Silver Stock Report
by Jason Hommel, Nov 26, 2003
I just returned from the Gold Show in San Francisco where I was on a mission: to convince the silver companies to invest their cash in silver bullion. I was surprised by how easy it was to change minds with a few simple words and arguments.
At first, the idea was sometimes met with questioning looks. But after a few minutes of conversation, they were virtually unanimous in accepting the idea as sound, and after a few minutes more, the idea was received with enthusiasm as being not only obvious and self-evident, but even brilliant. By the end of the conference, I heard reports of the silver miners discussing the idea further.
Here are a few reasons why it makes such logical sense, some of which I presented to many silver companies.
Investors in silver companies do not want to hold cash, they want silver and exposure to silver. Therefore, why should a silver company hold cash, the thing the investor does not want in the first place?
Silver companies generally plan to hold their cash for a long time, until silver is a higher price, at which time they will spend their cash to develop their silver properties. Instead of holding cash and waiting for higher silver prices, it only makes sense to hold silver instead.
More specifically, if a silver project will be profitable when silver prices are at $7/oz., then it only stands to reason that the company should hold physical silver, instead of cash, while waiting. As silver moves from $5.25/oz. to $7/oz,, why not make a 25% return in silver instead of suffering a 19% loss in paper money? The difference is 44%!
Also, buying silver will tend to push the price up, and will increase the value of all the silver shares, and the entire industry.
For the large cash-rich miners, such as Hecla, Cour d’Alene, and Apex Silver, buying silver first, before another large cash-rich miner buys silver, may mean being able to buy silver under $6/oz., while whoever buys silver second may have to pay up to $7/oz., or more. The other silver miners will be forced to follow and do the same thing as cash becomes trash, and the hyperinflation of the past two and a half years continues.
Silver is money. The cash that is “spent” or “invested” in silver is, in reality, neither spent, nor invested. Silver is liquid, even more liquid than cash. U.S. dollars and bonds are over 100 times more over-valued than they should be if the dollar was backed by gold. The value of cash could crash suddenly, and banks may fail. As it is, the dollar has lost over 30% of its value in a rather short time, and this trend will continue. Silver will not fail, and is simply money in a more reliable form.
For the silver company who buys silver with cash, there will be a great “investor relations” bonus, as investors are galvanized and excited by seeing a company believe in their own product and use it as money. (It seems everyone knows of the two gold companies who hold gold as money.)
In marketing, a testimonial is essential. What is a better testimonial for silver than for a silver company to use it as money, and then profit from doing so?
And what silver miner does not want a higher share price generated by investor excitement? A higher share price means the company will be able to raise more money (silver) from investors at more favorable terms to the company.
I bet not many people know how much cash Hecla Mining and Apex Silver each have ($125 million and $40 million dollars respectively), but if they were to hold silver instead of cash, it would be widely recognized in the investment community exactly how much silver they have on hand.
As silver miners buy silver, it may well scare the short sellers in New York who are manipulating the price downward as they make endless paper promises. As short sellers are scared into covering, that will also help to boost the price, and that will bring the market manipulation to an end that much sooner.
Buying silver at the bottom and at the very beginning of a bull market in silver, which is where we are right now, just makes good sense.
There may be a 1% transaction cost to buy silver and a 1% annual storage cost, but these costs are nothing when compared to the 30-50% gains in silver that are expected and necessary to bring many silver projects to profitability. The 1% costs are also nothing when compared to the 5-10% transaction costs that are incurred when raising money when selling stock.
Actions speak louder than words. Buying silver shows a company’s commitment to their understanding that silver is cheap, and should not be sold at low prices.
In Hecla’s case, they could buy silver from out of their own production and simply not sell it at all. COMEX silver futures contracts may default, but Hecla won’t default on itself.
Buying silver shows that the company understands the silver story.
Buying silver shows that the company does not intend to hedge silver production.
Holding silver increases the company’s exposure to rising silver prices.
