What happened
Shares of Pan American Silver (PAAS 0.26%), Fortuna Silver Mines (FSM -0.21%), and Coeur Mining (CDE 2.49%) all rose strongly on a bad day for the markets today, up 9.6%, 10.2%, and 8.6%, respectively.
These miners are each levered to the prices of the metals they mine, and the price of silver was up significantly today, more than 3%. The price of gold, which these companies also mine, was up about 1.7%. The rise in metal prices was likely due to inflation and geopolitical concerns.
In addition, Pan American Silver released its preliminary fourth-quarter production report on Wednesday, and Fortuna released its own report on Tuesday. However, given the synchronous moves across the space, the stock gains likely had to do with the common theme of rising precious metal prices.
Image source: Getty Images.
So what
In the fourth quarter, Pan American mined 19.2 million ounces of silver, versus its guidance of 19 to 20 million ounces. Gold production was 579.3 thousand ounces, within the guidance range of 560 to 588 thousand ounces. While production improved this year, management noted it was still constrained by COVID-19 labor issues.
For its part, Fortuna gave its full-year 2021 production results, without specifying the fourth quarter. Gold production surged 274% last year to 207,192 ounces, and silver production rose 5% to 7.5 million ounces. The company also gave guidance for gold "equivalent" production across all its metals to rise between 7% and 21% this year.
Pan American and Fortuna also produce smaller amounts of zinc and lead, and Pan American also has some copper.
Still, the bulk of the stock price increase was likely concerns over inflation that is hitting other parts of the market. Gold and silver both finished the day at their highest prices since November. While each is seen as an inflation hedge and safe haven asset, prices haven't moved as much as many thought, due to the strengthening dollar and higher Treasury bond yields. However, bond yields dipped a bit on Wednesday, propelling the precious metals higher. Silver also has more industrial applications than gold, and given the demand boom for a variety of goods, that may have also played a part.
Now what
Investing in mining stocks such as these three means you are essentially making a judgment about the commodities these companies produce, which is mostly gold and silver. While silver has some industrial applications, both are also seen as safe haven assets amid global instability and inflation. So they can make for good hedges against the rest of your portfolio, as was the case today. However, remember these investments are inherently speculative, as precious metals themselves don't throw off profits.
If you think we are entering a new era of high inflation and a further rise in commodities prices, these stocks may be worth your while. Of the three, Coeur Mining and Fortuna may have more upside, as they are smaller, with market caps just over $1 billion. Meanwhile, Pan American looks like the safer of the three, with a $5.2 billion market cap and a dividend yield of 1.76%.
