11 March 2011

A Modest Proposal for Some of the Unhedged Gold and Silver Producers

Going forward as your cash flows improve, one of the ways to combat the naked shorting of your stocks is to provide to your shareholders the option to receive small quarterly dividends in your own products, gold and silver.

Yes I know, those with cash flow will be on a merger and acquisition mania, scooping up the small producers and explorers. But this phase will pass and fall to a more sustainable level. I watched the same phenomenon unfold in the Canadian oil juniors markets last decade.

But returning dividends, not in cash, but in metal, is an extremely attractive proposition and certainly not a new thought. I have proposed it in the past. I was reminded of this while listening to an interesting audio interview that Jim Sinclair had with KWN. The problem is how one can manage the logistics. And so here is something to think about.

A producer or trust could do a direct distribution of physical but this would be awkward and costly. Distribution of things to shareholders is not their business, and requires a certain amount of expertise and infrastructure.

Rather, a producer could work with a group like Sprott to set up a physical gold and silver trust in the manner of a hard closed end fund like the Sprott Physical Trusts with redemption rights. Or they could work with some firm like Goldmoney, supplying them with bullion and then issue certificates to shareholders. Outsourcing the logistics might be the best solution.

This would require the naked shorts to start handing over physical gold and silver, which is much more difficult to do than to provide more paper.

Just a thought and not a complete plan, and the details are quite important. But there are several methods of rewarding shareholders while pulling in the reins on the naked shortsellers, and this is one of them.

Pleading with the regulators to do their jobs may not be fruitful, considering how the banks seem to have their way with them.

And if you are a junior, make it a priority to list on a major exchange in the States. The games being played on the Canadian exchanges are disgraceful, almost as bad as the US futures markets. And the US pink sheets are a snakepit, even by the current low standards of transparency and efficient in equity markets.