Track record of the silver junior stocks

Silver Stock Report

by Jason Hommel, April 20, 2006

Today, we had a severe correction in silver, as silver was down nearly 20%.  But my portfolio of silver junior stocks was down only 3%.  So, in terms of silver, I actually gained about 18%, in terms of silver today, as the silver stocks outperformed silver, even on a down day.  Which is as it should be.

I was actually growing quite discouraged by the beginning of last week, as the silver stocks seemed to be lagging silver prices.  (Which, to me, is an indication that this short term move up is far from over, and that silver prices could reach about $20-25/oz.)  Then, by the end of the last week, I was encouraged, as the silver stocks started to outperform silver, especially today. 

A brief word about today's silver price drop:  Apparently, the rumor is that the large bullion banks got together for an emergency session yesterday, and then, pulled all their bids today, and began selling in greater quantities, to break the price.  It worked.  But this is illegal activity to collude together on price action like this, and they primarily sell paper silver, not real silver, which they must buy.  But when they panic buy, they push prices up.  (And who is going to prosecute them, when they control the banks that control the nation?)  And I have not yet seen them panic buy silver, not yet!  I understand how they trade, because I do it myself. (But I cannot collude with myself, and so what I do is not illegal!)  If I'm buying a new stock, and pushing up the price, I may stop buying for a day, to let the price calm back down again.  But the price usually only goes down about 1/2 of where it was when I started buying.  So, if I buy at $10, and push the price to $11, and stop buying, the price drops back 50% to $10.50!  So, it appears to me that this dip may drop as low as about $11.50 at the lowest (about half way between $8 and $15).

One of the things I never realized, until now, is that the silver shorts, the short sellers, do not typically buy silver junior stocks!  I thought for sure, that they would!  But the silver shorts are the big banks who have assets in the multi billions, and they are simply too large, and too far removed from the mining industry, to buy tiny market cap silver stocks!  And they likely don't even buy the large cap mining stocks!  So, if they have to short cover, they push up the price of silver, and they neglect to buy the silver juniors.  (Their neglect creates our opportunity!)  So, this week, I began to re-evaluate everything!  But in doing so, I was comforted.  I'm a value investor, and in the long run, value investing wins, as I will show.

But first, a word about the COMEX.  Charleston Voice wrote about increasing margin requirements for holders of silver contracts (longs).  I investigated, and noted that margin rates remain around 3-7%, and average about 5%.  It seems natural that the margin should increase as the value of a contract increases, and that your leverage remains about 20 to one at 5% margin.  What is unnatural is that this is an exchange, and that it should not matter if you are trading apples for oranges, oranges for apples, silver for dollars, or dollars for silver.  In other words, there should be no fundamental difference between a short and a long.  Each has a debt: that which they have pledged to deliver.  The short must deliver silver, and the long must deliver dollars.  Each may default.  Therefore, if silver longs must deposit 5% of the value of the contract in dollars, a silver short should deposit 5% of the silver that they pledge to deliver.  But it does not work this way.  They system is rigged against those who would try to acquire silver.  And, in fact, if these were two groups of honest gamblers, they would deposit 100% of what they pledge to deliver in their "bets", and let the house hold the whole thing.  After all, that's what you do if you are an honest gambler and betting on a Football game, you put your money in a hat, held by a third party.  See also my essay,

In the years 2000 to 2002, I was researching and discovering that silver had much better fundamentals than gold, because more silver was consumed by industry each year than is mined, and that there is no room for any investment demand for silver, whatsoever.  I also learned about the excessive short position at the COMEX (nearly 800 million ounces when just over 100 million oz. are at the exchange).  I also learned about the non-transparant, unknown, over the counter, short position, that consists of silver certificates and bank loans.  And so, my family began investing in silver stocks.  Unfortunately, we could not find very many silver stocks to buy.  There were about five big ones: Apex Silver (SIL), Hecla Mining (HL), Cour d'Alene (CDE), Pan American (PAAS) and Silver Standard, (SSRI).  By 2003, I felt those five companies were starting to get rather overvalued.  I was right.  In January 2003, I wrote my first article on a silver stock, and after that, I received many stock tips in email, which greatly helped me find many other, better, silver stocks to buy.  By the fall of 2003, I knew of 19 silver stocks, and I wrote my first Silver Stock Report Silver Stocks--Comparative Valuations - 1 - 22 September 2003, comparing those 19 companies. 

