Silver is poised for years of gains and I believe speculation in this metal could be very profitable if timed well with a good company. I have suggested that silver could outperform gold in the next 12 months and thus recommended considering some of the larger players in that metal.
Silver is not only a precious metal but also has many industrial applications and thus will always have demand. Right now silver is priced around $32.30 an ounce. Gold is priced around $1692 an ounce. That represents a 52.5 gold to silver price ratio. On its own it doesn't mean much but the historical ratio is 16 to 1. The respective prices of gold and silver have not seen this ratio in quite some time and a reversion is well overdue. In order for this to happen the price of gold must plummet while silver holds stagnant or silver must rise at a higher rate than gold in the next few years.
With central bank stimulus and inflation seeming ever more likely I think silver may be ready to breakout at a higher rate than gold. In fact, it seems to have already begun in August when the SPDR Gold Trust ETF (NYSEARCA:GLD) was up 4.9% while the iShares Silver Trust (NYSEARCA:SLV) far outperformed GLD being up 13.5%. My readers know that I have been adamant in my suggestion to own physical assets in these metals.
For those investors that cannot or will not buy physical assets, I have pointed to the ETFs that track the price of metals as a second line approach. I recommend the SLV and ETFS Silver Trust (NYSEARCA:SIVR) for silver exposure second to physical coins and bullion. For the individual silver companies I recommend Silver Wheaton (NYSE:SLW), Silvercorp mining (NYSE:SVM) and Pan American Silver (NASDAQ:PAAS). I think they are safe bets for the long-term. But the greatest returns are not always had from the safe play. Thus the purpose of this article is to highlight a speculative silver company that could be set to roar higher off of increasing silver prices, Great Panther Silver Limited (NYSEMKT:GPL).
GPL is primarily a silver mining and exploration company. GPL's operational activities are currently focused on the mining of precious and base metals from its wholly owned properties in Mexico. GPL is also pursuing acquisition opportunities throughout Latin America to add a third mine to its portfolio of properties. GPL has two primary mining properties, the Topia mine and Guanajuato mine. GPL also owns a development stage property, San Ignacio, which is approximately 20 kilometers from its Guanajuato processing plant, and an exploration stage property, Santa Rosa, which is located approximately 15 kilometers northeast of Guanajuato. This company is taking action to expand in the long-term. On July 18, 2011, GPL announced the acquisition of four mining concessions in the Santa Rosa project. Last week, GPL also inked a deal to secure the purchase of the complete interest of certain surface rights on its wholly owned San Ignacio project in Guanajuato, Mexico, which will increase the company's revenue stream.
The most recent quarterly report showed the company is strengthening year over year. For the quarter ending June 30, 2012, the company had revenues of $14.5 million, which is a 70% increase compared to the revenues of $8.5 million reported in the comparable quarter in 2011. Due to increased mining and exploration costs, diluted EPS was $0.00 per share in this quarter compared with $0.02 per share in the comparable 2011 quarter. The company also produced about 3% less silver in the most recent quarter versus the comparable 2011 quarter, producing 374,000 ounces versus 386,000 ounces in the quarter the year before.
It is important to note in these comparison that the price of silver starting declining significantly when the quarter began and did not start rebounding until the last few weeks of the quarter. In the comparable quarter in 2011 silver prices were about 25% higher, spiking significantly during that quarter. Thus, the weaker performance of the most recent quarter relative to the comparable 2011 quarter is partly to blame on the overall price of silver.
Increased investments being made by the company and a lower price of silver were also addressed directly by GPL's CEO Robert Archer, who stated "gross profit was significantly impacted by lower silver prices and an increase in depreciation charges due to the substantial investments made in our mines, plant and equipment over the last year." He is however optimistic about the investments made by the company and believes the 2nd half of 2012 will be one of stronger growth. We will see if the company can start to deliver more robust growth with Q3 results that will be reported on or around November 16, 2012. A rising price of silver over the last month is a significant tailwind for the current quarter in my opinion.
With inflationary pressures mounting and central bank action seeming likely, I see silver and silver companies continuing to rise in price. I believe that long-term GPL could provide great returns should its future exploration activities reveal sizable mineral deposits and if it can keep related exploration costs down. I like this stock as a speculative but long-term bet as I see the price of silver continuing to rise. The stock currently trades at $2.00 and is up 19.8% in the last month, but only up 3.5% year to date. At current levels GPL has a 30 P/E multiple with average daily volume of about 450,000 shares. The stock has a 52 week trading range of $1.51-$3.59 and is thus trading 30% off its lows, but is still down over 40% from its highs.
Bottom Line: I see an investment in silver for the long-term being as sure as the sun rising each morning. While I still believe that physical assets such as silver bullion and coins are the best way to play silver, followed by the ETFS that track the price such as SLV, SIVR or the Sprott Physical Silver Trust (NYSEARCA:PSLV), individual companies may outperform these safer more preferred investment vehicles. GPL represent a prime example of a stock that is set to roar higher with the price of silver, especially if the company delivers on its plans for stronger growth. Consider adding it as a small portion of your portfolio space that is reserved for precious metals and related companies.
Disclosure: I am long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.