Is This A Buy The Dip Moment In The Junior Silver Stocks?
Excelsior Prosperity w/ Shad Marquitz (12/28/2024)
Happy Holidays to all the readers here on this Substack channel and wishing everyone a great end of the year and start to 2025!
For a number of fundamental and technical reasons, I’m very constructive on the medium-term and longer-term trajectories of the energy stocks exploring for or extracting oil, nat gas, uranium, or the critical industrial metals like copper, nickel, zinc, platinum, and palladium from the ground. However, one of the larger mismatches I continue to see in equity valuations, based on how the underlying commodities have trended and how the related resource stocks have traded, remains in the precious metals equities. There are plenty of bizarre valuations in both the gold and silver stocks, from producers and developers all the way down to the earlier-stage exploration stocks, and no shortage of bargains out there to pick from.
This morning I sat down for some quiet reflection time, and caught up on reviewing resource sector charts, and thought about which companies I was excited about for 2025 within my own portfolio. While it is definitely a mixed bag, I remain most animated by the opportunities seen where the junior silver, gold, and uranium stocks are trading in the here and now. When I counterbalanced that against the actual shareprice performance of some of the names of companies with solid ongoing value creation and good news catalysts on tap, and ruminated more on some of the companies where I’ve had engaging discussions with management teams over the last few months… I remain perplexed by where the junior gold, silver, and uranium stocks are being currently valued.
It can be quite frustrating to apply logic and reasoning to investing, expecting a certain resolution based on fundamentals, but then see a glaring mismatch in share price performance that is completely at odds with such analysis…
That is how the cookie crumbles, but is precisely what makes for inefficient market opportunities that can be capitalized upon. I’m also well aware of the old John Maynard Keynes adage that “Markets can remain irrational longer than you can remain solvent.”
While many investors are plagued by the inability to actually “buy low,” that has never been an affliction I’ve suffered from. I regularly celebrate the ability to accumulate quality companies at severely discounted prices… and if anything I am guilty of getting a little itchy on the trigger finger and adding to positions a bit too early during downturns and corrective moves lower.
During tax loss selling silly season over the last few weeks, I’ve had that same itch with regards to a number of gold, silver, and uranium stocks, as they have corrected lower (often in sympathy with positive company newsflow). While rebalancing my portfolio here at year-end, I blew out partial or total positions on some of my portfolio dogs, where I felt management had disappointed on their stated plans and had their valuations overly punished as a result. However, I utilized those losses to wash out all my positive trading gains from this prior year.
This tax loss selling freed up funds to then plow back into existing positions or new positions where I felt management was either executing on their stated goals, but was not seeing the correlation of market support, or that they were legitimately in the midst of a turn-around story, and the market was still penalizing them by viewing them from the lens of the past instead of where they were headed in the future.
As we’ve stated so often in this channel, “The past does not equal the future,” and as hockey legend Wayne Gretsky so eloquently stated; one needs to “Skate to where the puck is going, not where it has been.”
As many ideas swirled around my head vying for attention, I ended up abandoning pecking away at writing 3 different partial articles on gold producers, copper developers, and uranium / nuclear stocks today. The truth is that my mind kept coming back to the silver stocks and many of the recent company interviews I’ve conducted over at the KE Report.
Over the years I’ve learned to trust my intuitions and so I’m putting out another article on opportunities in the silver stocks. [Don’t worry, I’m still going to release those other articles on gold, copper, and uranium stocks in the near future; but just felt it was crazy to ignore how dramatically the silver stocks have corrected over the last 2 months and the opportunity that is presenting itself to investors at present.]
With all of that said, let’s get into it…
Over the past month I’ve had several discussions with oil & nat gas experts extolling how oversold the energy stocks are. Sure… they’ve sold off hard. When I’ve talked to different thought leaders in the uranium sector, they were pounding the table on just how oversold this correction in the U-stocks has become the last few months, and I don’t disagree. Try talking to most management teams of copper juniors and you’ll discover that they are way down the spiral of despair as to how the copper explorers and developers have fared the second half of 2024. I guess all the supply/demand fundamentals screaming for higher copper prices are being ignored… and momentum is clearly not in play.
