Silver has always been an important material in the electronics industry, possessing the highest electrical and thermal conductivity of all metals. However, other metals like copper, cobalt, lithium and nickel have been hogging the spotlight as prime beneficiaries of the green revolution, until now.
The rapid buildout of solar generation and increasing sales of electric vehicles are driving an important step change in demand for Silver. Yet silver prices continue to lag battery metal peers.
In this report, we look at the potential for silver demand to exceed market expectations, driving a catch-up trade in physical silver and the companies that mine and produce it.
We also provide our four preferred investment options to gain exposure to silver. From well positioned exploration companies offering significant leverage to silver prices all the way to owning the physical commodity itself.
Demand Forecasts Keep Ratcheting Higher
According to data from the Silver Institute’s World Silver Survey, industrial and electronics demand are forecast to rise by 4% and 3% respectively this year, both hitting new all-time highs.
Demand from solar panels alone is forecast to rise 21 million ounces this year, adding almost 2% to total silver demand.
Silver Supply and Demand Outlook
Though other demand drivers, such as from silverware, jewelry and physical investment are volatile from year to year, the strong demand tailwind from solar panels is rapidly offsetting recycling supply, meaning mine production will have to make up the difference going forward.
Underinvestment in silver exploration and mine development has led to a 7% production decline over the last 8 years, compared to demand for silver growing 23% over the same time period.
Demand from Solar Close to Eating up All Available Recycled Silver
Solar Demand in Focus
Aside from consumer electronics, one of the most important industrial uses for silver is in photovoltaic (PV) cells, which are essential to the manufacture of solar panels.
Silver powder is transformed into a paste which is loaded onto a silicon wafer, where they form a conductive layer for the both the front and rear sides of silicon solar cells. When silicon is exposed to light, electrons are set free, and the silver paste carries the electricity which can be used immediately or stored in batteries for later consumption.
Photovoltaic (PV) power is the leading source of electricity for the energy transition. In 2020, total solar capacity exceeded 130 GW for the first time.
Total usage of silver in PVs rosed to 140.3 Moz in 2022 and is expected to rise 15% to 161Moz this year.
More than 95% of the increase is due to the expansion of solar PV power generation driven by rapidly falling upfront costs over the past decade.
Global consultancy CRU, forecasts that solar power generation will increase to 1,053 TWh in 2025, a significant increase from 615 TWh in 2019.
This is equivalent to a CAGR of 9.4% and will increase solar power’s share of global electricity generation from 2.3% to 3.5% and drive continued strong demand for silver.
Global Electricity Forecast by Type
Driving our bullish view on future silver demand is that historically, forecasts have significantly underestimated solar’s insatiable demand for silver and we think demand will continue to exceed expectations driven by renewables.
The Silver Institute itself, as recently as 2020, forecast silver demand from solar would peak at 100 million ounces. Yet here we sit in 2023 with demand forecast to reach 161 million ounces this year.
Its safe to say the solar industry is growing into a much larger source of silver demand than anyone previously expected, blowing past estimates made only three years ago.
2020 Forecast for PV Silver Demand Proved Very Pessimistic
Silver is Trading Historically Cheap
Silver and gold have a close relationship and for this reason investors like to look at the ratio of one to the other for signs of over and undervaluation.
Over the last 25 years, the gold to silver ratio exhibited certain patterns depending on whether we are in a recession or expansion. Due to silver’s use in industrial processes, a source of demand gold does not share, silver moves in a more cyclical pattern than gold.
The ratio tends to contract while the economy is doing well and demand for silver is rising, gold becomes cheaper relative to silver. However, the ratio sometimes corrects violently during and shortly after recessions and stock market selloffs (2008 and 2020 as examples).
Since the gold/silver ratio bottomed in spring of 2021, it has moved well above the median over the past 25 years, signaling forward looking silver returns will likely be quite positive.
An investor who bought silver when the ratio peaked in 2008 and 2020 generated 300% and 55% returns from the peak to the trough.
With supply tightness potentially ahead and silver trading cheap to gold, an attractive window has potentially appeared for anyone wanting to gain exposure to silver.
Gold Silver Ratio (25 Year Chart)
Four Unique Ways to Invest in a Potential Silver Squeeze
Junior Explorers – How to Maximize Your Upside to a Rising Silver Price
Beyond owning a basket of miners or physical silver itself, often life changing returns can be generated from buying junior silver explorers at the beginning of a silver upcycle and holding all the way up.
