‘Fantastic Opportunity’ in Silver: Gold Mining CEO

Australian gold miner, Kingsgate Consolidated, reported an almost 200 percent jump in profits for the second half of 2011 on Wednesday, boosted by robust sales of the precious metal. But, the company is planning a bigger push into silver in the coming years, according to the CEO Gavin Thomas.

Thomas Northcut | Photodisc | Getty Images

“Silver is a fantastic opportunity…I see there’s a lot of upward price (for the metal), because of the lack of supply,” Thomas told CNBC on Wednesday, adding that silver could rise to $50 per ounce over the next 24 months.

Supply of sliver is under pressure because, lead and zinc mining, which silver is a bi-product of, is becoming less prolific, Thomas said. At the same time, he notes that demand for silver is increasing as medical and industrial uses for the metal are discovered and investment interest from India and China rise.

“India and China are slowly turning to silver as a means of hoarding wealth, as gold is becoming more difficult to obtain (due to higher prices),” he said.

Yet, silver

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[XAG=  Loading...      ()   ] prices have tumbled 29 percent since hitting a record high of around $48 per ounce in April last year. On the other hand, gold

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[XAU=  Loading...      ()   ] prices have risen, climbing around 15 percent over that period.

Kingsgate, which is Australia’s second-largest traded gold miner, has been making a significant push into silver over the past year. In August 2011, it bought Canadian miner Silver Standard’s Bowden silver project in New South Wales for A$75 million. Last year it also secured 70 percent ownership in Laguna Resources, which owns the Nueva Esperanza silver and gold project in Chile.

Thomas points to another reason the miner is attracted by silver. He says margins in gold are being squeezed worldwide as gold grades decline, while silver margins aren’t being squeezed as much.

In 2011, silver sales accounted for less than 10 percent of total revenue at Kingsgate, but Thomas says this contribution will grow significantly in the coming years.

“Silver will account for 25-30 percent of the company’s revenues in four years from now once our mines in New South Wales and Chile are in full operation,” he said.

Mark Taylor an analyst with research house Morningstar, who covers Kingsgate, says the company’s silver output is low right now because it’s a by-product of its Chatree gold mine.

According to him, the Bowdens silver project, which is undergoing a bankable feasibility study, is forecast to have 100 million ounces of silver. While, Nueva Esperanza is estimated to have a combined mineral resource of over 80 million ounces of silver.

Taylor has an “accumulate” rating on Kingsgate’s shares, meaning they’re undervalued, but there’s still time to buy. He says fair value for the stock is A$14.75 compared to Wednesday’s traded price of A$7.95.