However, it is the management teams of many gold and silver junior companies, that are so used to being in the penalty box and have been so chronically undervalued for so many years, that they seem less effected and more resilient to this latest corrective period. I’ve been surprised by their underlying optimism considering the lack of leverage everyone anticipated in the backdrop of surging underlying precious metals prices for most of 2024.
Most of this year gold and silver gains trounced even the very bullish moves in the US equity markets (which had hit nosebleed valuations), but the PMs did finally ratchet down some the last 2 months of the year.
The larger quality PM stocks had some really nice moves higher this year, but then gave up much of their gains from late October through year-end, bumming out the gold and silver bug investors once again. Investor sentiment, with regards to gold and silver juniors, has soured during tax loss season, even though it was a constructive year overall. These are the times to sit up and pay attention, as they often are ideal times for accumulating positions on the cheap.
In particular, the CEOs I’ve talked to that are running junior silver producers or developers fully recognize their poor share price performance lately, and they are not happy about that, and some are legitimately puzzled as to why the selling pressure has been so extreme, which is fair. Conversely, they remain very encouraged by the work their operations teams are doing on the ground, each pointing to a host of upcoming company catalysts that they are genuinely excited about for 2025.
What strikes a chord with me is that company executives are optimistic even at current silver prices hovering around $30 (although it is uniformly anticipated that we’ll see higher silver prices in the mid to high $30s or even low $40s next year as it catches up to the moves gold has made previously).
Clearly higher prices are better, but it isn’t like silver is back at $11.77 like it was during the pandemic crash of 2020, or even back down at $17.40 like it was in September of 2022. Silver is hovering on either side of $30, after having been as high as $35 briefly back in late October. This is not a terrible underlying price environment by any stretch, and the companies know that, even if retail investors have lost perspective.
Now maybe this is all unwarranted optimism, or even delusional thinking from heavily invested management teams, that are simply eating their own cooking. Having said that, there really are a lot of fundamental and technical reasons to believe that silver will spend more time in the $30s than the $20s next year, and that silver heading up into the $40s is not a pipe dream.
Earlier this last week I had a very engaging discussion with Shawn Khunkhun, President and CEO of Dolly Varden Silver (TSX.V:DV – OTCQX:DOLLF), to review the key milestones they achieved in 2024, and to look ahead to the catalysts and growth to come in 2025 at the Kitsault Valley Project; located in the Golden Triangle of British Columbia.
Dolly Varden Silver – Milestones Achieved In 2024 – Key Catalysts And Growth Initiatives For 2025
Prior to recording, Shaun and I had a brief conversation about how genuinely excited he was for 2025, and how good of a year they’d had in 2024, despite seeing their shareprice crater by over 41% from a peak of $1.46, when I’d seen him last in Fort Lauderdale, FL in mid-October (during the time that silver screamed up to over $35), down to $0.86 the prior week when silver dipped down below $30.
I’m a Dolly Varden shareholder, and realized it had corrected hard, along with the rest of the sector, but because my position has been well in the green for some time I really didn’t realize the magnitude of the recent correction until he said that out loud. [I was stunned as they’d had continual good news. Wow!]
This got me curious to start checking in on a number of the silver stocks I’d been chatting with and also held in my portfolio, just to see just how bad the last couple of months had actually been.
Sticking with Silver advanced explorers and earlier developers, at the end of last week I also had a nice update with Andrew Pollard, President and CEO of Blackrock Silver (TSX.V:BRC – OTCQX:BKRRF), where he outlined the key Company initiatives from 2024, that will lead into next year’s growth catalysts on the 100% controlled Tonopah West Project, in Nevada.
