Many investors these days are looking for some sort of precious metal exposure among Canadian stocks. Whether it be gold, copper, or silver stocks. Some people are wanting precious metal exposure due to the threat of rising inflation.
The counter point many investors make is that metals are not correlated with inflation. Which, is true in high inflationary periods. However, during rapid inflation, metals like gold and silver have been known to perform exceptionally well.
Inflation is not the only reason investors are interested in the top silver stocks. Despite what most people think, 57% of silver is used in industrial fabrication, while only 17% jewelry. As we move towards EV vehicles, silver demand is expected to increase by 70% in the automotive sector by 2025.
As such, many Canadian investors are looking to learn what the best options are in terms of top silver stocks here in Canada. Many miners will have some exposure to silver, but in this article we will focus on companies that are essentially silver pure-plays, or in other words the vast majority of revenue comes from silver production.
Without further ado, lets get into it.
The top Canadian silver stocks to be looking at today
First Majestic Silver (TSE:FR)
First Majestic Silver (TSE:FR) is one of the largest silver producers in Canada, with over 60% of its revenue coming from silver, and the remaining 40% coming from gold.
With mines in both Mexico and Nevada, the company mines in relatively safe jurisdictions. Interestingly, Mexico was the number one silver producing country of 2020, and will likely continue to be moving forward, as it currently has a significant edge over the number 2 producer being Peru.
The company has over 380,000 hectares of mining claims and aims to one day be one of the largest silver producers on the planet.
The company's 4 primarily assets include the San Dimas, La Encantada and Santa Elena mines in Mexico, along with its single mine, Jerritt Canyon, just outside of Elko Nevada.
With the inclusion of its newest mine Jerritt Canyon which it acquired in early 2021, the company is expected to produce 30-33 million silver equivalent ounces in 2021 at all in sustaining costs of $14.81-$15.99.
First Majestic is also investing heavily when it comes to new projects. The company expects to spend $168M in 2021 on development, exploration, PP&E, and corporate projects. This marks a 34.4% increase to 2020 levels.
Overall, silver as a percentage of total revenue is expected to dip to 57% in 2021. But make no mistake about it, this is still a company that is going to rely heavily on the price of silver, and will likely fluctuate in line, or even at a faster pace, than the commodity itself.
First Majestic Silver 5 year performance
Silvercorp Metals Inc (TSE:SVM)
Silvercorp Metals (TSE:SVM) might not be as large as First Majestic, however the company does have a portfolio that adheres more to the investor looking to get pure silver exposure.
In fact, over its 15 year production life (2006-2021) the company has mined over 77 million ounces of silver, and 1.3B pounds of lead and zinc.
Silvercorp operates solely in China, with 3 main mines. One in the Henan Province, one in the Hunan Province, and one in the Guangdong Province.
If we look to total production, the company is expected to produce 6.5 million ounces in Fiscal 2022, which would mark a 200k~ increase from the year prior. Keep in mind, First Majestic (the company we spoke about above) expects production to be in the 33 million ounce range. So you can see that although Silvercorp is more directly focused on silver, it does not have the production capacity that a larger player like First Majestic does.
For some, the fact Silvercorp is a China pure-play will be somewhat of a deal breaker. There is routine turmoil in the country when it comes to conflicts with western nations, and many refuse to invest in a company that does business in China.
On a valuation basis the company looks extremely attractive when compared to its peers. In fact, in terms of price to cash flow, price to earnings, and EV/EBITDA, Silvercorp is one of the cheapest silver miners out there.
Its smaller stature and exposure to China is likely why investors are willing to pay less of a premium to hold the company.
Overall, I'd view this as one of the higher risk silver stocks on this list. But, one that no doubt exposes you to movements in silver prices in the form of a miner.
The company does pay a dividend, but it is relatively miniscule at a forward yield of only 0.46%.
Silvercorp 5 year performance
Wheaton Precious Metals (TSE:WPM)
We've gone over a large cap silver stock and a small cap higher risk play. So now we felt it would be appropriate to cover a more reliable option in a precious metals streamer.
One of the best streamers in the country is Wheaton Precious Metals (TSE:WPM). Before we get into the benefits of Wheaton, lets look at what a streamer is.
Precious metal streamers will often loan miners money in exchange for cheaper prices in the future. This allows the miners to expand exploration efforts to develop new projects, while the streamers get the benefit of cheaper-than-market prices when it comes to gold, silver, and other precious metals.
As a streamer, it is not saddled with the high costs of exploration and development, permitting, construction, and ongoing mine maintenance. As such, WPM is less volatile than producers and exploration companies in the industry.
Wheaton has been known as a heavy silver play for quite some time now. And although it does still have plenty of exposure to silver (which is why it is on this list), it's diversifying into gold.
The company has 24 mines in operation and another 8 under development with many high quality partners.
If silver and gold were to rise, Wheaton would likely follow. But the best part about it is as a streamer, the company wouldn't be exposed to the extra risks that a miner is.
Wheaton's dividend approach is also a very unique one. This is a silver stock that does not have a set quarterly dividend. Instead, the dividend is tied to cash flows. The more Wheaton generates, the more it will return to shareholders. This is why in the chart below, Wheaton's dividend seems to be all over the place.
The company aims to distribute 30% of the previous four quarters of operating cash flow as a dividend. As long as Wheaton's cash flows are positive, you will receive some sort of dividend. Which, makes it one of the more reliable dividends in the industry.
Wheaton Precious Metals 5 year performance
Overall, these 3 Canadian silver stocks should provide a variety of options
Be aware that when you invest in a silver stock like this, you're relying heavily on the price of silver. Not so much Wheaton Precious Metals as with its streaming capability it is likely to be less volatile. But with the other two, if silver dips or rises, they will likely follow.
If you're going to invest in silver stocks, you have to do so with a long term mentality and be able to withstand the ebbs and flows of the commodity markets in general. These stocks are not for the faint of heart, and will be subject to large volatility as you can see in most of these price charts.
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