Haywood stands firm on 2012 silver forecast despite volatility warnings

Despite growth in investment demand, Haywood Securities' Chris Thompson says silver remains "very much an industrial metal."

Author: Dorothy Kosich
Posted: Tuesday , 24 Apr 2012

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RENO (MINEWEB) -

Although Haywood Securities' silver price forecast remain unchanged at US$36 per ounce this year and long-term US$20/oz, analyst Chris Thompson advises that he continues to see potential for higher near-term silver prices at an average of US$36 per ounce this year.

In an analysis of silver equities published Monday, Thompson advised, "Investor interest in silver is expected to keep prices at or close to current levels over the near term, supported by a high level of open interest and activity in COMEX silver futures contracts, a large quantity of silver-backed silver ETFs and demand for silver coins."

"Nonetheless," he added, we caution that more sharp declines in silver prices, similar to that recently experienced, should not be ruled out, considering the volatile nature of silver prices and the relative ease with which ETF investors can exit the market."

"Despite growth in investment demand over the past five years, silver is still very much an industrial metal," Thompson noted. "Silver prices are expected to be influenced by demand for the metal both as an investment asset and as a commodity for industrial fabrication."

"Contradictory moves by market participants that want silver as a store of value and as a metal for industrial fabrication are expected to weigh on silver prices and cause volatility in the near term. However, overriding concerns regarding the health of the global economy are expected to support continued net investment demand for the metal, which despite a net supply surplus (total supply less fabrication demand) is supportive of historically high prices," Thompson said.

"We caution that continued keen investment interest in the metal is required for a silver price of ~US$30 per ounce," he stressed.

Haywood Securities has forecast a silver price of $32.50 in 2013, $29.50 in 2014, $28 in 2015 and $24 in 2016.

In their analysis Haywood noted, "As silver miners continue to amass healthly cash treasuries, the sector looks primed for a spate of merger and acquisition activity. Nonetheless, producer/producer-sector consolidation seems-at the moment-to be a preferred route for silver producers to add to their production growth profiles; i.e., Pan American's recent acquisition of Minefinders, First Majestic's proposed acquisition of junior producer Silvermex Resources, and Endeavour Silver's proposed acquisition of AuRico Gold's El Cubo operating silver-gold mine."

Meanwhile, provided the economic environment stays supportive for the development of a number of key silver projects, Haywood sees potential growth in mined silver supply from 716 million ounces last year to more than 1 billion ounces of annual silver production in 2016.

Haywood's preferred producers remain emerging mid-tier companies Endeavour Silver, Fortuna Silver Mines and Mandalay Resources, as well as large project developer Bear Creek Mining, small project developer Kimber Resources and explorer Mirasol Resources.

Meanwhile, Haywood revised its target price downward for several companies including Minco Silver from $6.40 per share to $4.30 per share; Bear Creek Mining from $7.30 per share to $6.15 per share; Mirasol Resources from $8.75 per share to $6.75 per share. Target prices for Endeavour Silver at $10.50 per share, Fortuna Silver at $6.60 per share and Mandalay Resources at $1.40 per share, as well as Kimber Resources, remain unchanged.