The minutes from the U.S. Federal Reserve's meeting in July indicate that the central bank could begin to taper the pace of its large-scale asset purchases this year. In response, publicly traded equities fell on almost all the main stock exchanges worldwide in the last two days as investors worry that large-cap companies with massive amounts of debt might begin to falter without the government constantly bailing them out. Eventually, at some point in the future, the Fed will need to raise interest rates as well in order to prevent inflation from spiraling out of control. Investors are therefore experiencing heightened uncertainty at the moment, which typically leads to higher investments in safe-haven assets such as silver.
The demand for silver is also increasing due to industrial usage. Silver is an essential component in many technologies and fabrication processes, as it is the best electrical and thermal conductor out of all the metals, so increased global spending on infrastructure and technology should serve to drive up silver prices.
Looking forward, analysts estimate that the precious metal will trade at around $30.80 per ounce before August 2022, which would represent a 33% upside from the current level. Silver futures with expirations in September were trading at around $23.12 per troy ounce as of the writing of this article.
To take advantage of the rise in the price of silver, investors may want to consider buying shares of MAG Silver Corp (MAG, Financial), as this silver mining company is projected to grow faster than the commodity itself. Wall Street recommends a strong buy rating for the stock with an average target price of $23.51, which represents a more than 35% increase from Thursday’s closing price of $17.34 per share.
The Canadian silver miner is exploring and advancing several high-grade ore mineral projects in the Americas. Its main project under development is the Juanicipio project in Mexico that MAG Silver is developing with Fresnillo plc (FNLPF), based on a 44% to 56% joint venture agreement. Here, the mineral will be extracted from an underground mine and the adjacent mill facility will process 4,000 tons of material daily, at an all-in sustaining cost of about $5.02 per ounce of silver. The company says that the project should commence commissioning before the end of this year, which could give a significant boost to the share price.
In the first half of 2021, MAG Silver's activities produced 367,710 payable ounces of silver worth approximately $9.78 million and 1,340 ounces of payable gold worth approximately $2.43 million. The sale of pre-commercial output should provide sufficient funds to develop 12.8 million metric tons of mineral in indicated resource grading 209 to 550 grams of silver per ton and 12.1 million metric tons of mineral in inferred resources grading 151 to 648 grams of silver per ton.
Financially speaking, the Mexican mine appears to be a robust project, as the initial investment is expected to be recovered in less than 48 months following the first commercial production. Plus, if Juanicipio will grant a rate of return of 44.5% as indicated in the 2017 preliminary economic assessment report, this will be well beyond the 30% to 35% rate that investors usually consider as an acceptable level.
The stock has a market capitalization of $1.67 billion and a 52-week range of $14.01 to $24.43. The price-book ratio is 5.48 versus the industry median of 2.33.
The 50-Day Moving Average is $19.43, and the 200-Day Moving Average is $19.12. The 14-day relative strength indicator is 36 suggesting that this stock is neither overbought nor oversold.
Disclosure: I have no positions in any securities mentioned.
