Silver Stocks - Comparative Valuations, Weekly Report #45Silver Stock Reportby Jason Hommel, Oct 10, 2003(revised) june 10, 2007(to see original article go to silverstockreport#4)(all information in this article accurate as of Oct. 10, 2003)
Price of silver is $4.89 as of Friday, 2pm, Oct. 10, 2003, which was used to calculate the following figures. The CAN $ / US $ conversion factor is .7574. I will use .76 for ease. (The Candian dollar continues to strengthen each week.) Stock Symbol Silver oz. in ground for 1 oz. silver's worth of stock. HL .45 --current producer * = I own shares Explorers (by market cap): * = I own shares To quickly "tab" down to the company you are interested in, note the symbol. Then hit "control-F" to "FIND" the symbol below. Then, you will go directly to the summary about that company. Since this is a long document, that is much easier than trying to scroll down. The single number in the table above represents the number of ounces of silver in the ground you are buying title to when you invest the equivalent of one ounce of silver by buying shares in the company at current prices. (It does not include zinc, or copper, or lead, but it does include gold at a 1:10 ratio of gold:silver.) Please note that at the moment, I'm counting all "oz. in the ground" as equal, but they are NOT EQUAL. Some are more certain and others are more speculative. They range from most certain to least certain such as: proven reserves, probable reserves, indicated resources, inferred resources. WEEKLY COMMENTARY: Several websites and I continue to provide this information for free, but I am being well compensated (through unrealized gains), since I own some of what I consider to be the best silver stocks on this list. For the third week in a row, my valuation method has indicated silver stocks that have significantly outperformed many others. I also have received hundreds of silver stock tips from readers that I have been fortunate enough to receive and then dig through in order to find a few of the great opportunities on this list. One of my readers told me last week, "Yours is one of the most practical articles I have ever seen on gold-eagle." Another reader said that this list is more valuable than several of the paid investment newsletter subscriptions he has bought. Many people have thanked me for doing all of this research, and I'm doing it with your help. "TECHNICALS" VS. "FUNDAMENTALS: I've been following precious metals and stocks since 1999. And I've seen some really bad technical calls during this time. Technical investing makes no sense to me. It's not that I'm stupid; the tests say I have a high IQ, especially high on math and analytical skills. I'm 100% about the fundmentals. From my experience, I know the price charts of stocks are driven much more by fundamentals and increased awareness among investors of those fundamentals, than by any 'technical' reason that I have ever seen. To me, that makes sense, as I'm a psychology major. The markets are not very efficient at distributing information. Investors are people who have to struggle to gain information, and when many people gain good information from one source, at one time, it can move things. The problem with "chart reading" is that it does not tell you the big picture. IE, the dollar/gold price chart says NOTHING about how many dollars they have printed up, and have yet to express themselves as dollar gold price inflation! Therefore, reading the chart will tell you NOTHING about what will happen. Look at 1930's when gold was revalued from $20/oz. to $35/oz. The gold price chart was flat. It contained no information. But anyone who was aware of the founding of the Federal Reserve in 1914, and the roaring 20's that followed due to the proliferation of paper money, would have seen the writing on the wall, which is why there were "bank runs" where people were cashing in paper dollars for gold coin. Look at 1971. Again, the gold price chart was flat at $35/oz. Again, the chart contained no information about how many dollars they were printing up, and where the gold price was headed. And again, with foreigners redeeming dollars for gold, the gold price peg had to go. And so gold went up, big and hard, after the default, from $35 to $850/oz. over the next decade. Now, look at today. The gold price chart has what I see are "tiny wiggles" right now compared to where it is heading--to $35,000/oz. to $100,000/oz. or higher. Create a chart with that high of a spike, and you will see how utterly ridiculous it would be to examine those "tiny wiggles" at the bottom for information on where the price is headed. It is utter foolishness in my perspective to try and read the chart to see where we are headed. It's far, far worse than looking in a rear veiw mirror and trying to steer down the mountain road. At least the rear view mirror holds some relavant information. The gold price chart, today, contains next to zero relavant information about what exists now as M3 dollars that will show up in the gold price and will take us to where we are headed in terms of the dollar gold price. A dollar gold price chart contains about the same relavant information as a completely fogged up and frosted over rear window. Try staring into that while driving your car and you will be in serious trouble. Now, if you don't understand how or why gold can rationally be said to be headed to $35,000/oz. or higher, read over my two prior essays, Why no talk of $32,567/oz ? - 02 January 2003 HAVE YOU BEEN TALKED OUT OF INVESTING IN PRECIOUS METALS? Don't let your broker talk you out of investing in precious metals! If you use a major brokerage house, they will fight tooth and nail to convince you that precious metals are a dangerous investment. You must realize they are fighting to protect their con game against you, and that many of them have shorted the metal, and may even go bankrupt in the face of rising precious metals prices. If you have been talked out of investing in gold in the past, arm yourself this time by informing yourself better. Read over my prior essay, Refuting Myths about Gold AT WHAT PRICE WILL THE NEXT DEFAULT OCCUR? In response to my articles about the coming default in futures contracts and the moral failures of the paper longs, several have responded that they agree a default must take place eventually, but they generally feel that the default will happen at higher prices, anywhere from $8/oz. for silver, or $20/oz., or perhaps $30-50/oz. I don't know, nor can I predict, at what price the futures market will collapse. If history is any indication, it can collapse and default at the very bottom. Gold contracts (dollars held by Americans) were held at $20/oz. until the default in 1933, at which time they were instantly revalued to $35/oz. Gold contracts (dollars held by foreigners) were held at $35/oz. until the default in 1971, after which they rose to $850/oz. over the next ten years. There need not be a rise in price to cause a default. There only need be the lack of physical for delivery. If you therefore are expecting a default on paper futures contracts at only a significantly higher price, and you have a trading strategy in place that is based upon that false assumption, then they already have you decieved. In contrast to what will happen to paper longs who hold precious metals futures contracts, there is no reason to suspect that owners of mining company shares will suffer when the gold and silver prices go ballistic. Mining share owners will be the strongest beneficiaries of the coming default in futures contracts. TO THE SILVER JUNIOR EXPLORATION COMPANIES: Stop the complexity and insanity! I continue to read of very strange creative financing deals that are mind-boggling to figure out. Royaly deals, option deals, percentage interest acquisition deals, it's horrible! It becomes nearly impossible to do a comparitive valuation across mining companies when a company becomes a quagmire of complexity with all these financing deals. Stop it! If I wanted to buy a paper promise to pay, I'd buy a futures contract. But I don't want a futures contract, because I know they are prone to default, as they are created to excess, and created to manipulate the market. Likewise, I don't want to own someone's "royalty agreement" which is merely the promise of another miner to pay. I want clear ownership, no fancy deals, please. Mining companies, listen up! If your stock price is faltering, it may be due to the complexity of the financing deals you have gotten yourself into. Who is going to bother to take the time to figure them out? Who can quantify and measure the deals you have done that lock in a dollar price for several years into the future, when the dollar is depreciating? Why have you agreed to sell, or buy assets in the future at a future dollar price? You do not know what the future of the dollar will be, whether more or less expensive than today. You do not know whether you or your counterparty will be able to earn, or raise through equity markets, the dollars needed to fulfill the obligations of the contract. If you can't raise the capital by issuing new shares, then perhaps the market is telling you something, and you should listen. Either your proposed exploration or mining plan is too risky, or perhaps something is wrong with your marketing strategy and you are not reaching the right investors with your opportunity. But don't engage in these creative long-term financing deals. They can cause the stagnation of your junior mining company because the complexity of trying to figure out your company's situation will prevent others from investing in your stock. My advise if you have strayed off course: Cancel or complete the deals. Sell the royalty agreements. Pay off the loans. Secure your property rights. Avoid all contracts denominated in dollars or any other fiat currency. Operate on a "pay as you go" basis. And demand that others who deal with you operate on a "cash now" basis. If someone wants to buy your property, or your silver, demand the cash now. And if they don't have cash now, then they are not in a position to buy it now. Please note, a dollar is also the dreaded "promise to pay" that is an abomination. If I'm abandoning the dollar in favor of precious metal, I'm doing it for that reason that I believe defaults on contracts are coming. Therefore, do us all a favor and avoid the horror of the promissory note. And since I am abandoning the holding of physical silver in favor of holding your silver company stock, then it will be for one reason only -- because I expect more silver in return than I'm giving up. I must be able to calculate in terms of silver, so stop the agreements denominated in dollars. I don't want more dollars. Dollars are nothing to me, I can't measure in them, and