Three Safe Ways to Profit From the Coming Silver Boom
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Q2 2013
Oxford Communiqué Investor Report:
Three Safe Ways to Profit From
the Coming Silver Boom
By Chris Mathai, Research Team, The Oxford Club
NOTE: The Oxford Club is not a broker, dealer or licensed investment advisor. No person listed here should be
considered as permitted to engage in rendering personalized investment, legal or other professional advice as an
agent of The Oxford Club. The Oxford Club does not receive any compensation for these services. Additionally, any
individual services rendered to The Oxford Club members by those mentioned are considered completely separate
from and outside the scope of services offered by The Oxford Club. Therefore if you choose to contact anyone listed
here, such contact, as well as, any resulting relationship, is strictly between you and the Pillar One service.
105 West Monument Street | Baltimore, Maryland | 21201 | 410.864.1751Oxford Communiqué Investor Report: Three Safe Ways to Profit...
If you’ve ever considered investing in silver... now’s the time.
Not only is silver the ultimate protection against currency devaluation and inflation, it’s also
proving to be a fantastic investment.
In fact, silver is up more than 60% in the last four years. And that’s despite silver having
declined over 50% from its April 2011 high.
Had you bought physical silver at the 2008 low of $8.88 and sold at the 2011 high of $48.70,
you would have pocketed a gain of 448%.
And now, the next silver boom is just getting started. In this special report, we’ll show you why
our research team here at The Oxford Club is convinced silver is on the brink of a price run
that could even dwarf the boom of 1980. Back then, the price of silver jumped 860%, from $5
to $48 per ounce, in only 12 months.
This time could be even bigger, and the reason is simple: supply is dwindling and demand is
increasing.
Unfortunately, supplies of “easy-to-reach” silver are dwindling and, as a result, costs are
increasing. According to the Silver Institute, in 2010, the cash cost from primary mine
production was $5.27 an ounce. It rose to $7.25 per ounce last year, driven by higher labor
costs and lower grades. While at the same time, total silver mine production rose by a modest
1.4% in 2011. Once the 2012 numbers come in, we will surely see a continuing trend.
With silver mining producing 787 million ounces in 2012, and worldwide demand reaching
over one billion ounces, physical silver supplies just can’t keep up. Add in higher mining
costs... and silver prices have nowhere to go but up.
Plus, demand is exploding. Our modern world runs on silver. What most investors fail to
realize is that silver’s demand goes far beyond purely decorative or monetary appeal.
The industrial use of silver has surged in recent years. In 1990, total industrial demand for
silver was 273 million ounces, which represented 39% of total silver fabrication. By 2007,
industrial demand for silver was 465 million ounces, or 55% of total silver fabrication. In
2012, industrial usage was 465.9 million ounces. Industrial demand for silver is forecasted to
hit 666 million ounces by 2015.
As more and more consumers fight for less and less silver, all the fundamentals point to one
thing... the price of silver going up.
And Jim Rogers, one of the most famous commodity investors of all time, now is saying silver is a
better investment than gold. Silver is the only major commodity not to have reached a new all-time
2Oxford Communiqué Investor Report: Three Safe Ways to Profit...
high during the current commodity bull market. Silver is still cheaper than it was 32 years ago.
Gold has a history of being worth anywhere from 12 to 15 times silver; today gold is roughly
60 times more valuable. Silver prices need to go much higher for that ratio to return to its
historical average.
And here’s some additional anecdotal evidence that our research has turned up:
Silver Moving Into An Upside Breakout
50
$42.99
40
30
$28.64
20
Sep11
Jan12
May12
Sep12
Jan13
Source: SilverSeek.com
Along with the hopes for more quantitative easing, hedge funds are jumping on the silver
bandwagon, fueling future price gains. An August Commodities Futures Trading Report showed
the funds had doubled their bets on net-long positions to 9,323 futures and options contracts.
As further evidence of an impending uptrend, the price of silver just recently popped above its
downtrending resistance line. That’s an upside breakout... and it brings the next resistance level at
about $36 per ounce into play. It’s not a guarantee that silver will maintain this uptrend, but the
odds have shifted in favor of the silver bulls. If silver can add to its gains and continue to trend
higher, we should see higher silver prices (and higher silver stock prices) in the months ahead.
