Will Record Metals Prices Equate to Record Earnings For Miners?
With gold and silver hitting prices that we haven't seen in a long time, we're taking a look at the metals and mining sector this week. Of course we're not expecting to see the share prices reacting quite yet, but we can see if the companies are set up to really see the impact during the next quarter....or maybe even two if these prices can hold.
This week we’re look at three companies in the metals and mining sector. And we can’t take a look at these companies without first checking in with the spot price movement of both gold and silver.
Gold is still trading at five-year highs around $1,500 per ounce. Over the past five years, gold has spent most of that time trading between $1,050 and $1,370. So, we’re talking about $1,500 for something that have been averaging around $1,250 for the past five years. Silver is trading around a one-year high of $17 per ounce.
This isn’t shocking as physical metals are seen as a hedge against geopolitical tensions and economic instability. We’ve got two words for you – trade war. Ok here’s a few more – a trade war that doesn’t seem to have any end in sight. Especially when that trade war is between two of the world’s largest economies.
We’re not saying that it’s time to go out and stock up on gold bars. We’re not sure how far the price will continue to climb. What we will speculate is that if prices keep climbing, or if prices can maintain this level, it might be the time to look into grabbing some shares of a few miners.
We’ve got three Alpha candidates in the industry, so let’s check out how these spot prices might ean profits for them…
First up, we’ve got Hecla Mining Company (HL). Hecla was established in 1891 and is the oldest NYSE-listed precious metals mining company in all of North America. The company is the largest primary silver producer in the U.S and has the status of growing gold producer.
The management is focused on low cost mines that can be extended and improved over time for long-term production. It only invests in locations where a long production life is feasible, and each mine is expected to be cashflow positive.
Hecla has silver-producing mines in Alaska, Idaho and Mexico and gold-producing mines in Quebec and Nevada. Its core gold producing mine, Casa Beradi in Quebec, contributed 37% to 2018 revenues.
Its core silver producing mine, Greens Creek in Alaska, contributed 47% of total 2018 revenues. Over the life of the mine, Green Creek has generated over $1 billion of net cash flow. The company has a strategic development plan for the next four years. The plan provides a 2.7% reduction in total expenditures for 2019 and adds an additional $80 million to the lifelong value of the mine.
In addition to its producing mines, the company has a number of exploration and pre-development projects in eight active mining districts in North America.
The company just reported its second quarter earnings last week. We’ll break them down when we check in with you on Wednesday. Shares started sliding after the announcement and lost 20% over the trading day on Wednesday.
Shares opened last Monday at $2.02 and closed on Friday at $1.57. That’s a loss of 22.2% over the trading week.
Next up, we’ve got Osisko Gold Royalties Ltd (OR). Osisko is a metal royalty company focused on the Americas that was founded in 2014. The company holds a portfolio of over 130 royalties, streams and offtakes. It is the fourth largest precious metals royalty company in the world and one of the most important companies in Quebec’s mining sector.
The company has a 5% NSR royalty on the Canadian Malartic, which is the largest gold mine in Canada. Osisko also has a portfolio of publicly held resource companies. These include a 15.5% interest in Osisko Mining, a 33.4% interest in Barkerville Gold Mines, and a 12.7% interest in Falco Resources just to name a few.
We’re sure that the company isn’t done locking in long-lasting royalty streams yet. Osisko saw record revenues in 2018 and we’re sure the management is looking to do that in the future. The way to do that is to stay nimble and have the cash or cash equivalents available to be used when opportunities present themselves. That’s one thing we’ll be looking for when we take a look at the most recent earnings results on Wednesday.
Shares opened last Monday at $12.78 and closed on Friday at $12.69. That’s less that a percent loss, so we’ll call that flat for the previous week.
Finally, we’ve got Avino Silver & Gold Mines Ltd. (ASM). Avino’s vison to empower and connect the world by supplying metals for investment, technology and industry. The company operates two silver mines in Mexico and has a gold project under development in British Columbia.
The Avino Mine in Mexico is in its 51st year of production and that’s not coming to a halt any time soon. As part of its 2019 plans, the company plans further development to multiple areas of the mine and to upgrade the existing infrastructure. This includes replacing existing mining equipment.
The Bralorne project in Canada is a four-hour drive from Vancouver and is currently in exploration. The first ten drill holes were completed in December 2018. Significant gold-bearing veins have been intersected in eight of the current holes. This project is expected to be one of Canada’s most prolific mining operations.
The company also reported its earnings on Wednesday, causing share prices to have an interesting week. Through the trading days of Monday and Tuesday, investors must not have been expecting much from the announcement as shares dropped.
There was a spike on Wednesday when the company announced its earnings, but then shares continues to cool off over the week, settling at the same low of Tuesday’s drop.
Shares opened last Monday at 76.9 cents and closed on Friday at 70.5 cents. That’s a loss of 8.3% over the trading week.
So far it doesn’t seem like investors are optimistic about these three miners taking advantage of the new highs in spot prices. We’ll investigate that more on Wednesday when we take a look at the second quarter earnings of each company.