I can't think in terms of them. I want more silver, that's the only reason I'm investing in your silver stock. Therefore, when the day comes when you junior explorers will start mining and earning profits, please let your profits and dividends be denominated in real silver. Silver (and gold) is money, and don't forget it. The banking industry is your direct competitor, for they have deceived the world into thinking that they are the source of money. They are not. You, the mines, produce money. And don't let the banks, nor your investors, forget that! ------------- * CZN.TO / CZICF.PK .62 .77 up 24% * = I own shares Those are numbers from Friday to Friday, just this last week. This is a list of primary silver stocks. I count a company's ounces of gold as 10 oz of silver. Why? Because I have a positive bias in favor of silver over gold. Given my bias in favor of much, much higher silver prices, then, to me, the grades of silver are far less important than buying more oz. in the ground. More oz. in the ground at a lower cost is the most important consideration for me. My method is simple. Cost per ounce in the ground. How much do you get (silver reserve totals), and how much does it cost (market cap)? The cost is the market cap divided by the silver reserve totals. Cheaper is better. Buy low, sell high. Disclaimers, Warnings, and Advice: I have gathered the information below over the course of several months. I believe it is accurate to the best of my ability. I may have made mistakes. I probably did. I'm human. I have collected the information from public sources such as company web sites and public information found at yahoo.com to get the stock prices. This report in no way guarantees the accuracy of the information below, since the information may change at any time. The number of outstanding shares can change as a company engages in new share issues to raise more capital through private placements, or if outstanding warrants (and options) are exercised and converted into shares, or if shares are bought back. Shares can be consolidated, or split. The number of ounces of silver in the ground can also change, as these are often only estimates. The number can also change up or down, depending on drilling results. This information is not intended as a solicitation for any company. All total estimates of "ounces in the ground" can vary widely. There are "proven and probable reserves" which are the highest category of certainty which is obtained through many drill holes, and then at the least accurate, there are "inferred resources" which are hardest to estimate. Additionally, every miner always has "more silver properties that need to be explored, which probably contain more silver". For the purposes of this report, I have added all those numbers together. It is believed that all these "ounce in the ground" estimates can be profitably mined at $5-6 per ounce silver, or lower. Thus, I believe that when silver trades for $15/oz. or above, that all of these ounces can be mined at a substantial profit. I may be wrong. (I made a few mistakes in my last article, and there have been updates and corrections made.) Mining is a risky business. You need to be willing to sustain a total loss of your investment for various unforeseen accidents. Silver stock companies can do stupid things to shareholders such as take on debt, or issue more stock at too low prices which reduces the percentage of the company you may own (dilution). Yet, they need to issue shares to raise capital for drilling, and then an even bigger dilution to build a working mine. They may sell YOUR silver too cheaply, or worse, hedge the price of YOUR silver just as it begins to go up if they lock in a price which then proves to be too low if the dollar is destroyed. Mining is a risky business as estimates of assets in the ground can change. There is political risk and environmental risk. They can't franchise the business, are stuck in one location, are subject to government confiscation, or taxes, or union wage negotiations, and corporate looting. Do your own research. Be responsible for your own investment decisions. Again, please, before investing in a mining company, call up the company, and speak either with the CEO or the Investor Relations contact person. So, at the very least, check the company web site, read the annual reports, check my numbers, check my math, and email the company. That's what they are there for, to answer your questions, and to speak about the opportunity of the company. Don't trust everything you read over the internet. I am a biased source. I own silver mining stocks. And I'm not a broker, nor an investment advisor. I'm just a private investor trying to make sense of this crazy world, and sharing my information and thoughts on silver companies. This report may be copied, and transmitted by other people, and may become outdated by the time it reaches you. I can't tell you how you should invest your money, of course. The reason is that I don't know how convinced you are of the silver bull market, nor do I know how soon you will be needing the money back, so I don't know how long you can wait to see results, nor do I know how much liquidity you need. Nor do I know the size of the money you have to invest. It is very hard to invest large quantities of money in a small market cap stock. That being said, my investment strategy seems to be working for me, so far. And so, here is how I have valued the following silver companies to make my own investment decisions. HL Additional comments: HL has more oz. than listed in the "proven & probable" category. As Daniel A. Barnes of Malcolm H. Gissen & Associates, http://www.mgissen.com/ said, "The nature of narrow-vein mining makes it impossible to infer the length of the vein, and hence, the ultimate number of ounces in it." So, they don't list them, or don't know about them. It seems as if companies typically report that this latter, less reliable category of "inferred and indicated resources" tends to be about 5-10 times as large as the "proven & probable" category. But even if we assume ten times more silver for HL, they still have a high relative cost of about $1.00/oz. But how much silver in the ground do they need to have in order to have a "competitive valuation" to some of the cheap opportunities on this list, such as 30 cents/oz.? That would be: "market cap / competitive silver price of 30 cents/oz. = oz. in the ground." $571 mil MC / $.30/oz = 1.9 Billion ounces. That's a big assumption that they have that much, isn't it? That number is 33 times what they say they have in proven & probable reserves. But I know nothing about mining. I'm just doing math, and showing the obvious. Another way to check the value of HL is too look at profit, since they are active miners. They mine 9 million ounces of silver a year. What's the profit on that today? Very little. Total production costs are $3.68/oz. Profit at $5.25 is $1.57/oz x 9 mil oz. annual production = $14.3 million annual profit. Give a PE of 571/14 = 40. That's a very high P/E, which means HL is expensive. What will they earn if silver is $15/oz., and production stays the same? The $10 increase in price would be pure profit, or $90 million. So, $14 mil + $90 mil = $104 mil. Thus, we might expect their market cap to be ten times that, or $1,040 million, to create a P/E ratio of 10. Thus, we could expect silver to go up 285% to $15/oz., and expect HL's stock price to increase from $571 mil to $1040 mil, or a 82% increase. Thus, silver is a WAY better value than HL stock, and has much greater upside potential from here, if you are a value investor who anticipates higher prices for silver. HL is only one company of two with a listing on the NYSE. This may be their advantage, and also they have been around for over 100 years. So, HL benefits from the market myth that "there are only a handful of silver companies to choose from". This report will clearly show that is simply not true. I heard that HL has properties in Mexico and Venezuela that they are exploring. But I found little info about that at their web site. Also, why does HL hold $113 million dollars worth of cash at the beginning of a bull market in silver? It makes no sense to me. Cash is trash in inflation. They should be buying physical silver, or, use that cash to buy other silver resources in the ground. Allow me to expand on this very important point. Silver (and gold) is money. The industry that competes with the miners is the banking industry. Miners produce money, the banks produce lies and fraud. But the banks have better public relations teams, and they even have the miners convinced that the banks produce money. (Poor deceived miners.) For a miner to hold cash is like saying, "My own product is worthless and not money." For a miner to hold silver as money is like saying, "I believe my product is money, and I acknowledge that the banks are my direct competitors, but who in reality are con artists who perpetrate fraud, which is why you should invest in my company instead of holding on to bonds or paper money." And such actions speak much louder than my words ever could. If a company holds silver in preference to dollars, this expresses many, many positive things in addition to the above. It also says that the company will avoid debt. It says the company will avoid hedging. Both actions are outstanding for shareholders. It says the company will try to realize the best price when selling their silver. Again, great for shareholders. And all of these things are said at once when wrapped up in the action of holding silver in place of dollars. But Hecla says the opposite when it holds paper dollars in the bank in preference to holding silver on their own. On the one hand I think they are fools for having so much cash (trash). On the other hand, I think they must be marketing geniuses for managing to convince the market that they deserve such a high share price. The other reason for a junior miner to accumulate physical silver is to make themselves a more attractive take-over target for a major who may be short physical silver, and who may need to acquire physical silver at any cost, and who may not be able to cover their positions by buying futures contracts that may default. Silver companies who begin to produce silver, and begin to have profits should strongly consider the wisdom of accumulating physical silver in preferance to accumulating cash in the bank. IPOAF.PK Additional comments: 78.5 million oz. silver produced by the metals division in 2002, and 1 mil oz. gold. CDE Additional comments: They also have a NYSE listing. Maybe that explains things. Maybe some institutional money managers are limited to NYSE silver stocks. Or maybe people think a NYSE listing means "credibility". I don't. CDE is