The silver bulls are back
Listed silver stocks have quietly moved into the position of top-performing global resources subsector, leaving gold, uranium and copper names behind for now.
Author: Barry Sergeant
Posted: Thursday , 08 Jan 2009
JOHANNESBURG -
mineweb.com
Temporary it may or may not be, but listed silver stocks have pulled a fast one on their gold peers, and currently represent the best-performing global resources subsector. The two metals share the "precious" classification, but vary vastly in two significant ways.
Silver bullion is trading just above USD 11/oz, 48% lower than its record level seen in March 2008, and far more than the fall in the gold bullion price, currently a modest 18% lower than record levels set in the same month. And while the majority of mined gold ranks as primary production, around two-thirds of silver production ranks as a by-product, mainly on base metal and gold mines.
The universe of listed silver bullion stocks, with a current market value of some USD 10bn, is, moreover, significantly smaller than the aggregate for gold miners, sitting just short of USD 170bn. In short, the silver market is highly specialist, and as a matter of record, to repeat, currently the best performing subsector within global resources, and also likely the best performing global subsector of any kind.
Measured on a weighted basis, listed silver stocks have "bounced" 111% from low points, compared to 66% for the world's 100 biggest mining stocks, and 89% for listed gold stocks. The MSCI Barra dollar-based index for global equities as a whole is currently 24% above its low point.
Among listed silver stocks with heavier capitalisations, the way upward has been led by Silver Standard, which according to itself has "the largest published in-ground silver resource of any publicly-traded silver company", with a pipeline of projects in Argentina, Peru, Mexico, Canada, Chile, the US and Australia. The group is currently in transition to production with robust development on several core properties, and the construction of the Pirquitas mine in northern Argentina, now in the commissioning phase.
Silver Standard currently carries a market value of just over USD 1bn, giving it the status of being just one of four primary silver stocks in that league, after Pan American Silver, Silver Wheaton, and Fresnillo. The latter, ranking as the world's biggest primary silver producer, boasts a market value of USD 2.7bn, compared to just over USD 6bn at its record levels before the froth was ruthlessly exterminated from equity markets starting around May 2008.
Stock price runs among many junior silver stocks have been spectacular in the past while, with an average around 200% from lows, and up to 700% in the case of San Anton Resources.
On the fundamentals, the consensus of the analytical community appears to be bullish for silver bullion supply-demand supporting rising dollar prices over the longer term. There is generally bullish sentiment for both gold and silver bullion going forward, as further supported by the growing belief, once again, that the dollar will be pressurised further, after staging a very impressive rally between July and December 2008.
The ratio of the gold to silver bullion price is currently around 77 times, far above its five and ten year averages of between 55 and 60 times. A year ago, the ratio was below 50. For investors believing that silver is historically more volatile than gold, a reversion to the mean longer term ratio - regardless of what gold bullion does - is simply bullish for silver.
The silver price averaged USD 13.38/oz in 2007, some 16% higher than 2006 levels; led by increased investment demand, the price made levels not seen since 1980. Despite the retrenchment of the price from highs set in March 2008, the longer term picture suggests that significant portions of stockpiled silver held by mainly China, Russia, and India, have been drawn down.
Total newly mined global supply is estimated at just over 900m ounces for 2008, and is not seen as rising much above that in the medium term. Production is declining at a number of mines, to be balanced, at least in part, by new silver primary and byproduct mines. Goldcorp's Peñasquito mine in Mexico could be producing up to 30m ounces of silver a year by 2012, while Barrick's Pascua/Lama interest in Chile could be producing up to 20m ounces of byproduct silver, also by 2012.
Meanwhile, silver bullion exchange traded funds (ETFs) continue to offer a bullish undertone for the metal. The iShares Silver ETF, available in US markets since May 2006 is no longer alone. The ETF Securities Silver has since emerged in London, with 9.7moz under management, and the ZKB Silver ETF has emerged in Switzerland, with 34.6moz.
These ETFs added 7.3moz and 25.0moz of new demand, respectively, during 2008. The iShares Silver ETF added around 65moz during 2008, taking its total silver holdings to nearly 220moz. The transparency and liquidity of silver ETFs has seen an ongoing fall in the numbers of short-term speculators engaging in silver positions on the New York Commodities Exchange (COMEX), the Tokyo Commodities Exchange (TOCOM), and the Over-the-Counter (OTC) market. |
