Today In Silver

Over at Metal Augmentor we recently prepared an updated mid-tier silver producer report in PDF format. Here it is: Mid-Tier Silver Producer Report June 2010 PDF.

We reach basically the same conclusion as in our initial reports — Fortuna Silver and First Majestic get top honors although there is a case to be made for Silver Standard and several of the other companies depending on what you are looking for in a silver producer other than fundamental value. I will note that yesterday Fortuna and First Majestic were top performers among the silver producers along with U.S. Silver, which our report identified as having the greatest leverage to higher silver prices. Coincidence? I think not.

Our report is unlike anything else out there since it is comparative and allows silver investors to analyze a number of different fundamental and valuation measures on a head-to-head basis. Even a venerable and respected analysis such as John Doody’s Gold Stock Analyst looks like doodling with crayons compared to our effort. Previously we published a mid-tier gold report that identified New Gold as an undervalued standout. The company’s chart over the past six months tells the story: our approach works.

Soon we are going to be adding several smaller juniors (Great Panther, Excellon, Impact, Aurcana, etc.) as well as some larger companies (Fresnillo, Silver Wheaton) in an updated silver producer report that will be available to Metal Augmentor subscribers. We are also in the process of updating the mid-tier gold producer report as well as preparing a junior gold producer report over the next few weeks. These reports alone are easily worth ten times more than the measly $107 cost of a one year subscription to Metal Augmentor.

The PDF format makes the silver producer report easy to send around, which we encourage. Once again, here is the report: Mid-Tier Silver Producer Report June 2010 PDF.

silverax Gold/Silver Shares Mid-Tier Silver Producer Report

Many of you know that I have been following Exeter Resources as an important gold (and to a lesser extent silver) discovery play for almost 2 years now and I wanted to provide an update on my recent thinking. In summary, I have accumulated a very large core position in this stock but I feel that the next several months are going to offer some high probability trading opportunities and I have therefore transferred the shares to my trading portfolio. I have been and will be selling some of my position, looking to buy back at a later date. Some details follow.

Buying this stock during the terrible market conditions of late last year was a no-brainer based on the likely size of its Caspiche gold-copper porphyry discovery. Many “experts” question the economics of this project (as do I) but there is no question about its eventual size; it will be very large. My thinking was that as long as Caspiche was growing by leaps and bounds then at some point the market has to pay attention. There are also the bonanza grade gold and silver results from drilling at the Cerro Moro project in Argentina that would keep the market’s attention.

Well, now the market has paid attention and Exeter has run to a high of about $3.50 (XRA on AMEX) and C$4.40 (XRC on Vancouver Exchange), a gain of more than 200% since last November. The shares are currently about 10-15% off their highs which is still very good for purposes of taking some profits, which I have.

Near-term drivers for the share price include:

• Further stepout drill results from the Caspiche project (I expect these to be good but not as good as the recent hole #32 grading 0.9g/t gold and 0.33% copper over 1200 meters).
• Initial resource at Cerro Moro (based on the grades the market already expects this to be very good and I don’t expect any surprises).
• Approximately 12 million shares that will be free-trading in about 3 months from the recent C$30 million private placement.
• An updated resource for Caspiche that incorporates recent drilling including hole #32.
• Announcement of feasibility for the nearby similar Cerro Casale deposit owned by Kinross and Barrick.

There are both risks and opportunities in these future developments but in general I would say that the upside has largely been rationalized by the market already whereas the downside risks (at least one of which is significant, the possibility that Cerro Casale may not get a production go-ahead) are not yet on investors’ horizon. That provides an opportunity for trading the shares.

One major consideration that I have mentioned in the past but it bears repeating is that the value of Caspiche (as well as the nearby Cerro Casale deposit) is quite sensitive to copper prices. At $3-4 copper these types of projects can be very profitable but at $1.50 copper they are marginal at best. On the other hand, if you believe both copper and gold are going much higher, Exeter would probably be a very good way to play that hunch.

There is also the matter of the multi-billion dollar construction cost of mines at Cerro Casale or Caspiche– in today’s environment it would be hard to find anybody who will throw that kind of money at a project that has marginal economics at marginal copper prices. As a growing discovery, this hardly matters in the short term given that Exeter has already indicated that it plans to sell Caspiche to a major, but the eventual interest in the project and the offer price will matter at some point in terms of Exeter’s valuation. Exeter currently sports a fully-diluted market cap over $200 million and that is pretty darn good for an exploration company.

One generic risk that should concern investors little in the case of Exeter is that it will run out of money in the foreseeable future. Management has demonstrated that it can run both the financial ship and the stock market game shrewdly and strategically. This combined with Exeter’s exploration aptitude is a good reason to believe things will be looking up and up for the company in the future. Therefore, even though I have removed the shares from my core portfolio and will be trading them in the months ahead, I still view the company as one of the better gold and silver exploration opportunities out there. There is even the possibility that Exeter will use its relatively strong share price to acquire some attractive, undervalued projects that management thinks it could enhance using its own exploration approach.

The only thing that bothers me about my Exeter trade timing is that Doug Casey has recently told his subscribers to take profits on Exeter. As a result, there could very well be a good contrarian turnaround trade in the weeks ahead that has Exeter breaking higher. This is certainly something to watch for and I will be looking to trade it if the opportunity should arise.

silverax Gold/Silver Shares