Miners to Use Silver as Cash
Jason Hommel
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.
If you would like to receive my weekly report on Silver Stocks, please sign up at goldismoney.com
November 26, 2003
Other essays by Jason Hommel:
25 Reasons To Support The Sound Money Bill - 08 July 2004
I'm Insanely Bullish On Silver - 19 June 2004
Silver Stock Evaluations - 22 May 2004
The Silver Bull Is Back - 04 May 2004
Late April Silver Update - 22 April 2004
Silver Juniors With Cash Flow - 04 March 2004
Major Frauds of the U.S. Monetary System - 26 February 2004
Market Perspective & Cabo Mining - 12 February 2004
Usury Enslaves - 19 January 2004
Sterling Mining - 29 December 2003
The U.S. Trade Advantage With China - 17 December 2003
Rising Gold Prices Will Help The Economy - 02 December 2003
Miners to Use Silver as Cash - 27 November 2003
Private Placements in Silver Companies - 20 November 2003
Is the Silver Market Too Small to Buy? - 13 November 2003
Inflation & Deflation During Hyperinflation - 06 November 2003
Silver Price Expectations of Silver Stock Investors - 30 October 2003
Buying & Tracking Canadian Silver Stocks - 29 October 2003
Canadian Zinc--Silver Potential - 23 October 2003
Silver Stocks--Comparative Valuations - 4 - 13 October 2003
Silver Stocks--Comparative Valuations - 3 - 06 October 2003
Silver Stocks--Comparative Valuations - 2 - 29 September 2003
Silver Stocks--Comparative Valuations - 1 - 22 September 2003
Silver and Cardero Resource - 08 February 2003
The Moral Failures of the Paper Longs - 22 January 2003
CFTC Response to Silver Problem - 14 January 2003
People Talking About $32,567/oz - 10 January 2003
Letter To Authorities of Silver Markets - 06 January 2003
Why no talk of $32,567/oz ? - 02 January 2003
Refuting Myths about Gold - 28 October 2002
Controlling Gold with Paper - 10 June 2002
Impending Gold Futures Default - 29 May 2002
Certain gold stocks are still cheap - 07 May 2002
A Few Supply and Demand Fundamentals of the Dollar and Gold - 06 May 2002
New DROOY Institutional Holdings - 21 February 2002
Hommels View of Gold - 23 March 2001
Gold Price Under Differing Scenarios - 24 June 2000
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