Please accept my sincere condolences on the continuing suppression of metal prices. As a stock holder in your company, I share your concern that an unrelenting environment of depressed metal prices will inevitably cause damage to your mining company. I will not insult your intelligence by dwelling on the long term solution that you are so very well aware of (i.e., reduce mining output at low prices, both as a way to pressure prices higher, and as a way to conserve your precious in ground resource for times when prices are more favorable). Instead, I hope to suggest short term tactics that could help to restore higher prices.
Convert a paper problem into a physical solution
You do not need me to tell you how intensely painful it is when a few traders dump a huge amount of paper metal short sales into the futures market, frequently at times when there is little volume, so the paper dump results in maximum price reduction. When the objective of those traders is to reduce the price, their dumping approach is certain to work. No doubt, those traders expect to make profits by being allowed to buy back their short positions at lower prices as longs panic and sell at a loss. That dumping plan by traders who have essentially unlimited resources to sell huge quantities of paper futures contracts would be an invincible way to make immense profits, except for a small detail. The futures contracts they sell in huge numbers require delivery of real physical metal if they are not closed out prior to the delivery time. Mining executives can exploit that weakness by refusing to sell discretionary physical metal during the month or so before delivery notices are issued. For example, miners could withhold from the markets all physical metal that they have timing discretion over until after the delivery notices are issued. By withholding discretionary sales during the month before delivery notices are issued, and by telling potential buyers for the following month to take delivery of futures contracts instead, mining companies could transform the earlier losses (caused by dumping huge amounts of paper futures) into gains as the traders who were betting they could sell short and then cover later are forced to buy at increasing prices because they do not have the metal required for delivery. Then the miners could sell into higher prices (after delivery notices have been acted on) the physical product they withheld from the market over the previous month. By focusing on withholding physical sales during the month before delivery, mining executives can press the short traders by constricting their supply of metal to deliver while encouraging buyers to take delivery from the futures exchange. Note that this approach only considers discretionary sales. Sales required by contract should be completed. When negotiating contracts or extensions for the future, however, mining company executives may want to consider time windows in which they retain flexibility about when they are required to deliver product.
Dividends payable in physical
Another approach that could be used by mining companies who pay dividends to shareholders is to offer the stock holder an option to receive dividends in the form of physical bars or coins made from the metal the mining company produces. That would increase the price of the stock in two ways. First, more shareholders would buy the stock specifically for the opportunity to receive real metal as dividends, especially if the cost of that metal was near the wholesale cost of the metal produced by the mining company. Second, bears who sell the stock short would need to obtain the appropriate physical metal needed to match the dividend those short sellers would be obligated to pay.
Dividends delayed
If metal prices drop below the actual cost of production, then the mining companies that pay a dividend could stop that payment, and divert the funds into buying futures for delivery. By taking delivery of very low cost metal from the futures exchange, mining companies would make it more risky for traders to bet short on the metals, and would increase the value of the company for shareholders.
Share information with shareholders
Mining company executives are encouraged to share information about their tactics with their shareholders, either by email or prominent notices on the company web page. There is no need for one company to try to influence the actions of another company. Other mining companies will learn about the tactics that executives tell to their shareholders, and then the other mining companies can decide for themselves if they want to do something comparable. Hopefully, it is not yet illegal for mining companies to decide when to sell their product, and to communicate information with their shareholders. However, if any portion of this open letter contains anything that borders on anything illegal, then all readers are encouraged to ignore that portion. Readers may, however want to forward the legal portions of this message to their favorite metal mining company. With enough focus on delivery of physical, we may be able to loosen the death grip a few very large traders have on the metals markets.
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