Great Panther Silver: Why 2014 Looks Brighter

Source: http://www.flickr.com/photos/sirqitous/

Source: http://www.flickr.com/photos/sirqitous/

There are several reasons why silver is a good buy at current levels and there are several good companies one can consider buying. In this article, I will outline a few reasons silver is a good long-term buy as well as discuss operational highlights from Great Panther Silver, one of my top picks in the space for the next three years that provides leveraged upside to silver prices.

Why Silver Should Head Higher

Silver is both a precious and industrial metal. It is currently priced at just over $20 an ounce and seems to have a solid floor of support around the $18.50 per ounce level. Megatons of silver are consumed in industrial processes, and although sometimes recyclable, silver is often discarded into landfills, never to be recovered. Aside from silver being a precious metal, it also has many industrial applications and therefore, will always have demand, especially when the global economy comes fully out of recession. Common ways silver is utilized include:

  1. Nanotechnology
  2. Currency; coins and bullion
  3. Jewelry
  4. Photography
  5. Silverware; utensils, cutlery
  6. Dentistry
  7. Electronics, mirrors and optics
  8. Textiles
  9. Musical instruments
  10. Medical devices and instruments

Silver, as opposed to gold, has real-world everyday uses. It’s one of the most conductive metals out there and a key part of many electronics and batteries. It remains in high demand for film photography applications, even in a digital age. Silver even has antibacterial qualities, making it an important element of surgical tools and other medical devices.

Running Out of Silver?

Silver is commonly utilized in industrial processes, have been intentionally designed not to consume gold and at the high prices gold has commanded for decades, it is nearly all recycled. It is said that 99 percent of all gold ever mined is still in existence above ground. For these reasons, silver stockpiles as a percentage of all silver ever mined is so much smaller than gold stockpiles as a percentage of all gold ever mined.

Ted Butler is quoted as saying this, 15 years ago. “At the end of World War II, total known stocks of silver amounted to ten billion ounces (with the US government holding 4 billion ounces of that total amount). At that time, we were just entering an era of unprecedented global economic expansion that has lasted to the present. In this era, silver was consumed in a variety of vital modern applications at a phenomenal rate. Today, known stocks of silver have shrunk over 95 percent, to maybe a half a billion ounces. The nine and a half billion ounce draw down in total silver inventory, was the result of the persistent shortfall between supply and demand, which continues to this day. Not coincidentally, the current 200 million-ounce annual deficit in silver mirrors the long-term trend line average. This continuing deficit is remarkable in that there has been decent growth in world production of silver over the past 50 years, but obviously not enough to satisfy the surge in industrial demand.”

I believe this summation of this issue is sound. Demand for silver is unprecedented, not just for precious metal investment, but in industry — particularly in technology. In smartphones alone, over $1 billion worth of silver is utilized annually. Add a few extra billion dollars for all of the computers, tablets and televisions sold each year. Now think about all of the other industries using silver (jewelry, dentistry, nanotechnology etc). It is in finite supply with ever increasing demand. Eventually, this needs to normalize, and when it does, silver prices stand to benefit.

Who is Great Panther Silver?

Great Panther Silver is primarily a silver mining and exploration company. Great Panther Silver’s operational activities are currently focused on the mining of precious and base metals from its wholly owned properties in Mexico. Great Panther Silver is also pursuing acquisition opportunities throughout Latin America to add a third mine to its portfolio of properties. Great Panther Silver has two primary mining properties, the Topia mine and the Guanajuato mine. Great Panther Silver also owns a development stage property, San Ignacio, which is approximately 20 kilometers from its Guanajuato processing plant, and an exploration stage property, Santa Rosa, which is located approximately 15 kilometers northeast of Guanajuato.

