A Silver Lining

09/09/2014 9:00 am EST


Silver—that seemingly everyday metal—is now vital in consumer electronics, solar power, and even healthcare, explains Michael Robinson in Money Morning.

In fact, the mining chief executive officer I just talked with compared the metal to hot-topic materials like tungsten and graphene.

It's been a tough couple of years for his industry. But Keith Neumeyer, one of the top CEOs in the silver industry, tells me that he sees good times ahead.

Before launching First Majestic Silver Corp. (AG) in 2002, Neumeyer ran First Quantum Minerals Ltd. (FM:TSX), a sprawling copper company that produces some 1.3 million tons a year.

During our recent chat, he talked more about what he calls silver's "industrial" uses than he did about its role as a store of value and hedge against inflation.
Simply stated, Neumeyer told me, the more the world depends on technology, the more it depends on silver.

Solar power in particular is set to further drive silver's use. Silver paste can now be found in the grand majority of solar cells. And the Silver Institute projects that more than 100 million troy ounces of silver will be used for solar energy by 2015.

The metal is starting to play a vital role in water filtration and purification. Silver keeps bacteria and algae from building up in water filters and purification systems in municipalities, hospitals, spas, and pools.

And hospitals have been taking advantage of the metal's antibacterial properties by using silver-embedded equipment to thwart the life-threatening superbug MRSA.

Silver's use in consumer electronics keeps growing as well-up 120% between 1999 and 2011. The metal's excellent conductivity means it's in just about every piece of electronics you own, and also CDs, DVDs, and plasma screens.

In 2001, silver prices averaged just $4.37 per troy ounce. Prices hit a high in 2011, with an average price of $35.12 an ounce. Since then, however, prices have dropped by more than 40%.

For his part, Neumeyer thinks the industry is at or near the bottom. He's projecting that silver will sell for between $23 and $25 an ounce by the end of this year.
Neumeyer says First Majestic is able to use high-tech mining equipment more and more as his industry recovers.

First Majestic is increasing production at its mines in Mexico and using sophisticated tech systems to drive down prices.

Last year, total production hit 12.8 million ounces, a 40% increase from 2012. Neumeyer thinks he can get output up to 20 million ounces a year by the end of this decade.
Trading at just under $10 a share, First Majestic Silver stock is a bargain.

If the stock just got back to its two-year closing high of $23.73, set on September 21, 2012, that would mean profits of nearly 140%. Even if we cut that in half and held for three years, we're still talking profits of 70%.

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