Silver ETF outperforms mining stocks

JOHANNESBURG -

Silver may have recently pushed through 27-year highs to over $18 an ounce, but investors in silver stocks remain far from convinced, with the average listed company in the sector trading 33% lower than 12-month highs. The best performing "stock" in the sector, which includes a selection of 50 names, is an ETF, in the form of iShares Silver (SLV US, $178.77a unit).

The multi year resources boom that has fully extended through raw materials, commodities and metals has seen lots of new names cropping up on stock exchanges, leaving investors with ever-wider choices. The total market capitalisation of the 50 selected silver names (reflected in the table below) is $41.2bn, falling short of the single market capitalisation of the world's most valuable gold stock, Barrick (ABX US, $49.61), at $43.1bn, and far short of the world's biggest diversified resources stock, BHP Billiton (BLT LN, £16.18), which currently carries a market value of $192bn.

Even within the silver sector, Mexico's Penoles (PE&OLES* MM, P289.50), which in finer detail is diversified beyond silver, comprises nearly a quarter of the value of the combined silver sector reflected. Penoles ranks as one of the better performers in the silver sector, but behind the likes of Coeur d'Alene (CDE US, $4.80), Pan American Silver (PAAS US, $36.84), Silvercorp (SVM CN, C$9.58), and JSC Polymetal (PMTL LI, $8.68).

JSC Polymetal has made significant inroads into investor portfolios in the past while. The stock is ranked as Russia's largest silver producer with four operating mines and a number of prospective exploration licenses. The operating company has been commended for its strong track record, building all of its mines on time and on budget using its in-house technical team.

As for the metal price, recent levels have exceeded consensus expectations. On the fundamentals, the general view is that global demand for silver will continue to outpace new mine supply, and that increases to industrial and investment segments of global demand will more than offset continued declines in the photographic segment. The combined overview suggests that when the silver price cools off, consolidation among listed stocks may set in.