The goal of a silver company should never be to accumulate more paper cash. A silver company’s goal should be to grow by accumulating more silver ounces in the ground, or accumulating more refined silver in hand.
A silver company may need to have a shareholder’s meeting to approve a change in the “policy as usual” of holding cash instead of silver, but I strongly suspect that shareholders today will overwhelmingly be in favor of, and approve such a change to hold silver instead of cash.
At no time did any silver company present any sound and rational reason why buying silver was not a good idea to do while waiting for higher silver prices. One man said that a silver company could not pay their bills in silver. I rebutted that by saying I was not suggesting that they attempt to do so. (But I did ask, “Have you even tried?”) I rebutted by saying that they could sell silver for cash as needed when it came time to pay for things.
For example, if you were to retire to Mexico, you probably would not want to transfer all your savings from dollars to pesos. Instead, you would likely want to keep dollars, and buy pesos only as needed. Likewise therefore, there is no reason to hold dollars in preference to silver. Silver is the best money there is, especially at current prices.
There was big talk at the conference among the newsletter writers that silver would likely be the next to move up, and to confirm that we are in a bull market for precious metals.
From a reader at www.silver-investor.com/thisweek.htm
In case you missed it John Embry was on ROBTV the other day and when asked what his top three picks were for the month, his first pick was silver bullion!!!!
So, if this idea is so obvious, and so brilliant, why have the silver miners not already acted and bought silver? The problem is the same thing that creates the opportunity for silver stock investors today. The problem is the 22-year bear market in silver from the peak in 1980. This bear market has affected the mentality of nearly every silver miner and silver investor who has suffered living through it. It is human nature to resist change, to be slow to change, to be slow to recognize change, and to continue to conduct business as usual. But a change from a bear market in silver to a bull market requires a change in actions and a change in thinking. Therefore, this change is coming. Silver companies will soon be buying silver, just as gold companies have been buying back hedges.
Therefore, the silver price is set to explode. Collectively, three of the most cash rich silver miners have enough money to buy about 40 million ounces of silver, yet the COMEX has less than 60 million ounces in the registered category available for delivery. If the silver miners rushed to buy that silver before it runs out, the fraud of the excessive creation of silver futures contracts over at the COMEX would probably be instantly revealed. This could create the default by the shorts–the default that we have all been watching for, and thus cause a mad rush into silver and silver stocks by the general public around the world. The silver boom towards $10-20/oz. could start in a month or less!
I’m not suggesting that the longs attempt to manipulate prices. I’m not suggesting that silver miners borrow money and buy endless futures contracts. I’m suggesting they take delivery of silver, either through the futures contracts, or through the cash spot bullion market. In a free market it is impossible for longs to manipulate prices. In a free market, everyone is free to spend their money on whatever they want, including silver.
I am saying that silver miners should believe in, and use, their own product in the way that it is used best, as money. Silver is money, and was used as money around the world and through history, even more than gold. Jesus was betrayed for 30 pieces of silver.
Silver miners need to show the example, and use silver as money if they expect the world to ever use silver as money. The monetary demand for silver will dwarf all other kinds of demand, and make them look like nothing. The issue of silver in photography is a complete non-issue with regard to silver prices. The issue of monetary demand is everything.
The world bond market is valued at $33,000,000,000,000, or 33 trillion dollars. The available silver at the COMEX is valued at $312,000,000, or 312 million dollars. There is only enough silver available to back less than one out of every $100,000 dollars worth of bonds in the world.
The silver miners will wake up and use silver as money! They will take this leading step, because they are already leaders by being smart enough to own the silver mines!
Although I received no promises from any silver company that they would take action to buy silver, I know I planted a good seed by speaking boldly and convincingly of the soundness of the idea. I also know that this article will help water that seed, and help to change the practices in the silver mining industry.
If you agree that your silver company should sell their cash for silver, then contact the investor relations department and CEO of your company. They work for you, and they will respond to your concerns and desires. Help me push for this. It’s your money they hold, and I’m sure you don’t want them holding cash.