Silver, and gold for that matter, are fine to invest directly in. But rarely are you going to see the same kinds of gains with physical as you would with miners.
You see, in mining leverage is key. The companies the mine for gold and silver certainly see revenue rise when metal prices do. But they can also see earnings rise even faster if their costs also fall.
Right now, with cheap oil and precious metals set to spike, this is a miner’s market.
Since silver is even likelier to see a massive spike than gold, there are two main things to look for: production and cost per ounce.
First, on the production side…
You might think a company like Pan American Silver Corp. (NASDAQ:PAAS) or First Majestic Silver Corp. (NYSE:AG) might be the place to find great silver production.
In truth, the largest primary silver miner in the world is Fresnillo PLC (OTC:FNLPF) (LSE:FRES.L). While others have operations spread across many countries and continents, Fresnillo operates primarily in Mexico.
Secondly, we need to look at costs.
Here, Fresnillo is also something of a marvel.
The most important figure to watch here is “all-in sustaining cost.” This figure just measures the estimated cost it will take to mine each ounce of metal over the lifetime of the mine.
This allows investors to compare apples to apples amongst the miners.
Fresnillo has amongst the lowest AISC’s in the business, especially at its major mines.
Here, we come to the meat of the argument. Fresnillo combines these two better than the rest of the industry.
Take a look at this slide from its own competitor’s (Pan American’s) investor presentation:
Notice those three massive circles on the right. The giant blue one is Pan American’s, as you can see. The other two – Fresnillo and Saucito – are Fresnillo’s.
That’s what’s key right now. Low AISC, as you can see on the left axis, and high production, noted on the bottom axis.
The sizes of the circles represent reserves. So, those two mines are also clearly well stocked with future production.
When looking for an alternative precious metal play as this rally continues to gain its feet, look toward companies like Fresnillo. Low costs and high production count far more than a name.
Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%
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