Blackrock Silver – Recapping The Key Initiatives From 2024 Leading Into Growth Catalysts For 2025
Blackrock Silver had released a series of good news results the last couple months about high-grade drill results from their expanded 22,000 meter Measured and Indicated (M&I) conversion and expansion drill program the company conducted in 2024, and that the resources were growing and the average grade was rising.
Despite that good fundamental news, their share price had also sold off by just over 40%; from the recent October peak at $0.58 down to a recent low of $0.345 last week. Why in the world are these silver stocks getting creamed on really good newsflow?
Yes, I realize silver went from $35 down to $30 over that same time period (dropping by 14%), but neither of these companies are in production, and at their current stage of company, as advanced explorers, they were delivering on their executables with great success. This selling just seems really overdone.
Curious as to whether these were just isolated cases over the last couple months, I decided to check in on other quality advanced silver explorers / earlier-stage developers… so AbraSilver came to mind.
Earlier in the month on December 3rd, I had just talked to John Miniotis, President and CEO, and Jeremy Weyland, Senior VP of Projects and Development of AbraSilver Resource Corp (TSX.V:ABRA – OTCQX:ABBRF). They had joined me to review the results of their updated Pre-Feasibility Study (PFS) for the Diablillos silver-gold project, located in Salta Province, Argentina, and it was undeniable good news for the company with the economics improving substantially once the new RIGI law incentives were factored in.
AbraSilver Resource – Key Takeaways From The Updated PFS At The Diablillos Silver-Gold Project
Again, I’ve had a position in AbraSilver in my portfolio for some time that is well in the money; so while I knew most silver stocks had sold down some, I just hadn’t recognized the degree to which the stock had pulled back lately (because on my screen it had just gone from green to less green).
Holy smokes! AbraSilver was down 37.4% from the October peak of $3.58 down to the recent low last week at $2.24, after putting out more great drill holes and a far more attractive PFS on their project with better economics. This silver sector review was getting nuts!
Rifling through my portfolio and thinking back to prior discussions with quality management teams, I checked in on Silver Tiger. I remembered that back in early November, over at the KE Report, that we spoke with Glenn Jessome, President and CEO of Silver Tiger Metals (TSX.V:SLVR – OTCQX:SLVTF), to review the key takeaways from the Pre-Feasibility Study (PFS) on the open-pit mine at the El Tigre Silver-Gold Project in Mexico.
We also reviewed their plans to have the Preliminary Economic Assessment (PEA) out on the underground mining second phase out in the first half of 2025. We also expanded the conversation to touch upon the positive political change in administrations in Mexico in October, and what it means for the mining sector and improving expectations around permitting moving forward.
Silver Tiger Metals – Key Takeaways From El Tigre Open Pit PFS, Looking Ahead To Underground Mining PEA
Once again, the company’s PFS released on the open-pit portion of the project was undeniably positive news. The plan to get drilling at depth again to work on the PEA for the underground high-grade portions of the deposit at El Tigre was another strong catalyst. Even the improving political landscape in Mexico in October should have been a boon to permitting expectations for H1 2025, and yet this stock was nearly chopped in half in the backdrop of all that positive newsflow.
The stock fell by 43.6% from the October peak of $0.355 to recent lows last week at $0.20.
Does any of that make any logical sense just because silver pulled back by 14%? No it doesn’t make any sense… but that is the market we have.
I could go on showing how overdone this recent correction has been in a number of other quality silver advanced explorers or developers like Discovery Silver, Vizsla Silver, GoGold Resources, Aftermath Silver, or Defiance Silver; but I think the point has been made. This has been simply ridiculous recent trading action in many quality junior silver explorers and developers, on the back of continued positive newsflow.
Next, it crossed my mind that maybe this outsized selling pressure was just hitting the pre-revenue junior companies, and that maybe the junior producers had been faring better lately. Nope, their valuations have been decimated as well, regardless of their good news.
