A silver linings playbook

Every cloud has a silver lining and Dollar Bill reckons silver IS that silver lining right now.

Once considered a poor man’s gold, silver is now poised to take its place in the sun, having quietly tracked the gold price skywards in recent times. The latest silver player to kick the door in at the ASX, Sun Silver, provided a poignant example last week when its 20c IPO hit the boards at 50c before marching to a 75c high.

Dollar Bill can’t walk into any of his favourite cigar lounges right now without hearing about another investment tip focused on gold or uranium. And talk of copper has also recently started echoing down the smoke-filled hallways.

Sure, I get that – uranium is probably here to stay now, the copper market seems to have finally stirred and the gold price has gone berserk.

But what of silver? Its price has also gone nuts in the past couple of years as the poor, precious cousin rode shotgun with gold from a low of about US$19 (AU$28.50) an ounce in September 2022 to breach US$32 (AU$48) an ounce recently – marking a 68 per cent price hike.

The traditional rule of thumb for punters was generally that 75 grams of silver is roughly the dollar equivalent to about one gram of gold. Incredibly, that remains the case today despite the gold price running from about US$1600 (AU$2401) an ounce to more than $US2400 (AU$3602) an ounce recently to hit all-time highs.

Curiously, the gold price caught fire about the same time as silver back in September/October 2022.

So, Dollar Bill wants to know why no one is talking silver?

Uranium is soaring on the back of the requirements for net-zero and the multitude of reactors scheduled to come online. With copper, it’s all about the world’s obsession with electric vehicles (EVs) and the nervousness surrounding the impending end-of-life for some of the world’s biggest copper mines.

And gold prices are being driven skywards mostly by central bank purchases as a hedge against inflation, US dollar exposure and geopolitical uncertainty. However, unlike gold, silver has superior and almost unending real-world modern applications.

With a few minor exceptions such as heat-shielding in rocketry and some medical applications, gold is principally about storing and preserving wealth. Silver, however, is ubiquitous.

While sterling silver jewellery comes to mind when thinking about silver (although Dollar Bill prefers platinum), silver is riding a wave of 21st century industrial demand given its use in mega-markets including semiconductors and LED chips. Perhaps even more notably, silver is a key component in the manufacture of solar panels – a market that is riding the insatiable wave of sentiment around renewable energy.

There is about 20g of silver in every solar panel produced. Without getting too technical, solar panels require silver powder, which is turned into paste and then loaded into a silicon wafer and then generates electricity from the sun.

The International Energy Agency (IEA) recently released a paper predicting solar will be the No.1 source of renewables by 2027. Remarkably, that same paper suggests solar will also outdo coal and gas in this same timeframe in the supply of global energy needs.

The London Bullion Market Association (LBMA), a pre-eminent authority on silver prices and bullion more generally, says the supply and demand outlook for silver is “exceptionally strong”. In its latest report, the LBMA is quoted as saying, “Global silver demand is forecast to hit 1.2 billion ounces in 2024”.

That would be the second-highest level on record, surpassed only in 2022 at 1.24 billion ounces, according to the Royal Mint. In fact, silver has been in a structural deficit since 2021 and another large deficit of 176 million ounces is also forecast for this year.

The LBMA report goes on to say, “Deficits are expected for years to come”. See for yourself:

Also consider the most recent Bank of America Global Research Report on silver, which surveyed the 13 biggest primary silver miners. According to the report, collectively, they all see silver mine supply as flat at about 800 million ounces a year for the next several years.

Then consider that mine supply (for silver) peaked in 2016 at 900 million ounces and hasn’t come close since. Against that, the same report highlights that demand is 20 per cent higher today despite flat supply.

The IEA also says silver demand across industry has quadrupled to 200 million ounces from 50 million ounces in the past decade, with photovoltaic (solar) uses now requiring between 50 per cent and 150 per cent more silver per panel than 10 years ago.

All of which is enough to make Dollar Bill swipe right on silver (or is it left, I can’t recall?).

Obviously, this message was not lost on punters who backed Sun Silver in its ASX debut last week. In what has been one of the most barren of times for new listings, Sun Silver swept onto the market almost by stealth, raising $13 million in barely a blink at 20c per share.

While it does have a gold resource, managing director Gerard O’Donovan says silver in Nevada is its key focus.

And why not?

Sun Silver’s stock jumped 275 per cent within days of listing, causing Dollar Bill to fire off an angry email to his broker who was obviously on another extended holiday. Nice one!

Dollar Bill caught up with O’Donovan and asked him what he put the fever down to. In the first instance, he was keen to point out that the company intentionally priced the IPO valuation well below what he (and the board) thought was fair value – providing one of the great understatements of the year.

But interestingly, he also highlighted the critical importance of silver in the green energy revolution saying, “It is used in every solar panel, making up to 23 per cent of a PV cell’s material cost.”

He then went on to say, “On the ASX, there are less than a handful of companies with primary silver assets, so the Australian market is generally unaware. In China, over 25 per cent of their electricity grid is from solar and they manufacture over 90 per cent of solar components. The Chinese are well aware of silver being an industrial metal and are the largest consumer of silver globally.”

And it seems that almost every electronic device available these days includes a button or switch containing silver. The range of medical applications that require “the poor man’s metal” is also huge – from limiting bacterial spread through to its application in treating burns and ulcers.

But for now, Dollar Bill reckons it’s all about solar.

According to industry experts Wood Mackenzie, 32.4 gigawatts of direct solar energy capacity was added across the US last year, representing a staggering 50 per cent increase on 2022. The same report suggests solar deployments will quadruple across the US in the next decade.

An additional five gigawatts of solar power will be added in the next year alone, with growth rates expected to run at 19 per cent for commercial, 15 per cent for community and 26 per cent for utility across the board.

Sun Silver’s ASX debut was clearly a jolt for many and in the subsequent days from its listing, there were a couple of other micro-cap silver plays that also suddenly jumped out of the blocks. Iltani Resources, with its eye-catching silver-lead-zinc Orient project in Queensland, vaulted 75 per cent the day after Sun Silver’s listing, despite no fresh news.

Eastern Metals also boasts some interesting silver prospects and with a market cap under $5 million, it also spiked some 60 per cent in the days after Sun Silver’s listing – again on no new news. Silver-focused Investigator Resources has nearly doubled to 6c this year.

Lode Resources also has an intriguing silver asset at Webbs Consol worth having a look at.

The larger-cap silver plays have equally been enjoying their time in the spotlight. The $300 million market-capped Silver Mines has run 53 per cent higher from 13c to 20c this year.

Then there’s Adriatic Metals, which now boasts a $1.2 billion market cap underpinned by a serious silver resource, among others. Its share price shot from about $3 to a $4.77 high this year, increasing the company’s market cap by some $500 million in less than six months.

Dollar Bill loves running the numbers – particularly in between bottles – and right now he is skulking around those handful of listed silver players both at home and abroad. My peanut to your pound, silver is worth keeping an eye on.

If only my broker would return my call….

*****

Dollar Bill (sometimes known as Bill McConnell) is an associate director at Bulls N’ Bears and a former derivatives trader. He is also a former financial journalist and a raconteur of note. This column is for informational and entertainment purposes only and nothing contained within it constitutes financial advice – in fact Dollar Bill specifically recommends that you seek advice from someone other than him!