Renaissancemen.org

I’m not a financial advisor or a CPA. In this exercise, I’m going to look at the larger, more well-known silver producing companies – I also wanted to go through each of their presentations and give you the case for and against them. This will not be tremendously huge, as this article could actually be a small book when all is said and done. Meaning, I can’t get into mills running tons per day and individual mines all of these guys own. Taylor Dart at Seeking Alpha does a really good job of that for a lot of these companies.

Bottom Line Up Front: Here are the rankings of these 12 companies for being SILVER miners for a longer term investment. Here is the spreadsheet you can download to see how I got these rankings and all of the financial goodies and ratios are there. Note: on the mobile app to see this, it cuts it off at column AE for me. On the desktop version this goes out to AK and I have added the below supplemental columns under the rankings.

Here are columns AF-AK missing on the mobile version that has some important ratios.

What am I looking at?

Not trying to hurt feelings or anything, but I wanted to do a deep dive financially on silver producers. There’s accidentally a more junior one in here, and a mostly gold producer, but I wanted to look at the financial statements. This goes to show how small the list of silver producers out there actually is.

What you have to understand here is this may be a PERCENTAGE of how you view the BIG PICTURE for investing. You may see a chart pattern and want to TRADE that. This is different from a longer term hold.

The idea is a STARTING place for newer and seasoned investors to understand what QUESTIONS exist to then seek out. The financial statements which gave these scores above are NOT considering if a mine is coming online to double their profits next year. Some of that MAY show up in a high Price to Earnings ratio where investors pile in EXPECTING higher earnings.

These tools HELP YOU ASK QUESTIONS, and should be used as a PIECE of the puzzle. Some things to consider….

1. Financial statements – a snapshot in time of company financial health.
2. Questions the financial statements pose, and the answers you find to those questions. I try to help you see the things I see to lead you to some questions.
3. Charts – could price action be telling you something for a shorter term trade? (Note, if a stock is well below the 200dma it may seem “cheap”, but this could be investors seeing problems on the balance sheets. So just because something may look good on the charts, see items 1 and 2 above. The chart pointed out something for me with Great Panther I need to look into that didn’t show up on the financial statements.
4. Leadership – First Majestic’s financials aren’t great, now. But they also have a guy out there hustling and telling the story. This can attract people to buy based on faith in the company many years out, and add a significant bump to how the market sees the financials (premium). I added a premium here which can help explain a high P/E ratio. While Ross Beatty may have retired, most probably think he’s still running PAAS, and therefore that got a bump.
5. Jurisdiction – I won’t invest in China, period. Even if the books look great for a company relative to its peers, you may have to discount those numbers due to jurisdiction risks. I added this in context with my scorecard because this plays a part in the demand for a share from the public.
6. What they mine. You may see some on these lists call themselves a silver miner, but some are at 25% silver by revenue. I took points off for this because those with higher percentage of silver will move up much more quickly when silver moves higher. Therefore, you might want to evaluate PAAS and FSM as gold miners rather than silver miners. Some of these companies are a little coy about sharing their percentage for just that reason. They want to be seen as a silver producer when they are mostly a gold producer. When silver moves, anything with silver in their name will move hard – but those producing more silver ACTUALLY will have better financial performance.

What I did NOT do here was do a discounted cash flow valuation of the companies for valuation. That’s a whole other level of pain. With producing miners, this may be the best way to look at them BUT those with projects in development may be putting more of their resources into future production – and thus none of these measures are 100% fair. You then have to do NPV of all items they are working to develop and approximate ounces of metal in the ground and at what price per ounce you will value at. Not my thing.

I think this should be used as a starting place for you to then peak at operations. I don’t know about tons per day at mills. Stopes. Roasting. Geological differences in the kind of silver these guys are mining – veins or spread out. THIS is a starting point to check the PULSE on financial health. WITH THIS, I then rated the stock with a numerical score on how I think the stock will perform as silver rises. Those with discounts for silver% will not perform as well and thus lowered their scores as a SILVER stock. Something like PAAS should probably be looked at as a junior gold producer.

DETAILS….

This will be a VERY long piece. Feel free to read the whole thing. book mark, or skip to your favorite stock. Sometime down the road a few more years, I may want to move into this space in some way, shape, or form. While I’m doing this because I enjoy doing this, it’s a hobby for me and I’m not compensated by anyone for my thoughts below. I’m finding that I have a real passion for resource investment and I didn’t even know about this space, at all, until about 2 years ago. Maybe my 4 years of an MBA can pay off with this 🙂

I am also not looking at juniors here that are either tiny producers or developers/explorers. I wanted to point you to some junior mining guys that can really help you navigate this territory. These guys know the insiders and their JOB is to evaluate this stuff. I have many subscriptions and love learning from these guys and do not feel comfortable sharing details of their research for free with you as this is their work product. I would caution you that without “hiring” at least one of these guys to help you with juniors has you throwing darts at a board blindfolded.

Junior mining subscriptions to take a look at:

1. Mining Stock Journal – lots of drill stories, developers, and smaller plays that could be something.
2. Silver Chartist – a mix of juniors and uranium. All star team. Trade ideas. Education on how to fish yourself with entry and sell points.
3. Gold Newsletter – covers TOO many, but gives you a good overview of a ton of junior miners out there. Got a lot of “duds” from the Golden opportunities. While these seem to be little known plays, many of them are illiquid and I feel like someone is offloading their crap to you. Medgold is my albatross through here, but had a few others I bailed on before getting soul crushed.
4. Junior Miner Junky – light on exploration plays but more emphasis on lower risk takeover targets and near term projects. Lower risk portfolio means the not very exciting world of putting a full position on a miner, watching paint dry for 6 months, then begging for a 35% premium to a takeover. He did have some really good early calls – one was Labrador I got in at $.35 and I think I finally exited at $1.08.
5. Goldstockdata – not a subscriber, yet, but Don is a walking encyclopedia of hundreds of companies. I’m not going to compete with his knowledge of majors here – but give a financial twist to the play while keeping it higher level.

With this, you have to build a portfolio that suits YOU. I cannot advise you on how to invest. For ME, I will have a mix of junior explorers, developers, producers and a mix of ETFs, majors, and call option plays. A certain percent I stick in a corner to let paint dry, some I trade in and out of, and some I may buy tranches at deeply discounted prices and sell tranches into price rises for 20-30% profit on each tranche. YOUR style you need to find on your own. This also varies by your risk appetite – a 25 year old with high risk appetite could lose his entire portfolio and make that money back in a few years. A 70 year old retiree may want lower risk exposure to the mining sector and track more majors with dividends and buy and hold situations.

For THIS piece, I’m looking at more of the major silver producers out there and dig into some of their financials, take a look at the good, the bad, and the ugly, and also look at a perceived value. Why perceived value?

What makes a stock move in the mining sector?

I needed to add this section to clarify that just because I say something has a great balance sheet, doesn’t meant the stock moves 10x tomorrow. We are all in this to make money. I’d advise anyone here to learn more about accounting and financial statements. There are a ton of ratios I also learned in accounting and finance over the years – so you accounting/finance guys out there, don’t ding me on quick ratios and shit like that. You are FAR more qualified to do this deep level of analysis than me, so go ahead and write about these and I will link your write ups to my overviews below. I want to look at an impact from 50,000 ft. What am I seeing that stands out that might affect my purchasing of these?

Well, a stock is a share of a company, to keep it simple, and there are a finite number of these shares – unless the company issues new shares to raise capital, which then causes share dilution and reduces your slice of the pie. If people want this stock because they think big things and massive profits are coming, they buy. This puts buying pressure on the stock and the price rises, enticing people to sell. The same is true in reverse – if people feel the value may go down based on missed numbers, people will sell, driving price down. Duh. Well, in the traditional sense, you may have 1m shares in a company, and the company’s parts are worth $10 million so you have $10 share of value. But this doesn’t take into account that company’s future earnings/growth potential. Point is, the job of the company is to take that $10 million to $11 million. To $12 million. Each year the pie is supposed to get bigger whilst the shares don’t really grow. You put $100,000 into this company, and in the best of times 20 years ago when I worked at Vanguard, you might get 8% back in an index fund in a year. With today’s chasing Weimar hockey stick moves, traditional metrics are sort of thrown out the window.

I mention this because in the dinosaur days of just a few years ago, financial fundamentals and valuations were a method of buying stocks. IF you were good with numbers and could find value, you invested $1,000 with the hope of getting 5-10% return with maybe a dividend if you were lucky. Today, you find companies like Tesla historically overvalued because people want to claim ownership of a portion of the company. All the fundamentals to value a company like Tesla went out the window. Meaning, if you wanted to project the VALUE of the stock PRICE, you cannot use traditional fundamentals. People who are dumb enough to buy this stock literally have no idea what they are doing with their money. But, stonks go up, right? So I must be wrong when I point out a 389x P/E ratio. Who can disagree with the 12x stock move in a year? Yeah. I don’t think that’s going to end well.

One thing I will use is P/E ratio as described above, when provided to me. Some pink sheet numbers I cannot get this and I’m too lazy to dig THAT deep into more financials to calculate this. Remember, I’m not getting paid for this, people. This is a RELATIVE value. For example, if a P/E ratio is high, then it can be overvalued or the shareholders are expecting expansion and future earnings to then justify the higher stock price. A low P/E ratio can show a company’s earnings are really good but it is flying under the radar for a lot of reasons.

Putting the above together, I think it’s fair to look at a company’s VALUE versus its PERCEIVED VALUE in this discussion. I say this because a First Majestic is a darling in the sector. Everyone knows Keith Neumeyer. People then flock to the stock – this drives up P/E ratio to insane levels and makes it appear overvalued to its peers. But – are we buying this based on the book value of the company, or the expectation of $40-$50 silver is here to stay and First Majestic will produce earnings sufficient with the stock price?

In TODAY’s investment world, one must weigh the risk of buying a stock of proper book value versus one with a higher perceived value. In the past, the one with the better financials would win. In today’s hype, meme stock, and YouTube crowds – a stock with more “brand recognition” gets the vote first. Like it or not, this is the world we live in – for now. If you are armed with the fundamentals, in a BAD time, you might gravitate towards those who have the better financial outlook and not the one with the most hype on YouTube.

HOWEVER – there are deflationary risks out there, and with this, it’s quite possible we see a reckoning of the meme stock bullshit and those with out of whack P/E ratios may be brought back to earth with value stock investment. BUT – while all of this shitstorm might be hitting Tesla, silver could be running to $75. Meaning, while the P/E ratio bullshit might be getting cleaned up in the equities as a whole, that problem could thus shift to the metals sector where those with the best brand recognition get buy bids first. Meaning, a First Majestic could hockey stick up before a Wheaton Precious Metals gets a look by 96% of the casual investor. IF you miss an AG move, I’m backing up the truck on the value stocks when Wall Street comes in and bids them up.

It’s important to note that traditionally, the majors would move first, then mid size, then juniors go bananas. We have seen sort of the opposite here, when listening to Rick Rule – not only about the gold stocks, but the uranium stocks. BECAUSE people know a lot of these might move 10-20x when the casual person jumps in, a lot of these are getting front run BEFORE the major move to gold/silver happen. A good amount of this money has washed out from August 2020, but the point is that many of these juniors may outperform majors for quite some time until the institutional Vanguards and Fidelities of the world lay major smack downs.

People don’t realize how tiny this sector is, and with this, when big money starts to come in, it moves things in a hurry. I had read somewhere that Apple could buy all silver mining companies, combined, 10 times over with their cash sitting around. The two biggest gold mining companies have market caps somewhere around $120 billion, so if a few billion starts to pile into a GDX from a pension fund allocating 1% to the gold sector, the majors can make quite a leap, quite quickly.

We have been stuck in a form of hell. We have the right macro play, our majors are making shitloads of money, and fundamentally run a clean business. But this doesn’t mean the stock moves 12x like a Tesla – and until this extra cash sloshing around slows into this garbage, we won’t see violent moves up with metals. To me – when people are piling $1200 a share into Tesla and 3-6 months later the share price is $1025, people will start to then look for yield. THIS is when the stocks start to deflate back to normalized P/E ratios and the Teslas run out of greater fools to sell their overpriced stocks to.

When professionals who manage money no longer have the pressure to chase that bullshit, a rotation will occur. And this is why I’m writing this now – for you to prepare for this day. Silver could go to $50 tomorrow – and it doesn’t mean these stocks will move one inch. You need sector awareness, COMBINED with fatigue and lack of vertical movement in the tech stocks. This can only be done by starving out the fuel causing the problem.

Lastly – I think it’s important to discuss silver as a percent of their revenue, when I can find it. Stocks with high leverage to silver could go Weimar if silver shoots over $100 and their margins start to look stupid.

BE CAREFUL – you may see videos with lots of viewers hype certain stocks. This could be a pump and dump scheme where the creator buys an illiquid stock at $.10 and then offloads it for $.45 a few days later after he turned hundreds of thousands of people on to a stock. The guys I mentioned above in the junior space have the best reputations and share their own purchases with you.

The limitations of financial statements with mining

I try to give you some of the most important ratios that you might see people looking at on a big board to compare a miner to someone else. What these financial statements SHOULD do is get you to ask the right questions to THEN go to their website and understand them more. Many just go to the company website and look at the corporate presentation, buy what they’re selling, and run with cash in hand stumbling over themselves to buy as quickly as possible.

What I tried to do with my Excel sheet was to get the facts, present them, and perhaps point out oddities to peers. These are questions then you need to ask. For example, do you buy First majestic or Hecla? One thing that pops out at you with the cash flow is that Hecla uses 43% of its cash flow on CapEx (within a range of its peers here) and First Majestic used 170%, showing up as red for me.

Now – just because you see red on ANY measure here does not mean RUN. It means, it is far off of its peers and one should ask why. I do know with First Majestic they have put a lot of CapEx into these HIG mills to get a much higher recovery of silver, so they invested CapEx into these to increase Cash Flows and Net Income (NI) down the road. We also know they acquired Jarrett Canyon (gold mine) with a roaster. Dave Kranzler in my MSJ had talked about how that deal may have been worth it just for the roaster – as those may be a billion to create and NV has 3, and they may never get another due to environmental issues. While there may be a lot of gold in NV, a lot of it may have to go to a roaster. So if AG controls one of 3 roasters, and buys more mines in NV (like their buying of Blackrock silver who has gold), then you can see how this CapEx expenditure can be good for the company down the road. This also had share dilution on their Cash Flow statement with issuing shares Eric Sprott bought.

This is ONE example of how these financial statements can limit you with this. I’d encourage people to START with this to then understand what questions to ask and when you get to the corporate presentation, see if they have been answered.

When you then go to AG’s corporate presentation, you see how they did the acquisitions and discuss the HIG mills and the technology. For me, this helps me understand this one metric. But you then need to look at all the rest.

NONE of these companies are without warts and risks. What you have to do is start here to find what questions to ask?

THIS analysis will not get into their mining operations. Taylor Dart at Seeking Alpha does a really good job of dissecting the mining operations. He also tries to tell if a company is overvalued or undervalued to its peers. He uses forward earnings multiples to come to these assessments. What I felt he didn’t factor into the AG evaluation was the “Keith Neumeyer premium”, along with all of the tech they had. He looked at multiples in a vacuum and called them overvalued. I disagreed and made an ass load of money off of silver squeeze with selling AG options I owned leading up to it. The point with that was that I gave a premium to KN as not many miners on this list have a CEO anyone knows by face, let alone name. In my scorecard I look at the financials and assign a higher grade to them than I would if KN wasn’t there, by a lot.

What you CAN do with this analysis is look at these companies to their peers, find variances, and start to write down questions. I do NOT have those answers for you here. I will try and pose questions I see with these that you should look into, as I’m not as talented as many yet at evaluating the operations of mining. I’m sticking in my swim lane here and giving you a FINANCIAL LOOK at these companies with some homework for you to look at before you buy.

Methodology

When I scored all of these above, I first started with how they look with the financial statements. That is the “unadjusted” score. I then took off points for jurisdictional concerns. Mexico had a 2 for me just because there’s some more recent concerns I have. But then you get into Peru and Chile and things get more dicey. Then, I went ballistic on China.

So some of these legit with the books might be….mehhhh…but when you put all of the active mines a company has in Peru, Chile, and Argentina, you have to discount that to a peer who has the exact same numbers but might be doing this in the USA.

I then did a discount for the silver%, as many listed as silver producers have had to bump up their gold over the years to make ends meet. While I get that, they never changed their name from “silver”. So I took points off here because if two companies had the same financial statements, but one was 55% silver and one was 25% silver, my expectations are that with a much higher silver price these can significantly outperform the one with a lower percentage.

Lastly, I want to buy a stock that moves, the most, when silver moves. Part of this whole thesis is the bean counters at big firms will be looking at the same financial statements I did to get the same ratios I did – and they will look at this and do their own valuations and risk analysis. But what the institutional guy might not have is the pulse on the retail investor and who is popular among them. For this reason, I added a CEO bump here because most of you reading this can tell me about Keith Neumeyer, but most of you reading this can’t tell me about another CEO on this list. If you gave me a match list with the CEO on one side and the company on the other, I think I could get half. And I’ve been studying miners for about 18 months. I don’t think bean counters understand the retail association that silver mining stocks have with First Majestic due to KN. And because of that, I put a high premium on that. What do they say – in the short term stocks can be a voting machines, but in the long term they are a scale and weigh things? Meaning – AG could get the popular vote, quickly – but as the sector gets crowded, the financials could rear their ugly head.

The contestants

This past week, I was doing some financial deep dives on car companies to compare Ford to some others and felt it was time to sort of do a deep dive on some of the bigger ones. None of my newsletter guys really touch these much, so here it goes…

I will look at:

• Fresnillo
• First Majestic
• Pan American Silver
• Wheaton Precious metals
• Fortuna Silver Mines
• Endeavor Silver
• Hecla Mining
• Coeur
• Newmont
• Silvercorp
• Hochschild
• Great Panther
• America’s Gold and Silver (removed from full analysis, this is a complete dumpster fire financially and I’ll have a brief financial summary)

With the above, I did some quick financial analysis. I dug into some important ratios to see where they all stood. Here is a screen shot of what I’m talking about, but to truly follow along, you would want to bring up the full size Excel sheet here. This would have all of the info in one page with the definitions of the ratios on the next tab. When evaluating the companies, I will go into financials first, then do the pros and cons of each.

Fresnillo

Jurisdiction: I didn’t know much about these guys, so to be fair to all I’m pulling up their websites and investor pages. It looks like all of their mining operations are in central America. Here is their latest corporate presentation.

What they mine: A mix of silver and gold. Looks like last year was 53.1m oz Ag, and 769.6k oz Au. One of their primary silver mines has been in operation for 550 years??? Geez. The way I first heard of them was through Mag, as these guys have I believe a 50+% stake in them. Mag is going to be huge, high grade, and make whoever mines it a fortune. When you get into their mining operations details, you see silver, zinc, and lead. They don’t come out and state what ratio they are with gold to silver but the eyeball test using the above info looks to be about 50% gold and 50% silver by sales.

What they want you to see: volume. They point out that against their peers, they produce more.

Big picture strategy: CEO discusses increasing focus on Juanacipio (MAG) while sunsetting older mines and reducing gold production.

Financial picture: Their 21.5% profit margin is in line with peers. $1.6b in working capital which is outstanding. Second highest debt to equity ratio of these 13 listed at a high 33.47%. They have LT debt of $1.16B and paid $85m in interest expenses. Their 10.8% ROI is 3rd in this group and ROE is 17.58% and 3rd in this group. P/E ratio of 14.58. Times interest earned is about in the ballpark of peers at 11.19.

Percent of FCF to Capex is in line with its peers but the price to OCF (Operating Cash Flow) is on the low end, meaning it’s generating more OCF relative to its mkt cap than its peers. Likewise, it’s a leader with the P/FCF – justifying this as a solid financial choice.

What I like: They own a majority in MAG, and from what I recall with MAG, it was high grade, and a LOT of it (11.7m oz per year). In Mexico in their back yard. The strategy seems to focus more on MAG and reduce costs of older and more costlier mines. They have a LOT of working capital for any acquisitions they might want and any mine building problems they may have with MAG. I like that in this group of 13 or so, they are scoring in the top 5 of ROI, ROE, and profit margin. Their P/E ratio has them valued within normal range of where they should be. The massive silver production could have krakatoa effects on their bottom line with much higher silver prices. The reduction of gold and increase in silver is risky where you are seeing primary silver producers actually increasing their gold production. They have 2.3b oz of silver in the ground as well.

What I don’t like: The information in their presentations isn’t easily spelled out and you have to hunt for things – like what percent of revenue is silver to gold? I didn’t see what grades they were mining, which isn’t terribly important if they are profitable, BUT if a lot of that 2.3b oz is low grade, you might expect expenses to creep up. The only real thing I didn’t like financially is that their debt to equity ratio is 33.47%, scoring second highest to Coeur on my analysis. This has $1.16b of LT debt as part of that equation, but they are sitting on $1.6b of working capital. My guess is they are cashing up for mine construction costs, new equipment, and at some point may start to pay this LT down. Perhaps when silver hits $30-$35 and the money printer starts, they write a check and be done with it. By eliminating that debt, it would boost net income 12% yearly, take debt to equity to near zero, and ROI to 12.3 and ROE to 20%. Even doing this would still trail one top performer on the list, and my guess is as silver prices rise and the Juanacipio money machine stars printing, the LT debt will be paid down.

Charts:

This looks like a lot of stocks in the mining sector – but with a twist. This appears to have bounced off of the .618, hit the .50, can back down to .618, and heading up. Could be a double bottom and it broke out of the channel, then had a recent back test and appears moving up. Just moved above all moving averages and moderate daily RSI. Very compelling place to buy a tranche.

Questions to ask? What about that debt to equity number? How will MAG affect its numbers over the next 12-36 months with a potential highly significant silver price? How efficient are their mining operations?

Overall: I think the LT debt is “transitory” and this is an extremely healthy company in a good jurisdiction with a top mine coming online cashed up and making stellar profits, even with a depressed silver price. They appear to be looking to increase silver production at lower costs while decreasing expensive gold production on old assets. I would just like some of that LT debt to get paid down as the Debt to equity ratio jumps off of the page. What makes the LT debt palatable is that this looks like it’s potentially part of getting MAG running and they have enough working capital to pay off their debt tomorrow and still have half a billion. In THIS case, it seems to mitigate the high debt to equity ratio.

Grade: A-, only dinged a little because that LT debt is adding a massive nugget to interest expense – and thus bringing down net income.

First Majestic

Jurisdiction: AG mainly mines in Mexico, but recently they purchased a gold company with the Jerritt Canyon mine in Nevada. They have been recently buying tranches of Blackrock Silver in NV and have a silver stream deal with First Mining. Here is the latest presentation from them. They have several operating silver mines in Mexico.

What they mine: Currently, about 50/50 gold and silver (listed as 55% Ag at the moment on the presentation). Mostly in dore bars in Mexico, but most recently gold in Nevada. I believe it was about 15m oz of silver per year (half at San Dimas) but listed as like 21-24 silver equivalent ounces (SEOs).

What they want you to see: The case for silver to appeal to broad spectum investors. Keith Neumeyer as the face (2% owner?) of AG. Technology investments and ESG. High percent of revenue from silver.

Big picture strategy: Grinding it out. Literally. Keith is aware of the reduced ore grades coming in, and talks about how they are pulling out 8 oz of silver out of the ground for every 1 oz of gold. He has installed an HIG mill at one mine (High intensity grinding). Bringing on Ermitano into production. Diversifying from Mexico given issues with taxes. They bought two other HIG mills and are to be installing them soon. What this does is significantly increase the rate at which they recover silver.

Financial picture: Keith is investing a lot into technology with AG. LOVE it. This is my favorite stock to follow, by a lot. However, it doesn’t mean it’s my favorite to invest in all the time. What jumps out at you immediately is the P/E ratio of 35.22. This means there’s a lot of interest in AG, but overvalued on stock price. That is, if they aren’t rapidly expanding more than their peers. They have some expansion in the works which I can say justifies a slightly higher P/E ratio. Additionally, Keith is all over YouTube and a GREAT spokesman for AG and the industry as a whole. This “rock star of silver miners” can get AG a first look by everyone who comes into the space, which to me, justifies this premium. It’s the highest percent of SILJ. However, when you peel back some of the numbers, some cracks appear. Their profit margin of 16.56% is in-line with peers, slightly below average for this group of 13. Debt to equity was avg at about 18.46%. The ROI at 6.7 scored middle of the pack, with ROE at 9.76% and 8th out of 13. The “times interest earned” was on the bottom side at 8.99 (9th out of 13). While their finances are middle to slightly below average, you are then worried about a $200m Mexican tax lawsuit hanging over them. They have $254m in working capital which is great for bringing Ermitano online without incurring more debt, but if they can get cheap debt, so be it. Eric Sprott recently bought in to 20% of AG. Additionally, they have a silver stream deal with Wheaton Precious Metals that many analysts do not like (I haven’t researched this in any real depth, just passing on sentiment). They have a silver stream deal with First Mining, but I don’t think that mine will ever be built, as it’s looking at $800m in capex to build.

My hope for AG is that higher silver prices solve everything. With the recent capital investments, you’d love to see 20-25m oz out of AG with higher yield from the HIGs with lower costs. San Dimas has a hydro plant and if the industry experiences higher fuel prices, this could help keep costs in line. I have heard JC costs are much higher than anticipated per oz, and KN had a plan to reduce these costs. I would like to see the LT debt get paid down more and decrease operational costs (hopefully HIG mills help this). Their high leverage to silver is not the highest in the industry, but very high and with this, any strong move up in silver will ignite this stock – but also significantly help out their financials relative to their peers. All of these capex expenses should soon start paying off, and with ermitano coming online at some point, you hope that this adds more silver ounces at lower costs.

One additional note here, I know Keith holds back silver at times, which then hurts earnings per share. However, all of this could be showing up under current assets. When this is eventually sold, he will probably boost earnings in the quarter he takes them – which would decrease working capital but improve NI and some of the other ratios. While he may have held back 1-2m oz, it doesn’t improve the NI by $25-50m, it will perhaps boost it by $2-10m. This moves the ROI and ROE maybe a quarter of a point if you give them a 10% boost in NI. Meaning – it wouldn’t change much other than perhaps EPS by a few pennies at most.

With the cash flow statement what really jumps out immediately is the -$62m FCF over the last 12 months. You then see the CapEx is 170% of operating cash. I did discuss above this example, so if you look at their P/OCF and P/FCF, they are very much over valued. However, their aggressive growth can pay off in multiples IF and WHEN silver and gold go hockey stick.

What I like: The roaster as part of the JC deal is apparently one of three in NV and they most likely will never be building one there again. If you are a gold miner there, odds are you might need access to a roaster. Dave Kranzler said that this was a great deal and valued the roaster at perhaps a billion. IF AG plans to diversify more and buy things like black rock and move some operations from Mexico to NV, it needs access to a roaster. I love the tech aspect of the company with the HIG mill improving the recoveries. KN all over YouTube is a great plus for the stock price. They recently started a dividend which isn’t huge, but it’s a start. I also like they are the largest percent of SILJ – so when the price of silver moves and large institutions want to play miners, they may hit SILJ.

What I don’t like: First Mining streaming deal for a mine that may never be built. WPM streaming deal. Tax issues. JC costs higher than anticipated. Always missing earnings numbers. Short interest on the stock.

Charts:

Quick, tell me on this chart where silver squeeze was? Yeah. What that was, was a gamma squeeze with some short interest that got caught offsides. Lots of people like me bought options which forced brokerages to buy stocks and this forced a short squeeze. The stock stayed elevated for awhile, but eventually came back down to earth. What this demonstrates is when silver moves, there’s a VERY high beta to it. Also, this makes up the largest part of SILJ, so when people go nuts with SILJ options, yeah, this puts upward pressure on AG.

Questions to ask? Are they growing too much, too quickly? What about share dilution with the Sprott share sale? Will Jarret Canyon pay off or is the cost to mine that gold too high? How will that roaster pay off in the coming years? Can KN keep the media presences up to provide that premium to shares?

Overall: There’s a LOT I love with them, but they are behind their peers on the financials but light years ahead of them with tech and a CEO on the forefront of social media. Of these 13 companies, I might have known 3 or 4 by name recognition. The juniors are out there hustling on the YouTubes but where is Fresnillo’s CEO? Hecla’s? What AG has that none of them do is KN. This is how a stock can behave like a Tesla in this sector – disconnected from financials. That is already there with the 35x P/E ratio. I am playing them now indirectly with a ton of SILJ options for Jan 21 2022 that I may get pasted on. The best trades I have, by far, are on AG options plays which go bananas with sharp silver moves up, where other miners may yawn.

Grade: B+. Need to reduce debt and improve operating costs but the KN effect takes this from a B- or C+ based on the current financials. It appears KN is full throttle ahead into growing, expecting metals prices to launch and thus help justify all of the expansion many times over. The stock needs KN pumps or else it can regress to fair value, which could be as much as 20-40% lower. The stock PRICE is that of supply and demand, and not book value. Meaning, I give the company a B+ with the KN premium counted into the accounting here.

Pan American Silver

Jurisdiction: This is about the only thing I think anyone can say bad about this company. While they have operations in North and Central America – they also have a tab for “South America”. When you click on the mines, you see 4 of them are Peru. For those of you not following, Peru became pretty dicey lately with a leader who seemed against mining. Pretty much every Peru mining stock fell off of a cliff recently, and you will see that in the chart below. I believe they installed someone new a few weeks ago that was more moderate, which is when I loaded up on Bear Creek and sold them at like a 50% profit in a few days. Meaning – if the price for them is depressed, there may be opportunity here IF I read that correctly with the new government personnel in charge of mining.

What they mine: The big knock I had on them, and why I chose AG over them, was that they don’t mine a high percentage of silver. Seems they have about 58% gold and 27% silver. Check out their latest presentation here. They have about 529m oz of Ag in reserve as well as 4m oz Au. 9 total operating mines it seems.

What they want you to see: The strong financial position and available liquidity, as well as selling the ESG aspects. 1.5% dividend yield and large company.

Big picture strategy: La Colorada skarn discovery with 141m oz is a god start, but it seems their investor presentation is pounding the table on their performance currently with the numbers and briefly shows you a slide on silver of the future. What they DO NOT address is the political situation in Peru. I think these slides aren’t the right place for that, obviously, but IF that picture has changed, there should be some way of conveying that to potential new shareholders. They also own a 17% stake in Maverix metals, and smaller interest in another 2 companies in Bolivia and Peru.

Financial picture: They have about $500m in working capital, 8.67% ROI (4th), 11.44% ROE (5th), but a VERY reasonable 17.70 P/E ratio and an astounding .8% debt to equity ratio (2nd). The low debt helps boost the net income, and they could pay off their long term debt 25x over if they wanted to. Times interest earned was 3rd at 74.33, and overall, the low debt is what stands out as outstanding.

Their percent of OCF spent on CapEx is in line with its peers and all of the financial valuation tools to its peers are green.

What I like: The financial statements are outstanding. No debt. Avg. P/E ratio. Ross Beatty founded the company, but in interviews it sounded like he retired so not clear who is running the show these days and if they can keep this operational standard of excellence.

