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In the current issues of the Silver
Analyst, we have been analyzing and ranking 63 stocks, which have been known,
perceived or touted as silver plays in the last 4 years. Clearly some come
out as losers while others look like being winners for the next surge in
silver prices. One stock caught my attention recently for technical and
fundamental reasons and that is Apex Silver Mines Ltd.
Fundamentally, Apex Silver is a silver
and zinc company that has a 65% ownership in the potentially 4th largest
silver mine in the world at Cristobal in Bolivia. They plan to commence
production in mid to late 2007 with a projected average five-year production
rate of 16.9 million ounces of silver and 225,000 tonnes of zinc.
The respective cash cost prices are
$1.97 per silver ounce and $0.51 per zinc pound, which compares to the
current market rate of $13.50 per silver ounce and $1.76 per zinc pound.
At those projected levels, silver would
generate $228 million revenues and zinc would see $873 million. However
calculated on base profit, silver would see $195 million profit and zinc
would have $620 million. Not including the smaller lead projections, Apex
Silver is about a 32% silver company that compares well to other so-called
silver mining companies.
We also note that the negative noises
emanating from the Bolivian government seemed to have died down and become
reassuring though such a matter as government whim must always be monitored.
From a technical point of view our
newsletter looked at how Apex ranked amongst our 63 stocks. The study was
based on how these stocks had actually outperformed and underperformed silver
at key points in the last four years of the silver bull. Apex Silver was
ranked 40th out of 63, which at first sight does not seem very promising. Our
first chart shows how Apex has performed compared to silver (silver price is
in red).
Evidently there is a degree of
correlation between silver and Apex though its connection to other metals
such as zinc and lead will partly skew this
relationship. But how has Apex actually performed against silver in terms of
leveraged return against the gray metal? After all, this is why investors buy
silver mining shares. The next graph answers that question as we chart the
rolling four-year leverage that Apex returned against silver. The main thing
you need to know from this chart is that a value below 1.00 means silver is
outperforming Apex and a value above 1.00 means that Apex is outperforming
silver.
Clearly since about April 2005, Apex has
been outperformed by silver to the extent that a low of 0.300 was reached in
March this year. A value of 0.300 means that Apex only returned about a third
what one could have gained holding silver bullion over the previous four
years. The question to ask now is whether it can get any worse for Apex or
has an important bottom been reached?
Take a look at the first chart again. Note
how in each of the last two silver spikes in April 2004 and May 2006, Apex
both times suddenly surged into life to almost double in price.
However, each time we saw it crash to
earth again. In my opinion another surge in Apex is on the cards. The reason
seems to be that Apex is always a latecomer to the silver bull party. That is
because less favored stocks tend to get in late but
can enjoy sudden surges in that brief span before silver corrects again. The
essential thing is to get out before that silver correction occurs.
The present hour may not be the exact
time to jump on silver stocks due to certain medium term bearish factors, but
Apex Silver Mining looks like a stock which could quickly rise from our
current ranking of 40 on our silver stock ranking report.
By : Roland Watson
The Silver Analyst
http://silveranalyst.blogspot.com
Further
analysis and comment on the silver market can be read in the subscriber-only
Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can obtain the first issue free. Comments and questions
are also invited via email to silveranalysis@yahoo.co.uk.
Information
contained herein is obtained from sources believed to be reliable, but its accuracy
cannot be guaranteed. It is not intended to constitute individual investment
advice and is not designed to meet your personal financial situation. The
opinions expressed herein are those of the author and are subject to change
without notice. The information herein may become outdated and there is no
obligation to update any such information. The author, 24hGold, entities in
which they have an interest, family and associates may from time to time have
positions in the securities or commodities discussed. No part of this
publication can be reproduced without the written consent of the author.
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