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Silver to Uptrend in the 2nd Part of 2017

- By Alberto Abaterusso

2016 was a good year for silver investors.

The grey metal rose 9.3% from $15.680 per ounce in 2015 to $17.1435 per ounce in 2016 on the bullion market helped by a 147.5 million ounces deficit, "the largest for three years," writes the Silver Institute, and by an investors' renewed interest in Exchange Traded Products (ETPs).


The total supply of silver was 1.007 billion ounces in 2016 that with a total physical demand accounting for 1.028 billion ounces, led to a physical deficit for the gray metal of 20.7 million ounces.

The existence of geopolitical uncertainty worldwide determined an investors' renewed interest in ETPs until determining a record level in ETP holdings of 47 million ounces. This didn't happen since 2012 when investors bought ETPs for a total volume of 55.3 million ounces of silver held through these securities.

The Exchange Inventory Build item accounted for 79.8 million ounces of silver as of Dec. 31, 2016.

In a nutshell, the supply of silver was not enough to satisfy the demand for the gray metal for 2016. The latter was driven by the photovoltaic sector, in which demand increased by 34% on a year-over-year basis thanks to a raise in the number of installations, while the supply of silver dropped 3.1% year over year because of a lower level of funds used by mining companies as capital expenditures over the previous fiscal years.

There isn't any doubt that the increase of geopolitical and economic risks and a flat yield curve plus the persistence of a dovish monetary policy worldwide are the main key factors that drove the price of silver in 2016 and are still driving the price on the bullion market.

Over the first half of 2017, silver averaged $17.339 per ounce, a 9.7% increase from the comparable period in 2016 when the grey metal averaged at $15.801 per ounce.

Silver investors who aim to expose their portfolios to changes in the price of silver can also do this investing in shares of silver mining companies that are traded on the U.S. stock markets.

Seeking value among silver stocks I have ended up with a list of mining companies that may represent a good buying opportunity at the moment.

  • Silver Standard Resources Inc. (SSRI).
  • Coeur Mining Inc. (CDE).



Silver Standard Resources holds gold and silver properties in the Americas. The company is also engaged in the acquisition of properties. Silver Standard is producing gold and silver from the Marigold mine located in Nevada's Humboldt County, the Pirquitas mine located in the Argentinian province of Jujuy and Seabee Gold Operations, located in Saskatchewan (Canada), not so far from the Laonil Lake.

For full fiscal 2017, Silver Standard Resources expects to produce between 277,000 ounces and 297,000 ounces of gold and between 4.5 million and 5.5 million ounces of silver.

For the second quarter of 2017 and full year, analysts forecast that the company will close the reporting periods with an adjusted EPS of 8 cents and 39 cents, backed on revenues that are forecasted to come in at $118.8 million for the three months ended June 30 and $448.32 million for all of 2017.

Silver Standard Resources is trading at $9.22 per share on the NasdaqGS stock market with a price-earnings (P/E) ratio of 13.71, a price-book (P/B) ratio of 1.15, a price-sales (P/S) ratio of 2.04 and EV to EBITDA ratio of 4.18.

The analysts' average target price is $12.95, and the recommendation rating is 2.3 out of 5.

Silver Standard Resources has 400,000 ounces of silver in probable mineral reserves averaging 139.2 grams of silver per ton of ore plus silver stockpiles of 9.2 million ounces averaging 118.1 grams of grey metal per one ton of ore. These figures are as of Dec. 31, 2016.

When the enterprise value of $777.22 million is divided by the total amount of ounces of silver - 9.6 million - it gives an EVO metric of $80.96.

Coeur Mining has interests in silver and gold assets located in Mexico (the Palmerejo mine), in Nevada (the Rochester mine), Alaska (the Kensington mine), South Dakota (Wharf mine), Bolivia (the San Bartolome silver mine) and Australia (the Endeavor zinc, lead and silver mine). The mining company is also engaged in exploration activities and in the development of one metallic project which is the Mexican "La Preciosa" project located in the state of Durango.

From its mines, the company produces silver and gold that it sells in concentrate to refining companies and smelters. Coeur Mining's customers are located in the U.S., China and Japan.

For 2017, the company expects to produce between 16.4 million and 18 million ounces of silver and between 362,000 and 387,000 ounces of gold. These figures will lead to a production of between 38.1 million and 41.2 million silver-equivalent ounces.

For the second quarter of 2017 and full year, analysts forecast that the company will close the reporting periods with an adjusted EPS of 1 cent and 16 cents, backed on revenues that are forecasted to come in at $189.45 million for the three months ended June 30 and $789.86 million for al of 2017.

Coeur Mining is trading at $8.00 per share on the New York Stock Exchange with a P/E ratio of 14.42, a P/B ratio of 1.84, a P/S ratio of 2.00 and EV to EBITDA ratio of 6.78.

The analysts' average target price is $11.61, and the recommendation rating is 2.3 out of 5.

Coeur Mining has 176.637 million ounces of silver in proven and probable mineral reserves averaging 0.61 ounces of silver per ton of ore plus gold proven and probable reserves of 2.531 million ounces averaging 0.009 ounces of gold per ton of ore. These figures are as of Dec. 31, 2016.

When the enterprise value of $1.450 billion is divided by the total number of ounces of silver equivalent - 361 million - it gives an EVO metric of $4.02.

The amount of equivalent silver proven and probable reserves has been calculated according to a gold-silver ratio of 1:72.87.

The ratio is effective for the second quarter of fiscal 2017. Based on the average spot price of the two commodities over the quarter in question, the price was $1,256.963 per ounce of gold and $17.25 per ounce of silver.

Disclosure: I have no positions in any stock mentioned in this article.

This article first appeared on GuruFocus.