Since that first report in the fall of 2003, the silver stocks that were "sells" gained an average of 161%.
Since that first report in the fall of 2003, the silver stocks that were "buys" gained an average of 360%.

See the performance charts below.

Here are the "sells".

Views: Basic - DayWatch - Performance [edit] - Fundamentals - Real-time ECN - Detailed - [Create New View]
Name Symbol Last Paid Chg Value Change Shrs Gain Value Bid Ask Volume Avg Vol Notes
HECLA MINING CO HL 6.47 6.82 -0.55 -$80.85 -7.83% 147 -$51.45 -5.13% $951.09 6.27 7.25 4,398,100 2,836,360 SSR #1
COEUR D ALENE CP CDE 6.71 3.55 -0.66 -$186.12 -8.96% 282 $891.12 +89.01% $1,892.22 6.64 -  6.70 18,869,400 9,054,210 SSR #1
FIRST SILVER RESE FSR.TO 2.10 1.41 -0.15 -$128.00 -6.67% 972 $588.78 +48.94% $1,791.94 2.09 2.12 59,700 79,400 SSR #1
WESTERN SILVER CO WTZ 25.62 3.84 -2.03 -$527.80 -7.34% 260 $5,662.80 +567.19% $6,661.20 24.00 2,000.00 498,800 626,108 SSR #1
APEX SILVER MINES SIL 23.49 15.20 -1.86 -$122.76 -7.34% 66 $547.14 +54.54% $1,550.34 23.30 +  23.50 1,872,900 1,043,600 SSR #1
EXCELLON RESOURCE EXN.V 1.21 .175 -0.17 -$1,168.11 -12.32% 7,827 $7,111.71 +591.43% $8,314.17 1.22 1.25 1,495,360 920,770 SSR #1
SILVERCREST MINES SVL.V 1.24 1.44 -0.14 -$116.88 -10.14% 951 -$166.97 -13.89% $1,035.24 1.21 1.24 229,790 87,333 SSR #1
MINEFINDERS LTD MFN 8.84 11.00 -0.79 -$71.89 -8.20% 91 -$196.56 -19.64% $804.44 7.67 +  9.99 294,700 110,022 SSR #1
PAN AMER SILVER C PAAS 23.71 11.17 -2.74 -$243.86 -10.36% 89 $1,116.06 +112.26% $2,110.19 23.76 23.98 5,740,142 2,040,140 SSR #1
SILVER STAND RES SSRI 20.32 7.94 -2.42 -$304.92 -10.64% 126 $1,559.88 +155.92% $2,560.32 20.35 20.75 2,212,407 1,021,510 SSR #1
10 symbols Total(USD):
-$2,951.18 -9.64%
$17,062.50 +160.84% $27,671.15

Get a snapshot of today's market action in Market Overview

Here are the "buys" from my first 4 silver stock reports:

