In less than two days, we’ll officially close the book on 2019 and usher in both a new year and decade in the process. It’s a decade that investors are bound to remember, as the U.S. economy has been recession-free, and the broad-based S&P 500 didn’t enter a bear market…
But I’ll certainly be sad to see the 2010s come to a close, as my portfolio has significantly outperformed the benchmark S&P 500 in four of the past five years.
As we motor ahead into 2020, I’ll be looking to make it five out of six years, and the following four companies are poised to do most of the heavy lifting.
I originally purchased shares of junior Canadian gold miner Claude Resources on more than two dozen separate occasions between 2012 and 2014. With SSR Mining acquiring Claude in 2016, I then became a shareholder of SSR. Over this seven-plus year span, I’ve only sold off 9.1% of my original stake, which is up a cool 1,225% from my initial cost basis.
There are a lot of reasons to be excited about SSR Mining in 2020 (and moving forward). The company’s flagship Marigold mine in Nevada looks to be on track to see a 30% increase in production by 2021/2022, which should put it on pace for up to 265,000 ounces in annual output. Meanwhile, the Seabee mine, acquired via the Claude acquisition, has produced record output with each subsequent year of ownership.
SSR Mining also acquired a full stake in the Chinchillas silver mine in Argentina. Developed in partnership with Golden Arrow, SSR acquired the 25% stake in Chinchillas that it didn’t already own from Golden Arrow in late September, giving the company access to a full stream of silver resources for what should be at least a decade.
I view SSR Mining as a rarity among miners given that it has $242 million in net cash. Most of its peers are either well underwater in the debt department or still tightening their belts. When combined with a stellar year from gold and a persistent low-yield environment, I continue to expect good things from SSR Mining in 2020.
First Majestic Silver
I swear I’m not predicting an economic doomsday, but my second-largest holding is once again First Majestic Silver (NYSE:AG). In similar fashion to SSR Mining, I came into ownership of First Majestic Silver after it acquired Primero Mining, a company I’d held in my portfolio, in 2018. Since building my initial stake in the company, I wound up reducing my holdings by 10% in 2019.
One of the things that attracts me to First Majestic is the company’s exposure to silver. Traditional silver miners have predominantly skewed more toward gold in recent years (including SSR Mining), leaving First Majestic Silver as the most silver-levered publicly traded mining company. In a typical year, around 65% of total revenue will be derived from silver sales, with the rest mostly coming from gold.
Silver is a particularly attractive metal considering its numerous practical uses. But I’m more intrigued by the gold-to-silver ratio currently sitting at 84.5. The gold-to-silver ratio describes how many ounces of silver it would take to equal one ounce of gold. Historically, this ratio has been closer to 60 in recent decades. When the ratio gets as high as it is now, it typically means that silver (the physical metal) outperforms gold.
Beyond just spot prices, First Majestic is making nice headway with a number of projects and existing mines. Production improvements at La Encantada, for example, should boost output by a minimum of 1.5 million ounces of silver per year, while the Santa Elena mine is due for a conversion from diesel fuel to liquefied natural gas in the upcoming year, which will lower operating costs. It’s quite possible that First Majestic’s silver equivalent ounce production essentially doubles between 2017 and 2022, which is great news in a low-yield environment with climbing precious metal prices…
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