Investors who have followed the investing moves of famed commodities investor Eric Sprott over the past few years are well aware of the man’s penchant for physical gold and silver. Along with many other seasoned, well-respected investors, he is a fervent long-term precious metals bull who believes that the “easy money” policies of the various Western central banks will undermine the broader currency markets and lead to a sharp, sustained rise in prices for gold and silver.
Mr. Sprott also invests directly in a number of miners, traders, and other companies that operate in the precious metals markets. At any given time, he maintains positions in around a dozen individual names. For investors who prefer to play in the margins of the precious metals space, there are at least three “Sprott picks” that bear watching. These companies are financially strong and blessed with quality assets that may produce handsome returns for their shareholders.
About First Majestic Silver Corp (NYSE:AG), Fortuna Silver Mines Inc. (NYSE:FSM) and Silver Wheaton Corp. (USA) (NYSE:SLW)
Vancouver-based First Majestic Silver Corp (NYSE:AG) is a silver mining company that operates a number of producing properties in Mexico’s Coahuila, Durango and Jalisco states. It also owns smaller properties in Zacatecas and San Luis Potosi. Collectively, First Majestic Silver Corp (NYSE:AG) owns at least 100 individual concessions and thousands of hectares of mineral rights. In 2012, First Majestic Silver Corp (NYSE:AG) earned $88.9 million on gross revenues of $247.2 million.
Lima, Peru-based Fortuna Silver Mines Inc. (NYSE:FSM) operates two large silver mining properties in Peru and southern Mexico. Its Peruvian mine is a combined silver-lead-zinc property that produces sizable quantities of the latter two metals in addition to high-quality samples of the former. Meanwhile, its Oaxacan property produces gold in addition to silver. However, the mine’s gold is of a fairly low quality. As such, Fortuna is not considered to be a particularly impressive player in the gold space. The company employs about 750 people and earned$21.2 million on $154.3 million in gross 2012 revenues.
Vancouver-based Silver Wheaton Corp. (USA) (NYSE:SLW) is a streaming concern that buys and sells short-term and long-term silver purchase contracts from independent mining companies that operate in several countries around the world. Its most lucrative agreements concern properties in Latin America, the United States, and the Mediterranean region of southern and eastern Europe. Silver Wheaton Corp. (USA) (NYSE:SLW) has just 25 employees and earned $553 million on $754.2 million in gross 2012 revenues.
First Majestic Position
Mr. Sprott’s First Majestic position consists of about 4.8 million shares valued at a little over $79 million in the aggregate. The position also represents more than 3 percent of the company’s total float. Although he cut his position slightly during the past three months, First Majestic Silver Corp (NYSE:AG) represents a long-term holding for his fund. He appears unlikely to cut his holdings significantly during the coming quarters.
Fortuna Silver Mines Position
Mr. Sprott holds just over 8.7 million shares of Fortuna Silver Mines. His holdings are valued at around $37.5 million and represent more than 7 percent of the company’s total float. Although Sprott also cut his Fortuna holdings slightly during the most recent quarter, he has been explicitly bullish about the prospects of high-quality silver mines in the Latin American region.
Silver Wheaton Position
At around 780,000 shares, Silver Wheaton Corp. (USA) (NYSE:SLW) stands as one of Mr. Sprott’s smaller individual holdings. At current prices, this position is worth about $23.6 million to Mr. Sprott and represents just a fractional percentage of the company’s total float. Given its unique position within the broader silver-mining ecosystem, Sprott is unlikely to give it up anytime soon.
Long-Term Outlook and Possible Plays
All three of these companies have seen their stock prices decline significantly over the past several months. Of course, this is due to a more general decline in commodity prices that has seen gold and silver prices slip below $1,600 and $30 per ounce, respectively.
For his part, Sprott makes a convincing argument that the commodities markets are being persistently undervalued by short-sighted investors who fail to see that the recent run-up in stock prices is the artificial result of widespread monetary easing. Indeed, it is true that many investors have trouble accepting this thesis. Sprott is not the only stock bear in existence today: In fact, many prominent market-watchers have drawn eerie parallels between the current stock “bubble” and the pre-crash run-up in asset values.
Of course, Sprott and his allies might also be proven wrong. If the market’s surge turns out to be self-reinforcing and coincides with a broader economic updraft, gold and silver prices could remain low for years. Investors who wish to take advantage of the market wisdom of a proven commodity investor must first determine whether they believe his basic judgment of the market.
In sum, all three of the companies mentioned in this article occupy enviable positions within the silver space. For their part, First Majestic Silver Corp (NYSE:AG) and Fortuna are high-quality silver miners with productive assets in a reasonably stable part of the world. On the other hand, investors who wish to play the silver market indirectly might opt for Silver Wheaton’s unique purchase-agreement business model. As always, traders and investors must do their own due diligence before pulling the trigger on these names.
The article Expert Betting Big On These 3 Silver Companies originally appeared on Fool.com is written by Mike Thiessen.
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