Two Silver Stocks to Watch
RBC Capital Markets last week maintained its outlook of global silver demand outpacing new mine supply this year. RBC analysts forecast average silver price at $15 per ounce for 2010 and beyond, compared to $14.65 per ounce during 2009. Some analysts estimate silver prices to average as high as $20 per ounce during 2010.
Over the past month, silver prices have increased by around 16% on speculation of escalating sovereign-debt concerns boosting demand for the metal as an alternative to currencies. In addition, continuing record-low U.S. interest rates and government spending weighed heavily on the dollar, prompting purchases of precious metals.
Over the past year, stocks of silver producers have been performing well on the back of investment inflows into silver and other precious metals. Total one-year returns from
Hecla Mining
(HL) - Get Report
,
Endeavour Silver
(EXK) - Get Report
and
Alexco Resource
(AXU) - Get Report
stand at 344%, 187%, and 154%, respectively.
Total silver supply is expected to increase only fractionally year on year during 2010, with the increase in mine production likely to be offset by lower scrap and government sales. On the other hand, higher demand from industrial and investment segments is forecast to more than offset a continuing decline in photographic demand. The industrial segment accounts for around half of the world's total silver demand. In addition to the supply-demand deficit, a weak dollar will likely boost prices for precious metals.
Based on the current outlook, we expect
Silver Wheaton
(SLW)
and
Pan American Silver
(PAAS) - Get Report
to outperform their mining peers during 2010.
Silver Wheaton
Silver Wheaton, which was established in 2004, aggressively expanded its mining capacity and produced around 16.2 million ounces of silver during 2009. The company expects to increase annual production at a CAGR of 23.7% to produce 38 million ounces of silver by 2013.
During a conference call with analysts Thursday, CEO Peter Barnes mentioned that the acquisition of Silverstone Resources and production from
Barrick Gold
(ABX)
will help the company produce 22.2 million ounces of silver during 2010, an increase of more than 35% compared to the output during 2009.
Since the beginning of 2010, the company has acquired the Rosemount project in Arizona and 12.5% of the life of silver production from the Navidad project. Following the announcement of the Navidad deal, the stock gained 2.5% on Feb. 25.
The company currently has stakes in three of the world's five largest silver deposits and is a top growth story among the North American silver producers, "a considerable achievement for a company started just over five years ago," according to Barnes. He said "Navidad has the potential to increase our long-term silver production by approximately 2 million ounces per annum."
Silver Wheaton pays no income taxes, as all of its silver trading activities are executed by its wholly owned subsidiary based out of the Cayman Islands.
According to analysts polled by
Bloomberg
, the company is set to report earnings of 73 cents per share for 2010 and 90 cents per share for 2011, up from 38 cents in 2009. The stock has 11 buy, two hold and no sell ratings, according to TheStreet's Analyst ratings guide.
Pan American Silver
On Jan. 26, Pan American Silver completed the acquisition of Aquiline Resources, giving it access to the world's largest undeveloped silver deposits -- Navidad, with an estimated 632 million ounces of silver. During 2010, the company has plans to spend $16.5 million for the development and exploration of Navidad and $9 million for a feasibility study of La Preciosa, in addition to investments of $43.6 million across eight other properties.
Announcing the company's fourth-quarter earnings on Feb. 15, President and CEO Geoff Burns mentioned that the company's objective for 2010 was to maximize the value and production of existing assets, while advancing both the Navidad and La Preciosa projects. He said that "with the acquisition of Navidad and joint venture on La Preciosa, we have positioned the company for a record transformational growth in 2012 and 2013."
Analysts polled by
Bloomberg
estimate Pan American Silver to report earnings of $1.14 per share for 2010 and $1.33 per share for 2011, up from 71 cents in 2009. The stock has six buy, three hold and two sell ratings, according to TheStreet's Analyst ratings guide.









