SilverCrest Metals: Gold, Silver vs. Fiat — We Want “Real Money” on our Balance Sheet
Video Transcript
Subscribe To Big Money [Music] I’m Charlotte McLoud with investing.com and here today with me is Chris Richie president of Silver Crest medals thank you so much for joining me great to have you here appreciate you to having me as well really good to be speaking with you I think it’s going to be a fun conversation and where I thought we could begin since it’s our first time talking is by learning a little bit about you how you got into the mining industry how you came to Silver crust yeah thanks I’ve been at Silver crust for about six and a half years now after spending 13 years on Bay Street Wall Street so I mean I had a background of helping resource companies raise capital and then uh this company was at a really interesting phase and I more or less came in house to raise capital for for that so here we are you know 6 and 1/2 years later we’re producing sort of that phase of the company is behind us uh now entering a new phase okay and of course we’re going to get into talking about what’s going on at Silver Crest right now but before we go there I thought we could look at the precious metal sector overall so of course gold and silver prices have really been moving in 2024 and although some companies have also been moving as a group The precious metal stocks haven’t been moving as much as some investors would like so we were talking by email before this conversation and you mentioned that this disconnect kind of all goes back to inflation so I’m hoping that you can go into your thoughts there and and outline exactly what you’re meaning sure there are a million moving pieces to get a mine all the way from exploration to development to production you know there’s labor there’s fuel there’s steel there’s consumables there’s again a million moving pieces and the costs of those moving pieces are going up more than the gold and silver so what we’ve seen in the last while is the margins of mining companies have not expanded and in fact um many of them have actually contracted you know for example uh our labor costs have gone up approximately 50% in the last three years so again you know gold and silver is a proxy for inflation because of all the inputs that go into getting it out of the crowd all right and I think you know many people are looking at what’s going on there and they wonder what will it take to to close that Gap right we just got our latest inflation data and I think it went down a little bit for the month of April but it remains pretty persistent and it sounds like it’s it’s set to remain quite sticky I think it will as well I mean we’ve seen people exiting the workforce um not a lot of people are going into mining these days so if even if there were new projects to get started we’re going to be fighting over the same labor the same talent and whatnot so you know a big part of you know our strategy is to sort of acknowledge inflation and and sort of build that into our base case and then figure out ways to beat it right and maybe we could talk a little bit about the company’s strategy because I think that ties in quite well here so against this backdrop Silver Crest has decided that it wants to hold precious metals on its balance sheet so maybe you can talk a little bit about how you came that decision and what it actually looks like in in practice sure so about two years ago a year and a half ago we entered production uh we were fortunate enough to have an amazing high-grade asset with high margins uh we paid back all of our debt in the first seven months and cash was coming in and the next obvious question for the team is all right what’s next what are we going to do you know and some of the kneejerk responses are let’s go build a new mine and collectively as a team we said okay well let’s slow down let’s actually see how we performed on this one and what we did is we took every single penny we spent from day one uh all the way through to the end of the mind and we assumed inflation in the future years of production and we divided to buy the amount of gold and silver we have today and what we came up with was our total cost our true cost and again we calculate this differently because we include every penny um was in the neighborhood of about $25 an ounce and at the time silver was 18 19 bucks so instead of just sort of that default of sell your ounces get your dollars start over again we acknowledge that if we were to sell our ounces at that moment in time all we be doing is crystallizing a loss and the fact that we are sitting there with you know we digging up real money in a money that’s better than the fiat currency we want to hold and and you know so we we want it on our balance sheet but again from a from a business perspective any company that sells their product below the cost to produce it it’s not a great business right so that that definitely makes a lot of sense and how how long have you been following this strategy and what’s the long-term goal there I mean the long-term goal is we want to give our investors more exposure to gold and silver I mean there’s there’s a we’ve got this default mentality in society that you know the dollars that we use um do protect ourselves but in fact they’re just really really convenient medium exchange you’re not using an ounce of silver to go buy a coffee um but at the same time you know these dollars um are subject to inflation so for us we want to give our investors more exposure to the metal uh every ounce we hold on our balance sheet um has less risk because all the risks will be behind us which means if the price goes up our investors get all of that price increase and you know even further to that we are subject to inflation so the gold we have on our balance sheet protects us right it protects our business and it’s not just mining you