Silver Stocks (SIL) Fall, Sprott Sees “More Upside” Ahead

SILVER STOCKS NEWS – Silver stocks fell Thursday as the Global X Silver Miners ETF (SIL) retreated 0.8% to $26.54 per share.  The sell-off in silver stocks and the SIL was fueled by weakness in precious metals – stemming from the European Central Bank’s (ECB) announcement of new dollar liquidity measures.  Silver futures turned lower alongside silver stocks and the SIL on the news, with the COMEX December contract falling $0.37, or 0.9%, to $40.16 per ounce.

With this morning’s weakness in silver stocks, the SIL extended its year-to-date loss to 2.2%.  The components of the SIL – primarily large-cap silver stocks – have substantially lagged the price of silver in 2011, which has surged higher by 30.4%.

Commenting on the underperformance of silver stocks, hedge fund magnate Eric Sprott reiterated his positive outlook on the sector in his firm’s monthly commentary.  Sprott – the billionaire founder of Sprott Asset Management – wrote that “We are still finding opportunities in select gold and silver mining companies that can be purchased today at 2-3 times their 2-year-out forecasted cash flow.  These multiples are based on the current gold and silver spot price, and if these companies hit their production targets, and gold and silver continue their appreciation – we may discover that these stocks were trading at less than 1 times 2-year-out cash flow today. Having been in the business for many years, we can tell you that investing in a stock at 1 times 2-year-out cash flow tends to be a winning proposition – let alone in an industry that literally mines the world’s reserve currency out of the ground.”

Sprott – who has been bullish on precious metals and gold and silver stocks for much of the past decade – went on to say that “The fact remains that both gold and silver continue to trade well below their inflation-adjusted highs in nominal terms, and the market is now beginning to acknowledge the profit potential that precious metals equities offer at today’s bullion prices.  We believe the equities will offer more upside than the bullion over time.  Many of the smaller names are well priced and have momentum behind them.”

Silver stocks in the news on Thursday included Silvercorp Metals (SVM.TSX, NYSE: SVM), which announced that it has repurchased $31 million of its common stock.  The Company launched the purchase program “because it believes that prevailing market conditions have resulted in Silvercorp’s shares being undervalued relative to the immediate and long term value of Silvercorp’s portfolio of producing and development properties in China and Canada.”

Shares of SVM have plummeted in recent months amid anonymous fraud allegations.  The Company has vehemently denied the allegations and now is apparently putting its money where its mouth is.  This morning SVM surged $0.33, or 5.1%, to $6.81 per share.

Another silver stock making headlines on Thursday was Fortuna Silver Mines (FVI.TSX).  The emerging silver producer announced that it has been approved to list its common shares on the New York Stock Exchange (NYSE) on September 19, 2011 under the trading ticker symbol “FSM”.  The Company will also maintain its listings on the Toronto Stock Exchange (TSX) and the Lima Stock Exchange, both under the symbol “FVI.”  Shares of FVI.TSX slid alongside the broader silver stocks sector this morning, however, by 1.2% to C$5.98.

Other notable silver stocks moving lower included SIL components First Majestic Silver (AG), Pan American Silver (PAAS), and Silver Wheaton (SLW).  AG, PAAS, and SLW dropped 3.1%, 1.4%, and 1.6%, respectively.