One of the most explosive bull markets in history peaked in 2011, and then precious metals were brutally slammed.
This is what happens in a commodities cycle.
Demand snowballs and suppliers overproduce, trying to make as much money as they can. The resulting oversupply overwhelms the market, and prices crater.
We see this not just with gold and silver, but also oil. Indeed, oil prices have tumbled as low as $30 twice in the past eight years. Each time they rebounded rather quickly, delivering gains of 100%, 200%, and even 300%.
The precious metals slump has been more persistent. But like oil, silver and gold are bouncing back.
The reasons are familiar.
Mining projects have been shuttered or postponed, production is falling, and demand has been rekindled by lower prices.
Total mine output rose for six straight years through 2014, as producers ramped up to take advantage of high prices. But it plateaued in 2015, and in 2016, it suffered its first annual decline in nearly a decade.
This, ultimately, is a good thing.
The bear market has weeded out bad actors — those with high debt burdens, low-grade resources, unsustainable costs, etc...
What remains is a cadre of more capable miners — low-cost producers with high-quality assets. These companies have emerged with higher margins, toned balance sheets, and less competition than before.
As a result, they stand to do quite well when a new bull market gains traction.
That's why we've compiled this list of the very best gold and silver mining companies, based on their costs, production, and potential profit.
Just continue reading to discover why investors are so excited about these opportunities — projects and companies most mainstream investors haven't caught onto yet...
Agnico Eagle (NYSE: AEM)
Agnico Eagle peaked at $85 per share in 2010, but at its lowest point in 2015 it was trading around $22 per share. That means Agnico Eagle lost three-quarters of its value in just five years.
Still, the company proved resilient.
It survived the worst of the bear market and has rebounded nicely since.
When we first recommended buying Agnico Eagle in December 2015, it was trading at just $26. Since then, it's nearly doubled to its current level of $40.The company has a market cap of $9.5 billion.
Its durability is on full display.
The key, of course, is Agnico's low-cost production.
The all-in sustaining cost (AISC) for Agnico is roughly $800 per ounce. That kept the company profitable and allowed it to pay down its debt, even as gold prices plunged.
Better still, Agnico took advantage of low gold prices by acquiring new assets.
In 2014, Agnico purchased a 50% stake in what was Osisko Mining's Malartic mine. This contributed to an 18% increase in reserves and record-high production in 2015.
Payable production in 2015 was 1,671,340 ounces of gold at total cash costs per ounce of $567. In 2016, the company registered 1,662,88 ounces at a total cash cost of $622 per ounce.
Going forward, the company expects average annual production of approximately 1.55 million ounces of gold over the next three years (2017 through 2019).
Furthermore, Agnico has also been one of the few mining companies increasing its exploration, doubling its budget. This resulted in the discovery of the new parallel Sisar Zone at its Kittila mine in Finland. This new find is expected to be a significant contributor to future output.
It's also reduced its debt.
In 2016, net debt was reduced by $346 million, and the amount of cash on the company's books totaled $584 million. That's up from $168 million a year ago.
The miner now boasts a debt-to-market cap ratio of less than 10%. That, too, is well below its competitors.
As a result, the miner is well capitalized should gold and silver retrench. It also has the flexibility to acquire new mining stakes should the opportunity arise.
Agnico Eagle also has an $0.10 dividend that yields 0.7%. That could go up, too.
Low costs. Low debt. Strong reserves.
Agnico has been and will continue to be one of the stronger mining investments in the game.
OceanaGold Corp. (TSX: OGC)(OTC: OCANF)
Oceana is an Australia-based miner that's much smaller than Agnico Eagle. But then again, so are its costs.
Oceana's AISC was just $708 per ounce in 2016, and that's projected to fall even further to just over $600 per ounce in 2017. Gold is currently trading at twice that.
The company's gold output was 416,741 ounces last year, compared to 419,153 ounces in 2015 and 307,463 in 2014.
Perhaps most importantly of all, Oceana reported record annual revenue of $628.6 million and record annual profit of $136.5 million in 2016.
Like Agnico Eagle, Oceana took advantage of the gold price slump to absorb new assets.
