Silver Has A Tremendously Bullish Supply And Demand Story That Few Investors Are Paying Attention To - It Is A Coiled Spring Ready To Fly Much Higher

Gold has made a series of record highs this year, and is primed to do the same in 2025, but the metal that is most underloved is silver. Usually when gold is in a powerful bull market, silver is performing in a similar fashion. 

Silver has been performing much better since late February of this year, but still remains a long way from its record highs. Silver always has a way of confirming a bull market in gold and as of now it really hasn’t done that, which is one of the reasons I’m convinced we are still in the very earliest days of a gold bull market.

Considering that physical silver supply is lagging well behind physical demand, it is an extremely coiled spring. When it takes off, because the spring is so compressed, it will astonish many. Which will undoubtedly be very bullish for the silver stocks as well.

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Spotlight On A Sponsor

Vizsla Silver has a unique silver-gold project, Panuco, in Mexico, just off the highway from Durango to Mazatlan. When looking at development projects that have completed a preliminary economic assessment (PEA), key things I focus on are costs to build the mine (capex) and time to pay back the capex.

The capex at Panuco is a modest $224 million and well within the reach of Vizsla Silver as their valuation is currently around three times the capex. Using the base case in the PEA, the pay back of the capex is 9 months. 

The reason for the extremely rapid pay back is because the internal rate of return (IRR) is 86% using the base case, while using prices for silver and gold closer to the current prices increases the IRR to 107%. 

Recently, Michael Konnert, CEO of Vizsla Silver was on the Rocks And Stocks News show for an interview. It was a great discussion about their PEA and how wide open Panuco is for exploration.

Combining the modest capex, rapid pay back of the capex and extremely high IRR makes Panuco one of the best silver-gold development projects in the business.

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Like its big brother gold, silver is also a monetary metal, but sometimes I hear commentary that says, yeah but, it is trading more like a base metal due to the powerful demand coming from solar panels. I know that it is like people are astonished that it has not blasted off already and are looking for some reason as to why.

I’ve seen this movie before when bullish arguments for something to go up take longer to come to fruition than it seems they should. Whenever that happens, and the boat starts leaving the dock, it leaves investors swimming frantically to catch up. The silver boat is sending the warning to get on board as it is ready to leave the dock.

I pay a lot of attention to what is happening throughout the supply chain of any metal I follow and what I see for silver is a severely broken supply chain that will drive the price much higher. Mining produces around 800 million ounces per year, with most of that coming from mining of other metals and around 25% coming from Mexico. When it comes to primary silver producing mines, most of that is in Mexico.

For investors that want exposure to primary silver production and exploration for those kinds of deposits and development of them, all silver roads lead to Mexico. Primary mining of silver in Mexico is from epithermal veins that are high-grade with low-cost production making for remarkable free cash flow.

A perfect example of that is one of our top mining picks Silvercrest Metals, which is in the process of being taken over by Couer Mining. When Silvercrest Metals put their silver-gold mine Las Chispas into production they had around $100 million in debt that they needed to build the mine. Within a few quarters of full commercial production they paid off all the debt and now sit on around $150 worth of cash, silver and gold. Las Chispas is a free cash flow machine of a silver-gold mine.

Couer Mining made a well timed buyout offer that is very good for them. They were sitting on a lot of debt that they will bring down significantly with Silvercrest’s warchest of cash, silver and gold. Plus, it will help them substantially increase their production and bring down their costs of production. Had they not moved now and silver went significantly higher, the price tag would be substantially higher.

For contrarian mining investors, silver is a spectacular opportunity just waiting to draw more investors to the metal and the silver stocks.

I religiously read news releases of mining stocks every day and it is really hard to find a lot of great silver exploration stocks and silver development companies. Which tells me that the supply chain is going to stay broken for many years.

Meanwhile demand for silver as a monetary metal looks to be very compelling and the demand from solar panels is growing by the day. As the price of solar panels are coming down rapidly, they are being used at an ever increasing pace for alternative energy. Another fantastic situation for silver is that as solar panel technology is evolving, the breakthroughs need more and more silver.

Silver has the best of both worlds as a monetary metal and industrial metal with a bit over half of the demand coming from the industrial side and the rest for silverware, jewellery and investments. It is pretty clear that both sides of the silver coin are going to see increasing demand that will continue to overwhelm the supply chain.

Currently, the pricing of silver seems to be in the hands of paper traders, but they will lose control as physical demand keeps growing and physical supply can’t keep up. There has been a large deficit for the past few years, 2025 looks to continue that trend and looking beyond the supply will stay overwhelmed as the silver supply chain is broken from the miners to explorers.

Silver’s day in the sun is a lot closer than most investors think. When silver gets into overdrive and heads past its record highs, the small menu of explorers with important discoveries and minimal new mine developers will see shockingly bullish moves in their stock prices.

All the best,

Allan Barry Laboucan

Disclosure

Vizsla Silver is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers and viewers of the reports as it makes content creation possible for no charge to the Rocks And Stocks News audience.

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