Could Silver and Its Miners Shine in Today’s Markets?

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In our webcast with Nasdaq, Steve Schoffstall, Director of ETF Product Management at Sprott Asset Management, joins Nasdaq’s Jillian DelSignore to discuss silver and silver equity markets, silver’s historic performance during periods of market turmoil, and why the metal and its miners may be a valuable addition to portfolios. Schoffstall also discussed the challenge of finding pure-play mining companies – those that earn a sizable share of their revenue from silver mining — in an industry dominated by miners that produce it as a byproduct. 

Webcast Transcript

Jillian DelSignore: Good afternoon. My name is Jillian DelSignore, Head of Retail and Wealth for NASDAQ Index. Thank you so much for making the time to join us this afternoon. I'm very pleased to be moderating our discussion today, Could Silver and Its Miners Shine in Today's Markets, with our expert from Sprott Asset Management, who I'll introduce.

Let me introduce our speaker for today and welcome him into the presentation. Steve Schoffstall is the Director of ETF Product Management at Sprott Asset Management. Steve, welcome to the conversation today.

Steve Schoffstall: Thanks for having me. It's great to be here.

Jillian DelSignore: Why don't I let you go ahead and start taking us through?

Steve Schoffstall: Sounds good. Sprott has four decades of experience in the metals and mining sector. Initially, that was focused on precious metals, but over the last four years, we've started moving into the critical materials space. We have about 11 ETFs listed in the U.S., and a number of closed-end funds listed in Canada.

The bulk of our assets are in the exchange-traded product category. We also have some managed equities and private strategies available. With that introduction, we'll jump right into things. We'll move through some of these materials more quickly than others. First, we'll touch on the monetary case for silver. Before getting into supply and demand considerations, we’ll touch on the opportunities for silver miners. And then we'll talk a little about the Sprott Silver Miners & Physical Silver ETF.

We'll start by looking at historical silver prices back through the turn of the century. One thing that generally gets lost when we start thinking about prices and looking out at a bigger picture is that we tend to get caught up in the volatility of shorter-term price movements. But if you look at silver, since the turn of the century, it's returned an annualized rate of about 7.6 percent per year for the last 25 years. And as far as the price of silver, it was about less than $5 an ounce at the turn of the century before hitting a high of $48 per ounce around 2011. Today, we sit somewhere around $32 to $33 per ounce.

Falling prices in the commodities markets in the 2010s resulted in underinvestment, and many commodities and silver were not unaffected by that. We're seeing some of the fallout from this underinvestment today, and we'll talk through that as we go through the webcast. Year-to-date physical silver is up about 13 percent and has outperformed the S&P 500 by about 17 percent. Despite silver's strength this decade, we're still a ways off from testing that all-time high we saw in 2011.

Moving to the next slide, we'll look at silver and its unique qualities as a precious and industrial metal and what that might mean in the current environment. Because it is a precious metal, it has some of the same attributes you expect with gold. And one of those things is that it tends to benefit during periods of market uncertainty. With that, we see periods of decreasing inflation and the opportunity for lower interest rates tend to be a bullish indicator for silver, as investors can look to the industrial side or the precious metals side to take advantage of that.

On the next slide, we'll look at how silver has performed during easing cycles. Looking back through the last easing cycles this century, we saw the Fed cut rates in 2001, 2008, and again in 2020. We've seen that silver has reacted strongly after each of those cuts. Performance over longer periods have ranged from about 143% after the most recent round of cuts to 441%. Today, the market is currently pricing in three rate cuts expected through 2025.

On the next slide, we'll just take a quick look at how silver and gold tend to react on a relative basis. Silver gets lumped in with gold because investors view those two primary precious metals as safe havens. Those safe havens tend to do well during periods of currency debasement, inflation, falling interest rates and economic recoveries. I think we're all very familiar with at the moment is rising geopolitical uncertainty and the risk around geopolitics.

If we look at the precious metals bull markets going back to 1970, we tend to see that silver outperforms gold by about 1.9 times on average over each of those bull markets. In the current bull market that we're in, we're pretty much on par with the price of gold on a relative basis. Even though gold has gotten a lot of attention in the vast majority of the media coverage in the last couple of months, silver has kept pace with gold if we look at it from a longer perspective.

Historically, we see that gold tends to rally before silver, and then silver will eventually pass gold, and then it tends to conclude its rally a little bit earlier. That's what we've seen played out historically and is one of the reasons why we think silver may not have kept pace with gold year-to-date or during the current environment. What we've seen on the historical average was about 1.9 times outperformance.

