Silver miners bullish on price, cautious on costs

Fairfax

SILVER SOUGHT: Top silver companies are making confident predictions based on higher prices and a low production cost.

Relevant offers

At North America's largest annual gold mining conference, top silver companies, not bullion, have grabbed the attention of participants as they made bullish forecasts based on higher prices for the metal and a low production cost.

However, mining executives warned that costs could be on the rise again soon as a lower interest rate and record energy prices increase the chances of inflation.

On the first day of the Denver Gold Forum, Coeur d'Alene Mines Corp chief executive Dennis Wheeler began rounds of company presentations by saying that silver and gold prices were heading into a "perfect storm" based on growing demand, shrinking supply, a declining dollar and inflation worries.

Mr Wheeler told analysts, fund managers and industry players at the gold show that he expected industry production would continue to lag behind silver demand.

"I expect the (silver) growth rate to be muted," he said. "My overall outlook is that demand increases 2 per cent a year compounded. And production grows at 1 per cent for a few years or so. It can't change."

When asked if he expected the price of silver to hit $US15 ($NZ20.32) an ounce any time soon, Mr Wheeler said in an interview that it was "a reasonable price range".

Geoffrey Burns, chief executive of Pan American Silver Corp, agrees, saying he does see $US15 silver, much sooner than he expects silver at $US10.

"I think the fundamentals remain sound. I think at the moment (silver) is riding with gold on the US dollar weakness. I don't see that circumstances changing in the short term," Mr Burns told the forum.

Phillips Baker Jr, chief executive of Hecla Mining Co, said during his presentation that "we are going to see significant increase of the silver price for no other reason but just following the gold price".

Mr Baker also said that the company's cash cost of production for silver was just an average of $US1.98 an ounce during the second quarter of 2007 – sharply below Monday's spot price of $US13.45 an ounce.

With robust silver prices, low cash cost translates to big profit for many miners. Spot silver has rallied almost $US2 to near its three-month high on Monday from a low of $US11.54 on August 21.

Yet, some silver miners are cautious about rising production costs due to inflation. Shares of gold and silver mining companies lagged other stocks earlier this year as the miners grappled with high operating costs.

"We certainly see the inflation factor is going to drive our costs up," Mr Baker said.

Pan American's Mr Burns said he believed the real big cost escalation was probably behind, particularly in labour.

For Coeur's d'Alene's Mr Wheeler, he said that the industry should keep an eye on their expenses.

"Everybody in today's world has to manage the cost of materials and supplies. It will continue to be a challenge going forward, I think," he said.

- Reuters