By James West
February 15, 2011
Gold’s performance during the last decade is increasingly a matter of common knowledge. Its up year-to-date 24.35%, and is up over 400% in the last ten year bull market cycle. Recently, its been looking a little toppy, but by many accounts, this is normal consolidation before moving much higher. The fundamentals that launched the great bull in 2000 are very much intact, and some would argue, even more compelling now than back then.
But here’s something that only a handful of the world’s savviest precious metals investor have embraced: Silver is the much better trade.
In fact silver, in the same year-to-date window, has risen in price by 94.65%, outperforming gold by nearly four times. And, as 2011 gets underway with worse housing markets, a sovereign debt crisis that keeps spreading, political unrest in the Middle East nowhere near ended, and the U.S. dollar teetering on the verge of collapse, the broad movement into precious metals as the only viable value preservation strategy will likely pick up steam. And that only means one thing for silver: another year of outperforming gold.
Even during the recent corrective movement in gold and silver over the last 45 days or so, silver both plunged harder and recovered quicker, now trading near record highs.
Why is silver outperforming gold so well?
Probably one of the biggest silver bulls out there in terms of putting his money where his mouth is, Eric Sprott has some pretty clear ideas on that. From his piece Gold Tsunami published in January this year:
“Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver.4 In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 – a truly tectonic shift in demand.
We believe Asian demand for physical gold and silver is akin to a tsunami. While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals. While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply.”
Okay so there’s the bottom line on future demand: get ready for both silver and gold prices to take off again soon, but watch silver: its going to exhibit stellar performance.
So silver and gold are both excellent monetary metals in which to preserve value. But where to speculate? Silver bullion, sure, but what about the junior explorers. As we’ve seen with companies like Ventana Gold, Collosus Minerals, and Continental Gold, junior explorers who successfully identify large high grade deposits experience exponential share price appreciation upon the release of excellent drill results.
Junior miners and explorers are a great way for speculators to leverage off the bullion prices. Midas Letter has been keeping an eye on a lot of silver producers and explorers since 2008. So we feel eminently qualified to bring you another Top Ten list, this time focused on Silver companies listed on the TSX and TSX Venture exchanges, both the world’s premier exchanges for resource capital.
1. Xtierra Inc. (TSX.V:XAG)
Xtierra was first featured in the Midas Letter in the November 2010 issue of the premium edition and has since doubled in price. Shortly after that, Sprott participated in a $4 million private placement that just closed this week.
With the advanced Bilboa silver-zinc-lead project in Zacatecas, Mexico in feasibility with a 140 million ounce silver equivalent resource, and trading at a market cap of $33 million, the disparity between the reality and the should-be makes this a nearly too-good-to-be-true story. The company’s still very low market cap relative to its contained silver value and very advanced stage of the deposit makes it very appealing.
The United Mining Group is an unconventional story wherein the namesake company, a profitable and successful mine services company operating in Idaho’s Silver Valley, which has produced over 1 billion ounces of silver, and is considered the second largest mining camp in the world.
It has a 43-101 resource of 25 million ounces of silver, and at some point, the company will get more exploration underway as well as production. And that’s what makes this an attractive takeout target. With a market cap of $68 million, the company is trading at quite a discount. Considering a takeout would come with the mining expertise to get it back into production, and considering the exploration upside that still exists, we feel the potential for a takeout is substantial. Midas Letter subscribers were first alerted to United Mining Group in July of 2010.
Minco Silver has been riding quite a wave lately, having just announced a $45 million ‘bought deal’ financing led by BMO Capital Markets in Toronto. Minco owns a 90% interest in the world class Fuwan Silver Deposit, situated along the northeast margin of the highly prospective Fuwan Silver Belt.
The Fuwan deposit hosts 43-101 compliant reserves of 55 million ounces of silver, an indicated resource of 38.2 million ounces of silver, and an inferred resource of 63.3 million ounces of silver.
As China’s only pure silver producer, we feel that larger Chinese integrated miners will be eyeing Minco, which has a total market capitalization of CA$280 million as at February 14, 2011. Midas Letter covered Minco Silver in 2009 when shares were trading at $1.17.
Soltoro is currently drilling the El Rayo Project in Jalisco, Mexico. Soltoro has completed over 95 drill holes at its 100% owned El Rayo primary silver project. In May of 2010, Soltoro released a National Instrument (NI) 43-101 compliant 21.1 million ounce indicated and 4.85 million ounce inferred silver resource at the Las Bolas Deposit. Mineralization at Las Bolas is oxidized up to a 250 metre depth and recent step-out drilling (300 metres off the Las Bolas structure) returned 260 metres of 50 grams per tonne of silver from surface.
After completing some 76 holes totaling 20,000 metres of new diamond and reverse-circulation drilling into Las Bolas between 2006 and 2009, Soltoro released a milestone NI 43-101 compliant resource in May 2010.
It tallied, within an 850-metre, andesitic portion of the structure, 9.47 million indicated
tonnes grading 69.4 grams silver per tonne for 21.1 million contained oz. silver, using a cutoff grade of 40 grams silver, a 65% recovery rate and US$16 per oz. silver. A further 1.8 million inferred tonnes grading 67.4 grams silver add 4 million contained ounces silver to the Las Bolas deposit, and a southern extension to it, called the Matachines deposit, hosts 400,000 inferred tonnes at 65 grams silver for 850,000 contained ounces silver.
The company has a portfolio of ten projects, all in Mexico, and so with the advanced state of exploration and the high price of silver likely to spur consolidation among the juniors in the sector, Soltoro is an excellent candidate for takeover thanks to its low market cap. Soltoro was featured in the Midas Letter Premium Edition issued in October when shares were trading at $0.40.