Back at the very end of November, I got an update from Arturo Préstamo Elizondo, Executive Chairman and CEO of Santacruz Silver Mining Ltd. (TSXV: SCZ) (OTCQB: SCZMF), to recap the key takeaways from the Q3 2024 financials and operations at their 1 mine in Mexico, and 5 mines, 3 mills, and ore feed-sourcing and metals trading business in Bolivia.
Santacruz Silver Mining – Comprehensive Overview Of Q3 Financials, 1 Mine In Mexico, And 5 Mines, 3 Mills, And An Ore Feed-Sourcing And Metals Trading Business In Bolivia
Their Q3 2024 operations released on October 24th showed a solid mid-tier silver equivalent production of 4,644,013 silver equivalent ounces, and their actual silver production increased by 2% compared to Q2 2024. As noted in a previous article here https://excelsiorprosperity.substack.com/p/opportunities-in-growth-oriented-c76 , that is more quarterly silver equivalent production that Silvercrest, Gatos Silver, Aya Gold and Silver, or Endeavor Silver, and yet they are being valued at 1/10th to 1/20th of these other mid-tier silver producers.
Their Q3 2024 financial numbers released on November 25 showed their revenues increased 21%... their adjusted EBITDA increased 242%, and their cash and cash equivalent increased 505% over Q3 2023.
In the interview linked above with Arturo he stated that he was even more excited about how Q4 numbers were going to look.
One would think that all of that fundamentally positive news would be a reason for a company to surge higher in valuation, but from the October peak at $0.45 down the recent December lows at $0.255 the company also corrected by over 43%.
When at the New Orleans Investment Conference in mid-November, we sat down with Nathan Harte, CFO of Avino Silver and Gold Mines (TSX:ASM – NYSE:ASM), to recap the key takeaways from the Q3 2024 financials and operations. Then we took a deeper dive into the Company’s 5-year production growth plan, to become a Mexican intermediate silver producer, with the development of both the La Preciosa Project and the Tailings Project.
Avino Silver and Gold Mines – A Review Of Q3 Financials, And The Development Pipeline For Organic Growth With Both The La Preciosa And Tailings Projects
Nathan pointed out that the company was making good money at current silver, gold, and copper prices, that there was a 13% increase in production at the mine and an increase to revenues of 19% from Q3 2023, and then also stated he was more excited about Q4 numbers.
Again, one would think that these positive tailwinds would equate to higher share prices and a better company valuation, but ASM also corrected by 43% from the October peak at $1.56 down to where it closed on Friday at $0.89. That’s crazy!
Is that logical or appropriate price action based on the fundamentals? No… not at all.
Again, silver dropped by 14% over that time period, and gold and copper pulled back even less, so why in the world does it make sense to nearly cut the company valuation in half in 2 months? They weren’t even factoring in the higher silver price in those Q3 numbers anyway and the high water mark in silver was in Q4 which hasn’t even been reported yet. There is no logic here folks… just indiscriminate selling pressure as the sentiment has hit the basement once again.
This last week I also spoke with Alex Langer, President and CEO of Sierra Madre Gold And Silver (TSXV: SM) (OTCQX: SMDRF), a burgeoning new up and coming silver producer in Mexico. This company has had positive news catalysts the last few months in a row that also fell on deaf market ears. Alex joined me to review the news the company put out December 10th announcing industrial production at the La Guitarra Mine and processing plant, in Mexico; with commercial production slated for Q1 of 2025.
Sierra Madre Gold And Silver – Industrial Production Achieved in December At The La Guitarra Mine, With Commercial Production Slated For Q1
The La Guitarra Mine complex is a permitted, past-producing underground mine, which includes a 500 t/d processing facility that was operated until mid-2018 by First Majestic (TSX: AG) (NYSE: AG). Sierra Madre purchased this mine and surrounding district scale land package with multiple prior producing mines from First Majestic Silver in 2023, and just went into test mining on June 25th of 2024.
