Most silver bulls on this forum have been advocating owning mining shares rather than physical silver. Out of interest, I have done a ‘serviette’ comparison of investing in MMN or silver bullion (either physical or certificates). For this purpose I have made the following assumptions.
Silver Price Once the short side manipulation runs out of dumpable silver the price rally will be pretty spectacular, perhaps exceeding 50 USD per ozt. There are, however, three factors which I believe will return the silver price to a trading range of 7 to 10 USD per ozt within a few years. The first two will be a sudden reduction in silver jewelry consumption and an increase in silver scrap supply. These two factors will bring the price back to ~20 USD within six months. The third factor of increased mine supply will take a few years. It may be noted that many mining companies have mining operations that are ready to start for want of higher silver prices. From 6 months to two years after a price spike, I believe that the silver price will average about 15 USD per ozt.
MMN Assume that MMN begins its mining operation at the start of the price spike. Prior to this, funding the project would have entailed large hedging obligations. Within two years MMN has produced 7 mozt, for which it has received an average price of 15 USD per ozt. Costs for MMN during this time have amounted to 6 USD per ozt, leaving it with a profit of about 63 M USD. Allowing generous writedowns (~10 M AUD), MMN would be left with a profit of about 80 M AUD after tax, or the equivalent of about 0.3 AUD per share.(current share price = 0.11AUD per share)
Bullion You sell your physical or certified holding for a higher price - +40 USD if you are fortunate.
Conclusion The leverage of share ownership over bullion may not be as great as some on this forum have suggested. MMN does have speculative appeal other that its silver interests.(I believe that the assumptions I have made for MMN re silver are very generous.)
Billy
Disclaimer: This is an opinion piece only. Do your own research
