Silver Survivors: What Stocks Are Outperforming Metals?
Ever the bridesmaid and never the bride, silver represents a secondary concern of most investors who use the metal less as a hedge against inflation than as a tool for capitalizing from price variance. Investors by and large shucked silver commodities in 2014, furthermore, as the beautiful gray metal lost some twenty percent of its overall value. Whether or not silver as a commodity writ large recovers in 2015 appears a subject of fierce debate. There's no debate in the industry, however, about opening up new silver mines and aggressively expanding into new territory. In a bear metals market, why are so many silver companies acting so bullish?
Cooperating Metals, Competing Metals
Even the most grizzled veteran investors may be unfamiliar with the exact mathematical lessons of the gold-silver ratio. Much like esoteric baseball stats (such as weighted runs created plus, or WRC+), the gold-silver ratio can tell you when to buy or sell metal depending on the all-important numbers. The baseline of 60 to 1, where silver represents the latter, serves as an understanding of when to get in or out of either particular metal. It's far from a perfect statistic, but it serves to understand how silver can perform. In December of 2014 the ratio had stood at around 75 to 1. You can predict what happened next: silver fell by over $2 per ounce between January and March while gold climbed above $1200 per ounce for the first time in the calendar year. With the current ratio sitting at around 50 to 1, the tea-leaf-readers believe that the needle has swung in the other way. Whether mining companies pour over the gold-silver ratio or whether they dismiss it just as baseball traditionalists scoff at WRC+, there's no debate that they're making moves to capitalize on an uptick in silver by opening new nodes.
No mining company in 2015 will dig as deep or reach as high as Nautilus Minerals (trading under NUS for $.47 on the Toronto Stock Exchange), who have launched a project around the Solomon Islands to dig for silver on the seafloor at a distance of around 1000 feet. While undersea mining is far from new -- look no further than the popularity of gold mining TV shows that focus on the Bering Strait -- usually it's only the biggest-name metals getting priority. Nautilus' commitment to constructing a 750-foot ship as a floating base for silver mining means the Canadian company has decided to aggressively push for silver and profit from the uptick in prices. How much silver remains below the sea is an open question for geologists and surveyors, but the belief that it'll pay off has caused Nautilus stock to gain 10% in the 2015 calendar year to date.
Performance To The Cap
How well does any silver mining company perform, anyway? Held against the benchmark of the silver mining index, numbers should tell the story of miners that are making the most money as well as those who have yet to see their value rise accordingly. One of the best silver mining companies in comparison to the index, First Majestic ($4.65 per share on the NYSE, traded as AG) has enjoyed profound growth in comparison to the silver index. Only seven years ago, First Majestic traded on the pink sheets, while today they've generated nearly 15 million tons of silver from their most productive mines in Mexico. Their surveyors in the Chalchihuites region of northwest Mexico, where silver vein deposits left by million-year-old volcanoes run abundant, have made the company aggressively expand into two new fields. First Majestic has announced plans in 2015 to develop geological estimates of the richness and duration of these two fields; while their stock lost about half its value in 2014, it's gained about 20% of that value back in 2015 thanks to their expansion ambitions.
Performance Relative To Silver
A separate index to determine a mining company's value lies in its performing cost relative to the metal they harvest itself. Here, few companies do better than the Canadian SilverCrest ($1.32 per share on the Toronto Stock Exchange under SVL) because SilverCrest maintains operating costs that are less than the $15 per ounce price of silver itself. Even silver's worst performance in the past five years kept the metal floating above the $15 figure, meaning that SilverCrest hasn't lost money during the entirety of the 2014 bear market. With working capital of $45 million compared to debt of just $15 million, furthermore, they're in the market for new mines to complement their holdings and have ample cash to invest in operations. They've been more conservative about the prospects than other companies on this list, making them a better choice for investors who want to mitigate risk in their portfolios.
The Big Picture of Silver Stocks
Will silver as a commodity rise during 2015? The answer is a resounding probably. The worst of the bear market might not have passed, but only the absolute luckiest investors will be able to pick up commodities at their lowest value and ride them to their highest peaks. Instead, look to complement your investments by averaging good discounts on low-hanging fruit and selling off when you're comfortable with the profit. At the moment, shorting equities likely won't get you very far. Silver mining stocks, however, come laden with potential. For those looking to capitalize on mining trends, the time to get in on mining stocks is yesterday. Industrial and private demand for the metal have both risen in 2015 as moderate economic gains make domestic spending power grow stronger. A bevy of companies are racing to be the first ones to bring silver to the manufacturing belt or to the jewelry store display case, and many of these horses deserve the financial backing of investors.