Silver Miners: The Other Precious Metal

Silver and silver miners offer some of the best appreciation opportunities in the near future.  There are many stocks and ETF’s to chose from, however there are very few pure silver plays.  Silver is mined mostly as a by-product, therefore the mining companies usually have more than one product.  Most common metals mined with silver are copper, nickel, gold, zinc, and lead.  Currently Mexico is the world’s largest producer.

Let’s start by taking a look at silver and silver miners as a group.  If your timing was good there was substantial upside to your investment, especially if you invested in the top silver miners. iShares Silver Trust (SLV) represents investing in the metal and the miners ETF Global x Silver Miners (SIL) are shown on the Yahoo chart below.

I am not a fan of buying mining stocks with an ETF as a good mining stock will usually outperform the indices.  And the miners as a group have underperformed the metal in 2011.   However, a concern is diversity, so buy more than one stock when investing.

Starting With the Elephants in the Room

Freeport-McMoRan Copper & Gold (FCX) is primarily a gold and copper miner with mines in North and South America.  It’s market cap is by far the biggest of the miners I will cover at 42 Billion.  The on-line data shows they have 325 million ounces of proven silver.  I am not a fan of extra large companies.  They usually have little room to increase their profitability.  FCX delivered a -16% for the past year.  The other big miner is Silver Wheaton Corp. (SLW).  This is one big company that I love.  It has agreements with 14 miners to deliver silver.  Some are located in less than desirable countries, but unlike other companies they only purchase the silver, not mine it.  SLW only delivered a 3% gain last year, but I feel this company will rebound in the coming year.  It was up almost 40% at one point in 2011 and I feel it could repeat.

Silver Miner Smaller Caps

The rest of the miners have smaller caps.  Pan American Silver Corp. (PAAS) is still large at $2.5 Billion market cap.  I have written about this company in the past as I am definitely not a fan.  They have mines in countries that have not been friendly to them and their shares show it.

Silvercorp Metals Inc. (SVM) is another favorite even though the returns for last year (-39%) were ugly.   At one point their stock price dropped by more than 20% due to an anonymous letter that accused them of fraud, an allegation they denied.  There was a speculation that someone wanted the stock price to drop so they could purchase it cheap.  That is exactly what happened – the stock rebounded.

Another stock I like is First Majestic Silver Corp. (AG).  It has a market cap of 2 Billion with it’s mines in Mexico.  This is one of my top favorites- and last year it was up 45%.  It is one of the 2 pure silver plays, along with Endeavour Silver Corp. (EXK), that I am reviewing.  EXK has 2 mines in Mexico and a market cap of $935 Million.  It was up a giant 58% for the year.  These 2 stocks are a must own.

A past favorite is Hecla (HL).  They had a dismal year, down 45%.  They disposed their holdings in Venezuela and it hurt them.  Possibly they could rebound in the future, but they are not a buy in my opinion at the moment.

Yes, There is a Fast Lane

For those who like to live in the fast lane there are 2 ETF’s that can offer a thrill ride.  Pro Shares Ultra Silver (AGQ) is a 2X play on the price of silver.  They use swaps, futures and options to achieve their results.  If you think silver is tanking you can purchase Pro Shares Ultra Short Silver (ZSL) that gives you 2X leverage to the down side.

Goldfinger (aka Silverfinger)