Thanks to supporting fundamentals and the perception that many participants have about silver joining gold into a bull market, we will witness a 12 months period of sustained increases in the prices of the grey metal according to what TD Securities’ analyst Melek told Kitco News on Monday.
The firm projects the silver price per troy ounce climbing by 5.5% from year to date cumulative average price of $15.2544 an ounce to $16.10 in the first quarter of 2019, by 9.5% to $16.70 in the final quarter of the current year and by an impressive 23% to $18.75 per troy ounce in 2020.
Investors can take advantage from the next silver bull market through investments in publicly traded silver mining companies as these stocks usually report higher market returns than the underlying commodity due to their strong volatility.
As of July 23, analysts recommend to buy shares of Americas Silver Corporation (USAS, Financial) and have determined an average target price of $5.36 reflecting nearly 76% from Monday’s closing price of $3.05. The share price is expected to hit such growth within 12 months.
Americas Silver Corp is a Canadian silver producer aiming to enhance the value for its shareholders through the acquisition of other operators and through the expansion of its mineral deposits which are located at the Cosalá mine in the Mexican state of Sonora and at the Galena Complex in Idaho.
The company produces some lead, zinc and copper as a secondary result of silver production and is engaged in the advancement of the Nevadan Relief Canyon Project for production of gold.
The project, which is already fully funded, is expected to deliver first gold production in the final quarter of 2019.
On a consolidated basis, the company produced 1.8 million ounces of silver equivalent at a cost of sales of $7.11 per ounce in the first quarter of 2019, reflecting 9% growth year-over-year. The production included 0.4 million ounces of silver at an all-in sustain cost of $5.54 per ounce, 8.2 million pounds of lead and 11.3 million pounds of zinc.
The company has a debt-equity ratio of 19% compared to the industry median of 28%.
As of June 30, 2018, Americas Silver Corp had 631,000 ounces of gold, about 41.79 million ounces of silver, about 255.7 million pounds of zinc, approximately 249.7 million pounds of lead and about 31.6 million pounds of copper in proven and probable mineral reserves.
The main catalyst to follow for this miner is the price of the commodity. Starting the last quarter of 2019, the grey metal is expected to trade significantly above $16.50 per troy ounce. Beyond such silver price level, Americas Silver Corp’s trailing twelve months operating margin should turn back to positive, producing a beneficial effect on the share price of the stock.
Expectations are based on what already happened in the past. Trailing twelve months operating margin had a positive reversal in the third quarter of 2016, in the second quarter of 2017 and in the second quarter of 2018 when the silver price had a boost. Below GuruFocus' chart illustrates.
The precious metal averaged $19.62 per troy ounce in the third quarter of 2016, up 14.4% from the cumulative average price for 2016. The grey metal averaged $17.25 per troy ounce in the second quarter of 2017, which was a 1.2% increase from the cumulative average price for 2017. And it averaged $16.53 per troy ounce in the second quarter of 2018, which was 5.3% up from the cumulative average price for 2018.
The stock is not cheap, but its upside potential makes the acquisition of its shares worth the risk.
Americas Silver Corp rebounded from its mid-December 2018 low at $1.4 per share and following 14% increase for the 52 weeks through July 22, the share price of $3 at close Monday is above the 200-, 100- and 50-day simple moving average lines.
The stock had a market capitalization of $241.65 million at close Monday. The 52-week range was $1.24 to $3.11. The price-book ratio was 1.59 versus the industry median of 1.48 and the enterprise value-EBITDA ratio was 851.53 compared to the industry median of 8.49.
The stock is also traded on the Toronto Stock Exchange under the symbol (TSX:USA, Financial). Here the share price closed at CA$ 4.02 (about $3.08) on Monday for a market capitalization of approximately $241.5 million.
Disclosure: I have no positions on any securities mentioned.