From rags to riches: Experts eye ASX silver plays as deficit grows

Silver has stepped out of gold’s shadow this year and is one of the best performing commodities in 2024 amid expert predictions of a massive deficit
Arlington Group Asset Management’s Simon Catt, a corporate adviser to ASX-listed Mexican explorer Mithril Resources, says silver is more sensitive than gold to rising demand for precious metals
Lowell Resources Fund CIO John Forwood likes the look of Mithril and Unico Silver, with a host of other ASX silver plays ready to pounce on the metal’s revival

Long considered the ‘poor man’s gold’, silver has become a valued mineral in its own right against the backdrop of escalating geopolitical tensions and the prospects of an easing monetary cycle. But it’s benefitting as well from a long-promised structural shift in demand.

For the first time, industrial demand now represents more than half of the total demand for the metal thanks to its use in things like solar panels, computers, mobile phones, cars and almost every appliance you can think of.

While the other half of demand comes from investment categories such as silverware, jewellery and physical bars and coins, analysts reckon silver’s use in solar alone could easily reach 300Moz in 2030.

That figure represents 30% of silver supply and translates to an incremental 100Moz of silver just for solar production. That’s another 10 big mines.

The sad part is the anaemic supply picture, one which saw 820Moz of annual silver production dwarfed by consumption of ~1.14 billion ounces in 2023.

Metals Focus, a leading independent precious metals research consultancy and producer of the latest Silver Survey, says supply will remain little changed in 2024, with a marginal decline leading to a 17% rise in deficit to the second highest on record.

What’s the silver price up to?

Arlington Group Asset Management director Simon Catt believes silver is performing as well as any metal in 2024 with its 20% gain versus gold’s 16% and copper’s 10%.

A bull run at the start of the year saw prices hit ~US$28/oz in April before a slight dip at the start of May.

Prices then skyrocketed to ~US$32, levels not seen since February 2013. But while the surge created a buzz among retail investors, prices are still a long way off the record highs (US$50/0z) it reached in 1980 and again in 2011.

“The gold market is about 12 times bigger in terms of annual demand than silver, which causes the silver price to be more volatile than gold, given its lower liquidity,” Catt says.

“Silver tends to rise more than gold in a rising market such as now and fall more than gold in a falling market.

“The gold to silver price ratio has rallied from 126:1 in March 2020 to 83 today, versus 30:1 in April 2011 when silver reached US$40.50 per ounce.”

Experts at Sprott view a price squeeze within a few years becoming more likely with a short-term target of US$35, followed by a longer-term target of US$42.

With few large players exploring for silver, that’s good news for small caps looking to carry out exploration plans, prove up resources and get on with other aspects of development.

Mexico’s silver riches

The world’s biggest silver miner is 140-year-old Mexican company Peñoles, which produced 72.4Moz in 2023 but derives just 30% of its revenue from the precious metal.

Many global leaders are diversified, with silver produced alongside a range of other precious and base metals.

Mexico continues to rank as the number one silver producing country in the world, producing 6400 metric tonnes in 2023 (205.76Moz), up slightly from the 205Moz it produced the previous year.

More than 300, mostly North American, mining and exploration companies are active in the country including Newmont Goldcorp, Agnico Eagle, Grupo Mexico and Fresnillo among many other $1b capped companies.

Lowell Resources Fund (ASX:LRT) chief investment officer and Ten Bagger expert John Forwood likes the look of Mithril Resources (ASX:MTH), the only ASX company operating in the country.

“We like the company for a number of reasons, but the first to mention is that the board knows how to operate in Mexico, they collectively have more than 35 years’ experience operating mines there,” he says.

“The geology at their high-grade Copalquin silver-gold project is fantastic, they are sitting on resources of around ~600,000oz at 6g/t gold equivalent, so pretty high grade.

“They could kick off a development today, particularly if they used a third-party processing plant, but certainly the approach is to try and double the size of the deposit and see if they can have a standalone operation.”

Catt, who is also a corporate adviser to Mithril, says silver represents about 27% of contained value at the Copalquin project.