What I don’t like: By revenue, they are a gold company with about 25% of their production as silver. Meaning, if silver moonshots, these guys will do great, but someone that is a true silver company that has a 60% or so silver production could significantly outperform them. The super low revenue by silver sort of gives this company a false name. The Peru stuff adds risk that many didn’t see coming and this could potentially linger over major investors coming in anytime soon.

Charts:

You can clearly see the channel it was trading in for about a year. Then, you can also clearly see when news of Peru hit and started tanking the stock. You can also see where that news of Peru may have been lessened correlating with the latest daily moves up. It is trading around a lot of the moving averages and appears to be a decent entry point for a tranche. IF the Peru problems are lessened, there’s no reason this stock should not be back in the $26-$39 trading channel.

Overall: While PAAS is a gold company with 27% silver, they won’t have the same beta to silver on a $50 move up. I don’t think Beatty is with them anymore in any real capacity, so it may be interesting where the strategic direction takes them in coming years – and as you get further from Beatty, does the company make poor decisions? This company has like zero debt, which I love. I don’t like the Peru aspect of it. The balance sheet is about as clean as you get for a miner – and with $495m in working capital, it might be interesting to see how they operate during M&A. The time to get some cheaper properties may be over. Do they continue organic growth or get active during M&A?

Grade: A- for strong financials, but cloudy on Peru for now and they don’t have a strong upside to silver than most of their peers on this list have.

Wheaton Precious metals

Jurisdiction: While they aren’t a miner, per se, they have all kinds of deals with miners everywhere for streams and the like. Essentially, they lend you money to build or acquire something, and then they take metals down the road as payment. I see streams from AG (San Dimas) as part of what appears to be 24 active mines – but then I see things attached to Keno Hill (alexco?) and Metates (Chesapeake). So they have things in the pipeline that will be coming up.

What they mine: They don’t mine. They lend money to others for an amount of PMs to be paid back in payment.

What they want you to see: high margin.

Let me boil down their investors presentation in a sentence or so: “We have stupid high margins on an impeccable business model and that’s why you should give us your money”.

Big picture strategy: All of the upside of precious metals without the risks of operations with mining. In a sense, these guys are the bank for miners and explorers.

Financial picture: First, these guys are going to do stupid crazy amazing with upcoming metals prices that moonshot. Every time I got in on these guys, except for one call option time, metals turned down. One time I bought call options on these guys I made the losses back in a few weeks. When everyone sees “the big leg up” coming, I’m backing up the truck with margin on these guys. Why? I think they did great to get to this point – now it is time to reap the rewards and build a way chest. While other companies may start to do M&A and deplete their working capital, I believe all of Wheaton’s moves leading up to this point will allow them to grow money on trees in their backyard.

They have an $18b market cap. This is one of the big boys that the Vanguards can invest in. And when the big players come to town – this is one of the first stocks that will move with institutional money. This is a FNV business model, but focused on silver. If silver hits $50-$100, anyone within 10 miles of this stock may be retiring. This will not 10x like a junior silver miner, but I cannot see why this could not move 100-200% with a silver move to $50. Why? Ohhhhhh….

They have a 50.90% profit margin right now, and with them getting paid in precious metals oz, this potentially means they have really high leverage to these metals prices when it comes to profit margin. They don’t care about higher fuel costs – those won’t affect them. Their operating costs are fixed whilst their net income will go off the charts. They have the 3rd lowest debt to equity at 3.46%. They have a 178x times interest earned, so they are good for 100 years. They have a 10.66% ROI (3rd) and 11.12% ROE (5th). Their P/E ratio of 28.57 is a little stretched – but remember, with higher silver prices, their earnings will go bananas – inviting a LOT of investors to the table.

The only real drawback I see is they have only about 170m in working capital with $197m in LT debt. If we have a silver price basing at $30-$35 for the next year or so, my guess is their NI goes up to like $1.8b and not only is their working capital crazy high, but their LT debt would be gone.

At $50-$100, this stock prints money and will get the attention of all of the largest funds in the world. And they will pile in on expected upcoming earnings and this could drive the P/E ratio to 50x or more during a frenzy – and this will be justified.

While their P/E ratio is higher than many others on this list, the P/FCF here is the 3rd lowest – to me, suggesting deep value. What separates them, by a lot, from their peers is when metals prices move much higher (perhaps even due to energy costs), WPM’s NI will increase, a lot, as will their FCF.

What I like: The financials, obviously. The math here makes a compelling argument. What I would like to see from them is when they hit a $500m to $1b working capital, to pay down debt and buy some of these smaller streamers up. IF we are looking at a 9 year so run in metals coming up, they may die a death by a thousand paper cuts as existing resources start running out of metals and their competition is scooping up a lot of deals.

What I don’t like: No idea who the CEO is, and when I looked him up, I don’t recall seeing him anywhere. I have seen a Mark Bristow out and about and Tom Palmer at times. These guys don’t need retail generalists, actually, but it would be nice for that CEO to get out on the circuit to sell this stock better. I think most involved in mining know a lot of what I’m saying above, but they may not have stared down the financial statements. One thing I don’t like with the model is there are streaming companies popping up left and right. Now, we have FNV and WPM as the “gold standard”, but as all of these other companies start popping up – they create competition for WPM. This can starve them of future streams down the road.

Charts:

On a weekly chart going back to 2010, you can see we have a cup formation. OR…you can see this differently as a cup and handle with the 2011 high where the handle is being formed now.

Zooming in a little, you can see a large descending triangle over the last year or so.

This compression shows that it overshot in Aug 2020 and consolidated those gains – but you are seeing terse resistance in the $36 range. The RSI is in the 50ish range, and my expectation is that IF we are on the next leg up in metals – with a possible $1836 in gold next week, then WPM can break out from this compression during next week or the week after.

Questions to ask? As metals prices shoot much higher, should the excess capital go back into the company or be disbursed in a dividend that is substantial? Hecla’s dividend below is silly high, and IF WPM would craft a dividend policy like this, I believe their share price would go ballistic. How are their younger peers stacking up against them for competition? Are they taking away future ounces or could they be acquisition targets? While you print money, why do you only have $170m in working capital with possible M&A coming up? Would you borrow money for these acquisitions, placing a bet on higher metals prices, or fund them internally before dividends? What rate of growth is good versus rewarding the shareholders is good?

Overall: WPM is set to moonshot with silver. However, they also must build a war chest of cash and start acquiring some up and coming companies to take them out before they are a real threat. Some of the newer streamers may over-extend themselves and fall apart over some of the mines they were expecting to come online never get built. This would be an opportunity to scoop up some great streams for a discount. Meaning – if some of these streamers don’t have projects coming online until 2023-2025, and silver moonshots in 2022 – then WPM is cashed up where some of these newer streamers have zero income from those potential streams. This could be an asymmetric bet for M&A, and IF silver does hit $75 – I could see WPM making a move in a few years to rival the size of FNV.

While the profit margins are stellar, it still is only a 10% or so ROI. The low debt to equity ratio is stellar. I don’t think people actually understand the math here on how this can and will outperform probably every other PM company in the sector. By a wide margin.

Grade: A+. I can’t acquire too many shares at $40, but I might try and find some 2023 call options in the money to play a leveraged bet on this next week. I probably would hold this much longer than a 25% return if I’m expecting a strong leg up.

Fortuna Silver Mines

Jurisdiction: I’ve killed it playing short term options with these guys and getting out at 20-30% in days/weeks. I’ve never been a long term holder of these guys due to the jurisdiction. The CEO has done a good job going on interviews over the years and talking about the company – but you are looking at Peru, Argentina, Ivory Coast, and Burkina Faso (I never even heard of this country until this very moment – and last night I just heard of a miner who was attacked in transit in this country by a rogue group, so not great). I think they recently acquired an African gold company (Roxgold) and that might explain these resources. I’m not going to get too far into the politics of these regions, but as a general rule, I don’t invest anything in Africa. Africa is a very wide and diverse continent with a ton of terrible as well as great mining jurisdictions. I just know so little about it, my ignorance keeps me away from Africa – for now. Argentina is dealing with high inflation, and I’ve covered Peru above a few times. All of this jurisdiction risk I believe will slow the share price ascent during any PM move up. It might be one of the last for a strong move up, but also might be one of the first bailed on when there’s a crack with PMs. This shows high volatility which is awesome to trade, but I don’t like it for a long term hold, personally.

What they mine: They are historically mostly silver, but I believe they have upped their gold recently. These guys used to have the ratio on their sheets, now they just spell out ounces. This makes the silver percent opaque.

At a 75:1 GSR ratio, my eyeballs are telling me this is about 2:1 gold by revenue. Then you have other metals. This is looking like silver is well under 40%. In fact, the AG chart above is showing FSM at 27%. Like PAAS, these guys have silver in their names, but they are gold companies with a decent amount of silver. Truthfully, with how silver prices are smashed, lower grades, and higher operating costs, every single primary silver producer of size should have a lot of gold they produce.

What they want you to see: They want you to see the Roxgold acquisition and how big they are across the world. They focus on the leadership team and ounces mined. Some of my newsletter guys like the Roxgold deal. The market seemed to not like it much, but it could take time to adjust.

Big picture strategy: With Roxgold, to me it is clear Fortuna is trying to be a gold company with silver in their name. These guys should be renamed Fortuna Precious Metals (FPM). It is clear with going to Africa, they are trying to diversify from Peru and Argentina, but having these mines so far apart removes a lot of synergy you might have in a regional play. Part of me wants to spend a few months looking into Africa and jurisdictions because I think over the next 30-50 years, this is where the development of everything is going. Problem is, you don’t invest in places with significant violence and political strife. It is possible acquiring Roxgold then gives them a launch pad into regional safe plays there, but the retail market as a whole might want to stay the hell out of Africa because most of us are ignorant to what goes on there politically. We constantly see coups there on the news. Even South Africa, part of the BRICS nations, has really sketch investment risks.

Overall, I like the move to more gold.

Financial picture: Many people in the resource investment world have a lot of thick skin when it comes to investing in really sketch places. They look at the hard numbers and look for discounts. That’s them. That’s not me. Marin Katusa can do that. I can’t. I didn’t look terribly closely yet at the numbers I laid down, but any of these numbers I’d put some asterisks with. They have a $1.4b market cap with 17% profit margin – about 5th overall. Their debt to equity was a little high at 23.4%, with a pretty safe Times interest earned at 19. Their ROI was a little low with 7.04% (6th) and ROE at 10.24% (6th). Their 12.76 P/E ratio has them flying a little under the radar to investors. They have $151m in working capital but $171m in LT debt, which has about $7m per year in interest expense. That debt is a little high for the size mkt cap they are compared to their peers, which is why you have the 23% debt to equity. The numbers here are neither stellar nor horrible. Out of the 13 or so companies I’m looking at here, these are about middle of the pack financially.

