Survey: Will a Cartel Save the Silver Price?

By now those involved in the silver space are likely well aware of First Majestic Silver’s (TSX:FR,NYSE:AG) decision to postpone the sale of about 934,000 ounces of silver.

The company announced the move on October 14, describing it at the time as “an attempt to maximize future profits.” Since then, President and CEO Keith Neumeyer has offered a more in-depth explanation, telling Future Money Trends that it’s a path his company has followed before.

“The third quarter [of] 2014 was the second-worst quarter in five years. Silver prices are down 19 percent in the quarter and that compares to the only other worst quarter in the last five years, and that would’ve been the second quarter of 2013 where silver prices were down 26 percent,” he told the news outlet, adding, “we also held back ounces in that quarter — we didn’t hold back as much, we held back about 700,000 ounces then.”

He also encouraged other silver producers to join him, stating, “I think it would be a very exciting thing for all the silver companies to form a semi-cartel in a way, similar to OPEC. I don’t see why we can’t do that — I think we all agree together that the paper market has no representation to the physical market, and I think it makes sense that we would all work together to sell our product to industry. I would encourage all [silver producers] to hold back their silver.”

What do silver miners think?

The vast majority of market watchers have responded positively to First Majestic’s announcement that it will hold back silver, but what do other silver companies think of that decision? To find out, Silver Investing News spoke with seven companies at the recent Silver Summit, which took place in Spokane, Washington from October 23 to 24. Here’s what they had to say.

Producers:

• Endeavour Silver (TSX:EDR,NYSE:EXK): “Endeavour Silver was the first company in the silver group to do that in 2009/2010. We have done it once or twice since that time, and our view is that there are appropriate times to either hold back sales or accelerate sales, depending on how obvious the near-term outlook is for the silver price. We also, in August and September of this year, started holding back metal from production. We didn’t make it headline news like First Majestic, but we actually quadrupled our silver inventory in the third quarter. That’s not going to stay there forever, the idea is to try and get a better price for that metal, and when we see a better price we will sell it.”

• Coeur Mining (NYSE:CDE): “Obviously what they’re showing the market is they believe that silver prices will be higher at some time in the future, and that holding them in inventory is like a savings account that’ll pay down the road … I’m a believer in silver and gold also, so I think that it’s a good move as long as they can continue to stay profitable.”

Juniors:

• Mines Management (TSX:MGT,NYSEMKT:MGN): “If that’s a strategic opportunity that First Majestic was able to make and still be able to achieve their goals, I think it’s an advantageous thing for them to do.”

• Bayhorse Silver (TSXV:BHS): “Too many people have to settle, and if you’re in a position where you don’t have to settle, then more power — wait for higher prices.

• Golden Arrow Resources (TSXV:GRG): “If you can afford to do it, you can do it. It’s nice to have that sort of luxury. I don’t know what it’s going to do if all the silver companies pull back — we’ll have to see what happens.”

Rare and strategic metals seller:

• Swissmetal: “I think they’re clever. I think the prices will go up. I think by the end of this year we’re probably going to see $20 to low $20s. I think by next year maybe high $20s, low $30s. And I think in the next three to five years we’re going to definitely see [silver] breaking the $50-an-ounce barrier. So if I had a million ounces, I would not sell it today.”

While the responses above highlight that not all silver companies are in a position to follow First Majestic’s lead in holding back silver, they also show that silver producers and explorers alike support the company’s plan. It will thus be interesting to see whether any make a similar leap either now or in the future.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Related reading:

First Majestic’s Stockpiling a Sign Silver Miners are Taking Control