Silver price volatility provides some exciting profit opportunities
for investors who develop the right strategies to take advantage of the
action. In this exclusive interview with The Gold Report, Sean Rakhimov, publisher
of the SilverStrategies.com website, talks about how the global forces of
monetary policy and fear are expected to push investment demand for silver
much higher and highlights some companies he expects to profit most from the
coming silver boom.
The Gold Report: You
last talked with The Gold Report in January 2011 and at that time you
gave us your view on the prospects for silver for 2011. What's your analysis
now as to what happened in 2011?
Sean Rakhimov: 2011 was a breakthrough year
for silver. Last time we talked I think the title of the interview was "Silver Going Mainstream," which I believe it did last year. The silver
price did run up to $50/ounce (oz). It settled back
slightly under $30/oz, and sometime around the end
of last year and the beginning of this year I believe we put in a major
bottom in both gold and silver. The markets have been looking up since then.
There's been a bit of consolidation going on largely based on geopolitical
events. It's been my long-standing theory that the action in the metal prices
is not necessarily determined on a day-to-day basis by the fundamentals of
the metals themselves. It's more of a reaction to the external news, whether
it's in financial areas, geopolitical or some other areas.
TGR: Do you think people are trying to figure out what they think
other people are going to do, and then somehow profit from it?
SR: Yes, but in the case of gold and silver, I don't believe the
reasons or the information pertaining to the metals themselves
are as dominant in the conversation as it is in some other assets. Gold and
silver are the only markets driven by fear, and fear usually does not emanate
from the metals, but from other areas. A lot of the other assets are driven
TGR: I know you don't like to make specific price predictions, but you
published an article at the end of October 2009 where you said that silver
was going to hit a high somewhere between $30/oz
and $50/oz. We did see the $50/oz price last year.
At this point, what do you think it's going to take for silver to break
through that $50/oz barrier for good and establish
that as a new base price?
SR: The catalyst, I believe, will probably be somewhere in the
currency space, whether it's in Japan, Europe, the U.S. or maybe even some
other region that we don't think of on a day-to-day basis. I view gold and
silver as monetary instruments, at least at this stage, although silver has a
great degree of industrial uses. I also think that we probably will see a new
high in both gold and silver this year. For silver, that would be over $50/oz and for gold that would be somewhere in the
TGR: How closely tied are gold and silver as far as price performance
goes? Is gold going to drag silver up with it or can you see any kind of
catalyst that would make silver go up on its own?
SR: As a rule, they move together. Silver does display a high degree
of volatility and I believe its fundamentals are far superior to those of
gold due both to its industrial usage as well as price. Silver is far cheaper
than gold and a lot of investment has been switching over to silver. For
instance, Sprott says it sells equal amounts of
silver (in dollar terms) to gold, which means in today's numbers, silver is
selling 50 times more in ounces than gold.
So, I think silver has far superior fundamentals, and it's definitely more
affordable. It will take on a life of its own, and at some point, outperform
TGR: Lots of people out there have all kinds of opinions about where
it may ultimately go. Do you have any outer limit expectations for it?
SR: I don't, but if you look back at some of the early interviews I
did with The Gold Report, I think I was among the first to say that I
expect three-digit silver. That was when silver was definitely below $15/oz and maybe even below $10/oz. So, I was one of the
early people who thought silver had far higher to go. Today, I believe that
silver has at least a 10x appreciation potential from the current level.
Again, being a monetary instrument, an awful lot is going to depend on what
happens to other monies elsewhere. For the cycle, I don't have a number
target, but I do think that the gold:silver
ratio will get below 20, probably closer to 10:1. It's over 50:1 right now;
so, that should be a good guideline.
TGR: That really gives it some upside potential from here. So, from a
monetary standpoint, do you see the possibility that governments are
gradually going to get serious about somehow making silver a part of the
monetary system if gold goes in that direction also?
SR: I think some governments will at least attempt to. In Mexico,
there's been a long-standing movement at high levels of government to bring
silver into the currency equation. I don't know how that will shake out for
several reasons. One, silver is not as plentiful as we think. I also don't
know how gold will come into that equation. I believe that if gold does take
on the currency role again, it will be more in inter-government relations
rather than day-to-day uses.
I don't think we have enough silver, basically, to use it as a currency. With
the paper currencies facing all these challenges, a new and better financial
system will have to be developed. For a while, gold and silver may play that
bridge refuge role until they sort out what the new system is going to look
TGR: So tell us what sort of strategies you're using at this point to
benefit from the current silver market and what you think is going to be
coming up here in the next couple of years.
