Shares of precious metals miner Hecla Mining (NYSE:HL) were higher by about 16% at 2:30 p.m. EDT on May 17. Endeavour Silver (NYSE:EXK) and Coeur Mining (NYSE:CDE) were each up around 12%. And Harmony Gold (NYSE:HMY) was sitting with an 11% gain. Although each had traded slightly higher earlier in the day, they were all within about $1 of their peaks.
There was no particular news out of the companies, though Coeur did present at a conference. That said, gold and silver were higher today, which is likely the reason for the enthusiasm here.
As miners, Hecla, Endeavour, Harmony, and Coeur are all dependent on the price swings of the commodities they produce. Notably, as miners, their bottom lines are heavily leveraged to the ups and downs of gold and silver. This is largely because mining costs are relatively fixed, so profits increase materially when the price of the commodity produced rises above the cost of production and can fall equally hard when commodity prices decline.
For example, Hecla Mining reported that its all-in sustaining costs (AISC), an industry measure that takes into account the upkeep of assets and the cost of mining, for gold in the first quarter of 2021 was $1,284 per ounce, roughly flat with the prior year. With gold at $1,865 or so, Coeur is making about $581 for each ounce of gold it produces and sells. However, if the price of gold were to fall 10%, to roughly $1,678 an ounce, the company's profit for each ounce of gold would fall to $394. That's a profit decline of over 30% even though the price of gold only dropped 10%.
This is back-of-the-envelope math and there are other costs involved for the company that aren't included in the AISC number, but it illustrates the basic point. Commodity price moves can have a material impact on the profitability of silver and gold miners. The example above was to the downside, but the math works similarly to the upside. And, today, gold prices were on the rise, with silver prices higher by about twice as much.
That's actually quite normal, with silver generally a more volatile metal than gold. That helps explain why some of these miners posted big price moves, since they have a heavier bias toward silver mining than many of their peers. For example, Endeavour Silver not only has silver in its name, but gets about half of its revenue from the metal right now. Hecla, meanwhile, describes itself as the largest silver miner in the United States. Harmony Gold is the odd man out here, with a focus on the so-called barbarous metal. However, it has been taking a more aggressive stance with its hedging efforts to lock in higher profits on its gold sales. So, it is, perhaps, more leveraged to gold moves -- a point it highlighted in a recent industry presentation.
It's exciting to own a miner when gold and silver prices are rising, but long-term investors need to remember that there are limits to growth and one day doesn't make a trend. Precious metals can be very volatile and recently worries about inflation have helped to make them even more volatile. Indeed, investor sentiment often plays a big role in the gold and silver markets. It is probably best for most investors to view these metals, and the companies that mine for them, as diversification tools rather than ways to time commodity price movements.