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Why Coeur, First Majestic Silver, and Other Silver Miners Rallied Monday

By Reuben Gregg Brewer - Feb 23, 2021 at 8:18AM

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Precious metals producers got an early boost this week, with silver getting a much bigger bounce than gold.

What happened

Shares of precious metals miner Coeur Mining (CDE 9.52%) rose an impressive 16% at one point on Feb. 22. It managed to hold on to most of those gains by the end of the trading day, closing with an advance of roughly 15.5%. Close behind was Hecla Mining (HL 5.88%) with a peak near 15% and a close at roughly 13.5%. First Majestic Silver (AG 6.51%) just got into the teens with a 13% high and ended the day with a gain just shy of that amount. Meanwhile, Fortuna Silver (FSM 10.39%) and Endeavour Silver (EXK 9.14%) both saw price increases of nearly 12%, but ended trading with roughly 11.5% advances. 

The only company here with material news was Coeur, which announced it was buying back some debt. That's not particularly earth-shattering or enough to move the entire group. So the big story is just what you would expect: Precious metals prices rallied, with silver up just shy of 4% at its highs. Gold gained as much as 2% or so at its peak. The difference helps explain why this list of silver-heavy miners rose so much.  

A man sitting in front of computer screens with stock information on them.

Image source: Getty Images.

So what

The important thing here is the relationship between precious metals prices and the companies that mine for them. Using Hecla Mining as an example, the company's all-in sustaining costs per ounce of silver, which takes into account the cost to produce silver and the costs needed to sustain production, was $11.89 in 2020. The trailing-52-week range for silver is $12.09 per ounce at the low end and $30.60 at the high end. Simplifying things greatly, since there are other costs involved, Helca's mines would only be marginally profitable at the low end, producing a skinny $0.20-per-ounce profit. However, at the high end, each ounce sold would bring in $18.71, a massive exponential difference.   

HL Chart

HL data by YCharts

This shows the inherent leverage miners have to precious metals prices. It's particularly pronounced in the silver space where mining costs and silver prices are much lower than in the gold mining sector. Of course costs change from quarter to quarter, so this example is mixing apples and oranges in the sake of simplicity. Helca's all-in sustaining costs in the fourth quarter were $15.35 per ounce, much higher than the full-year tally. Differences like this can be related to the timing of mine development projects, ore quality, and mining issues, among other things. But profits for miners can expand quickly once their costs are covered. As a result, their stock prices tend to move pretty dramatically when silver and gold prices move around.   

Now what

The thing that investors need to keep in mind is that while rising silver prices helped boost Coeur Mining, Hecla Mining, First Majestic Silver, Fortuna Silver, and Endeavour Silver today, falling silver prices would have the reverse effect. As commodities, there's no way to tell when gold and silver prices will rise or fall, so these stocks could easily give back today's gains tomorrow. It's probably best for long-term investors to view precious metals and the companies that mine for them as a diversification tool and avoid trying to time their ups and downs. 

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Stocks Mentioned

Coeur Mining, Inc. Stock Quote
Coeur Mining, Inc.
CDE
$3.68 (9.52%) $0.32
Endeavour Silver Corp. Stock Quote
Endeavour Silver Corp.
EXK
$3.70 (9.14%) $0.31
First Majestic Silver Stock Quote
First Majestic Silver
AG
$8.34 (6.51%) $0.51
Hecla Mining Company Stock Quote
Hecla Mining Company
HL
$4.68 (5.88%) $0.26
Fortuna Silver Mines Inc. Stock Quote
Fortuna Silver Mines Inc.
FSM
$3.40 (10.39%) $0.32

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

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