Archive for the 'Silver Mining' Category

The Reno Nevada based company, Tahoe Resources, Inc. when public the other day to help fund acquisitions of mines that will increase revenue and margins for the resource company.

They’ve gone through with the sale of 58 million shares at C$6 a share to raise enough money to purchase a silver mine in Guatemala for $330 million USD. The IPO represented selling on the open market a 56 percent stake in the company which now, with this IPO has a market cap of C$624.

The company will be traded on the Toronto Stock Exchange under the symbol THO. The purchase of the silver mine was made from Goldcorp, the world’s second-largest gold producer based on market cap.

Investors looking to get the most out of precious metals should look no further than high-cost mining stocks. While mining operations are traditionally leveraged to the change in price of the underlying commodity, high-cost mining stocks enjoy even more leverage due to the inner finances of the company. I’ll explain below.

High Cost Mining Stocks
High cost mining stocks are stocks that represent a company that pays nearly the full cost of a commodity to bring it to surface. An example of a high cost mining company would be one that spends $15 for every $17 ounce of silver it brings to the surface and refines. Because of the accounting, high cost mining stocks offer huge potential to the upside and are a favorite among investors looking to rev up their returns.

The Hypothetical
Let’s assume that there is a mining company known as XYZ Mining. XYZ Mining operates several silver mines and trades at a price to earnings ratio of 10. Also, the company is a high cost operation, meaning it spends $15 to produce just one ounce of silver. Let’s also assume that the company produces 1000 ounces of silver per year.

So, when silver is $16, XYZ Mining earns $1000 per year. ($16 per ounce X 1000 ounces – $15 cost per ounce = $1000 profit)

However, should silver rise by just 6% to $17 per ounce, XYZ would earn $2000 per year. ($17 per ounce X 1000 ounces – $15 cost= $2000 profit)

As you can see, a small change in the price of silver (6%) generated a profit increase of 100%. If the company were to continue to trade at the same Price to Earnings ratio, it would double in price with just a 6% change in silver prices. Now do you see the value in high cost miners?