In an article posted on resourceinvestor.com, Scott Wright, an analyst for Zeal LLC, makes a case for speculating in small silver mining companies, commonly called “juniors.” In doing so, Wright uncovers one of the compelling reasons why silver production will suffer in the future.
Most small silver mining companies have little cash flow from which to fund exploration programs, or even to evaluate and develop deposits already discovered. Therefore, “junior” silver mining companies regularly sell shares to raise capital.
However, the recent global stock panic saw across-the-board selling of all assets and hit commodities stocks particularly hard. Many silver stocks saw 70%+ declines, with the juniors suffering the worst of the damage by far. With their shares selling at such low prices, the mining companies are not selling shares because doing so would cause them to give up huge percentages of their companies. Until investors regain faith in the junior silver mining companies’ stocks, those companies will be husbanding their resources, seeking first to survive, then to look for new deposits.
Although most silver investors buy silver because of concerns about the dollar, this development makes investing in silver bullion even more attractive. Here’s a link to Wright’s article, which provides other good insights into the silver market.
Ag: the poor man’s gold. But there will come a time when silver is exhausted and the cost of extraction will compete with Pd or Au.