The company acquired Romarco Minerals Inc. in 2015. This increased Ocean's debt burden, but not overwhelmingly so. And the takeover is expected to add attributable production of 540,000 ounces gold in 2017 at an AISC of just $533 per ounce.
In short, OceanaGold is looking at a couple years of very strong profits, with the potential to improve long-term production at very low all-in costs through exploration and new mines.
The company is valued at about $2.3 billion, and the stock pays a $0.05 dividend, which yields 1.43%. That's pretty good for an industry that doesn't have a lot of cash to kick back to investors at the moment.
Newcrest Mining Corp. (ASX: NCM)(OTC: NCMGY)
Newcrest Mining is Australia’s biggest gold miner, with operations in the Asia Pacific and West Africa. It's just one of four companies that holds more than one mine in the world's top-30 producers list.
Its group AISC is $751 per ounce, with its best-performing mine, Cadia, producing at just $227 per ounce. Cadia also has a reserve life of approximately 41 years, with 26 million ounces of gold reserves. The mine is the top-producing gold mine in Australia.
Another mine, Lihir, has an estimated 35 years of reserve life, with AISC of $804 per ounce. It has gold reserves of 28 million ounces and resources of 57 million ounces.
In all, the average reserve life of Newcrest's mines is about 27 years. That's exceptionally good for the industry. If you look at the graph below you can see that Newcrest leads the pack when it comes to mine life and AISC margin.
Its total reserves are also world class.
At the end of 2016 total ore were estimated to contain 65 million ounces of gold, 11 million tonnes of copper, and 38 million ounces of silver. Group mineral resources were estimated at 130 million ounces of gold, 19 million tonnes of copper, and 95 million ounces of silver.
Newcrest has shed $1.33 billion in debt over the last two years. That's brought the company's Net Debt/EBITDA ratio down to 2.1. That's not ideal, but manageable.
Alamos Gold, Inc. (NYSE: AGI)
At $940 per ounce, Alamos Gold's AISC is a little bit higher than the other miners we've discussed.
However, those costs are shrinking and production is on the rise.
Total gold production is expected to exceed 400,000 ounces this year, up from 392,000 ounces in 2016 and 380,000 ounces in 2015.
At the same time, AISC fell 7.4% from 2015 to 2016 and is projected to drop another 7% in 2017. AISC margin jumped a shocking 300% from 2015 to 2016, and is poised to rise 35% to $310 per ounce in 2017.
Alamos is also in a strong fiscal position, with about $492 million in cash and $315 million in debt.
The company's flagship mine is the Young-Davidson mine in Ontario, Canada. It has 3.9 million ounces of proven and probable reserves and another 1.2 million ounces measured, indicated, and inferred. Young-Davidson has a 15-year reserve life.
Production from that mine came in at 170,000 ounces in 2016 at an AISC of $897 per ounce. In 2017, the mine is on track to produce between 200,000 and 210,000 ounces at an AISC of $775.
Alamos Gold's Mulatos mine has proven and probable reserves of 1.5 million ounces of gold and more than 3 million measured, indicated, and inferred. It contributed 154,000 ounces in 2016, up from 140,000 ounce in 2015.
Beyond that, the Kirazli, Agi Dagi, and Camyurt pipeline projects are under development in Turkey.
The company has $2.5 billion market cap and and has performed exceptionally well for investors both over the short and long term.
Pan American Silver Corp (NYSE: PAAS)
Pan American Silver is the second-largest primary silver miner in the world. It has a portfolio of quality assets throughout North and South America.
It has proven and probable reserves of 286 million ounces of silver.
It's similar to Alamos Gold in that it has a $2.35 billion market cap and has posted a 57% gain over the past year. (Alamos is up 23% in that time.)
The company produced 25.4 million ounces of silver and 183,900 ounces of gold in 2016. ASIC per ounce of silver produced was $10.17 in 2016. That's down 32% from 2015, and compares to a recent price of $17.50 for the metal.
Broadly speaking, Pan American has been extremely successful in its exploration efforts. Over the past 12 years, it's added 293 million ounces of silver reserves, fully replacing the 291 million ounces of silver depleted through mining activities in that same period.
