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Golden Minerals (AMEX:AUMN) is one of the best performing stocks thus far this year, with shares up an incredible 125 percent in two short months. I think this outperformance can continue should the prices of gold and silver continue to rise, although before explaining why I think we need to take a step back and look at the bigger picture.

In 2010 – 2011, Golden Minerals was flying high, trading above $20/share at one point. In June of 2011, the company purchased ECU Silver for roughly $300 million, and investors were under the impression that the company had a producing mine at Velardena with over 300 million silver equivalent ounces.

However, the company’s fortunes quickly turned. When it reevaluated the Velardena project, the new results showed that the mine had considerably less metal than management initially thought: less than 100 million ounces of silver overall, and about 68 million ounces of silver equivalents at Velardena. Nevertheless, the company still had ample silver to produce at Velardena, and it was consequently able to produce at an annualized rate of nearly 930,000 silver equivalent ounces. However, high production costs and crashing silver and gold prices lead to another blow to the company — it ceased production on June 19.

So, now the company has no production and less metal than initially thought. No wonder the share price tanked. Fortunately for contrarian investors, the negativity reached an extreme level with the shares trading at one point below the company’s cash position. The share price rebound in the beginning of 2014 is simply a reversal of this extreme negativity — there was simply no one left to sell and deep value investors with a high tolerance for risk began stepping in.

Now, the stock trades with a market capitalization of $54 million with $23 million worth of cash and equivalents on its balance sheet. Velardena is still not producing, but with gold and silver prices rising, it appears that investors are becoming optimistic that the company might soon begin to produce again at the old rate of 930,000 ounces of silver equivalents annually. With such a small valuation, especially with the cash backed out, it will not take much cash-flow to send the shares flying. Thus, like other gold and silver mining companies, Golden Minerals is a leveraged bet on rising gold and silver prices. But the leverage potential in Golden Minerals is substantial when compared with the leverage potential of its peers.

In addition to this leverage potential, Golden Minerals also owns another property — El Quevar in Argentina. This property is in the advanced exploration stage, meaning that it has a well-defined resource of over 60 million ounces of silver at over 140 grams per tonne, although the company doesn’t have a mine plan yet and it hasn’t begun to apply for the necessary permits. This means that if El Quevar is to become a producing property, Golden Minerals’ management will take years to accomplish this. Furthermore, it is difficult to assign a concrete valuation figure to the El Quevar project. Investors should take note that management is looking for a joint venture partner in order to help fund the construction of El Quevar.

Ultimately, there is still a lot of risk in Golden Minerals, especially since it is still losing money and not producing any silver or gold. Nevertheless, I think this risk is priced in, and more aggressive investors interested in precious metals opportunities should consider adding some Golden Minerals shares. Given the recent strength in the stock, interested investors should wait for a pullback before taking a position.