know every single company that is subject to inflation has a responsibility to find ways to fight back and we produce a product that does just that so we want to hold it all right and you know you mentioned this is for the benefit of investors and so I’m curious you know this is it makes a lot of sense when you explain it but sometimes when something new is happen happening people don’t understand it right away so what has the reaction been from investors we’ve we’ve had a range I mean it’s definitely new it’s definitely different um we have an Old Guard in our industry that has done certain things in a long time so it’s taken a bit of a a challenge and they’ll give our board a lot of credit for being extremely open-minded uh on this front uh we’ve had some investors say it’s not your job it’s not your job to hold ounces and my response is you know well our job is to run a good business and if the price of the metal is below our cost to produce it we don’t want to you know sell it at a loss or I can hold gold myself I don’t need you to hold gold for me and my response is well you can hold dollars yourself you know we’ve got you know over 90 million on our balance sheet know we want to give investors more of the metal at the same time I would say people outside of the traditional mining World think this is extremely simple they think of course why would I you know I want gold and silver you’re giving me more gold and silver you’re fighting for a better price you know they’re they’re very very open to it so it’s been interesting I find non-mining people think this makes all the sense in the world retail people make think it makes all the sense in the world some of the traditional investors have taken a little while to come around but when Silver’s at 2930 bucks and we started holding it about you know 810 ago um they’re a lot more open-minded today okay really interesting to see that range of reactions I can imagine there’s been a lot of interesting conversations and so I’m not sure if you mentioned how much is on the balance sheet right now and I know this is this is going to be a future question but when would you be looking to sell obviously we’ve had as we talked about prices are running this year but but clearly not enough enough for you to consider that at this point well first of all again we have Canadian dollars on the balance sheet US Dollars Mexican pesos so we fundamentally believe golden silver is just another currency that we permanently want to have so there’s always going to be some we have on there again we believe it’s a better store of value um we mentioned the cost to get out of the ground that’s one that’s one factor um one of the other factors is there’s significant functionality that gold provides and to give you an example of that Charlotte we took 400 assets over the course of 31 years in the gold space and the price our costs went up approximately 8% per year and if you actually look at the gold price the correlation of gold and our costs went up on a 97 basis so almost a perfect correlation between our costs and gold so therefore we can use gold to protect our own business against inflation right so for me there’s a functionality so to have as as much gold on our balance sheet equivalent to our sustaining Capital to me is just good prudent risk management and then the final thought is great what if we do make a really good return today and we love the price we sell it now what right now we have to go back to square one and square one is only one out of approximately 750 mines makes it to production and it usually takes somewhere between 15 to 20 years so we then have to say what currency is better to protect our value for the next 15 to 20 years is it fiat currency or is it gold and silver so for us not only are we making a profit today can we sell it and then replace it way out in the future at a better cost cost and you know the trends say no we can’t okay okay really important considerations and I can tell that this is a strategy that is evolving as you go so I’m curious you know we talked about how this is new people are having interesting reactions is there anyone else in the mining industry who’s doing a similar thing and do you think this is something that may be picked up among other companies are you having that kind of conversation I’d love to I’m trying to have the conversation I think one of the very unique uh attributes of our mind is because we’re so profitable because we have Financial flexibility it means we have choice and we believe we owe it to our investors to examine what all the opportunities that this choice and flexibility gives us uh unfortunately you know many of our peers just don’t have that same flexibility they just don’t have that balance sheet strength so again it’s you know we don’t have to be a price taker uh when prices are really weak and they’re below the cost to produce it I mean that’s definitely the moment we want to hold more what we’re hoping is more people have this conversation and put it on the list of ways to allocate Capital doesn’t have to be the only thing you’re choosing there’s great assets out there to develop there’s times for a buyback there’s times for a dividend all we’re saying is this needs to be one of the choices that people consider right and you know you mentioned okay so not not all your peers have the ability flexibility to do this I think it’s interesting to take a look at the sector because you know we I hear quite often during the last bone Market precious metals miners didn’t make the best decisions now this time around they’re being a little bit more prudent do you find that’s generally true or or what are your thoughts on that note uh again we’ve been so ingrained to use fiat currency our whole financial system is evalu Val ated in dollars so we really don’t know how to count in gold and silver so you know