Top Silver Development Projects Offer Exposure to Rising Industrial Demand

Описание: Interview with Glenn Jessome, President & CEO of Silver Tiger Metals Inc., and Ian Harris, President & CEO of Outcrop Silver & Gold Corp.

Recording date: 30th May 2024

Silver Poised to Shine as Supply Deficit Meets Industrial Demand Surge
Silver prices have rallied over the past year, breaking above $30 per ounce as demand from industrial users and investors accelerates. The fundamentals driving this rally appear sustainable, making silver an attractive option for investors seeking precious metals exposure.

At the heart of the bull case for silver is a growing supply deficit. Annual demand for silver is projected to reach 1.2 billion ounces, while total supply from mining and recycling is estimated at just 800 million ounces, leaving a shortfall of 400 million ounces. This structural imbalance seems likely to persist and possibly worsen in the coming years.

Demand for silver is surging, driven primarily by its growing use in industrial applications. Silver is a critical component in photovoltaic (PV) cells used in solar panels, and this sector's demand for the metal has grown by over 60% to 200 million ounces per year. With the transition to renewable energy accelerating globally, solar-related demand for silver is expected to continue rising. Newer solar technologies like heterojunction cells are even more silver-intensive.

Other key sources of industrial demand include the automotive sector, where silver's use is doubling as electric vehicles gain market share, and electronics, where silver's superior electrical conductivity makes it essential for everything from 5G networks to data centers. Even at much higher prices, these industrial users are unlikely to substitute away from silver, as it is often a small portion of their overall costs but critical to performance.

On the supply side, the outlook is increasingly constrained. Only about 30% of annual silver production comes from primary silver mines, with the remainder as a byproduct of base metals and gold mining. The number of primary silver mines globally is projected to decline from 51 currently to just 38 by 2028. Discovering and developing new, economically viable silver deposits is extremely challenging. According to Glenn Jessome, CEO of Silver Tiger Metals, the odds of an early-stage exploration project becoming a producing mine are less than 1 in 10,000.

The geopolitical backdrop also appears to be shifting in a more favorable direction for silver mining. Latin America is a key producing region, particularly Mexico and countries in South America. In Mexico, a new government is expected to adopt more pro-mining policies after elections in June. Meanwhile, in South America, the growing precedent of left-leaning leaders successfully implementing pro-mining agendas to drive growth is improving the industry's long-term prospects.
For investors looking to gain exposure to the silver rally, high-grade development projects in stable jurisdictions may offer the most attractive risk/reward. Attributes to look for include: strong project economics at current prices, experienced management teams with track records of success, and the potential to significantly expand resources through exploration. Companies with these features are best positioned to bring new production online to meet rising demand.

In a bull market for silver, producers tend to trade at high valuations, often approaching $1 billion or more, despite relatively limited output. Development-stage projects at earlier phases can offer similar exposure with much greater upside potential. As an example, Silver Tiger Metals is advancing a project with robust economics including an after-tax NPV of $287 million at $22 silver, which is now projected to reach $450 million at spot prices. Its market cap is just over $100 million, implying plenty of scope for appreciation as the company moves toward production.

While the price of silver can be volatile, the current rally appears well-supported by fundamental supply and demand factors. Industrial demand is likely to continue growing, while supply increases will be constrained by the naturally limited number of viable silver deposits. This points to the potential for an ongoing structural deficit in the silver market, which should support rising prices over time. Investors can participate by carefully selecting high-quality silver development projects with strong management teams and assets in attractive jurisdictions.
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