also a significant silver producer, 14.6 million ounces/yr. And I think that is a negative to sell silver when it is so cheap. Debt is another negative. Additional comments: At current prices of a 70:1 silver:gold ratio, about 58% of the company is in gold, 41% silver. Gold equiv oz. is about 3 mil oz. total. Cash cost is $85/oz. Life of mine is 7 years. At $385 gold, should produce $900 mil oz. profit over the life of the mine. Not bad for the current $182 MIL MC... even though the "silver in the ground" cost is currently high. Therefore, my valuation method undercounts the gold componant, and undercounts current producers. But that is intended, however, because I believe silver has over 7 times the potential as gold. My comparison method does not say that the companies that cost more can't bring a reasonable profit to the shareholder. My comparison method does tend to say that the profits will be higher for the silver companies that cost less. There's just not a lot of silver exposure here for the price, and because of the high gold componant, it is costly, relative to others. But with the high grades, the risk is lower, and the profits should be here for those who want more safety in a stock pick. And they are "rapidly expanding" resources & reserves with round-the-clock drilling of 4 rigs. MFN / MFL.TO Additional comments: In case you have not realized it by now, this list is organized from most expensive on top, cheapest at the bottom. Read on. SIL Additional comments: Still way too expensive. This one has a lot of zinc. That's an added bonus that is not factored in. Several writers have been saying zinc prices will be heading up soon, so that's an added bonus. And, they are not mining now, but are waiting for higher silver prices. That's also a plus. The management also seems to understand that silver will move upwards a lot. Another plus. Finally, George Soros, Billionaire, owns a bit of this one, just under 10% I read recently. Another plus. I once advocated buying SIL. At the time, I thought there were only 5 real silver companies to choose from, and this was in the top 3, in the group of SSRI, PAAS and SIL, and excluding HL and CDE. I was wrong. There are many silver opportunities, not just five, and this is one of the most expensive, even with the zinc bonus. So, I sold SIL for better opportunities. So far, it was a good decision for me. EXN.V Additional comments: "Excellon ...is exploring and developing".... "a Bonanza grade Silver deposit in Mexico." Well, perhaps the bonanza grades explain the high cost to buy them as a shareholder at current prices. And perhaps there is a high expectation of finding more high grades. I don't know how to estimate or quantify hopes very well. Given what they've explored, drilled, and put into the "indicated and inferred" category, they certainly seem expensive. Perhaps this one should be in the "Explorer" category. FSR.TO Additional comments: This is a high grade producing miner. The high grades are a plus. But the extra cost for the oz. in the ground hardly seems worth it if you are expecting much higher silver prices as I do. Some say that a producing miner is also a plus. MR.TO / METLF.OB Additional Comments: None. I need to research more. GQM.TO / GQMNF.PK Additional comments: My method is severely mis-pricing this company due to the large gold componant. At a ratio of 70:1, the value of the gold and silver are as follows: 1.5 mil gold x $370/oz gold = $555 mil ; 24.8 mil oz silver x $4.8/oz silver = $119 mil. Thus, this company, at today's prices is 555/674 (82%) in gold and 119/674 (18%) in silver. With values like that, it comes out relatively expensive as a pure silver play (discounting the gold as I do), but they could earn good profits, given that gold is not 10 times the silver price, but 70 times the silver price. The interesting thing here is that the company has a historic ratio of silver to gold, at 16:1. (1.5 x 16 = 24) PAAS Additional Comments: PAAS is one of the few silver producers on this list. Thus, they are a "silver miner" as their investor relations person will painstakingly point out. The other companies who do not mine silver, but merely own silver properties and drill them, are not "silver miners," nor are they "silver mining companies". They are "silver properties," or "silver opportunities," or "silver speculations," I guess. Ok, but that still does not justify selling silver at firesale prices, in my book. PAAS recently went into debt in order to ramp up production. I am strongly biased against debt. But it's a convertible debenture, so the debt can be converted into stock. They know and believe higher silver prices are coming, which is great, and their strategy is to be in solid production mode when the higher price hits. In the meantime, though, the extra production will delay the inevitable silver boom, and they are destroying shareholder value. I also advocated buying PAAS. And I recently sold. I sold because I think there are better opportunities out there. WTZ / WTC.TO Additional comments: (Updated March, 2003.--my prior data must have been older?) (Plus 3.1 billion lbs zinc, and 1.3 billion lbs. lead.) Note the capital cost to get the mining started: $148 million dollars. MGR.V / MGRSF.PK Additional comments: Gammon Lake is a large shareholder, 50%. The quote above comes from Gammon's website. http://www.gammonlake.com/corporate_profile.htm CZN.TO / CZICF.PK Additional comments: CZN exploded in price recently, yet again, this time after the private placement was announced. I note several very, very positive things about this company. 