first majestic silver

The Ormetal Report

April 11, 1997

Silver, the fundamentals! -

It is easy to make a long term case to own gold and gold stocks. But the fundamentals are even more convincing for silver and the producers of the white metal. Here is an excerpt from Pan American Silver's 1996 annual report:


Silver prices in 1996 ranged from a high of $5.79 in early February to a low of $4.67 in late November. As in recent years, silver prices were quite volatile due to the relatively tiny size of the global silver market as compared to the very large size and liquidity of the world commodity and investment funds.


Independent silver supply and demand studies were published in 1996 by the New York research firm CPM Group and the London based firm Gold Field Mineral Services. These studies differ in detail but not in overall magnitude or trends. CPM Group's most recent study in February 1997 shows that the silver market had a supply deficit for the seventh consecutive year. Silver demand in 1996 exceeded new silver supply by 198 million ounces. Since 1989, this deficit has totaled 678 million ounces. This contrasts to the estimated 712 million ounces of liquid inventories which built up during the 1980's as a result of high silver prices and relatively low demand. The remaining silver inventories are clearly becoming depleted. Central banks hold insignificant stocks of silver, in contrast to their gold holdings. CPM Group states: "It is clear that worldwide bullion inventories are at their lowest levels in more than 46 years" and further: "More than 1.0 billion ounces have been used of the 1.5 billion ounces of silver bullion inventories that are estimated to have existed at the beginning of 1990".

  1990 1991 1992 1993 1994 1995 1996
Estimated above ground silver inventories (in million ounces) 1400 1275 1100 1000 810 580 390

According to recent estimates by CPM Group, silver supply rose by 0.9% in 1996 to 522 million ounces. Silver demand rose 3.8% in 1996 to 720 million ounces. The 1997 silver deficit is projected by CPM Group to be 169 million ounces. Since 1982, silver supply has increased by only 4% or .3% annually while total world silver demand has increased by 97% or 4.5% per year.

Primary silver mine production accounts for only 15% of total new silver supply. By-product silver production is price-insensitive and is not likely to increase even if silver prices rise.

These are very bullish fundamentals that fully support our view that higher silver prices are inevitable in the short term. When this will happen depends on many factors, the most significant of which is the amount of unreported silver inventories that exists around the world for sale at or near today's silver price.


Don't forget silver stocks! -


The above should convince that there is room for silver stocks in a gold portfolio. And my choices for this coming price explosion in the white stuff are Pan American Silver (PAA.T or PAASF on Nasdaq), Silver Standard (SSO.V) and finally International Avino (IVV.V) There is no way to tell exactly when these 3 stocks will make their big move, but my bet is that it will happen within the next 6-18 months. All 3 are highly leverage with Pan Am Silver being the most conservative one and International Avino the most leveraged one. Only a deflationary depression will be able to stop this show.

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