SR: Well, in terms of investment I have always advocated that silver
metal is a good investment; so is gold for that matter, but I think you get a
wide variety of experts on your website discussing the metals. I think
investors would do better and will be better served if they spend some time
figuring out exactly what their personal take or expectations or intentions
are. I think the majority of investors don't spend enough time on figuring
out their strategy. Am I a long-term investor? Am I a trader? Am I looking
for a tenbagger in the next year? Am I a high-risk
taker? Do I want some stability (in my portfolio)? Do I want to be in blue
I think those are very important questions and should be part of their
thinking. A couple of years ago I made the case that we were entering the
second phase of the bull market. This is the institutional phase, where
investors would be better off if they followed the money, so to speak, and
positioned themselves in companies and investments that institutions will come
The case I made was for companies that have established operations or assets
and are kind of "out of the woods" in terms of if they're going to
make it, but their full potential has not yet been realized. The article is
available on my website, and there's a flow chart there that shows money
flows the way I expect them to flow around. So, I think the midtiers or the up-and-coming producers or producers that
are expecting a bump in their production would perform well in the current
period. And I still hold that view.
The other strategy I employ is to find stories early, and then you either bet
on the team or the asset or both.
TGR: Would you like to talk about some of these that you like at this
point and tell us where they are in the hierarchy?
SR: For companies that are out of the woods and poised for significant
appreciation, I look at a company like SilverCrest Mines Inc. (SVL:TSX.V;
STVZF:OTCQX). It's a profitable silver and gold producer in
Mexico. The company has a decent share structure, plenty of cash and is
looking to double its production from the current operations. It just made a
brand new discovery where the first resource came out at 100 million ounces (Moz) of silver equivalent. Its target for the deposit is
200 Moz plus. That deposit alone should be valued
by the market at roughly the current market cap of the company today.
It seems that whatever the SilverCrest management
team touches turns into gold, so to speak. SilverCrest
went into El Salvador initially and made some discoveries. Ultimately things
did not work out in that country for political reasons. Then, it came to
Mexico, made a discovery and put a mine into production. Now, it has another
project and has made another discovery.
The same people had another company called Goldsource
Mines Inc. (GXS:TSX.V) that was operating in
Saskatchewan, and there they made a huge coal discovery. So, those are the
people that one should track closer than usual because they deliver. They
don't have big names; they don't speak on TV every week, but they do deliver.
I recently became a consultant to the company, though I have been following
and writing about the company for several years. I don't normally talk about
companies that I am involved with, but in this particular case, the upside of
the La Joya project can be spectacular.
Another company that I like these days is Huldra Silver Inc. (HDA:TSX.V). This is also an emerging
producer with a very high-grade silver project near Merritt, British
Columbia, a couple of hours drive east of Vancouver. This is an historic mine
that Huldra should have back in production some
time later this year. The company has a very attractive share structure,
around 35 million (M) shares. It trades around $1.30/share, which gives it
about a $45M market cap. Now, if it does get into production with the current
share structure, or anything close to it, and it hits the target of, say, 2 Moz annualized production, it holds tremendous potential
and the shares should appreciate several-fold over time.
TGR: Can it get there without too much dilution from here?
SR: I think it can; it did the financing for the current production
preparation with debt. I believe it has about a $10M facility, which it's
working through. Even if it did tap the equity market for additional
financing, I still believe there's plenty of upside there because it's very
close to production and the bulk of the money has been spent. It even has
some stockpiles of ore already that will be used to fine-tune the mill.
On the other end of the spectrum there are some of these junior exploration
companies. One that I've been recently looking at closer is Minaurum Gold Inc. (MGG:TSX.V). It's been around a couple of years, and the attractive thing about
this company is that it employs two of the top geologists in
Mexico—David Jones and Peter Megaw. These
people have a proven track record and no problem raising money. The stock is
trading around $0.40 with a market cap right now of about $16–17M. It
has about $4M in the bank, and it's going to be drilling some 11,000 meters
this year. With a company like this, a discovery is sort of a matter of time,
and I think it doesn't have to be all that long and could become a big story
TGR: There's a lot of action in silver in Mexico. Any more names you
SR: One company that investors should take another look at is Avino Silver & Gold Mines Ltd. (ASM:TSX.V; ASM:NYSE.A; GV6:FSE), which has been around for about three decades and only has about 27M
shares out. It has a mill and recently did a bulk sample worth over a few
million dollars and is getting ready to put its Avino
mine into production. It's just very attractive, trading at less than a $50M
market cap and ready to go into production sometime later this year. I think
the story is very compelling.