everyone’s default option is to convert everything back to that dollar and once you’ve decided to hold a dollar you have no choice but to go and try to spend it so I think you know that’s one base challenge we’re we’re trying to push back on um you know we’re hoping now if costs do moderate and price of the metal keeps going that yeah we will see margin expansion at some time but we put our hands up and we take responsibility because it’s the industry that’s suppressing the price you know we we can choose to sell it we can store golden silver can’t really do that with coal or iron ore once you produce it it’s you got to move it we can choose to store it um so we don’t and when we don’t we’re the ones selling the metal and pushing down the price so you know I I think again it needs to be a choice to hold on and if we do hold on especially when prices are weak or the environment’s weak we can improve ouris return which is hopefully improves our health and and hopefully snowballs in the right direction it’s it’s definitely it it takes a mindset shift as you’re talking about you know just hearing you say it’s the industry that is suppressing the price in that way is quite quite quite a statement to make I I wonder if you had anything else to to add there I mean I feel like we’ve got this unique uh position where we have exclusive access to go dig this money out of this around and and it’s it’s a product that we all use in our marketing that we believe in the metal um you know but yet when it comes time to holding it we choose not to we choose to sell it for a currency that we Market against we don’t like fat currency but then we choose to hold our balance sheet in fiat currency you know if the other side of the coin is central banks have exclusive access to the printing press now they’re printing money left right in center and they’re buying gold so we’re in this weird position where they don’t want what they’re producing and our many people in our industry don’t want what we’re producing and we’re just putting our hands up to say we like our product we believe in the product and we want we want more of the product um and yeah we were hoping investors think the same way all right and I think that that’s maybe a good transition to talk about silver crests first quarter results we’re talking a couple of days after those have come out so I wondered if you wanted to share uh a few top level highlights from that report sure I mean our guidance for the year was to produce approximately 10 million ounces of silver equivalent we’re roughly 50/50 silver and gold we’re pretty unique and that were 100% precious metals um which is great um the costs for us were going to be in the range of $15 to $15.90 um in q1 our our costs were $12.90 we benefited from some lower tax which will normalize in future quarters um we didn’t quite spend as much money in certain areas which which helped our costs but what that translates into is roughly 60% operating margins right so for us um you know we beat consensus estimates in in I think every category um but again we’re in this position now where that that sort of flexibility the operational level gives us that choice so the market seemed to like what we were doing um you know we paid a bunch of taxes in q1 we we entered the world of tax paying whereas last year we were still working off of our some of our tax losses um but we’re looking forward with prices today being substantially higher than in q1 right I think um some people are starting to see hey why am I selling today if I know that Q2 while we’re halfway through Q2 is already looking much better right and and on that note so on track for production guidance in 2024 for what should investors be be looking for as to year of continuous hopefully consistency uh one of the unique attributes for us is that we mine our material and then we create a big stockpile on the ground and then our grade is quite high and we have medium and low grade we blend that together to put into the plant and that sort of consistency allows us to have really high recovery so we’re getting the most that we can out of that rock um and that has been giving us that those consistent results we’ve been in the range of 60% operating margins in the last six quarters or so uh so hopefully that’s going to continue and one one other unique attribute is um the term retained earnings that’s kind of your scorecard have you been running a good business or not are you making money or not uh unfortunately the mining industry has has struggled and it’s it’s it’s not a critique it’s it’s a really tough business um we had positive retained earnings of approximately 20 $21 million uh so to do that already uh after all the money going out the door to get everything up and running is uh something we’re really proud of so uh it’s a unique attribute and again I’ll bring that all back to the asset quality the margins and our choice yeah yeah of course it all just end up relating back together so that’s what 2024 is looking like for the company and I won’t I won’t ask you to give me gold and silver price predictions but I think it’s interesting clearly you’re you’re bullish on precious metals I think it’s interesting to take a look at what you see coming broadly as the year continues and perhaps into the future for for the metals prices yeah I mean I think a common theme that people have been talking about is not many people are out there trying to build new projects right the costs are going higher accessing capital is difficult and because it takes you know that 16 to 20 years supply of all things are starting to get uh pretty squeezed and we’ve seen that with copper recently and uranium everything else um the money is not coming back into the space to encourage new Supply and again the costs are going higher you know we hear this word oh we need more copper prices are going up