Their percent of OCF they put into CapEx at 68% was about 40% higher than peers, and this reduced NI and thus had a bit of a negative effect on ROI. Their P/OCF and P/FCF was in range with their peers.

What I like: I do like the move to more gold and diversifying out of Peru. They are not terribly off, financially. I DO like that I remember interviews with their CEO on YouTube and how he seems accessible. They have a lot of operating mines, so it’s not all eggs in one basket.

What I don’t like: 27% silver production, financials aren’t super strong compared to their peers, jurisdictions. Had some issues during COVID like others, but I think that cause delays in getting a mine up and running and they seem to have a bit more mining hiccups than many.

Charts:

Like most in the sector, there’s a channel or pennant down, followed by a recent breakout of the pattern and a back test. You can see in the green here I had an inverse head and shoulders I was tracking that I played around the beat down and recovery charts. I didn’t trust the chart here and got out of FSM with like a 30% move in a week on call options. This could have been a huge money maker for me had I followed that measured move up.

That being said, I mention I play these guys for trades and not a long term hold. This chart has them above all but the 200dma and it looks like they now had 2 higher lows and the most recent higher high broke above the 2 previous lower highs. RSI is near 70, so I personally would skip this for a trade this time as I see other miners with a much lower RSI I can put some money at while this cools off a bit.

Overall: They are well known and a lot of people play these guys. Decent size company at $1.2b mkt cap, but they are essentially a gold company with silver in the name. The low P/E ratio is reflective of the people who bailed on the stock with the Roxgold acquisition and I believe that cheap P/E ratio is a warning about the jurisdiction risks involved. That being said, with silver in the name and another run up perhaps coming, many value investors may see the low P/E ratio and jump in.

Grade: C and I make this relative to the 13 companies I’m tracking. Financially, they were middle of the pack and just had an acquisition which was not popular with the retail crowd which may keep the stock from moving in the ST, but the guys who know a lot more about this than me love the bottom line of this and feel it will significantly increase FSMs value in the LT. I added a minus, for NOW for the jurisdiction risk along with the time it may take to digest Roxgold. IF silver hits $50 in the next 6-12 months, they will significantly underperform the peers on this list due to the 27% silver production. However, if we are seeing $2500-$3000 gold, they may do pretty well.

I think a strong year of PMs moving up will help all of these companies with the financial statements – but these guys need time for the market to come around to Roxgold. To me, that isn’t even priced into the share price, at all, at this time. The red circle on the chart is when the announcement of Roxgold came out July 5th. The share price was falling prior to that, but as you can see, the share price now is close to that time and not even taking into account the earnings that a gold company acquisition will have on its bottom line. Earnings per share will increase over the next 6-12 months, if operations don’t get hit by more bad luck. This is one I’d pass on in the ST for a long term hold based on MY jurisdiction avoidance – but someone else may see this as a great value play and accept that risk until Roxgold is digested into this price. I just have so many other things that may go “where lambo” that I don’t want to park money with them for 6 months hoping people come around to Africa as a jurisdiction.

That being said, when and IF the beat down starts around November 18th, I might buy them on the other side of it if their stock price gets hulk smashed and their RSI is lower, I will most definitely put on call options for them.

Endeavor Silver
Note – during my review, I liked this so much I immediately bought ITM call options for Jan 2023 and made it my second largest position. That’s how this went. And, with my next paycheck on Tuesday I’m emptying my bank account into them for more. These guys separated themselves, by a LOT, from this list of 13. It wasn’t even close. In fairness here, they call themselves a “mid-tier producer” and produced 4m oz I believe.

Jurisdiction: They have two operating mines in Mexico, one that looks to be on care and maintenance, 2 in development, and 1 in exploration. I’m not good with Mexican geography and have no idea if the ones in development are sitting next to someone else. That being said, if you want to mine silver, you want to be in Mexico.

What they mine: It appears to be 56% Ag and 44% Au, so good leverage to the price of silver if we moonshot. They appear to have just got an advanced stage gold exploration project and will look to make a decision on developing a mine in Q4. I notice First Majestic didn’t include Endeavor on their chart – as AG had the cutoff at $1b market cap companies. These guys are $859m mkt cap.

What they want you to see: Growth in Terrona project. First thing that caught my eye in the presentation was they have 2 working mines and their best silver mine had 7 years left. That hit me hard with a left jab, then they immediately followed it up with a right uppercut though that made you forget about the weak ass jab when they discussed Terrona.

Big picture strategy: 100% organic growth in 2 years. Looks like organic growth is what they are pitching, and one of their mines they are leasing the mine and plant from the Mexican govt – 5% of their production – but put on care and maintenance due to low reserves Some exploration and development items in the hopper. Looks to be moving to Terrona project for a LOM of 12+ years and 88.8m oz Ag. 374gpt is a good higher grade for these things. Looks like this next project has $175m capex and IRR of 21.3% with 3.6yr payback and NPV of $174m.

Financial picture: The books look amazing, but they put this out there…

With the numbers though, they look amazing compared to the other 12 or so on this list. This number might fluctuate if I drop or add one or two, so don’t kill me on that. With Endeavor, I mentioned you have an $859m mkt cap which is more in the line of the juniors technically, but they are really mature and looking to be approaching $1b on the next $30 run to silver.

All of the numbers they have jumped out at me. Let’s start with the ROI (1st) which is at 18.65%. The next best on this list is 10.78%. That is some MAJOR distance. With the ROE, we are looking at 24.69% (1st). The next closest is 19.57%. You then take a look at their debt to equity ratio which is a miniscule 4.41%. This is 4th overall, but given the small market size – the debt is tiny. Long term debt is at $7m. Yeah. That’s it. This ranks second only to Silvercorp on this list. The PE ratio is at a good range of 21.61. Has interest, but not overstretched, at all.

Their profit margin was second only to WPM, but there were several just a percent or so right behind them. This high profit margin is due to low interest expense with no debt and running mining operations like a champ. Their interest expense was $759,000 which is about 10% of their total debt.

The only real number that jumps out at you was the Price to FCF ratio at 50x. When you dig into this, you see they spent 64% of their operating cash on CapEx, slightly higher than their peers. But for a number that high, it suggests the P/OCF is a little high to its peers, which it is. This is telling me that their cash flows, relative to their market cap, are below their peers – perhaps suggesting this is a bit overvalued to its peers. You then look at the 4.41% debt to equity ratio and this, to me, allows for that premium – lower risk, but also then lower cash flows relative to market cap as part of that “overvalue”.

What I like: The financials are stellar. Period. The new mine that they have in the pipeline should potentially double their production, if not more, at a time when silver prices should be in the next stratosphere. PE ratio is telling me that they are flying under the radar a little. LOW DEBT of $7m. Organic growth has allowed them to grow without debt. High percent of their revenue is silver, probably tops on this list.

What I don’t like: 7 year LOM on their top mine, and only 2 operational mines. Bad things happen sometimes, so you have to bet on something going wrong with mining. The high capex of $175m for the new mine lists 21% IRR – and I don’t like that number, but it’s using $20 silver. The bet here is hopefully within 2 years this thing in built and we are looking at $35 silver for years to come. This sort of negates the IRR to me – and they MUST do it to survive at this point. How do they build this mine? Organic growth would require patience.

Charts:

Look at that up channel, when the entire sector was sideways or lower. In June of this year, looks like the stock went south when the silver price started tanking for 4 months. Looks like it sold off with everything then and mimics silver pretty closely. You can see a sideways channel for the last 4 months and it just found support at the 100dma (and the 20dma) with a strong close on Friday. On Thursday, it did seem to get rejected from the 200dma, but this could be broken any day now to the upside. RIGHT above that is the channel top. IF it crosses that channel top, I think I’m buying a hella more options on this.

Questions to ask? How will they navigate 100% uptime of two mines, and is that risk of one not producing at 100% going to severely impact their bottom line? How will they finance the new mine and how will the market take that decision?

Overall: My only real concern here is how they finance the new mine and if one of their two mines runs into a fire or strike or the like. With $70m in working capital and a silver price that has languished the last 4 months, I don’t know if that’s cutting into upcoming Free Cash Flow. I didn’t look terribly much at the Cash Flow. A quick glance at it looks good compared to 2019, and much stronger silver prices will affect this company probably more than any on this list other than WPM.

Grade: A. Worried about 1 of 2 mines having an issue to slow production, and how taking on debt to develop the new mine could affect their pristine balance sheet. The hope, to me, is they are able to not pile on debt – but they need to determine if that trade off with much higher silver prices to come is worth damaging the financials.

Hecla Mining

Jurisdiction: It looks like they have 5 operating mines in the US – Alaska, Idaho, and 3 in Nevada. They also have a mine in Mexico and Quebec.

What they mine: They are a 130 year old company that has been on the NYSE for 50 years. I can’t find a ton on how much they mine in what percentages, at a quick glance, but see US silver production at 13.5m oz. I don’t like how opaque this is. I do think it’s mostly silver, however. And if you have to dig through 100 slides to calculate this, that’s a problem.

Edit: finally found it on page 58 of the slide deck – 40% silver, 37% golf, 10% lead, 13% zinc.

What they want you to see:

They talk about their high grade many times. And growth. And dividends – more on that below. While the silver might be high grade, if your debt costs are insane, that crushes your financials. Let’s see how everything stacks up.

Big picture strategy: They do have a lot of irons in the fire with exploration it seems. Seems they have growth planned (every one of these need to tell you about growth, BTW).

Financial picture: Hecla has a $3b market cap – and they seem to be in the same ballpark as First Majestic with that. However, their profit margin comes in at 4.18%. This is 3rd worst among the 13. They have the highest beta at 2.16, so they can move with silver. Their debt to equity is 3rd WORST at 30.79%. The times interest earned is the second worst – at 1.81, and the worst one on this list I suggest selling for spare parts. Remember, this is “How much earnings exceed interest payments” – so with low earnings and high payments of interest debt, this is a VERY low number. Low ratio are a risk of default. However, an asterisk could be made here with capital intensive industries that take on debt to grow – and these guys seem to have a lot of ideas with that…

You then take a look at the ROI of 1.28% (3rd worst) and ROE of 2.01% (3rd worst). You then see a PE ratio of 95, which suggests this might be overvalued perhaps by a factor of 4-6x.