Views: Basic - DayWatch - Performance [edit] - Fundamentals - Real-time ECN - Detailed - [Create New View]
Name Symbol Last Paid Chg Value Change Shrs Gain Value Bid Ask Volume Avg Vol Notes
ECU SILVER MINING ECU.V 2.56 .085 -0.31 -$4,445.95 -10.80% 16,341 $35,495.85 +2,911.76% $36,714.90 2.53 2.56 2,744,615 1,381,510 SSR #1
MINES MGMT INC MGN 8.78 2.55 -1.19 -$466.48 -11.94% 392 $2,442.16 +244.31% $3,441.76 7.97 9.27 359,100 167,760 SSR #1
STERLING MNG CO SRLM.PK 5.90 3.95 -0.84 -$212.52 -12.46% 253 $493.35 +49.37% $1,492.70 N/A N/A 362,931 168,600 SSR #1
CLIFTON MINING CO CFTN.PK 0.91 .29 -0.05 -$172.40 -5.21% 3,448 $2,137.76 +213.79% $3,137.68 N/A N/A 132,192 112,725 SSR #1
CARDERO RESOURCE CDU.V 2.83 1.66 -0.17 -$124.88 -5.67% 837 $859.48 +70.48% $2,078.91 2.81 2.85 50,970 62,669 SSR #1
CANADIAN ZINC COR CZN.TO 1.39 .41 -0.11 -$327.08 -7.33% 3,388 $2,914.02 +239.02% $4,133.16 1.38 1.39 822,692 645,147 SSR #1
SILVERCREST MINES SVL.V 1.24 1.3 -0.14 -$127.66 -10.14% 1,039 -$54.71 -4.62% $1,130.74 1.21 1.24 229,790 87,333 SSR #2
TUMI RESOURCES LI TM.V 0.71 .85 -0.04 -$55.82 -5.33% 1,590 -$195.37 -16.47% $990.78 0.69 0.73 151,700 63,791 SSR #2
MINERA ANDES INC. MAI.V 1.25 .315 +0.03 $112.95 +2.46% 4,290 $3,520.41 +296.83% $4,706.42 1.23 1.25 530,220 609,647 SSR #2
AVINO SILVER & GO ASM.V 3.68 .80 -0.10 -$148.24 -2.65% 1,689 $4,269.19 +360.00% $5,455.08 3.57 3.69 82,850 70,967 SSR #2
NEVADA PACIFIC GO NPG.V 1.64 .52 -0.03 -$68.43 -1.80% 2,599 $2,554.75 +215.38% $3,740.88 1.64 1.67 188,350 307,722 SSR #2
ADMIRAL BAY RESOU ADB.V 1.02 1.13 -0.03 -$31.49 -2.86% 1,196 -$115.46 -9.73% $1,070.67 1.03 1.05 89,050 183,822 SSR #3
FARALLON RESOURCE FAN.TO 0.90 .315 -0.07 -$263.56 -7.22% 4,290 $2,202.61 +185.71% $3,388.63 0.86 0.90 519,073 387,478 SSR #3
GOLDEN GOLIATH RE GNG.V 0.52 .23 -0.03 -$150.61 -5.45% 5,720 $1,455.85 +126.09% $2,610.50 0.52 0.54 105,376 148,677 SSR #4
14 symbols Total(USD):
-$6,482.16 -8.04%
$57,979.89 +359.83% $74,092.81

Get a snapshot of today's market action in Market Overview

Now, my list of buys and sells has, of course, changed since 2003.  But for the most part, I'd still stay away from the largest silver stocks as they are the most heavily promoted, and most overvalued, because too many funds "must" buy them.  Now, just because the funds will continue to pour money into the worst valued stocks, does not mean that you should own them.  They will continue to underperform, mostly due to the general rule that big things cannot grow as fast as small things. 

We just bought some tiny baby ducks.  They grow extremely fast--you can see them getting bigger daily!  It's the same thing with the stocks.  Tiny things can grow faster, period.  Acorns can grow into large oak trees, but fully grown trees just do not grow to the moon.  Instead, large branches tend to fall off, the trees will rot, and die.  Cour d'Alene is selling their flagship silver property in Cour d'Alene, Idaho.  That's life.

