Silver mining has grown fantastically lucrative as this precious metals bull market charges onward. But due in part to the momentous short squeeze that in April sent silver prices soaring toward $50 per ounce, I anticipate windfall second-quarter profits that will give silver investors a taste of the earnings growth still to come.
First Majestic Silver
While we wait for earnings results to trickle in from the sector over the coming weeks, a little fun with numbers (using First Majestic as a case study) can help Fools to anticipate the kind of quarter we can expect from the group. First Majestic's first-quarter net profit margin of 43% would qualify as an astonishing degree of profitability in many other industries, but for silver miners such feats have become commonplace. Silver Wheaton
As attractive as First Majestic's profitability was in the first quarter, it's about to get even better. You see, notwithstanding silver's headline-grabbing retreat from the April high, silver averaged more than $38 over the course of the second quarter. That's a 20% sequential increase and a harbinger of dramatic margin expansion for silver miners. We can use that price increase to forecast First Majestic's revenue at about $68 million and, so long as costs remained stable, an enhanced net profit margin that I suspect could yield net earnings of $31 million or better. That would mean a sequential earnings bump of nearly 30% between two quarters with identical production volume!
Now, I encourage Fools to apply the prospects for a 20% sequential increase in realized silver prices to their own favorite silver miners and adjust their own profitability expectations for the second quarter accordingly. Shares of silver miners suffered noteworthy weakness during the quarter, as indicated by a 16% decline for the Global X Silver Miners ETF
I consider First Majestic an excellent choice for investors as the company seeks to double output from its La Parilla mine starting next year. I believe Hecla Mining's
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Alexco Resource, Aurcana, Coeur d'Alene Mines, Hecla Mining, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.