Recent events indicate we are at the beginning of a silver bull market. The silver to gold ratio is larger than it has ever been in my lifetime. Industrial demand is starting to come back online, and the world is seeing increase industrial use for renewable assets and batteries. Also, I stack (or collect) precious metals and I cannot get any until July.
Precious metals are not formed on earth. They come from the single most violent event in the universe, when a star goes supernova. They then land on earth and through geological processes end up in various types of deposits over millions of years. So not only are they rare on earth, they are some of the rarest metals in the universe!
I have been stacking precious metals for about 30 years now. In this time, I have learned two things about silver in particular.
First, it is very volatile. In US dollars, the gold price has rise by 11.4%, year to date (at the time of writing). Since the silver bull market started (around late April), the silver price in US dollars has risen 10.1% in a month. Second, it always seems to snap back to an average ratio. In the 48 years since 1970, it averaged 57:1. I buy gold when the ratio is close to average, and I buy silver when it is large. Today the ratio is ~103:1.
The silver bull market
South32 Ltd (ASX: S32) owns the silver and lead producing Cannington mine in Queensland. Cannington is one of the world’s largest and lowest cost silver mines. It produces 6% of the total world silver production. With an earnings yield of 13.6% at the time of writing, South32 appears to be selling cheap. For the 3 years it has been profitable it has achieved an average return on capital expended of 27%. This is a very good user of capital.
BHP Group Ltd (ASX: BHP) started out as a silver miner and still produces a lot of silver as a by-product. In FY2019, it produced around 2.9 Moz of silver. BHP is well placed across a range of commodities including the booming iron ore trade as well as future facing copper and nickel production.
Of the major producers, Oz Minerals (ASX: OZL) processed approximately 630,421 ounces of silver in FY19 as a byproduct of its gold production. However, Sandfire Resources Ltd (ASX: SFR) is in the feasibility stage of a mineral deposit in Botswana with a known silver reserve of 14.6Moz. Its share price is likely to see a bump as the silver bull market takes hold.
Foolish Takeaway
Australia is well placed for the silver bull market – we have the third largest silver reserves on the planet. Our miners also have access to large deposits of silver across the world. We are very cost effective miners with a demonstrated capacity to bring production online quickly.
Make sure to download our free report on 5 cheap shares for the post pandemic world.
NEW! 5 Cheap Stocks With Massive Upside Potential
Our experts at The Motley Fool have just released a FREE report detailing 5 shares you can buy now to take advantage of the much cheaper share prices on offer.
One is a diversified conglomerate trading 40% off it’s all-time high, all while offering a fully franked dividend yield of over 3%…
Another is a former stock market darling that is one of Australia’s most popular and iconic businesses. Trading at a significant discount to its 52-week high, not only does this stock offer massive upside potential, but it also trades on an attractive fully franked dividend yield of almost 4%.
Plus, this free report highlights 3 more cheap bets that could position you to profit in 2020 and beyond.
Simply click here to scoop up your FREE copy and discover the names of all 5 cheap shares.
But you will have to hurry because the cheap share prices on offer today might not last for long.
More reading
- 3 commodity trends to watch this week
- ASX 200 Weekly Wrap: ASX rallies on mining highs
- Where to invest $5,000 in ASX 200 shares immediately
- Have $500 to invest? Then buy these 5 ASX 200 shares immediately
- ASX 200 drops 1% on Friday
Motley Fool contributor Daryl Mather 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.
The post 4 ASX 200 shares for the silver bull market appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/3eep3K5
Leave a Reply