By Rob Driscoll
Like birds of a feather, gold and silver have historically flocked together, and the two precious metal mates have certainly found their wings in 2024.
Gold hit an all-time high in April, and silver parroted the move by breaching the $29 mark last Friday.
Numerous factors suggest that gold and silver will continue their northward migration, with significant investment from various governments such as China, alongside persistent inflationary pressures.
“Strong underlying momentum with the buy-on-dip still the prevailing strategy among traders,” Ole Hansen, head of commodity strategy at Saxo Bank, told Reuters. “Geopolitical risks related to Russia/Ukraine and the Middle East are still playing a supporting role … the focus is changing from the negative impact of lower rate cut expectations towards higher and sticky inflation.”
Bank of America analysts project gold to average $2,500 by Q4 2024, potentially hitting $3,000 by 2025. Silver, they say, would play follow-the-leader, taking it to more than $30 per ounce within the next 12 months.
“The precious metals sector as a whole is starting to benefit from gold being so expensive now,” Daniel Pavilonis, senior market strategist at RJO Futures, told Reuters.
Now, with silver currently trading at a historically low valuation – 1/83 – compared to gold, silver continues to be the metal to watch. Add to that the fact that silver industrial demand will likely benefit from increased investments in electric vehicles, solar panels, the power grid, and 5G networks.
Investors can invest directly in silver on the exchanges, but many see the appealing upside of investing in silver still in the ground. Investing in silver through junior mining equities provides significant leverage to a rising silver price – plus an interest in a growing business.
The challenge, however, lies in is identifying undervalued mining companies with proven assets and a strong backing. With discoveries of large deposits globally becoming increasingly rarer, junior mining companies like New Pacific Metals (TSX:NUAG; NYSE-A:NEWP) stand out having made not one, but two, large silver discoveries over the past few years.
Headquartered in Vancouver, Canada, New Pacific Metals has a market cap of US$334M, a mere fraction of its underlying net asset value, bolstered by its discovery of two large silver deposits in southwestern Bolivia.
New Pacific has already published a Preliminary Economic Assessment (PEA) on its Silver Sand project, which outlines a post-tax Net Present Value (NPV) with a 5% discount of US$726 M. Looking ahead, NUAG plans to release its anticipated (PEA) for its Carangas project in Q3 of this year, highlighting Carangas’ potential as another economically significant discovery.
“Carangas is particularly interesting given its heterogenous nature, harboring sizable silver resources close to the surface – making it easily accessible – plus zones of lead, zinc and gold at depth,” says New Pacific Metals CEO Andrew Williams.
With a disciplined approach to capital planning, management is focused on exploring options in the PEA that would increase the probability of near-term mine development.
“In the upper silver zone at Carangas, there is a higher-grade subset that sits right beneath the surface. One potential strategy is starting operations with this higher-grade subset and building optionality into the mine plan for subsequent expansion,” explains Williams. “Our goal is not merely on Net Present Value (NPV), but on a project that is manageable, financeable, and buildable. Sometimes our industry loses sight of the big picture and becomes enamored by NPV that looks good on a spreadsheet but sacrifices practicality.”
By starting operations in the higher grade subset of the upper silver zone, New Pacific aims to limit initial capital costs, and maximize the internal rate of return (IRR) of the project, while retaining a strong foundation for further expansion down the road.
There is little question that New Pacific is undervalued, considering the NPV of their Silver Sand project and the upcoming Carangas PEA. This value proposition has been recognized by industry powerhouses Silvercorp (TSX:SVM; NYSE-A:SVM) and Pan American Silver (TSX: PAAS; NYSE-A:PAAS). SVM owns 27.4% percent of New Pacific shares and PAAS owns 11.6%, significantly de-risking the projects for investors.
With the current surge in gold and silver prices, junior silver equities can offer significant leverage to the price of silver. While volatility is inherent in the junior mining space, New Pacific, undervalued and backed by major industry companies, stands out as a top value pick for leveraging returns on silver prices during this previous metals rally.
For more information on New Pacific Metals’ projects, please visit newpacificmetals.com/welcome.
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