Today the European Central Bank announced an unlimited short-term bond-buying program, helping to allay fears that it might not do all it can to save the euro. The U.S. markets surged on the news, taking gold above $1,700 an ounce and silver above $32.50 an ounce. Today's gains add to a stellar August, which saw the two most popular gold and silver ETFs -- the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) -- up 4.9% and 13.5%, respectively. Silver is poised for years of gains -- 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 also believe that speculating in some of the smaller exploration-stage companies could be profitable. One such company I that think is worth looking into further for a potential long-term bet on silver appreciation is MAG Silver (MVG). MVG is an exploration-stage silver company that I think could be a winner if it can execute successfully. MVG is engaged in the mineral acquisition, exploration, and development business with properties located throughout Mexico.
Some of MVG's properties include the Juanicipio property, which covers approximately 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.
One positive sign for the company is that it recently had an inflow of private investment. Last month, 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. While MVG has been in business for several years, it is still in its exploration stages.
MAG 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. MAG 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.
The La Esperanza project covers 68,954 hectares located in the Mexican Silver Belt 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.
The most recent quarterly results reflect MVG's 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.
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 expected to also 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.
With inflow of capital and recent 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 $10.94 on average volume of 94,000 shares daily. The stock has a 52-week range of $5.95-$11.51.
Disclosure: I am long SLV.