Forget About Weak Silver and Buy This Miner

There are signs that Maya Gold and Silver Inc. (TSX:MAYA) will soar now that commercial production has commenced at its flagship mine.

| More on:

Silver’s stagnant outlook and poor performance since mid-2018, which eventually saw the white metal fall below US$14 per ounce, has weighed heavily on silver miners. Global X Silver Miners ETF, which provides broad exposure to the 10 largest primary silver miners, has lost 17% over the last year, while many individual miners have suffered even greater losses. These include Maya Gold and Silver (TSX:MYA), which has lost 30% compared to silver’s decline of 10%. Despite the pessimism surrounding the white metal, Maya’s sharp decline in value has created a handy opportunity for contrarian investors to add a high-quality miner that is primed to soar in coming months.

Quality assets

Maya owns five properties in the North African nation of Morocco and an exploration asset in Mexico. Its flagship asset, the underground Zgounder mine in Morocco, commenced commercial production earlier this month. That bodes well for higher earnings, particularly now that silver has firmed to over US$15.70 per ounce. The mine has a range of characteristics, which make it an attractive asset and underscore why reaching commercial production is an important milestone for Maya, even in a difficult operating environment where silver remains weak.

Zgounder has mineral reserves of 5.8 million silver ounces with an impressive average grade of 317 grams of silver per tonne of ore (g/t), making it one of the highest-grade operational underground mines globally. That exceptional ore grade means that it is economic to mine the silver at Zgounder and endows it with low production costs of $6.38 per silver ounce extracted and total costs of $7.09 per silver ounce sold. Those costs, which are some of the lowest in the industry, point to the mine being highly profitable, especially if silver firms further, which is likely because of the positive outlook for gold. When these factors are coupled with 2019 production ramping up to 1.4 million ounces, which will be maintained annually until 2021, Maya’s earnings will grow at a solid clip.

The mine’s immediate potential is underscored by the better-than-expected results from testing the newly installed flotation mill where silver recovery rates were higher than anticipated. Considering the test phase was conducted with low-grade ore that had an average grade of 157 g/t, or less than half of the grade of Zgounder’s reserves, recovery rates should be higher once steady-state commercial production is achieved. That indicates the mines operating expenses will be at the levels forecast or possibly lower.

Zgounder’s ongoing prospects are considerable. Work is underway on developing phase two of the mine, which, on completion in late 2021, will boost production to five million silver ounces daily, giving Maya’s earnings a further solid lift. There is also the potential for silver reserves and production to expand at a healthy clip over the mine’s 10-year life because of the considerable mineral resources identified at the property, which total 10 million silver ounces with a notable ore grade of 315 g/t. Maya is also conducting an extensive exploration program at the mine as well as at its polymetallic Boumadine property, which has yielded some promising results.

Maya’s attractiveness as an investment is enhanced by its rock-solid balance sheet. It finished the third quarter 2018 with $28.7 million in cash and very manageable total long-term debt of $43 million considering that earnings and cash flow are poised to grow significantly during 2019.

Why buy Maya?

No investment is without risk, and in the case of Maya, those risks are significant in comparison to a primary silver miner, which owns mature producing assets. Not only is there the risk that silver could slip lower, making the operation of the Zgounder mine uneconomic, there is also heightened geopolitical risk associated with operating in Morocco. Much of that is mitigated by Maya’s sound financial position, the quality of the Zgounder property and its advanced stage of development with it commencing commercial production earlier this month. There is every sign that as silver firms and Maya’s earnings grow, its stock will soar.

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 of the stocks mentioned.

More on Metals and Mining Stocks

Canadian Dollars bills
Metals and Mining Stocks

2 Cheap Canadian Stocks Under $20 to Buy This November

Cheap TSX stocks such as Endeavour Silver are trading at an attractive valuation in November 2024.

Read more »

nugget gold
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for its 1.06% Dividend Yield?

A top gold stock with a modest yield is a buy for its lengthy dividend-growth streak.

Read more »

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »