Is it Time for a Silver Price Turnaround?

- January 26th, 2016

Featuring VRIC comments from Keith Neumeyer, Phillips S. Baker, Jr., Randy Smallwood and Ross Beaty.

This year’s Vancouver Resource Investment Conference (VRIC) just wrapped up, and for the Investing News Network, one highlight was Monday’s silver producers panel. 
The panel was led by Peter Spina of GoldSeek.com and SilverSeek.com, and featured four big names in the silver industry: Ross Beaty, chairman of Pan American Silver (TSX:PAA,NASDAQ:PAAS); Randy Smallwood, president and CEO of Silver Wheaton (TSX:SLW,NYSE:SLW); Keith Neumeyer, president and CEO of First Majestic Silver (TSX:FR,NYSE:AG); and Phillips S. Baker, Jr., president and CEO of Hecla Mining (NYSE:HL).
Topics covered over the course of the 30-minute panel were diverse, but Spina started off by simply asking the panelists how the market volatility seen these past few weeks is affecting the silver price and silver miners. Overall, the participants emphasized that the current market activity is nothing new — the market is cyclical and it currently happens to be at a rocky point in that cycle.
Neumeyer added some color to that oft-repeated sentiment, commenting, “I believe 2016 is the beginning of the next cycle.” He said that he recently had nine meetings, two with traditional resource funds and the rest with generalist funds. While the resource funds have unsurprisingly been “devastated” the last few years, the generalist funds have “made an absolute fortune” — Neumeyer sees these cash-laden generalist funds coming into the market and driving a new cycle.


Of course, the market isn’t better yet, and Spina also asked the panelists to share what keeps them up at night. He got some interesting answers, with Neumeyer admitting, “I would never have predicted what’s gone on in this market — I thought we had a low at $20.” As a result, a big challenge for him has been re-engineering First Majestic for success.
On a different note, Smallwood said that because Silver Wheaton is a streaming company, his biggest concern is whether the company is making the right investments — in other words, “focusing on assets that will survive through low commodity prices.” Meanwhile, Baker highlighted mine safety and productivity as issues that are often on his mind.
Productivity came up again during the panel when Spina asked participants about the long-term consequences of having a silver price that’s lower than miners’ all-in sustaining costs. Put more bluntly, how long can silver miners continue in an environment like that?
Beaty gave a fairly positive answer to that question, noting that because “mines die hard,” it’s much better to keep a mine going even if you’re “just barely breaking even.” He also quipped that perhaps the mines that actually do get shut down when the markets are bad “maybe shouldn’t have been built in the first place.”

For his part, Neumeyer reiterated his belief that a new market cycle will start soon. He noted that while First Majestic is preparing for lower silver prices, he “think[s] we’ve seen the bottom.”
Spina also asked about M&A in the silver space. While there has certainly been some consolidation in the last half a year or so, with the most recent being Kootenay Silver’s (TSXV:KTN) deal to buy Northair Silver (TSXV:INM), there hasn’t been as much as might be expected given how tough it is in the market right now.
The panelists as a whole said that a key problem is that there simply aren’t a lot of good assets out there at the moment. That’s partially due to the fact that companies have less money to spend on exploration at the moment, and partially because so much silver is produced as a by-product of other metals. Essentially, companies interested in picking up projects focused wholly on silver are largely out of luck.
In closing, Spina asked the question that audience members were probably most anxious to see answered: what’s in store for the silver price?
Unsurprisingly, the speakers were a little reticent to give clear-cut answers, but their responses were nevertheless reassuring. Baker suggested the price is “already past the bottom,” the market just hasn’t realized it yet. For his part, Smallwood said he is “more bullish on silver than on gold,” while Beaty simply said he’s currently buying more shares of Pan American Silver. Neumeyer noted that the gold/silver ratio is currently at an unsustainable 80:1, but a ratio of 10:1 is not unattainable.
Stay tuned for more coverage of VRIC, and in the meantime check out the Investing News Network’s Sunday and Monday overviews of the event.

 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Related reading: 
VRIC 2016, Day 1: Notes from the Floor
VRIC 2016, Day 2: Notes from the Floor

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