NEW YORK (
) -- While
had a stellar year in 2010,
were even hotter.
Silver prices ended the year up 80% compared with the yellow metal's 28% rally. Many analysts and silver bugs anticipate an even stronger showing in 2011. David Morgan, founder of
, predicts silver prices between $30 and $40 with a possible break to $45 an ounce.
Rob McEwen, CEO of
, says if the silver-to-gold ratio adjusts to a previously achieved relationship, silver prices would have to move much higher.
When both metals were at their previous highs in 1980 -- $50 for silver and $850 for gold -- it took 17 ounces of silver to buy one ounce of gold. At today's prices, the ratio is 46:1. McEwen argues that "if you moved to 30:1, you would have a considerable move." Silver prices would spike to $46 an ounce.
Granted, CEOs of mining companies have a vested interest in high metals prices, but Phillips Baker, CEO of
, cites silver's industrial uses for why he is so bullish on the metal.
"You're going to see people continuing to move towards the consumption of the products that use silver as their economies develop ... It's a path the world is on that's not going to stop," Baker says.
Silver's industrial uses are nothing new but some of the products it is being used for are like the iPad and solar panels.
"Those sorts of things people didn't envision even existing and that market has just grown, taken off," says Baker. "We've seen in the last year the growth in that type of use increase about 18%."
Like gold, there are many ways to buy silver: the physical metal, physically backed exchange-traded funds like the
ETFS Physical Silver
iShares Silver Trust
, silver mining stocks and silver stock ETFs.
Buying mining stocks can be a more risky but more profitable way to
. Shares often come with as much as a 3:1 leverage to the spot price but leverage works both ways and typically miners lead on the way down and on the way up.
Nevertheless, silver stocks had a killer year in 2010.
Global X Silver Miners ETF
, a basket of silver stocks, has returned 88.88% since its inception on April 20, while silver prices rose 71% in the same time period.
The ETF comes with a 0.65% fee but gives investors exposure to a plethora of silver companies. The five largest U.S. traded companies are
Pan American Silver
, Hecla Mining, and
Coeur d'Alene Mines
So which makes the better investment: the ETF or the individual stocks? Here's a look at the basic financials on the five largest holdings in SIL that are publicly traded in the U.S., how the stocks have performed of late, and Wall Street's opinion of where the shares are headed.
represents 12.15% of SIL, or 1.2 million shares worth $45.3 million.
. It takes silver a company doesn't want, buys it for $4 an ounce and then sells it at spot price. The seller gets money to finance other projects whereas Silver Wheaton gets silver without the operational risk and with huge profit margins.
Not all companies like to finance their operations through royalties because they wind up giving production away, but gold companies, which would have sold silver as a byproduct anyway, have keyed into this type of funding. Silver Wheaton currently has 16 silver purchase agreements and two precious metals agreements.
Silver Wheaton delivers the cash upfront and then has the right to buy the agreed upon silver at a fixed cost. The company tries to stay in safe areas like the Americas and Australia. Some of its bigger partners include
For 2010, CEO Peter Barnes is expecting 23 million ounces of silver production, and if the company doesn't grow over the next three years production will still hit 40 million ounces.
Silver Wheaton has been raking in the cash and taking advantage of recent mergers and acquisition activity in the gold sector. If a company wants to buy a smaller one but needs cash upfront selling its silver byproduct becomes an attractive solution.
Silver Wheaton reported record third-quarter net earnings of 20 cents a share, up from 11 cents a year earlier. Silver equivalent production was 5.9 million ounces, a 41% increase, and sales totaled 4.7 million ounces, a 2% jump.
Silver Wheaton paid $3.98 for an ounce of silver and $300 for an ounce of gold. Its cash costs were just slightly higher at $4.09 an ounce and its cash operating margin was $15.72 an ounce.
At of the end of the third quarter, Silver Wheaton had $255 million in cash and $400 million of credit under its bank debt facility. The company has $85.7 million in long-term bank debt and $120.3 million in long-term silver interest payments.
Silver Wheaton also has a $200 million non-revolving term loan and a $400 million revolving term loan with the former requiring quarterly payments of $7 million plus interest.
The company pays no dividend, but according to
is unlikely to face financial difficulties over the short-term.
has a buy rating on the stock.
Silver Wheaton currently has 11 buy ratings and five holds with an average price target of $41.90. The stock trades at a price-to-earnings ratio of 60.11, a premium to its peers. Shares returned 163.72% in 2010.
Pan American Silver
represents 11.58% of SIL, or 1 million shares worth $43.2 million.
Pan American Silver has seven operating mines in the Americas and Bolivia. At the end of 2009, the time period with the most recent reserve estimates available, Pan American had proven and probable reserves of 40.6 million tons or 1.3 trillion ounces.
The company's exploration budget for 2010 was $23.6 million as the company actively explored existing operations and surrounding land areas. Its two main projects are Brownfield and Greenfield. The focus on the former will be on reserve replacement and drilling 89,000 meters to examine known deposits; Greenfield's operations will focus on new discoveries as well as 94,000 meters of drilling.
Pan American reported third-quarter net income of $28.8 million, or 27 cents a share, up 66% from a year earlier. Silver production was 6.2 million ounces, down slightly from a year earlier, due to lower silver grades at its Peruvian mines. The company did announce record sales of $161.3 million due to a higher quantity of silver, zinc and lead which offset a lower amount of gold and copper. Gold production was 21,277 ounces.
