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Ten silver stocks and ETF outperforming the majority

A grouping of ten silver stocks (of some 50), plus the silver ETF, have broken out in a front pack, leaving others lagging some way behind.

Author: Barry Sergeant

Posted: Wednesday , 07 Nov 2007

JOHANNESBURG -

Despite silver breaking out in the past couple of trading days to change hands at multi-generational highs, the average listed silver stock is trading at more than 20% off its 12-month high. Similar trend and trading patterns are reflected in listed gold stocks, and in both cases, various fingers point to the growing influence of ETFs.

The official launch of the silver ETF in May 2006 cast a pall over the silver stocks sector. Up to that point, silver stocks were indeed trading at premiums to both North American gold and base metal stocks. Before the end of 2006, the ETF had attracted more than 120m ounces of silver, about 50% more than analysts had anticipated.

True to form, the iShares Silver Trust ETF (AMEX: SLV, $153.89) has broken through record highs in current trading sessions, confirming early analysis that a good number of investors prefer silver metal alone. Such an investment avoids the multiplicity of risks inherent in allocating cash directly into a silver mining stock, which, in turn, have to offer specific characteristics to continue attracting investors.

Stock price trading patterns show that about ten listed silver stocks have broken into a front pack, characterized by the phenomenon of making fresh price highs in sympathy with silver metal. The list includes the world's biggest silver producer, Penoles (MEX: PNSLF, P237.15 a share), along with other heavyweights such as Hecla Mining (HL, $11.67), Hochschild Mining (HOC.L, £4.87), Pan American Silver (PAAS, $37.25), Silver Wheaton (SLW, $18.20), and emerging producer Silver Standard (SSRI, $47.91).

This exclusive group is joined, in terms of performance, by relative lightweights Excellon Resources (EXN.V, C$1.98), Fortuna Silver Mines (FVI.V, C$3.85), and Impact Silver (IPT.V, C$2.01) - all three are producers - and just a single developer, Orko Silver (OK.V, C$2.04). Among heavyweights, Coeur d'Alene (CDE, $4.59) stands out as underperforming its peer group.

Silver has come a long way in the past few years. The silver price averaged $11.55/oz in 2006, some 58% higher than 2005 levels; this year, the increase to date stands at 24%, setting the metal up for the seventh consecutive year of gains. The increase, led by rising investment demand, has recently seen the silver price successively record its highest levels since 1980, with a break through $16/oz during most recent trading sessions.

Silver's ongoing successes cannot be understated. For many years, the metal's fundamentals have toiled under the uncertainty of initial and remaining levels of above-ground silver supply held, mostly, by China, Russia, and India. This story perked up during the past decade, given a significant drawdown of above-ground stockpiles over the period to meet the annual excess of global demand over new mine supply.

In recent months, there have been signs of investors once again returning to silver stocks. The iShares Silver Trust ETF has registered a relatively modest increase in terms of metal purchased, with an increase from 121m ounces at end-2006, to 138m ounces this year, based on latest figures. By the same token, there are more recent indications that the big heavyweight silver stocks are mopping up a good chunk of investor capital allocated to silver, whether metal or stocks.

Selected silver stocks

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