Strengthened Silver Companies Drive Outsized Return Potential

• Silver has a compelling investment case due to growing industrial demand, particularly in sectors like solar energy, electric vehicles, and electronics where silver's properties make it essentially irreplaceable.
• The demand growth is unfolding against a backdrop of constrained supply, with few new primary silver mines in development wherein less than 25% of global silver supply comes from primary silver mines, with the majority produced as a byproduct of base metals mining.
• Mexico remains theworld's largest silver producing country, accounting for nearly a quarter of global mine supply. The recent election of a pro-mining federal government is expected to ease permitting challenges and enable a new wave of silver development and production growth in the country.
• Well-positioned silver companies with diversified asset portfolios are positioned to gain exposure to the silver thesis.
• Investors are looking at primary silver companies with high-grade assets, robust economics, and organic growth potential. Established producers with current cash flow and growth plans also provide a balanced way to invest in the silver space.

Silver is a unique precious metal with a compelling investment case in the current macroeconomic environment. Its dual roles as both a monetary metal and critical industrial commodity create the potential for significant price appreciation driven by structural supply-demand imbalances.

The Silver Market Supply & Demand Dynamics

The silver market has been in a structural supply deficit for three consecutive years, as confirmed by The Silver Institute. While the price of silver has remained relatively stable, the deficit continues to grow due to a combination of declining mine production and increasing industrial demand, particularly from the renewable energy sector. In 2023, total silver demand reached 1,195 million ounces, while mine production supplied only 830.5 million ounces, resulting in a 184.3 million-ounce shortfall. This deficit is expected to persist, given the continued expansion of industries reliant on silver, such as solar energy and electronics. Investors should take note that this imbalance may eventually translate into higher silver prices as physical supply constraints become more pronounced.

Recent data points to a sharp decline in silver inventories across major storage facilities, including COMEX and the London Bullion Market Association (LBMA). COMEX silver inventories have dropped from over 400 million ounces in early 2021 to around 291 million ounces by mid-2024, while LBMA inventories have seen similar depletion. At the same time, concerns about potential double counting of silver-backed ETF holdings have raised questions about the actual availability of physical silver in the market. These developments suggest that the silver supply situation is tighter than official figures might indicate, which could have significant implications for future price movements.

The industrial demand for silver remains a major driving force, particularly in the photovoltaic (solar) sector, which saw a record consumption of 193.5 million ounces in 2023—up 64% from the previous year. The electrical and electronics industry has also seen robust growth, underscoring silver’s essential role in modern technology. Although demand for jewelry and silverware has slightly declined, industrial consumption continues to rise, reinforcing the structural supply deficit. Given that only 28% of silver production comes from primary silver mines—while the rest is extracted as a byproduct of other metals like copper and gold—scaling up production to meet demand remains challenging.

Despite these supply-side constraints and rising demand, silver prices have yet to reflect the physical market reality. Many analysts argue that silver futures trading on COMEX exerts a greater influence on pricing than traditional supply and demand dynamics. Large commercial traders often hold significant short positions in silver futures, which may be keeping prices artificially suppressed. This has led to speculation about price manipulation, similar to past instances in the silver market. However, historical trends suggest that when physical shortages become severe enough, the futures market can no longer suppress prices indefinitely, leading to a breakout.

For investors, this evolving silver market dynamic presents both risks and opportunities. On one hand, current price levels may not fully account for the ongoing supply deficit and rising industrial demand, suggesting potential upside in the long run. On the other hand, short-term price movements will likely continue to be influenced by futures market activity, requiring patience from investors looking for higher prices. Monitoring global silver inventories, demand trends, and geopolitical developments in major silver-producing countries (such as Mexico, Peru, and Chile) will be crucial for making informed investment decisions.

Actionable Takeaways for Investors:

1. Consider Physical Silver Investments: With a growing supply deficit and declining inventories, direct ownership of physical silver (coins and bars) could be a prudent hedge against future price appreciation.
2. Diversify with Silver Miners: Investing in silver mining companies, particularly those with strong reserves and efficient production capabilities, can provide leveraged exposure to rising silver prices.
3. Monitor Industrial Demand Trends: Keep track of developments in key industries such as solar energy and electronics, as they are driving silver consumption to record highs.
4. Watch for Inventory Depletion: Declining COMEX and LBMA silver inventories signal a tightening market, which could eventually pressure prices upward.
5. Be Cautious of Silver ETFs: Some silver-backed ETFs may have issues with inventory transparency, so investors should carefully assess whether their holdings are truly backed by physical silver.
6. Stay Patient for Long-Term Gains: The silver market is heavily influenced by futures trading in the short term, but structural supply shortages may drive significant price appreciation over time. Investors with a long-term horizon may benefit from holding positions until physical market constraints force prices higher.

This dynamic is unfolding against a backdrop of constrained supply growth. Primary silver mines, which produce the majority of their revenue from silver, account for less than 25% of global supply. The majority of silver is mined as a byproduct of base metals production, making supply relatively insensitive to silver prices.

Outcrop Silver and Gold

Depletion of long-established silver districts, declining ore grades, and chronic underinvestment in exploration have left the industry with few new primary silver projects in development. This is compounded by increasingly challenging permitting across major silver mining jurisdictions. Outcrop Silver's CEO Ian Harris noted that the United States has seen permitting timelines reach 29 years in some cases.

The result is an industry ill-equipped to rapidly increase production in response to rising demand or prices. As Harris summarized:

"If I told you we had accumulated a 100 million ounce deficit in gold, it would be insanity. If I told you we had accumulated a 30 million ton deficit in copper, which is basically a year's production in both those assets, it'd be through the roof. And silver can build up that kind of momentum because it can build up a very large deficit before that physical crunch could happen."

