2.6% for Pan American Silver Corp.

However, given the high levels of debt on the balance sheets of companies such as Pan American Silver Corp and Hecla Mining Company, investors will likely question whether these business’ would be better using the cash allotted for dividend payments to repay some of their debt before the effects of the high-interest rate environment start to affect their interest repayment levels.

Silvercorp Metals Inc. is the only silver miner with a significant net cash position and a positive dividends policy and it currently has a yield of 1%, which is not enough to capture the attention of the market by itself in this high-interest rate environment, but does demonstrate a commitment to return cash to investors.

A good way to assess the market valuation, balance sheet strength and the profitability of these silver miners during the first half of the year is to look at the enterprise value (market capitalisation plus net debt/minus net cash) to EBITDA ratio.

This ranges from 202.9 times for Aya Gold & Silver . which has a relatively high market valuation, strong balance sheet but generated low levels of EBITDA, to 9.1 times for SilverCorp Metals Inc., 9.3 times for Fortuna Mining and 9.9 times for SilverCrest Metals Inc., which all have relatively low market valuation, stronger balance sheet and generated relatively high levels of EBITDA.

Based on the large variability seen in the financial results for the first six months of the calendar year for the silver miners and the large variability in market valuations there are some interesting opportunities for investors to assess and mull over in the silver space.

#mining #metals #SVM #CDE #PAAS #FSM #EXK #HL #FMV #FR #Ag #AYA #SILV

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