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Miner Sees Silver Price Surging Ninefold as Global Gadgets Boom

Natalie Obiko Pearson | May 26, 2016

  • Top-performing stock First Majestic forecasts metal at $140/oz
  • Price will climb as users seek to lock in supplies, CEO says

A major Japanese electronics maker approached First Majestic Silver Corp. for the first time last month seeking to lock in future stock, a sign of supply concerns that could boost the metal’s price ninefold, according to the best-performing producer of the metal.

“For an electronics manufacturer to come directly to us — that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three-digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

That’s a bold forecast. While silver has rallied 19 percent this year to leapfrog gold as the best-performing precious metal, it settled lower Wednesday at $16.26 an ounce on the Comex in New York and reached a record of just under $50 in 2011. The highest projection among analysts surveyed by Bloomberg is $57 an ounce in 2019.

Still, there are other optimistic signs for silver rising. Hedge funds expanded their bullish bets on the metal to an all-time high earlier this month. Because the commodity holds appeal both as a store of value as well as for its multiple industrial uses, it surged earlier this year on speculation that the pace of U.S. interest-rate hikes will slow and that Chinese manufacturing may be improving.

First Majestic is the second-biggest silver producer in Mexico, which supplies more of the precious metal than any other country. As such, the company has been a primary beneficiary of the silver rally after choosing not to diversify into other metals like many of its peers. The company earns more than 63 percent of its sales from silver and its share price has more than tripled this year.

‘Strategic Metal’

While long coveted for use in jewelry, coins and utensils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver consumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, according to data compiled by GFMS for the Washington-based Silver Institute.

“Silver is not a precious metal, it’s a strategic metal,” Neumeyer said in an interview in Vancouver, where the company is based. “Silver is the most electrically conductive material on the planet other than gold, and gold is too expensive to use in circuit boards, solar panels, electric cars. As we electrify the planet, we require more and more silver. There’s no substitute for it.”

Industrial demand is set to increase, driven by rising incomes and growing penetration of technology in populous, developing nations, as well as thanks to new uses being found for silver’s anti-bacterial and reflective properties in everything from hospital paints to Band-Aids to windows.

“Over the next 10 or 20 years, more and more people are going to be using these devices, and silver is a very limited commodity,” Neumeyer said. “There’s just not a lot of it around.”

Use of silver, including investment demand, coin sales and what goes into inventories to settle trades, has outstripped annual supply of the metal in every year since 2000, according to data from GFMS, a research unit of Thomson Reuters Corp.

“The silver rally is just beginning,” Neumeyer says. “What we’ve seen in the last two months is just the beginning of the next bull market.

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