Market Perspective & Cabo Mining

Silver Stock Report

by Jason Hommel, Feb 10, 2004


    I don't believe in "efficient market theory" that states that all the important information is already known by the market, and that stock picking is somehow like throwing darts at a wall.

    In contrast, I believe that the more you study, the better the rewards. Knowledge is money!

    Nevertheless, it is true that at the top, where billions of dollars are involved, it is much harder to find overlooked opportunities for profit. At the smaller end of the scale, it is easier to find overlooked value.

    I also don't believe that the risks and rewards always go together, or as they say--the greater the risk, the greater the reward.

    For example, I believe that bonds pay out the least reward these days and offer the greatest risk because it is all but certain that the dollar is overvalued, and headed much lower. Furthermore, I read a few months ago that the real inflation rate in dollars is about 6%--if you count all the things that the government excludes from the numbers.

    So, a bond that pays 1% interest rate is really like negative 5%, guaranteed, with a risk of significant loss to the downside on top of that loss if interest rates climb or the dollar drops. Therefore, people are losing money in bonds and are exposed to great risk.

    I believe that the safest investments are those that promise the greatest reward. I would rather invest in a precious metals stock that has the potential to go up 10 to 20 fold, rather than a stock that has the potential to rise 5 fold.

    Therefore, since we are in a bull market in precious metals, I believe that the smaller, overlooked precious metals stocks promise the greatest return, and are among the most safe investments you can own.

    I am a contrarian within a sea of contrarians (other precious metal investors) who have been burned by the 24-year bear market in precious metals. Most precious metal investors these days still believe things like "most exploration companies fail". That may have been true in a 24-year bear market, but I think chances for success will be much greater during the bull market in precious metals and all commodities.

    I also think the chances of success are much greater with those managers who have been able to weather the storm of the 24-year bear market, and who now see the opportunities that lay ahead.

    They call me a "true believer" because I am among those people who are most certain that precious metals will rise tremendously in value, regardless of the attempts of government powers to stop it. In fact, several government statements reflect the desire to cause paper money to drop in value, as attempts are made to fight deflation, and to boost exports. Competitive currency devaluations are really a race to destroy the overvalued currencies. In reality, it is a race back to the gold standard, and the nations that get there first, will win--because they will have more precious metal, and will be the wealthiest.

    But enough about my market perspective! Time to discuss Cabo Mining Enterprises (CBE.V and CBEFF.PK for quotes at Yahoo! Finance).

    After looking over many silver companies, I invested in Cabo Mining when I discovered that their property was in the "Silver Capital of Canada", Cobalt, Ontario. They now own 60% of what was once the world's largest silver-producing area! Historic production was half a billion ounces of silver for the Cobalt mining camp. How much is that? It's about half the historic production of Cour d'Alene--an area that has two silver miners with market caps near a billion dollars each, Hecla Mining and Cour d'Alene. Therefore, when I found out that Cabo Mining had a market cap of under $10 million, and owned 60% of the mining camp of Cobalt, it was all I needed to know to make a buying decision. In fact, when I bought, I made sure it was my largest holding--and I invested just under 10% of my portfolio into it.

    After all, they say the best place to find silver is where they have found silver in the past, especially considering that modern mining and exploration methods have not been utilized in the area. Cabo's property in Cobalt is also surrounded by active major mining companies. There is a fascinating article detailing the history of the silver mining town of Cobalt, Ontario at www.cobalt.ca/cobalt/history.htm

    I strongly suggest you read that article!

    But the town isn't named Cobalt for nothing. Historic production of Cobalt for the mining camp of Cobalt was about 25 million pounds. And Cobalt prices have risen from under $9/pound to up to $33/pound recently, in less than a year! What a bonus!

    Cobalt is used to make metal alloys. Cobalt is also used in cell phones, and many other very specific industrial and strategic applications.

    But the story gets much, much better. The president of Cabo Mining, John Versfelt has for years, been keenly aware of, and anticipated, the turn around in the market for precious metals. I feel it is very important for a company president to be able to correctly anticipate market conditions, and to have a plan to take advantage of that. John does. Cabo Mining has options to buy two drilling companies.

    One of the truisms (or jokes) about commodity trading is that sometimes the longs make money and sometimes the shorts make money, but the broker always makes money. (Perhaps that's why brokerage houses have market caps in the tens of billions of dollars.) Well, exploration companies may go boom or bust depending on drilling results, but the drilling companies always make money, just like the brokers... as long as they are kept busy with drilling work.

    Well, by now, mining companies across Canada are filled with capital from recent private placements all due to the recent rise in the price of precious metals, and now they are anxious to drill. And on Jan 5th, John Versfelt announced that Cabo Mining secured an option to buy two drilling companies that, when acquired, should make Cabo Mining the fourth or fifth largest drilling company in Canada, and should be a very profitable business going forward, given market conditions.

