Silver stocks had a pretty good run over the last few months as the world tipped toward chaos, but it seems a pullback on the mineral’s price is in the offing as Ag slipped beneath the $24 USD per ounce mark. Is this slide a buying opportunity or a long-term trend?
Luckily, silver is not only a fungible asset, but also an important industrial metal used in a multitude of arenas such as electronics, medicine, automotive manufacturing, water purification, chemical catalyst processes, renewable energy generation, etc. Our need for silver will never wane.
However, according to the Silver Institute, a nonprofit international association that draws its membership from across the breadth of the silver industry, silver supply in 2021 amounted to 1.06 billion ounces while demand came in at 1.03 billion ounces. That said, Covid played a major role in this offset as the world’s economy was battered by lockdowns.
The future does look brighter, as the Silver Institute went on to forecast that 2022 demand for silver would surge to a record 1.112 billion ounces. This anticipated growth is attributed to record silver industrial fabrication as green technologies take a larger share of manufacturing activities. Physical silver demand is also set to increase, expected to jump 13 percent in 2022, a seven-year high.
Geopolitical turmoil has always favored precious metals and the scourge in Europe does not seem to be letting up. Add this atrocity to the growing trade tensions with China, silver makes a good case for valuation. This only wrench in this machine is how central banks contend with inflation.
Admittedly, that front is beginning to look like a lost cause as Powell and his international counterparts throw thimbles of regulatory water on a raging inflationary bonfire. Precious metals typically do well in an inflationary environment providing a hedge as well as a secondary hard currency if fiat takes a dive.
So how can you get involved in what could be a golden year for the multi-useful mineral?
Physical ownership
This is one of my favs. Hanging onto the real thing. You can save it; you can spend it. The perfect post-apocalyptic hedge. Silver is easily fungible in day-to-day transactions, while gold would have to be shaved and endure arguments over weight and purity. Typically, you can purchase it as bullion, government minted tender, decorative medallions, and ounce-sized ingots. The one set back also happens to be the physical ownership, as you must hold and defend your stash.
Certificates or Storage Accounts
This solves the hiding it in your closet scenario by signifying your ownership through a certificate while a trusted third party is responsible for securely storing your silver which you can take possession of if you wish. If you’re paranoid like me and don’t want other people/entities up in your business, this method can be problematic.
Futures
You can buy paper contracts from a stock exchange to take or make delivery of silver at a certain date in the future. People involved in this rarely take physical possession of the commodities, it’s basically just selling paper back and forth. Not a fan of this, as JP Morgan has made their bread-and-butter screwing retail investors by playing both sides of this fence. Their chicanery was brought to light in 2020, when the investment bank was ordered to pay $920 million in fines for manipulating precious metal futures.
I don’t want the metal, just the opportunity
There are a few ways to go here, but many of them require attention and a specialized due diligence.
ETFs & Mutual Funds
These broad-based baskets of equities offer a relatively safe option for investors who didn’t excel in geology and aren’t looking for growth or anything exciting.
Royalty Streamers
These companies finance mineral exploration projects that are either heading to production or in production already. They receive a royalty fee for their efforts and pass that revenue onto investors through dividends and increased share value. This is a retirement play with modest growth potential and probably my favorite go-to as an investment foundation. Two of my favorites are, Nomad Royalty (NSR.T) and Metalla Royalty and Streaming (MTA.V). Check them out!
Explorers and Producers
Honey Badger Silver (TUF.V) is a great example of an early-stage opportunity. These companies have the highest risk, but also possess the most growth potential.
The Toronto, Ontario-based silver junior has projects in Ontario and the Yukon. Honey Badger’s Silver Mountain/Mink properties are in Ontario’s Thunder Bay Silver district, covering approximately 16,800 hectares.
The land package contains 12 past-producing historic mines that produced more than 1.67 million ounces of silver from the 1840s to the 1890s with grades averaging 2,500 grams per tonne silver.
Silver/Mink is approximately 50 metres south of the Silver Mountain Group of deposits which produced 700,000 ounces of silver from 1888-1903 and in 1911.
Honey Badger commenced an exploration program in March 2018 and grab samples taken around the 12 historic mines returned up to 1,503 g/t silver and 14.94% zinc. Limited drilling at the property has identified high-grade silver mineralization of 1,254 g/t silver.
Closeology and historic results play a large part in the value assumption of Honey Badger at this point. The company currently trades at $0.08 CAD per share for a market cap of $14.24 million. Any good results will move the needle on this one.
Fortuna Silver Mines (FVI.T) is a mid-tier silver and gold producer with four operating mines in Argentina, Burkina Faso, Mexico, and Peru. The company is currently building a fifth mine in Cote d’Ivoire.
This company gives investors an actual revenue to hang on. According to the company’s latest financials, it produced 207,192 ounces of gold (274 percent increase over 2020), 7,498,701 ounces of silver (five percent increase over 2020), 32,989,973 pounds of lead (11 percent increase over 2020) and 47,549,301 pounds of zinc (four percent increase 2020).
In dollars, the company sold $599.85 USD million in minerals, netting $59.4 million, generating a basic earnings per share of $0.24. As of December 31, 2021, Fortuna had $107.1 million cash and cash equivalents in its war chest, and $157.5 million in debt.
With the Cote d’Ivoire open pit mine expected to come online in 2023, Fortuna will continue to add value to its bottom line. You’re probably not going to experience hockey stick growth trajectories, but trading at $4.43 CAD per share, Fortuna affords a relatively easy entry for retail investors looking for a long-term portfolio addition.
MAG Silver (MAG.T) is a Canadian-based miner working to become a Tier 1 producer. It holds 44% ownership of Minera Juanicipio, a joint venture which owns the high-grade Juanicipio Project in Mexico. The remaining 56% is held by the project operator Fresnillo Plc.
Covid hasn’t been kind to the company and has delayed commissioning at the project, but 2022 is a new year with fewer restrictions and even with only 5% of the property ever having been explored, global mineral resource estimates come in at 176 Moz Ag, 867 Koz Au, 598 Mlb Pb, 1041 Mlb Zn, 38 Mlb Cu indicated as well as 91 Moz Ag, 562 Koz Au, 658 Mlb Pb, 1252 Mlb Zn, and 71 Mlb Cu inferred.
Don’t take my word for it. MAG has some mining finance heavyweights putting their money where their mouth is including its JV partner, Fresnillo PLC, Sprott Asset Management, Eric Sprott and Van Eck Associates. Institutional confidence in MAG makes up 70% of the share count.
We haven’t even begun to talk about the company’s highly prospective, Deer Trail Project, located in the mining friendly jurisdiction of Utah. Deer Trial hosts a historic high-grade (350 – 465 g/t) silver mine, has over 20,000 metres of historic drilling and excellent infrastructure.
Again, it would take a lot to move share price on a hockey stick trajectory, but this company is already in motion and if the institutional interest is any indication, will be a steady provider of value over the long term. MAG currently trades at $18.11 per share for a $1.77 billion market cap.
In the end, the real star here is silver and those investors able to find an “in” on its value climb may find themselves in a profitable position for years to come. Please remember, do your due diligence, and speak with an investment professional before making any portfolio decisions. Once you’ve done that make your pick and help this world into renewable 21st century. Good luck to all!
If you looking for a technical breakdown of the sector, check out Vishal’s piece here.
Also if you want more opinions on silver, we have plenty of them in our latest Investor Roundtable Video.
–Gaalen Engen
