Silver is back in a bull market. Three weeks ago it finally broke out of a 6-year channel (see chart below). This was the moment I was waiting for. While most gold investors were excited about the renewed gold bull market, I waited patiently for silver to confirm. As for me, we would not achieve an ATH in gold until silver broke out. Sure enough, once silver came out of its channel, gold went on to reach an ATH.
I have been a focused gold / silver investor since 2004. My database includes 800 companies and I analyze them all. This article will cover almost all silver miners as a result. I will give you two lists: one for non-producers and one for producers.
For those of you who want to take part in this potential mammoth opportunity, it will be like if you were a kid in the candy store. Of course, we can not be sure that silver will finally reach an ATH, but the odds seem to favor it.
Another caveat that I have to mention is that there is enormous volatility and risk with silver miners. If you can make a 100% return in one day, you can also lose a lot of your money pretty quickly. It’s very common for silver front to crash, and hard to crash. Seeing a 90% paper loss on silverware is not a strange event. So, know that you are taking a huge risk.
Also, most of these stocks have already broken out during this recent 3-week rally from $ 18.50 to almost $ 30. So, you may be pissed off about buying stocks that you consider priced. However, the miners are still largely underperforming the metal and could fly from here ($ 27) to $ 50 silver.
Before I get to the lists, I want you to know about the potential returns that can happen during this bull market run. I will use two examples. The first will be an option game. The metal of discovery (OTCQX: DSVMF) has one of the largest silver projects in the world in Mexico. For simplicity, I will set their sources at 1 billion oz. (they have more).
Discovery Metals needs about $ silver to even consider the production. For this reason, investors have ignored this stock for years because no one believed we would ever see $ 30 of silver. I bought it a few years ago at 25 cents and waited. It is currently priced at $ 1.73 ($ 570 million market cap). Now it goes to $ 10 or higher, as long as silver prices trend higher.
Discovery does not even have to drill another hole (although they will, because they do). They could just sit and wait for silver to reach $ 100. How much do you think they would be worth? Now, let’s use a conservative amount of $ 5 per oz. (which I think is a reasonable number at $ 100 silver for its low grade). By $ 5 per oz. Would they be worth $ 5 billion with our 1 billion oz. resource estimation.
If Discovery Metals were smart, they would start forming a team to build and operate the mine. They could be the most valuable mining company in the world, with only one mine. Amazing. The sad news for investors is that this will never happen. Instead, Discovery’s board and management team will torment themselves and then sell shareholders for a small premium to a major. Wait for it.
That, yes, investing in Discovery can be incredibly lucrative when silver reaches $ 100. Chances are, however, that Discovery sold out long ago for $ 100 silver. For this reason, yield would be maybe 3x instead of a moonshot.
Every similar option game with a large amount of silver in the ground sees the same explosive growth in its forehead. Another one I liked and bought cheap is Golden Tag (OTCPK: GTAGF), which has a lot of forklifts up to higher silver prices.
There were two others (Silver Bull and Arizona Mining), but both of their management teams were sold out early to South32 (a base metal producer). South32 (OTCPK: SOUHY) could get more than 400 million ounces of silver that they did not want (at the time of purchase). They wanted the base metals. Maybe South32 will realize that they are now a mineral miner and spin a subsidiary like a silver miner?
I always crawl when management / boards sell their silver (like gold) in the ground for cheap valuations. The value of the Hermosa mine of South32 (more than 300 million ounces of silver) is worth a fortune as a silver mine. South32 still thinks this is a zinc project. They will probably have to change this categorization because they call Hermosa a silver mine. NorZinc (OTCQB: NORZF) also thinks their mines are a zinc project. I’ve sent her several emails telling her it’s a silver mine, but she does not believe me. Soon they will.
Zinc will NOT increase in value. Silver WILL! So, if a company can produce 3 million ounces of silver at $ 100 silver, you will get free cash flow of about $ 225 million. At 10x free cashstream, that’s an estimate of about $ 2 billion. Most management teams will tell you that this is a fairytale expectation. Or, that they can not plan with the assumptions. Well, guess what? Once silver reaches $ 100, they will be forced to use these assumptions.
I have always used $ 100 silver for my future valuations for mining. Even today, with silver at $ 27 and trend, the vast majority of investors still do not expect $ 100 silver. South32 and NorZinc are probably still stuck, thinking they’re sink miners, and not one of the majors even looks at Discovery Metals yet.
Okay, I promised you two examples. Let’s do a producer for this. How about First Majestic Silver? (NYSE: AG)? It’s one of the few great pure silver miners. They currently have an issue with tax money with Mexico holding back its share price, but that should not hurt them at $ 100 silver.