    These drilling companies should provide the cash flow that is rare for explorers to have. It may mean less dilution in the long run, as Cabo might be able to fund a significant amount of exploration work by themselves! How fortuitious for Cabo shareholders that John Versfelt had a vision and a plan, and had done a significant amount of his own market research! After all, knowledge is money!

    As if all that is not enough, Cabo Mining just announced on February 4th, a major high-grade discovery as one geologist said, it's the first time in 40 years that such values have been found in the Cobalt, Ontario mining district. How did they make such a discovery? Seems simple, really. They looked where a very large "silver boulder" was found on their property back in the early 1900's. This boulder is 1,640 pounds, and contained 9,715 troy ounces of silver!

    So basically, Cabo Mining went to the area, removed some overburden, found some veins, took soe samples, had them assayed, and discovered a new Cobalt-type silver zone! Their samples were very high-grade Cobalt and Nickel, and are the type that should lead to the silver.

    The assay results ranged from trace to 2.6 ounces silver ... trace to .15 ounces gold ... (which is not very significant for the precious metals) but it also contained trace to 4.03% cobalt ... trace to 28.9% nickel ... and trace to 1.05% copper.

    Although there are no estimates for tonnage, John Versfelt says, If you average these values out on a per ton basis, the results are actually quite amazing. So, at his suggestion, I did some 7th grade math to take an average of the Cobalt and Nickel values across the samples (which were each about the same size), and discovered the following:

    Cobalt average 1.87625% x 2,000 lbs. x $26.00/lb. for Cobalt = $975.65 per ton. Nickel average 9.42875% x 2,000 lbs. x $7.00/lb. for Nickel = $1,320.03 per ton.

    Based on today?s prices, the value of precious metals, strategic metals, and base metals is US $2,307.52 per ton. Although, again, there are no estimates for how many tons of ore might be there, it's still high-grade ore!

    For comparison's sake, if the samples contained gold only, at $400/oz., the equivalent grade would be like ore that had over 5.5 ounces of gold per ton! If the samples contained silver only, at $6.50/oz., the equivalent grade would be like ore that had over 355 ounces of silver per ton!

    A further drilling program is already scheduled for late February in that area, as well as two other known silver occurrences in similar geological settings.

    Share Structure and Market Cap: Fully diluted subtotal, including shares needed to acquire two drilling companies, which is contingent upon which is contingent upon raising money when issuing shares= 18,880,436 as of February 9th, 2004 (Post-Consolidated) Plus a proposed $5 million financing to finance capital expenditures and working capital for the two drilling companies. @ share price $.57 Cdn x .76 US/Cdn = US $.43 (as of Monday, Feb, 9th) = $8.2 million Market Cap, U.S.

    I believe it is important to diversify, and to not invest all your money into one stock. The dollar, and stocks, can go to zero value.

    Companies can go bankrupt, or quit. Silver cannot go to zero value. I believe a prudent investor should invest in silver first, and junior silver exploration companies second, and only with money that you can afford to lose. Cabo Mining is not making any money right now, and their future success is contingent upon issuing more shares to raise money to fund operations and development. I have not invested in Cabo Mining for their balance sheet, but for their assets and options to acquire assets. This article contains forward-looking statements that are uncertain. There are no guarantees, and there is risk involved in investing in junior exploration companies.

    There is also significant risk in investing in one company based solely on reading an article on the internet, because widespread public exposure can cause a specific stock to move up in value inordinately.

    A recent example is Silverado Gold, ticker symbol SLGLF.OB at Yahoo! Finance. If you are not familiar with what happened to Silverado Gold, take a look at the two year chart. It went from ten cents/share to seventy cents, and down back to ten cents again. You should do your own research and due diligence, as the SEC warns investors in an article here:

    Internet Fraud: How to Avoid Internet Investment Scams www.sec.gov/investor/pubs/cyberfraud.htm

    You can read the press releases and latest discovery at Cabo's new website at www.cabo.ca

    For more information on Cabo Mining, do not email me. Contact John Versfelt, President of Cabo Mining at jav@cabo.ca or (604) 681-8899.

    If you believe that Cabo Mining is a significant opportunity that the market has overlooked, then you should research further, not only Cabo Mining, but also many other silver junior exploration stocks, because if the market is not efficient (and I believe it is not) then it is most likely the market has overlooked other silver junior exploration stocks, too.

    If you would like to receive, via email, my free weekly silver stock report that lists over 90 silver stocks, sign up at silverstockreport.com

    Final disclaimer: I own shares of Cabo Mining that I purchased both in the open market and through a private placement that came with warrants, and I have not been paid by Cabo Mining to write this article. SilverSeek does not own shares and did not receive any compensation for publishing this report.