Sprott’s options since the Vancouver Resource Conferenceon July 25, 2011 at 21:00
At the recent Vancouver Resource Conference, it was announced that Sprott has to wait a full 12 months before he can do a shelf offering. Since this will still take a while and he is not prepared to do this as it will affect the premium of the fund.
It is suggested that he can he can gain some leverage on the market by structuring additional offers. However, purchasing silver forwards might not be the best way to achieve this. Some people are questioning why he does not do secondary share issues for the silver fund. This might be a good strategy for him to adopt.
If more shares are not offered then it means that investors end up paying 20 percent more than the silver is worth. In other words, $20 of silver is not being bought and taken off the market. This takes pressure away from the bullion banks.
The flip side to this strategy is that the premium would be reduced if this strategy was adopted. Current investors would not be happy about this at all as it would lower the premium. It is believed that this should never have happened in the first place. Today, he is in a situation where he has to divert the demand for silver. The only way that this can be done is by taking silver off of the market physically.
Experts believe that if Sprott adopted the secondary strategy then this would not be harmful to the current investors, as they would not incur losses. There is a demand for 4.46 million ounces as PSLV alone has 22.3 million ounces. By doing a secondary for double this, he could gain some trust from the fund.
Sprott, should steadily by stock from Comex as they have 26.8moz. Sprott should buy thirty percent of this and then stand for delivery. He could have quite an impact on the price of silver, especially if others follow suit. The price should rise and this could easily cover any shortfall in the premium as far as PSLV is concerned.
While some may counter that Comex would cash settle does not really ring true. This would not happen even when the cash settlement price is lower than the proper physical price. At this stage it would still be higher than the buying price. Pretty much as is the case with silver in a bull market.
The price move would be really significant if he was unable to deliver. This would translate into a significant profit for his silver holdings that he already has. This profit would be big enough to cover a loss, (if there was one) on the cash settlement of the futures contracts. PSLV holders would benefit in a large way.
This would benefit all parties concerned assuming Comex comes through and they incur a big hit to their stocks. It probably will not end up this way as bullion banks would find silver to deliver to the Sprott contracts, unless someone had the ability to perform such a move.