Sabina has been focused for years on the Hackett River project in Nunavut in the Canadian arctic, and was one of the first companies exploring for precious metals there. Hackett River (contained in the greenstone belt) is already one of the largest undeveloped deposits of its type in the world (volcanogenic massive sulphide (“VMS”)) and is analogous to the Kidd Creek and Noranda deposits which have been prolific large producers for decades and have supported considerable infrastructure. Indeed these deposits have been catalysts for development in their regions.’
Hackett River is also economically robust. In a 43-101 preliminary economic assessment (“PEA”) completed by PEG Mining Consultants, and filed in December 2009, the project generates $1.8 billion in net cash flow, and a 25.9% IRR. The Project would produce concentrates containing 182.8 million ounces of silver, 4.8 billion lbs of zinc, 311 million lbs of copper and 300,000 ounces of gold, over 16 years, to ship to eastern and western markets.
But Sabina is a multi-project precious and base metals play really. Its Black River project, containing over 3.4 million ounces of gold in a 43-101 indicated resource, and an additional 3.55 million ounces of gold in the inferred category, makes it an extremely attractive takeout target for senior mining companies in the next phase of the precious metals bull market now underway.
Fortuna has been steadily increasing in value since we first discussed the company in an article on August 31, 2009, with the company’s shares trading at $1.17. The company has since quadrupled in value thanks to the aggressive development of the company’s assets in Peru and Mexico.
The company expects to begin producing from its 100%-owned San Jose silver-gold Project in Oaxaca, Mexico, by Q3 2011, and recently closed a $46 million bought-deal financing led by Canaccord Genuity markets at $4.00 per share.
Silver metal production at the company’s Caylloma Polymetallic Mine in southern Peru during the third quarter of 2010 was 474,489 ounces, 14% above the corresponding quarter of 2009.
Orko Silver is already in a joint venture with silver mining major Pan American Silver Corp. (TSX:PAA) on their ‘La Peciosa’ Project in Durango, Mexico, which makes Pan American the likely buyer for Orko. As of the end of August, Pan American has completed over 76,000 metres of diamond drilling on La Preciosa in 2009-2010. Combined with Orko’s 2005-2008 drilling of 154,000 metres, the project has now passed the 230,000 metre mark. La Preciosa is billed by the companies as ‘one of the world’s largest primary silver proejcts’.
Typically high-grade values have been intercepted there recently, such as hole BP10-539, which yielded a true thickness of 7.71 metres in the Gloria vein grading Au 0.646 g/t and Ag 648.0 g/t for a silver-equivalent of 686.8 g/t. This included 3.59 metres grading Au 0.894 g/t and Ag 986.7 g/t for a silver-equivalent of 1,040.3 g/t.
Mag Silver has been on a tear lately, working with their partner and likely buyer Fresnillo PLC, who is the world’s largest primary silver miner, according to Mag’s web site.
“We are pleased, but not surprised, to have added over 2 million tonnes and more than 27 million ounces of silver and 111 thousand ounces of gold to our Indicated Resources,” said Dan MacInnis, MAG’s President and CEO. “The 77% increase in Indicated tonnes shows a much larger high grade mineral inventory for the Prefeasibility Study anticipated by the end of the year, when compared to the 2009 Scoping Study. The increase was largely achieved by infill drilling that elevated over 2 million tonnes from the Inferred category to Indicated. Inferred tonnes stayed basically the same thanks to drilling outside the previous resource area that replaced the elevated tonnes with 2 million new tonnes. Using mining rate estimates from our 2009 Scoping Study, these increases add over 3 years to our estimated mine life.”
Great Panther’s mission is to become a leading primary silver producer by acquiring, developing and profitably mining precious and base metals in Mexico. We are committed to conducting ourselves with fairness and integrity, and managing all business activities in an environmentally responsible and cost-effective manner, while contributing to the well-being of the communities in which we live and work.
At least, that’s according to the company’s web site.
But with 2 100%-owned mines in Mexico with no royalties, a $7 cost-per-ounce to mine, and 2010 production of 2.25 million ounces of silver-equivalent production (23% gold), Great Panther is likely going to be the object of some possibly unwanted attention from larger primary silver producers. The company has a current market valuation of CA$327 million.
When Midas Letter first wrote about Avino Silver and Gold it had closed the day’s trading at $0.68. With yesterday’s close of $2.97, Avino has risen in value by over 400 percent in less than one year. That’s all because of the company’s focused and determined progress in reactivating the Avino silver-gold-copper-zinc-lead mine in Mexico, which Avino operated for 27 years beginning in 1974. Low metal prices and the closure of a key smelter forced the operation to close in 2001.
The processing of surface stockpiles of copper ore to test the new mill facilities was completed in October 2010. Approximately 17,500 tonnes were treated resulting in 419 tonnes of concentrate. Recovery rates were 66% Gold, 58% Silver and 56% copper. Avino will likely become the object of affection for bigger primary silver producers in the area looking to expand their producing portfolios.
Silver is Going to Break Records in 2011
The price of silver is poised to break records and narrow the number of ounces of silver it takes to buy an ounce of gold. James Turk, Eric Sprott, David Morgan and many other experts on silver price movements are all calling for a closing of the ration to as much as 25 to 1. At today’s current price of $30.77 per ounce, and with gold at $1,375 per ounce, it will take 44 ounces of silver to buy one of gold. If that ration were to close to 25:1 at these prices, that would suggest a silver price of $55 an ounce.
The current price is within $1 of the all time record for silver.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
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