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Gold/Mining/Energy : Silver prices

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To: Archie Meeties who wrote (2336)	11/22/1999 3:39:00 AM
From: Jaakko	Read Replies (1) of 8010

<<Producers are the only ones who would receive cash flow from a transient spike>> To receive substantial cash flow from a transient spike, an unhedged producer should try to hedge couple of years' production at the peak price of the spike... the trick is to find the peak price and to determine the quantities to be hedged (depends on your future POS assumptions).... An exploration company is hard pressed to sell forward future production it may never have (substantial risk if no ore found or mine production is delayed beyond contractual delivery dates of the Forward contract)... however, an exploration company could buy put options at or close to the transient peak and limit its risk to the price of the options... When POS has come down the put options can be sold at a profit giving some cash flow to the exploration company.... On the other hand if the assumed transient peak never materializes and POS continues to the stratosphere the options expire worthless... (Note: no obligation to deliver silver exists when buying a put option)... Also, a former producer that has shut-down production due to low POS, and is unhedged, stands in an excellent position to take advantage of a transient peak by locking in POS at or close to the transient peak by either selling forward or buying put options... I think this last category of mines should have the greatest leverage to POS should someone try to corner the silver market... but then again markets aren't efficient and the knowledge of potential and actual hedging strategies of mining companies among the investing public and even institutional investors is poor...

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