A "Masterkey Investment" for AI, EVs, Clean Energy, and More…

Silver isn't at the top of investors' minds today—even though it's quietly begun a "stealth rally" in recent months, rising 23% year-to-date.

But silver ties into three of the most sweeping technological trends of the 2020s: the rise of AI, electric vehicles, and solar power.

Hundreds of millions of electric vehicles are projected to hit the road between now and 2030—and each of them will need about 2.5 oz of silver.

Meanwhile, billions of solar panels will be installed over the next few years—each of which requires about 0.62 oz of silver.

Then there's silver's overlooked role in the global AI revolution. Silver is the most conductive metal on the periodic table, making it indispensable to the semiconductors that allow the vast amounts of data processing for AI.

Overall, these trends have led to a 184.3 million oz gap between silver production and demand in 2023. And the supply-demand gap is only expected to widen in 2024.

This explosion in demand comes in a sector where unlocking new supply is a lengthy and arduous process. Silver miners around the world won't simply be able to open new mines next month to meet the historic new demand.

But one silver miner could be just weeks away from tapping into half a billion ounces in reserves—making it my No. 1 way to play a silver boom.

The Company that Mines Silver for as Little as $2.68/oz

Headquartered in Vancouver, Canada, Pan American Silver (PAAS) is an $8.3 billion mining company with seven operating mines throughout silver-rich areas of Latin America.

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One of these mines, the Cerro Moro gold and silver operation in Santa Cruz, Argentina, is sitting on 11.3 million oz of proven and probable silver reserves—which PAAS is extracting for an average cost of just $2.68/oz.

That's less than 10% the current market price of silver today—and larger mines in PAAS's empire, such as the Huaron mine in Pasco, Peru, give PAAS access to tens of millions of ounces of silver for just a fraction of silver's current market price of $29/oz, too.

The La Colorada mine in Zacatecas, Mexico, is sitting on 86.3 million oz of proven and probably silver reserves… and PAAS is also producing each ounce for just $22.82 in mining costs, again well below the current market price.

But what really interests me about PAAS—the "X Factor" for the company—is its Escobal mine in Santa Rosa, Guatemala.

The Escobal mine is sitting on a monster heap of silver, with proven and probable reserves of 264.5 million ounces.

The company has already invested over $500 million in development and infrastructure of this mine—meaning that it's well past the exploration phase.

Not only that… as recently as 2017, the mine was producing 20 million oz of silver each year for the three years prior… at a cost of under $10/oz.

So, what's the holdup today?

By Guatemalan law, the mine must secure something called an ILO 169 consultation to restart its operations at Escobal.

In PAAS's most recent earnings conference, National Bank Financial analyst Don DeMarco asked Pan American Silver's CEO Michael Steinmann about the delays in the ILO consultation.

Steinmann replied:

"The transition, sorry, of the new government took really longer, I think, longer than expected. You’re right, it’s encouraging, obviously, that the government is committed to complete the ILO 169, but I also would like to remind everyone that’s a court-ordered process that, we all have to go through. So that’s just part of ILO 169 that has ordered that, it has to be finished.

It has no choice really, I think. And there’s just no timeline to it. So the process is very prescribed and the government is working on it with the former government with good strides forward last year, definitely a slowdown with the change of the government here."

Reading between the lines, it's easy to sense the CEO's frustration—as careful as he is to avoid antagonizing Guatemalan authorities who could yet drag their feet for a few months longer.

But the completion of the ILO consultation is only a matter of time. Guatemala's new government took office in January, and it has repeatedly confirmed its commitment to carrying out the consultation. In April, its Ministry of Energy and Mines dismissed the Vice Minister of Sustainable Development who would have been authorized to carry out the consultation, and it hasn't yet named a replacement.

But while the bureaucracy is frustrating, I'm not worried from an investing standpoint. In 2022, Pan American Silver paid the Guatemalan government well over $2 million in taxes and royalties on its operations there. The government will eventually move to claim its windfall from the Escobal mine, too.

When that happens, possibly just a few weeks from now, PAAS will be able to tap into a quarter billion ounces of silver for as little as $10/oz—right when silver prices are expected to top $30/oz.

And that's all before we get to…

PAAS's $1.1 Billion Acquisition War Chest

In March 2023, Pan American Silver and Agnico Eagle Mines completed the purchase of intermediate miner Yamana Gold.

In total, the acquisition cost both companies $5.6 billion, with

Pan American Silver buying Yamana’s South American assets for around $2.8 billion.

Pan American Silver added four producing mines in Brazil, Chile, and Argentina to the seven it already has. And it added a developmental mine in Argentina to its two existing developmental mines.

The deal makes Pan American Silver one of South America’s largest producers of precious metals…and doubles its production.

In fact, PAAS is now on the cusp of being considered a "major"—that is, one of the miners that routinely produces more than 2 million ounces of gold per year.

Pan American Silver paid for the purchase without issuing debt, paying instead with its stock and by assuming $1.1 billion of Yamana’s debt.

The company is also keeping a $750 million undrawn credit facility—which, when combined with $331.4 million in cash and investments, gives it total available liquidity of $1.1 billion.

This means PAAS is well-positioned to keep expanding its empire—even as it spares no expense to get its most lucrative mines like Escobal firing on all cylinders.

Not only that, but PAAS is in strong enough financial shape to reward shareholders as it is. Last quarter, the company returned $58 million of capital back to shareholders in the form of buybacks $21.5 million) and dividends ($36.5 million).

In particular, the company's buyback program looks like a shrewd move… it bought 1.7 million shares for $14.16/share, and the stock is now at $22.85.

This is a tax-efficient—and therefore shareholder-friendly—way to boost share price with excess cash. That said, the company's dividend yield of 1.78%, well above the S&P 500 average of 1.39%, is no slouch either.

As the trio technological revolutions of EVs, AI, and solar panel continue to add hundreds of millions of ounces of new demand for silver each year, it's easy to envision silver prices soaring to well over $50/oz.

And when that happens, this mining company sitting on 486 million silver ounces—and extracting it for as little as $2.68/oz—will be sitting pretty.

Action to Take: Buy Pan American Silver (PAAS) at market. As always, allocate no more than 2% of risk capital to this trade, to ensure proper risk management.

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Inozemtsev Konstantin photo via Shutterstock