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Silver will outperform other metals in the medium term - BMO Research

Silver will outperform other metals in the medium term -  BMO Research

By Dorothy Kosich,

BMO Research forecasts silver to average US$18.72/oz this year, $20/oz in 2011 and decline to $18/oz in 2012, with the long-term silver price projected to average $14/oz.

In a first-quarter silver recap published Wednesday, BMO said its preferred senior silver producers  are Fresnillo, Pan American Silver, and Silver Wheaton, while First Majestic is the preferred mid-tier producer. Bear Creek Mining is the junior silver producer favored by BMO analyst Andrew Kaip and associates Alexandra Syrnyk and Heather Taylor.

"BMO Research forecasts a relatively constrained physical supply/demand environment for silver and maintains the view that silver will outperform relative to other metals in the medium term," the analysts said. They cited the recent 6.5% surge in silver since the beginning of this month and the ongoing market equity correction on the back of market jitters generated by the European sovereign debt crisis.

Meanwhile, BMO anticipates increased gold purchases "by investors and central banks alike, as 2010 unfolds and the very existence of the euro is being questioned."

The analysts predict that Fresnillo, Silver Wheaton and Coeur d'Alene mines will have a capital intensive year, as Fresnillo and Coeur capital programs are focused on mine development. BMO advises Silver Wheaton will allocate capex toward silver stream purchase payments.

Pan American Silver and Hecla Mining are projected by BMO to increase cash position through 2010 "owing to strong projected cash flow and relatively low capital programs." Meanwhile, as they improve their respective balance sheets, Coeur d'Alene, Hochschild Mining and Silver Standard Resources are projected to end the year in a positive net debt position.

This year, BMO Research forecasts that Fresnillo and Pan American "are expected to maintain their status as the #1 and #2 primary silver producers. Meanwhile the analysts suggest Silver Standard "could transition into a significant silver producer."

The analysts called Bear Creek the "premier junior growth company" which could move to intermediate status by 2013. Bear Creek is expected to complete a feasibility study for the Santa Ana silver project in southern Peru in mid-third-quarter 2010.

Bear Creek claims to have more than 500 million ounces of silver, plus by-product metals in its Corani and Santa Ana projects, both located in Peru.

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