Sprott's call for silver miners to re-invest in silver a ploy to force physical supply shortages

[pmbug]

Speaking to Mineweb the week after posting a letter on King World News calling on silver producers to act to ensure that the physical market, rather than the paper one, determine the price of the metal, Sprott said that he wished producers of the metal would "finally realise what the paper boys did to them in 2008 - they nearly bankrupted them all and yet they haven't got involved in these lawsuits which I find troubling."

Asked whether or not he has received any feedback from the producers on his suggestion that they "reinvest 25% of their 2011 earnings back into physical silver," Sprott said that there had been a groundswell of interest - more than he had ever seen before - but that still more needs to be done.
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By investing in the physical market, Sprott believes, producers would be able to show that there is indeed an imbalance in the physical silver market.

"It's a pretty fine line right now whether they can meet all the demand on a day-to-day basis, if by putting 25% of their cash into silver - it might have the effect of decreasing the supply by around 10 percentage points... I believe 10 percentage points would be enough to make a difference."
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Over the shorter term, he says there is clear evidence of strong demand for the metal, "demand for silver is versus the demand for gold in the investment arena and when I see people like Gold Money sell as many dollars of silver, as gold. When I see the US Mint sell as many dollars of silver as gold which by the way implies in both instances, 50 times more physical than gold. And when we did the IPO for Gold Trust we made $440 million. When we did the IPO for the Silver Trust we made $550 million...Well how can the price be 50:1 when the money is going in 1:1?"

More: http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=141088&sn=Detail&pid=110649

Sprott wants to break the paper markets and set silver free.

 

[DSAbug]

I think that is an accurate assessment of the situation. Sprott isn't alone. I expect these exchanges to "change the rules" to buy themselves more time (MF global might have been that) but that will only last so long.

 

[Steven Douglas]

It's happening.

Just as many individuals and institutions prefer to own silver instead of cash, some silver miners are choosing to hold onto their silver.

A few successful mid-tier silver miners, such as Endeavour Silver (NYSE: EXK), have recently been hoarding silver because they believe the price is too deflated. Even before yesterday's statement from the Fed to keep interest rates low through 2014, the discounted price of silver was fairly evident.

Instead of selling at low prices, these companies are deciding to hold on for a better future price. This is a smart move.

Think about it - if you owned nearly a million ounces of silver and buyers would offer only $28 per ounce, would you sell?

MORE

 

[DCFusor]

To be able to do that they need to have enough other cash flow to keep the mines operating - once they get over that hump, they can go to town...but not before. Which is why nearly bankrupting them was so important in some quarters.

 

[Steven Douglas]

To be able to do that they need to have enough other cash flow to keep the mines operating - once they get over that hump, they can go to town...but not before. Which is why nearly bankrupting them was so important in some quarters.

True enough, but what I liked most of all came at the bottom of the article.

The bottom line is that we don't need $50 silver to make money with silver miners. Many of the best-of-breed silver miners are baseline profitable at $15 silver or even lower in some cases.

I don't have a problem with highly leveraged, unprofitable mines being temporarily swept aside. That's not good for those mines, but it has always been good for silver in the long run, as it is one more way to break the backs of manipulators.

Silver manipulators are the ones who have a stake in making sure that there is a steady supply to feed the Ponzi side of silver. It is NOT in their interest to see silver mines fail, and that in turn insures a steady long-term increase in price. Just enough to keep them on a viable but difficult treadmill, but hopefully no more (in the minds of short manipulators who want to keep the price low). If silver is on a run, and the mid-tier mines hoarding example takes hold, with other mines following suit, it will raise the floor, but create the stockpile that feeds the next correction. I get that, but I'm encouraged by the fact that such stockpiling may become habitual - which feeds the volatility necessary for a decoupling and hopefully eventual ceiling collapse.

 

[DCFusor]

I generally agree, but think we'll just have to watch and see how it all plays out. Big stockpiles around mean that it could be sold all at once cheap if there's a reason to do that (like survival), depressing the price. It would also set a ceiling, since high prices might encourage sales of those stockpiles. Greed is reasonably universal.

 

[pmbug]

More:





Comment from SilverDoctor where I found the videos:

I checked their website and found some good data.

Their 2011 annual production was 3.7 Million oz of silver and 21,800 oz of gold at about a 45 to 1 production ratio. This was an 11% increase over the prior year.

But the interesting element of this was Cooke and the board's decision to withhold silver. The firm withheld over 25% of its silver and gold production, holding nearly 1,000,000 ounces of silver of the sale market. About 7,000 ounces of gold were also withheld.

This caused the firm to show a 39% yaer over year sales loss. That takes alot of courage to crater revenues to counter the 2011 manipulated volatility of silver and gold prices when shareholders want income, net profit and dividends.
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http://silverdoctors.blogspot.com/2012/01/ceo-brad-cooke-on-why-endeavour-silver.html

 

[pmbug]

Another miner agrees with Sprott's call:

McEwen Mining, the product of the January fusion of US Gold and Minera Andes, said on Thursday its San Jose mine in Argentina produced 1.45-million ounces of silver and 20 934 oz of gold in the fourth quarter.

The TSX- and NYSE-listed firm also said it held around one-third of its $78.8-million treasury in bullion, betting that prices will rise.

CEO Rob McEwen followed a similar practice when he headed up Canada’s Goldcorp, and repeatedly forecast that gold prices would hit $5 000/oz by the middle of the decade, and silver $200/oz.

Last year, Canadian fund manager Eric Sprott called on silver producers to hold some of their treasuries in the metal itself.
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http://www.miningweekly.com/article/mcewen-holds-33-of-treasury-in-gold-and-silver-2012-03-15