Citing bullish outlook on silver prices, Peter Bures of Canaccord Genuity has started coverage of four silver producers: Pan American Silver Corp. (USA) (NASDAQ:
The analyst prefers emerging intermediate producers (Fortuna Silver and Endeavour) versus their more "senior" counterparts (Pan American and Hecla) in terms of potential upside.
Bures’ top picks are Buy-rated Coeur Mining among the $1 billion plus market cap producers on its recent exploration success at Palmarejo and low cost structure at Wharf; and Fortuna Silver among the smaller cap names due to its execution and cost controls. Meanwhile, Pan American, Hecla, and Endeavour Silver are rated Hold.
“We feel investors who have missed the first leg up in silver commodity prices and silver producer equities now have a chance to get on board following the recent pullback,” Bures wrote in a note.
Bures projects at least 5 percent upside in silver prices over the next 12-18 months as zinc and lead mine closures impact supply. The analyst noted that increasing demand from photovoltaics industry and inflationary pressures from higher oil prices should also boost silver prices.
“Silver prices have appreciated over 27% year-to-date and are still 29% above the 52-week lows of $13.70/oz witnessed late last year, despite the 15% decline from early August highs,” Bures highlighted.
The analyst added that silver producers should benefit in the near-term due to streamlined costs, expanding production and margins.
According to Bures, the margin improvements from silver miners are sustainable in to 2017 and perhaps beyond. On average, the operating margins grew 16 percent this year for the group and the analyst estimates further 9 percent rise in to next year.
Bures has a target price of $13 on Coeur Mining, C$11.50 on Fortuna Silver, C$6.25 on Endeavour Silver, $6 on Hecla and $17.50 on Pan American Silver.
At the time of writing, shares of:
Coeur Mining rose 3.34 percent to $11.46.
Fortuna Silver advanced 3 percent to $7.03.
Endeavour Silver gained 4.34 percent to $4.57.
Hecla climbed 5.02 percent to $6.07.
Pan American Silver rose 2.28 percent to $16.85.