Metal price forecast could be Investigator’s 2018 silver lining

Metal prices were on steroids in 2017. But silver was an exception, with the poor man’s gold closing out the year at $US16.46 an ounce to be barely ahead of where it finished 2016.

There are plenty of theories as to why silver was left behind.

They range from reduced fear buying of the metal by Republican voters in the US now that their man is in the Oval Office, through to competition for the investor’s dollar from the crypto-currencies.

Silver’s time to shine

None of the explanations are wholly satisfactory, leaving market watchers to ponder if after being left behind by the other metals in 2017 for no good reason, maybe it is silver’s time to shine.

Macquarie’s commodities desk reckons that might be the case.

“We think 2018 should see a turnaround. First on a re-rating against gold as industrial demand keeps rising, and then joining gold’s rally as the (US) dollar weakens. And when silver goes, it often goes a lot,’’ Macquarie said last month.

As it is, silver has got a wriggle on in the opening days of the new year. It last traded at $US17.10 an ounce while gold has powered on through $US1,300 an ounce on the weaker US dollar, heightened geopolitical concerns, and stronger oil prices.

Macquarie is forecasting silver to average $US20 an ounce in 2018, with demand for the metal underpinned by its strong industrial consumption credentials compared with the more investment driven gold market.

It doesn’t sound like much but a $US20 an ounce average would represent a handy 17% increase on 2017’s annual average. But investors looking to gain ASX exposure to the metal have limited choice.

Stronger prices in 2018 could be investors and explorers silver lining on last year’s meagre results.

Australia is one of the world’s biggest producers of the metal but it comes as a by-product at big base metals mines like South32’s Cannington operation in north Queensland.

But there is a bunch of ASX juniors looking to become silver producers. They are poised to benefit should the expectation that silver will have a good 2018 comes to pass.

High-grade expectations

One of the more advanced is Investigator Resources (ASX:IVR) which last traded at the princely price of 1.9c for a market capitalisation of $13 million, against which it is holding cash of about $2m.

Investigator owns the Paris silver project which sits in pastoral country on South Australia’s northern Eyre Peninsula, 350kms north-west of Adelaide and some 60kms north-west of the town of Kimba.

The 2011 discovery comes with a resource of 9.3m tonnes grading a handy 139 grams of silver a tonne and 0.6% lead a tonne for contained metal of 42m ounces of silver and 55,000 tonnes of lead.

The new year is shaping up as a big one in terms of Investigator’s development aspirations for Paris as a high-grade open-cut operation.

Crucial metallurgical test-work is underway with a report on the outcome expected next month. Results will be fed in to a preliminary feasibility study which the company aims to complete by mid-year.

IVR shares over the past 12 months. Source: Investing.com

Project Paris

Geologist and well-known former funds manager David Ransom is Investigator’s relatively new non-executive chairman.

He reckons that Paris is arguably the premier pure silver deposit in Australia in terms of grade and potential. And he makes the point that “Paris is a project rather than an exploration event”.

Ransom is a straight shooter, telling shareholders at the annual meeting in November that Paris was not without its risks.

“While a viable silver project seems a reasonable outcome based on the current Paris resource, a relatively short mine life and the metallurgical complexity in mining a partially oxidised silver resource present significant risks.

“Silver projects often require bespoke metallurgical solutions. Hence, in order to reduce this risk, we have launched a geophysical and drilling programme to enhance the Paris silver resource with an aspirational target of 1m gold equivalent ounces – a 28 million ounce increase on the current silver resource.

“Success in this enterprise will reduce risk in the PFS by adding to mine life and mitigating commissioning risk,’’ Ransom said.

His frankness was refreshing stuff from the junior end of the market and is to be applauded. Hopefully it will be rewarded with success.