Silver miners holding back production

In a press release to investors released late last week, Endeavour Silver (NYSE: EXK) announced their updated production results and that the company is now holding back almost half of all silver mined. In Q1 2021, they produced a total of 1,048,100oz, sold 623,379oz, leaving the balance of 523,235oz in treasury in anticipation of higher future silver prices in Q2, 2021. 

In their statement to the market, Endeavour explains: “Management withheld metal from sale during the price correction over the last two weeks of March and plans to sell the withheld metal inventory in anticipation of a precious metal prices rebound in Q2, 2021.” 

The price correction has been significant, with silver falling by 10% in March. While the white metal is still outperforming gold YTD, it is still down 7% despite a range of bullish supply demand trends such as declining global production, high retail investor demand and the Reddit Silver Squeeze movement. 

In beginning to stockpile, Endeavour joins First Majestic (NYSE: AG) whose CEO Keith Neumeyer has spoken openly for years about holding back production to support spot prices. 

The First Majestic CEO has been one of many market commentators calling for silver miners to hold back production from the major exchanges in New York (COMEX) and London (LBMA) to put upwards pressure on the spot price. With spot prices being largely derived from futures contracts on delivery of metal from these two bullion clearing houses, ongoing reduction of supply is likely to drive the spot price higher. 

According to Neumeyer however, silver miners face two major issues in stockpiling their product:

  1. Accounting - calculating the dollar value of metal held at treasury is difficult with fluctuating prices
  2. Storage -  once refined into 1000oz bars, storage and security add an additional drag on the company

Despite these costs, if miners are convinced that their product is fundamentally undervalued and seek to stockpile as much of their ingots as feasible, then that is a clear signal that silver is being mispriced by the market.