The price of silver rose by about $1/ounce on Thursday to nearly $21/ounce as it appears that the bear market is coming to an end. Short sellers are nervous and even many long-term bulls are short-term bearish. This is an ideal situation for contrarians to buy, especially in the case of a secular bull market that has taken a few years off such as the silver market.
We also saw the shares of silver mining companies soar. The Global X Silver Miners ETF (NYSEARCA:SIL), which holds shares in companies that predominantly mine silver, rose over 6 percent. However, a few companies saw phenomenal gains as investors seem to be getting ready for the next leg up in this long term secular bull market. Rather than take profits in these names, investors should look at them closely and understand why they rose. They could be among the biggest winners in the next leg higher in silver, and you’ll want to use any weakness to accumulate them.
1. Golden Minerals (NYSEMKT:AUMN)
Golden Minerals was the big winner of the day, with shares skyrocketing 45 percent and doubling over the past two days. Investors should keep in mind that this has also been one of the worst performing silver miners over the past couple of years. The company’s shares plummeted twice in 2013. The first time came after management released an updated resource estimate for its Velardena project, which showed that the resource size is actually about 2/3 smaller than initially thought. The second plunge came when the company suspended mining operations at Velardena as metal prices were too low. However, yesterday the company announced that it would be restarting the mine and that sent shares soaring. The rise in the silver price Thursday only adds fuel to the fire. Before avoiding the stock simply because it has doubled over the past two days, keep in mind that it was down over 95 percent from its peak and that while we may see a consolidation, if the bull market in silver is back then Golden Minerals can rise substantially.
2. Avino Gold and Silver Mines (NYSEMKT:ASM)
Avino Gold and Silver Mines is a tiny company but it has produced tremendous gains. On Thursday, shares rose by 16 percent, and the stock has more than doubled for the year. A couple of things have gone right to make this happen, and they lead me to believe that there is further room to run. The first is that the company has been able to generate a profit despite the low silver price. This has been a major problem for silver miners, who have generally been losing money. However, Avino has a high grade and efficient operation that has generated cash-flow. The second is that the company is on track to start up its Avino Mine, which it shut down back in 2000 due to the low silver price. Investors are confident that the company will be able to produce a tremendous amount of silver considering its tiny $80 million market capitalization, and this is why shares are soaring.
3. Fortuna Silver Mines (NYSE:FSM)
Fortuna Silver Mines rose by over 15 percent on Thursday. This took place on no real news, although the company stands out as a growing company with low production costs and positive cash-flow. Furthermore, the company has been expanding its resource as of late, although this news has been out for a while. Whatever the reason may be the shares are at a multi-year high and they still appear to be inexpensive considering the company’s growth. While the first two companies I mention are very small and not for everybody, investors who are looking for something a little bit lower risk should consider Fortuna Silver.
Disclosure: Ben Kramer-Miller is long Golden Minerals, Avino Gold and Silver Mines, and Fortuna Silver.