I’m not an accountant, but I took a bunch of accounting classes as part of my MBA many moons ago. It seemed off to me – how little net income they have and this big dividend. Is it an expense that contributes to the low net income (profit)? No. It’s not taken from that. It shows up on their cash flow statement as “Cash Dividends Paid”.

I found this here to help you…

“

1. Dividends are paid out of the net profits or accumulated reserves of the company, which are calculated after deducting all the expenses and paying the corporate income taxes as per the regulatory laws.
2. Since they are a part of the profit & loss appropriation account, they are not allowed to be deducted as an expense in the income statement as they are not directly related to the revenue of the company and are the distribution of the profits.”

I bring this up because in their investor presentation they talk about a strong balance sheet. Their ratios and numbers suggest a story far from what they are telling you there.

It also came out to $.08 per share – which supports everything that I’m saying with the low profit margin, returns, etc.

When you look at their debt, you see $524m in LT debt. They briefly talk about this in their PPT and discuss it as LONG term, so perhaps they want you to think it’s like a 30 year mortgage as super low rates.

What I then did was take their interest expense and divide that by their LT debt to see what they are essentially paying per year on this debt. This is a layered approach here. You see Great Panther have the highest, by far, at 46% – but they have $8m in LT debt and their payment was $3.9m – looks like they are paying down debt aggressively. You then see a high number with PAAS at 25%, but this is on $20m in debt and they were paying $5m for a company with a $5b mkt cap. Next is Endeavor at 11%, but they have $7m in LT debt for a $900m mkt cap company. But then at 4th is Hecla at 8%, but it’s on $524m in LT debt. I’m not imagining this.

I am very concerned about this LT debt and how interest payments are crushing their soul for profitability. My guess is that they feel much higher silver prices are coming, and with that, it will rain down on them.

Lastly – their P/E ratio of 95x is off the charts, but the P/OCF of 11.78 and P/OCF of 20.77 is in line with their peers. THAT tells me earnings suck, and this all goes back to the debt and interest expense crushing earnings.

What I like: Low political risk. High grade. They have a nice dividend based on the silver price which is at 8% when silver is $25 to $30? and it goes up it seems…

What the above is telling me is that once silver hits $25 an ounce, I’d probably start pouring significant resources into them for a quarterly dividend like this. 8% at $25 to $30 is outstanding and I will most definitely consider this. HAD NO IDEA about this.

What I don’t like: MAAAASSSSSIVE DEBT. This is killing profitability. I think they have 5-7 slides dealing with all of their high grade and then tell you about their strong balance sheet, but it’s smoke and mirrors and – I’ll admit – perhaps I’m reading something wrong here, but I’m comparing them to 13 peers with their numbers. To me, a much higher silver number would be a great time to pay down debt but if they are promising lofty dividend payments to shareholders, I don’t know how they do anything with the debt other than make the bare minimum.

But this is what is confusing to me. Their net income was $35m over the trailing twelve months (TTM). They are listed at 538m shares. Earnings per share are $.08. Stock price is $6. Silver was mostly $25-$30 the last 12 months, with the last 3 around $23-24. How they hell are they paying 4.4-8.0% dividends?

I’m hoping any of you accountants out there can give me some next level analysis on this if I’m missing something. Their financials appear to be a dumpster fire and I have no idea how they think they will pay out these dividends while that interest expense of $42m/yr, is hanging over them.

Hecla does want to pound the table on “high grade”. The question I then have for anyone watching their books, is what happens to their NI when grades start to decline over time? If they have a 4% profit margin and $500m in debt with high grade, how will they get out of this?

Slide 60 is where they finally address debt and say it is VERY LONG DATED.

The interest expense I’m seeing torched profitability for the TTM. Are they saying $475m is due in 2028? I can see it listed as 7.25%. This comports with my 8% on $524m for $42.2m interest expense.

Now – that interest expense is directly related to profit here. You take that interest expense from EBIT and you then get your net income (profit). This is a MAJOR problem here. Is Hecla saying they owe a $475m nut in 2028 and they are paying an interest carrying cost of 7.5% on this?

Look – I’m now stretched to my skills at the moment. This is where I need one of you accountants in the audience to tell me what I’m missing here, because compare to their peers, their financial statements are garbage – it would appear to someone who is only reading their financial statements.

Charts: While the chart looks interesting, understand that while the RSI is middle of the pack, they have a NINETY FIVE P/E ratio.

A technical guy looks at this differently than an accountant would which is why those who ONLY do TA should improve their skillsets to use it as part of the picture and not the whole picture. From a TA perspective, you can see Hecla outperforming silver by a good deal from July 2020 to July 2021. That upward trend is very nice, and then in July it followed the whole sector down. In the last few months, it’s been squeezing into a triangle of sorts. It looks ready for a breakout.

So the TA side of things looks at price action. I am guilt of playing call options with price movements of silver with this one. But I went over all of the financials above. To me, that upward slope COULD have been people seeing the price of silver at $25 to $30 and Hecla changing their dividend policy. They mentioned they changed it 3 times in the last 12 months.

Hecla had a dividend date of 8/20, recorded 8/23 and paid 9/3. The top of that triangle…is 9/3. Looks like a lot sold out of HL after they got their dividend checks.

So, not sure if the above is correct, or if I found a glitch in the matrix, but it would seem that for a $6 share buy at the moment, if you hold for a month or so, you are going to get $.375 per share? Now – earnings date was listed as 11/4, and Yahoo could be off with not having the latest and greatest – but IF this info is correct, you can buy this stock, hold for a month, and get paid a healthy dividend and than can turn around and sell the day after you get paid?

This is what looked like happened Sept 3rd. See the chart above with the pay date for Sep 3rd. Possibly a coincidence, but to me this is telling me that on Dec 3rd, we may also have a bit of a sell off with people dumping shares. Maybe not. Could be coincidental.

Questions to ask? What about that debt? If they have low earnings, how the hell are they going to pay those high dividends? I get the leverage to metals, but that damn interest expense and NI aren’t lying – and with the TTM we’ve had high metals prices.

Overall: Before this deep dive I thought they were 60% silver and a top notch company with operations. Wow…people need to look at this and verify this work and tell me what I’m missing. IF they are able to somehow keep paying these dividends, somehow, this could be a B+ but I cannot see the math working out – they seem to be promising more in dividends than possible. Financially, HL is the 3rd worst financial performer out of the 13.

I don’t know what magic they have to generate this – only thinking that perhaps they did something different with their debt and didn’t have to make a payment this quarter? Nope….still there…

So the interest expense is still there, but the LT debt principal has not changed. Much. Do they have a lump sum due 2028 or so and pay 7.5% interest just on servicing that debt? The principal did go down by $30m so perhaps it’s on some sort of amortization schedule, but that debt is still silliness.

Grade: D+ with the plus for the intrigue I now have with the dividend I need to know more about. Part of me wants to drop $12k down on HL today on margin to buy 2000 shares and sell 4 weeks later for $750 in cash plus possible $2000 in share price appreciation for a 23% profit using someone else’s money. If I’m correct about this dividend then I can see the price going up maybe another $1 per share chasing this over the next 2 weeks. Another part of me wants to play that 3 week call option for $1 higher with $1000 or so, perhaps getting $1000 in return. Another part of me wants to have a put on HL for immediately after the dividend pay out for another $1,000 pay out.

There might be some intriguing ways to play this on a relatively small scale to make $5,000 in a month – but I could be 100% wrong here and whiff on all three accounts. I bring all of this up not as financial advice, but how you can see the charts WITH supplemental data (dividend payouts) WITH financial statements to understand WHY the price might move directionally – outside of silver. IF silver does a $1-3 move before December, it greatly increases the payout. IF I did the put, it might be the day before the dividends are paid out and do it for maybe 2 weeks or so. IF there’s a silver beat down this month, it might start the 16th-20th, go until the 24th (monthly options the 4th to last trading day – unless a Friday). Then a recovery period perhaps until the 4th or 5th. So while there may be selling off of HL on the 3rd and 4th, silver price could be going up and others could be buying – meaning HL might look to be holding serve for a few days while others may go up, then as the recovery recedes, HL price will start to sharply fall.

I’m putting a pin in this and will look to buy some shares of HL for a trade on Monday, depending how silver looks in the morning. You may not see this until Tuesday or Wednesday.

Coeur

Jurisdiction: It appears they are in Canada, Mexico, and the US. Safe jurisdictions!

What they mine: Their first slide shows a mix of Ag and Au with some other base metals. I don’t know anything about these guys, it was a Twitter request. Given PAAS and FSM are more gold than silver producers, I’ll keep them on here as they do show silver mines. Ah – found it on slide 6….in 2010 they were 69% Ag and 31% Au, now they are 74% Au and 25% Ag. They are 2% below PAAS and FSM, so let’s roll with it and keep them on here. This can also show you how primary silver miners struggled in the 20-teens due to lower silver prices.

What they want you to see: First three slides deal with jurisdiction, “growing” and a lot of babble on ESG. Every single miner now has to promote ESG or else they risk getting cancelled and being excluded from ETFs down the road.

Big picture strategy: Slide 9 talks about expanding 3 mines, exploration with 4 near mines and 4 new discoveries, and optimizing 3 of their mines. This optimization is about to show up in the next section and baptize them with bad news.

Financial picture: Ouch. They had the second lowest profit margin at -1.02% over the TTM. People – this is during $1900-$2000 gold and $25-$30 silver. They are the leader (in a bad way) of highest debt to equity ratio at 36.54%. This then has a -0.62% ROI and a -1.25% ROE – both second worst – and the worst, USAS, I’m recommending someone buy and sell for spare parts. This then has their P/E ratio as -169.5. Well, earnings per share over TTM were -$.04.

They are a $1.7b company by market cap, but have only $35m in working capital. Like Hecla, their LT debt is crushing their soul at $253m. Hecla is just under twice the size, and has twice the debt. Meaning, Coeur takes the cake for debt to equity ratio here. This then had an interest expense of $16m which then led to -$8.6m in Net income. Now, of interest – if you take that interest payment of 6.4% of their debt is being paid on, which frees up a bit more than Hecla’s 8%. Their Times Interest Earned is 4.13, 3rd to USAS and Hecla. Meaning – that low ratio to their peers shows some worries of default of debt.

These guys had the terrible cash flows like AG, for for much different reasons. BOTH are red, which asks the questions why. This shows 172% of Percent of OCF for Capex – but at the same time, they have had all kinds of mining issues. Their P/OCF is in line with the industry, but when you see the P/FCF of -16, you then have questions to ask from here.

What I like: They talk in their strategy of growth and making operations better – unfortunately, this can be copied and pasted from any of these presentations. Jurisdiction is nice. Lots of exploration and potential mines coming online, but these may all need financing.

