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Silver Linings: Silver Companies on TSX to Watch After Return to $30/oz

COMMENTARYProspectingJournal.com – February 10, 2011 – Trying to predict the direction in which the price of silver is going requires a lot more than spotting trends and following tickers. For many of us following the precious metals market, we must do what we can to quell our emotional attachments and look on with objectivity and a relaxed sense of certainty. This means putting aside either our anger towards JP Morgan for silver price manipulation allegations, or our fear of an imminent economic collapse

The year 2011 opened with puffed-chest predictions from many of my colleagues, on either side of the spectrum. What was believed to be excess bullishness towards silver at the end of 2010 led some to go short on Ag until things calmed down. In their eyes, silver was a much better buy at $20 than at $30. But this was already after they'd admittedly gotten in at $4/oz for silver. Well before my time of seriously playing the precious metal market.



But, after a small dip, it looks like we're back over the $30/oz mark for a while. This bodes well for those of us that didn't lose faith so quickly. Instead of predicting a further slide in silver prices, there are the large numbers of silver bugs in the internet forums that believe in the strength of silver and its shamelessly unfair evaluation based on misleading supply figures. Even looking outside of the GATA box, Peter Schiff's, Jim Rogers' and Eric Sprott's predictions that silver crosses the $50/oz line seem conservative.

So here we are at the $30 mark again, without a real indication as to where the price will go. Talking to many silver explorers at the latest Cambridge House Conference, the hesitancy to truly predict the price of silver was nearly unanimous. Sure, some would hint to $35/oz prices, but it's probably for the best not to structure your business model on prices higher than $25, just in case.

Going forward, if you're wanting to continue forward without a fear of major collapse, then the best thing to do is to try and profit from the miners feeding our hungry demand for supply. Who are some of the silver companies that are on our radar at this time?

South American Silver [SAC – TSX]
Current Price: $2.08
52 Week Range: $.29 - $2.62
Mkt Cap: $142.12M
On a good run stretching back to late last summer when they were trading at $.49, South American Silver has a great looking stock chart, and a successful plan in Bolivia to stick to. With one of the largest undeveloped Silver and Indium deposits in the world at their Malkhu Kota project, it's hard to ignore their 177.8 million ounces of inferred silver resource assessment. It's a large project with an added dose of the versatile indium to sell as well, and is reasonably accessible (within 15kms of power and accessible by road). Discussions with the locals and involved parties during January was promising, with the company announcing no hang-ups or problems foreseen. The project is sticking to the timeline originally plotted, while an update should be in the works soon. With smooth interactions with the locals going on, the risk of doing business in Bolivia seems to be mitigated for the time being, and South American Silver is reaping the benefits of their development work so far.

Avino Silver & Gold Mines Ltd. [ASM – TSX.V]
Current Price: $2.90
52 Week Range: $.65 - $2.95
Mkt Cap: $67.62M
In just a year, the team at Avino has risen the price of the company's stock almost 450% to heights not seen since before the 2008 crash. That said, this stock has in the past seen what the weather was like above the $4 mark, and it likely could get there again. With interests in both Mexico and Canada, this experienced management team is focussing on restarting the engine in its silver-gold-copper-zinc-lead mine in Mexico which held strong for 27 years of production starting in the 70s. Under today's metal prices, the property's San Gonzalo vein is much stronger economically than it was in the past. As they retool the facilities left in place, Avino gets leaps and bounds closer to kickstarting the Avino mine back into place after shutting down in 2001 due to sub $5/oz silver prices. The team believes there's plenty of life left in the Avino mine, whereas we believe that there's plenty of life left in Avino Silver & Gold Mines Ltd. as a prosperous company.

Silvercorp Metals Inc. [SVM – TSX]
Current Price: $11.90
52 Week Range: $5.93 - $13. 64
Mkt Cap: $1.97B
Lately when you think about mining in China, the first thought that comes to mind is Rare Earth Elements (REEs), mostly because of the embargoes threatened, and the supply shortages that loom with upcoming environment regulation on those operations. But for Silvercorp Metals, their position in China is that of silver and the high profitability it yields them. China's largest primary silver producer, Silvercorp has enjoyed the lower costs Chinese mining operations provides (only negative $7.13 per ounce). With projected production of 1.24 million ounces of silver for Q3 2011 (at those previously stated low, low costs of production), plus healthy additions of lead, zinc and gold production, Silvercorp is more than healthy enough to continue paying out its $.02 per share quarterly dividend.

Esperanza Resources [EPZ – TSX.V]
Current Price: $2.03
52 Week Range: $1.11 - $2.48
Mkt Cap: $108.90M
A big day for Esperanza raised the stock price by 4%, but this is indicative of the recent surge the stock has been running up 16% since February 2. Built around the model of using Joint Ventures to push its projects forward, Esperanza is involved in multiple projects in Peru and Mexico. Prospect generation is their nature, and they've got plenty to boast. Their primary focus is gold at its Cerro Jumil property in Mexico, but since we're writing about silver in this commentary, our attention is turned to the San Luis project in Peru. This joint venture project with Silver Standard Resources has a NPV of $109 million with projections of producing 1.9 million ounces of silver annually. Giving Silver Standard [SSRI - NASDAQ] the tab to bring this project into production lessens the risk involved, but does give Silver Standard the opportunity to seize and 80% interest. Given this company's track record of discovering projects, Esperanza has a solid model going forward, with room to grow. They've seen above $4 prices in the past, and there's confidence they can meet their pre-2008 levels again.

United Mining Group [UMG – TSX]
Current Price: $1.08
52 Week Range: $.88 - $1.34
Mkt Cap: $71.56M
At some point through this commentary a company with interests outside of Latin America or China would have to be mentioned, and we are still firm believers in UMG going forward. Not only is there plenty of potential for the company's Crescent Silver Mine, but given the multiple layers of the company and its involvement in the service side of silver production, UMG is poised to ride the wave of higher silver prices going forward. Aggressively seeking to develop a senior silver producing mining camp UMG is banking on the second largest silver mining camp in the world in the aptly named Silver Valley, Idaho. A recent influx of capital points to the company  continuing to move forward in its quest to be a premier silver producer in North America, including the finalization in December of the company's acquisition of a 265% increase in its contiguous exploration lands for the Crescent Silver Mine which sits between the formerly producing Sunshine Mine and Bunker Hill Deposit in Idaho's prolific silver belt. If silver prices continue their rise from 2010, UMG will be in a great position by year end.
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G. Joel Chury
Editor in Chief
ProspectingJournal.com

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DISCLOSURE: No fee has been paid for the production and distribution of this article and as such should be viewed in the context of a commentary. The author does not currently own any shares of the companies referred to within the article, but reserves the right to purchase shares in the companies mentioned after 6 weeks post-publication.