There is one major silver that I'd add to the list to sell.  Silver Wheaton (SLW).  I don't understand it.  It has a P/E ratio of 40, based on record 1 Q earnings!  Silver prices would have to more than double, and the SLW stock price stand still, in order for it to have a rational value of a P/E of about 10.  Furthermore, SLW is like a paper silver long.  Others have promised to deliver silver to SLW at set prices.  But what if those counterparties default?  But I can understand why SLW is so pricy.  The group behind it are wonderful promoters!  They are affiliated with Goldcorp, which was wildly successful in creating tremendous shareholder value for a few years from 1998 to 2003.  One of the secrets of Rob McEwan's & Goldcorp's success was doing the 7th grade math, when many managers failed to do so.  But you, too, can do the 7th grade math to determine the best values in the marketplace.

Many of the guys who buy the stocks that I do, appreciate my help in promoting the stocks that they own.  And so, they thank me, we talk, and they share stock tips with me.  And surprisingly, we tend to own many of the same stocks, or are looking to buy many of the same stocks!  Likely, we know something about value, and it's definitely working for us.  I don't get a chance to buy all the great values that I spot, because many of the great values do not last very long, and/or sometimes I just can't bring myself to sell some of the great stocks that I already own.

A few silver stocks that I own and think are cheap and are worth your time to investigate further include the following:  Sterling Mining (SLRM.PK), Mines Management (MGN), Klondike Silver (KS.V), Silver Grail (SVG.V), O.T. Mining (OTMN.PK), and Metalline Mining (MMGG.OB).

Sterling Mining bought the old Sunshine mine for a song, and continued to acquire many other silver properties. 

Mines Management acquired a copper/silver project in Montana, and copper and silver are both soaring.

Klondike Silver  is a new company that just came out this week (I got in at $.25 in a private placement), and is the result of years of work to consolidate many properties in the Slocan mining camp by Richard Hughes, a successful mine developer with a great track record.

Silver Grail changed their name from Minvita, and is a tiny market cap silver stock (13.8 million shares fully diluted) with many silver properties.  Their Clone property was recently flown by Aeroquest, and is a very hot prospect.

(Aeroquest (AQSFF.PK) may be a suitable investment itself, as they have among the highest resolution airborne magnetic imaging technology available to the market today.)

O.T. Mining is still defining the footprint of what may be one of the largest copper porphyry deposits on earth by using a new Mobile Metal Ions process.  Copper porphyrys often hold a higher grade minable area that O.T. has not yet found.

Metalline Mining spent $8 million a few years ago on a drilling program that proved up about 5 billion pounds of zinc oxide resources that will have among the lowest cost to produce in the industry ($.25/lb?), which, at $1.44/lb., are now worth about $7.2 billion!

Idaho General Mines (IGMI) is not a silver stock, but rather, they own a molybdenum deposit.  They deserve special mention, because their resources can be mined at a cost of about $3.15/lb, and moly is worth about $24/lb!  IGMI's 1.3 billion lb. moly deposit, at $24/lb., is worth $31 billion!

IGMI, like MMGG, produces a commodity that is an essential ingredient in steel, and as long as China, India, Russia, and the rest of the world continue booming, will be much needed.

And if you would like to see which stocks I own, and in what proportion, you can sign up to look at my portfolio for $40/month at  (The best time to sign up is at the beginning of the month, about 15 days from now, because you can get two month's fresh "looks" for the price of one if you cancel right away, but in a market like this, you may not want to wait.)

There are many other silver junior stocks that I've not listed, that may be much better values than these.  Therefore, I would really like to encourage you, not only to look at the stocks I'm telling you about, not only to sign up to look at my portfolio, but to research and buy the silver junior stocks in general.  And when you find a great value, buy it and tell me about it. 

Disclaimer:  I own MGN, SLRM.PK, CFTN.PK, TM.V, ASM.V, KS.V, SVG.V, OTMN.PK, MMGG.OB (Symbols work at Yahoo! Finance) and many other silver stocks, and nobody has paid me to send out this article.  This email is now going out to 20,600 email addresses.

Jason Hommel