The Twittersphere and other social media outlets are on fire with silver commentary.
Notable precious metals bull Peter Schiff has been banging the drum for the value in miners – noting that silver stocks are underperforming while silver is 3x higher than it was this time last year.
I have nothing against Peter Schiff – he obviously has had some prescient calls (he called the great financial crisis months before it happened), and he’s been a precious metals bull for a long time.
If you had bought gold and silver when he first suggested it, you’ve done very well.
But Schiff is not a mining analyst.
Saying “gold and silver mining stocks” is too general of a statement.
Not all gold and silver stocks are “ridiculously cheap,” either.
As I frequently point out, most mining stocks are not worth your time or money.
It may very well be true that a rising tide in metals prices manages to float all boats (even those full of holes) but that’s no way to be a steward of your capital.
You don’t need to throw hail marys to have success as a precious metals investor, despite what some people might think.
Silver stocks in particular require special care.
And while I believe a handful of silver stocks are going to absolutely skyrocket (some have already started) you need to consider two MAJOR issues with most silver companies.
For one, most of them don’t mine very much silver. There are very few pure plays in the market. Here’s a chart showing the top 9 “silver” companies by % of revenue earned from silver.
You’ll notice, there’s only ONE company in this chart that earns all of its revenue from silver.
The other 8 earn less than 70% of their revenues from silver. The 9th ranked company earns almost no revenue from silver – but it is one of the companies that is widely talked about in the silver market. Until recently, it even had silver in the name…
Turns out, you don’t need to mine any silver in order to call yourself a silver company. Armchair analysts don’t tend to look very much further than the name of a company. If it says silver in the name, it might not even have any silver, let alone mine it!
These companies may end up soaring, and some of them might be solid precious metals mining stocks you want to own, but with only two or three exceptions: it’s not because of their silver mining production!
But there’s a 2nd reason why most silver companies aren’t worth your time.
It’s a big one.
It’s because silver mining just isn’t as profitable as gold mining – generally speaking. With gold prices 50X higher than gold prices, the only way silver mining is competitive is with 50X richer deposits. So if a gold miner can be profitable with mineralization at 1 gram/tonne, then a silver miner needs to have mineralization of at least 50 grams/tonne.
If silver drops even slightly in price, a mine that’s profitable at 50 grams/tonne becomes a money loser. So you really need much richer deposits. Consider it takes 10 years to build a mine, and silver was well under $30 until a year ago… that means you’d need 150 grams/tonne silver to even think about building a mine.
There just aren’t that many silver deposits like that out there.
If you don’t own the best silver companies with the best silver deposits, then ANY dip in silver’s price becomes an anchor that drags the profitability back below the surface.
I know this is not the exciting pro-silver, bullish take you want to hear… but it’s the truth about silver you need to pay attention to.
Have a great weekend.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio