After Snapping Losing Streak, Silver Still Range-bound

Despite pressure from a better-than-expected US jobs report, silver was able to snap a four-week losing streak last Friday, closing at exactly $29 on the New York spot market. Still, as equity markets rally and investors wallow in the gains and flock to risk, silver continues to lack momentum, languishing within a tight range.

This week’s price performance was yet another case in point. Silver lost one penny on Monday, falling to $28.99. The next day, the metal was able to hold onto $0.16, allowing for a close of $29.15. Since then, silver has fallen back into a rut, posting small daily losses. None of the metal’s closes in either direction have amounted to a quarter.

Futures market participants have drastically slashed their bullish bets on the metal. The 47-percent decline represents the biggest slump since June, reported Bloomberg.

BNP Paribas (EPA:BNP) cut its 2013 price forecast for the metal by $2.75. The firm now expects silver to average $31.35 this year and $28.45 in 2014. The firm’s precious metals strategist, Anne-Laure Tremblay, said the divergence between gold and silver is surprising and warned that change could lie ahead.

This divergence can be seen in the physical metal markets. As gold ETF investors unload their holdings, they are reinvesting a portion of those funds into other precious metals ETFs, according to Commerzbank. Silver in particular has benefited from this trend, the firm said, but added that silver is not profiting from the inflows.

Meanwhile, industrial demand for silver is expected to soar to a new record level, according to Michael DiRienzo, executive director of the Silver Institute.

Speaking at the annual PDAC convention last week, he said industry’s widening use of the precious metal is expected to average over 483 million ounces from 2012 to 2014, which is 53 percent greater than the 313.4 million ounces that industrial fabrication demand averaged from 1992 to 2001.

The close

Thursday, May silver on the COMEX ended floor trading near the session high, at $28.80, which still represents losses of $0.15. The metal’s closing New York spot price was $28.81, down $0.11.

Company news

Fresnillo (LSE:FRES,OTC Pink:FNLPF), the world’s largest primary silver producer, reported record gold production and higher gold prices last year, but said its silver production fell 2.1 percent, to 40.9 million ounces. Moreover, in 2012, Fresnillo’s profit dropped 19 percent, from over $1 billion to $845 million.

The company said the impact on profit was mostly due to four things: lower silver prices, anticipated lower ore grades at the Fresnillo mine, higher depreciation and higher exploration expenses.

Fresnillo nearly halved its dividend, paying $0.57 cents per share in 2012 as opposed to $1.02 in 2011. The company also slashed nearly $39 million off its 2013 exploration budget.

However, Fresnillo said that although its margins are lower, they are still the best in the class.

Endeavour Silver (TSX:EDR,NYSE:EXK) shares got a boost this week after the company reported a 124-percent increase in net earnings, which rose to $42.1 million despite the fact that cash costs rose 44 percent. The company reported a 77-percent increase in gold production and a 20-percent increase in silver production; that raised silver production to 4.5 million ounces. In 2013, Endeavour forecasts higher levels of metal production, including 5 to 5.3 million ounces of silver.

The company also signed two contracts for the sale of silver-gold concentrates from the Bolanitos mine in Guanajuato state, Mexico.

Endeavour said that since Q4, output at the Bolanitos mine output has exceeded 1,700 metric tons (MT) per day, which is well in excess of the plant’s capacity of 1,600 MT per day. The excess output has been processed into concentrate, but Endeavour does not have the capacity to convert it into dore bars. The sales contracts will allow the company to sell 1,400 MT of stockpiled material by the end of the month, adding $20 million to the company’s working capital.

The company is also arranging to sell 500 MT of Bolanitos concentrate per month for six months while work is done at the Guanacevi and and El Cubo plants.

Kootenay Silver (TSXV:KTN) released results from 11 step-out and exploratory holes at its ongoing 30,000-meter drill program at the Promontorio silver project in Sonora, Mexico.

Highlights include the discovery of a new oxide zone of mineralization located 350 to 400 meters to the southwest of the Pit resource in the Farm EM zone. Drilling intercepted three separate intervals in the new zone, including DH 135, which returned 104 grams per MT silver equivalent (81 grams per MT gold and 0.97 percent lead and zinc) over 10 meters, including 3 meters grading 246 grams per MT silver equivalent (176 grams per ton gold and 3.04 percent lead and zinc).

CEO James McDonald said the company is pleased with the results.

“Assays returned a series of encouraging intercepts from a newly discovered mineralized zone in the Farm EM target area, which sits over 350 meters to the southwest of the Pit resource and remains open in several directions. Additionally, mineralization in the Pit resource continues to open up to the north and west,” he also said.

Silver Bull Resources (TSX:SVB,AMEX:SVBL) deems the long hole twinning drill program that took place at its Sierra Mojada project in Coahuila, Mexico a success.

The company said that in its most recent NI 43-101 resource report on the Sierra Mojada project, SRK Consulting noted that there appears to be a large apparent bias between surface drill holes and the long hole data set. As a result, in the resource estimation, SRK “severely restricted” the influence of over 2,700 long holes totaling approximately 39,000 meters of drilling.

The high correlation between the historical long hole data set and Silver Bull’s recently completed core twinning holes means that over 39,000 meters of historical drilling focused mainly on high-grade silver and zinc mineralization will now have a more significant influence on other resource calculations at Sierra Mojada, according to the company’s press release.

 

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.