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Continuing on its upward trend, silver investors are still maintaining a cautious optimism in the white metal.
By Adam Currie — Exclusive to Silver Investing News
Silver prices gained momentum last week, continuing January’s rally on the back of successful European bond auctions which helped alleviate concerns in the Eurozone.
Silver was among the top five performing commodities in January assisted by exceptionally low interest in the US, combined with quantitative easing in Europe, according to a monthly overview by FXstreet.
This price rally leading into last week was assisted by the fact that silver began the year at a relatively depressed level of $28.75 per ounce, having been very much out of favour during the latter half of 2011.
According to Ole S Hansen, Senior Commodity Strategist at Saxo Bank, silver will find resistance towards $36.50 per ounce which is the top of its current range as defined by the trend-line from the 2011 high.
The white metal closed up on Thursday trading at $33.90 per ounce in New York.
Caution is key
Last week investors in silver markets were already displaying more caution than was evident in 2011. With gold reaching all-time record highs in 2011, many began looking for alternative safe havens in precious metals.
According to David Rose, London-based global head of metals trading at HSBC, many of these participants opted for silver.
“There was a feeling that if you missed the gold rally, one could be persuaded that silver looked cheap in comparison and had a lot more room to catch up, which it did very quickly,” Rose said in a recent interview relating to financial risk management.
“Unfortunately it got caught up in a speculative bubble and the collapse that we saw after silver made it up to $49 took a lot of speculators out of the market. I don’t think they’ll be back for a while,” added Rose.
Increase in M&As forecast
In a recent interview with The Gold Report, Northern Securities analyst Matthew Zylstra suggested that the discrepancy between silver prices and mining company equities had grown considerably in 2012.
Zylstra went on to point out that the Philadelphia Gold and Silver Index – an index of 16 precious metals and mining companies traded on the Philadelphia Stock Exchange – is close to the lowest level it has been since the 2008 crisis relative to gold, and that his company expected this ratio to gradually work its way back to the average.
He also forecast that merger and acquisition (M&A) activity within the silver sector is set to increase as the metal’s price continues to rise, allowing for large- and mid-cap companies to acquire smaller players.
Company news
With the current surge in silver prices, mining companies are well poised to significantly boost revenues.
Fortuna Silver Mines Inc. (TSX: FVI) recently announced its 2011 production figures from its San Jose Mine in Mexico and Caylloma Mine in Peru. Mining operations performed strongly delivering the company’s fifth consecutive year of silver production growth.
Jorge Ganoza Durant, President, CEO, and Director, commented: “The San Jose Mine initiated operations at a rate of 1,000tonnes per day (tpd), and for 2012 we have an approved plan and budget to expand capacity to 1,500 tpd. This expansion will continue fuelling our low cost annual silver production growth into 2012 and 2013.”
A company press release commented that the company forecasts silver production to reach 3.7 million ounces in 2012.
Following on from the Silver Junior Miners to Consider in 2012 overview, Aurcana Corporation (TSXV:AUN) is well-placed to take advantage of any near- to mid-term price rallies as its Shafter mine in Texas prepares to enter commercial production.
If forecasts relating to the company’s second mine are accurate, the company will launch its way into the realm of a mid-tier producer by the end of the year, with an output of approximately 6 million ounces of silver forecast in 2013.
Having already produced 1.74 million ounces of silver in 2011 and with the Shafter mine set for production later this year, Aurcana is well-placed to become one of the fastest-growing silver producers over the next year.
Earlier this week, Wildcat Silver Corporation (TSX:WS) announced an updated mineral resource estimate for its Hermosa project in Santa Cruz, Arizona.
The updated mineral resource is comprised of an indicated resource of 101.4 million tonnes of 53.18 g/t silver for 171.3 million ounces of silver. Further, the estimate showed an inferred resource of 83.6 million tonnes of 36.42 g/t silver for 98.6 million ounces of silver.
The press release stated: “This represents a significant increase compared to the previous 2010 mineral resource estimate. The company has also identified and included in the revised resource a new silver-only zone which is amenable to standard cyanidation and Merrill Crowe recovery.”
Securities Disclosure: I, Adam Currie, hold no positions in any of the companies mentioned in this article.