I can't think of any time I bought stock in a silver producer at that valuation and not made a pile of money.
31-32M oz Ag-equivalent PM production and less than $3B market cap?
Take First Majestic for example, they were trading at almost $3B market cap twice last year despite producing far less than PAAS. Does that mean AG was too rich? Absolutely not, they have the best production growth profile around, and they generate a lot of cash now and going to get a lot better.
Silvercorp had $2.5B market value last year with 6M oz production! No reason they shouldn't have a premium since they are one of the lowest cost producers around.
Endeavour has nearly a $1B market cap with only 5M oz production. They are not overvalued, its a $9 stock that will have well over $1 per share cash flow. PAAS produces SIX TIMES as much silver!
Even lowly Great Panther which is down over 60% from its highs and struggles to produce 2M oz silver has almost $300M market cap!
31-32M oz production, with upside at Dolores, another tidy new mine (La Bolsa) and world-class Navidad on deck, these shares are packed with VALUE.
The new price for silver will not be $28. After a few more months of consolidation silver will be trading closer to $50 and then the REAL BREAKOUT in silver comes.
Carl, good for gold and silver? Yup, I'd say that anything that has withstood the test of time as a medium of exchange with the added ability to be a store of value without peer, http://www.321gold.com/editorials/thomson_s/thomson_s_061212.html
That’s the long term seasonal chart for silver, courtesy of Dimitri Speck. You can see that late June (just 2 weeks away) is the time when silver typically makes its seasonal bottom. If folks are new to silver, they should not try to carry the same amount of silver that somebody bought into the bear market lows (especially those of a few years ago), regardless of what the possible upside reward appears to be. The drawdowns can turn you into an emotional wreck.
Absolutely the risk is high. There is one reason that the market is as high as it is, and that is the exceptionally low interest rates. The lower the rate, the higher the PE, as they are inverses. This also makes the point of just how quickly it could all unwind, though. IF the interest rate starts going up, that will kill bonds, obviously, but it will actually hit stocks harder. It will hurt stocks a little because it will mean higher expenses, but mostly because it will mean significantly lower PE. Say rates rise from 4% to 6%, that implies the PE moving from 25 (1/.04) to 17 (1/.06). That's enough to drop the Dow from 12,400 to 8,200.
Why are interest rates low, despite the massive money printing? It is a combination of deflationary forces (money not moving into the economy, and staying invested in bonds) with high risk overseas (causing investors to seek a safer haven in the US).
Will these forces ever change, allowing rates to rise? Sure, but when? Eventually the economy will start growing again, a little at a time. I'm thinking about 2016 for that. About then we should start seeing some general low-end housing construction, and things should pick up after that. As the economy picks up, money will move out of safe investments, and into the economy. When that happens, the Fed will have to pull money out of the economy, or inflation will take off. The Fed pulls money out by raising interest rates, so it will happen.
By then the Euro picture will also be clearer. No doubt in my mind - the Euro will collapse, and something will replace it. What? I don't know, but once that happens, foreign investors will have some alternatives other than the USD.
As we get closer to 2016, I'd expect these issues to start getting priced in, in advance. I think the next 4 years will not be good ones for the broad market, nor for bonds. Rising rates are not usually good for gold or silver, either, yet the specter of rising inflation is good for gold/silver. Thus to me, how gold and silver moves, whether up or down, may end up being a function primarily of how fast the Fed wants to pull money out, and how fast they are willing to raise rates. If they are firmly committed to preventing inflation, and raise rates fast and hard at the first sign of growth in the economy, then gold and silver might be hit hard. If they move slowly, and wait for inflation to arrive before raising rates, they could do very, very well.
Carl, the macro stuff is overwhelming these markets and we continue to be a bit myopic (in my simplistic way of analysis) Thank you for your recap of your analysis of PanAm base metals hedging programs as I believe it's one of your best (over the past 3-4 years) Euro may soon tank and yes, I've got an itchy trigger finger on my general 401K market funds.. I'm holding off.. as I believe that RISK is higher than most folks realize, France, Italy, Spain, Ireland... OH, MY!
No - they have never hedged silver, and have expressly stated that that they never will.
The zinc hedge at $1.50 was reasonable considering that zinc rarely traded over $.50 between 1990 and 2005:
They just didn't happen to catch the exact top. On the other hand, with zinc sold at $1.50, even though they gave up some of the peak profit they could have obtained with actual prices, they locked in a price that assured that they would be profitable overall, and they were.
He said 2m compared to 30m, so no, not 6%, not 33%.
I did some math comparing Revenue/Market Cap:
Using analyst estimates for earnings for 2012 and 2013, you get the following PE's:
Conclusion? Well, PAAS seems like a reasonable value compared to these other stocks. The negative is that it isn't growing earnings as fast as some of the others, and has a higher cost structure, so it is logically going to have a higher rev/cap ratio than the ones with lower costs or faster growth.
In the end, I have confidence in PAAS management, and that's the main reason I continue to hold this one. While some complain about the performance of PAAS stock, if you look at the long term, 5-10 years, few of these other companies have kept up with PAAS. At this point, to justify this stock price, all PAAS needs to do is just keep cranking out the profits and cash. If they can grow revenues and profits by expansion in Mexico, or Argentina, the stock price will reflect that. Therefore I see upside potential, and not a lot of downside risk.
The one downside risk is if silver drops back to the teens. That could happen, but I think it is more likely to stay in the 27-34 range for the remainder of the year. In the short term I don't see silver moving much higher, unless inflation heats up, but I expect inflation to remain quiet for awhile. Note however, that the Moore inflation predictor is calling for inflation to double by the end of the year, so I may well be wrong here:
Guru.. you old codger! I think you have your ducks in a row. Valuation is a key to long term success in investing and it was what first attracted me to this company in the mid 90's and continues to hold my attention. Thanks for your basic focus!