SILVER STOCKS NEWS – Silver stocks stabilized Thursday as the Global X Silver Miners ETF (SIL) held near unchanged at $27.95 per share this afternoon. Silver stocks traded near the flatline alongside silver futures, which inched higher by $0.09 to $41.61 per ounce.
The stability in precious metals helped silver stocks outperform the broader equity markets, which experienced widespread selling. The Dow Jones Industrial Average (DJIA) tumbled 100.66 points to 11,512.87, while the S&P 500 Index slid 11.98 points to 1,206.91. Investor risk aversion increased modestly, evidenced by the 0.5% rise to 31.79 in the CBOE Volatility Index (VIX).
Thus far in 2011, the silver stocks sector has languished near unchanged as is it continues to be impacted by a host of conflicting financial and economic factors. The record-setting rally in gold has helped to lift its sister precious metal, while weakness in industrial commodities in recent months has provided a headwind for silver stocks.
On a year-to-date basis, the SIL is currently higher by 3.0%. This compares quite unfavorably to the metal itself, which has surged 34.5% in 2011. Furthermore, many silver stocks have yet to surpass levels reached in 2008, when the price of silver below $20 per ounce.
A few of the most prominent culprits in the silver stocks sector have been several of the larger silver producers – Coeur d’Alene Mines (CDE), Pan American Silver (PAAS), and Silver Standard Resources (SSRI). In 2011, shares of CDE and SSRI have risen just 4.6%, and 0.6%, respectively. PAAS has fared quite worse, having plunged 20.2%.
With many of the larger-cap silver stocks continuing to underperform silver bullion, some investors have turned to their small- and mid-cap brethren. Michael Churchill, founder of Churchill Research, presented his bullish case for silver stocks in a recent note to clients. Based on his analysis, many small- and mid-cap silver stocks are trading for less than $1 per eventual ounce in the ground.
The reason this is so meaningful is because Churchill determined that based on a $40 silver price, $10 per ounce in cash costs, and $3 per ounce in upfront capital expenditures, a larger silver company could pay $4-5 per ounce in the ground to acquire a smaller peer and still generate a five-year paypback period on the cost of the acquisition plus mine construction.
“So, in theory,” Churchill wrote, “the possibility exists for 500% gains” in many smaller silver stocks – particularly those where “it’s clear the deposits are good enough to support mines.” Four names that meet this qualification, according to Churchill, include Bear Creek Mining (BCM.TSXV), Mag Silver (MAG.TSX), Orko Silver (OK.TSXV), and South American Silver (SAC.TSX).
In afternoon trading, shares of BCM.TSXV bucked the trend of firmer silver stocks, as it fell 1.3%. In contrast, shares of MAG.TSX, OK.TSXV, and SAC.TSX rose alongside the SIL – by 0.9%, 2.7%, and 0.6%, respectively.
Fortuna Silver Emerges as Multi-Mine Operator
San Jose is expected to produce 520,000 ounces of silver and 4,600 ounces of gold in 2011, and 1.7 million ounces of silver and 15,000 ounces of gold in 2012 at an estimated cash cost per silver ounce of $5.04, net of by-products. Full Fortuna Silver Press Release
- Fortuna Silver expects that recoveries will continue to improve over the coming weeks to the targeted 88% recovery for silver and 90% for gold, as the process continues to be fine tuned and the plant is sourced with production ore.
- For 2011, Fortuna’s consolidated production guidance is 2.4 million ounces of silver, 7,530 ounces of gold plus approximately 38.4 million pounds of combined lead and zinc production.
- For 2012, the Company anticipates an increase in production to 3.7 million ounces of silver, 18,041 ounces of gold and approximately 39.8 million pounds of combined lead and zinc production.
