28. December 2020 | 10:13 CET
Nornickel, Newcrest Mining, Silver Viper, First Majestic: Does silver have catch-up potential?
When the gold price set records between March and August and reached a new all-time high, silver also performed well. Previously, the two precious metals had diverged widely. The gold-silver ratio, which shows how many ounces of silver can buy an ounce of gold, had risen sharply at the start of the pandemic, indicating that silver was undervalued. In the meantime, this exaggeration has corrected. Silver is still trading in an attractive range with a gold-silver ratio of 80. However, if one looks at the major commodity companies, it is noticeable that silver does not play a significant role and is usually only a by-product of gold.
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ISIN: CA8283341029 , CA32076V1031 , AU000000NCM7 , US55315J1025
"[...] In our experience, the local communities are supportive and friendly. [...]" Steve Cope, President, CEO and Director, Silver Viper
Newcrest and Nornickel: Silver under the radar
At Newcrest Mining, silver accounts for less than one percent of total sales. Nornickel does not explicitly report silver and subsumes the precious metal and cobalt, rhodium, or tellurium under the by-products. Nor does it appear that silver plays a significant role in the major commodity companies' plans: Nornickel wants to invest primarily in copper production in the coming months, increase output, and incidentally position itself more sustainably - there is no talk of either gold or silver at Nornickel.
Only palladium and platinum play a role for the Russian Company. Both precious metals are essential for car production and have offered opportunities for investors in recent years, even independently of the precious metal boom. However, the reason for the share price rally, especially for palladium, was primarily market distortions. The Nornickel share was hardly able to profit from this: On a twelve-month horizon, the share offers a zero return.
The share of Newcrest Mining, on the other hand, benefited more from precious metals, with more than 80% of the Australian Company's sales coming from gold. The second most important raw material is copper, with a share of around 17%. However, this mix did not go down well on the stock market last year: The share lost 8.6%, this is all the more surprising as Newcrest can boast low production costs of less than USD 900 per ounce of gold.
Silver Viper: Professional investors wait patiently
Silver Viper's shares demonstrate the fact that the actual production of raw materials is often more complex than the development of promising production sites. The Canadian junior Company is pushing ahead with the La Virginia project in Mexico. Between 2010 and 2012, more than 50,000 meters were already drilled there, revealing some promising results with gold and silver deposits.
Currently, Silver Viper is using the historical data to explore the property and expand the resources comprehensively. In the wake of the pandemic-related precious metals rally, the stock also benefited, returning about 100% over the past twelve months.
As of December 2020, Silver Viper had USD 3.5 million in cash on hand, positioning it well for further exploration and the USD 100,000 property purchase instalment due in June. The Company is little known to private investors, but professional investors such as Sprott Asset Management, US Global Investors, Commodity Capital and the Contrarian Group are on board.
Big names have some catching up to do in silver
Since large commodity companies often neglect silver in their planning, smaller producers, such as Fortuna Silver or First Majestic Silver, or exploration companies with significant silver deposits, such as Silver Viper, could soon become more attractive. Historically, silver is still undervalued compared to gold.
It is also an industrial metal: Silver can be used, especially in electrical equipment, solar cells, or medical technology. Investors would do well to keep an eye on some promising companies in the silver sector, and gold, especially the big names in the industry have some catching up to do in this respect. Takeovers are anything but excluded in the medium term.