To The Moon

Silver prices are on the move. A few weeks ago, it hit a new high in 11 years. Sun Silver (ASX:SS1) boasts vast silver resources in the American Midwest, equivalent to 292 million ounces of silver JORC resources.

Silver is a precious metal used for storing value. But unlike gold, silver also has many industrial uses, importantly, silver is a key material in manufacturing solar panels. Solar energy has become a strategic energy, and its growth seems to be driving recent demand for silver...

Sun Silver’s 292-million-ounce silver equivalent is located in Nevada, one of the top mining states in the USA. The United States is now aggressively promoting the development of its solar industry and has announced a new wave of tariffs on Chinese solar energy:

Mainstream media has noticed the recent rise in silver prices and the difficulty in meeting the growing demand for silver:

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Reasons to Invest in SS1:

1. The second largest silver resource on ASX - SS1, with a market cap of A$25 million at IPO, already has approximately 292 million ounces of silver equivalent JORC resources (the second largest silver resource on ASX). The most comparable peer is Silver Mines with a market value of A$294 million, with silver equivalent resources of approximately A$400 million. Currently, Silver Mines' market cap is more than 10 times that of SS1, while its resource has increased by only about 25%. Based on this, there is still room for SS1's market value to rise.

2. Potential to increase the already vast JORC resources - So far, only about 20% of the SS1 project has been explored. Through the first round of drilling, SS1 will seek to expand its current JORC resources and nearby potential targets.

3. Silver prices hit a ten-year high - Silver demand is rapidly outpacing supply. As of writing, silver prices are retesting 11-year highs.

4. SS1's tight, clean capital structure supports stock repricing - Of the approximately 125 million shares issued, about 55 million shares are escrowed for at least about 12 months. The top 20 holders account for about 65%. Most importantly, there are no options issued, meaning there are no additional "weights" when the stock price reacts to news. Current shareholders cannot employ a strategy of selling top stock, while retaining upside through options.

5. US government support for domestic solar industry and assistance in launching strategic projects - SS1's project may be seen as strategically valuable for the localization of US solar panel manufacturing. We believe SS1 may benefit from US government tax incentives included in the "Inflation Reduction Act," tariffs on Chinese solar panels, and potential subsidies for strategic projects and manufacturing plans.

6. JORC resources include approximately 1.37 million ounces of gold - Gold prices have also hit record highs. SS1's 292 million ounce silver equivalent JORC resources include approximately 1.37 million ounces of gold resources. We believe this gold is attractive as a hedge against inflation/precious metals and can complement the rapid industrial growth of silver in solar panels. 

Potential Risks:

1. Exploration Risk - There is no assurance that its drilling programme will be successful and it may not find an economic silver-gold deposit.

2. Financing Risk/Dilution Risk - As a small cap, relies on the capital markets to progress its projects. May have difficulty obtaining capital on favourable terms.

3. Commodity Price Risk - The performance of a commodity stock is usually closely linked to the value of the underlying commodity it seeks to extract. If the price of silver and gold falls, it could hurt its share price.

4. Technology/Substitution Risk - Solar energy (PV) technology could be improved, thereby reducing the need for silver, or other materials could be used as alternatives to silver.

5. Market Risks -  There is always the possibility that wider market sentiment gets worse and share prices move lower overall, with junior explorers suffering much more than the broader market.

6. Development/Delay Risks -  If any or all of the above risks materialise, SS1 could end up in ‘development purgatory’, with news flow drying up and projects stalling for long periods of time, damaging the share price.

7. Political and Geopolitical Risks - There is an ongoing risk that the U.S. government, under a new administration, will change course or eliminate policies and incentives designed to support the U.S. domestic solar manufacturing industry. Changes in government and policy could affect the future economics of its projects. 

Bottom line

Investing in SS1 is to see it expand its resources and advance project development. Hope to have enough time to see SS1 move towards development. Apply a risk strategy based on project progress and market changes after 12 months. 

As of Friday's (17/5/2024) ASX close, SS1‌$Sun Silver Ltd(SS1)$  ‌ closed at A$0.62, up 210 per cent from the IPO price.