Globe editors have posted this research report with permission of Dundee Capital Markets. This should not be construed as an endorsement of the report’s recommendations. For more on The Globe’s disclaimers please read here. The following text is excerpted from the report:
Following our recent initiation on the silver sector, we have been conducting meetings with institutional investors to review our silver coverage universe. With silver prices down 36 per cent year-to-date, concerns around the profitability of the companies in our coverage universe have come into focus. Additionally, investors are asking questions regarding silver's 'staying-power' as an investment/safe-haven metal.
Within this report we address three frequently asked questions:
1) Q: Who will survive this lower price environment?
A: To answer this we turn to our "all-in" cash cost forecasts (shown within). In general, we prefer the companies in our coverage universe with the lowest expected cost-structures going forward, including SLW and THO.
2) Q: When will companies start changing mine plans and/or potentially closing mines?
A: Based on our conversations with management teams over the past week, we believe most companies are beginning to make plans for potentially significant changes. In order from most to least difficult to execute, we believe the following changes are in the works: a) lower discretionary capex, b) lower exploration, c) lower G&A, d) revised mine plans, e) putting mines on 'care and maintenance'.
3) Q: How is investment demand for silver tracking?
A: To answer this question we recap speculative net-long positioning in COMEX silver futures and also look at physically backed silver ETFs. As of the latest data available, silver futures remain near the lowest level on record at a net-long position of 26Mozs (vs. peak of 488Mozs) and, conversely, silver ETFs remain near the highest level on record at 603Mozs. We typically view futures positioning as a gauge of 'fast-money' sentiment and ETFs as a gauge of 'long-term' investors.
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