With the recent (and relatively consistent) daily/weekly silver price records, commentary has turned from “how short is XYZ bank and how much trouble is Comex in” to “why are silver related equities so cheap on an historic basis.”
Being sceptics ourselves, we immediately had to ask: Are they, though?
So I want to explore whether or not the ‘silver stocks are cheap’ thesis is indeed defensible and if so, what could 2026 potentially look like relative to this record-setting year.
Looking back 30 years, we see that silver is up 11x while silver producers (Pan American Silver Corp., Hecla Mining Company and Coeur Mining, Inc. – the three that were around thirty years ago) were up an unfortunate and quite laggy 3-fold (when index weighted equally, starting from a baseline of one).
Since silver outperformed the share price by a factor of almost four, stocks must be cheap, right?
HL, CDE, and PAAS vs. Silver Price and Market Capitalization Per Ounce
Source: Bloomberg, ISR Inc
Not so fast! The issue with rebasing and indexing share prices only reflects one variable – the price of the share of the company. What is missing is the number of shares the company has issued and outstanding after equity issues over the last 30 years. In each case, this is a large number after accounting for dilution.
Adjusting for this second variable by looking at market capitalization would be, in our opinion, a better reflection of the value of the company (as opposed to the company’s equity) vs. the price of silver.
Reflecting the capital structure in the relative valuation shows that the market is (gasp!) a lot better off reflecting the underlying value of the company than a casual observer would think.
With the advent of various index funds that claim to be silver (we’ll argue that less than 50% of revenues are actually derived from silver – more on that later) we can zoom in on a more recent timeframe.
The junior silver miner index (SILJ) launched shortly after the silver miner index (SIL) and shares a number of the same companies, so we’re combining the two in this study on an equal weighted basis (i.e. 50% SIL and 50% SILJ).
As with the three longest trading equities we picked above (and weighted 33.3/33.3/33.3), we compare the absolute index price and the market cap of the two indices to the price of silver and find that (Figure 2)…
SIL and SILJ vs. Silver and SIL+SILJ Market Cap per Oz
Source: Bloomberg, ISR Inc
…unsurprisingly, the market cap of the indexes (reflective of the whole sector) is at or near all-time highs relative to the silver price whilst the share prices lag behind.
The key variable, again, captured in this study, is the number of shares outstanding increases faster than the silver price, resulting in share prices declining vs. silver while market capitalization is correctly at or near all-time highs.
Can share prices increase further with the silver price? Of course! However, managements decisions to issue equity will have a negative/dilutive impact on the price of the shares.
If the market is correctly reflecting market cap per silver ounce (and by extension the share price of silver companies is not lagging) what can we expect from 2026?
In the last three decades of my career, I have seen prices of metals (gold, silver, copper) and producers outperform and underperform one another with macro and micro economic flows such as GDP growth driven supply/demand, management missteps in executing on mine expansions and orebodies not ‘hanging together’.
Ultimately, we have not seen a sustained pullback to below all-in cost of production. Here, we are not using the commonly (yet non-IFRS) accepted ‘all in sustainable costs’ or AISC, but rather simply taking the silver-equivalent production on a trailing basis (i.e. revenue divided by the average primary metal price over a certain period), subtracting cash from operations (prior to working cap adjustments) and dividing by the silver-equivalent production ounces.
This cleans up any byproduct or coproduct credits and simply rebases the total costs of operations to the silver-equivalent ounces produced.
Trailing three months, this number (all in cost) is around $29.50/oz on a weighted basis (as per Bloomberg data). We would not expect any pullback below $30/oz to last very long – over the last 30 years a pullback below this ‘all-in cost’ never has. Not surprisingly, royalty companies’ all-in cost is $14/oz, so as a whole, the royalty sector should provide a safe haven in case there is a 50% drawdown in the silver price.
We don’t address names on an individual basis, but on a theoretical/practical basis, clearly there would be companies that lag on a market cap vs. silver basis (or vs. gold/copper/etc.) and those that are at alltime highs. Perhaps it is time to rotate some of the winners into the laggards?
Or perhaps that’s just wishful thinking as SCRi trades at a discount to its 52-week high while essentially all other royalty companies (Table 1 below) trade at 52-week highs.
However, following our thesis above, almost all royalty companies (just like the indexed producers) are at/near their 52-wk highs, SCRi included. However, on a relative (i.e. vs. the silver price) basis, gaps do start to form with the larger cap companies outperforming the smaller caps – as may be expected with the early stages of capital rotation into a sector.
Royalty Company Price Performancehttps://www.moneymetals.com/uploads/content/table-1-royalty-company-price-performance-latest-price-vs-52-wk-high-and-latest-market-cap-vs-52-wk-highs-566×721.jpg" alt=”Table 1: Royalty Company price performance – latest price vs. 52-wk high and latest market cap vs. 52-wk highs” width=”566″ height=”721″ loading=”lazy” />
Despite being nowhere near all-time highs in terms of share price performance, silver producers (HL, CDE, PAAS, and those in the SIL and SILJ indices) are trading at/near their market capitalization highs adjusted for silver prices as a whole sector. Equity dilution is responsible for the apparently depressed share prices.
Rotation from leaders to laggards may be a strategy in 2026 (i.e. actual stock picking vs.general sector exposure). A pullback in silver (or other commodity prices) doesn’t last very long if it reached the ‘all-in’ production costs ($30/oz silver).
It’s very difficult to defend the ‘mining stocks are cheap’ thesis – a rising tide has lifted almost all the boats, time to find out who’s swimming w/o a bathing suit.
All the best into 2026!
