As the incessant buzz surrounding gold continues to dominate the precious metals landscape, the world's primary silver producers have quietly turned in the kind of earnings power that I visualized last year while dubbing silver "An Asset More Precious than Gold."
Let's begin with the apparent favorite among Foolish readers: Hecla Mining (NYSE:HL). Hecla turned in the third-best earnings result in its 119-year history, with ample profit of $54.2 million for 2009. Cash flow streamed into the coffers to a record of $115 million for the year, permitting the company to pay down 100% of its previously acute bank debt and finish 2009 with $105 million in cash on hand.
Thanks to a 77% increase to reserves at the 68-year-old Lucky Friday mine, Hecla raised total reserves to 140 million ounces net of 2009 production. Producing 10.9 million ounces of silver at a cash cost of $1.91 per ounce after byproduct credits, Hecla remains near the very top of the silver mining heap in terms of production costs thanks to prolific volumes of gold, lead, and zinc. Following a 26% increase in annual production for 2009, Hecla is targeting essentially flat production below 11 million ounces in 2010, with costs remaining contained beneath $2.25 per ounce.
Although no primary silver miner seems able to match the incredible cost structure of Silvercorp Metals (NYSE:SVM) -- which reported an awe-inspiring production cost of negative $6.87 for its fiscal third quarter 2010 -- investors are reminded that Hecla's quarterly production volume is approximately twice that of Silvercorp. Silver Wheaton (NYSE:SLW), this Fools top overall equity pick for 2010, will easily outpace these producers on volume with production surpassing 40 million ounces by 2013. The silver stream specialist's unique business model ensures fixed all-in production costs in the realm of $5.82 per silver equivalent ounce (SEO). Fools may have fun trying to decide between the lowest cost producers and the long-term stability of Silver Wheaton's cost and production profiles. As I've said before, I own and endorse them all.
For reasons that continue to elude me, Pan American Silver (NASDAQ:PAAS) seems to fly well beneath the radar of silver investors ... much the way silver itself is often overlooked by those investors clamoring for the SPDR Gold Trust (NYSE:GLD) or Barrick Gold (NYSE:ABX). Especially in the wake of this transformative acquisition, Pan American is a powerhouse that produced 23 million ounces in 2009 at a competitive cost of $5.53 per ounce.
With an impressive track record of well-executed mine development, and a management team that took it on the chin with a voluntary wage reduction during the lean times of 2008, I think Pan American will continue to build shareholder value whether inside or outside of the silver spotlight. Let us know what you think in the comments section below.
The price ratio of gold to silver stands around 70-to-1, forming a key tenet of this Fool's expectation that silver will outperform gold. Whether you think silver is a golden opportunity or a fool's errand, the community of investors at Motley Fool CAPS is eager to know your thoughts. CAPS is free, so join today!
Fool contributor Christopher Barker carries a silver coin that reads: "Honest value never fails." He can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Hecla Mining, Pan American Silver, Silvercorp Metals, and Silver Wheaton. The Motley Fool's disclosure policy is 0.999 pure.
