As previously outlined on BRIDGE, a combination of factors—specifically, a deteriorating geopolitical environment, rising national debt levels, and a shift away from monetary tightening in anticipation of challenging macroeconomic conditions—has enhanced the appeal of precious metals as inflation-hedge alternatives for investors.

With yields from government bonds projected to decline over the coming quarters, assuming the Federal Reserve maintains its current trajectory, investors are increasingly directing capital toward assets traditionally viewed as hedges against inflation.

Fig 1: Performance 1YR Horizon

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Fig 2: Sales Growth [1YR Rolling]

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Among these assets, silver, alongside other precious metals, has experienced heightened demand, driving a price increase over the past 12 months that has surpassed gains in commodities such as crude oil and natural gas by more than 45%.

While this favorable spread over other commodities extends beyond the past year; for companies engaged in the exploration, mining, processing, and refining of silver, a three-year market performance assessment reveals a divergence in price dynamics between silver-focused companies and the metal itself.

Unlike the typical correlation between the price movements of the metal and related mining companies, the silver industry has notably underperformed the metal by over 50% and 70% over three- and five-year periods, respectively. This performance gap is primarily attributable to elevated labor costs and the cost of goods sold (COGS) specific to the silver mining industry.

In contrast to metals like gold, which benefit from higher margins due to greater resale value, silver mining often occurs as a byproduct of extracting more cost-effective metals. This results in periodic spikes in labor expenses for dedicated silver miners due to workforce shortages.

Fig 3: Operating Margin [1YR Rolling]

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Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

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In addition to labor challenges, inflationary pressures, compounded by the complex extraction processes inherent to silver mining, have further strained already thin margins, rendering many silver mining companies unprofitable for much of the past five years.

This is despite silver sales growth rates that have outpaced both the gold industry and the broader basic materials sector. While gross profit and operating margins for companies in the reference sector or the gold industry have remained relatively resilient in the face of inflation, the specific characteristics of silver mining make it particularly vulnerable to rising costs.

Fig 5: Net Income Margin [1YR Rolling]

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Fig 6: Performance [1YR]

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Fig 7: Dividend Yield

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Fig 8: Net Debt To Ebitda [1YR Rolling]

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