“I don’t look at silver as a precious metal. I look at silver as a strategic metal.”
Yes, silver – that seemingly everyday metal that we find in our wedding bands and “nice” forks.
Silver is so vital in consumer electronics, solar power and even healthcare now that it has become one of those “Miracle Materials” that are literally changing our lives. In fact, the mining CEO I just talked with compared the metal to hot-topic materials like tungsten and graphene.
It’s been a tough couple of years for his industry. But Keith Neumeyer, one of the top CEOs in the silver industry, tells me that he sees good times ahead – thanks to our friend the law of supply and demand.
And I’m going to show how you could score gains of 70% or more with an intriguing silver play…
Silver on My Mind
As we’ve talked about so often here, we simply cannot ascend to the next level of technology without the strategic materials that make mobile devices, supercomputers and cutting-edge bioscience possible. Having followed metals and minerals for nearly 40 years, I can tell you that these are essential ingredients in the technology investment opportunities I bring to you.
I come by my interest in silver thanks to my family. I grew up in a military household, where, thanks to my father’s high-tech job, I learned about the use of rare earths and exotic materials, not to mention gold and silver, in defense electronics.
This was the middle 1970s, and the U.S. economy was a basket case. So, after graduating college, as a hedge, I began to invest in silver on a regular basis.
It’s become one of my lifelong passions along with Silicon Valley stocks. And so I keep abreast of trends affecting silver as both an investment and a vital tech metal.
Clearly, Neumeyer shares my enthusiasm for silver – and for tech-related metals in general.
His career dates back to the mid-1980s, and he has seen firsthand just the vital role metals play in technology. Indeed, during our recent chat, he talked more about what he calls silver’s “industrial” uses than he did about its role as a store of value and hedge against inflation.
Simply stated, Neumeyer told me, the more the world depends on technology, the more it depends on silver.
Here’s how he described the situation to me:
“Silver is used in virtually everything we do – even when we‘re sleeping. Most of the electronics in households have silver in them. Our automobiles, our telephone systems, our computer systems, windows and lightbulbs. Silver is used everywhere.
“I don’t look at silver as a precious metal. I look at silver as a strategic metal. It‘s very required for the human race. And without it, our lives would become substantially worse off than they are today.
“It‘s hard for people to really realize the broad use of silver, because it‘s in such small quantities. A cellphone, for example, has only a couple of dollars‘ worth of silver in it. But you have to multiply that by hundreds of millions of cellphones.”
Solar power in particular is set to further drive silver’s use.
According to the Silver Institute trade group, we began using silver in solar panels in 2000, and usage went up 640% between then and 2011. Silver paste can now be found in the grand majority of solar cells. And the Silver Institute projects that more than 100 million troy ounces of silver will be used for solar energy by 2015.
Currently, silver miners extract about 750 million ounces of the metal each year.
Here’s how Neumeyer explained silver’s importance to solar power. He said it takes roughly 3 million ounces of silver to produce 1 gigawatt of solar power. A gigawatt of power can provide enough energy for about 700,000 homes.
Over the next several years, he noted, China intends to produce around 70 gigawatts of power from solar panels. That means just China alone would consume 210 million ounces of silver in order to derive energy from the sun.
That is roughly 78% more than China’s total silver output last year. And China ranks as the world’s third-largest silver producer behind Mexico and Peru.
And the United States and Europe have similar solar power goals.
Now you are starting to see why I mentioned the law of supply and demand earlier.
Healthcare’s Silver Bullet
Solar cells aren’t the only place you might be surprised to find silver.
The metal is starting to play a vital role in water filtration and purification. Because it is bio-friendly and effective, silver is being used in millions of water filters to replace chlorine, which is toxic if ingested.
Silver keeps bacteria and algae from building up in water filters and purification systems in municipalities, hospitals, spas and pools. Notably, silver is effective at eradicating Legionnaire’s disease from our water systems.
