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Silver Miners Likely to Take Price Fall in Stride

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"Producers will keep turning big profits even if the bearish mood persists."

Reuters

Silver producers are likely to take this week's precipitous drop in metal prices in their stride and will keep turning big profits even if the bearish mood persists.

For silver investors, the best news is that few analysts believe the reversal that gripped the market in recent days is the start of a long-term trend. Strong fundamentals also mean exploration projects are unlikely to slow.

Silver producers can still make a king's ransom, analysts say, even if prices languish or fall further. Major silver companies report production costs ranging from $4 to $8 an ounce, a mere fraction of the current spot price of around $35.

"The silver companies are making very good money at $35 an ounce. They'd be making very good money at $30 and most of them would be making very good money at $25," said Charles Oliver, a senior portfolio manager at Sprott Asset Management, one of Canada's top mining industry investors.

"The long-term story for precious metals is still very firmly intact," said Oliver, who took advantage of the slump this week to buy Canadian silver mining shares on the cheap.

He said his long-term outlook for the metal is still above $50 an ounce and it could even surge as high as $100 in the next few years.

Sprott is likely Canada's most famous silver bull, and not everyone shares its vision for where prices of the metal can go, although most agree it still has room to grow.

"We never bought into the $50 plus, $60 idea," said Bart Melek, head of commodity strategy of TD Securities. "But I think that given the monetary conditions where they are, demand on the physical side, mining production where it is, and expectations for very tight markets, this can go higher."

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