Silver Miners Optimistic After "Terrible" 2013: PwC

Expressing what many resource market participants already know, PricewaterhouseCoopers (PwC) said in its recent Gold, silver and copper price report 2014 that those three metals were among the hardest hit this year.

Of the three, silver has earned the distinction of being 2013′s worst-performing metal. It began the year at about $32 per ounce, and by July had sunk to $18 or so — that’s a drop of around 40 percent, and miles away from the white metal’s inflation-adjusted record of just below $50 in 2011.

The result has been what PwC describes as a “confidence crisis across the mining sector” — many investors are directing their money elsewhere, spooked by lower metals prices, lower company returns and fear that the situation will worsen.

However, PwC emphasizes in the report its belief that “the long-term fundamentals supporting metals prices remain strong and will help to drive the industry’s turnaround story.”

Encouragingly, it seems like many silver miners agree — PwC states that 53 percent of respondents to its survey expect silver prices to rise in the next 12 months. A slightly smaller number, 38 percent, said they expect prices for the white metal to stay more or less the same, while a scanty 9 percent believe that prices will fall further.

Transparency is key

While PwC does not provide its own outlook for the trio of metals — beyond expressing the belief that as a whole, the market is slowly, but surely, recovering — the firm does offer miners some tips on how to prosper in the current price environment.

The key, PwC believes, is transparency. ”With margins squeezed by the recent decline in commodity prices, investors and analysts increasingly want more transparent disclosure of total costs,” the report states.

One of the factors preventing companies from providing such transparency is ”uncertainty — even confusion — over the definitions used by companies for significant capital expenditure items.” Essentially, there is no consensus on what constitutes sustaining and growth costs, and there is no reporting standard that requires companies to disclose those figures. And, while companies could take the initiative and provide them on their own, most are loath to do so since it is such a gray area.

That’s unfortunate, PwC believes, because a “clear picture of sustaining and growth costs is valuable tool to demonstrate effective cost management over the longer term, and thus improve capital spending discipline.” In other words, providing these figures could lead to increased investor confidence.

It seems, then, that whether silver prices increase next year or not, it will be the companies that are best able to give investors what they want — in this case, better reporting — that are likely to succeed this coming year.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.