March 29th, 2021 | 08:00 CEST
First Majestic, Silver Viper, Barrick Gold: Why silver shines brighter
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"[...] Internally we expect the resource to significantly grow the deeper we mine. [...]" Dennis Karp, Executive Chairman, Manuka Resources
First Majestic Silver: Small producers are not without risk
One of the few pure silver plays is the stock of First Majestic Silver. Betting everything on silver in 2020 was the right move, as is shown by the stock's performance, which put a return of nearly 200% on the floor last year. The Company operates 3 silver projects in Mexico and is valued at just over EUR 3 billion. For a mid-sized producer, that is already decent. But thanks to the entire development pipeline, the share also still exudes a bit of fantasy. The question remains, how much potential does First Majestic Silver still have, starting from the current level?
Small and medium-sized producers often struggle with costs or experience imponderables due to environmental influences or accidents. One thing seems certain: If 1 project out of 3 collapses due to an incident, the consequences are likely to be significant. Producers are always judged by the market on their output and costs. For this reason, it is always tricky for smaller companies with only a handful of projects to surprise on the upside. First Majestic is an excellent stock to profit from a silver bull market. However, its status as a small producer is not without risks, and risks lurk around every corner.
Silver Viper: Decisive weeks ahead
By nature, Silver Viper's stock is risky. The silver project developer has yet to prove that the properties can be economically exploited. If it fails to do so, the properties and the work of small companies will be nearly worthless. Although this sounds sobering, an attractive risk-reward ratio is nevertheless created when looking at the valuation. Currently, Silver Viper's stock is valued at just EUR 34 million. In exchange, investors get access to the La Virginia project, which is 100% owned by the Company. Silver Viper has a right of first refusal for another claim. In mid-March, the Company reported an average grade of 88 g/t silver and 2.43 g/t gold over a length of approximately 20 meters.
What makes the property special is that the previous owner Pan American Silver has already explored the project and Silver Viper can benefit from the preliminary work done. Silver Viper is nevertheless focusing on a new zone a few kilometers away. On this Ruby zone, from which results have been reported recently, the Company wants to go into further detail. Within the next few weeks, a resource estimate should provide initial insight into where the project is headed. Given the low market capitalization and the development stage, which offers room for positive surprises, Silver Viper's stock is not uninteresting. The stock is a kind of warrant on silver and also gold prices. Investors can take advantage of this and get their foot in the door with a small capital investment.
Barrick Gold: This giant is boring
Barrick Gold currently shows that it makes sense to have several irons in the fire. The Company generates about 95% of its revenues from gold and the rest from copper. The share price increased significantly after the price crash last year but has shown weakness since then. At times, Barrick Gold even considered acquiring copper projects to regain momentum on the stock market. Instead, they decided to pay a special dividend - which, however, fizzled out on the market. While the Company is very diversified, unlike First Majestic, and is better able to weather typical risks for producers, such as landslides, strikes or collapsed tunnels, than other companies, it is too sluggish to excite shareholders in the current environment.
If gold rises again soon, Barrick Gold's stock will also pick up. However, the momentum is likely to be limited. In contrast, investors seem to be better positioned with silver stocks. Its properties as a precious and industrial metal are in line with the spirit of the times and trends. Small caps from the sector also offer an attractive risk-reward ratio at current valuations.
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