Struggling to think what would happen to SLW value if Silver went to break-even costs (for miners)...
I did not choose my previous Heading very well.
Yes, I can see that Silver prices per unit is directly related to cash flow. That's clear...
What I am struggling with more is what happens "If / as the price of Silver would approach Break-even for many of the Silver Miners".
Let's say break-even cost is about $15 for some 20-30 percent of the Silver being produced (no idea if this is true but seems about right?). Well, supply would contract, at least from the higher cost producers, and those buyers that could would be "stocking up like crazy", as would the world Gold and Silver "bugs".
Meanwhile for SLW, with costs per oz well below $5 for most contracts (right?) there would be several significant changes:
1. Their money flow would be reduced from $20 to $15 times however many oz or by TWENTY FIVE percent even as the higher cost miners have had to shut down operations. Right?
2. The "general playing field" for writing new Contracts (what the business model is all about, really?) would be VERY POSITIVE for new contracts as miners would become desperate to lower their production costs on their best bets and so on.
That's closer to what I was trying to say in my first posting here.
Comments on the above?
Anyway THAT is why I have felt comfortable investing in SLW even at a moment in time when it is anything but clear what the future price direction of Silver is. My heart tells me it must go up, but as I said, this business of Deflation is scaring me and seems to point the opposite direction - however counter-intuitive that is.
Keep in mind that almost all the silver that SLW gets is on a byproduct basis, meaning that unless mines stop producing the primary metal usually gold silver as a byproduct would still be contractually sold to SLW. I suggest looking at each stream and realizing that the price of gold is more of a problem to production than silver...
Great point(s)! I do need to look at the individual streams to really understand the down-side properly.
(And YES, kgolesorkhi - I'm rather in on the basis of technical charts too - it was ringing loud and clear as a likely bottom - and I did get a good price - BUT if I'm going to stay in or buy more I want to understand the risk to the low side. Whatever down-side risk is it looks safer than many other sectors to me just now - I still have a strong feeling that SLW is overly associated with the price of the metal - especially to the downside.)