Friday, February 18, 2011

Exciting times for Silver & ASX Silver Plays

What an exciting couple of weeks we’ve had both for the price of Silver as well as Silver related stocks on the Australian Stock Exchange (and other global exchanges).

While the below chart is Silver priced in USD, we've seen very similar action in the AUD price given that the Australian Dollar has remained around parity with the US Dollar.

 
I have blogged about Australian pure Silver plays in the past. First in September 2010, where I briefly mentioned the 3 available (Link). At the time these stocks were priced a lot lower than they are now.

CCU was 27c and is now 85c (215% Rise)
SVL was 18.5c and is now 33c (78% Rise)
AYN was 3.7c and is now 4.7c (27% Rise)

I also wrote up more indepth blogs on CCU & SVL in the months following (both of which I held at the time and still hold):


Later in 2010 when ARD announced USN had made an offer on their Bullant Gold Mine I spoke about the potential for them to become Australia's 4th pure Silver play:


At the time of the above blog:

ARD was 19c and is now 23c (21% Rise)


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Cobar Consolidated Resources (CCU)

CCU has had an extraordinary run, coming out of a pullback to 50c over the last two weeks it has rallied hard and today saw a new all time high of 90c and closed at a respectable 85c. They are closing in on a finance deal to fund their plant construction and are expecting production to start at the end of this year. Recent comments from the company indicate they don’t want to hedge their Silver production so that investors can retain full exposure to the upside potential for the price of Silver:
Asked whether the company might hedge some of its silver given the strong silver price, Shard responded: We are getting close to finalising the terms of some borrowings and it is likely that that will require us to do some hedging, but how much and over what period is what were still working though at the moment, he said. If we take debt on, hedging is likely.

However, he refuted the notion as to whether the company should take on hedging even if it wasnt required, given the very strong silver price at the moment.

Why would we? he said. The silver price outperformed gold last year. We are not experts on the silver market but we read what others say (and) people are calling it to $100/oz. Why would we want to hedge away that upside for shareholders.
A recent broker recommendation may also have helped with the strong rise:


They provided an upside valuation for CCU of $1.14, using relatively conservative Silver prices (Silver to remain under $30). Here is the recommendation from the report:
OML initiates coverage of CCU with a Buy recommendation as we believe the company has the key ingredients to enable it to generate strong returns over the medium to long term. This will lead to significant share price upside. We believe a strong mid cap resource company – one that is not solely dependent upon commodity price (in this case silver) performance – can be established due to:
  • Its very capable geological, metallurgical and operational management.
  • Strong profitability and operating cashflow driven by good operational performance at the company’s initial mining operation at its Wonawinta silver mine.
  • Significant expansion and exploration potential for silver production at Wonawinta and more broadly in the Cobar district using its Wonawinta infrastructure.
  • Significant exploration potential in and around the Gundaroo prospect for silver and other commodities (zinc-lead-copper and gold).
  • The potential for additional exploration in other parts of its extensive 1,341km2 of strategic exploration holdings in the highly mineralised Cobar mining district.
  • A sensible financial base that will temporarily include relatively modest debt that is expected to be rapidly repaid and replaced by strong net cash balances as low cost production of silver occurs with a high cash margin.
  • Its ability to leverage its strong operating position, especially at Cobar, to take advantage of attractive corporate opportunities that may arise.

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Silver Mines (SVL)

After some consolidation in the low to mid 20s SVL has finally started to move higher and an announcement this morning sent the share price skyward.  SVL closed the day 16% higher than yesterday (closed the day at 33c, peaked intraday at 36c).

The announcement gave some direction around the potential the company sees in the Webbs Silver Project.
EXPLORATION TARGET
* Silver Mines is pleased to announce it has defined an exploration target of between 4.0 million and 7.0 million tonnes at 200-260 g/t silver for the Webbs Silver project.
* This target has the potential to contain between 26 - 57 Moz of silver.
* The exploration target includes the existing JORC compliant Inferred and Indicated Resources of 1.23Mt at 256g/t silver containing 10.14Moz1.
* An exploration target has not been determined for copper, lead and zinc grades known to occur in the resource.
This exploration target indicates SVL could potentially have a resource that is similar in size to CCUs currently.

Further to the above the announcement also provided an update on diamond drilling progress:
Silver Mines has recently completed 1,236m of diamond drilling in 11 holes at the Webbs project. The aim of the diamond program is to provide samples for metallurgical testwork, geotechnical data, provide additional assay data and improve the geological understanding of the deposit. Several previously drilled RC holes were twinned. Other holes were designed to intersect mineralisation relatively near surface and target larger gaps in the existing RC drill coverage.

All diamond holes intersected mineralisation and the Company is preparing a separate news release on the initial results of this program.
There is another 8500m RC drilling program scheduled to begin in March this year.

With so many results on the way it's hard to imagine SVL still being this cheap provided the news continues to flow steadily and the price of Silver holds up or increases.

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Argent Minerals (ARD)

Argent has been capped at 20c for sometime, following several attempts to break past this resistance level over the last couple of months. A large wall of shares at the 20c mark was taken out the other morning, so the share price has been able to rise and has posted an impressive gain today (12%), closing well above the previous resistance level. It’s hard to tell whether this enthusiastic interest in ARD is simply a carry on from interest in other Silver plays or whether we are seeing an influx of investors wishing to buy in prior to the USN allocation expected in early March (assuming shareholders vote for the proposal come the AGM).

