Undervalued silver stocks: Alexco Resource Corp. (AXU)

Alexco has already grown production by 30 percent in 2012, and we believe they’re just getting started.

Alexco Resource Corp. (AMEX:AXU) is one of our top 100 favorite gold and silver mining stocks out of the 500 that we profiled in our new book: The Top 500 Gold and Silver Mining Stocks. Here are three reasons why:

1) A truly world-class deposit. It’s hard to argue with quality of Alexco’s Bellekeno deposit in the Yukon Territories. Some veins grade more than 1,200 g/t silver. A deposit of that quality is a once-in-a-generation-type discovery. All told, Alexco hopes to uncover more than 100 million ounces of silver in the Keno Hill Silver District.

2) 30 percent growth and counting. Earlier this week, Alexco reported silver production of 581,808 ounces during the first quarter of 2012. That’s a 30 percent increase over Q1 production in 2011. Alexco’s targeting production of 2.2 million to 2.5 million ounces of silver in 2012. In addition, they expect to mine 19 million pounds of lead and more than 7.5 million pounds of zinc at Keno Hill.

3) 10 million ounces a year within five years. Alexco continues to identify new targets at its Yukon properties – namely on the Bermingham and Flame & Moth properties. These new, large targets may have lower grades of silver than Keno Hill, but their sheer size will help the company rapidly boost production numbers.

“These potential mines vastly increase the likelihood Alexco will surpass the 10 million-ounce-per-year hurdle within five years,” says Chris Marchese, contributor to The Morgan Report, in an interview with The Gold Report. “Its Lucky Queen project is averaging over 1,200 grams per ton (g/t) coming on-line before the end of the year, along with Onek. So it has a really deep pipeline for continuous growth into the foreseeable future.”

Mirroring a trend across the mining industry, Alexco’s shares are actually down about 8 percent since the start of the year. The company plans to release new resource statements for its Flame & Moth and Bermingham properties “during the second quarter.” That could be anytime now. If the numbers are good, look for a pop in Alexco’s share price. Look for Alexco to out-perform its peers, too, if investor interest in mining stocks begins to pick up (which we fully expect to happen sometime in 2012).

Like this post? Check out our book, The Top 500 Gold and Silver Mining Stocks, to uncover other undervalued gold and silver mining stocks.

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Top 10 best silver mining stocks over the past six months

Because silver producers have relatively stable fixed costs, a $1 per ounce rise in the price of silver means a multi-million dollar spike in profits. Here’s a look at the top 10 best-performing silver mining stocks over the past six months.

One of the quirks of the recent surge in silver prices is the relative underperformance of silver mining stocks. Shares in Silver Wheaton Corp. (NYSE:SLW) – the world’s largest silver streaming company – have fallen 2.5 percent over the past month while the price of silver has rocketed up 24 percent in the same span of time.

That makes little sense. Because silver producers have relatively stable fixed costs (outside of rising energy prices), a $1 per ounce rise in the price of silver means a multi-million dollar spike in profits. Silver Wheaton Corp. (NYSE:SLW), for instance, forecasts attributable production of 27 to 28 million ounces of silver this year. With silver up $10 over the past month alone, Silver Wheaton’s bottom line could balloon by $280 million this year; assuming, of course, silver prices don’t fall off precipitously by the end of the year.

If silver prices remain high, expect silver mining shares to follow them up. Here’s a look at the top 10 best-performing silver mining stocks over the past six months:

Great Panther Silver Limited (TSE:GPR)
+240 percent over the past six months: Great Panther owns and operates the Topia Mine and Guanajuato Mine, both of which are in Mexico. Production at the mines rose 15 percent year-over-year to 607,225 ounces during Q1. The company sells bullion direct to consumers via its online store.

First Majestic Silver Corp. (TSE:FR)
+228 percent over the past six months: First Majestic has increased its output nearly as fast as Great Panther. The company dug up 1,825,366 equivalent ounces of silver during Q1, a 13 percent increase over 2010. All told, First Majestic expects to produce 7.5 million ounces of silver this year. The company also sells silver bullion direct to consumers online.

Endeavour Silver Corp. (TSE:EDR)
+144 percent over the past six months: Of the top three silver stocks of the past six months, Endeavour has grown its production the fastest. EDR mined 900,133 ounces of silver during Q1, up 17 percent over 2010’s numbers. Gold production was also up 33 percent, pushing revenues up 95 percent in Q1.

Alexco Resource Corp. (AMEX:AXU)
+86.6 percent over the past six months: Alexco entered production on its first mine in January, and the company hopes to yield “a minimum 2.8 million ounces of silver production in 2011” (per AlexcoResource.com). The company’s also expanding its exploration efforts at its Keno Hill property in the Yukon.

Mag Silver Corp (AMEX:MVG)
+69.4 percent over the past six months: An exploration-stage company with rights to 100 square miles of prospective ground in Mexico, MVG got promising results from a prefeasibility study at its Juanicipio Mine, which could hold as much 46.5 ounces of silver per ton of ore (per SmallCapInvestor.com).

Five more silver mining stocks to watch

Metalline Mining Company (AMEX:MMG)
+62.8 percent over the past six months

Silvercorp Metals Inc. (NYSE:SVM)
+62.8 percent over the past six months

Coeur d’Alene Mines Corporation (NYSE:CDE)
+62.7 percent over the past six months

Silver Wheaton Corp. (NYSE:SLW)
+61.5 percent over the past six months

Hecla Mining Company (NYSE:HL)
+41.2 percent over the past six months

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Gold price flirts with all-time record highs

With the dollar tumbling to a 15-month low, gold spot prices have risen more than $30 over the past five trading days. That’s pushed the yellow metal less than $10 shy of its all-time record high of $1,444.40 an ounce.

With the dollar tumbling to a 15-month low, gold spot prices have risen more than $30 over the past five trading days. That’s pushed the yellow metal toward its all-time record high of $1,444.40 an ounce – a record that was set on March 7.

Investors have shown a preference for precious metals as a safe haven in the face of turmoil in the MENA region and the devastation in Japan. Traditionally, the dollar has served as a refuge of last resort, but analysts argue that the Fed’s quantitative easing program has encouraged investors to look elsewhere.

“The dollar is not currently a safe haven in times of macroeconomic uncertainty because any downward revision in global and U.S. growth automatically means a higher risk of QE3,” Beat Siegenthaler, senior currency strategist at UBS, wrote in a note to clients (per MarketWatch).

The Fed’s policies are making it more difficult to maintain investor confidence in the dollar, but an unexpected rise in interest rates or a premature halt to QE2 would likely spook the markets as the U.S. recovery looks promising but is far from a sure bet. The end result is a move into gold, silver and other precious metals as investors look for ways to protect their assets.

Gold spot prices spiked as high as $1,435 an ounce in early trading yesterday; less $10 shy of all-time record high prices. It’s a trend that will likely continue so long as the threat of QE3 hovers over currency markets.

Yesterday’s top-performing gold mining stocks (mostly microcaps) all rose more than 10 percent with Vista Gold Corp. (AMEX:VGZ) sprinting up 19.1 percent. Here’s a look yesterday’s other winning precious metals stocks:

  •  Mines Management, Inc. (AMEX:MGN) +18.2%

  •  Alexco Resource Corp. (AMEX:AXU) +12.3%

  •  Kobex Minerals Inc. (AMEX:KXM) +11.3%

  •  Kimber Resources, Inc. (AMEX:KBX) +10.3%

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