Citi outs itself as major silver bull, says price could reach US$100/oz

ASX stocks with exposure to silver could power on in 2021 if Citi’s price projections for the precious metal hold true.

Despite a recent pullback, the silver price has performed strongly through 2020, rising more than 35% and driving a similarly robust performance from the handful of silver-focused stocks on the ASX.

Broadly, the sentiment around silver remains positive in anticipation of further global economic stimulus, rebounding industrial activity and its proven ability to outperform gold in a bull market.

No one has been quite as bullish on the commodity as Citi, though.

In its September Global Commodities Quarterly, the investment bank said it could see $US40/oz silver within 6-12 months with upside cases of US$50/oz and even US$100/oz based on technical analysis.

The silver price is hovering around the US$25 mark this week.

“We see the investment-led deficit in silver continuing in 2021, with the call on silver stocks driving prices up to US$30/oz over the next 3-4 months and up to US$40/oz over the next 6-12 months,” Citi said.

“Since the case for silver is in part dependent on investment demand, some portion of the investment community looks at the market’s technicals. It is worth nothing that the Citi FX technical team is very bullish silver, with US$50/oz a very realistic target and US$100/oz possible.

“In our silver bull case (20% probability), we see prices rising to US$50/oz by mid-2021 on the back of further substantive policy easing, a relatively rapid global growth recovery, sharply declining US real rates and strong silver investment demand.”

Citi’s take on silver came after Goldman Sachs advised investors to dump the US dollar and buy the precious metal instead.

Goldies’ recommendation was predicated on a Democratic clean sweep at the US election, which would mean a green light for the massive spending programs promised by Joe Biden along with a big surge in demand for silver from solar panel manufacturers.

Biden has made climate change one of the central issues of his campaign. Among the initiatives he has proposed is funding solar panels and other renewable energy sources for public housing.

With its conductive properties, silver is a key element in the manufacture of solar panels. This application is estimated to account for approximately 20% of the world’s yearly industrial silver consumption.

But regardless of the election result – at the time of writing it appeared the Democrats would claim victory – the outlook for silver appears robust, with further fiscal stimulus driving investment demand and industrial consumption rising as global manufacturing activity rebounds.

ASX stocks best placed to prosper in the event of ongoing silver price appreciation include Silver Mines (ASX: SVL), Manuka Resources (ASX: MKR) and Investigator Resources (ASX: IVR).

Silver Mines

Silver Mines is nearing the pointy end of the approvals process with its 100%-owned Bowdens Silver Project in central New South Wales, the largest undeveloped silver deposit in Australia.

In late May, the company lodged its Development Application and Environmental Impact Statement for Bowdens with the NSW government, which subsequently received a resounding endorsement from the public following an eight-week exhibition period.

In parallel with negotiating approvals, Silver Mines has been working on optimising results of a 2018 feasibility study incorporating a higher silver price as well as conducting further drilling to identify higher grade zones of mineralisation at Bowdens that may support an underground mining scenario beyond the planned open pit.

The feasibility study envisaged an open pit mine producing an average of 3.4 million ounces of silver, 6900 tonnes of zinc and 5100 tonnes of lead a year for an initial 16 years. The estimated capital cost was $246 million.

Funding for Bowdens is likely to come from North America, where there is a deeper understanding of the silver market and royalty streaming companies offer an alternative source of development finance.

Manuka Resources

Of the aspiring silver miners on the ASX, Manuka Resources, which listed in July after raising $7 million, may just be the closest to moving into actual production.

The company purchased the Wonawinta silver project in NSW’s Cobar district out of administration in late 2016, which included an 850,000tpa mill that has since been refurbished.

The mill has been treating gold ore from Manuka’s Mt Boppy mine 150km away since April, but is set to transition to producing silver mid-next year.

The company expects to produce 900,000 ounces of silver from 500,000 tonnes of stockpiled ore at Wonawinta over 6-9 months before moving on to mine the project’s silver oxide resource.

Forecast production from the oxide resource is more than two million ounces of silver a year over at least four years.

Manuka has been undertaking drilling at Wonawinta in order to upgrade the existing 52 million ounce inferred mineral resource to measured and indicated status as well as to test the project’s deeper sulphide mineralisation.

Investigator Resources

Investigator Resources claims its Paris silver project in South Australia’s Gawler Craton, which has an estimated resource of 9.3 million tonnes at 139 g/t Ag and 0.6% lead for 42Moz of contained silver and 55kt of contained lead, as the highest grade non-by-product silver project in Australia.

Against the backdrop of the rising silver price, the company is progressing a pre-feasibility study on the project and expects to hand down the completed document by June next year.

Investigator raised $8 million in the September quarter and is using the funds to undertake a 15,000m infill drilling program at Paris that will see conversion of more resources ounces into the Indicated category.

Forty-five percent of the Paris resource is currently at an Indicated status.

First results from the infill program were announced on Thursday, with the company describing some of the grades returned as “eye-watering”.

The company has also planned 6,000m of drilling targeting satellite exploration opportunities within the project tenements.