Balancing the opportunity in smaller miners, development companies, and exploration companies

March 27, 2020

Erik Wetterling joins me today to go down the list of metals companies and his thoughts on the value opportunities in each. We start with production companies that have also sold off and are looking attractive. Next are the developers and exploration companies that were washed out earlier this month and starting to bounce.

Click here to visit Erik’s site – The Hedgeless Horseman.

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    Mar 27, 2020 27:49 AM


      Mar 27, 2020 27:37 PM

      Sprott’s PSLV is also still below NAV.

        Mar 28, 2020 28:46 AM

        I own CEF and PSLV. When they sell at a 25% premium to NAV you’ll know it’s time to sell.

    Mar 27, 2020 27:01 PM

    Thanks. Nice to hear that Erik is still buying Oceana, Miramont, and Irving.

      Mar 27, 2020 27:24 PM

      It is always Good to get Eric’s thoughts on the precious metal miners. I agree with his point that producers are very undervalued right now, and that for the risk/reward ratio it makes way more sense to buy a producer that has sold off a great deal, rather than jumping into a more thinly traded explorer that may or may not have an economic deposit.

      However, I do not agree that Silver miners are over valued relative to Gold miners in a general sense. Gold miners have held up far better than the silver miners have, and that is partially because gold is at new 6 year highs, while silver ijust got done plumbing new lows. This explains some of why Gold companies have held onto the higher valuations.

      >> However, if any metal is going to double it is clearly Silver and more so than Gold,from a Gold:Silver ratio perspective, from the cost of production perspective, and from an availability of supply perspective. Silver could double to $28 way faster than gold can make it to $3200, and it is a much smaller niche market, where any meaningful inflow of funds could move the needle much more so than in Gold.

      Yes, MAG silver and First Majestic may be more over-valued relative to some Gold stocks, but most of the other producers or developers certainly are not.

      I love Gold stocks and own over 2 dozen, but I expect the best performance in the next 1-2 years from the Silver stocks. A gold producer that is making money at $1600 gold, is not going to have near the impact on their margins at $1700 or $1800 Gold, that a Silver producer that goes from $14 an ounce to $20+ an ounce is going to have on their margins. The same reality is true in how much more valuable the Silver Developers will get at $20+, versus a Gold project that goes from the mid $1600s to the $1700s or $1800s.

      It is this built in optionality in the Silver stocks that makes them more volatile, but also can allow Them too far out perform the gold stocks. We saw that in 2009-2011 & the 2016 surge in spades, and even in some of the smaller Q1 run rallies in 2917, 2018, and 2019; and we will see it again on the next major PM rally.

        Mar 27, 2020 27:30 PM

        Sorry I meant Erik not Eric @hhorseman buddy.

        Let’s compare some P/E’s for Gold companies versus Silver companies:

        (FNV) Franco Nevada Corp is the best of the best royalty with a P/E ratio of 76!

        By the way…. (OGC) OceanaGold mentioned in the editorial has a P/E ratio = 72!
        (this makes OceanaGold one of the most overvalued gold producers).

        (CEE) Centamin plc P/E ratio = 45.87
        (NST.AX) Northern Star P/E ratio = 34.56
        (GORO) Gold Resource Corp = 30.11
        (PVG) Pretium Resources P/E ratio = 28.00
        (WDO) Wesdome Gold P/E ratio = 27.90
        (GFI) Gold Fields P/E ratio = 26.42
        (EVN.AX) Evolution Mining P/E ratio = 23.98
        (F) Fiore Gold P/E ratio = 22.75
        (AGI) Alamos Gold P/E ratio = 22.17
        (SMF.TO) SEMAFO Inc. P/E ratio = 20.00
        (AEM) Agnico Eagle Mines P/E ratio = 19.49
        (TXG) Torrex Gold P/E ratio = 17.73
        (ALK.AX) Alkane Resources = 17.36
        (KNT) K92 Mining P/E ratio = 15.05
        (SBM.AX) St Barbara Ltd P/E ratio = 13.25
        (EGO) Eldorado Gold Corp P/E ratio = 13.34
        (AUY) Yamana Gold P/E ratio = 12.53
        (NEM) Newmont P/E ratio = 12.16
        (KL) Kirkland Lake P/E ratio = 12.06
        (ASR) Alacer Gold P/E ratio = 12.0
        (BTG) B2Gold Corp. P/E ratio = 11.46
        (ORA) Aura Minerals P/E ratio = 9.64
        (GOLD) Barrick P/E ratio = 8.52
        (KGC) Kinross Gold P/E ratio = 7.40


