A Question for Will Luther

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Perhaps I'm overlooking something here, but I think Will can help me out.

I hear people mention that the price of producing a penny is greater than one cent. Moreover, the value of the materials used to make one penny are also greater than one cent. While I think there is something to the discrepancy between the two, I'm going to go with the latter-- the copper and zinc in a penny are worth more than one cent. And people use this as reason to get rid of the penny-- but I'm not quite certain where this eventually leads.

Free of government restriction, people would acquire these pennies, melt them down and use them for their material purpose. The money supply contracts, the copper and zinc supplies increase, and we end up at a new equilibrium. Fair enough.

But people aren't allowed to do that. It's illegal. I'm not saying that I agree with the law, but assume that people follow it and it remains in place for the indefinite future. Money system-wise, what's wrong with having a penny that's would be worth more than one cent in raw materials? What if pennies were made of gold-- what then? I suppose people could trade them as commodities expecting at some point to be able to use them as something other than pennies, but then we're back to the law and it either de jure or de facto not holding. The more valuable the penny, the stronger the incentive to get around the law-- but again, I'm curious what makes it not function as a unit of currency.

Does this penny-made-of-stuff-worth-more-than-one-cent argument necessarily need to go hand-in-hand with the ban on destroying money? If so, that's fine-- I just don't see people arguing it beyond "THE COPPER IN PENNIES IS WORTH TWO CENTS!" What am I missing here? I defer to Will's superior knowledge here and am eager to see where I've messed up.