Based on the rising channel seen in the 2 year chart (starting early 2009) I could see ARD rising to around 27c before it meets resistance. It may do this over the next 2 weeks leading into the date they go ex-USN allocation and then drop back down to around the 20c mark (as part of the current value of ARD's share price is built into the expectation of receiving the USN shares on around a 1 USN per 2 ARD basis).

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Alcyone Resources (AYN)

I sometimes get some questions around AYN. I am probably not the best to answer them as personally have never owned any shares in the company. The reason being that I have not been encouraged by the actions of management.

The first 10 weeks after listing there was basically no forth coming information (I would have expected transparency about what they were doing, given they were resurrecting the assets of a company that went into administration).

Early 2010 indication was they would be mining by 4th quarter 2010, now it looks like it will be 12 months later. At this stage CCU may very well beat them to it and they (CCU) are yet to even start constructing their plant.
 
The huge dilution recently was managed horrendously in my opinion, if I was a shareholder at the time I would have been aghast. $5m worth of new scrip was offered to existing shareholders (1 new share for every 5 held), with $11m  being offered to institutional buyers. Talk about a raw deal for the existing holders! Especially when SVL had recently raised cash at a much smaller discount to their share price and CCU had raised capital at a premium to theirs. The Silver market was hot and yet it seemed AYN management was unable to make use of this.

Also AYN has recently been slack about keeping share holders up to date with a resource upgrade that was expected months ago.

That's not to say there isn't value here, the chart looks close to breaking out and chances are with a continued rise in the price of Silver it's likely AYN will continue to do well, but you will need to work out whether this a Silver play worth holding for yourself.

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It's an exciting time for these junior Silver mining companies. There is the potential for them all to takeoff much like we saw recently with Rare Earth Element (REE) stocks. The daily trading of these stocks still seems to indicate that speculation is minimal, but with such few choices for stocks heavily exposed to the price of Silver it seems there is huge upside potential for these companies.

The short term direction of their share price is somewhat reliant on Silver steadying at these levels or climbing higher. There is what looks like a double top in Silver forming, often it seems the larger players in the precious metals markets will push around the price short term to make it appear as if a bearish scenario is about to play out. Will they scare out some longs by forcing in a what appears as a short term double top? Quite possibly. It's also worth remembering that the Silver peaks in both 2006 and 2008 ended in a double top with a significant correction following. I posted about this in a blog late last year (Link). So rather than a fake double top, we could also see a real one play out.

So many possibilities and we know Silver can be a volatile market, but those of us that have boarded and held through the wild swings have been well rewarded.


BB.
Disclosure: Position held in Silver, CCU, SVL & ARD. Not investment advice. Do your own research.

7 comments:

  1. "Early 2010 indication was they would be mining by 4th quarter 2010, now it looks like it will be 12 months later. At this stage CCU may very well beat them to it and they (CCU) are yet to even start constructing their plant. ...

    Also AYN has recently been slack about keeping share holders up to date with a resource upgrade that was expected months ago."

    The day of your post AYN put out an update:
    http://www.alcyone.com.au/images/alcyone---tewae.pdf

    ReplyDelete
  2. Just wondering how if you have an opinion of Elementos ELT? They are in Argentina and have intersected some serious silver.

    love to know :) as there doesn't appear to be many Silver plays at all on the ASX.

    cheers

    ReplyDelete
  3. ELT looks interesting benox. One of their tenements is very close to Troy Resource's Casposo project.

    ELT looks very tight on the sell side though, looks like you would have to jump through hoops to get a decent position at the moment. Generally I tend to stick with companies that have a resource which ELT doesn't currently have, but they have made it onto my watch list. Thanks for the tip.

    The number of stocks on the ASX heavily exposed to the price of Silver is very small and that is one of the reasons I am so heavily invested in CCU, SVL & ARD.

    Cheers

    BB.

    ReplyDelete
  4. Very informative post BB. Thankyou.

    Have you any interest in JML, they're a small player reviving an old mine in Victoria, as well as other things going on.

    Feb 11 saw them jump from .66 up to .85, and now trading in what's looking like a flag, waiting perhaps to breakout north or south. Now at .82.

    ReplyDelete
  5. Hey Shane, looks like they are predominantly a Copper/Zinc producer?

    I stick with companies who predominantly concentrate on Gold/Silver projects.

    Not to say that there is anything wrong with other commodities!

    Hope you've ridden that move in JML.

    Cheers

    BB.

    ReplyDelete
  6. What do you think of Silver Lake Resources (SLR)?

    Great site btw :)

    ReplyDelete
  7. Thanks G man.

    Re SLR, what’s not to like? If you haven’t already stumbled across it I did a short write up a few months ago here:

    http://www.bullionbaron.com/2011/01/silver-lake-resources-slr-resource.html

    It’s not currently part of my personal portfolio (I do have a small amount in my Super); I held a fairly large stake from 80c which I sold when it was around the $2.30 mark. The current pullback in SP in my opinion provides a great opportunity to buy a quality stock to hold for the long term. That said I am being very cautious about what I hold in the short term due to the end of QE2 as per my latest posts. Cheers, BB.

    ReplyDelete