Great Panther Silver (GPL) has roared since I highlighted it earlier in the month, when it was trading at $2.00. It saw a high of $2.50 this month for a gain of 25% from where I recommended it. Given today's pullback with GPL hitting an intraday low of $2.17 as precious metals sold off, speculators may want to consider initiating a position around these levels.
For the long term, silver is poised for years of gains and I believe speculation in GPL could be very profitable. I also have suggested that silver could outperform gold in the next 12 months, and thus recommended considering some of the larger companies. Furthermore, silver is not only a precious metal but also has many industrial applications and therefore will always have demand, especially when the economy comes fully out of the recession. Right now silver is priced around $34.11 an ounce. Gold is currently priced at about $1,765 an ounce. That represents a 51.7 gold-to-silver price ratio, whereas the historical ratio is 16-to-1. The respective prices of gold and silver have not approached this historical ratio in years, and I believe a reversion is overdue.
With central bank stimulus under way from the European Central Bank unlimited bond buying program and the Federal Reserve decision to purchase mortgage assets to the tune of $40 billion monthly until unemployment is sufficiently lower, inflation seems ever more likely. During this inflationary stretch I think silver will rise at a higher rate than gold, thus diminishing the gold-to-silver price ratio. In the last month the SPDR Gold Trust ETF (GLD) is up 5.6% while the iShares Silver Trust (SLV) has delivered twice that return, up 11.1%. For those individuals looking to place a speculative bet on silver price appreciation, GPL represents opportunity as I believe that the individual companies will outperform physical assets over the next year.
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 the 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. In late August, 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.
Earlier this month GPL announced it had purchased a 100% interest in the El Horcon Silver/Gold Project in Jalisco State, Mexico, from Compania Minera El Dore, a private Mexican company, for $1,600,000 in cash. El Horcon covers 7,908 hectares in 17 contiguous mining concessions and is located 60 kilometers northwest of GPL's Guanajuato Mine Complex. One advantage of the close proximity is that it is within trucking distance of the Cata Processing Plant. GPL's CEO Robert Archer spoke highly of the deal, saying that it "has excellent potential to be a satellite mine for our Guanajuato Operations." He also added that GPL is "very pleased with this acquisition as it is consistent with our strategy to acquire assets with near-term production potential in the districts where we already operate, while looking for a larger scale, standalone acquisition elsewhere in Latin America."
The most recent quarterly report demonstrated that the company is strengthening year over year. For the quarter ended June 30, 2012, the company had revenues of $14.5 million, which is a 70% increase compared to 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 vs. the comparable 2011 quarter, producing 374,000 ounces vs. 386,000 ounces in the quarter the year before.
It is important to note in these comparisons that the price of silver started declining significantly when the quarter began, and it 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 the lower price of silver were also addressed directly by GPL's CEO, who stated that "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 second half of 2012 will be one of stronger growth.
With inflationary pressures mounting, I see silver and silver companies continuing to rise in price. I believe that in the 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 $2.22 and is up 25% in the last month. At current levels, GPL has a 43 P/E multiple with average daily volume of about 820,000 shares. The stock has a 52-week trading range of $1.51-$2.99. We'll see if the company can start to deliver more robust growth with Q3 results that will be reported on or around Nov. 16, 2012. A rising price of silver over the last month is a significant tailwind for the current quarter.
I see an investment in precious metals, particularly silver, as an excellent long-term strategy in light of the currency debasement and inflation that will stem from central bank action. For those investors who 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 recommended the SLV and ETFS Silver Trust (SIVR) for silver exposure second to physical coins and bullion. For the individual silver companies, I have previously recommended Silver Wheaton (SLW), Silvercorp Mining (SVM), and Pan American Silver (PAAS). I think they are safe bets for the long term. However, speculation can offer an excellent return, and GPL represents a prime example of a stock that is set to roar higher along with the price of silver. The stock has run nicely in September but pulled back significantly from the $2.50 mark, and thus may represent a decent entry point to start a position.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GPL over the next 72 hours.