Flipping to the next slide, we can look at one of the common relative measures between gold and silver: the gold-to-silver ratio. And quite simply, it's just a measure of how many ounces of silver it takes to buy an ounce of gold. If we go back 45 years to the start of the '80s, the average ratio was about 67. So, 67 ounces of silver to buy one ounce of gold. What we have here in the chart shows 92 as of the end of last quarter. This morning, we're closer to 103 ounces of silver for one ounce of gold. That's significantly higher than we've seen from the end of the last quarter. And in our view, this could pose a potential opportunity for silver to catch up relative to gold.

On to the next slide. Not only is silver relatively cheap compared to gold, but inventories have fallen by about 22% over the last five years, as we've seen increases in industrial demand. Much of the London Bullion Market Association's inventories are allocated to ETFs and other funds, so they're not readily available for industrial use. This will be important to remember as we move throughout the webcast and focus our discussion on supply and demand dynamics.

If we look at some of the uses of silver on the next slide, there are more than 10,000 uses, ranging from medical purposes to nuclear energy, with the control rods being about 80% silver. Because it is the most conductive metal in existence, we see a lot of uses in electronics, such as semiconductor chips that are used for artificial intelligence. It is a very wide-ranging metal with lots of uses. Because of this, we've seen industrial demand for silver increase to about 59% of overall demand for silver. If we were to look at 2023, it was 55%. We've still seen considerable demand from industrial applications in the last year.

On the next slide, we'll look at what this means on a percentage or practical basis. Silver industrial demand increased by about 681 million ounces last year. A large part of that growth came from electrical and electronics. When you think of electricity, you think of AI data centers, power grids, 5G networks, and solar panels, where silver is needed to convert the sun's energy to electricity. Demand for solar panels has increased considerably in recent years. The electrical and electronic sectors now account for about 40 percent of total demand.

Moving forward to the next slide, we will look at electricity growth, which is one of the drivers for many critical materials, and silver is no different in this case. We expect about a 169% increase in electricity demand through 2050. A couple of factors leading to this are as follows: We have rising middle classes in developing countries as they're starting to urbanize and get more technologically advanced and industrialized. There's additional demand for electricity to keep those economies moving and progressing. And then in more developed countries, we're seeing increases in electricity as technological advances like artificial intelligence are starting to take hold. We also see EVs playing a significant role in electricity needs.

We have those two main factors underpinning electricity growth. At the same time, there's a global push to change how we consume energy to cleaner forms of energy. The energy transition is a critical materials-heavy endeavor.

And that's something that we saw about $2.1 trillion invested in the last year alone in the energy transition. When we start hearing things about weakness in the global economy, this is an area where we see that investment in the energy transition does provide a level of support for a lot of these metals, like silver or even copper or some other critical materials that might not have been there 10 years ago.

On the next slide, we'll just look at solar panels and what that means for silver. This is one area where we've seen a lot of growth in the demand and the amount of solar panels produced. The global solar panel additions grew by about 35% in 2024, which is above its average of about 30% if we were to go back over the last decade. We’ve seen vobust growth in solar panels and solar usage, which has massive implications for silver and silver demand. Solar now accounts for about 17% of total demand for silver, whereas if we were to go back to 2016, it was only about 8%. A lot of the driving that we see comes not only from solar demand, but also from the broader move to electrification and greater technology uses.

On the next slide, we'll look at overall demand. One thing to note is that silver investments like ETFs, coins or bars make up about 16 percent of demand. We typically see from the ETF side that buying has historically increased in monetary easing cycles. In our view, this could provide another tailwind over the shorter term. Also, if we look geographically, increased silver buying in Eastern economies has correlated with the rise in demand for silver. And we're seeing buyers paying a premium of up to 7% to ensure they can secure the silver they need to keep the industrial engine moving.

On the next slide, while we're seeing increases in silver demand, we're also seeing a supply picture that has been stagnant for the last decade. If we were to go back to 2016 and look at what we produced then versus where we are now, we would see that supplies decreased by about 4%. Some of that is attributed to the difficulties we have in increasing supplies, whether that comes from investment in silver miners that I mentioned earlier, where we had that decade where there wasn't enough investment happening. We also see long lead times to open mines and degrading ore grades, which are making the silver coming out of the ground much less prevalent than what we were seeing historically. Also, recycling accounts for about 19% of the supply. So, it's been relatively flat for at least eight years. And that's not enough to close the gap.

If we were to look at where we're at today on the next slide, rising demand and stagnant supply have pushed the market into a supply deficit, which we've seen over the last six years. I would expect to see that in 2025 as well. The 2025 deficit is forecasted to be around 190 million troy ounces of silver, a significant supply shortfall.

