Strategic Royalty Expansion Could Enhance Silver Production at Key Brazilian Complex

Silver Crown Royalties Inc. (SCRI:CBOE) has exercised its option to increase its royalty interest to 90% of the silver produced from the PGDM complex in Goias State, Brazil. The move, formalized under an amended and restated royalty agreement dated April 26, 2024, involves a payment of US$1,310,000 to Pilar Gold Inc. and its Brazilian subsidiary. This capital injection is aimed at enhancing productivity at the PGDM complex, positioning both companies to benefit from increased revenue from the upsized royalty.

According to a company news release, Silver Crown's Chief Executive Officer, Peter Bures, commented: "We believe the capital injection will enable Pilar to ramp up operations toward full capacity over the next twelve months, providing additional benefit to SCRi beyond the upsized minimum cash equivalent of 4,000 ounces of silver per quarter payment obligation." This emphasizes the expected long-term benefits of the capital infusion for SCRi.

Digging Into The Silver Sector

The silver sector has been experiencing robust demand across multiple industries, driven by the ongoing global energy transition and technological advancements. According to The Jerusalem Post, as of August 12, "the demand for silver in various high-tech industries is skyrocketing," particularly in sectors such as electronics, photovoltaics (solar panels), and automotive, which rely heavily on silver's exceptional conductivity and reflectivity. This surge in demand is further intensified by the increasing adoption of electric vehicles (EVs), where silver's usage is expected to grow exponentially, as it is essential for both battery systems and complex electronic components.

With this rising demand, the silver market is grappling with supply constraints. EY noted in May 2024 that "silver demand is on the rise with rising clean energy initiatives. However, supply still needs to catch up."

The persistent gap between demand and supply has led to a market deficit for the third consecutive year. As reported by The Market on June 14, 2024, "the silver market is currently experiencing a deficit for the third consecutive year," with mine production remaining stagnant. This situation has created a particularly bullish scenario for silver, as highlighted by The Market: "Any uptick in investment demand, coupled with ongoing industrial usage, could create a particularly bullish scenario."

Solar energy remains a significant driver of silver demand, with projections indicating continued growth in this area. The Market also reported that "solar panel demand for silver is experiencing explosive growth," with projections for 2024 estimating over 230 million ounces of silver to be used in photovoltaic installations. This represents a 20% increase from just two years earlier, underscoring the critical role of silver in renewable energy technologies.

Industry experts have highlighted several key factors driving the appeal of silver as an investment, particularly in light of current market conditions and the growing demand for this versatile metal.

According to The Jerusalem Post on August 6, "experts warned that silver inventories are on the brink of depletion by 2025, driven by surging industrial demand." This surge is largely attributed to silver's critical role in high-tech industries, with sectors such as electronics, photovoltaics, and automotive being major consumers due to the metal's exceptional conductivity and reflectivity. The Jerusalem Post further emphasized that "solar energy continues to be a significant driver of silver demand," and the shift towards electric vehicles (EVs) is another critical factor expected to exponentially increase silver usage.

Supporting this view, BullionVault noted that "silver's availability, plus its unique properties as a precious metal, now underpins its many industrial, medical, and technological uses," making it an indispensable asset in the modern age. The Silver Institute, as cited by BullionVault, forecasted global silver demand to reach a record 31.5 thousand tonnes (1.112 billion ounces) in 2022, with "electrical and electronics (including photovoltaics) accounting for the largest share of global silver at 49.0%."

However, the increasing demand and constrained supply could lead to significant market volatility. The Jerusalem Post reported that "as industrial use devours silver inventories, market analysts predict heightened price volatility," which could result in sharp price increases affecting everything from jewelry to electronic goods.

This sentiment was echoed by Kitco on August 12, which observed that "silver is also being supported by some short covering in the futures market and some perceived bargain buying after recent selling pressure."

Despite these challenges, silver remains a compelling investment option. BullionVault highlighted that "like gold, silver can also provide some protection against inflation because it tends to rise in price when interest rates fall behind the rising cost of living." Moreover, the strong correlation between silver and gold, as well as silver's historical performance during periods of economic downturns, further underscores its potential as a hedge against market volatility. 

Silver Crown Catalysts

The exercise of the royalty option by Silver Crown is a strategic move that is expected to have significant positive implications for both SCRi and Pilar Gold.

The injection of US$1,310,000 is designed to enhance Pilar's operational capacity, bringing the PGDM complex closer to self-sustaining throughput. This operational ramp-up is anticipated to occur over the next year, with the expectation that it will result in a substantial increase in productivity and revenue. 

In the company press release, Jeremy Grey, Pilar's Chief Executive Officer, underscored the importance of this capital injection, stating that it should enable Pilar to achieve its operational goals in the near term. The collaboration between Silver Crown and Pilar is positioned to yield successful outcomes for both companies, particularly as Pilar aims to reach full operational capacity and Silver Crown secures a larger share of the generated revenue.

Ownership and Share Structure

According to the company 21% of the company is with management, insiders, and friends and family.

16% is with institutional investors. 

6% is with corporate investors, and the rest is with retail.

Important Disclosures:

1. Silver Crown Royalties Inc. has a consulting relationship with an affiliate of Streetwise Reports, and pays a monthly consulting fee between US$8,000 and US$20,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Silver Crown Royalties Inc.
3. James Guttman wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
4. This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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