1. This was the mining operation set up by the Hunt brothers, the major silver investors in the silver spike to $50/oz. in 1980 who were destroyed by their own debts and margin calls as a result of the COMEX rule changes and silver short sale manipulation. The Hunts spent $50 million building infrastructure to get the mine running. They were 90% complete when bankruptcy hit. The value of those buildings is now $100 million, and the mine only needs about $20 million to get the mine up and running. That's much cheaper than other cost estimates of other operations. Update: There is quite a buzz about CZN.TO, judging by incoming emails, and I'm quite excited about CZN.TO myself. Someone else out there in internet land published an earnings "guestimate" that appeared at the gold-eagle.com forum, (CZN PRICE EXPECTATIONS (goldendreams) Oct 09, 11:26) and another forum, that says CZN could earn .71 cents/ share in their first year of production. They used 38 mil shares to do their calculation, but I know it's 44 mil shares, fully diluted --and those warrants are all in the money, and most, if not all, were just exercised, so 44 mil shares is correct. After the private placement that was announced yesterday, CZN.TO will have up to 50 million shares. I don't know if that earnings "guestimate" on the internet was correct otherwise, but it was high given the share number was incorrect. 38/50 x .71 = .54 Still a great number for a share that is trading at .77. I heard the phones were very busy yesterday and today from people wanting in on the CZN.TO private placement, so it is likely now fully subscribed or oversubscribed already, especially judging by Friday's price movement. They may be able to finance mine construction with debt, in which case, no further share dilution will be needed. (But I'm still against debt from a moral perspective, and I believe they should finance the mine construction with share dilution--but perhaps at $2-4/share!). There is a very likely share price appreciation in the near term, regardless of silver's price going up or not. A rising share price plus great silver exposure is an explosive combination. Don't overlook CZN.TO. I own shares of CZN.TO SSRI Additional comments: Finally, we are getting down to a good price. I also advocated buying SSRI, and I recently sold for about a 70% profit. Not because SSRI is necessarily bad, but merely because I wanted to buy what I felt were cheaper "ounces in the ground". SSRI continues to add to reserves, either through exploring, or through acquisitions. This company seems to really understand the silver story, and helped to educate me as an investor, for which I'm thankful. I'm a bit confused as to why they would want to mine silver at $6/oz., but perhaps they feel that will be the top of the silver bull market. I could not disagree more, obviously. CFTN.PK Additional comments: If you calculate the "exploration potential", this is about 10 times cheaper, like 3 cents/oz, or you "might" get 150 oz. in the ground for 1 oz. silver. In previous reports, I said, "For more info on what's going on with Clifton, see www.dumontnickel.com" The bad news is that Dumont will own up to 1/2 the silver project. The good news is that the exploration potential of the silver project may be up to 10 times bigger than the 100 mil oz. previously reported in the "100 mil oz. resources est." Clifton also has a patent on a "super" colloidal silver solution made with 10,000 volts that adds oxygen that gives it more powerful antibacterial properties, and is safer since it uses less silver, which would prevent "blue skin" argyria. Normal colloidal silver that you can make at home with 30 volts works to kill bacteria by disrupting the oxygen metabolism of the cell wall, killing bacteria with oxygen. The market for safe antibiotics is in the multi Billions of dollars. I finally bought a few shares of CFTN.PK last week. DNI.V Additional comments: Some of my more alert readers who did look into Dumont more closely than I did (after I mentioned it in passing in my comments about Clifton) bought heavily into Dumont last week, and I completely missed the big run up that occurred by Wednesday, Oct., 8th. Both Dumont and Clifton seem to have a fairly good value given the 100 mil oz. number, and outstanding value if the "exploration potential" number is accurate. I don't own any DNI.V TM.V / TUMIF.PK Additional comments: I don't own any TM.V. I need to research more. ADB.V Additional comments: Prior grades hit 2-5 kilos silver/ ton. (2000-5000g/ton. 70-176 oz. ton) Very high grades. The project was never properly drilled with modern methods. Admiral Bay acquired this option to own a 70% interest in this silver property in June, 2003, and the acquisition did not impact their stock price at that time at all. Previously, they were a gas company, and they still have this other gas project, which may be more than half the intrinsic value of the company according to Curt Huber, who understands the silver story as expressed by Ted Butler and David Morgan. My valuation method, obviously, does not give any value for their gas project, which therefore needs to be factored in as a "bonus". They are actively digging