        Silver companies: [they don’t look that radically different than the Gold producers]

        (MYA) Maya Gold and Silver P/E ratio = 46.50
        (PAAS) Pan American Silver P/E ratio = 28.02
        (FRES.L) Fresnillo Plc P/E ratio = 26.27
        (SSRM) SSR Mining P/E ratio = 26.21
        (HOC.L) Hochschild Mining P/E ratio = 20.40
        (FSM) Fortuna Silver P/E ratio = 17.21
        (SVM) Silvercorp Metals P/E ratio = 14.48

        *I couldn’t find the P/E data on many of the silver producers like Americas Gold & Silver, Sierra Metals, Hecla, Avino Silver & Gold, Great Panther, Excellon, Impact, Santacruz, etc…

          Mar 27, 2020 27:45 PM


          I knew I was gonna get some flak XD. I wouldn’t use static and neither backward looking PE rations at this point in time. FIrst Majestic has projected net earning of $128 M for 2020, which I find extreeemly unlikely at today’s silver price. Those PE ratios you posted are probably for 2019. Since then, gold has gone to multi year highs while silver is/was near multi year lows. But to further explain my reasoning I put together this post:

          … Honestly I think that most silver companies are way overvalued in light of where silver is trading at and especially relative to gold companies in light of where gold is trading at.

          IAMGOLD has guidance for 600Koz+ gold ounces for 2020. That’s equivalent to 67 Moz of silver. First Majestic is valued 30% higher even thought their guidance is 22-24 Moz Ag Eq. Even with a recalculation of that given that the ratio is much higher now, I can’t see how anyone would rather own First Majestic except for almost pure beta speculation on silver. You could even buy two OceanaGold for one First Majestic, which is ridiculous!! But I know you are in it for the beta spec, which is fair. It’s just not my cup of tea (for better or for worse) :D. Cheers!

            Mar 27, 2020 27:22 PM

            Hi amigo. Ha! You know I’m going to stick up for the beleaguered Silver miners. (lol)

            Yes, different investors have different goals, risk tolerance, expectations for the individual metals (like I believe Silver will do more catching up to gold and outperform over the next 1-2 year), expectations for how an individual company is trending, or Alpha versus Beta. [Yes, I’ll take the Beta in many cases]

            Just offering a different perspective, because the P/E ratios for most of the Gold or Silver producers are mostly in the 12 -30 range, but yes, I believe those are based on 2019 or the 4th quarter earnings from 2019.

            There are many other factors to consider when valuing producers, because Price to Earnings doesn’t take into account Development projects in their pipeline (like Argonaut that you mentioned and I’m also a shareholder of), the Exploration upside (some of the smaller silver producers like Impact or Excellon animate me for their exploration potential), or the upside Leverage to rising metals prices (optionality factor and percentage increase to their margins and economics), etc…

            Most metrics (price to earnings, price to book, earnings per share, etc…) taken in isolation can paint an unfair picture of a company, but another metric one can use is that is more fair is Market Cap. This number is the cumulative value of the company in the eyes of investors, and there are some real dislocation .

