The unusual investment activity that unsettled the stock market last week through soaring interest in shares of GameStop and other struggling companies took another surprising turn on Monday, when the value of silver futures and of the companies that mine the metal shot up.
But Phil Baker says he wasn’t among those caught off guard.
Baker is the CEO and president of the Coeur d’Alene-based Hecla Mining Co., which is the largest silver producer in the country and which saw its stock price jump 22% on Monday.
“It was not a surprise,” Baker said Monday. “There’s been an increasing silver price for the last year or so in general. And it’s been increasing for a variety of reasons, including two primary ones.”
For one thing, he said, silver has been relatively undervalued compared to another precious metal whose fortunes it often follows: gold.
“So this has been a catch-up for silver to gold,” Baker said.
The other major reason Baker found Monday’s spike in silver’s value predictable is the likelihood that an increasingly green economy will boost demand for the highly conductive metal in products like solar panels and electric vehicles.
Clarence “Bud” Barnes, a Gonzaga University economics professor, said he thinks Baker is largely right about the forces pushing up demand for silver, though he also identified a few others, such as the use of silver nitrate in medicine, political instability in some parts of the world, and an economy where the disparity between the haves and the have-nots is growing – and where the haves tend to buy their share of silver jewelry.
“All that puts upward pressure on silver prices,” Barnes said.
While Baker didn’t discount the fact that some force caused silver’s value to “run up more quickly than it would otherwise” on Monday, he also argued that “long-term fundamentals would suggest a higher price. But the speed at which you get to a higher price becomes a function of how much exposure” silver’s apparent undervaluation receives.
Observers, however, were uncertain what to make of Monday’s spike in silver.
Some suggested it was the work of the same kind of concerted online effort that led amateur investors to buy stock in flagging companies like the movie theater chain AMC and the video game retailer GameStop last week. That helped boost the fortunes of many of those small-time investors, while also hurting hedge funds that have long wielded outsized power to affect – and profit from – the markets.
But some argued the surging interest in silver was a trap set by the very hedge fund investors who had lost money betting against AMC, GameStop and other impacted companies.
Whatever the cause of the sudden interest in silver, Baker said Hecla stands to benefit.
“When the silver price goes up, as the largest producer (in the United States), it has a huge impact on the economics of the company,” Baker said. “And the additional cash flow that is generated as a result goes to our bottom line. We have really large fixed costs and not a lot of variable costs.”
As for whether the effect will be felt on the ground in North Idaho, where Hecla is based and operates the Lucky Friday mine, Baker said it won’t be major.
“We’ll certainly grow our activities, but we actually generate a lot of cash flow that we provide back to shareholders in dividend flows,” he said. “We’ll certainly have some more employees, but that’s not as big of a factor. We sort of operate at full employment all the time.”
Hecla employs some 1,800 people, about 425 of whom work the Lucky Friday, making the company one of the Silver Valley’s three largest employers and the one with the “largest payroll,” Baker said.
“These are long-term, well-paying jobs,” he added.
But the mining industry has also taken a toll on the area’s environment, with the nearby Bunker Hill complex one of the nation’s most expansive Superfund cleanup sites.
Baker said, though, that his company complies with existing regulations and is also pursuing a 20- to 30-year plan to reach the point “where we don’t discharge anything” from the Lucky Friday.
That effort is part of Hecla’s plan to keep producing silver in the Silver Valley “for generations,” he said, even if the kind of surge seen Monday remains an outlier.
“Like anything, you’ll have volatility in the price, where prices will increase, they’ll decrease,” Baker said. “But fundamentally, with the amount of silver that’s required (to meet demand), you’ll have higher prices.”
And as the head of a company that meets almost two-thirds of the U.S. demand for silver, Baker believes he’s in a good position.
“The outlook looks extraordinarily good,” he said. “And how fast it continues to rise, nobody knows.”
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