In a recent interview on the Sprott Money YouTube channel, Chris Ritchie, the President of SilverCrest Metals, challenged traditional thinking in the precious metals industry by discussing his company's innovative approach to managing their balance sheet.
Ritchie, a seasoned financial markets professional with over 15 years of experience, brings a unique perspective to the table. His background in resource-based capital markets, encompassing investment banking, marketing, corporate strategy, network and risk management, positions him to not only understand the intricacies of mining operations but also the financial forces at play.
Key Takeaways:
- Chris Ritchie, President of SilverCrest Metals, offers a bullish outlook on precious metals driven by factors like rising national debt and devalued fiat currencies.
- A silver supply deficit exceeding 700 million ounces over the past two years, coupled with a lack of investment in new mines, could significantly impact future supply.
- SilverCrest Metals challenges the traditional industry practice of selling all extracted metal. Instead, they calculate the true cost of production and hold a portion of their physical metal as a hedge against inflation.
A Bullish Outlook for Precious Metals
The interview delved into Ritchie's bullish outlook on precious metals, particularly silver. He pointed to concerning trends like the ever-increasing US national debt, which has seen the debt ceiling raised a staggering 74 times since 1960. This, coupled with the "broken down" state of monetary policy, leads Ritchie to believe that governments have no choice but to "print their way out of" their current predicament.
"This is just a continuation of something that's gone on forever," Ritchie states in the interview, "and I'm just a believer in this trend continuing on."
Silver Supply Deficit: A Looming Challenge
Ritchie highlighted a critical factor that could further propel precious metal prices: a looming supply deficit. He pointed to studies by the Silver Institute indicating a collective silver supply deficit exceeding 700 million ounces over the past two years.
Further exacerbating this deficit is the lack of investment in new mine development. The global financial crisis significantly dampened investor enthusiasm, resulting in a dearth of new projects entering the pipeline. The current inflationary environment further complicates matters, as existing mines struggle to maintain profitability due to rising operational costs.
Rethinking the Balance Sheet: Why SilverCrest Holds Physical Metal
Here's where Ritchie's approach becomes truly groundbreaking. He questions the traditional practice of mining companies selling all their extracted metal and holding fiat currency reserves. Given the inflationary pressures he anticipates, Ritchie argues that this strategy actually crystallizes a loss.
"We need to hold gold and silver to protect ourselves from the fact that we spend large sums of money over long periods of time," Ritchie emphasizes.
To address this, SilverCrest has implemented a unique strategy. They calculate the "true total cost" to produce an ounce of silver, factoring in exploration, development, mine construction, inflation, and all other relevant expenses. Currently, this cost sits at over $25 per ounce.
With silver prices hovering around $18-$19 at the time of the interview, Ritchie argues that selling their metal would result in a loss. Instead, SilverCrest strategically holds a portion of their physical metal on their balance sheet, treating it as a valuable asset alongside traditional currencies.
Personal Analysis: A Paradigm Shift for the Precious Metals Industry?
While Ritchie's approach may seem radical, it raises intriguing questions for the entire precious metals industry. If more mining companies follow suit, it could lead to a significant decrease in overall silver supply, potentially pushing prices higher. This, in turn, could incentivize further investment in new mine development, creating a more sustainable market in the long run.
However, it's important to acknowledge the potential challenges. Shifting to a model where companies hold physical metal requires a change in mindset and industry practices. Regulatory hurdles and potential tax implications may also need to be addressed.
About Sprott Money
Sprott Money is a YouTube channel dedicated to providing insights and analysis on the precious metals market. They feature interviews with industry experts and thought leaders, offering valuable perspectives for investors and enthusiasts alike.
About Chris Ritchie
Chris Ritchie is the President of SilverCrest Metals, a leading silver producer. His extensive experience in the financial markets and his innovative approach to balance sheet management position him as a compelling voice in the precious metals industry.
Source: https://www.youtube.com/@sprottmoneyltd