1 Underappreciated Silver Miner Ready to Soar

Get ready for higher silver by investing in Sierra Metals Inc. (TSX:SMT).

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Silver continues to take a bath despite gold moving higher in recent weeks because of rising geopolitical tensions in the Middle East and on the Korean Peninsula. That has caused the gold to silver ratio to widen, with 79 ounces of silver now required to purchase one ounce of gold. This in conjunction with rising industrial demand for the white metal and the likelihood that it will follow gold higher should geopolitical tensions escalate makes now the time for investors to bolster their exposure to silver. An attractively valued and underappreciated precious metals miner that holds considerable potential is Sierra Metals Inc. (TSX:SMT), which has performed strongly, gaining 24% for the year to date. 

Now what?

Sierra Metals owns three operational mines: the Bolivar as well as Cusi mines in Mexico and the Yauricocha mine in Peru, giving it reserves of 16 million ounces of silver and 194,000 ounces of gold. An indication of the quality of the company’s mining assets is that it recently announced an 83% increase in the mineral reserves for its Bolivar mine in Mexico. It isn’t unreasonable to expect further announcements, with the miner engaging in an aggressive drilling program at its three mines aimed at expanding its mineral reserves and resources.

Its mines are polymetallic, meaning that they produce a variety of precious as well as base metals including silver, gold, copper, zinc and lead. That means the miner not only benefits from higher precious metals prices, but also benefits when base metals prices rise, which in the current operating environment gives it a significant edge.

You see, base metals, notably copper and zinc, have performed strongly in recent months, and there is every sign that they will continue to firm over the remainder of 2018 and into 2019. The outlook for silver is also improving, with expectations that it will perform strongly, as industrial demand grows and supply constraints caused by underinvestment in existing as well as new projects kicks in.

These factors will give Sierra Metals’ bottom line a healthy bump.

In fact, the miner reported some solid first quarter 2018 results, thereby indicating that these trends are already giving it a boost. Adjusted EBITA popped by 8% year over year, while operating cash flow was 15% higher, driven by record quarterly throughput at its Yauricocha and Bolivar Mines.

Notably, all-in sustaining costs for the first quarter fell by 6% year over year to US$9.85 per silver ounce produced, highlighting the profitability of the miner’s operations, with silver trading at US$16.50 an ounce.

Those impressive results saw Sierra Metals finish the quarter with net income of US$8.7 million, which was more than three times greater than a year earlier.

Notably, for a smaller miner with less than mature operations compared to larger precious metals miners, Sierra Metals finished the first quarter with a solid balance sheet. It had US$25.5 million of cash on hand and total debt of US$67 million, providing the company with considerable financial flexibility.

So what?

Despite silver’s prolonged weakness, Sierra Metals is attractively valued and possesses considerable potential. Higher base metals prices coupled with an increasingly positive outlook for silver and the quality of its operations will give both earnings as well as its share price a healthy lift in the coming months.

Should you invest $1,000 in Sierra Metals Inc. right now?

Before you buy stock in Sierra Metals Inc., consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Sierra Metals Inc. wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Metals and Mining Stocks

hand stacking money coins
Metals and Mining Stocks

Beyond Gold: How Canadian Investors Can Capitalize on Copper and Silver Prices

Sprott Physical Silver Trust (TSX:PSLV) is a great portfolio diversifier for those looking to bet beyond gold.

Read more »

nugget gold
Metals and Mining Stocks

Barrick Gold vs. Agnico Eagle: How I’d Allocate $10,000 Between Mining Leaders

Here's how I'd split an investment between Barrick Gold (TSX:ABX) and Agnico Eagle (TSX:AEM) in this still-uncertain market environment.

Read more »

nuclear power plant
Metals and Mining Stocks

Is Cameco Stock a Good Buy Now?

Uranium miners such as Cameco Corporation (TSX:CCO) can be lucrative options. Here's why you need to buy Cameco stock today.

Read more »

nugget gold
Metals and Mining Stocks

Beyond Gold Miners: How This Royalty Giant Could Supercharge Your Returns

Are you looking to supercharge your portfolio with precious metals but without the need for traditional gold miners?

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

Down by 47%: Is Nutrien Stock a Good Buy Right Now?

As the world’s largest company in its industry, here’s why Nutrien (TSX:NTR) stock might be an excellent buy despite its…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

2 Canadian Mining Stocks to Buy as Gold Prices Hit Highs

Agnico Eagle Mines (TSX:AEM) and another top gold mining stock could shine for investors in May 2025.

Read more »

Metals and Mining Stocks

Gold Price Zooms to New Record: How to Invest in Gold Today

Four ways to invest in gold today.

Read more »

nugget gold
Metals and Mining Stocks

2 Gold Stocks I’d Consider for a $10,000 Investment Amid Economic Uncertainty

Investing in undervalued TSX gold stocks such as Newmont should help you generate double-digit gains in the next 12 months.

Read more »