Two Lesser-Known Names in Silver Mining

09/16/2020 5:00 am EST

Focus: FINANCIALS

Stephen Leeb

Founder and Research Chairman, Leeb Group

We remain highly bullish on gold; we note that another metal — silver — is also poised to make outsized gains, asserts Stephen Leeb, editor of Investing Daily's The Complete Investor.

Fresnillo (FNLPF) has its mines located in the safe jurisdiction of Mexico, an obvious plus. It is the world’s largest silver producer and also is Mexico’s second-largest gold producer.

Silver usually is found as a by-product in the mining of other metals, and mines in which silver, by tonnage, is the primary product are few and far between. Fresnillo is the rare exception: By tonnage it produces far more silver than gold, though gold contributes more revenue.

The company’s reputation for problem-free mining was tarnished in 2018 as start-up expenses and capital needs for new projects exceeded original estimates. As a result, the stock was hit with a double whammy: Production and profits were less than anticipated and the previous premium valuation metrics came down.

But the most recent quarter, in which key metrics came in above guidance, shows the company returning to its older and excellent ways, and the double-barreled whammy should now become a double-barreled propellant.

Though the stock has outperformed other miners recently, its 70% gain since our initial recommendation is likely just a prelude to much higher prices. The stock remains a strong buy.

The amount of silver the world produces and the price of silver depend on supply as well as demand. This means efficient mining — always important — will be critical in the years ahead as will be mining operations that leave as small as possible environmental footprint.

Swedish-based Sandvik (SDVKY) fits the bill and then some. The company led a project for Newmont (NEM) that produced one of the world’s first all-electric mines.

Though mines are notoriously dirty, this one, located in an ecologically rich area of Ontario, Canada, will have no impact on the land and won’t produce carbon emissions.

Moreover, the mine’s superb ventilation will be healthier for workers and save on electricity. Mining is the largest business segment for this manufacturer of technologically advanced tools and tool systems.

Other segments include automotive, energy, and aerospace. The company’s most important products are either first or second in their markets. The company’s excellent balance sheet and high free cash flow yield secures it a high place on our watch list.

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