First Majestic is in 25 million oz. silver producer. At $ 100 silver, I would estimate their free cash flow at about $ 1.5 billion. If you give them a 15x multiple, they should be worth about $ 20 billion. They are currently valued at $ 2.7 billion. Is that crazy talk? Maybe, but I do not think $ 15 or $ 20 billion is a crazy expectation.
So, when we actually see a silver bull market reaching $ 100, the potential upside is great for both producers and non-producers. The silver shares will fly, with many up 100% in days or weeks. This is why I am always interested with silver and silverware. No other investment sector has this kind of explosive charge (which I am aware of).
Non-manufacturer list
Eric Sprott is a billionaire and one of the most successful investors in gold / silver mining. Recently, he has bought shares in many silver miners. One way to play this potential brand of silver bull is to simply buy what he owns. Here is his list (let us know in the comments if my list is wrong or what I am missing).
AbraPlata source (OTCPK: ABBRF)
Aftermath Silver (OTCQB: AAGFF)
Alexco source (NYSEMKT: AXU)
America Gold and Silver (NEWS: USAS)
Argentum Silver (OTC: AGSVD)
Blackrock Gold (OTCQB: BKRRF)
Brixton Metals (OTCQB: BBBXF)
Chesapeake Gold (OTCQX: CHPGF)
Discovery metals (OTCQX: DSVMF)
Dolly Varden Silver (OTCPK: DOLLF)
Excellon sources (OTCPK: EXLLF)
Gold Tag Sources (OTCPK: GTAGF)
Kootenay Silver (OTCPK: KOOYF)
MAG Silver (NYSEMKT: MAG)
Metallic minerals (OTCPK: MMNGF)
Monarca Minerals (OTCPK: ORAGF)
SilverCrest metals (NEW: SILV)
Sources of silver dollar
Silver elephant (OTCQX: SILEF)
Silver Grail Sources (OTC: SVGAF)
Silver One sources (OTCQX: SLVRF)
Silver Sands resources (OTC: SSRSF)
Sum Silver
Vizsla sources (OTCQB: VIZSF)
Sprott has only 2 producers on its list and most are exploration actions. But why? Because he likes to focus on stocks with high potential, which most manufacturers do not deliver. In addition to his list, I like these non-producers:
Alexco Silver (AXU)
Arizona Silver (OTCQB: AZASF)
Aurcana Corp. (OTCQX: AUNFF)
Bear Creek Mining (OTCQX: BCEKF)
Defiance Silver (OTCPK: DNCVF)
Try Silver (OTCPK: RSNVF)
The Silver Mine (OTC: SVLRF)
The Silver Tiger Metal (OTCQB: SLVTF)
Viscount Mining (OTCQB: VLMGF)
Manufacturer list
Americas Gold and Silver (USAS)
Avino Silver and Gold (NEW: ASM)
Strive Silver (NYSE: EXK)
Excellon Resources (OTCPK: EXLLF)
First Majestic Silver (AG)
Fortuna Sulver (NYSE: FSM)
Fresnillo Plc (OTCPK: FNLPF)
Gogold Silver & Gold
Hecla Mining (NYSE: HL)
Hochschild Mining (OTCPK: HCHDF)
Impact Silver (OTCPK: ISVLF)
Pan American Silver (NASDAQ: EASTER)
Silver Bear sources (OTC: SVBRF)
Silvercorp Metals (NYSEMKT: SVM)
Trading strategy
Even if you do not understand how to choose gold / silver stocks, you can use a trading strategy that should work well during a bull market. Here are the steps:
- Cut back on your losses. Use a 25% trailing stop. Once a stock is up by 25%, your disadvantage is zero if you increase your back stop up.
- Click on your winners. Add 25% to 50% to supplies that work. Winners keep winning. Dogs tend to lose weight all the time.
- Take profits. Once you are 100% or more, take half of the table off. Do not marry shares. Trade them. But always keep a share of a winner (25% to 50%) and let it ride (with your 25% trailing stop).
A few notes on this strategy. Own 20 to 30 silver supplies. Make sure you have good exposure so you do not miss a big winner. Sprott owns about 25, though only 2 producers. I prefer more producers, but I think 25 is a good total.
Another way to take profits is on levels. For example, every time silver takes $ 10 or $ 20, take a look at your portfolio. Losers will be stopped, but the winners will run. As the winners run, you must continually take profits on the ride up. Always keep at least 25% of your original cost base in case silver goes to the moon (use your 25% trailing stop). Maybe at some crazy price, say $ 300 silver, you can get the whole way out.
Announcement: I am / we are long HL, PAAS, EXK, AG, SVM, HCHDF, BCEKF, SVBRF, EXLLF, ASM, ISVLF, GTAGF, DSVMF, AXU, GLGDF, SLVTF, RSNVF, VIZSF, USAS, ABBRF, CHPGF, MAG, AUNFF, SLVRF, FSM. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose supply is mentioned in this article.
