Speaking to the Investing News Network, Chris Ritchie, president of SilverCrest Metals (TSX:SIL,NYSEAMERICAN:SILV), shared his thoughts on how inflation continues to impact gold and silver miners, and explained why his company has chosen to hold precious metals on its balance sheet in this environment.
SilverCrest's Las Chispas operation in Mexico went into production about two years ago, and Ritchie said that after paying back all of its debt in seven months the company had to decide what to do with the cash it had coming in.
"Some of the knee-jerk responses were, 'Let's go build a new mine.' And collectively as a team we said, 'Okay, let's slow down. Let's actually see how we performed on this one," he said during the interview.
"What we did is we took every single penny we spent from day one, all the way through to the end of the mine — and we assumed inflation in the future years of production. And we divided it by the amount of gold and silver we have today. What we came up with was that our total cost, our true cost ... was in the neighborhood of about US$25 an ounce."
At the time, silver was around US$18 to US$19, and SilverCrest realized that selling its ounces would be locking a loss. "The fact that we are sitting there digging up real money — money that's better than the fiat currency — we want to hold it. We want it on our balance sheet," Ritchie said, adding that from a business perspective it makes sense.
The company's strategy has generated mixed reactions from investors and industry participants. Interestingly, Ritchie said while the mining industry's "old guard" has been hesitant, people outside the sector like the idea.
He emphasized that SilverCrest's flexibility is what's allowing it to follow this path.
"We put our hands up and we take responsibility — because it's the industry that's suppressing the price. We can choose to sell it, (or) we can store gold and silver. You can't really do that with coal, iron ore — once you produce it, you've got to move it," he said. "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 is weak, we can improve our return, which hopefully improves our health."
Watch the interview above for more of Ritchie's thoughts on SilverCrest and the precious metals market.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.