Casey’s three silver picks

Investors in silver companies should always bear in mind how small the mines are in terms of revenue. This means that most stocks will be fairly speculative buys on a silver price rise. Which are the best? One of my long-term holdings and a keep-it-simple purchase for those who want silver is Silver Standard Resources (SSO.TO C$16.18), writes Doug Casey. It recently announced very favourable results from its wholly owned La Pitarrilla silver project in the Mexican state of Durango, where two resources that can be tapped with low-cost bulk mining methods have been confirmed. (Bear in mind that SSO does not mine silver now, nor does it plan to, so it is effectively a call, with no expiry date, on silver in the ground.) With more than C$60m in cash, around C$9m in marketable securities, plus over 650 million ounces of silver in the resources and reserves from its global properties, SSO is one of the best firms leveraged to silver. A solid buy.

I also own lots of silver explorers, all of which are overpriced relative to their assets. Most of those you can buy have, at most, a resource of 25-30 million ounces. Considering capital and operating costs, they're really just speculations on much higher silver prices; they have no real present value. I own them because I think, perhaps to an even greater degree than the junior golds, junior silver stocks are going to go into a bubble phase.

Two companies fit the model I like, having proven management actively exploring in the right places. Stingray Resources (SRY.TO, C$0.87) has picked up a concession consisting of nearly 40,000 hectares of promising ground within the same prolific Sierra Madre belt that hosts Alamo Dorado. Although past work on the property focused on high-grade veins with gold and silver, Stingray believes it contains several good target areas for disseminated precious metal deposits, which it is currently in the process of locating. This is good; disseminated, bulk tonnage, open-pittable deposits are what the market really wants. Stingray has a tight share structure and is very well funded, with more than C$6m in the kitty. Stingray is a speculation on management's ability to find another grassroots discovery, so patience is required, because despite being in a prime location for big game, this is a very early-stage exploration company and the drills will not be turning for several months. Also remember that this is a thinly traded stock, so don't go chasing it. Put in a bid around the C$0.70 mark, and let the market come to you.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Esperanza Silver Corporation (EPZ.V, C$0.69) might be considered the exploration version of Silver Standard Resources. The company is a definite buy during a silver bull market. It's management team is top notch, from the CEO to the mine managers to the geologists who have already identified four new zones that merit drilling at the Esperanza project in Mexico. More attractive still is a newly acquired, advanced silver project in Bolivia, bought from General Minerals Corporation for 18.3% of Esperanza's outstanding equity. Another good sign is that Silver Standard - a company with a reputation for not throwing its money away - acquired 1.86 million shares of Esperanza in a private 2003 transaction. Expect more good news from Esperanza - it's a stock you should own.

Those looking for a UK-listed play on silver might consider Marakand Minerals, which was floated separately from its parent company Oxus Gold in October last year, writes Iona Hamilton. It is a pure play on the Khandiza deposit in Uzbekistan, which is expected to generate revenues via zinc and silver, although it also offers lead and copper. The shares slid in the silver sell-off, presenting chief executive Alasdair Stuart a chance to snap up nearly £15,000 worth in May. Marakand looks worth taking a speculative punt on, says Edmond Jackson on Citywire.co.uk, particularly given that RAB Capital's top-performing special situations hedge fund owns a near 7% stake in the miner.