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Silver companies shine as investors ponder long-term price fundamentals amid Wall Street buying frenzy

For silver-focused mineral companies, the excitement surrounding prices puts the metal sharply into focus in a way that has more often been associated with gold

GameStop Corp. -
Retail traders are turning their focus to the precious metal

Silver is taking over the mantle from GameStop Corp (NYSE:GME) to become the latest Wall Street darling.

Following last week’s market frenzy surrounding GameStop and other heavily-shorted stocks, retail traders are turning their focus to the precious metal. Silver futures soared close to 13% on Monday, hitting eight-year highs to reach around US$28 an ounce. Unlike GameStop and its ilk, however, the surging silver price could have strong fundamentals to back it up.

READ: Silver surges amid short squeeze fever sparked by Reddit’s WallStreetBets

“In many ways, silver’s a good one to choose,” Mining Capital’s Alastair Ford wrote on Monday. “How exactly it is priced is open to question. There’s the gold-silver ratio, which argues that silver should always be priced relative to gold. So far so good, except silver often lags, as gold is the go-to metal for safe-haven seekers who only turn to silver once the price action in gold is beginning to peter out.”

What’s more, Ford wrote, silver also has an industrial application. Industrial buyers of silver eventually and effectively put a stop to the last major attempt to manipulate the silver market in 1980.

“It’s a different kettle of fish this time around, as silver roars up to an eight-year high, given that it’s lots of little fish driving the price, rather than a small cabal of big ones,” Ford wrote.

Silver in focus

For silver-focused mineral companies, the excitement surrounding prices puts the metal sharply into focus in a way that has more often been associated with gold.

“Overall, I think the current market attention is positive for silver and silver companies as it raises awareness of the commodity and its markets, particularly amongst an entirely new group of investors who clearly have significant influence,” Silvercorp Metals Inc’s (NYSE:SVM) (TSE:SVM) vice president Lon Shaver told Proactive. 

“Silver is unique in that it performs like gold, a precious metal, but it also has industrial roles, including in the electrification of our economy and the more people that understand that the better.”

The China-focused silver miner saw its shares surge 25.7% on Monday to hit C$10.37 in Toronto and 25.4% in New York to close at US$8.10. In a wider market trend, shares cooled slightly on Tuesday to close at C$8.58 in Toronto and US$6.69 in New York.

Stability not volatility

It’s not just the producers that are seeing a lift in share prices. Investors are clearly excited about development companies as well, which could be a sign that they believe the longer-term fundamentals are strong.

Vancouver-based junior GR Silver Mining Ltd (CVE:GRSL) (OTCMKTS:GRSLF) was up 12.2% on Monday in Toronto at C$0.83, in part due to a fortuitous announcement that saw the company ink a deal to acquire Marlin Gold Mining Ltd from Mako Mining Corp (CVE:MKO). Shares eased on Tuesday to close at C$0.78 in Toronto.

Commenting on the silver price movement, CEO Marcio Fonseca told Proactive that the price movement was “very positive.”

“(I’m) happy to see current market reactions based not only on the expected re-rating on silver price, but on how this is driving the interest (in) a broad range of investors to silver mining stocks,” Fonseca said.

While the publicity is certainly bringing more interest and investors to the space, Fonseca cautioned that it could be a double-edged sword and bring more volatility in the coming weeks.

“What we see in the silver mining stocks at the moment could be a short term blip in pricing versus changes in market fundamentals,” Fonseca added. “But I think it is positive to increase the awareness and interest in the sector.”

READ: Do the Reddit silver bulls have a real plan?

Ralph Rushton, CEO at South America-focused Aftermath Silver Ltd (CVE:AAG) (OTCMKTS:AAGFF), also offered a more tempered opinion on the metal’s surging prices. Aftermath is another beneficiary, seeing a 21.6% rise in its share price on Monday to close at C$1.52 in Toronto, and closed at C$1.33 on Tuesday.

“From the silver junior perspective, volatility is great for the traders and in the short term, for our shareholders, nobody can be upset with a 15-20% gain on their favourite silver stock in a single trading session,” Rushton said.

“However, longer-term, once a company is beginning to think about the engineering side of the projects, moving to feasibility studies for example, you need to be able to take an educated guess at the long term equilibrium price for your commodity.”

Rushton said he would prefer price stability, or a “slow and steady increase” in prices in order to successfully gauge the project’s economics. “Financial modelling of projects becomes a sensitivity nightmare if you’re seeing wild swings in silver price.”

The jury is still out on whether investors are willing to go long on silver, but for a commodity that has often been overshadowed by gold – the yellow metal – silver companies are relishing their turn in the spotlight.

“It may or may not be the Reddit craze of the week,” said Mining Capital’s Alastair Ford. “But actually, silver represents a sound investment in its own right anyway. Sounder than fiat currencies, sounder than GameStop, and certainly sounder than Robinhood IPO stock.”

--Updates share prices--

Contact Angela at angela@proactiveinvestors.com

Follow her on Twitter @AHarmantas

Quick facts: Silvercorp Metals Inc

Price: 6.59 CAD

Market: TSX
Market Cap: $1.16 billion


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