Great Panther Silver it has a 100 percent interest in the El Horcon Silver/Gold Project in Jalisco State. El Horcon covers 7,908 hectares in 17 contiguous mining concessions and is located 60 kilometers northwest of Great Panther Silver’s Guanajuato Mine Complex. One advantage of the close proximity is that it is within trucking distance of the Cata Processing Plant. Great Panther Silver’s CEO Robert Archer acknowledged this, saying that it “has excellent potential to be a satellite mine for our Guanajuato Operations.”

Let’s Talk 2013 Numbers

Great Panther Silver’s ore processed increased 23 percent over 2012 to a record 283,608 tons. Great Panther Silver achieved record metal production of 2,840,845 silver equivalent ounces (or, Ag eq oz), which was an increase of 19 percent over 2012 and a new annual record. Actual silver production rose 10 percent to a record 1,711,215 oz. Furthermore, gold production increased 44 percent to a record 15,714 gold ounces. The fourth quarter was strong for Great Panther Silver compared to Q4 2012. Ore processed increased 3 percent to 69,601 tons while total metal production increased 14 percent to 763,881 Ag eq oz. Actual silver production in the quarter rose 7 percent to a record 484,936 oz while gold production increased a whopping 37 percent to 3,880 ounces. Table 1 has the details of the quarter over quarter and year over year performance.

President and CEO Robert Archer had this to say, “We are pleased to report strong growth and record metal production for 2013 in addition to a strong fourth quarter with record silver production. Consolidated metal production from our two operations exceeded our production guidance for the year by 14 percent. Silver grades continued to improve in the fourth-quarter as a result of maintaining strong grade control and a focus on mining higher grade areas. I would like to congratulate our operations teams at Guanajuato and Topia for delivering exceptional results. While the industry continues to deal with a challenging metal price environment, continued improvements in efficiencies, grade control and cost reductions at our operations, in addition to the expected commencement of production at San Ignacio, provide an encouraging growth outlook for Great Panther in 2014.”

Screen Shot 2014-01-14 at 3.55.29 PM

Silver equivalent ounces for 2013 were established in November 2012 using prices of $28 per oz, $1,680 per oz (60:1 ratio), $0.85 per lb and $0.85 per lb for silver, gold, lead & zinc, respectively, and applied to the recovered metal content of the concentrates that were produced by the two operations.

2014 Outlook

I am very pleased with Great Panther Silver’s outlook for 2014. The company sees overall metal production for 2014 increasing gradually through the year as their San Ignacio project comes on stream. The project is expected to start production in the first half of 2014 at a rate of about 100 tons per day, ramping up to approximately 250 tons per day by year-end. Production will remain steady at the flagship Guanajuato Mine Complex and the reliable Topia Mine. In fact the Great Panther Silver expects to increase overall production by approximately 10 percent in 2014, to 3.1 to 3.2 million Ag eq oz. silver and gold prices dropped significantly in 2013, Great Panther Silver has heightened its focus on improving and strengthening the operational efficiency of its mines. Cash cost guidance will be provided in the company’s year-end earnings release, expected in early March.

Conclusion

Great Panther Silver had a knockout year production wise. The year 2014 is projected to be even stronger as new projects come on line. With the selloff and gold and silver pressuring margins severely, the company has taken appropriate steps to ensure profitability. I believe silver and gold prices will rise from current levels over the next few years. Great Panther Silver is an excellent levered play. There are risks as costs continue to climb and silver under $20 an ounce is tough to sustain.

However, I have found that Great Panther Silver tends to move 2-3X in the direction of the movements in silver. Silver is down about 1.25 percent today and despite this fantastic report from Great Panther Silver, it is down over 5 percent. At $0.74 per share, the company is offering a fantastic risk reward ratio for a stock that has historically traded north of $2.00. With management taking proper steps, production numbers increasing while costs are under control, Great Panther Silver is rated as a top pick for 2014 in the metals space.

Disclosure: I own physical silver and gold. I own over 10 stocks in the precious metals space and have held a small position (<1 percent of total portfolio) since 2012. I plan to add to the position should Great Panther Silver hit $0.68 per share.

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