Investing in gold and silver has always been considered a safe-haven in times of economic uncertainty. The silver spot price has been storming higher this year and companies like Silver Mines Limited (ASX: SVL) are reaping the rewards.
Recently this month, the spot price for gold hit an all-time high. Silver reached its peak back in April 2011. However, the white metal has been gaining a lot of traction. Could this be the start of something bigger for the silver industry?
Silver Mines in a nutshell
Silver Mines is Australia's largest pure play silver company with expertise in exploration and development of quality silver projects. Its portfolio consists of the Conrad and Webbs projects, the Tuena Project and its recently acquired Bowdens Silver Project. The latter of which is said to have substantial resources as one of the world's largest undeveloped silver sites – a mineral resource of 275 million ounces of silver equivalent.
What is fuelling the Silver Mines share price rise?
The Silver Mines share price raced higher last Friday, up 6.3% to close last week's trade at 25 cents. It has since pulled back slightly in today's trade, sitting at 24 cents at the time of writing.
With no new announcements to the market, last week's surge is most likely due to the demand for the white metal. At the time of writing, the spot price for silver is $36.07 per ounce.
Over the past few months, silver has risen sharply compared to its more expensive cousin, gold (50% vs. 8% in the last 60 days).
The explanation for this is historically silver has higher beta than gold. In layman's terms, if the spot price of gold moves up by 5%, silver will increase by 10%.
However, the same is to be said for the reverse scenario, i.e. if gold falls 5% for the day, silver will fall 10%.
What is the outlook for Silver Mines?
The metals mining outfit has strategically positioned itself for future growth. In May, the company announced it had raised $12 million through capital raising to primarily fund its pre-development progression on the Bowdens Project. Drilling has expanded up to 10,000 metres, targeting high-grade silver mineralisation below the current proposed pit and in multiple new areas. Drilling is expected to continue at least until the end of 2020.
Furthermore, Silver Mines submitted a development application to the NSW Department of Planning, Industry and Environment for an open-cut mine and processing plant with a conventional milling circuit at the Bowdens Project.
Silver Mines released its activities report for the quarter end in late July. This saw the company end the quarter with $1.61 million in total outgoings and $12.1 million cash on hand.
Should you buy?
While past performance is no guarantee for future results, I believe that the Silver Mines share price could be a risky buy.
As a long-term investor, I think it would be prudent not to jump in and buy Silver Mines shares for the time being.
Instead, I'll be keeping a close eye on the Silver Mines share price at this time and wait for further results on its Bowdens Project.