In a couple of minutes, we'll walk through a few slides and discuss why increasing supply isn't as straightforward as it seems, but with that, we'll shift our conversation now to the silver miners and take a look at the opportunity there. Historically, a lot of silver investing has been focused on physical metal. While we believe that the physical aspect of silver investing has a place as a core holding in portfolios, we're seeing more and more investors starting to take an interest in silver miners and considering adding them to portfolios as well. Given the supply and demand picture, investors may be well-suited to consider miners. First, they tend to outperform silver during rising markets. That's something we're seeing year-to-date and over the last year. They provide that degree of leverage to the underlying commodity itself.

Moving to slide 21, similar to what we've seen with gold miners, silver miners offer some diversification relative to other major asset classes. We would classify it as a low to moderate correlation to most major asset classes. And of note, more recently, if you look at the U.S. dollar correlation, there's a fairly strong negative correlation there, given the current market environment. We're hearing more and more from investors who find that an appealing aspect of silver miners.

Moving to the next slide, one of the interesting pieces of silver mining is if we look at the cost to mine silver and what that means for miners. So, if we look at pure-play silver mines, and that's a term you'll hear later as we talk about the fund itself, when we talk about pure play, what we're talking about is those companies that have at least 50% of their assets tied to mining silver. As that relates to mining costs, if you are a pure-play miner, you typically see that your all-in sustaining mining cost is around $14.60 an ounce, which is well below the current price of about $33 we're seeing today.

On the next slide, we'll look at what's probably one of the most important slides if you're considering a silver miners investment. That will come into play when we start looking at how SLVR, our silver miners ETF, differs from some of the other strategies you might see. But in our view, identifying those pure-play miners is of utmost importance. And that plays a very significant role in silver when you consider that 72% of silver is mined as a byproduct, meaning that miners are mining lead, zinc, copper, or another metal. They happen to have silver there as well. So that's an important distinction between byproduct nature versus being a primary target of silver models, miners. The first would be that, lead or zinc would have vastly different supply and demand characteristics to get those metals versus silver. For example, if you're looking to use zinc, that could be very dependent on global economic conditions. In contrast, the monetary aspects of silver or the energy transition usage of silver might not have the same impact on silver as other metals. So that can make it difficult for the amount of silver being produced to be scaled up, as that's not the intended target. Secondly, because silver is a byproduct of metal and miners are mining something else, they won't have silver prices impacting their mining decisions on mines where silver is not the primary driver of their activity.

One statistic that's quite eye-catching is that of the 10 largest silver producers, none are principally silver miners. And that's a very important distinction when we start looking at different ETF strategies of pure-play versus non-pure-play. And we'll talk through that in a moment. To put a bow on this slide, investors would do themselves well to take a more targeted approach to silver miners, and that can decrease their unintended exposures to other commodities that they may not want exposure to or already have exposure to.

We'll just move forward quickly here and, you know, we'll try to leave a few minutes for questions. Let’s talk about the Sprott Silver Miners & Physical Silver ETF. We brought this product to market in late January, and the assets we listed at $40 million are outdated. We're closer to about $60 million as of this morning. We've seen a lot of investor interest in this space. Any time we go to launch a new product, there are a few things we look for. One would be, can we bring our expertise in the metals and mining space to whatever product we're looking to launch? Second, we also look at all the existing products and see if there are any gaps or ways we can bring our experience into the ETF wrapper and improve investor outcomes. Lastly, we're also looking for long-term trends that we believe exist in the market.

We believe there's a long-term trend in silver. It matches what we've done historically from our background in metals and mining, and we think we have a very differentiated product. When you look at SLVR, one differentiating factor is its dedicated exposure to physical silver ,which will make up about 17.5% of the overall exposure. This is an index that's reconstituted twice a year. There are fluctuations in that physical silver exposure, but at each index rebalance in June and December, we'll see that get rebalanced back down to 17.5%. So that's one key distinction. The other key distinction is that the fund focuses on pure-play miners. Again, those companies have at least 50% of their revenue or assets tied to mining silver. That's a key distinction when we start looking at comparable silver mining ETF strategies that might have less stringent criteria and include companies that are merely involved in silver mining exploration.

If you recall from the previous slide, none of the top 10 silver-producing companies are principally silver miners. You'll often see these types of companies in other strategies. Then, some of the screens that different strategies might have are that to be considered a silver miner, they just have to have a significant market share of the overall silver market. Again, they're not looking at a principal silver company. In some cases, exposure to silver miners and some ETF strategies could be as low as 8% to 10% on an individual company basis. Some products have a lot of exposure and unintended exposure to other commodities.

So that all sounds good, but what does that mean from a practical standpoint? When you look under the hood at the SLVR strategy versus the strategy of other silver mining ETF strategies, typically, what you'll see is that SLVR has about twice the exposure to silver mining relative to other silver mining ETF strategies. There's very low overlap between SLVR strategies and other ETF strategies, and while SLVR doesn't have any exposure to companies with less than 25% of their revenue tied to mining silver, other ETF strategies could have up to 50% in this bucket, meaning you're investing in companies that may be principally a zinc or a copper miner, that's making its way into your silver portfolio, which can impact what we're seeing from a performance perspective and performance expectation perspective.

