The Gold-Silver Ratio Remains Abnormally High for 17-months, What Does this Mean for Silver?

What is the gold silver ratio?

The gold-silver ratio is a technical metric revealing to investors how many ounces of silver are required to buy one ounce of gold.? Over time the ratio varies and precious metal traders use the evolving ratio as a forward indicator to see when they should buy silver and sell gold, or conversely, when they should sell silver and buy gold.

Gold-Silver Ratio in 2023

Throughout this year the gold-silver ratio has remained high, above 80, this means it currently takes 80 ounces of silver to purchase one ounce of gold, importantly this is relatively high compared to the 30-year average for the ratio, 67.

Recent History

In recent history there has only been two period where the gold-silver ratio has remained over 80 for a sustained period of time, and both times have seen a subsequent large rise in the silver price (Figure 1).

The first was in the early 1990’s when the gold-silver ratio remained above 80 for 39 months (First Red Line Figure 1), at the end of this high-ratio period the silver price started a dramatic rise, which saw prices remain high for the following 5-years and rising by 87% over this period.

The second was more recent, in the late 2010’s, when the gold-silver ratio remained above 80 for 20 months (Second Red Line Figure 1), at the end of this high-ratio period the price rose 82% over 15 months.

The gold-silver ratio has, by and large, remained above 80 since May 2022, 17-months at the date of writing (Third Red Line Figure 1), while it is difficult to know how long this high gold-silver ratio period will last, the historic data suggests that when the ratio does drop below 80%, we could see the silver price rise from its current level of US$21/oz to all-time highs.

Source: Mining and Metals Research Corporation Ltd.

Silver Producers and Explorers that could benefit from rising silver prices.

A dramatic increase in the silver price would result in impressive margins for silver miners and is also likely to increase the market value of silver explores. Here are some producers and explorers that could worth taking a closer look at should the silver price break out.

Producer - Silvercorp Metals

Silvercorp Metals Inc. is a silver miner with operations located in China. During its last quarter the company generated over US$94.2 million in revenue, and US$15.6 million in net income at an all-in sustaining cost of US$11.1/oz Ag and ended the quarter with net cash of US$143.3 million.

Silvercorp has been operating in Chine since 2011 and consistently generated a profit every year. The company has expanded its business without debt on its balance sheet and has returned over US$123 million to investors over this period. Silvercorp is expected to increase its silver production to 7 million ounces of silver in 2024 from 6.6 million in 2023.

In addition to its organic growth, Silvercorp recently reached an agreement to acquire ASX-listed OreCorp Limited for total consideration of A$267 million (US$175 million). OreCorp holds an 84% interest in the Nyanzaga Gold Project located in Tanzania, which has over 2.6 million ounces of gold in reserves. A Definitive Feasibility Study for the project returned a post-tax net present value at a 5% discount rate of US$905 million.

The acquisition of OreCorp would give Silvercorp a diverse asset base in terms of both commodity and jurisdiction, as well as an exciting growth opportunity that could potentially add 230,000 ounces of gold per annum for over 10 years. The transaction will take place through a scheme or arrangement and is expected to close towards the end of November or start of December 2023.

Producer - Fortuna Silver Mines Inc.

Fortuna Mining is a silver miner with five operating mines in Argentina, Burkina Faso, C?te d'Ivoire, Mexico, and Peru. During its last quarter the company generated over US$364.4 million in revenue, and US$15.3 million in net income at an all-in sustaining cost of US$19.6/oz Ag and ended the quarter with net debt of US$192.4 million.

Established in 2005, the Company commenced initial operations at the Calloma Silver Mine in Peru in 2007, producing 486,466 ounces of silver in its first year of operations, since then it has expanded its operations with an additional four mines and increased production levels to over 34 million ounces of silver equivalent production, with its fifth mine, Séguéla in C?te d’Ivoire, commencing production in September of this year.

The Company also recently closed the acquisition of ASX-listed, Chesser Resources Limited, for total consideration of A$89 million (US$57.05 million). Chesser owned the Diamba Sud Gold Project, located in Senegal, which has a resource base of 860 thousand ounces of gold. A Scoping Study for the project returned a post-tax net present value at a 5% discount rate of US$218 million.

The acquisition of Chesser Resources gives Fortuna an increased West African footprint in a new and emerging gold discovery region, potentially increasing annual production levels by upwards of 90,000 ounces of gold equivalent over 7 years.

Producer - Hecla Mining Company

Hecla Mining Company is largest producer of silver in the United States, with four operational mines in North America. During its last quarter the company generated over US$377.6 million in revenue, and made a US$19.1 million net loss at an all-in sustaining cost of US$10.3/oz Ag and ended the quarter with net debt of US$453 million.

Hecla, has history unlike any other Mid-Tier Miner, having been formed in 1891, and produces over 45% of all the silver production in the United States and aims to be the largest producer in Canada by 2024. Hecla is anticipating increasing production from 36.5-33.9 million ounces of silver equivalent to. 38.5-41.5 million ounces of silver equivalent by 2024.

Hecla has recently acquired TSX-listed ATAC Resources Ltd. for total consideration of C$39 million (US$28.6 million). ATAC’s principal assets were the large exploration stage, Rackla and Connaught properties in the Yukon, which cover over 1,830 square kilometres, and contain identified occurrences of gold, silver, and base metal mineralization.

The ATAC acquisition gives Hecla a significantly increased exploration footprint in a low geopolitical risk jurisdiction, with the potential for significant grass roots discoveries.

Explorer - New Pacific Metals Corp.

New Pacific Metals Corp. is an advanced stage exploration company with three projects located in Bolivia. The Silver Sand Project is the most advanced project with a resource base of 214.8-million-ounce silver at an average grade of 113.8g/t silver and a preliminary economic assessment, which defined a post-tax net present value of US$726 million, based on a silver price of $22.50/oz.

New Pacific is also advancing the Carangas Silver Project, also which has a resource base of 669.6 million ounces of silver equivalent, at an average grade of 80 g/t silver giving the Company a total resource base of 884.4 million ounces of silver equivalent at an average grade of 86 g/t. No economic study has been completed for this project to date.

New Pacific has recently raised C$35 million and is now well funded to continue to advance its projects. The Company is now preparing a pre-feasibility study for the Silver Sand Project and moving towards a preliminary economic assessment at the Carangas Silver Project.

Explorer - Discovery Silver Corp.

Discovery Silver Corp. TSX:DSV, OTCQX:DSVSF . is advancing its Cordeo Silver Project, located in Mexico. The Cordeo Silver Project has a resource base of 1,299-million-ounces of silver equivalent at an average grade of 47 g/t silver equivalent. A preliminary feasibility study for the Cordeo Project, defined a post-tax net present value of US$1.2 billion, based on a silver price of $22.00/oz.

As of June 2023, Discovery Silver had net cash of C$68 million as it looks to complete a feasibility study in H1 2024.

Explorer - Vizsla Silver Corp.

Vizsla Silver is advancing its Panuco Silver Project, located in Mexico. The Panuco Silver Project has a resource base of 218.9-million-ounces of silver equivalent at an average grade of 463 g/t silver equivalent.

Vizsla is continuing to drill at Panuco and expects to produce an updated mineral resources estimate in H2 2023 with a preliminary economic assessment to follow in 2024.

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