Sincerely,
atthew Carr
M
Emerging Trends Specialist
The Oxford Club
3Oxford Communiqué Investor Report: Three Safe Ways to Profit...
Three Safe Ways to Profit from the
Coming Silver Boom
Over the last fifty years, silver supplies have declined to shockingly low levels. In fact, the last
time world inventories were this depleted was the year 1300 A.D.
Before 1955, industrial uses for silver were almost non-existent. But since then, technological
breakthroughs have found all new uses for silver, which includes everything from cell phones and
iPads, to hospital bed sheets to solar panels.
Since 1980, above-ground supplies of silver have declined almost 90%.
In 1950, there were 10 billion ounces of above-ground, available silver. By 1980, supplies shrank
to 3.5 billion ounces. By 2010, the above-ground silver supply dwindled to as little as 500 million
ounces.
Decreasing supplies are just now being reported. The net silver supply from above-ground
inventories fell 7.5% last year to 261.3 million ounces, causing huge physical shortages on an
already strained market.
In fact, The London Trader in May of 2012 reported shortages and long wait times to buy
physical silver. He concluded, “There just isn’t enough silver to buy...”
This lack of supply couldn’t have come at a worse time. Because while supplies are drying up...
Demand is Exploding: Industry now uses more than half of the silver mined every year.
Unlike gold, which is purely decorative, silver is a usable commodity like oil. Currently 44% of
all silver demand comes from industry – not investing, not jewelry. That means out of the 787
million ounces of silver mined last year, 465.9 million ounces was used for batteries, electronics,
automobiles, medical devices, construction and more.
And it’s only growing from here. Our modern world is completely dependent on silver. We now
use it for more applications than any other commodity except crude oil.
One of the reasons silver is in so much demand is because it is super conductive. No other
substance on earth conducts electricity and heat, or reflects light better than silver. These
properties make it incredibly useful for a variety of different industries.
The VM research group in Great Britain estimated the silver demand for water purification
(for drinking water and swimming pool cleaning) is going to increase to 150 million ounces by
2020 (that number was just 50 million five years ago). The green energy movement, which uses
4Oxford Communiqué Investor Report: Three Safe Ways to Profit...
both solar energy and wind power, are both heavily dependent on silver. By 2014, 130 million
additional ounces will be needed for the solar panel industry alone.
But these industries aren’t the only ones dependent on silver. Hospitals and health clinics are now
also using silver because of its antimicrobial properties. Hospitals are weaving bits of silver into
sheets and bandages of patients to prevent infections and the spread of disease.
But silver’s uses go far beyond just standard health care. Silver’s antibacterial qualities are used in
all kinds of household items like: refrigerators, vacuum cleaners, washing machines, air purifiers
and air conditioners. All of these appliances are completely dependent on silver’s ability to
sterilize up to 650 types of bacteria.
Computer companies like Apple and Microsoft are also dependent on silver for the production
of almost all its electronics. Silver is essential in creating circuit boards for mobile phones and
computers.
All commodities are priced in dollars. When there’s a weaker dollar, commodities rise. When
commodities rise, investor demand returns in force and prices rise again.
Here’s a telling statistic:
Last year, the United States Mint sold the same dollar amount of both gold and silver coins...
which means they sold 58 times as many silver coins as gold ones.
Although we believe silver is a fantastic opportunity right now, the silver markets are notoriously
volatile. And simply buying a large hunk of silver and burying it in the backyard is probably not
your best option.
In response to this, our research department has come up with a diversified silver investing
strategy. Our team has discovered three unique ways to profit on the upside potential of
silver, while at the same time limiting your risk and smoothing out any unpredictable market
fluctuations.
Let’s get to them...
The Silver Mining Company Getting Rich Not Mining Silver
Silver Wheaton (NYSE:SLW)
Silver Wheaton is the proverbial wheeler and dealer of the silver industry. This company has
created a unique business model for itself that is taking the silver industry by storm.
Developing and running silver mines is fraught with dangers and difficulties. Unlike traditional
5Oxford Communiqué Investor Report: Three Safe Ways to Profit...
mining companies, Silver Wheaton doesn’t have to worry about the increasing cost of labor,
unpredictable fluctuations of silver prices, or cost over runs.
