Many years ago I was involved indirectly and directly in oil, coal and uranium contracts working for a regulated electric utility. When ever prices of a commodity would swing wildly, one party or the other would look for any reason or any loop hole to break the fixed price contract. Even when the lawyers figured the contract was iron clad, one of the disadvantaged parties would look to breach. Utilities when the market prices fell far below the contract price and the producers when market prices went rose way above.
Obviously SLW's business model depends on miners honoring their contracts. With silver prices potentially going much much higher, I wouldn't be surprised to see some contract issues develop. I am not trying to be a wet blanket (SLW now represents 35% of my portfolio), but I am always trying to look out for potential problems.
The usual remedy in my experience was for the parties to renegotiate the existing deal. There may even be such a provision in the SLW/miner contracts now that hasn't been publicized. If you were a miner that negotiated a price at $4 an oz for 25% or 50% of your production, and it costs you $5 an oz. to produce it, what would you do when the market goes to $40 or $50 per oz.
A valid point, especially since a lawsuit in most instances will span the globe. Do you think it would be hosted by the court system where the mines are located? That really puts it in the hands the unknowns.
Thanks all for the discussions on risk. Many issues identified that one can think about. Besides the euphoria on the board had reached "bubble" proportions.
Any law suits filed would probably be filed in Canada. The recent suit between Minerva and Hochschild Mining over the San Jose Mine in Argentina was file in Canada. As for Canada being a better venue than the USA for mitigating business threats and abiding by the rule of law, things can and do change quickly. Recent elections in both countries show this.
If costs for producing silver reached five dollars, current sale rate of $4 is better than nothing.
Having said that, one always forgets the 50-150B SLW sucked out of backers and contacts to give to the mine to buy its silver stream, so some cost of doing business in support of extracting silver is possible. "Let's make it up in the next deal" is an out--doubling production while increasing costs to $10 is more than a wash.
This company has a market cap of nearly $10 billion. I read recently that the company has only 32 employees. It certainly would be interesting to see how they spend their working days...reaping the benefits of all those contracts for their shareholders.
It really seems weird that this "silver streaming" company is so successful in a competitive world of financial wiz kids, hedge funds, and investment banks. Nevertheless, I am heavily invested in SLW but have oftentimes wondered about the question raised. I wonder if any analyst has ever weighed in on the risks to SLW's business formula.
I know right now I will catch h*& for this statement ,but how can a co. as slw ever loose out,in the sence of down the drain I mean??
If silver ever went below the cost they buy for which I heard not researched was in at least 2 of 15 contracts 3.50 [approx.] an oz to buy and now what over head is there between the buying and selling of said silver at 3.50 per oz.??
Do they pay to bring it to market,or I should say to market from refineryand do they pay for refinery also I dont think so,but what do I know????
How could a co. as slw,be right here in front of all investors and not see the magnificent oppertunity in this co..
I truly wish I had done more d n d before I had purchased slv,besides the reason I bought slw which is quite obvious between the two I never knew that the one bank I despise was the caretaker of the silver bullion ,NO OTHER THAN JMP/CHASE!!
i WOULD HAVE NOT WENT NEAR IT 4 SURE!!
Also,in that matter of custodian to the bullion for slv, I wouldn't put it past them to use that equity to manipulate their already manipulations to boot!!!!
How much loss would it take to put jpm/chase bank under for good???? Any idea ,I have noe,but I surley hope when they cover it ruins them finacialy and PERMANANTLY TO.
i CAN'T HELP BUT TO WONDER WHAT THE GAME PLAN WAS SUPPOSE TO BE OR HOW SHORTING THAT MUCH SILVE BULLION [SOME 24% of the entire excistance I heard,keep them from covering when the spot was 17.00-18.00 a while back,now were almost 10.00 higer and it's not hard to figure how that had to effect the covering when ever they decide to do it,like mabe this week I would hope????? They are as Ted Butler said a few months back ," cornered like a rat" with no where to go. enough said ,any0ne care to add on to this ramble of mine? loll TIA,Jim
A contract is a contract. Our risk doesn't lie with the other party deciding to change a deal they agreed to, but rather a government deciding they want a bigger share of the pie and nationalizing or adding some type of new excess profit tax.
At this point, I view this risk as low, but we all should monitor it.
There are many ways that in which SLW could be harmed or collapse, but are so very very slim.
1. A contract disagreement with added legal costs.
2. Increased taxes of many kinds, limits on estate taxes
3. A stock market repeat/worse than 2 years ago including index funds, sector funds and hedge funds.
4. Fraud or something missing, accounting problems, contract estimations in error - With a class-action shareholder's suit
5. Dilution over 700 million dollars
6. Political unrest where contract mines are or extended labor strikes
7. YDM deciding to go to the HL board or me posting more.
8. The dollar on an extended sharp rise - never will happen
9. Oil spill - sorry, met for FX board
9b. Cramer upgrade to best stock of 2011
There is only one thing that I do think about, but again it will never happen. Banks and bank hedge funds selling all of their shares, shorting a bit first. Banker's are honest, they would not do this. They are so nice to those with loans. They give us extra interest on our deposits. They share their taxpayer's bonus with those in need. They invite us to their mansions on holidays. They will give SLW all the money needed for dilution in the trillions.
Mr. Barnes, I am only joking and we just renewed YDM posting contract for a five year/ term deal. A condition was met that he must post 50 times a day.
I agree, the only real threat is government action. But, you're right again, there will probably be warnings before any actions that could badly hurt SLW.
SLW is also spread out into a lot of countries so one country's actions wouldn't destroy SLW.
I'm glad it's a Canadian Co. rather than a US one. I don't trust our govt much.
Well, every company soild on the stock market has contracts with other businesses. Any business could be ruined if their property was seized bi the other companies. That's why there's a rule of law.