A doubling of the price of silver from about $5 per ounce Wednesday to more than $10 within 12 to 18 months is a good bet, said William W. Davis, executive vice president and chief financial officer of Boise-based Sunshine Mining and Refining Co.
"I wouldn't say the doubling of the price is outlandish at all," Davis said in an interview Tuesday before a luncheon presentation to the Salt Lake City Society of Financial Analysts.Davis and John S. Simko, the 80-year-old company's chairman and CEO, were in town to talk about silver in general and Sunshine Mining in particular.
Simko said the company is so sure that the price of silver is going nowhere but up that Sunshine intends to triple its production over the next two years from about 6 million ounces this year to 18 million in 2001. Sunshine's main mine is in northern Idaho. It also has a new property in Argentina for which a team is currently preparing a feasibility study to finance a mine there.
Simko and Davis have a powerful ally to support their optimism on the prospects for silver. Earlier this year, legendary investor Warren Buffett announced that his Berkshire Hathaway Inc. had bought nearly 130 million ounces of silver, valued at about $910 million.
At Berkshire's annual meeting in May, Buffett told shareholders that he considers it "likely" that silver's price will rise as inventory stockpiles become depleted and silver use outstrips production and reclamation levels.
According to The Silver Institute, an industry trade group, the use of silver by the photographic industry worldwide increased nearly 3 percent last year. Similarly, the demand for silver for jewelry and tableware has steadily increased in this decade after a prolonged slump in the 1980s.
That came following the huge price run-up when the Hunt brothers of Texas attempted to corner the market, briefly driving the price to $50 an ounce.
That price created a huge surplus as the mines geared up and ordinary people literally melted down the family sterling tableware to cash it in.
While $50 silver lasted only briefly, the price stayed relatively high, $10 to $15, through the early '80s, until 1986 when it plummeted to the $4 range and stayed there ever since save for a brief rally to $8 in 1987.
Today, said Simko, the annual demand is for more than 800 million ounces a year with new production falling 150 million to 200 million ounces short of that. Since 1990, he said, there has been a cumulative shortfall of more than 1 billion ounces.
The recent volatility in the stock market, coupled with severe unrest in Asia and Russia, has once again gotten many people interested in gold and other "hard currencies," such as silver, as hedges against hard times and runaway inflation.
But inflation is nowhere to be found in the United States and, in any case, Davis says it's a mistake to couple silver with gold as it was when coins were minted from silver.
"Silver is an industrial metal today," he said. "There has been some relationship with gold in the past, but silver has been almost totally demonetized in the last 30 years."
So how does the average investor, who believes that Buffett knows what he's doing, invest in silver? Well, there's the futures and options markets, but that's the investment fast lane and is not for the faint of heart.
You can buy the metal itself, but coin shops sell silver coins at retail and buy them back at wholesale; not a recipe for the average investor to get rich. Also, there are storage and insurance problems to consider when buying the actual metal.
Then there are mining stocks. Admittedly they are not an unbiased source, but Simko and Davis aren't averse to recommending Sunshine Mining stock, traded on the New York Stock Exchange. Because Sunshine Mining has no other operations than silver mining, its stock is a pure play on silver, its share price rising and falling in virtual lock step with the price of the metal.
"There are only a few companies that are considered silver plays and we are the most leveraged, so if you're looking for silver leverage, we're it," said Davis.