Rightfully, many investors in the junior sector look at stock recommendations from analysts or experts with a great degree of skepticism. The junior sector is small and there are always potential conflicts of interest evident in these types of recommendations. For example, sell-side analysts may cover a company for which their firm also provides investment banking services. Alternatively, analysts may also be promoting only the stocks in which they own a position.
I have always been similarly skeptical when reading analyst recommendations, especially in the junior sector. That’s why last week, when I unveiled our “Top Silver Stock Picks” at the Silver Summit Conference in Spokane, I was very careful to outline our unique methodology.
Scoring Companies With Empirical and Independent Metrics
At the beginning of the year, we started working on an unbiased an independent way to assess the “health” of each junior miner for investors. The idea, dubbed Tickerscores, was to evaluate every company on the TSX and TSX.V using the same universal set of empirical criteria that would rely purely on quantitative and verifiable data.
For each junior miner we cover, we have computed a Tickerscore: a number out of 100 that represents the health of the company. For each calculation, we use 20+ metrics that are pulled out of financial statements, technical reports, SEDAR, and SEDI. We have now covered more than 350 companies and the scores range between 1 and 85, with a mean of 45.5.
The variables and weightings we use depend on whether the company is in exploration, development, and production. The metrics are measurements like: cash, current ratio, burn rate, year-to-date insider buying, G&A expense ratio, management common share ownership, institutional ownership, NPV, IRR, all-in cash costs, jurisdiction quality (as per Fraser Institute Rankings), and more. Companies cannot pay to be covered (we cover every company in each jurisdiction we do) and companies cannot pay to have their score changed or reviewed.
The Top Three Companies at the Silver Summit
For our presentation at the Silver Summit, we thought we would highlight the top scoring companies using our Tickerscores system. Download the full presentation here.
While there were no shortage of good companies at the Silver Summit, the three highest scorers according to our system were MAG Silver (79/100), Dolly Varden (77/100) and Brixton Metals (80/100). These companies are in the top 5% of all companies that we have scored so far.
While most companies at the Summit have been scored in Tickerscores, it is worthy to mention that some companies with projects in smaller jurisdictions like Guatemala or Washington State are not included in the results yet.
Also of note, but not mentioned in the presentation, the highest scoring producer was First Majestic with a score of 71/100.
MAG Silver (TSX: MAG)
MAG’s main asset, Juanicipio, has superb project economics with a $1.2B NPV and a 43% IRR at $23.39 silver. MAG owns 44% interest in the project with Fresnillo plc, the world’s largest primary silver producer, as the JV partner and operator. Juanicipio is one of the highest grade silver projects in the world and offers tremendous leverage to the silver price. MAG has an exceptional management team with proven track records and ownership of about 4% of common shares in the company.
Of the 19 companies we have in our Mexico Development category, MAG has the highest Tickerscore. It has the 7th best Financial score, 2nd best Management score, and 2nd best Project score. MAG’s G&A expense ratio was 9% – meaning more than 90% of money made it into the ground. MAG also has high fund and institutional ownership with 62%. Juanicipio ranks #1 for IRR and #2 for NPV (trailing only Chesapeake’s Metates project).
Brixton Metals (TSX.V: BBB)
With a strong cash position of approximately $3m, Brixton has more cash than 53 of 57 BC exploration companies. A significant shareholder base owns 54.9% of shares and includes Hecla (19.8%), management (8%), and Rob McEwen (8.9%).
High-grade drill intercepts at the 100% owned Thorn project result in our top drill hole score for BC exploration companies. Examples of great holes include 310m of 223 g/t AgEq and 150.5m of 314.59 g/t AgEq.
Dolly Varden (TSX.V: DV)
Dolly Varden Silver owns 100% of the Dolly Varden Mines historic silver property in Northern BC. Similar to Brixton, Hecla owns 19.9% of shares while management owns approximately 10%.
The project itself is geologically analogous to the Eskay Creek Mine, which was Canada’s highest-grade gold mine and the world’s fifth largest silver producer. Dolly Varden is currently in the midst of announcing results from its latest drill program.