The plant has been operating at 86% of the milling circuit nameplate capacity, or 516 wet metric tonnes per day, for the last two months, exceeding the engineering standard of 80% for 30 days necessary to declare industrial commercial production. Alex shares the milling throughput has consistently been over 500 tpd in mid to late December, so the announcement of commercial production should be imminent.
Ramping up towards commercial production is typically and exciting time for any company and is usually a rewarding share price appreciation during the “pre-production sweet spot” as researched and dubbed by Lobo Tigre.
However, because of where this ramp up towards commercial production has timed out with the silver equities falling out of bed this key catalyst-rich period for the company was rewarded with a 27.5% correction from the October high of $0.70 down to the December low of $0.425. Makes sense right? (Nope)
On December 3rd James Anderson, CEO of Guanajuato Silver (TSX.V:GSVR – OTCQX:GSVRF), joined me to outline the key takeaways from Q3 financials, the ongoing optimization at their operations from their 5 silver-gold mines and 3 processing facilities in central Mexico.
We get an exploration update from the Pinguico Mine and the Valenciana Mines Complex along with processes underway at the Cata mine and mill, review the 2 new filter presses at the Topia Mine and mill, look ahead to an updated resource estimate at El Cubo Mine and potential options for filling more capacity at the El Cubo mill, and we discuss the commissioning of the ore sorter machine at the San Ignacio Mine.
Guanajuato Silver – Q3 Financials Show Second Quarter Of Positive Mine Operating Income, Debt Repayments, Ongoing Optimization Of Operations, And Exploration Update
James highlighted the improvements in decreasing cash costs, decreasing all-in sustaining costs, and the increase in silver production over the prior quarter, and yet we saw the same pattern play out as in all the other companies with good newsflow… an over-sized sell-off.
The company has also now paid off 2 of the 3 loans it had in place, which allowed them to move into production. That is normally considered a good thing.
Additionally, Guanajuato Silver announced an updated resource at their El Cubo project where the had reduced their measured an indicated resources by 23% after mining it for 3 years, but conversely they had boosted the inferred mineral resources by a whopping 85% over previous resource estimate to 35.6 million silver-equivalent ounces (“AgEq”), and the inferred tonnes increased by 179% increase over the previous resource estimate.
Guanajuato Silver –Updated Mineral Resource Estimate At El Cubo – Exploration Update From Multiple Mines
The market showed it had internalized these improving metrics in production, debt repayment, and resource expansion by selling the company down by 47.6% from the October peak of $0.315 down to the recent peak last week of $0.165. Does any of this make sense from a rational point of view…?
Look, from a technical perspective, all of these charts show that silver juniors are down about 40% +/- over the last 2 months.
What is worrisome is that pricing has crashed down below the 200-day moving average, putting things in a bearish posture. If investors want to play things from a more conservative vantage point, or from a momentum perspective, then they’ll want to wait and see pricing reclaim the 200 day moving average.
Could the pricing pressure remain where these stocks just keep struggling? Of course that is possible, but is starting to seem less probable.
However, as outlined above, on a company by company basis, there has been a slew of really positive newsflow and constructive value creation, and yet their valuations have been decimated in just the last 2 months. The first quarter of the year is seasonally a stronger period for the gold and silver stocks, especially in January and February, and over the last decade or so they typically rally strong in the Q1 Run (although last year was an outlier so there are no guarantees).
Eventually “Truth will out.” If these companies keep putting out good drill results, keep expanding resources, and keep putting out improved production metrics, then eventually that will be too hard to ignore. The fundamental value creation will eventually be picked up by savvy analysts and discerning investors. This will then show up in price action on the charts, and then that will bring in the momentum traders.
I asked in the title of this if it was time to buy the dip in junior silver stocks? Everyone has to do their own due diligence and come to their own conclusions, and take responsibility for their own actions, so this is not investment advice…
Having said that: I’ve been buying this dip; and will continue to do so the more valuations stay divorced from the underlying strength in the fundamental catalysts.
Thanks for reading and may you have prosperity in your trading and in life!
Shad