Silver has historically outperformed other assets like stocks and bonds through a recession and with the strong demand trends we talked about above, the setup for higher silver prices is looking more and more likely.
Highlighted below are two emerging junior miners with top tier management teams, recent drilling success and the potential to generate gains through the drill bit, M&A or leverage to higher silver prices. Investors have more than one way to generate attractive returns.
Investors can still win even if the silver macroeconomic outlook doesn’t play out exactly as expected, the type of investment we prefer.
1: Dolly Varden Silver (Ticker: DV, DOLLF): Maturing Explorer
Dolly Varden (TSXV:DV) operates out of the golden triangle in Canada’s province of British Columbia, the home of the original west coast gold rush.
The Golden Triangle is already home to many world-class gold and silver deposits and has seen significant deal-making lately due to the potential the industry sees in the area for further discoveries.
Merger Activity has Been Hot in BC’s Golden Triangle Lately
In only two years, Dolly Varden has discovered close to 90 million silver equivalent ounces of inferred resource through smart geologic targeting and an ambitious drilling program.
Dolly Varden Silver Equivalent Resource
With a fully funded 45,000 meter drill program planned over the next 12 months, Dolly Varden could see a significant increase in resource with the company trying to connect unexplored rocks between its two major deposits while also continuing to test a recent step-out well that has management particularly excited.
Dolly Varden already has major gold investors like Sprott and Hecla mining involved and is run by a team with a history of taking underexplored rocks and turning them into acquisition ready resources.
We’ve chosen to highlight Dolly Varden as it offers investors three different paths to upside, through exploration, a future buyout by a larger miner or with higher silver prices and a rising stock price.
Dolly Varden Capital Structure
2: Summa Silver (Ticker: SSVR, SSVRF): Emerging Explorer
Summa Silver (TSXV:SSVR) is an explorer operating out of properties in New Mexico and Nevada.
The company was founded by a group of geologists with years of experience successfully exploring for silver and gold and with an intriguing theory.
They believe significant value can be created by focusing on prematurely closed mines and underexplored production areas, instead of simply throwing a Hail Mary on finding completely uncharted silver deposits.
Take their Hughes project in Nevada for instance.
The rocks have similar geological and production characteristics to some of the largest gold and silver districts in Mexico, according to the CEO.
With only 4km explored in the entire district vs typical district lengths of 8km-18km in Mexico, Summa believes this previously producing district has been less than half discovered and significant additional resources are still to be found. Recent drilling success at a step out well may foreshadow the success that is to come.
Tonopah District Comparison to World Class Mexico Discoveries
Like Dolly Varden, Summa has been funded by major mining investors like Eric Sprott, with an 18% stake, not to mention managements 26% ownership which shows a strong commitment to the company, in our view.
Summa’s geologist heavy founding team and unique approach to silver exploration make it a potential high probability exploration success story for investors looking for significant leverage to a potential mine shortage of silver over the next 5 years.
Summa Silver Capital Structure
3: Physical Silver (Ticker: SLV)
If you simply want exposure to silver without the operational leverage and risk that comes with owning a miner, owning the physical commodity is the solution.
The most liquid vehicle for owning silver is the iShares Silver Trust. The trust currently holds 468 million ounces of silver in vaults managed by JP Morgan and trades at less than a 1% premium to NAV, a sign of good liquidity.
4: Diversified Silver Miners: (Ticker: SIL)
If you want the operational leverage that comes from owning a diversified basket of silver miners, the Global X Silver Miners ETF (Ticker: SIL) will be your best bet.
SIL Top 10 Holdings Chart
The SIL ETF holds 36 silver miners in the portfolio spread mostly across North and South America, Britain and South Korea.
SIL Geographic Diversification
https://www.globalxetfs.com/funds/sil/#holdings
Renewable Energy Has Truly Changed the Game for Silver
With silver playing a key role in the electrification of transportation, the energy grid and the future of consumer electronics, the supply demand balance is coming under stress.
Like many other battery metals, a dramatic rise in demand forecast for this decade is creating question marks around where new supply will come from in time.
Historically, silver recycling has been able to pick up the slack, but with silver demand from solar panels exploding, a reliance on dissapointing mine production can only mean one thing…
Much higher silver prices.
Summa Silver Corp is a market awareness client of Capital 10X. For more information, including potential conflicts of interest please see our Content Disclaimer.
