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Why Fortuna Silver, Endeavour Silver, and Americas Gold and Silver All Jumped 10% or More on July 20

By Reuben Gregg Brewer – Jul 20, 2020 at 4:21PM

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Miners with silver exposure got a shot in the arm despite, or perhaps because of, the metal's generally subpar performance compared to gold.

What happened

Shares of precious metals miner Americas Gold and Silver (USAS 0.63%) rose as much as 13% on July 20. It was followed closely by Endeavour Silver (EXK 2.25%), which advanced just under 13% at its peak, and Fortuna Silver (FSM 3.47%), which was up roughly 10%. At 2:30 p.m. EST all three were still higher by between 10% and 13%. There was no material news out of any of the companies, but there was some notable news on the silver front. 

So what

Silver has lagged behind gold's performance in recent years, leading many miners to shift more toward the yellow metal while downplaying their silver efforts. The reason for this is found in the gold-silver ratio, which tells you how much silver it takes to buy an ounce of gold. The number is currently around 90, but over time it has averaged something closer to 50, with the current 20-year average hovering around 65. Essentially, silver has generally lagged behind gold in recent years, widening the gold-silver ratio gap and making it more profitable for miners to dig for the so-called barbarous metal.    

A miner holding up a silver nugget

Image source: Getty Images.

That said, silver has been on an impressive run since the middle of March, gaining roughly 50%, using exchange-traded fund iShares Silver Trust as a proxy for the metal, compared to a roughly 20% gain in gold, using iShares Gold Shares as a proxy. This follows a drop earlier in the year in the price of silver that pushed the gold-silver ratio above 120. The current rally has been very impressive in more than just the percentage gain. Today silver topped $20 per ounce for the first time since 2016, with a notable daily gain of more than 2%. In a significant turn of events, silver is an increasingly desirable precious metal to have in a miner's portfolio.  

Thus, it shouldn't be surprising to see that the stocks of Fortuna Silver, Endeavour Silver, and Americas Gold and Silver have been on an impressive price run along with silver. Today's price gain is simply par for the course in this environment. In fact, Americas Gold and Silver has been stressing that it is a gold miner with "optionality to silver." In a recent investors presentation, the miner noted that it has "several development scenarios available to increase silver production by 2022."   

SLV Chart

SLV data by YCharts.

Fortuna and Endeavour, meanwhile, both recently released production results for the second quarter that were pretty dismal. That was largely because of the impact of COVID-19 -- which shut mining down in key regions -- and not company-specific events. Second-quarter financial results will likely be pretty rough reading, and the disruptions make it hard to gauge how well these miners are really doing. However, Endeavour also highlighted positive exploration results at two mines, both of which produce gold and, notably, silver. Fortuna's production, meanwhile, is heavily weighted toward silver. To put a number on that, in the first quarter Fortuna produced roughly 1.8 million ounces of silver and about 9,630 ounces of gold. They are both important metals, of course, but the sharp rise in the price of silver should have very positive impact on its financial results.   

Now what

Today's share-price advances at Fortuna Silver, Endeavour Silver, and Americas Gold and Silver are all pretty impressive. The stocks' respective runs since the March bottom, however, are even more noteworthy. But the recent performance also highlights an important fact that any investor looking at a metals stock has to keep in mind: These are commodity-linked companies prone to swift and dramatic price swings. That's true on both the upside and the downside. Smaller miners, including all three of the companies here, tend to be particularly sensitive to the emotional swings that push precious metals prices up and down.

In the end, despite the often-exciting price moves, gold and silver are probably best viewed as diversifying assets, with most investors best off putting just a small percentage of their portfolio in investments tied to precious metals. And, generally speaking, larger and more diversified options, notably including streaming companies, are probably a better choice than any of these three for long-term investors. That's not to suggest they are bad companies -- they just require a lot more legwork than other options in the space.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Fortuna Silver Mines Stock Quote
Fortuna Silver Mines
FSM
$3.58 (3.47%) $0.12
Endeavour Silver Stock Quote
Endeavour Silver
EXK
$3.18 (2.25%) $0.07
Americas Gold and Silver Corporation Stock Quote
Americas Gold and Silver Corporation
USAS
$0.48 (0.63%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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