The Day for Silver

05/06/2005 12:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

"Silver Standard is probably ‘my favorite company never recommended,’" quips Adrian Day. "Although we own a lot of the stock in our money management company, it has never been recommended in our Global Analyst newsletter. We’ll now rectify that."

"Silver Standard (SSRI NASDAQ) has among the largest silver resource of any company, with almost 1 billion ounces of silver at 17 projects in seven countries. But the company has no producing mines, preferring, until recently, to eschew production to avoid the pitfalls that often accompany mining. In addition, the company has chosen to keep its resources until prices are higher. Partly for this reason, and because it is among the purest of the silver companies (with over two thirds' exposure to the white metal), the stock has arguably the most leverage to silver of any silver stock.

"More recently, given the higher silver price—at $7.25, not far off its recent high, and nearly twice where it traded throughout most of the 1990s and 2000s—as well as the company’s greatly increased balance sheet, the ‘no-production’ policy has shifted. Though the company intends keeping most of its projects on the shelf for now, it is advancing towards production at several projects and will likely be producingat two (or even three) projects within the next couple of years. These include Manantial Espejo, a joint venture in Argentina with Pan American Silver, which already has extensive mining experience, and a second project, yet to be determined; six projects are at the feasibility level. The company also has achieved some extremely positive results from recent drilling at its Pitarrilla deposit in Mexico.

"In the past, given its lack of production, the company was forced to make several trips to the equity well to fund its ongoing exploration and acquisition work. Yet the process was always accretive, as silver and gold resources per share grew consistently over the years, from less than ten ounces per share in 1998 to over 20 ounces per share today (over $150 worth of metal in the ground for each share.) T he net result is that now the company is extremely well financed, with cash of US$33 million and another $14 million of physical silver. All in all, the company is in the enviable position of being able to fund all its activities, including its share of capital costs, from existing resources, putting it in a very strong position to negotiate with lenders.

"In addition to its large resources, its spread of properties, and its strong balance sheet, Silver Standard’s most important asset is its people, headed by president and CEO Robert Quartermain, who sets the standard for ethical, responsible management. And the stock is inexpensive on a net asset value basis, as well as on price. With the recent decline in the commodity sector, SSRI has fallen in the last six weeks from the low $14s to under $11, giving us an excellent entry point. Indeed, despite the stock’s usual sensitivity to the silver price, it has fallen while silver has remained relatively strong. We will assign Silver Standard to the mid-risk ‘growth’ portion of our investment pyramid; it is unquestionably a volatile stock, but the strength of the balance sheet and number of different projects minimizes the risk."

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