The Silver Mines Limited (ASX: SVL) share price is up almost 150% in the last month alone. At the same time, the silver price has risen more than 50% as well. It has been an impressive month all round for the silver industry, so is now a good time to buy Silver Mines shares?
Why Silver Mines?
Silver Mines holds the largest undeveloped silver project in Australia which, according to the company website, is also one of the largest projects in the world.
Already holding high grade projects New South Wales, Silver Mines has also recently acquired the Bowden Silver Project.
In 2018, Silver Mines completed a feasibility study into Bowden and established that it had an estimated 16 years of life in the mine. It predicted that for the first three years of production, the mine would produce 5.4 million ounces of silver per year.
While Bowden might be its most exciting project coming up, Silver Mines also runs the following projects:
- Conrad Project, a silver and polymetallic operation
- Webbs Project, another silver and polymetallic operation
- Tuena Project, a gold and silver operation
The Silver Mines share price
The Silver Mines share price hit an all time low in October 2018. Since then, the price has risen a staggering 1,000%, from around 2.5 cents to almost 30 cents.
Although this may seem like a huge return (and it is), the Silver Mines share price in the past has reached lofty heights of more than $20. While there is no real way to know whether previous highs are attainable again, this gives me more confidence buying at the current price, even after the recent rally.
The price of silver
Silver is currently trading around USD $28 per ounce. If we look back to 2012, the commodity back then almost reached USD $50 per ounce, so it may have a lot more room to move today.
We have seen gold reaching new highs recently, making a strong case that silver could do the same. And rising prices mean more profit for producers.
Silver is an important commodity
Silver is widely used in our society. When most people think of the precious metal, they think of jewellery, coins and bullion. But silver has a huge number of commercial uses as well. It is used in the solar industry, electronics, bearings, in the automobile industry, medicine and even water purification – to name a few.
According to the World Silver Survey 2020, total supply is predicted to fall this year by 4%. Demand is also predicted to fall by 3%, however this is still a net positive for the metal.
The market is due to see a surplus in supply again this year, but the surplus looks to be more than 50% less than 2019. Again, this may be a surplus, but it is less of a surplus than previous surveys.
The report goes on to say that the global silver mine production is set to fall by 4.6% in 2020. A large part of the problem is due to COVID-19 and its impact on mining operations. Interestingly, the survey also states that it expects silver to outperform gold in 2020.
Foolish Takeaway
Although there are many silver producers, Silver Mines is the largest project owner here in Australia. With the encouraging findings of the World Silver Survey, and Silver Mines developing their large new project at Bowden, the future looks positive for both the company and the Silver Mines share price.
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Motley Fool contributor glennleese has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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