A short squeeze in the silver market may be igniting, but here are some other gold and silver surprises.
April 21 (King World News) – Egon von Greyerz at Matterhorn Asset Management (based in Switzerland): The U.S. Fed, like the vast majority of central bankers, has a long history of messaging fantasy over reality in the name of self-preservation and/or maintaining “market order.”
As of April 2021, the M1 supply has gone from $4.5T to $18.1, a rise of 450%. Such data represents a pretty bad report card for the Fed’s failed monetary experiment of unlimited QE. The Fed’s solution to the problem? Hide it.
The Monetary Madness Continues
Holger Zschaepitz: ECB balance sheet hit fresh ATH at €7.522tn ahead of this week’s meeting as Lagarde keeps printing press rumbling. Total assets rose by €7.9bn on QE. ECB balance sheet now equal to 70.3% of Eurozone GDP vs Fed’s 36.3%, BoE’s 37.4%, and BoJ’s 130%.
Silver Squeeze
Fred Hickey: “They’re trying to engineer another silver squeeze. Will be very interesting to see how this plays out as I’m told (best source possible) the physical market is currently as tight as it has been in over a year. Physical market for gold is tight too, I’m told…
To learn about one of the most exciting silver plays in
the world click here or on the image below
Meanwhile, gold has quietly climbed back to just below $1800 -an important technical level with virtually no help from Western institutional investors (they typically come in with a lag). COT net long positions near the lows of the 8 month correction and a measly 2 tons inflow into GLD.
In other words, there’s a heck of a lot of buying power for gold when institutional investors are persuaded the rally is for real. I’m told breaking the $1800 level is the critical line of demarcation for that to happen.”
25 Year Low
Chris Ritchie: “Precious metals equities are close to a 25 year low in terms of their discount to the prices of the precious metals themselves. At the same time, commodities, as referenced by the GSCI (Goldman Sachs Commodity Index) are near 100 year lows relative to the DOW and S&P.
Very Nice Setup For Gold & Silver Space
With that as the backdrop, fund flows in the precious metals space have been negative for the last decade, which is leading to a very nice set up. Anyone investing knows the importance of heeding the mantra of “fear and greed” – it seems like greed is in the broader market and fear is in the precious metals market. Add to this the Pavlovian complacency created by government intervention, and what happens to the broader market if the government stops supporting the market? What happens if they don’t stop?
Meanwhile, inflation data has been starting to tick up and more importantly, it’s a topic of conversation. And any portfolio manager that’s not paying attention isn’t doing their job. Eric, 21% of all US dollars ever printed were printed in 2020, and 2021 is on pace for much of the same. Meaning, we are in the middle of MMT already, when people are wondering if we’re going to go down that path. When you consider that the velocity of money has been low while the quantity of money in the system is at extreme levels, a recovery in the broader market, could speed things up. So it’s possible that the roll out of a vaccine could stimulate velocity while another wave of covid could lead to the creation of more money in the system. So from a value and preservation of capital perspective, the sector is worth a look.”
Eric King: “You have set up one of the greatest vehicles for investors to take advantage of the long-term bull market in silver. Can you talk about that?”
Chris Ritchie: “Our strategy is to create a vehicle for capital preservation with growth over a long period of time. There are many points that illustrate how fortunate we are to have this risk vs reward model:
Grade
With a reserve grade of 879 g/t silver equivalent, SilverCrest has one of the highest grade silver assets in the world, and the margins from our feasibility study can withstand a prolonged down period in the precious metals. We are trying to give investors confidence that we can not only ride out volatility and challenges in a turbulent market but add value at the same time.
Cost Curve
Our AISC (all-in sustaining cost) is below $7.00 an ounce for silver equivalent, as laid out in our feasibility study – the peer group is in the mid teens. So if the industry sees cost inflation, tax increases or operational challenges – we hope to be able to withstand that better than other investment vehicles.
Balance Sheet
We have ~$230 million of cash and $90 million of available debt. Our capex is $138 million and ~ half of that is a fixed price contract. We believe we have prepared for the worst so that we can truly protect this asset, while also being positioned to take advantage of the upside in the price of silver that is still in front of us. Eric, we also have a fast payback at lower prices – at $19 silver and $1500 gold we have a 1 year payback on our capital. And it is also important to remember that our team has executed on building mines severals times. This gives us confidence in our ability to execute and transition to cash flow in the near future.
Growth
We are getting to cash flow ~3x faster than our peer group (7 years vs 20). The goal of our feasibility study was to get to cash flow as fast as possible and pay back the capital quickly. And we are not done growing.
Only 15 veins of a known 45 veins at Las Chispas are included in the feasibility study. Nothing from Picacho is included, and even though it’s very early stage, my bet is on our exploration team.
$100 Million Of Free Cash Flow
Within the feasibility study, our finding cost per reserve ounce was $.85 or ~$10m per year of production. At $19 silver and $1500 gold we are projected to have $100m per year of project level free cash flow. This is a great return on capital spent. And if you assume that we are 1/3 as efficient in finding new ounces, we’re still extremely happy with that potential return profile.
Our budget in 2021 and potentially through ramp up is $42 million US and it’s fully funded. That’s over 70% of the meters we’ve drilled since we started drilling in 2016.
Recent News
We just released news from Babi Vista Splay – this was a discovery made after the date we cut off results to be included in the feasibility study. The objective of this particular drill program was to infill the ~14m oz at 2kg/t AgEq for potential inclusion into an updated official mine plan, ideally in the early years . We are currently 180m away from these resources so accessing this area is quick and inexpensive. We hope to be able to displace some lower grade material to make room for this higher grade material. This has the potential to inch up the already robust production and free cash flow profile.
Bottom Line
We are trying to create a vehicle that can withstand volatility, market uncertainty and the risks that we are aware and unaware of are. We are fortunate to have an asset that we believe shields us from downside pressure far better than most of our peers.
At the same time, we have a significant amount of growth potential ahead of us and that growth is financed and under way. Production is expected to ramp up starting in the second quarter of 2022 with our first full year being in 2023. The producers today are trading at very attractive levels while strengthening their balance sheets. I don’t think these dynamics stay unnoticed forever and we’re working hard to get the potential re rate that typically comes from being a producing company.
Free cash flow profile – our life of mine production profile is expected to 12.4 million ounces per year of silver equivalent. And if we can execute anywhere near our $7/oz all-in sustaining cost as outlined in our feasibility study, we hope to have a significant amount of free cash flow. If you assume lower prices and compare that to other investment opportunities, we stand up extremely well while being able to invest in growth. If and when we see higher prices, the investor can hopefully benefit as well. We are trying to create a vehicle where the passage of time is rewarded and worth waiting for. SilverCrest Metals, symbol SIL in Canada and SILV in the US.
***To hear E.B. Tucker discuss the coming panic into gold, silver and the mining shares CLICK HERE OR ON THE IMAGE BELOW.
***To hear Alasdair Macleod discusses a possible short squeeze in the silver market CLICK HERE OR ON THE IMAGE BELOW.
© 2021 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the articles is permitted and encouraged.
