Dig It: Silver Price Soars As Demand Grows

Credit Steve Forbes, Eastman Kodak Co. or your local jeweler. For a variety of reasons, silver demand is soaring and now is the time to reopen silver mines, analysts said Friday.

“The price is right and the mining companies are firing them up,” analyst Ted Kempf said after hearing of Silver Valley Resources Corp.’s plans to reopen the Coeur and Galena mines in North Idaho.

Not everyone is as upbeat as Kempf, senior research analyst for the CPM Group, a New York-based consultant to mining companies.

Investors sold off silver Friday after hearing the news about mine reopenings in the Silver Valley, dropping the spot price 6 cents a troy ounce to $5.65. Analysts said investors were spooked about the prospects of other mines following suit, producing a glut of silver.

Spokane-based Royal Silver Mines Inc., for one, is seeking financing to reopen the smaller Crescent Silver Mine near Kellogg, said John Ryan of Pennaluna & Co. securities firm in Coeur d’Alene.

But Ryan said it could take months or years for world silver production to catch up to demand.

When the mines closed, silver sold for $3.70 an ounce. But demand for silver has outstripped mining production five consecutive years, creating annual shortages of 160 million ounces or more.

Ryan said he’s not concerned about a spree of mine openings, since only 15 percent of production comes from primary silver mines such as the Coeur and Galena. The rest is a byproduct of giant copper, lead-zinc and gold mines which won’t change production because of silver prices.

“We think $425-ounce gold and $6-ounce silver is sustainable” for at least 18 months, said Todd Hinrichs, analyst for Everen Securities in Chicago, which follows Coeur d’Alene Mines Corp. and other mining companies. “Time will tell, but overall we view it (Coeur and Galena opening) as positive.”

Silver Valley’s announcement comes on the heels of a run-up in precious metals that has gold bugs giddy. Felix Zulauf, manager of the Zulauf Asset Management Fund of Switzerland, recently told Barron’s weekly business newspaper that “this was the year for gold - the buy of a generation.”

Silver prices often move up and down with gold, and Zulauf said gold is headed for $500 an ounce.

But some analysts claim gold is a poor investment that has not kept pace with the stock market.

“Gold is an absolute dog as an investment,” Edward Arnold, metals specialist at Merrill Lynch & Co. in London, told Bloomberg Business News earlier this week. “It never performs.”

In reality, investors are mere spectators to the commercial silver market, which is vulnerable to a variety of market factors, including inflation, interest rates and industrial production.

Manufacturers of jewelry, silverware and photographic film are the biggest users of silver, and their fortunes often tilt the price of silver. Kodak’s announcement last week that it had developed a new film that allows photographers to take better pictures is expected to boost silver usage, Kempf said.

Even the political rise of millionaire Steve Forbes may give gold and silver a lift. Flat tax proponent Forbes claims gold is a good standard for measuring value. The more who agree with him, the more popular precious metals may become.

, DataTimes ILLUSTRATION: Graphic: Silver’s rise demands a response