On the next slide, we’ll touch on a few things about the ETF itself, and then we can open it up for questions. Currently, there are about 49 issuers in the index with an aggregate market cap of about $80 billion, with an average weighted market cap of under $3 billion. This skews to the small-cap spectrum, about 60% small-cap and 13% mid-cap. That's not classified exposure; what you're seeing in the market cap breakdown comes through the physical exposure we have in physical silver. Physical silver is going to be about 21 % based on how the price fluctuates. Again, each semi-annual rebalance that we'll get adjusted back down to its target weight. Other equities would be the ancillary exposure we're getting from the weight in the pure-play companies. For example, if you have a company that gets 80% of its assets from mining silver, there's this 20% that they get from doing something else. The index is mainly invested in companies that are domiciled in Canada, the U.S. and Australia, but it is very much a Canadian-focused ETF.

With that, I think we can pause and open it up for any questions. We have a few required disclosure slides that will flip through just so we can keep everything moving there, as well as our standardized performance. Again, the fund just launched at the end of January, so there's not a lot of performance going back past inception. And back to you, Jillian.

Jillian DelSignore: Thank you so much, Steve. That was fantastic. And I'm sure that our audience does have questions. And in fact, they did put a couple in the chat. And I'm going to start with one that I wrote down. Why haven't silver prices kept up with gold?

Steve Schoffstall: I think I touched on this a little bit, but gold tends to move before silver. And then when silver does move, it tends to move past gold in its performance. That's what we've seen historically. Unlike gold, though, silver doesn't have central bank buying that we're seeing currently in gold. We're seeing China, in particular, and a lot of other countries that are looking to move to a de-dollarization, or they're concerned about their reserves, should there be sanctions. They saw what happened to Russia and what happens to other countries anytime that there are sanctions. It could be very difficult to get access to their reserves.

With gold, it's something that they could repatriate back to their home country. We don't see that level of buying in silver that we do with gold, and it doesn't really exist from the central bank standpoint. Some of the muted price performance, I think, is muted on a relative basis, as silver is up about 13 percent year to date. I think some of that is the old view of looking at the industrial uses of silver and expecting the fear of a global slowdown in economic conditions, and what that could mean for those industrial uses. I think the uncertainty around trade wars and tariffs also plays a role.

But I think what we'll see play out there is that, at least from the energy transition side, where we were seeing considerable demand growth, we think that will also help proper prices somewhat.

Jillian DelSignore: We have so many good questions in here. So many people are concerned about the tariffs and anticipated impact on demand, and I don't have any thoughts while I'm looking through the rest of these on that piece. I think you touched on a little bit just in your last answer.

Steve Schoffstall: I think it was February when we started to see a lot of metal flow into the U.S., getting ahead of expected tariffs. We've seen that subside and don't expect to, at least in the short term here, and a lot of the critical materials which we view as a critical material, things like copper, uranium, silver, we don't expect to see tariffs in any meaningful way that we're seeing with the so-called reciprocal tariffs that we see against a lot of countries.

Jillian DelSignore: Absolutely. So maybe we can wrap up on this one. I always like to wrap up with implementation, and we had a question: given its increasing usage as an industrial metal, how do we think about silver's role in a portfolio?

Steve Schoffstall: That's a great question that we get a lot. Silver does have that precious metals component and its industrial uses, and I think its role as a precious metal can potentially reduce the risk through diversification that we get through those low to moderate correlations that we discuss. I think you have potential for asset diversification within a portfolio. The flip side of that is that it opens up for some growth characteristics on the industrial side. And we're seeing advisors now starting to use silver miners and silver to dial up or dial back the risk tolerance to a certain degree because it is less correlated. Still, within their precious metals portfolio, they can use silver to try to capture more of that growth while retaining some of those precious metals characteristics that people become accustomed to with silver.

Jillian DelSignore: That makes sense, thank you so much. It's a great way for us to tie a bow on this. With one minute to spare, I will thank you, Steve, and everyone on the Sprott team for bringing this idea. I think it's incredibly timely with everything going on, and we clearly have a very engaged audience with us today. Thank you all for your thoughtful questions. We did not get to everybody, but as I mentioned on the front end of this discussion, we will have someone from Sprott reach out to you to address the questions you had for Steve, and we just didn't have the time to get to everything. So, thank you again for your time this afternoon. We certainly hope you can take the time to fill out the survey so we can continue to make these very relevant webcasts for you as we move forward. Have a great rest of the day, and we'll see you next time.