            (OGC) OceanaGold has a Market Cap of $902 Million
            (AG) First Majestic has a Market Cap of $1.39 Billion

            So I’ll give you that you could buy 1.5 OGCs for 1 AG. (but not 2) 😉

            IAG IamGold has a Market Cap of 1.078 Billion so that is already getting pretty pricey for my tastes, and I’d much rather own a SVM Silvercorp for 616 Million, that is still cashflowing at current prices ~$14 Silver, because their AISC is about $7.30 per ounce of Silver; but think of how much more their percentage increase will be if Silver goes to $20 or $25 (like where prices are for folks that are buying silver from dealers or Ebay) versus where I Am Gold’s margins will be if Gold gets up into the $1700s or $1800s. I just believe there is more untapped value in the Silver miners, and really, I like the more marginal producers like Impact, Santacruz, Excellon, and Endeavour that all need $17-$20 silver to really get their heads above water, and thus rising prices in Silver will send their share prices and Market Caps up many more multiples than Gold or Silver companies that are already profitable, and would still benefit from rising prices, but not nearly as much. #BestOfTheWorst

            Anyhow, to each his own, and good discussion. You know I appreciate your comments and insights amigo. Be well and keep up the great work!

            Ever Upward!

            Mar 27, 2020 27:30 PM

            @hhorseman – One area I really agreed with that you discussed with Cory was that with Gold at higher prices in Q1 and the lower Oil prices should have most Gold producers printing money. Over at I had posted a response to our pal @zentrarian echoing a similar message:


            @Excelsior – March 20th 3:03am

            “The $Gold #producers were right to charge higher today.”

            “Honestly, if a #Gold #producer can’t grow and be profitable at $1600 Gold, then there are larger problems they need to resolve.”

            “A few years ago, at $1100-$1200 Gold they yearned for higher prices. The $1300’s & $1400’s came. Many companies stated, well at $1450 – $1550 we can really beef up our balance sheet.”

            “Well for most of the 1st Quarter of 2020, Gold has been in the $1500-$1600 range, so those are fantastic Gold prices for them to be selling their metal into, and when their Q1 quarterly reports come out, we’ll see which companies are prospering and which ones have been swimming naked. #newbies ”


            Mar 28, 2020 28:19 PM

            Not sure I am replying to the right comment but here goes 😛

            It is true that there are a lot more factors to consider than just a snapshot of production like mine life (Planning to write an article about this) etc. Argonaut’s two producing mines aren’t stellar and one has a short mine life, which should weigh on PE. But as you say, they have two projects which should be even better to replace them.

            Question is, does First Majestic have such good growth and/or so much potential to lower margins that it would warrant an IMHO significant premium relative to very profitable gold producers who have metal in the ground worth multiples of First Majestic?

            Are you sure you are not comparing CAD to USD with the Oceana and First Majestic MCAP comparison? First Majestic’s MCAP in CAD says close to C$2B for me (FR) while Oceana says C$900. In essense you could get 2.21X Oceana for First Majestic and I really don’t see how that is warranted unless silver would be at say $25+

            Silvercorp I can understand. I think our different views is explained by my reluctance to take anything for granted. Silver should be and will probably go a lot higher and a lot faster than gold. WHEN that happens, silver producers should be very profitable. However, I can’t justify buying any when gold miners does not need an added tail wind to warrant their valuations. In other words, I am not ready to pay up for the future in advance.

            I understand your reasoning for owning them since we already have hit extremes in Au/Ag ratio for example and silver should start to outpace gold. You will probably outpace my portfolio but I am too obsessed with margin of safety to join you 😛

            All the best

    Mar 27, 2020 27:15 PM

    But it wont be for our benifit……….

      Mar 27, 2020 27:08 PM

      Irish,…… you have any 5 G towers in your location……there is some info. I posted in the earlier sections…….concerning 5G and the virus……

        Mar 27, 2020 27:52 PM

        Hi , Jerry…To the best of knowledge No , & i hope we never get them. I am fully aware of the damage 5g can do to ones body & health…..Btw i still think this covid thing is a huge scam.

          Mar 27, 2020 27:39 PM

          Nato…….is involved……..sending in agents to china sporting events….

            Mar 27, 2020 27:41 PM

            listen to this from george webb

            Mar 27, 2020 27:44 PM

            Same people involve with the take down of trump…….are the same deep state people involved with Ukraine mess….in the doj, fib, cia…..and now involved with the virus.