Sudden price surge linked to social media posts helps boost Canadian mining stocks

·4 min read

CALGARY — Shares in some Canadian silver mining companies posted double-digit increases on Monday as the price of the shiny white metal surged to eight-year highs with some crediting promotional discussions on social media sites like Reddit.

Mining company CEOs said they don't expect the price rally over the past few days to last long -- but they're OK with that because prices have been increasing for more than a year due to rising demand and limited new supply.

"It's nice to see this brief rally — I think it's going to be brief because squeezing shorts is not really an investment strategy, it's speculation and I don't see it having much legs," said Brad Cooke, CEO of Vancouver-based Endeavour Silver Corp., whose shares rose almost 21 per cent on Monday.

"The good news is that, if I'm right, silver simply reverts to its long-term trend, which is up."

Michael Steinmann, CEO of Pan American Silver Corp., said commodity price volatility is something silver miners have become accustomed to over the years because the market is much smaller than it is for gold. His Vancouver-based company's shares rose more than 13 per cent on Monday.

Industrial demand for silver is expected to increase as the COVID-19 pandemic wanes and thanks to the its use in solar panels, electric cars and electronic communications, he said.

Demand for silver as a precious metal and hedge against inflation, meanwhile, is also strengthening.

"There's a lot of pressure on the industrial demand at the same time that people are really worried about the loose monetary policies all across the world so there's a lot of investment demand as well. So it's kind of the perfect storm for silver right now," said Steinmann.

Silver rose above US$30 per ounce on Monday morning, the highest level since 2013. The March contract increased US$2.50 or 9.3 per cent to settle at US$29.42 an ounce by day's end.

For comparison, Pan American uses a silver price assumption of about US18.50 an ounce for long-term planning, said Steinmann. It's current all-in sustaining cost per ounce is about US$11.

In trading on the Toronto Stock Exchange on Monday, First Majestic Silver Corp. closed up 23.5 per cent, Silvercorp Metals Inc. was up 25.7 per cent and Fortuna Silver Mines Inc. closed 18.7 per cent higher.

The jump in silver's fortunes follows intense interest over the weekend in the media and on Reddit over whether it will become the next active market in the wake of GameStop’s big move last week, said Colin Cieszynski, chief market strategist for SIA Wealth Management.

Reddit traders banded together for the past week to snap up thousands of shares of GameStop, AMC and other struggling chains, stocks that have been heavily shorted (bets that the stock will fall) by a number of hedge funds, thus causing heavy damage to those funds.

But the rush into silver futures created confusion, with some retail traders on Reddit calling the surge in commodity prices a "false flag.''

"IT'S A TRAP!'' one Redditor warned.

Some accused the hedge funds that were pillaged last week of joining Reddit anonymously to drive them out of GameStop bets and into silver, but only after hedge funds had taken huge positions.

RBC Capital Markets analysts in a report pointed out that silver prices have increased over the past few days with no "normal" reason to justify the action.

"The potential for a sharp move to cause tumult in various markets including options markets should not be discounted, similar to some of the knock-on effects from GameStop," they warned.

"World precious metals markets have developed over millennia which makes this market more robust in our view than a small cap company with deteriorating prospects. (The) gold/silver ratio gives room for silver to run."

-- With a file from The Associated Press

This report by The Canadian Press was first published Feb. 1, 2021.

Companies in this story: (TSX:EDR, TSX:FR, TSX:SVM, TSX:FVI, TSX:PAAS)

Dan Healing, The Canadian Press