we need higher prices we need higher margins the price going up on its own doesn’t matter it’s price relative to cost and right now um the incentives to bring on new Supply still aren’t that exciting so it just bodess well for someone who’s already in production that the existing Supply is uh is is worth a lot so we we’re thinking prices do go higher uh but we’re also in a position if they do go lower that we can be opportunistic in terms of either holding on to more ounces at low prices or buying back shares at lower prices um again just using that the choice that our flexibility gives us right that that really resonates I think I’m constantly hearing that the mining industry needs to attract capital from from outside the sector we really need to see that so for you do you think it’s it’s those higher margins versus the higher prices that starts to bring that in and and maybe get some discoveries or development going again I think it just needs like if you were to make a list of you know all the challenges over the next 20 years I mean grades are going down you know a lot of people aren’t comfortable going to some of the strange places in the world where some of these Commodities exist taxes permitting ESG you know it’s not an easy forward-looking trajectory for new Supply um so I don’t I I don’t necessarily see visibility of a lot of new Supply uh which is which is why I do think again companies already in production um are in a bit of a bit of a benefit or in a better position today right and as as we starting to get to the end here I did want to ask for your advice for investors who may be looking at precious metals companies they want to get involved but maybe they feel a little bit discouraged about some of the performances that they’ve been seeing what advice might you have there understand the risk I mean I think there’s you know we we were one of those early stage companies that went from a 5 million market cap to you know 1.8 or9 billion Canadian today so we did sort of run that Gauntlet uh lots of risks on the way but it’s you know it’s not easy not every company makes it um costs do go higher so I think it is a challenge so for people who do want to invest just know where on the Spectrum you want to be I mean if you’re thinking very long term to to protect your purchasing power there’s nothing wrong with buying the physical metal you know royalties and streaming companies don’t have as much operating risk um cash flowing companies are obviously you know healthier than the the ones you’ve yet to build so again I think just for people understand if you’re investing in a mining company sometimes you got more exposure to the mining related risks and less exposure to the metal and that’s one thing we’re trying to do we’re trying to give people more exposure to the metal uh and minimize the operating risk all right I think certainly you’ve given everybody a lot to think about today and just before I let you go I’ll put it back to you and ask if there’s any final thoughts that you would leave investors with man I think one key thing is I think a lot of people are talking about rates going down right everyone’s kind of hoping rates go down uh I think there’s a scenario out here where rates can go up and you know I think just making sure from a risk perspective that people have enough flexibility um and safety and how they are managing their own portfolios to make sure that they can withstand some of the volatility that uh that we’re probably going to be having here for a while all right I think that’s that’s a good note to wrap up on so thank you so much for coming today to go over what’s going on in gold and silver and with silver crust this was really informative thanks for having me Charlotte appreciate it of course and once again I’m Charlotte McLoud with investing news.com and this is Chris Richie with Silver Crest medals thank you for watching if you like this video make sure you subscribe to our Channel we’d also love to hear your thoughts so leave us a comment below we’ll see you next time [Music]How To Invest In The Metals Market in 2024
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Comments (17)
Excellent interview and guest Charlotte
It is called stock pile
all miners stock pile until price goes up.
I bought silvercrest way before 8 years.
.08 cent stock at one time.
I thought they were supposed to have very low AISC (before construction completed, of course!). Now its 25 bucks an ounce. What happened? Or just "forward looking statements" for the last 3 years?!
Keith Numyer has been hoping to have this conversation with other producers for years!
I'm a long term investor in Silver Crest and I love this strategy. I'm just fine waiting…
Yee Haw
His silver production cost was $25/oz?
謝謝
I'm buying physical silver and silver miners like MMC.ASX gold and silver junior stock, has a $150m processing plant!! 😊😊
Excellent interview. I was disappointed that he focused on today and not on tomorrow. What is their strategy going forward? They don't have a pipeline, and that is their weakness. This has hurt First Majestic. They need to avoid getting stuck without a pipeline. He seems conservative and wants to avoid acquiring a high-cost mine. This was the same mindset that First Majestic had. They seem to be making the same mistake. Why not acquire Avino and add 8M oz of potential production. Take a risk on high costs.
Great interview thanks. I'm a long time SILV investor. We need Mr. Ritchie to keep it up with public/ shareholder outreach. Even during hard times for the PM's we need to hear regularly about what the company is doing. Over the last several years they have done a lousy job with IR and they might need a new crew for that. Otherwise great management, great company.
Nope nope nope. In my opinion investing in miners is like paying for my robbery..
Really, really smart guy.
Thanks !