A Solid Play for Post-Manipulation Silver

Silver is an entirely new market this week. Following CFTC Commissioner Bart Chilton's public condemnation of "fraudulent efforts to persuade and deviously control" the precious metal's price, market participants should now be far less able to continue such deceit.

The lawsuits subsequently filed against JPMorgan Chase (NYSE: JPM  ) and HSBC Holdings (NYSE: HBC  ) for damages resulting from that alleged manipulation should further serve to keep the silver market on the straight and narrow.

No one can be sure how these developments will affect silver prices in the near term. Fools who were already bullish on silver's prospects, however, will find added comfort in understanding that these events help pave the way for silver to truly shine.

Fortunately, Fools need not go back to the drawing board for a brand-new silver strategy. Holding roughly equal parts gold and silver bullion, Central Fund of Canada (AMEX: CEF  ) remains my sterling pick for physical precious metal exposure. Physical bullion proxies involve important tax implications that must be well understood. Investors are infinitely more familiar with the iShares Silver Trust (NYSE: SLV  ) , but I wish to remind Fools that JPMorgan Chase serves as the custodian for that fund's silver holdings.

Among the miners, I've been taking a fresh look at Hecla Mining (NYSE: HL  ) this week, and I continue to like what I see. Hecla generated a healthy $41.9 million in net cash from operating activities during the third quarter, and a 31% jump in adjusted net earnings to $29.6 million. Hecla enjoyed a tasty combination of negative total cash costs for the quarter (negative $1.01 per ounce produced), while realizing an average silver sales price of $21.45 per ounce.

Looking forward, Hecla is targeting 60% production growth at the Lucky Friday mine over the next four years. Exploration success at the property has expanded the ore-body and improved the overall grade. At Greens Creek, Hecla seeks to tweak throughput (ore-processing capacity) for a 10% production increase. At the same time, Hecla is explicitly on the lookout for strategic acquisitions that will leverage the company's cash flow prowess to fast-track mine development.

As Endeavour Silver (AMEX: EXK  ) CEO Bradford Cooke can attest, however, finding the right district-scale silver opportunity can involve a lengthy quest. With 140 million ounces of silver in reserves, and present annual production of less than 11 million ounces, Hecla can afford a bit of time to find just the right strategic play.

I continue to consider Hecla Mining one of several terrific investment opportunities in silver, and I'm still holding the stock myself. I've added Hecla and a host of related stocks to my silverminer CAPS portfolio, and I encourage you to cast a vote on the company within your own free CAPS account.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Central Fund of Canada, Endeavour Silver, and Hecla Mining. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy never manipulates anything.


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  • Report this Comment On October 29, 2010, at 6:15 AM, jesusfreakinco wrote:

    Chris,

    Am holding HL myself as one my most significant core PM holdings. It has under-performed by other holdings, but I think its day is soon to come. I am guessing the JPM's of the world have been holding this one down a bit...

    Last I saw, this has a 14% short interest. I am not sure why it has drawn the attention it has. Any thoughts on a short covering rally leading this to outperform its peers?

    JFC

  • Report this Comment On November 01, 2010, at 11:37 AM, Zitadel wrote:

    There is only one problem that I can find with these recommendations. CEF is a closed-end fund and is an excellent choice, EXCEPT, it trades at a 8% premium price to NAV. Don't buy this CEF until the premium narrows!

    FDC

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