TGR: How about some of the bigger companies that have more established
SR: I like Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) a lot. I visited
Fortuna's newest mine in Oaxaca, Mexico, last year, and it's a fantastic
operation. Unfortunately, it seems to be having some trouble with the local
population not liking its presence there. As an operating company, I think
it's an excellent company. I like the management a lot; they're very good
operators. Its Caylloma mine in Peru has fantastic
production and cash flow. It was divested by a bigger silver company and
Fortuna turned it completely around. Assuming the local issues in Oaxaca will
be resolved, I think it's still undervalued.
Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) expects in excess of 4.5
Moz of silver production this year, and it's
certainly performed very well. It's not a cheap stock, but that doesn't mean
it's not going higher. I think it's done extremely well, and if it does
succeed in adding another producing asset to its portfolio, I think that's
going to make a big difference.
One of my favorites is First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE). I've known and followed
the company practically from inception. It's a company that I've been
pounding the table on in previous interviews. Now it's a $2 billion company
that trades around $20/share and it's probably going to get bigger. It has an
excellent pipeline of projects and it's expanding one of its mines (La Parilla) right now, which should increase its production
by about 50%. It's also building another operation called Del Toro, which
will be its highest grade mine and has at least one more sizable project in
the pipeline. It has plenty of cash and excellent management. That's how you
go from a penny stock to a $20/share stock. I don't see why it can't go much,
TGR: Anything else that you'd like to comment on?
SR: In the exploration space, where I like to get in early, there's a
company that I do have shares in. It's an Argentinean story called Netco Silver Inc. (NEI:TSX.V; NTCEF:OTCBB). Netco is a very cheap stock with
a good project that's advancing with some very good grades. The rest remains
to be seen, but it's still early.
There's also a company called Andover Ventures Inc. (AOX:TSX.V). It's a $0.50/share stock
with about 100M shares out. This is the type of situation that I like to be
involved in because it has tremendous assets. This company is the second
largest landholder in the state of Utah, where the largest landholder is the
TGR: How can it afford to keep up its assessment work every year?
SR: Well, Andover owns the land outright, not just the mineral rights,
and I think it did a great job putting together the projects. This company is
absolutely loaded with assets. The land package it controls in Utah hosted
something like 50-odd companies in the last cycle, and it has the entire land
package to itself. It also has a joint venture with Rio Tinto's (RIO:NYSE; RIO:ASX) Kennecott subsidiary and they're hunting
for elephants. Andover also has a major volcanic massive sulphide
(VMS) deposit in Alaska. The market cap is very cheap.
Now, I will say that the market has not been all that kind to the mineral
sector in general of late; so, there are a lot of cheap companies out there.
Sooner or later the market will have to pay up for assets like these. In the
case of something like Andover, at least the perceived geopolitical risk is
minimal because both of the assets are in the U.S.
TGR: Is there anything else you would like to mention or just leave
some parting thoughts?
SR: One company I should have mentioned is Esperanza Resources (EPZ:TSX.V), which is run by another one of those groups that whatever it touches, it
comes up with something good. Next time we can get into the reasons why I
like that company.
Generally speaking, though, with silver, we are probably somewhere midway
through the cycle and have another 10 years to go. Investors should
constantly revisit their reasons for being in this space and what exactly
they are looking to get from it. I think there's nothing to worry about in
the volatile price action. Silver is about the most volatile asset that you
can be in. Other than that, I think it is up and up from here.
TGR: That's a good, positive outlook, and I think you've given us some
good stocks to look at and research further. Thanks for speaking with us.
Sean Rakhimov launched his website, SilverStrategies.com, in 2004. His writing has appeared on such Internet portals as Le Metropole Café,
24hGold, 321gold, Kitco, Gold Seek, Gold Seiten and The Gold Report. He previously
designed financial systems for the investment banking business, learning
about options trading, securities lending, payments processing, clearing and
settlement, fixed income securities and margin transactions. Rakhimov is constantly looking for value opportunites in new and established stories.
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1) Zig Lambo of The
Gold Report conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The
Gold Report: SilverCrest Mines Inc., Avino Silver & Gold Mines Ltd., Fortuna Silver Mines
Inc., Endeavour Silver Corp. Streetwise Reports does not accept stock in
exchange for services.
3) Sean Rakhimov: I personally and/or my family own
shares of the following companies mentioned in this interview: Silvercrest Mines Inc., Huldra
Silver Inc., Andover Ventures Inc., Netco
Silver Inc. I personally and/or my family am paid by
the following companies mentioned in this interview: SilverCrest
Mines Inc. I was not paid by Streetwise Reports for participating in this