Fool's Silver: Why Most "Silver Miners" Don't Live Up to Their Name / Commodities / Gold & Silver 2019

Ifyou buy shares in a silver mining company, you will have to assume additionalmarket risks compared to ownership of silver bullion. You may wish to do soin order to potentially gain leveraged exposure to silver prices.

Whatyou may not realize, however, is that most of the publicly traded “silver” stocks out there are primarilyin the business of mining other metals – sometimes gold, often copper, zinc,lead, and other base metals.

ConsiderPan American Silver (NYSE:PAAS), a $3.6 billion company that makes up thelargest weighting (13.5%) in the Global X Silver Miners ETF (NYSE:SIL).

WhilePan American is indeed a producer of silver, its business comes mainly fromother metals. According to BMO estimates, only 33% of Pan American Silver’srevenue in 2019 will come from silver production.

Rareis the silver miner that actually derives most of its revenue from silvermining. There are both geological and philosophical reasons behind the paucityof pure silver producers.

Sincesilver deposits tend to accumulate around other metals, valuable byproductswill be extracted during the mining process. Most silver is produced as abyproduct of mining for base metals, so primary silver mines are few and farbetween.

Miningcompany CEOs generally prefer to diversify their revenue streams beyond asingle metal to manage risk and become more appealing to Wall Street analysts,bankers, and institutional investors.

Goldand silver bugs who expect mining industry executives to share theirbullishness about prices or their commitment to sound money principles will besorely disappointed. Very few of them are allies to the broader precious metalscommunity.

Thesecompanies also tend to be run by geologists, engineers, and accountants who, bytheir nature, often don’t see the big picture.

Arecent and obnoxious example of this problem is Hecla Mining (NYSE:HL), theIdaho-based company that repeatedly refused to support legislative efforts inits home state that nearly ended income taxation on gold and silver.

AddHecla management’s refusal to reinforce the public policy importance of its ownproducts (to the very state in which it operates) to the reasons this miner’sstock price has gone nowhere but down in recent years, including duringsilver’s recent rally.

Oneexception is First Majestic CEO Keith Neumeyer. He is enthusiastic about silverand tuned in to the values and concerns of physical bullion holders. FirstMajestic Silver (NYSE:AG) is the purest major producer, with 62% of its revenueattributable to its namesake metal.

Ofcourse, you will never find a purer silver play than actual .999 pure silver bullion products.

Thefurther your silver-related investments get from the underlying metal, the morethey will be driven by other factors you may not necessarily understand or believein.

Whensilver starts becoming a hot commodity again, Wall Street will surely supply abevy of new “silver” equities and exchange-traded derivative products – most ofwhich will serve to divert casual investors away from investing in silver itself.

Rightnow one of the easiest – and least efficient – ways for the public to invest inthe silver industry is through SIL.

This“Silver Miners” ETF is top heavy with majors that mine mostly other metals. Itis also populated with royalty/streaming/exploration companies that do littleto no mining. SIL carries an annual expense ratio of 0.65%, which is quite highcompared to other passively managed funds.

Ifyour aim is to invest in silver producers, you’re better off focusing onparticular companies that deliver the goods. If you lack the time or know-howto pick quality mining stocks, you won’t go wrong by simply owning what theyproduce via physical bullion.

Stefan Gleason isPresident of Money Metals Exchange, the national precious metals company named 2015"Dealer of the Year" in the United States by an independent globalratings group. A graduate of the University of Florida, Gleason is a seasonedbusiness leader, investor, political strategist, and grassroots activist.Gleason has frequently appeared on national television networks such as CNN, FoxNews,and CNBC, and his writings have appeared in hundreds of publications such asthe Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2019 Stefan Gleason - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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