Silver has become a valuable commodity investment in the last few years. Although the last couple of years have been a roller coaster for mining companies, many investors interested in precious metals like the fact that silver has considerable more industry usage than its more notorious counterpart gold.
According to a recent HSBC report on the outlook for silver in 2013-2014, there are five reasons that may drive silver prices higher:
- Industrial Usage
- Demand based on Monetary Easing
- Coins and Bar Demand
- Use in Solar Power Devices
If silver prices move to higher levels as expected, I believe a few companies stand out to benefit. Here are just a few I have keep a close eye on.
Hecla Mining (HL) Two years ago, Hecla Mining yielded record earnings and an unprecedented 9.5 million silver ounces. Like most of the other silver mining companies, Hecla has recently been struggling with low silver prices, which directly hampered its earnings. However, the company has considerable mining properties across the North American continent. The company, established in 1891, has operations in Alaska, and Idaho. It also has a number of exploratory mining operations in Mexico and Colorado.
In Idaho, Hecla owns the Lucky Friday mines since 1958. The mine has considerable reserves of both silver and lead, with small amounts of zinc as well. Its Green Creek mine in Alaska has almost 3 times the silver than in Idaho, making it the larger possession. The amount is roughly estimated to be at 100M ounces, which is one of the largest anywhere in the world. Hecla is exploring the area further in hopes of finding another deposit as rich as Green Creek.
Although cost of production as compared with low silver prices has affected the company, its extensive possessions should offer investors opportunity in the long run. The company is a well positioned in the silver space and since its Lucky Friday mine closure, the stock price has gradually risen to current levels. When the mine reopens in the first quarter of 2013 it may further add to the gradual rise in price as it is expected to produce 2M ounces.
In February 2011, the company was trading above $10 and any positive trend in the demand for silver and positive news from the opening of Lucky Friday may offer some value in owning this company.
Silver Wheaton (SLW) Silver Wheaton has quickly positioned itself as the largest precious metals streaming company in the world. The company has a number of agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver and/or gold production, at a low fixed cost, from high-quality mines located in politically stable regions around the globe.
The company just announced a binding term sheet to acquire two gold streams from Vale S.A. (VALE), the Salobo Mine in Brazil and certain Sudbury Mines in Canada, for total consideration of $1.9 billion in cash plus 10 million SLW warrants with a strike price of $65 and a term of 10 years. The Salobro Mine in Brazil is in a notorious mineral-rich mining area, which has established deposits of gold, silver and zinc. Vale S.A recently sold the rights to a zinc deposit in the region in 2012 to Zinco do Brasil, Inc (ZNBR).
Silver Wheaton has managed to do well because of its royalty and streaming business and anticipate them benefiting from any uptrend in the silver market. Trading off recent lows in the $33 range where support seems to be strong, any momentum in the silver arena may take them back over the $40 mark and test 2 year highs in the $46-47 range.
Zinco do Brasil, Inc. (ZNBR) Although not a silver mining company, Zinco do Brasil is a relatively new junior mining company positioning itself to take advantage of the potential demand increase in zinc and also located the Salobo Mining District in Brazil where Silver Wheaton just acquired two gold streams from Vale S.A. As mentioned in another article I wrote, I am very intrigued by the industry players that are surrounding themselves with this company and am keeping a close eye on any developments announced by the company to support my curiosity. The stock is currently trading at valuation near or just above where board members just financed the company. That is always a good sign in my opinion.
Disclosure: I am long HL.