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Silver industry trends could lead to higher prices

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Silver industry trends could lead to higher prices in 2018
Silver-focused equities can offer leverage

By Jason Smith
March 27, 2018

Looking Northwesterly at the La Cigarra Silver Project, located in Chihuahua State, Mexico.

Recent supply and demand trends for silver could create an environment for higher silver prices in 2018.

Supply and demand analyses of silver are complicated by its history as a monetary metal, which often causes its price to move in sympathy with gold.

Still, there were some trends from the Silver Institute’s World Silver Survey 2017 that are worth watching.

Silver production from mining was down 0.6 per cent to 885.8 million ounces due to a decrease in lead/zinc and gold mining, of which silver is often a by-product. Of note is the fact that this decrease is the first production decline since 2002. Another trend was a decline in scrap silver return, which was off one per cent to 139.7 million ounces.

On the demand side, while industrial silver fabrication dropped one per cent to 561.9 million ounces, photovoltaic demand surged 34 per cent in 2016, driven by a 49 per cent increase in solar panel installations. Overall demand was tempered by a nine per cent decrease in jewelry fabrication and a 17 per cent decrease in silverware fabrication.

Moving into 2018, silver has largely been range bound for the past year between US$15.00 and US$18.00 an ounce. Given its propensity to move with gold, silver bugs will likely keep their eyes on the gold market for cues on silver prices.

Rising inflation in the U.S. and around the globe could send the prices of both metals higher in 2018.

In that environment, companies with large silver resources, like Kootenay Silver Inc. (TSX.V: KTN; OTC: KOOYF), have a history of providing significant leverage on rising silver prices.

A Large Global Silver Resource

According to two resource calculations Kootenay has currently completed on its projects, the company controls 144 million ounces of measured and indicated silver-equivalent resources and 35.7 million ounces of inferred silver-equivalent resources. La Negra represents additional Silver resources once a resource is calculated.

Those resources come from silver projects in Mexico — its 100 per cent owned La Cigarra property in Chihuahua State and the Promontorio and La Negra projects in Sonora State. Those latter projects are also 100 per cent owned by Kootenay, but they are subject to a 75 per cent earn-in by Pan American Silver. Kootenay would retain a 25 per cent interest in them carried through to production.

Kootenay also has established a joint venture with Aztec Minerals on its Cervantes project in Sonora and with Antofagasta on its Silver Fox project in British Columbia.

A Flagship Project in a Storied Silver District

Without question, though, the company’s flagship project is La Cigarra.

The Parral region where the project is situated has produced over 800 million ounces of silver since the 16th century. La Cigarra boasts 51.5 million ounces of measured and indicated silver and 11.5 million ounces of inferred silver.

And it remains open in all directions. Kootenay Silver CEO James McDonald commented, “It’s a mineral-rich area, particularly when you’re on trend — and we are. We expect the resource we have will grow, both at depth and along strike.”

The company recently embarked on a 5,000-metre drilling program to test the La Borracha zone northwest of the deposit area, the 104-Vein zone at the southern end of the resource, and the Nogalera gold trend located still farther south.

The southern portion of this program will test the continuity of the mineralization at La Cigarra, which appears to trend toward the San Francisco de Oro and Santa Barbara mines. These historic operations have generated 500 million ounces of silver over the past 500 years and are currently home to several active mines, with reserves surpassing 200 million ounces and growing.

Partnering with Pan American Silver

In addition to news flow from its work on La Cigarra, Kootenay will also benefit from the work Pan American Silver is planning for its Promontorio and La Negra projects. Pan American can earn the aforementioned 75 per cent interest in those projects by spending US$16 million — US$8 million in exploration and US$8 million in cash payments to Kootenay.

The Promontorio project includes a pit-constrained resource and an underground resource. The pit-constrained resource consists of 92.0 million ounces of measured and indicated silver equivalent material and 24.3 million ounces of inferred silver equivalent material. The underground target contains 400,000 measured and indicated silver-equivalent ounces and 2.5 million inferred silver-equivalent ounces.

The claims that encompass Promontorio and La Negra cover a 6.5-kilometre-by-15-kilometre area.

Currently no 43-101 resource calculation has been prepared on La Negra. A total of 87 drill holes, drilled by both Kootenay and Pan American Silver have intercepted this target. Kootenay is confident that a potential open pittable, high-grade, 43-101 silver resources will be calculated on La Negra in the near future.

Up to Four Drilling Programs in 2018

Kootenay Silver Inc.’s (TSXV: KTN) fortunes in the early part of 2018 will hinge on the results from the drilling at La Cigarra.

“That’s the number one focus,” said McDonald. “If we hit high grades in this current round of drilling, it would be very good news.”

Between the La Cigarra news flow, news from up to three other projects, and the possibility of an upward swing in precious metals prices, share price catalysts abound for Kootenay Silver.


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