Through a process known as silver streaming, Silver Wheaton has found a way to profit from
silver production without the hassle of actually running a mine. Typically they have no ongoing
capital or exploration costs, and the company does not hedge its silver or gold production.
In fact, Silver Wheaton doesn’t actually mine anything. Instead it acts as a financing company for
other silver mining firms. Think of them like a bank for silver companies.
Here’s how it works... when a mining company begins a project or is in need of quick cash, it
comes to Silver Wheaton and makes a loan request.
In exchange for an upfront loan, the mining company agrees to sell a portion of the mine’s silver
back to Silver Wheaton at a deeply discounted rate, usually around $3 to $4 an ounce.
Take the deal Silver Wheaton struck with long-time player Alexco Resource Corp. up in the
Yukon Territory.
Alexco specializes in revitalizing older or abandoned silver mines. In exchange for a $50 million
loan, Alexco agreed to sell Silver Wheaton 25% of its total haul at the rock bottom price of $4 an
ounce.
With the projected total over 3.3 million ounces, Silver Wheaton will get roughly $89 million
worth of silver for just $13 million.
This unique financing strategy keeps
Relative Price Performance Inception Silver Wheaton’s costs fixed no matter
1000% how much future mining costs may
increase. Unlike other silver mining
800%
Silver Wheaton strongly companies that are completely tied
outperforming silver index to the fluctuating silver markets,
600%
Silver Wheaton’s fixed cost structure
400% allows you to reliably calculate future
profitability from a multitude of
200% different mines.
0% Silver Wheaton maintains a reserve
Silver
Wheaton
PHLX Gold &
Silver Index
Silver
Price
of approximately $1.1 billion in net
cash on hand. This available capital
* Silver Wheaton’s inception is the date of closing of its first transaction could prove incredibly valuable for
Source: SilverWheaton.com
future investment opportunities,
6Oxford Communiqué Investor Report: Three Safe Ways to Profit...
especially with another liquidity crisis rumored to be right around the corner. It also pays out
approximately 20% of the cash generated each quarter in a 0.8% dividend yield.
As good as Silver Wheaton’s balance sheet looks, by far its most valuable assets are the silver
streamed contracts. Silver Wheaton has secured deals with some of the largest producers of silver
in the world, including Goldcorp’s (GC) massive mine in Mexico and Barrick’s (ABX) Pascua
Lama Project on the border of Chile and Argentina.
By 2015, Silver Wheaton’s total supplies of silver are expected to rise 60% to 43 million ounces
worth roughly $1.2 billion in annual revenue.
And at a time where the entire industry has watched silver Silver Wheaton has a
reserves dwindle to nothing, Silver Wheaton’s unique silver 17% annualized growth in
streaming techniques allowed it to double its reserves. reserves and resources per
share since inception.
With silver supplies shrinking and demand increasing all
around the world, combined with an innovative business
model, the future looks incredibly bright for Silver Wheaton
and its investors.
Action to Take: Buy Silver Wheaton (NYSE:SLW) at market. Use a 25% trailing stop to protect
your principal and your profits.
The Canadian Miner Doing Big Business in Latin America
Fortuna Silver Mines Inc. (NYSE: FSM)
Fortuna is a Vancouver, British Columbia-based firm that Company Snapshot
fully owns and operates two mining companies in the top
silver producing countries in the world: Peru and Mexico. • Strong balance sheet
It produced over 3.9 million silver ounces in 2012 (up • US$165.6 million in
60% from 2011), and in February it announced that operating cash flow (Q1
the transaction to acquire Taviche Oeste Concession 2013)
closed. Fortuna acquired 55% interest in the property
with an option to purchase the remaining 45%. Then • US$205.8 million in
there’s Fortuna’s larger operation in Caylloma, Peru. The Revenue (Q1 2013)
silver mines at Caylloma were discovered by Spanish
conquistadors in the mid 1500’s, but were previously • Little long term debt
worked by the Incas for hundreds of years. When
Francisco and Gonzalo Pizarro arrived and the age of • No hedging
colonialism began, these mines were so important that in
7Oxford Communiqué Investor Report: Three Safe Ways to Profit...
1565, Caylloma was made its own province.