Cash costs for silver were $6.08 an ounce, higher than expected due to stronger local currencies and higher operating costs. Pan American was still able to lock in near record cash flow of $50.7 million, or 47 cents a share. Pan American says it's on track to produce 23.4 million ounces of silver in 2010 at cash costs of $5.90.
As of the end of the third quarter, Pan American had net working capital of $360.5 million and cash and short-term investments of $288.4 million. The company has $21.05 million in total debt, up $20 million from a year earlier.
The company pays a dividend of 5 cents a share, and, according to
, can cover any short-term cash needs.
has a buy rating on the stock.
Pan American Silver currently has nine buy ratings, three holds and two sells with an average price target of $45.44. The stock trades at a P/E ratio of 44.01, well above its peers. Shares returned 74.56% in 2010.
represents 5.78% of SIL, or 2 million shares worth $21.6 million.
. In the third quarter, the company produced 2.7 million ounces of silver at a negative cash cost of $1.01 an ounce, helped by byproduct credits.
Hecla has two working silver mines: Greens Creek in Alaska and Lucky Friday in Idaho, which produced 1.9 million and 0.8 million ounces of silver, respectively, in the third quarter. Hecla also has two development projects in Colorado and Mexico.
The company expects to produce 10 million to 11 million ounces of silver in 2010 with a total cash cost of negative 50 cents.
In the third quarter, Hecla Mining earned $19.79 million, or 6 cents a share. Net sales grew 21% from a year earlier to $115.85 million.
As of the third quarter, Hecla Mining had $216.58 million in cash and cash equivalents and $5.9 million in long-term debt, down 86% from a year earlier.
Its net cash from operating activities was $41.9 million, up 30% from the same period a year earlier.
has a buy rating on the stock and says the company is very liquid and is unlikely to face financial difficulties over the short term.
Hecla Mining currently has three buy ratings, seven holds and one sell with an average price target of $10.72. The stock trades at a premium to its peers with a P/E ratio of 38.38. Shares returned 84.3% in 2010.
Coeur D'Alene Mines
represents 4.69% of SIL, or 640,253 shares worth $17.5 million.
. For 2010, the company is expecting production from its silver mine San Bartolome; its newest operation, the Palmarejo silver and gold mine; and its pure gold mine Kensington.
The company is hoping to produce 17.3 million ounces of silver and 170,000 of gold at cash costs of $4 and $490, respectively. Its Kensington gold mine in Alaska recently came into production making the company 50:50 in terms of gold and silver.
China National Gold
, China's largest gold producer, bought half of the concentrates at Kensington. The mine should produce 50,000 ounces of gold in 2010 and average 125,000 ounces of annual gold production over a 12.5-year mine life.
In the third quarter, the first in which all three of Coeur's mines were producing, the company reported a net loss of $22.63 million, or 26 cents a share. CEO Dennis Wheeler says despite gangbuster sales Coeur can report a loss due to reporting requirements and mark-to-market adjustments with regard to a royalty the company has with
Coeur produced 4.3 million ounces of silver and 47,514 ounces of gold, a 2.3% and 105% increase, respectively, from a year earlier.
Coeur saw record sales of $118.6 million. The company sold silver at $18.87 an ounce and gold for $1,229 an ounce.
As of the third quarter, Coeur had $32.8 million in cash, cash equivalents and short-term investments. Total debt sunk 14% from the same period a year earlier and currently stands at $214.47 million.
has a hold rating on the stock and says Coeur has deteriorating cash flow and that financial problems might develop in the near term.
Coeur currently has five buy ratings, four holds and one sell on its stock with an average price target of $29.90. Shares are trading at a forward-looking P/E ratio of 13.32, well below the industry average. Shares returned 53.82% in 2010.
Silver Standard Resources
represents 4.11% of SIL, or 543,448 shares worth $15.3 million.
Silver Standard is a new silver producer with 15 exploration and development projects in the Americas and Australia. Its Pirquitas mine in Argentina achieved production in December 2009, a first for Silver Standard, bringing the company from the development to production stage.
Once the mine reaches full production, the mine will produce an average of 8 million to 10 million ounces of silver annually. Production for 2010 is expected to be between 6.3 million and 6.5 million ounces of silver at total cash costs of $17-$17.50 an ounce. As production ramps up, cash costs will fall.
Silver Standard has proven and probable silver reserves of 291.9 million ounces and 0.2 million ounces of gold.
In the third quarter, Silver Standard lost $7.5 million, or 10 cents a share, wider than a year earlier. Net sales grew to $41.56 million from zero a year earlier. The company produced 1.9 million ounces of silver in the third quarter at a $16.94 total cash cost.
As of the third quarter, Silver Standard had $55.36 million in cash and cash equivalents with $16.28 million in total debt, slightly higher from a year earlier. The company pays no dividend but according to
, can cover short-term cash needs.
has a sell rating on the stock.
Of the six ratings on the stock, three are buys and three are holds with an average price target of $30.28. The stock trades at a forward-looking P/E ratio of 40.49, well below the industry average of 67.12. Shares returned 28.17% for 2010.
On inception, these were the top five publicly traded silver stocks in the U.S. Since then the fund has shuffled allocations to swap in First Majestic Silver(AG) - Get Report and Silvercorp Metal(SVM) - Get Report in lieu of Coeur and Silver Standard. For purposes of this breakdown, I used the top 5 publicly traded stocks at inception
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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.