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Silver from tgr
SR: I think $26/oz will confirm that the trend has reversed. If we exceed $26/oz on good volume and strength, then we’re off to the races. From there, the next resistance level would be $30–32/oz. If we reach beyond that level, it becomes $50/oz. And if we take $50/oz convincingly, then there’s a good chance that this move is going to have some serious legs.
TGR: The Performance Report on SilverStrategies.com monitors 27 silver equities. Since early June, 26 of them are up, some more than 40%. June is typically a soft month for precious metals equities. What’s supporting those bids?
SR: One thing is a possible top in the mainstream market. Another is that precious metals are up roughly 15% in the last month or so and stocks usually have an exaggerated move versus the metal price. And most of these stocks are coming off depressed levels. There was something of a vacuum so stocks tend to jump even on low volumes. Most of the sellers who wanted to sell did. On the flip side, it doesn’t take a lot of money to acquire a lot of stocks. Again, this behavior is typical for the beginning of a larger move.
TGR: What are some small-cap silver names that you like in a rising silver price environment?
SR: I like companies that have demonstrated growth, like SilverCrest Mines Inc. ($SVL:CA) ($SVLC) and Santacruz Silver Mining Ltd. ($SCZ:CA) ($SZSMF).
TGR: What did you make of the Q1/14 results from Santacruz? Is the company poised to build on those?
SR: Santacruz has stated its production numbers from the current operation and it looks as if it’s getting on track. Its production guidance indicates that, too. More important, the company has a lot of room to grow. It’s two years old. It’s already in production. Is it going to make it or not? Santacruz is almost over the hump.
TGR: The company lost $0.02 a share in Q1/14. Will it break even or maybe even make money in Q2/14?
SR: That’s not how I think about it at this stage of development. Most junior mining companies do not make money until their fifth or even eighth year. And in this environment very few companies have been making money. Unless it’s a larger company with established operations and better cost control, it’s difficult for a startup to pin numbers to something and say, “Okay, this is the benchmark.” Santacruz is not there yet. Do I expect it to make money this year? Maybe it will break even. But does it have upside? Yes.
TGR: What about SilverCrest?
SR: SilverCrest is implementing a transition to underground mining at Santa Elena, which at full ramp up should nearly double production from the current level. So next year bottom-line numbers should get a substantial bump despite the higher mining and processing costs from moving to underground mining and milling operation. That should result in better valuation due to rerating based on the larger operation or at the very least on greater earnings. Now if I am correct about improving metal prices going forward, the upside could be very rewarding. Plus SilverCrest will almost certainly be active in the merger and acquisition space on either side of the deal. It could be a juicy target for a larger company while it looks to add another mine sooner rather than later.
TGR: Others?
SR: Excellon Resources Inc. ($EXN:CA) ($EXLLF) is another company I’m watching. Excellon is a junior producer that has been around for a while and has a handle on its deposit’s cost structure and grade.
TGR: How would you compare La Platosa in Durango state, Mexico, to other silver assets belonging to companies in this market-cap range?
SR: It certainly is one of the higher-grade assets. In recent quarters Excellon has been mining 600–800 grams per ton (600–800 g/t) silver, whereas the average for Mexico would probably be closer to 200 g/t. However, La Platosa has had other challenges such as underground water issues, which factors into its costs. Excellon is still chasing the meat of the deposit; it has the tiger by the tail but it is still looking for the tiger itself. Excellon believes it is moving in that direction. In a rising metal price environment, such as the one I expect next year, higher grade may yield some oversized returns due to greater leverage to rising silver price. The gains could be significant.
TGR: Others?
SR: Avino Silver & Gold Mines Ltd. ($ASM:CA) ($ASM) is producing around 1+ Moz silver equivalent a year. I have visited the operation and it looks good. The share price has reflected that, even in a poor environment for resource stocks. Avino recently acquired Bralorne Gold Mines Ltd, which owns a high-grade gold project in Canada. It is a bit of a departure from producing silver in Mexico. Can the company translate its success in Mexico to Canada? Time will tell.
The other reason I like Avino is that it’s bringing the past-producing Avino silver mine back into production. That mine is in Mexico and is a stone’s throw from its current operation. That should basically boost production to about 2.5 Moz annually.
TGR: What are some other silver equities with discoveries that could ultimately become company makers?
SR: The last discovery of that nature would be the Navidad deposit in Argentina that was discovered by IMA Exploration and ended up with Aquiline Resources. Pan American Silver Corp. ($PAA:CA) ($PAAS) later bought Aquiline but mothballed Navidad due to the political situation in Argentina.
