Investors walk a silver tightrope.Robin Bromby From: The...

Investors walk a silver tightrope.

Robin Bromby From: The Australian December 21, 2010

SEVERAL young brokers were overheard at a listed exploration company's Christmas party last week, getting very excited about silver. It seems that silver is their new fad, gold now seeming such a very old story.

The white metal closed in New York overnight at $US29.36 an ounce - and it is now well over 30 per cent up on what it fetched at the beginning of October.

Silver has also closed the gap on gold. The gold/silver ratio, which has been around 65 (that is, an ounce of gold being worth 65 times more than an ounce of silver) is now around or under 50.

A report from BNP Paribas suggests that silver is a rather tricky investment proposition at the moment. Investment demand for silver has been very strong over the past two months with physical exchange-traded funds increasing their holdings by 11.1 million ounces of the white metal. Sales for 2010 of the American Silver Eagle Bullion coins will set a new record, having past last year's 32 million sales by the end of November. The Royal Canadian Mint says its silver coin sales are up 50 per cent on 2009.

Here's the tightrope on which silver investors walk: silver is now being used as geared play on gold, says BNP. But it's price could be hit harder than gold's should there be a switch in investor sentiment toward precious metals. "In particular, any sign on further monetary tightening in Asia, and particularly (in) China, could act as a trigger for market corrections," the report says.

But BNP is, on balance, bullish. It sees expectations for a higher gold price in 2011 and 2012, and a tight positive correlation between the two metals, as supporting a positive silver forecast.

Local investors are getting almost spoiled for choice when it comes to silver plays.

There's Silver Mines which has been attracting attention, and last week Alcyone Resources raised $11.2 million through a share placement which will be used to advance silver production at its Texas project in Queensland. This sum will be topped up to $16.6m once the company's rights issue is completed. (However, readers who have not yet looked at our comments in Monday's column about the flood of capital raisings should perhaps take the time to read that.)

Earlier this month, Argent Minerals sold off its Bullant gold project and declared itself transformed into "a pure silver play". It hopes to make a decision to mine its Kempfield silver project in NSW by this time next year.

Now we have news from two other players.

Cloncurry Metals this morning reported what it called "more exciting silver results" from its El Rodeo project in Mexico. Channelling and sampling produced a 1.1m section at 1580 grams/tonne silver along with 0.91 per cent copper, and 2.1m at 688g/t silver and 0.64 per cent copper. It says further work is needed to understand the various vein occurrences.

Cortona Resources said it has made a significant silver discovery near its Dargues Reef gold project in NSW. Just 500m from the gold project (which is targeted to produced 50,000oz of gold a year) drilling hit a 1m section with 687g/t (or 22oz) of silver, 0.22 per cent copper and 1.8 per cent lead.

Just reminding readers that in next Monday's print edition, Pure Speculation will be publishing a selection of readers' investment hits and misses. Tell us your successes and stories of woe in resources stocks.

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http://www.theaustralian.com.au/business/mining-energy/