Avino Silver & Gold Mines

Avino Silver & Gold Mines has produced 2.6 million ounces of silver equivalent last year. With a plan to triple production, the company aims to transition from a junior to be an intermediate producer over the next five years. with a goal to reach 8-10 million ounces annually moving from one to three assets.

Beyond industrial fundamentals, silver benefits from its traditional role as a monetary metal and store of value. In an era of unprecedented money printing and inflation concerns, this safe haven characteristic has attracted renewed interest from investors seeking to protect purchasing power. Central banks continue to hold gold as a key reserve asset, providing an implicit endorsement of precious metals' monetary role.

Avino Silver & Gold CEO David Wolfin emphasized this point:

"Everyone should own precious metals in their portfolio and not think about price, it's a form of insurance. Gold's going higher and so is silver."

Mexico: The World's Silver Mining Hub

Mexico is the world's largest silver producer, accounting for 24.5% of global mine supply in 2024. The country's rich mineral endowment and long history of mining make it a focal point for silver investors and mining companies.

Capitan Silver

As Capitan Silver's CEO Alberto Orozco explained:

"Mexico's been tough the last six years... [but] Mexico is really not that hard when you compare it to the rest of the world. Permitting has become impossible anywhere."

"Mexico is the largest silver producer in the world. 80% of that silver produced in Mexico comes from the Mexico silver belt between Zacatecas and Chihuahua. Right in the middle is Durango, and right in the middle of that silver belt, that's where our project is located."

Capitan's strategic location and high-grade drill results of up to 3 kg/ton silver demonstrate the continued exploration upside in these established districts. With a recently elected pro-mining federal government, permitting challenges that hindered projects in recent years may become less onerous, enabling a new wave of silver development and production growth.

GoGold Resources

GoGold is nearing construction at its Los Ricos South project in Mexico, a high-grade silver deposit expected to produce 85,000 ounces per year at low $12/oz all-in sustaining costs. CEO Brad Langille highlighted the project's robust economics,

"When you've also in an environment where there's not a lot of choice or optionality on the table in terms of who and this is going to left now and you're talking about new answers right, you know much significantly dressed with the optionality of this expiration upside."

With permits expected shortly for a fully-funded, high-margin mine at Los Ricos South and multiple exploration catalysts on the horizon, GoGold Resources is well-positioned to benefit from the positive macro outlook for silver and ongoing industry consolidation.

Investors seeking exposure to silver are pushed to act soon as Mexico becomes the next M&A target in the space.

International Diversification

Silvercorp

Silvercorp Metals, an established producer with assets in China, utilizes diversification strategy to capture a re-rating by expanding into Ecuador. As CEO Lon Shaver explained,

"Companies that are single asset single jurisdiction companies will trade at a discount. We don't think that's warranted given the quality of the assets and the financial results that we're delivering."

The company's strong balance sheet and free cash flow generation provide a solid foundation to deliver their high-grade El Domo project in Ecuador by the second half of 2026, more than doubling production.

Empress Royalty

Empress Royalty offers investors exposure to silver prices through a diversified portfolio of cash flowing royalty and streaming assets. The company exhibited the type of disciplined growth and value creation strategies that can deliver strong returns in a rising silver price environment. Empress achieved a significant milestone with $8 million in revenue for 2024, becoming cash flow positive. As Executive Chairman David Rhodes noted,

"We're now $8 million of revenue, we're cash flow positive, our treasury is building up, we have now got a stable base from which we can now launch into that development phase."

This financial strength positions Empress to continue growing its portfolio and revenue without shareholder dilution. By combining existing cash flow with clear growth plans, they provide a balanced way for investors to gain exposure to the compelling silver thesis.

The Investment Thesis for Silver

Silver's unique supply-demand fundamentals and monetary characteristics create a compelling investment case:

• Industrial demand for silver continues to grow, driven by sectors like solar energy, EVs, and electronics where silver's properties make it essentially irreplaceable
• Supply is constrained by the natural decline of existing mines, a lack of new development projects, and increasingly challenging permitting
• Less than 25% of silver supply comes from primary silver mines, making overall output insensitive to silver price increases
• Silver benefits from its monetary role as a store of value and inflation hedge, particularly relevant given unprecedented global money printing
• Key silver mining jurisdictions like Mexico are showing signs of a more favorable permitting environment under new political leadership

How can investors gain exposure?

• Look for primary silver companies with high-grade assets, robust economics, and organic growth potential like Outcrop Silver
• Consider established producers like Avino Silver & Gold that offer current cash flow, growth potential, and operational experience in key jurisdictions like Mexico
• Evaluate silver exploration and development companies operating in world-class mining camps like Mexico and seek assets with district-scale potential, strong transaction pedigrees, and proven management teams
• Use a basket approach to create a diversified portfolio across a range of primary silver companies to mitigate risk while capturing upside of the most exceptional assets

Silver's compelling supply-demand fundamentals, the increasing recognition of its monetary value and importance for decarbonization technologies, and the prospect of a more favorable political landscape in key mining jurisdictions create a near perfect storm for the metal. The chronic underinvestment in primary silver projects over the past decade has left the industry with few high-quality assets while demand drivers continue to strengthen, setting the stage for a potential supply crunch.

In this environment, investors can position for substantial upside by identifying companies with scarce high-grade silver resources, leveraged exposure to rising silver prices, and disciplined management teams with demonstrated successes. Given positive demand drivers combined with an overall lack of visible new supply, the silver investments that can manage both production growth and margin expansion have the potential to deliver real outperformance in a rising silver price environment.