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Timely Guidance for Silver Investors

By Christopher Barker - Updated Apr 6, 2017 at 10:12PM

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Underwhelming performance by miners breeds uncertainty for silver investors.

Many of my fellow silver investors are all worked up over the disappointing failure of silver mining equities to keep pace with the most recent and dramatic portion of silver's historic run.

After all, silver's incredible run has seen the iShares Silver Trust (NYSE: SLV) gain more than 50% already this year, while superstar Silver Wheaton (NYSE: SLW) stands less than 10% ahead of where it began 2011. Silver Wheaton's last blockbuster earnings performance -- achieved at an average realized silver price of just $26.44 in the fourth quarter of 2010 -- will absolutely pale in comparison to the bonanza this company is presently experiencing when selling its fixed-cost silver by the millions of ounces at prices above $45 per ounce. Under the circumstances, one could correctly interpret as irrational the market's failure to bid Silver Wheaton shares higher in the midst of this sizzling silver surge.

Complicating the picture, some individual silver stocks have been impaired by their own unique sets of unfortunate developments. Pan American Silver (Nasdaq: PAAS) came under intense pressure recently after Bolivian authorities announced their intention to nationalize the company's San Vicente mine. It now appears that opposition from the relevant workers' unions may effectively block the measure, but uncertainty continues to weigh on the shares.

These have been dark days for Hecla Mining (NYSE: HL), with the low-cost miner actually staring at a 15% decline in 2011. Hecla's misfortune began back in February, when total liabilities stemming from the environmental practices of a bygone generation were reported likely to exceed $260 million. Hecla then suffered a collapse at its Lucky Friday mine in Idaho on April 15, and efforts to reach missing miner Larry Marek concluded in tragedy Sunday. Notwithstanding these challenging developments, I believe that Hecla's stock will ultimately spring back into life and erase much of its recent disconnect from silver's unrelenting strength.

Those special circumstances aside, a noteworthy fatigue in the momentum of silver stocks has indeed been palpable ... particularly over the past few weeks. Eager to make sense of the resulting disconnect, investors have offered a full spectrum of speculative attributions, few of which can be substantiated. Ultimately, the near-term trajectory of silver miners will be determined in the futures trading pits, where an epic battle has ensued since the silver manipulation bombshell first dropped last October. By late February, the unfolding of a powerful short squeeze was confirmed; and this major move set the stage for an imminent retest of silver's all-time nominal high of $50 per ounce. In fact, silver dared to peek its head above $49.60 in overnight action early Monday, and has retreated intraday to beneath $46.50 in one of the more volatile sessions in recent memory.

Nothing about these recent dislocations alters my long-term strategy for investing in silver. To the contrary, seeing so many silver mining equities priced -- in my view -- as though silver were trading near $30, I perceive a particularly favorable risk-to-reward profile among well-selected shares at present. Silver Wheaton, Hecla Mining, and Silvercorp Metals (NYSE: SVM) strike me as compelling valuations here; while carefully vetted junior explorers and producers warrant the attention of those seeking higher-octane returns. Whether silver busts through $50 with ease, or -- perhaps more likely -- retraces several paces after glimpsing that bastion of technical and psychological resistance, my bullish long-term outlook for silver prices and mining equities is unfazed by either outcome.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Wheaton Precious Metals Corp. Stock Quote
Wheaton Precious Metals Corp.
$40.08 (-1.16%) $0.47
iShares Silver Trust Stock Quote
iShares Silver Trust
$20.69 (0.58%) $0.12
Pan American Silver Corp. Stock Quote
Pan American Silver Corp.
$23.86 (-0.83%) $0.20
Hecla Mining Company Stock Quote
Hecla Mining Company
$5.18 (-0.96%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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