10 Most Interesting Silver Stocks – Part 4

8. Pan American Silver Corp. (TSX:PAA)

Pan American Silver is the world’s second-largest primary silver producer and has its sights set on Fresnillo plc, the world’s largest primary silver producer and owner of the Fresnillo mine in Mexico. The company has operations in the United States, Mexico, Peru, Bolivia and Argentina and, as of 2010, provides a NI 43-101 reserve estimate of 233 million ounces of contained silver.

Underground miners at Pan American Silver's Quiruvilca mine in Peru.

Like many other silver miners, 2010 was a record setting year for Pan American Silver. Silver production increased 5% to a record 24.3 million ounces. Cash costs rose 3% modestly to $5.69 per ounce of silver, net of by-product credits. Mine operating earnings rose 90% to a record $239.8 million and net income increased 82% to a record $112.6 million or $1.05 per share. Not bad considering the company was founded 16 years earlier in 1994.

The majority of the company’s 2011 revenues are expected to be derived  from the sale of silver (66%). While 13% is attributed to gold, 11% from zinc, 5% from copper, and 4; and 4% from the sale of lead. The company employs 2,000 people around the world.

Pan American Silver has a major project, the Navidad mine, estimated to contain 632 million ounces of silver, and it’s located in the province of Chubut, Argentina. Current laws, however, must be changed in order for the company to proceed with its planned open pit mine. And as is often the case, Latin American elections can be rather “interesting” and the Chubut provincial elections are no exception. Martin Buzzi was elected governor on March 20th, 2011 by a very narrow margin. The results of the election were immediately challenged by opposition candidate Carlos Eliceche. A revote of 6 contested polling stations is set to take place today, May 29th, whereby a new governor of Chubut will be decided along with the potential for future changes to the provincial mining law that are required to support Pan American Silver’s pursuits.

Although the current election turmoil in Chubut could not have been predicted, Pan American chief executive Geoffrey Burns felt confident that the necessary changes to the mining law will occur. In December last year Burns said, “I believe we’re going to see a change in the law in Chubut in the near future.” At the time, Brad Humphrey, mining analyst at Raymond James, agreed. Humphrey, who rates Pan American a “buy”, notes that while there are political risks, he believes the company has the expertise to bring Navidad to market.

9. Bear Creek Mining Corp. (TSX:BCM)

Out of one South American election frying pan and into another. Ollanta Humala is not a name that many outside of Peru are familiar with but on April 10th he won the first round of Peru’s elections with 31.7 % of the vote. Humala is a leftist politician and a former army officer. This set the stage for a runoff which is scheduled for June 5th, against Keiko Fujimori, the daughter of former President Alberto Fujimori who is currently in prison for human rights violations.

Humala’s election success in Peru caught the financial markets off guard.  The cost of insuring Peru’s debt against default has jumped to a five-year high relative to neighboring Colombia, on concern that Ollanta Humala may win the presidential vote and expand government control over the economy. Marjorie Hernandez, a currency strategist at HSBC Holdings Plc in New York stated, “While everyone had expected this to be a non-event election, we were proven wrong. The market was not positioned that way. Everyone was long Peru everything.” Since Peru is ranked #5 on the world’s mining exploration list, the political instability spilled over to the mining sector.

Bear Creek Mining, with operations in Peru, was not spared. On Friday, April 8th before the results of the election the company’s shares closed at $10.67. But in the weeks that follwed, Bear Creek’s stock traded down hitting a recent low of just under $6.50 on May 24th. A whopping 40 % decline, this, despite the fact that Reuters reported that Fujimori was leading a poll on May 12, 2011. Before the polls announced Fujimori had taken a slight lead over Humula, the market value of Peru’s stock index plunged by roughly $18 billion in less than three weeks.

Bear Creek’s Chairman is notable mining executive Catherine McLeod-Seltzer. Catherine has been involved in a number of successful mineral companies over the past 20 years, including Arequipa Resources, Francisco Gold, Miramar Mining, and Peru Copper representing $4 billion in corporate transactions. And I’m sure on June 5th, 2011 she, like many investors in Peru, will have her fingers crossed.

10. Endeavour Silver Corp. (TSX:EDR)

In keeping with the theme, Mexico has enjoyed an extended period of relative political stability with the exception of, you guessed it, a few hotly contested elections. Most recently in 2006 involving Felipe Calderón, Mexico’s current President. Calderón’s narrow victory in the July 2006 election and his ascendancy to the presidency was fraught with strife and controversy. The results were contested by his closest opponent, López Obrador, who started what he called a “pacific civil resistance” and held numerous protests. Calderon’s victory was ultimately confirmed months later on September 5, 2006 by the Federal Electoral Tribunal.

Miguel Ordaz, Mario Szotlender, and Bradford Cooke at Endeavour's Guanacevi mine with one of the company's silver dore bars.

With political stability, Mexico has emerged as a power-house in the world of exploration, development and production of silver. And, Canadian mining companies have migrated like geese in search of the shiny white metal. In a political address, the former Canadian Ambassador to Mexico, Gaetan Lavertu, noted, “Well over half of the foreign mining concessions issued in Mexico are registered to Canadian companies. The bulk of these investments are from British Columbia”.

One company that has done well in Mexico is Endeavour Silver, a junior miner based in Vancouver, Canada. Endeavour has, some would say diligently, focused on the growth of its resource expansion and silver production in Mexico. Since the company’s start-up in 2004, Endeavour has methodically expanded its asset base and stable of properties. The company is now reaping the benefits from years of hard work, Endeavour reported first quarter results on April 11th; revenue was up considerable to $35.4 million, compared with $18.2 million last year as production rose 17% and silver prices increased sharply. Earnings were $14.5-million, or 18 cents per share.

The company has two operating silver mines and four development projects in Mexico. MiningFeeds.com recently discussed the price of silver and Endeavour Silver’s prospects with President & CEO Bradford Cooke – CLICK HERE – for the interview.

For 10 Most Interesting Silver Stocks – Part 1CLICK HERE.

Mike Luft

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