With the recent swings in the price of commodities like silver, it is easy for the average investor to get whipsawed. Every once in a while, there is a storm. While silver is continuing to swing up and down on a daily basis, this does leave the door open for junior mining companies to become undervalued, and offer a good entry point for the long-term investor. Other times, the stock can get ahead of itself, and one must be patient for a pullback to a more favorable level.
MAG Silver Corp. (NYSE/MVG) is a Canadian exploration company that is focused on its silver properties in Mexico. Junior mining companies that are too spread out can be problematic, as their interests become divided. In that situation, having a focus on one country can be seen as a potential benefit. A country like Mexico has been shown in the past to be friendly to junior mining companies.
MAG Silver is an exploration company, so the stock can be volatile, as each time it releases news of drill results, the share price can move in an exaggerated fashion. This is true for many junior mining companies. The company recently reported initial inferred mineral resource estimate for its property in Northern Chihuahua, Mexico. The inferred mineral resources that the company is reporting are estimated at 12.45 million tons at 132 grams per ton (g/t) of silver, 0.24 g/t of gold, 6.47% g/t zinc, and 2.86% g/t lead.
Like all silver junior mining companies, these are just the first steps to truly understanding what the extent of these commodities truly is beneath the ground. The company will conduct further drilling to determine what level of inferred resources can be converted into indicated resources. We would need to see what the full report is for this property to fully evaluate this stock for an investment, although these initial estimates are promising.
Chart courtesy of www.StockCharts.com
Looking at the chart of MAG Silver, there are several things to note. The stock has had a strong run, as have many silver junior mining companies. However, one should not simply chase a stock higher. Nothing goes up in a straight line. Recently, some technical signals are indicating that a pullback is possible in MAG Silver. The Relative Strength Index and the moving average convergence/divergence (MACD) indicators are showing a divergence, in which the stock price has made new highs, but the indicators have not. Also, it will take some time for the full analysis of their property to come to light. This time, length might shake out weaker holders of the stock.
One strategy would be to look at previous areas of support as possible entry points. Of course, silver junior mining companies are extremely tied to the price of the commodity. If silver prices drop precipitously, then obviously so will MAG Silver. And, anytime one enters an investment, thorough research must be conducted in addition to understanding the technical analysis of the stock.
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