With silver equities trading at levels considered a discount to long-term silver prices, RBC Capital Markets expects they will recover and trade up from the lower end of valuation ranges they experienced in the past few months. The firm’s long-term forecast for silver is $12 to $13 per ounce, while the current spot price is roughly $14.25.
In a note to clients, RBC analysts highlighted recent developments such as spot silver’s breach of the $15 per ounce mark for the first time since May 2006, as well as a revised plan to boost throughput by 30% at the Penasquito project in Mexico.
They continue to see global demand for the metal outpacing new supply and have raised their silver price estimates by $0.50 per ounce annually to $14, $14.50 and $15 for 2008 through 2010.
One of RBC’s preferred names in the sector is Pan American Silver Corp. (NASDAQ:PAAS) given its good leverage to silver prices and above average growth prospects, which are expected to lead to production, earnings and cash flow growth in 2007 and 2008.
Russia’s largest silver producer, JSC Polymetal, is another one of the firm’s picks. RBC likes its track record and ability to build mines on time and on budget.
“We consider Russia to be an attractive region for investment for the right management group and asset base,” the analysts said.
Meanwhile, RBC’s reasons to be bullish on silver in the next few years include expectations for continued weakness for the U.S. dollar, an increase in demand for the metal and concerns regarding primary silver mine supply in coming years.