NST - anyone else surprised by price performance last 2 days?, page-20

NST management should at least consider these options, often considered by the shareholders..

'Miners,like farmers, are at the low end of the supply chain where the margins are just skinny enough to keep them in business from year to year, but rarely see a windfall.

That said, there is some merit to this article about the miners holding back production. If it became a 'thing', price would react a helluva lot more than any Fed announcements.

All the easy/cheap silver and gold has been found on the planet. That next marginal ounce is deeper and more costly to get out.'

Miners spend billions of dollars every year pulling precious metals out of the ground.They toil mightily for years on end to produce these stores of value–but then they turn right around and sell all their gold and silver immediately in exchange for fiat currencies.

If you stop to really think about it, this may seem strange.

These businesses quite literally mine real money. But, like nearly every other business or individual, they still seem to be stuck in the fiat currency paradigm.

It takes tremendous risk, capital, and time to find a resource, develop a mining project, and dig up and process the metals. It is extremely difficult to produce gold and silver at a profit.

Inflation constantly pushes up costs and puts pressure on the economics of the miners. They may face tremendous stumbling blocks along the way – from governments, capital markets,indigenous activists, eco-fanatics, union bosses, and many others.

All this underpins the scarcity value ofthe gold and silver that comes out of the ground – and provides a stark contrast to the amount of work involved in creating fiat money (i.e. none).

Of course, mining companies do need cash to pay bills. But to the extent that it’s not needed immediately, wouldn’t it make sense to hold onto some bullion to preserve purchasing power for future expenses?

https://www.zerohedge.com/commodities/when-will-gold-silver-miners-start-believing-their-product

Asfar as we can tell, though, only a couple mining companies – First Majestic Silver and SilverCrestMetals – have held back a meaningful amount of their production in the past 10 years.

SilverCrest actually does more than delay sales –it has deliberately socked away more than $20 million in gold and silver bullion on its balance sheet, currently representing about 20%of its treasury assets. In other words, these folks eat their own cooking – and plan to eat more.

The company’s president, Chris Ritchie,believes holding gold and silver should become “an additional capital allocation choice that should be considered” for the mining industry.

"SilverCrest has added this choice alongside our other capital allocation opportunities because of the functionality of our product -- and we want to give our investors more of what they want while also hedging against some of the risks associated with mining. The option to hold bullion is available for every individual and business that’s trying to keep up with rising cost pressures.”

“The irony is that the gold and silver mining industry spends huge sums of money over long periods of time,and yet we choose to hold fiat currencies as our preferred store of value versus the product we work so hard to get.”

BarrickGold also provides an interesting case study.

The company’s stock is the same price today as it was 20 years ago. Meanwhile, gold itself is up over 600%in the same period of time!

It doesn’t take a financial wizard to see that you would have been a lot better off investing in the end product rather than the mining process.

In fairness, mining is a tough business and Barrick is a survivor. But it’s also one of many large mining companies that has capped its upside potential by hedging exposure to metals prices via futures markets. Hedging means, in effect, selling production early – well before the metals are even brought out of the ground.

Excessive and poorly timed hedges have destroyed shareholder value over the years.

Even when hedges DO pay off in the near term, they work at cross purposes with long-term investors who buy mining stocks because they want to fully participate in a bull market for the underlying asset.

The gold market is small. The silver market is even smaller.

Whereas demand for metals can surge suddenly, the supply response will take a significant amount of time. The capital required to build new projects is large and capital availability has dwindled to a trickle.

Seizing upon supply and demand imbalances is the holy grail for investors in cyclical industries. Mining companies can add value by retaining production while they wait for up-cycles to mature.

A choice to hold back some of their production from the market – especially when spot prices are below the all-in cost of discovery, development, and production – could also positively impact the prices of gold and silver.

That’s particularly true with silver, which is dramatically undervalued versus gold on a historical basis – but now appearspoised to catch up. Higher prices would ultimately improve cashflows, supporting the health of the industry.

Here’s the bottom line...

Mining companies that fail to appreciate that they are literally pulling money out of the ground may continue to disappoint metals investors. But miners that stop being knee jerk“price takers” can expect to be rewarded.