Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
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Because they do not have it
" Why would a bullion bank need 10 days to retrieve the gold/silver that they have securely stored for you?"
I think that a 10 day delay is quite reasonable JMT1234.
Back in 2013 the New York Federal Reserve Bank asked for seven years to return 300 tons of Germany's gold, one fifth of the 1500 tons that the FED were storing for them.
Was over £20 in 2011, with inflation that's £25 today, depends where the PM prices go.
I would hope that the people at FRES are not complete morons when it comes to these things and wouldn't get hoodwinked/ pushed into a poor risk reward set up although i know well the tricks that banks pull when selling these products. I cannot imagine they will have sold more than the full years production run which would cap 2021 output at $50, but even if they had and prices move to $60 then its still a big win for this SP in my book. If Silver moved to $60 today and stayed there all year then this SP should be in the £30s . IMO of course.
I think we're both in reasonable agreement here, though I'm a little more concerned about how much of their production they may have capped at $50 - just knowing how Banks sell these things. I used to do this for an Oil Major and I saw many corporates, without professional price management teams, been taken down the garden path by the banks.
However, I do like FRES, they know what they're doing (in their business anyway), been doing it a long time and so I'm looking for an entry point here, so many things on the horizon:
> potential squeeze on silver;
> after the current general stock market melt-up is there likely to be an 80% market sell off that'll just bring everything (incld FRES) down with it (at least temporarily)
> is the silver:gold ratio going to tighten?
> covid and vaccine rollout in Mex?
the good thing is there is usually a lag between the underlying commodity market move and the SP of the miners, though once they move they tend mover higher - the chart for FRES vs Silver demonstrates that nicely.
SO maybe, he said hopefully, there's still time.
Ha, bl00dy auto correct
I am not sure is the answer, but unless they have sold more calls than production which would be 14:1 give or take then I don't think that it really matters. I think this one is a little undervalued here at $25 silver ( i thought the same when the SP was £9.50 and £10 so what do i know) If and when silver gets to $50, as long as it is a, for real move, and not a spike then this hedge wont matter a jot in the grand scheme of things. In my opinion the market is not taking the silver squeeze narrative seriously. When the rubber hits the road on this then a re rate is on the cards and a lot of people will be trying to fit through and awfully narrow door at the same time in this name.
Sorry I'm not disagreeing with you. Predictive text chose rubbish I meant to type bullish. I too am bullish the silver narrative.
Which is why I was concerned about the number of calls they sold.
hi, i haven't seen anything specific . They just worded it as 'took advantage of a market opportunity'
I have assumed it was 1:1, but you raise a good point asking if it is not. They will have to reveal that if and when prices rise above $50. As i said that is a nice problem to have at the moment. Even if they capped the rest of the years production at $50 that would still be over a billion dollars more to the bottom line compared to last year.
As for the the silver narrative being rubbish I would disagree with you on this. There are cracks appearing in the market as we speak. (https://twitter.com/adamseconomics/status/1381449930884096001) Why would a bullion bank need 10 days to retrieve the gold/silver that they have securely stored for you? This is not pooled metal but securely stored. 'you get back the exact same bar you placed in storage' They either have the metal they sold you in a vault or they don't It used to be 48hours to retrieve it and now it is 10 days?? Something is seriously wrong there.
A large amount of the 'physical' silver market operates on a fractional reserve basis. I.e there is nowhere near enough metal to cover all the claims. A run on silver cannot be discounted as to my eyes this is already happening in Australia. When it moves to Europe or the US, silver prices could go parabolic. Prices will have to rise to incentivise enough people to sell their contracts and clear the market. Have you tried buying any physical from the bank of England recently? They are out of stock on most items.
Just my thoughts, but if you are looing for an asymmetric risk opportunity then Silver fits the bill. If just 1 bullion bank decided to cut and run on the massive paper shorts that they all carry then again this would move the market higher very very quickly. As you saw with the archegos HF liquidation those that moved first escaped with no losses . The last mover CS lost $4.6 bn. Something similar could happen here.
DYOR as always
Yes i'm on ex derivatives trader so I'm familiar with the structure, thanks.
So here's the thing, if you buy in to the silver rubbish narrative it could go well above the $50, though I don't know how long for it could happen this year.
My question is: how many calls did they sell at $50 to finance that put? if it was 1:1 then ok we're only exposed to 7% on the call. But if it was 2:1, 3:1 or 4:1 there is substantially more risk. If you're bullish silver.
For me the risk was more on the call side rather than the put.
they have a collar on 7% of their output at $50 on the high side and $20 on the lower side ( not 100% sure on the lower side price).
i.e they sold a $50strike call on c 3.5m oz and bought a $20 put. probably for around no real premium put up although again i have not seen the full details.
They have not hedged any output beyond this structure from what i have read and at silver around $25 right now ( in the paper market at least) this makes no impact on their financials. Only when silver trades above $50 does it start to 'hurt' but i think that is pain a lot of people on this board would be willing to take right now.
Ah just seen in Chairman's statement only 7%
Hi guys
Does anyone know what % of their production is hedged for 2021?