And in the healthcare sector, the life-threatening “superbug” known as MRSA (methicillin-resistant staphylococcus aureus) is resistant to many antibiotics. So, since 2002, hospitals have been taking advantage of the metal’s antibacterial properties by using silver-imbedded equipment, including surgical tools, bandages and wound dressings, catheters, needles, stethoscopes, furniture and door handles, to thwart MRSA’s spread.
Silver’s use as a biocide is small, but grew sixfold between 2002 and 2011.
And silver’s use in consumer electronics keeps growing as well – up 120% between 1999 and 2011. The metal’s excellent conductivity means it’s in just about every piece of electronics you own, and also CDs, DVDs and plasma screens.
Today, electronics use much more silver than silverware and jewelry – a complete turnaround from just a little more than a decade ago. And industrial uses in general gulp up about half of all silver mined each year.
Bullish on Silver – Again
There’s a statistic Neumeyer used to drive home why silver prices will recover from their recent lows: 90% of all the silver that’s ever been mined is essentially gone for good.
Silver was recently trading at $20 an ounce. For it to become efficient to recycle that silver, Neumeyer said, the price would have to jump to somewhere around $150 an ounce.
Not even a silver bull like me believes that will happen any time soon…
But consumption does continue to rise, and it won’t take long for growing demand to push silver prices higher once again. Indeed, during the silver bull run that began in 2001, annual consumption far outstripped production.
Of course, investment demand for physical silver also was rising during that time.
Consider that in 2001 silver prices averaged just $4.37 per troy ounce. By 2010, the average price had zoomed to $20.19, a more than fourfold increase in less than a decade.
Prices hit a high in 2011, with an average price of $35.12 an ounce. So, from the time silver entered its historic run to the top, prices shot up more than eightfold.
Since then, however, prices have dropped by more than 40%.
For his part, Neumeyer thinks the industry is at or near the bottom. He’s projecting that silver will sell for between $23 and $25 an ounce by the end of this year.
That would be a 25% recovery at the upper end.
And technology is not only a beneficiary of silver. Neumeyer says First Majestic is able to use high-tech mining equipment more and more as his industry recovers.
First Majestic is increasing production at its mines in Mexico and using sophisticated tech systems to drive down prices. Here’s how Neumeyer explains it:
“One of the most exciting things we launched a year ago now is automating our processes. We‘ve been putting things like SAP [software] in place to monitor all of our accounting processes.
“And we now are tying that into the milling process to automate the mills and automate conveyor speeds, automate line feeding. We‘re putting systems in place where the ores are measured for metal content electronically and no hands are involved in the process.
“It‘s a very exciting project, and we hope to have it completed by the end of 2015. That whole initiative is going to allow us to prepare us for the next leg of growth.”
In fact, the company just reported output of 3.86 million troy ounces of silver for the second quarter ended June 30, an increase of 18% year from the year-ago quarter.
Last year, total production hit 12.8 million ounces, a 40% increase from 2012. Neumeyer thinks he can get output up to 20 million ounces a year by the end of this decade.
Trading at just under $10 a share, the stock is a bargain.
Look at it this way: You can buy a share of one of the world’s premier silver companies for less than half the price of a single ounce of the metal itself.
That makes First Majestic the kind of situation that could hand patient investors huge returns.
If First Majestic just got back to its two-year closing high of $23.73, set on Sept. 21, 2012, that would mean profits of nearly 140%.
Even if we cut that in half and held for three years, we’re still talking profits of 70%.
And remember, Neumeyer is using high-tech to boost output and drive down costs as he prepares for silver prices to rebound – so the likelihood of this coming to fruition is very high.
He’s a very savvy CEO, and I’m glad I got to share his insights with you.
See you next week.
[Editor’s Note: Your feedback is very important. As always, Michael welcomes your comments, questions, suggestions and opinions. Post a comment below… we look forward to hearing from you.]
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