How To Buy Silver
by Dr. Steve Sjuggerud
January 20, 2006
Gold has grabbed all the headlines lately… but as investors, we can’t forget about silver.
The question is, how do we play it?
I asked mining stock expert John Doody what he thought about silver, and how he’d play it today.
He said: “You’ve got to have a horse in this race… The problem is finding a horse to bet on.”
In other words, when it comes to investing in silver, there aren’t too many alternatives. Thankfully, John has thought this problem out… and has the solution.
For starters, John told me, 130 million ounces of silver will be removed from the market if the silver exchange-traded fund (ETF) successfully makes its way through the regulatory process, so the countdown has tentatively started.
We want to take a position in silver BEFORE the ETF comes out… in case the impact of the ETF on silver supplies causes prices to rise. The question is how.
Physical silver is your first option. The thing is, at $9 an ounce, it’s expensive to store and difficult to transport. For example, a $30,000 investment in scrap silver coins would weigh over 400 pounds!
Since there’s no ETF yet, and since you don’t want a garage full of silver, silver stocks are the only alternative.
Here’s what John had to say about the handful of silver stocks on the market:
- Silver Wheaton (SLW) isn’t the prettiest silver stock out there. Its silver reserves are selling at a large premium to silver’s spot price. The silver ETF, on the other hand, won’t have a premium, so John thinks Silver Wheaton’s price is vulnerable to a correction when the ETF comes online.
- Pan Am (PAAS) is willing to get its hands dirty, and knows how to operate mines, but its large overhead costs will prevent the large leaps in profitability we look for.
- Silver Standard (SSRI) will never be a producer… John’s not interested here.
John said:
“If I was going to recommend a silver stock, I’d want one with a single big mine – producing at least 10 million ounces per year - that is easy to manage, very profitable, and in a politically safe location.
“Apex (SIL) is a great candidate, with San Cristobal due to produce 22 million ounces per year beginning in 2008. However, it’s in Bolivia. That’s too risky for me. Coeur d’Alene (CDE) is also building a big Bolivia mine - San Bartolome - so CDE runs the same risks.
“The only silver “horse” left standing is Western Silver(WTZ), with its big Penasquito project in Mexico.”
The numbers John showed me look great… The latest numbers suggest annual production of 13 million ounces of silver a year with a 17-year life. It’s low-cost production, easily financed (he says), and in a politically safe nation (relatively).
Western Silver is John’s pick. John recommended it to readers of his newsletter Gold Stock Analyst a few bucks cheaper than it is today. But he has a target price of $20 on the stock, implying 50% upside potential from here.
If you want to play silver (and John says “you’ve got to have a horse in the race,”), then Western Silver is probably your best bet.
Good investing,
Steve