What I don’t like: They want to bash you over the head with ESG and growth but don’t really want you to look at the simple ratios I saw. Slide 17 or so they slide in some accounting stuff to try and spin good things. The ratios are pretty clear, and any first or second year accounting student should be able to see what I see. There’s a lot of fluff in this presentation. What do I care about the snapshot of metals hedges on slide 17?

Charts:

I’m not going to spend a lot of time on these guys like I did Hecla – their finances are worse, and no dividend. What you see above is outperforming gold and silver from July 2020 to July 2021. You can see the move up from Mar 2020 – a sideways channel last summer – then moving up the base and hitting a sideways channel there. Like pretty much everything July of this year, the miners all tanked. But unlike other miners, this stock did not recover and move around. It looked to get a dead cat bounce and is now sideways. It may break above this channel with the sector, or it may be rejected for other options.

Questions to ask? Most revolve around debt. How much of their debt is going to expanding the existing mines and exploration? Did the recent acquisition of 18% of Victoria gold for $117m have anything to do with these terrible finances?

Overall: Ouch. Financials are terrible and the corporate presentation doesn’t give you a lot except talk about ESG and safety with a lot of senseless info.

Grade: F+. They at least have some assets that could be sold to pay down some debt if needed. I don’t like this stock, at all. and the ratio of silver now means on $50 silver they won’t get the same benefit they had in 2011. They got a 5 point deduction for only producing 25% silver, so I’m grading them as a SILVER miner here. They could be on a very, very dark USAS path.

This is what debt and dilution can do to a stock over the long term. ATH was $360. It trades now just under $7. And I don’t see this company lasting for another decade. Even with strong metals prices, those debts are crushing operations and ability to grow.

Newmont

Not going to spend a ton of time on Newmont because they are very much a gold company. But I put them here because when I was researching this a year ago, I saw they perhaps mined 54m oz of silver as a byproduct of gold. Barrick had a huge copper upside. So if silver takes a moonshot to $100, I’d expect Newmont to perform better than Barrick.

Jurisdiction: On 4 continents, I see them in Canada, US, Mexico, Domican, Peru, Chole, West Africa, and Australia. They are BIG miners and seem to really only care about massive mines.

What they mine: most gold with a nice silver byproduct. They use GEOs a lot (gold equivalent ounces). They have 94m oz in the ground with another 65m oz in GEOs. They list the GEOs as 75% copper and 12% silver and other as 13%. It comes out to 1.3 b oz in silver reserves and resources which comports with the 54m annual silver production I calculated a year or so ago. What this chart shows me that I didn’t see a year ago was the 41b copper pounds is significant. I’ll have to check back with Barrick but now that copper is nuts maybe it made sense for them to point this out.

What they want you to see: World class mines in top tier jurisdictions. long project pipeline, and free cash flow, nice dividend. Lots of exploration.

Big picture strategy: Lots of growth and stockpiling the vaults with FCF.

Financial picture: This is a gold company with a side business of silver, so it may not be fair to put them here – but I did anyway given 3 of these “silver” companies are under 30% silver production. Their profit margin is 16.18%, ranking 8th. Their debt to equity is relatively high at 26.67% (5th). The times interest earned is around First Majestic’s at 10.07 (5th worst). The ROI of 4.78 was not what I was expecting, and ranked 8th with the ROE at 8.59% for 8th. The P/E of 21.59 is in line with its peers. What really jumped out at me was that they had $5b of working capital along with $6.1b of LT debt – with $281m in interest expenses. While the LT debt is high – it seems their interest payments are at 5% of this debt. When you compare that to Hecla who is at 8% of the LT debt, this seems to be giving them debt at lower rates, helping out the net income.

They used to have a chart on these with Free Cash Flow against the higher prices of gold. THAT hooked me a year ago.

What I like: Lots and lots of gold, biggest gold producer, best mines in best jurisdictions with massive silver and copper upsides.

What I don’t like: I put them here for the silver upside – then I learned about the debt they have. While the 5% cost of debt yearly appears to be manageable, a company of this size has massive overhead. You can see they have 338 geoscientists. Not cheap. But to balance that, at the bottom it showed 58m oz replaced by the drill bit. So – rather than them getting caught up in expensive M&A, they seem to be putting money back into the ground.

While NEM’s ROI/ROE is low, my suspicions are this is a lot of overhead – to an extent. I then wanted to dig more into cash flows and saw that they only have 35% of their OFC going to CapEx, where most of the peers were 45-70%. The exploration budget would not be under CapEx, so I am thinking here that this 35% is lower to its peers due to massive costs with exploration. Just a guess, I’m not spending 6 hours going down that rabbit hole 🙂

Their price to FCF is better amongst their peers – and the main reason for this as I mentioned above is they have a lower PERCENT of their OCF going to CapEx.

Charts:

I’ve been burned by Newmont twice so I tend to stay away from them now. Once in May of 2020 I bought NEM options for Jan 2021 for strike price of $55 for $17. Early on in my options days. Immediately, they tanked, then I white knuckled back up to almost break even. Another time I bought on a gold breakout on margin and the stock tanked with all the miners leading gold out of the false breakout up. Maybe lost $1,000 on relatively tight stop losses. When you look at the chart now, this actually is a very attractive entry point for a tranche, given it’s the bottom of the sideways channel that potentially could explode up once it reached the top of this. This sideways action for me is pretty bullish, but at $60 a share it gets expensive quick, and hard to play options with any size because they get expensive quickly.

Questions to ask? Mostly here I’d like to probably see their exploration budget under their expenses and compare this to their large GOLD peers. Like them and Barrick may be on the same playing field as companies that size may do more M&A than mine building, so CapEx might be lower for their peers at this size where a producer that has 1-2 mines being built may divert a lot of their OCF towards getting new mines online.

Overall: I’d probably play Newmont in the GDX at this point along with the Barricks and Kirkland Lakes. It’s not that I don’t like them, but to me, the only ones looking at them are big, big funds that want to buy in. As gold moves up, this price will move up with institutional buy in. Like many of you, I probably have more interest in silver and juniors than major gold producers. That being said, they have 1.2b oz of silver in the ground and IF we happen to see $100 silver in the next few years, keep an eye on them ticking up the number of their GEOs as the GSR decreases. Meaning, I can see a future with $2600 gold and $96 silver. Their GEOs now have like a 75:1 ratio so if silver goes to $100, you might see the GEOs increase by 2.5x, which will most definitely increase their net income because the value of the items being sold are going up, but their expenses haven’t changed.

Grade: B-. Solid company with incredible cash flows with $6.1 b in debt and upside value in silver – but evaluating this here with the financials and comparing them to much smaller companies, their stock will not move like others will on PM moves due to high overhead costs. Additionally, they have much lower leverage to the silver price even though they produce about 54m oz of Ag.

Silvercorp

I once heard they were a Chinese company and never looked beyond that. Let’s dive in to see what’s out there.

Jurisdiction: First glance at operations had Chinese names. So far what I knew was correct. They are “the premier silver producer in China”. OK. Not going to spend a ton of time on them as China is a hard pass on jurisdiction for me. You can talk me into Peru. Not China. Again, I’m not Marin Katusa and just discount a jurisdiction at this stage of my investing.

What they mine: Mostly silver, lead and zinc.

What they want you to see: They are at least clear as day they are a Chinese producer and have done a good amount of producing over 15 years. Lots of reserves and 15 year mine life left.

Big picture strategy:

Financial picture: Best part with them was that they are a $735m mkt cap with .19% debt to equity ratio (1st). This also has them with a $340,000 interest expense which appears to be paying off 1/3 of their LT debt with this. The times interest earned was 208x (1st). But some other things surprised me. They have a 21.1% profit margin (3rd) but remember, there’s virtually no interest expense. This has them with an ROI of 6.6% (7th) and ROE at 7.62% (10th). They have a 17.25 P/E ratio which is about average. Their working capital of $184m is pretty impressive.

What bothers me a little is this. Virtually no interest expense and they are essentially in the pack with profit margin? What they hell are their expenses? They more or less have cheap labor (I won’t use slave labor here, as I believe that is reserved for shoe factories) and no debt, so this seems like fuel costs must be enormous. They brag about low cost to mine an oz of silver, but my guess is this is the lead and zinc offsets rather than truly low costs.

The ROI here has them at $652m of assets with NI of $43m. So this almost looks like they need to improve the net income by reducing expenses (I doubt this is possible in China) or they may have assets that are underperforming or idle.

It looks like they more or less took all of their operating cash flow and put into CapEx. This also has their P/FCF at -990. So these things jump off the page and turn red – and then you can see why. Not a problem, it just presents the questions to be asked.

What I like: No debt. Love that for a mining company, along with $184m working capital.

What I don’t like: China. While I think we can agree nations can have periods of getting along and doing business and periods of being rivals, I am not a fan of their business practices and feel that my investment is only permitted as long as the CCP allows it. While many of our products in this country are made there, that is me buying from a US corp that took the risk from me of buying from them. With me investing in a Chinese company, I have direct risk exposure and I want no part of that.

Hard pass.

Charts:

Not a fan of the charts here either. Still appears to be in a down channel. There’s a line of resistance they are just below, and still below their 100 and 200dma where many other miners have climbed above them right now. China and Evergrande (and other real estate firms) are causing some problems in China, and it seems like they are backing away from capitalism for a bit to hardline more back to communism for a period of authoritarianism. I’ve seen them cut demand there for a lot of things. Lots of solar panels are made in China, so silver demand should keep up.

Questions to ask? Just one. How do you feel about investing in a Chinese silver company that possibly is a partner with the CCP? It’s HQ is a Canadian company in Vancouver, but when you have operations in China, the state gets involved in ways that might not show up on the financial statements accurately.

Overall: If you are a Katusa, you take some discounts here and look at some of these numbers and make adjustments based on risk. I don’t have an actuary on staff at my house, and Katusa was a math teacher, so his background I’m sure helps him with risk mitigation. My takeaways are no debt, good working capital, and a jurisdiction I’d never buy into.

Grade: C+ for jurisdiction and risk, but I was expecting $5 silver costs or something I remembered seeing and that isn’t what is coming out with the numbers. Expected this to have stupidly good ROI and ROE but was on the lower end of the spectrum. Low labor costs, no debt interest expenses, must be high fuel costs or “overhead” to CCP or something.

To be fair, their financials are decent, but I just have to take a massive discount to the score with the Chinese jurisdiction involved. I may be overly unfair here, to be honest, as many of you invest in some really shitty jurisdictions without blinking an eye.