In this cycle the best performers have not been the companies that made good discoveries but rather companies that have properly managed their resources and finances. Those companies have done well. Silver Wheaton Corp. ($SLW:CA) ($SLW) is on that list. First Majestic Silver Corp. ($FR:CA) ($AG), Endeavour Silver Corp. ($EDR:CA) ($EXK), Fortuna Silver Mines Inc. ($FSM) ($FVI:CA), and Great Panther Silver Ltd. ($GPR:CA) ($GPL) are on it, too. Most of those companies acquired their flagship mines. They were not discovery stories, though as part of good management most assets were expanded and their respective mine lives were extended through drilling success.
TGR: Nonetheless there have been discoveries.
SR: Yes. The Chinchillas deposit in Argentina was discovered by the same group that found the Navidad deposit, a Grosso Group company called Golden Arrow Resources Corp. ($GRG:CA) ($GARWF). Another discovery is Global Minerals Ltd.’s ($CTG:CA) Strieborná deposit in Slovakia. The project has been around a long time but the entire resource is based on a vein that was not exploited in the previous precious metals cycle. Global recently made another high-grade discovery, too. I mention a company like that because it’s in the heart of Europe. If we continue along this trend of increased geopolitical uncertainty, some silver deposits will become far more attractive than others.
TGR: Let’s go back to your list of the best performers in this cycle. Names like First Majestic, Endeavour, Fortuna and Great Panther.
SR: First Majestic is perhaps the best silver miner at this time. It is a classic mining story. It started with one mine, built it up and bought another one. And then built that up. Along the way the company made some discoveries or acquired other projects and built those up—that model seems to work well in the mining space. That’s been the path for many of the major gold producers. Ten years ago or so, Goldcorp Inc. ($G:CA) ($GG) was a one-mine company. But it bought other good assets and put them into production. Yamana Gold Inc. ($YRI:CA) ($AUY) used the same model to achieve similar success, albeit on a smaller scale. In the silver space that company is First Majestic. I expect it to get even bigger and better, much like Yamana. Bigger production means your bottom-line gets so much bigger so much faster in a rising metal price environment.
TGR: Is it a similar narrative for Endeavour, Fortuna and Great Panther?
SR: In a word, yes. All these companies acquired producing or past-producing mines and revived/improved/enhanced them over time.
Endeavour Silver is another company that quietly built-up its production profile toward 11 Moz of silver equivalent, albeit the latter part of growth came from gold. Still at that rate of production Endeavour should respond well to rising gold/silver prices.
Fortuna Silver has also been making headway with respect to its production growth closing in on the 8 Moz of silver equivalent. Fortuna has benefited from drilling success at its Mexican operation where high-grade intercepts allowed the company to ramp up both tonnes processed and ounces produced, which in turn reduces per ounce cost.
Interestingly, Fortuna is currently valued at a premium to Endeavour despite producing in round numbers 3 Moz of silver equivalent less annually. This likely has to do with excitement regarding continued impressive drill results in Mexico, as well as the fact that Fortuna’s other producing mine is in Peru and therefore is not subject to increased royalty/taxes enacted in Mexico in 2014.
Great Panther is one in the group that hasn’t accomplished a major push to get to the next level in terms of scale (not for lack of trying) and needs to do so. The company had its share of challenges at both operating mines and was able to overcome them.
TGR: Perhaps one more silver name?
SR: Tahoe Resources Inc. ($THO:CA) ($TAHO) is a relatively new silver company with what could be the best deposit in the space—the high-grade Escobal deposit in Guatemala. Tahoe is one of the larger silver producers, targeting 20 Moz per annum, and is very similar to Goldcorp in its earlier days. In fact, the people running the company and its flagship project came from Goldcorp. Tahoe has been in production for about two quarters and it is already making money. As was the case with Santacruz, it is a bit premature to talk about benchmark numbers in terms of performance, yet all indications point to a very successful future. As long as geopolitics hold together, this is one of the better deals in the sector.
TGR: If silver rises in excess of $50/oz, many boats will float. How do investors sort out the pretenders?
SR: You look back and see which companies were profitable at sub-$20/oz silver. If they are in the black, that’s an indication of how they run their operations. In the short term it is not a given that the “best” company will be the best performer. But overall, that would be a good problem to have.
TGR: Parting thoughts?
– See more at: http://www.equities.com/editors-desk/futures-commodities/could-silver-reach-100-by-2017#sthash.EdMLDnAC.dpuf