Silver Bulls In Peru See Prices As High As $22 An Ounce
Sophie Kevany

LIMA -(Dow Jones)- Silver may be seen by investors as a poor cousin to gold, but bulls were in good supply at this week's precious metals symposium in Peru, the world's leading producer of silver.

Industry participants predict the price will rise this year to as much as $22 an ounce, nearly a 20% jump from its current level of $18.56 an ounce.

Their confidence, given limited or hard-to-get-at silver supplies, is based partly on silver's increasing popularity as an investment refuge and partly on greater industrial demand for the metal as a conductor of heat and electricity and as an antibacterial agent, among other things.

"Fifty percent of the demand for silver is from industry, and it will substitute falling demand from the photographic industry," said Jaime Lomelin, the general director of the world's biggest primary silver producer, London-listed Fresnillo PLC (FRES.LN).

Fresnillo's parent company, Industrias Penoles (PE&OLES.MX), is based in Mexico, the country that produces the second-largest amount of silver in the world.

Lomelin predicted a steep increase in Fresnillo's production, which he said would reach 65 million ounces of silver by 2018 from about 38 million ounces now. The company's target is to open one new mine a year for the next five years. This year, Fresnillo will spend $77.6 million on exploration, a 58% increase from last year, according to the company's 2009 annual report.

Lomelin also said problems in Greece and other countries would boost the price of silver. "I see a huge demand coming," he said.

The director of the Washington-based Silver Institute also saw rising proof of silver's potential as an investment refuge. Michael DiRienzo said currently 289 million silver ounces were held in exchange-traded funds, or ETFs, and he predicted the number of ETFs would grow. "Gold gets the headlines," he said, but silver demand from investors is growing.

DiRienzo said silver supplies were "an issue," and predicted an uptick in production of about 1% to 3% to 2012.

Also bullish on the metal is Juan Jose Herrera, the general manager of Peru's zinc and silver miner Compania Minera Volcan SAA (VOLCABC1.VL). "The price of silver contracted, but it has been rising again," Herrera said.

Volcan, which Herrera said is currently sitting on reserves of 406 million ounces of silver, is set to produce about 21 million ounces in 2010, up slightly from last year.

Herrera told reporters that the company is investing up to $250 million this year, particularly in processing capabilities, to boost production.

Silver supply issues include the fact that big deposits are hard to find, and that very few mines produce silver only, with most producing it as a byproduct of other metals including zinc, making the extraction process more complex.

Another problem for the silver supply is a shortage of technical staff.

"Tell your children we need geologists and engineers," said Michael Steinmann of Pan American Silver. For 2010, Pan American has forecast silver production of 23.4 million ounces.

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