For all of the 20th century, on average, it took 47 ounces of silver to buy one ounce of gold. Over the past two decades that has shifted somewhat, to it taking around 60 ounces of silver to buy one ounce of gold, observes Nick Hodge, a leading mining sector expert and editor of Wall Street's Underground Profits.
Right now, we are seeing something only seen twice before in the last 105 years… it takes nearly 90 ounces of silver to buy an ounce of gold.
While gold is up 20% over the past year, silver is up only 13%. Silver moves later, but it moves more violently. Silver is cheap right now. And so are silver stocks.
We own silver through ETFs , but we don’t have a large, liquid, pure silver play to add torque. So let’s do that. MAG Silver (MAG) has 44% of the high-grade-silver Juanicipio Project in the historic Fresnillo Silver District of Mexico. Fresnillo owns the other 56% and is the operator.
The Juanicipio Project consists of high-grade silver-gold-lead-zinc epithermal vein deposits. The primary vein, the Valdecañas Vein, is an echelon system comprised of overlapping East and West Veins and several smaller vein splays.
It is being built now with commissioning expected in late 2020, with ramp up through 2021. The 4,000-tonne-per-day plant is expected to operate for a long life of 19 years. There is significant exploration upside. Three additional hanging wall veins have been discovered that are not included in the mine plan or economic calculations. Only 5% of the property has been explored.
And there is also sensitivity. The 2017 preliminary economic assessment pegged the after-tax net present value at US$1.14 billion with an internal rate of return of 44.5%. That was done at US$17.90 silver and US$1,250 gold. At US$23.00 silver and US$1,450 gold that NPV goes to US$1.7 billion.
All-in sustaining costs are US$5.02 per ounce of silver. MAG has about US$95 million in the bank and no debt. It has a tight structure for a large company, with only 86 million shares outstanding.
Current market cap is ~US$900M. Over 75% of the shares are held institutionally. It will be the largest silver camp in the world, coming online at the beginning of a bull market cycle. Buy MAG Silver below US$11.