Fortuna purchased a 100% interest in the mine in 2005 and returned the mine to production
in 2006. From 2007 – 2010, annual silver production at Caylloma increased 250% to 1.9
million ounces The company also plans to supplement growth by focusing on the acquisition
of advanced stage, silver-rich projects in Latin American. They are looking to achive 14 million
silver equivalent ounces in production by 2016, of which 7 million will be from new reserves.
The firm is also currently engaged in over 30,000 meters of exploration drilling. Its Mario
Project in Peru is the center of new exploration efforts, with a $4 million purchase option
agreement in place. Other business
Fortuna Operating Income US$ (’000s) development efforts are located in
Mexico, Argentina, Chile, Ecuador
and Colombia.
60,000
$61,900
Income climbing highter
50,000 Put it all together and you have one of
40,000
Latin America’s fastest-growing silver
producers with production forecast to
$39,420
30,000
grow from 2.5 million ounces of silver
$27,680
20,000 and 7,000 ounces of gold, plus base
10,000 metals, in 2011 to approximately five
2009 $15,460
million ounces of silver and 26,000
0
ounces of gold, plus base metals, by
2010
2011
2012
Forecast
2014.
Source: FortunaSilver.com
If the results from the company’s
most recent quarter are any
Fortuna Revenue US$ (’000s) indication, those production
175,000 forecasts may be too conservative.
Silver produced during the third
150,000
$170,800
Sales bounding upward quarter ended September 30, 2012
125,000 was 1,027,741 ounces, 56% above
100,000 the prior year. Gold produced
$110,004
during the third quarter was 5,348
75,000
ounces, 251% above the prior year.
$74,056
50,000 It also reported $60.7 million in
$51,428
25,000 cash and less than $0.25 million of
debt.
0
2009
2010
2011
2012
Forecast
Source: FortunaSilver.com
If silver runs up to $150 per ounce
(as some precious metals analysts are
8
Source: FortunaSilver.comOxford Communiqué Investor Report: Three Safe Ways to Profit...
forecasting), and the company’s break-even point is just $6.20 per ounce, it means Fortuna would
make a 2,319% profit for each ounce it pulls out of the ground. This company’s story is one you’ll
likely be hearing more about in the next year. A growing firm with access to coveted mines in
the top two silver producing nations... record production and record revenue... an aggressive
exploration strategy... and the cash on hand to make all of it more profitable.
Action to Take: Buy Fortuna Silver Mines (NYSE:FSM) at market. Use a 25% trailing stop to
protect your principal and your profits.
The Largest Silver Fund in the World Shows You How to Own Silver
without the Hassle
iShares Silver Trust
(NYSE:SLV). iShares Silver Trust
The iShares Silver Trust is an SLV following the price of silver 36
and moving into an uptrend
exchange traded fund (ETF)
34
that allows retail investors an
opportunity for direct exposure to 32
the silver market. 30
By investing in the iShares Silver 28
Trust, shareholders take a direct 26
stake in silver bullion stored
at a London branch of SLV’s
Apr12
Jun12
Aug12
Oct12
Dec12
Feb12
custodian, JPMorgan Chase.
Small retail investors having
direct access to the silver markets is a relatively new thing. Before 2006, only large institutional
investors could invest directly in the silver markets through purchasing futures contracts.
Retail buyers who wanted to invest in silver had to do so indirectly by either buying mining
stocks or physically owning the silver.
But now with ETFs like the iShares Silver Trust, you get all the benefits of owning silver without
the work of physically owning and storing it.
SLV combines the benefits of owning physical silver with the convenience and flexibility of buying
a security. Investing in iShares Silver Trust allows you to buy or sell silver instantaneously with the
click of a button. This flexibility also allows you to keep this investment in a 401k or IRA account.
Think of SLV as your quick-start guide to profiting from silver.
9From time to time, The Oxford Club will discuss investment ideas that will not be included in the Club’s various portfolios. There are certain situations
where we feel a company may be an extraordinary value but may not necessarily fit within the selection guidelines of these existing portfolios. In these
cases, the recommendations are to be considered speculative and should not be considered part of any of the Club’s portfolios.
Also, by the time you receive this report, there is a chance that we may have exited a recommendation previously included in one of our portfolios.
Occasionally, this happens because we use a disciplined “trailing stop” philosophy with our investments, meaning that any time a company’s share
price falls 25% from its high, we sell the stock.
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