* Peso slid to record low vs the dollar in January
* Silver miners seen benefiting from lower costs
* Mexican silver mining equities vs peso: reut.rs/2kpRxZX
By Jan Harvey
LONDON, Feb 16 Investors are picking up on the
benefits for Mexican silver miners of one of the biggest foreign
exchange stories since November's U.S. election, with the slide
in the peso pushing costs lower while silver prices are ramping
The peso hit a record low last month at 22.03 to the
dollar, pressured by concern over a potential trade war between
the United States and Mexico in the wake of Donald Trump's U.S.
While some say the worst of the currency's slide may be
over, the peso is expected to remain weak throughout this year,
a Reuters poll showed this month.
Between 60 percent and 70 percent of silver miners' costs in
Mexico -- from labour to power -- are priced in pesos, an
industry analyst estimates. For a company that sells its output
in dollars, that suggests a significant benefit to cost margins.
"The fall in the peso has improved costs not just for the
silver producers, but for all miners in Mexico," said George
Cheveley, portfolio manager at the Investec Global Natural
"That's against a background where we see silver itself as
Investec has increased exposure to silver in recent months
in both its Natural Resources fund, which has $300 million in
assets under management, and its Global Gold Fund, he said.
Mexico is the world's biggest silver producer, with output
of 192 million ounces in 2015.
According to metals markets research team GFMS, analysis on
the five largest domestic Mexican silver mining companies
suggests that the drop in the peso alone has led to an average 7
percent margin gain.
Silver prices are also forecast to post their
strongest year since 2014, benefiting from stronger industrial
demand and its attraction as a haven from risk amid
uncertainties surrounding the U.S. economy under Trump,
Britain's decision to leave the EU and forthcoming European
Shares in Fresnillo, the world's biggest primary
silver producer, are up 27 percent this year. Among other
Mexico-focused silver miners, First Majestic is up 34
percent, Endeavour Silver 39 percent and Great Panther
Silver 24 percent.
Those have outstripped the 15 percent gain in the S&P/TSX
Global Mining Index and a 12 percent rise in the
silver price. And that is before the reduction in costs
has been fully factored in, the GFMS analysis shows.
Keith Watson, of New City Investment Managers, said that his
fund took on exposure to Toronto-listed Americas Silver
, which recently started construction on the San Rafael
project in Mexico, in the fourth quarter of last year and
extended that position early this year. It also bought into
First Majestic in the second half.
"(The falling peso) certainly has been a benefit," he said.
"It may well be that we've had some of the best of it already,
but I don't think it has yet been fully discounted."
Angelos Damaskos, of Sector Investment Managers, which has
20 percent of its Junior Gold fund invested in silver stocks,
favours Toronto-listed mid-caps Endeavour and Fortuna,
as well as small-cap player Avino Silver.
"We're extremely bullish on the Mexican silver miners,
specifically as it pertains to their operational efficiencies
with the drop in the peso, but also because silver tends to
outperform gold in a rising market," Damaskos said.
"The silver miners that operate in Mexico benefit from both
(Editing by David Goodman)