Hochschild

I am John Snow with these guys. I know nothing. Let’s see what we have.

Jurisdiction: 100 years of mining in Peru, Argentina, Chile. Oh god. Can’t wait to see these charts with the Peru and Chile….and Argentina issues.

What they mine: 55% gold and 45% silver. Among the better ratios on this list, actually. There really are virtually no primary silver producers left, are there? Looks to be 31-32m oz AgEq which is about 20% bigger of a producer than First Majestic. Give or take.

What they want you to see: EXCELLENT TOP LEVEL SUMMARIES

Big picture strategy: Brownfield development, it seems, along with developing near term projects. They don’t focus a ton on this. Seems they have some green fields in US, Mexico, and Peru.

Financial picture: It’s a $1b market cap, and immediately the first thing I’m thinking is they have 20% more production than AG and 1/3rd the market cap? Let’s dig in.

Uh oh. Just looked. This might get ugly. 7.37% profit margin (3rd worst). Debt to equity ratio is 27.47% (4th worst). This isn’t shaping up. ROI is 4.23% (4th worst) with ROE at 7.96% (4th worst). The P/E ratio of 20.29 is about industry normal, but I’m really focused on these ratios with this one. They do have $179m in working capital, which is perfect for brownfields development and exploration. They also have $199m in LT debt, which seems a bit high – and with this comes $8m in interest expense (at 4%, that’s some good terms).

Something interesting jumps out – the P/OCF (3.49) and P/FCF (6.13) are really low compared to peers. Their % of OCF for CapEx is only 43%. While their P/E ratio is in the middle of the pack, these numbers show they are under market value to peers based on cash flows.

What I like: Been around for 100 years, multiple jurisdictions, and they are where the silver is. Seems like they know what they are doing and perhaps this debt may be part of the growth.

What I don’t like: The financials have these guys probably in the bottom 3rd on everything. Peru and Chile are dangerous for political reasons and Argentina has a lot of inflation problems which eventually could make them unstable. However, they have been around 100 years so perhaps they have navigated these waters for many years across many administrations.

Charts: I see them on the OTC as HCHDF and this looks to be spotty with gaps, so I don’t know what kind of volume they see there, but lots of gaps.

This looks pretty similar to silvercorp, and you can see a line of resistance is just above where it is – within a downward channel. This current price is around all moving averages except the 200dma. To me, I’d not really look at this stock at this moment – the charts say something, but if you add it to the financials, it’s something I’d pass on until it breaks out from the down channel. And – that might not happen without major news from them. They are stuck in a rut.

Questions to ask? What expenses are dragging down NI? The OCF seems superior to its market cap. Could this ratio be extremely elevated due to the lack of investment with the jurisdictional risks? Could this be a value play IF the risks subside? What future cash flows could be coming with development that aren’t showing up here?

Overall: Decent silver ratio, and with gold and silver prices being this elevated the last year, they are missing big on numbers relative to their peers and the financial statements are reflecting some operational questions. Jurisdiction fears are compounding the accounting weakness.

Grade: D+

Great Panther

All I really know about them is I heard someone mention these guys lost a lot of people a lot of money but there’s a new sheriff running things. Let’s see how this looks and if the new guy has turned things around or if it’s too early to tell yet.

Jurisdiction: Mexico and Brazil, with development in Peru.

What they mine: I thought these guys were a silver company, but the first slide on what they mine is 94-109k oz Au eq. Kind of small. 3 producing mines, 2 in Mexico, 1 in Brazil with development in Peru. One of the mines is a silver mine, one is a gold mine, and one is a mix.

What they want you to see: First slide is “new leadership team” so I guess I’m tracking right so far. Been here since April 2020, so 18 months SHOULD show some decent progress – coupled with higher metals prices.

First real slide is on health and safety and ESG. Not good. Now we move to revised guidance.

They then go into the 3 working mines and essentially talk about extending out the open pits.

Oh god. The presentation is already over. I’m reading between the lines here. This may not be good?

Big picture strategy: They didn’t cover that much, but it seems like they want to extend the LOM with open pits, bring a new mine online, and work on exploration.

The mine in Peru shows 3.1m oz AgEq per year, which isn’t terribly big – probably 8-12yr LOM? They mention the PEA, but also don’t mention the IRR. But, it was in care and maintenance so low CAPEX to bring online.

Financial picture: They list “consolidated AISC at $1,950-$2,050 per Au oz sold”. Not starting off well. OK – just now looking and see this as a $142m mkt cap company. Has this been around for awhile? The charts might give me historical info here. Oh…17 years old? OK. Still a junior producer though, so some of this needs to be taken into account when comparing to much bigger companies.

Profit margin is 8.37%, which is 5th worst. Debt to equity is 7.51%, which is 5th best. They have $32m in working capital, so this is pretty good to help with extending the pits and exploration. They have an interest expense of $3.9m but only $8.3m in LT debt. The “times interest earned” is just below what First Majestic is at 7.55, so I don’t have and concerns of default. The ROI is just off the leaders at 7.79% (5th best) and the ROE is a surprisingly nice 19.57% (3rd best). The P/E ratio of 6.5 jumps off the page to me as investors are avoiding the stock for a reason. It’s well below industry standard.

Why? This might have to do with what I mentioned above. Many have probably been burned on this stock many times before.

Their P/OCF is a VERY low 3.06 which gets the question WHY price is so low to operational cash flows. There are SOME jurisdictional issues, but it seems like investors bailed with the earnings report and mine issues.

What I like: There may be value here. With a newer CEO and ok financial numbers, they got a chance here when metals rise and people start looking for value when First Majestic will be at a 70x P/E ratio. Next to no debt. Beta of 1.91??

What I don’t like: This AISC business of $1,950-$2,050 for Au Eq? What the hell dude? If this is indeed a junior in the true sense, when metals prices rise, their profits can go parabolic.

Charts:

Their price gapped down on earnings 2 days ago. Going to look that up in a second. Their chart is similar to a lot of miners over the last 18 months, so nothing crazy with the charts. They are still below their moving averages. The price for this is like before the price broke out above $20 silver. Part of me thinks this might have to do with the high cost to produce with that AISC numbers. These guys might be good at $27 silver and $1900 gold but hurt at lower prices. Welcome to juniors. I ran into this with Impact Silver.

From yahoo finance here:

“The third quarter was challenging operationally, with lower than planned production, which led to greater than anticipated unit costs,” stated Rob Henderson, President & CEO of Great Panther. “We expect Q4 to be another challenging quarter due to the previously reported temporary suspension of mining in the UCS pit and incremental pushback requirements. Limited mining of ore was authorized by the geotechnical committee to continue in the southern portion of the pit. In order to ensure safe working conditions, we intend to ramp down mining in UCS at the end of the year and resume the pushback in mid-2022 when seasonally drier conditions are expected. We will focus mining activities for the first half of 2022 on TAP AB, Tap C and Urucum North. Resequencing plans also include accelerating our decision to develop the high-grade underground mine at the Urucum North deposit.”

Questions to ask? Have things turned around? With the mine being down, is this something they can rebound from?

Overall: This is a very high risk situation where the CEO more or less tells you the 4th quarter is going to suck. And, it seems maybe there’s hope in Q2 of 2022. Operational problems with high costs of mining cannot be made up on volume, as Rick Rule likes to joke about. If you want to roll the dice and hold this for 6-9 months, you could get a double to triple into higher silver prices – or this goes further full capitulation into Q1 2022 when Q4 misses. I think I’d keep this on a watch list because I’m not sure this thing is done falling yet. This could go the way of USAS if they aren’t careful.

Grade: D+ The financials seem steady, for now – but the gap down on the chart told me to look deeper and while the financial statements don’t say it now, you will have less income coming in and possible expenses increasing to get stuff back online. This will reduce the NI further.

There’s a lot of things right now on the board I can play for a 2x if silver goes to $30 without 1/10th the risk of this. IF they can get their operations squared away, you will see this stock move vertical over a week or two as the market digests regular operations. I have Impact Silver in my portfolio and am down big on them, I don’t need to add another high cost junior producer at this time, I’d rather dollar cost average more into Impact and ride that back up with silver prices.

America’s Gold and Silver (removed from full analysis, this is a complete dumpster fire financially and I’ll have a brief financial summary)

Jurisdiction: Americas

What they mine: Gold and silver

What they want you to see: All is well.

Big picture strategy: Tell you all is well

Financial picture: All is not well.

I knew their stock price had suffered far after I cut bait on them when I heard of the problems with production. So much hope for them. The CEO was on a lot of YouTube videos and Eric Sprott laid down a big nugget here.

When I started doing the financials – they were by far the worst, with no peers in the same hemisphere as them. I actually came up with a calculation then where I compared the market cap to equity and realized someone could buy them at market price and sell it for more spare parts. That’s how little value the stockholders have in the business value to the assets.

Here we go…

• Mkt cap $121m with -82.68% profit margin.
• Debt to equity at 10.91%, not bad actually
• Interest expense pretty low at $1.8m
• Times interest earned -67.71 (remember a lower number means they risk default. The lowest so far was Hecla at 1.81 due to their $500m in debt).
• ROI is NEGATIVE 10.37%
• ROE is NEGATIVE 17.40%
• P/E ratio is negative on $1 per share lost over TTM.
• Working capital is MINUS -$19m.

To me, I feel the plug can be pulled on this CEO and day, week, or month. Dude might have his shit together and all of this could have been terrible luck. But I can tell you I don’t think investors are flooding back until they have confidence in the direction of the company. Meaning – either he gets axed or needs to make the rounds on YouTube to let everyone know how the problems are going to be solved.

At this point, The company also has $18, in LT debt, and for a $121m company missing everything – the only real solutions here are asking Sprott for more money and diluting the shares, getting more debt at probably not great rates, issuing more stock and getting dilution, or selling more streams. None of those look good for the shareholder at the moment.

What I like: I don’t own this anymore.

What I don’t like: I used to own this.

Charts:

If you look closely, it’s trading below the March 2020 low. That’s impressive.

Questions to ask? How long does the CEO have? IS he to blame or are these things that “just happen” and he is the guy to get the turnaround going? IF they are to turn this around, how? What’s the plan? In fairness, I haven’t looked at their corp presentation in awhile, I’m posing rhetorical questions that these financial statements may want to have you ask.

Overall:

Grade: F-. The only thing I can say here is that the bottom could be in, but then look at the problems they have and the truth is if they are to fix them, the share price will decrease further before it rebounds. I’m going to wait on the sidelines for a bit on this. I want full capitulation OR confidence from the CEO there’s a plan in place to solve the problems. Then you are looking at share dilution or debt to turn things around.