Gold and silver are in a long-term bull market in my opinion as the upward trajectory of precious metals has been locked in by central bank action around the globe. Recently, after more turmoil in Europe, the U.S. election, and the realization that the U.S. "fiscal cliff" approaches, the market has sold off a bit. Gold and silver have also been hit somewhat in the last month. In the last month, the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) are down 1.5% and 3.1%, currently trading at$167.63 and $31.35 respectively. I think the recent pullback, while modest, represents an opportunity to begin establishing positions in the metals for those who have not done so, or to expand on existing positions. Given the seemingly endless stimulus from central banks and the historic gold-to-silver price ratio (historically gold trades 16 times the price of silver, currently it is trading 53 time the price) I have suggested that silver could outperform gold over the next year, and thus recommended considering some of the larger players in that metal.
I've proposed that speculating in some of the smaller exploration-stage companies could be very profitable with the right company. One such company that I think is worth looking into further for a long-term bet on silver appreciation is Mag Silver (MVG). MVG is an exploration-stage silver company that could be a winner if it can execute its long-term growth plans successfully. MVG is engaged in the mineral acquisition, exploration, and development business with properties located throughout Mexico.
MVG's properties include the Juanicipio property, which covers over 19,000 acres and is located in Zacatecas State, Mexico. MVG's Cinco de Mayo property is located approximately 190 kilometers northwest of the city of Chihuahua, in northern Chihuahua Sate, Mexico. MVG's Mojina Property is located in northern Chihuahua State, five kilometers from the town of Ricardo Flores Magon and 40 kilometers south of the company's Cinco de Mayo property. MVG also has other smaller properties such as the Lorena claims, the Nuevo Mundo claims, the Guigui claim options, and the San Ramone claims.
I think a major positive sign for the company is that it recently had a massive inflow of private investment. Two months ago, MVG announced an offering of 3,526,210 common shares at a price of $9.40. The offering led to proceeds of approximately $33.1 million. The company intends to use the net proceeds from this offering to fund its share of the recently announced permitting and underground development program for the Juanicipio property. MVG will also use some of the funds for advancement of the project at Cinco de Mayo, as well as for general corporate purposes.
MVG recently announced a decent mineral find at its Cinco de Mayo site after drilling several holes approximately 60 meters deep. The company has confirmed deposits of silver, gold, copper, lead and zinc. Furthermore, increased production at this site should be commencing later this year. At the Cinco de Mayo site, last month an independent analysis by Roscoe Postle Associates found that a large number of inferred mineral resources at the site. The details of this find and analysis can be found here. Speaking about this mineral find, MVG CEO Dan MacInnis stated "We are pleased, but not surprised, to see a significant resource begin to materialize" at the site. He further stated "Combined with Juanicipio, Cinco de Mayo now gives MAG two significant high-grade assets. Although we are still in the early stages, Cinco de Mayo is showing very strong potential for an increase to a substantial size." While MVG has been in business for several years, it is still in its exploration stages, and thus the recent news is positive for the long-term trends of the company.
MVG also inked an exploration and development deal with Canasil Resources (GM:CNSUF). On September 4, 2012, Canasil announced that MVG has received the drill permit for the planned Phase 2 drill program at Canasil's La Esperanza silver-zinc-lead project in Durango and Zacatecas States, Mexico. MVG has also completed the required $150,000 option payment to Canasil for the third year of the option agreement and will:
now be required to spend an additional $1,500,000 in exploration expenditures from Sept. 1, 2012, to Sept. 1, 2013, in order to maintain the agreement in good standing. A final option payment of $200,000 will be required on Sept. 1, 2013, together with additional exploration expenditures of $1,750,000 by Sept. 1, 2014, should MAG decide to continue and complete the earn-in of a 60% interest in the project under the agreement. MAG reported that drilling is expected to resume at La Esperanza during the third quarter 2012 to test the Fatima, San Pascual and Los Alamitos veins in the northwestern part of the project area.
Located in the Mexican Silver Belt, the La Esperanza project covers 68,954 hectares in northern Zacatecas and southern Durango Mexican States. This recognized world-class silver belt hosts a number of active mines such as Pan American Silver's (PAAS) La Colorada and First Majestic Silver's (AG) La Parrilla mines. The project covers multiple vein occurrences and alteration zones over a 20-kilometer strike length along a prospective SE-NW trend where the results of an airborne geophysical survey conducted by MAG indicate potential for hosting a very large mineralized system. Drilling conducted by MVG on the La Esperanza vein has confirmed a high-grade silver-zinc-lead mineralized panel along a strike distance of over 250 meters and to a depth of 300 meters, which is open in all directions, with mineralized vein intercepts of up to 10.3 meters.
MVG's most recent quarterly results reflect its efforts to aggressively explore and expand. As of June 30, 2012, MVG had working capital of $13,039,336, including cash on hand of $14,653,919. Exploration and evaluation expenditures totaled $3.65 million in Q2. In light of these expenditures and labor costs, the company reported a loss of $1.8 million. The next quarterly report is due to be released November 14.
For 2012, MVG is expected to post a loss of $0.14 per share as it continues its exploration and expansion endeavors. For 2013, the company is also expected to lose money ($0.15 per share), attributable to the exploration costs. Even though the company is losing money the potential returns that this company can deliver shareholders is high. Analysts agree, as the four analysts covering the company have one buy and three outperform ratings on the stock.
Considering the recent inflow of capital and the latest finds, the company seems poised for growth over the next few years. This is the primary reason analysts have buy ratings on the stock. I like MVG going forward until it is no longer finding mineral deposits, and I don't see that happening soon. As the price of silver continues to climb, I expect MVG's stock to continue to climb. The stock will soar if it continues reporting finds similar to the recent report from Cinco de Mayo. The stock currently trades at $12.61 on average volume of 102,000 shares daily. The stock has a 52-week range of $5.95-$13.42.