I just don't see SLW as the go to silver company. Their leverage over plain old SLV is just abysmal as their profit leverage vs raw cost is diminishing with higher POS
The higher POS goes, the lower their leverage of their fixed cost of $3.90 becomes.
SLW is profitable, silver is going higher, but the risk over SLV is just not worth it. Mines selling silver at fixed cost will mine other areas of the mine to get at their base metals which are not at fixed cost; hence the silver shortfall in qtr deliveries.
<miners will chase base metal mining with higher prices than mining for silver at fixed costs of $3.90>
This is a very complex scenario that could go the way you describe or it could go the other way. It's really a flip of the coin that determines how much silver SLW gets.
For each drill hole, the ore has various concentrations of Au, Ag, Cu%, PB% and Zn%.
Yes, the miner may go after the base metals whose prices are rising like Cu, Pb and Zn -compared to going after silver which they'll only get $3.90 - but when they decide to go after those ores with the higer basic metal concentrations, these ores may also have higher concentrations of Ag and Au.
Just because an ore is higher in concentration of the base metals, doesn't mean it has the lowest concentration of gold and silver.
In the end the miner is going to do a cost/benefit asking:
From my research it seems if a mine is a copper or zinc miner, the quantity of gold and silver in the ore has no direct correlation. ie if higher in zinc, then lower in gold or silver.
Look at the recent Farallon mine results that SLW purchased, look specifically at May 1, 2008 results of ore. If the ore was high in Zn or Cu it was also high in Au and Ag. Also when low in ZN and CU it was high in Ag and Au. There doesn't seem to be a correlation.
This poor leverage to the price of silver is a very weak argument against SLW IMHO. The idea that it makes good investment sense to buy a high cost mine because that improves leverage to the metal is very flawed. Caes in point, DROOY. To me, this is usually a sign of poor management and it is better to avoid those companies. Really, SLW is the cream of the crop. With low operational costs, good country diversification, and no risk to rising energy and employment cost, it just doesn't get any better. I prefer to own a company making a ton of money today, will make even more tomorrow as the price of silver increases while all the actual miners doing the production struggle with rising costs, etc.