What the heck is happening with Hecla Mining
(NYSE:HL) shares? They are being trashed, falling almost 9% in one day recently,
and this is a company that has a great track record, solid earnings and might be
the best priced silver producer out there today.
It is disturbing to say the least, and smacks of something unsavory,
especially with double the average daily volume.
Rumor has it that the stock is being shorted big-time. As the stock ticks
down an eighth or a quarter of a point, some big short players are selling the
shares short and this scares the stock owners into selling, creating sort of a
reverse snowball effect as the share price unravels.
Perhaps there is more to this story than meets the eye, but we can't find any
reliable information out there. All we can hope is that the insiders start
buying the shares post haste so that we who own the shares (and I have a hefty
long position) can receive some reassurances. Not that we are going to be scared
out of our holdings, but it makes us wonder "what is really going on here?" The
only time to be a seller is when you have good, substantial reasons to do so.
This may be one of the best buying opportunities in the precious metals stock
sector right now, and we've experienced what seemed to be similar manipulations
in years past with other companies such as Silver
Wheaton (NYSE:SLW) and Goldcorp
(NYSE:GG), only to see them come roaring back. This investor is ready to
hear some logical and honest answers. Now is not the time to react emotionally.
In the Silver Genius department, the CEO of Silver
Standard Resources (Nasdaq:SSRI), Robert Quartermain, recently granted an
interview to the people who publish The Gold Report and I think
you will agree it is very helpful and interesting. We thank the folks at The
Gold Report for sharing it with us all. Selected excerpts are found below:
"A geologist with a Master of Science in mineral exploration, Quartermain
is also president of the Silver Institute and has served as director and/or
officer of a number of public resource companies.
TGR: What’s your outlook for silver in 2008, and perhaps, beyond?
RQ: The outlook for silver remains positive. Since 1990, demand has
exceeded supply every year resulting in reduced stockpiles. Mine supply
represents only about 75 percent of fabrication demand. The other 25 percent is
made up of government sales or scrap, most of which is photographic scrap. If
these secondary supplies dry up, current mine supply won't be able to keep up
with demand. This will put upward pressure on silver prices.
Demand for silver has increased about 1 percent per year during the past
seven years. During this same time, we've seen photographic consumption of
silver drop about 39 percent. More significantly, industrial consumption of
silver has increased about 36 percent during this period. That's an increase in
demand, since 2001, of 120 million ounces per year. If we look at 2007
specifically, over 455 million ounces of silver were consumed in industrial
applications, and those, of course, were across a wide range of products.
Industrial demand now represents more than 50 percent of total annual silver
demand. We expect that to continue through 2008, and going forward, to increase.
TGR: That's a significant increase in industrial demand. Can you talk a
little about that?
RQ: Well, for instance, silver is used in cell phones and Palm Pilots,
many consumer products used in our everyday lives. The interesting thing is that
while these products are produced in large quantities, each unit requires only a
small amount of silver. It's not economic to recover the silver from each unit,
so it's not being recycled. It's not coming back into the marketplace.
Silver is also being used in water purification for its anti-bacterial
properties. It's used in clothing, and its health care applications are
increasing in a more environmentally sensitive world. I think we're going to see
a rise in its use in all of these areas. And then, with the recent increase in
gold prices, we're seeing greater interest in high-end designer silver jewelry,
which is replacing gold jewelry. I expect to see new electronic and industrial
applications for silver, and some technological breakthroughs for its use that
will continue to be a driver on the consumption side.
TGR: What about from an investment standpoint?
RQ: We've seen renewed interest in silver as an investment, both in terms
of owning the physical metal, and through exchange-traded funds. iShares (SLV)
holds over 180 million ounces of silver for investors. So, to use a bit of a
pun, I would say that the outlook for this year and next year is going to be
"sterling."
TGR: What are the potential obstacles to this "sterling run"? I know gold
and silver are not tied together, but there seems to be some correlation.
RQ: That's true, gold and silver do move together but sometimes not to
the same extent. Last year, 900 million ounces of silver were consumed at an
average price of about $13 an ounce. So the total dollar amount of silver
consumed last year was around $12 billion. This is a relatively small market,
compared with gold or the base metals or many other commodities. Yet there's a
lot more silver traded through the futures markets and futures contracts – these
markets are much larger than the physical market. So we have a situation where
what occurs in the paper trade market can influence price.
As you point out, a lot of the silver price movement has been dictated by
gold and a lack of confidence in the U.S. dollar. With the U.S. dollar under
pressure, silver has moved up over the last few years. Clearly, if there is some
strengthening of the U.S. dollar, there could be some reduction in silver prices
as people move out of it as an investment. As silver has such strong industrial
demand, I think there will always be underlying investor interest.
TGR: What should individual investors look for when they're investing in
silver or silver stocks?
RQ: Well, as we've discussed, the U.S. dollar is one of the key drivers.
Silver is certainly acting in sympathy with gold. As the U.S. dollar index has
fallen in the last few years, both gold and silver have increased in value.