Most recently, Pan American reported a 5% increase in proven and probable silver reserves at La Colorada. The mine now holds approximately one-third of the company’s reserve book. La Colorada added 5.2 million ounces of silver to its proven and probable mineral reserves. And in 2016, exploration activities will focus on upgrading the approximately 23 million ounces of inferred silver resources.
Manantial Espejo and San Vicente had exploration success as well, adding 4 million ounces of silver. That completely replaced the 3.9 million ounces depleted over the course of the year. San Vicente added 3.2 million ounces of silver, replacing 80% of silver ounces mined last year.
Going forward, what's most important is boosting production and cutting costs, which is exactly what Pan American is poised to do.
Silver Wheaton (NYSE: SLW)
Silver Wheaton is the largest pure precious metals streaming company in the world. That is, it's not a miner.
Rather than spend billions on tools and labor, streaming or royalty companies offer upfront payments to miners for the right to purchase silver and gold at cheap prices in the future.
That's a good business to be in during a bear market because there are so many distressed miners looking for cash. Silver Wheaton is especially good at that. It's been in this industry for a very long time. Its management knows how to take advantage of industry slumps.
Last year, Silver Wheaton announced that it'd increased its bought-deal financing to $550 million.
Most recently, the company agreed to pay Panoro $140 million in upfront cash for 25% of its gold production and 100% of its silver production from the Cotabambas Project in Peru. Additionally, Silver Wheaton will make production payments to Panoro of the lesser of the market price and $450 per ounce of gold and $5.90 per ounce of silver delivered over the life of the mine.
Silver recently closed at around $17.50 per ounce, and gold came in at $1,250 per ounce. So you can see how Silver Wheaton makes its money.
Overall, Silver Wheaton pays an average of $4 per ounce for silver and $400 per ounce for gold. The higher precious metals prices go, the more money streamers like Silver Wheaton make.
It also pays a $0.06 dividend that currently yields more than 1%. That may not sound like much, but it's pretty good considering most miners have been forced to slash what paltry dividends they offer to conserve cash. Barrick Gold (NYSE: ABX) and Goldcorp (NYSE: GG) yield just 0.4%, for example.
Franco-Nevada (NYSE: FNV)
Like Silver Wheaton, Franco-Nevada is a streaming company.
Also like Silver Wheaton, the company has a proven track record of delivering gains for investors.
Since Franco-Nevada's initial public offering in 2007, the stock has quadrupled in value. It's managed to absorb the shocks from lower gold prices, rising 124% since 2011.
Franco-Nevada has more than $136 million in cash sitting on its balance sheet, no debt, and access to $1.4 billion of capital through a credit facility. This gives the company leverage to expand its asset portfolio and sustain its aggressive dividend policy.
Last year, Franco-Nevada paid $500 million to Glencore for the right to receive 70,000–80,000 gold equivalent ounces annually until production runs out at the Antapaccay mine in Peru. That's slated to be around 2030. The deal is already paying off.
In the first quarter, Franco-Nevada reported two months' worth of production from the mine, with deliveries of about 8,900 gold equivalent ounces during the seasonally low period for the region. Second-quarter production from Antapaccay climbed dramatically, bringing in almost 19,600 gold equivalent ounces. It then climbed to nearly 22,200 ounces in the third quarter, bringing the year-to-date total to more than 50,000 ounces. That puts the project very much in line with its original guidance for the full year.
Franco-Nevada also agreed to purchase royalty rights in the STACK shale play in Oklahoma's Anadarko basin for $100 million. Cash flow from the royalty acreage currently represents an annualized rate of $3 million per year and is expected to grow substantially as full-field development is rolled out.
In addition to spending on new projects, Franco-Nevada has increased its dividend in each of the past nine years. Its current payout of $0.29 per share is good for a 1.41% yield.
Given the choice between the two, Silver Wheaton is probably the better value right now. It ranks lower than competitors in terms of price/earnings, price/cash flow, and price/NAV.
Ultimately, though, all of these are strong companies and solid bets. If the precious metals rally continues, they'll enjoy a nice revenue boost. But their margins are high enough that they can withstand a drop in prices should gold and silver regress.
Better still, they'd have yet another opportunity to collect producing assets at a steep discount.
Outsider Club Research Team