“Mithril is mid discovery of a high grade gold (5g/t) and silver (140 g/t) resource at Copalquin where silver represents about $140/tonne of contained value versus $385/tonne of value or about 27% of contained value,” he said.

“If silver was to move up to the 30:1 ratio to gold it reached in 2011, and gold stayed at $2400 an ounce, then silver would be ~ 50% of contained metal value.”

‘Irreplaceable metal in solar production’

Forwood also has his eyes on Eric Sprott-backed Unico Silver (ASX:USL) and the 92Moz Cerro Leon project in Argentina’s Santa Cruz province, up the road from AngloGold Ashanti’s Cerro Vanguardia mine.

The project is host to the second largest vein field in the province (the Pinguino vein field) with mapped veins totalling 115km of cumulative strike.

While only 25% of the total veins have been drill tested, regulatory approvals have now been received to conduct RC and diamond drilling across the district with a vision to expand the current 10-15Mt exploration target at 175-266g/t silver equivalent.

Over in Nevada, Sun Silver (ASX:SS1) is one of the newest silver explorers on the ASX with its Maverick Springs silver-gold asset on the Carlin Trend.

The project is home to a 292Moz inferred resource at 72.4g/t silver equivalent, making it the largest early-stage silver development project on the bourse.

A 7500m RC drilling campaign currently underway has been designed to expand that resource further.

SS1 managing director Gerard O’Donavan is a believer in the long-term thematic and positive outlook for silver.

“With decreasing production from existing mines, the supply deficit is set to grow, and we believe the silver price will respond accordingly,” he told Stockhead.

“Firm commitments made by the likes of the United States to have solar make up 30% of its energy supply by 2030 are a clear indicator (given) that silver is an irreplaceable metal in solar production.

“I don’t think people have quite realised yet that we are at the start of a bull market that could last long into the future – I’m just very glad we have a tier-1 asset in a great location.”

Silver down in Oz

Closer to home, Argent Minerals (ASX:ARD) owns the second largest undeveloped silver deposit in Australia (Kempfield), which boasts an upgraded 63.7Mt resource at 69.75g/t silver equivalent for 142.8Moz silver equivalent.

As well as silver, the deposit also contains 125,192oz gold, 207,402t lead and 420,373t zinc.

ARD’s technical team believe the deposit has potential for additional resource growth along strike with a first pass RC drilling program set to begin once all approvals have been received by the NSW regulator.

Further north in Queensland, Maronan Metals (ASX:MMA) has recommenced exploration drilling at the ‘Maronan’ project with a focus on growing the indicated resource base within the near surface Starter Zone to facilitate the release of advanced mining studies later in the year.

The asset contains inferred and indicated resources of 32.1Mt at 6.1% lead with 107g/t silver including a 2.1Mt indicated resource at 5.3% lead with 155g/t silver.

Down in South Australia, Investigator Resources (ASX:IVR) is undertaking a definitive feasibility study on the Paris project, 70km north of the rural township of Kimba on the Eyre Peninsula, while Silver Mines (ASX:SVL) recently received a $32 million investment from major institutional players including Rick Rule and Harry Lundin for its Bowdens project in New South Wales, the same jurisdiction where David Sproule’s Polymetals Resources (ASX:POL) – whose chairman once purchased and operated the Nimbus silver mine in WA – is looking to revive the Endeavour mine.

The explorer recently discovered shallow mineralisation within 2km of Paris in an aircore drilling program, emphasising the potential for more high value silver discoveries to be made.

Results turned up 1m at 71 g/t silver and 0.6% lead from 38m, uncovering the new Perseus prospect where follow up drilling is being planned for the second half of the year.

While $13.5bn capped South32 (ASX:S32) operates Australia and one of the world’s largest silver mines at Cannington in Queensland, it is less likely to provide leverage to the silver price than junior explorers and developers given its diversified nature, evidence by a shocking 12% one day drop last week when it announced a major impairment on its alumina assets in WA.

At Stockhead we tell it like it is. While Mithril, Sun Silver, Argent Minerals and Maronan Metals are Stockhead advertisers, they did not sponsor this article.