now, building a road and uncovering mineralization areas, and tracing surface veins. They will be drilling before the end of October, spending $500,000 before the end of 2003. They have $2 million cash in the till. This week there was an interesting press release: I don't own ADB.V SVL.V / STVZF.PK Additional comments: Now, whenever there is a range like that, it means those are ounces they need to drill to prove up. And drilling costs money, but does not generate revenue like mining. They are "exploring" those. They are not like "inferred resources" ounces, which, although the least certain category, are more certain than this range number. There was a discovery that the company found and wrote and told me about, that they are now working on. Plus, their reserves are potentially "open pitable" which reduces costs. Every silver company out there always has "more silver property" that potentially has "more silver in the ground" that they "need to explore". So every company has a "silver bonus" that's not included in their oz. reserve figures. But exploration is risky, and costly. It's why metals are precious. MAI.V / MNEAF.OB Additional comments: I don't know how much of the 55 mil oz. is gold, or copper or other minerals, which I value differently. So, I'm really not sure how this company would be priced otherwise. I don't own MAI.V ECU.V Additional comments: Half the current value is in gold, not silver. If the gold was counted as 70:1, instead of 10:1, the "price" would be about 57% of the price now, or 43% off. I don't own ECU. ASM.V / ASGMF.PK Additional notes: Mexican mining law once stated that a controlling interest had to be owned by Mexicans, which explains why they only have a 49% interest. That they don't have a controlling interest is a minus. This law has changed. The mine was operational until the mine went into temporary closure in November 2001. So there is in place an existing mine, with working infrastructure, which is a bonus. There is a need for drilling in order to test the potential that was stated in the feasibility study. I own shares of ASM.V. FAN.TO / FRLLF.PK Additional comments: This stock was a $3/share stock in 1998, ten times the price today. Look at the long term chart. Talk about "Buying low!" Nothing done or drilled on the property since 1999. Why not? Because of low zinc prices: 46% of the price of the metals was in the zinc before prices crashed... (This one reminds me of Canadian Zinc. They think they are a zinc company.) The largest componant today is gold, which was surprising to Eric, the IR guy I spoke with. About 1/3 is in silver now. At today's low metals prices: Get this: By law (an insane law meant to protect investors, but actually hurts investors in my opinion) a company cannot do calculations such as these above to show the potential profitability of mining the minerals. Why not? Because when doing a feasibility study, they have to "be responsible" and use "average" prices of the metals and they are REQUIRED BY LAW TO ASSUME THAT PRICES OF THE METALS WILL ALSO GO DOWN!!! Isn't that insane? This means that the law creates a virtual gag-order on companies from saying and defining how great their companies are to invest in, if you believe that inflation will hit and that precious metals prices will go up! The company can say "Yes, our company represents a great inflation hedge," but they cannot show you the math to define what "great" may mean given various higher metals prices!!! So, no wonder information on mining companies, and potential at different metals prices is so difficult to find. It's like pulling teeth to get the answer to the question: "What percentage of the profits of the mine will come from zinc, and what percent come from silver &/or copper or gold, etc." It's almost illegal for them to give such information to you based on current prices or possible higher prices! But it's not illegal for me to do math and show you, nor is it illegal for you to calculate whatever you want in your spare time. Last week, I said I thought they might have 4 times the potential of their 107 mil oz. silver (out of 29 mil tonnes) because they had only explored 4 deposits out of 16. But their other 12 potential deposits are "little bumps" on the surface, and they do not know how large they compare to the others. So, regarding this "exploration potential," the company has a conservative estimate that they "anticipate increasing resources to 50 mil tonne range..." as I did write last week. This is an increase of a factor of 1.7, not by a factor of 4. Speaking with the company about this issue, they think reserves could be 50 mil tonnes OR MORE, but that they really don't know, and want to issue conservative estimates. I own shares of FAN.TO. SRLM.PK Additional comments: Sterling Mining acquired the Sunshine mine. Sunshine was one of the big three: Hecla, Couer, & Sunshine. Sunshine went bankrupt. Sterling got the property a few months ago cheap, because they were quick & willing to pay cash. Other buyers wanted to do a full study before making an offer. This company's share price went ballistic as a result. But the company is still way undervalued. Just do the math, people. I own a substantial share of SRLM.PK There were a few great articles written lately for SRLM. See the company web site, above. The best factors, I feel, are as follows: Do not confuse SRLM with SSMR. SSMR is the Sunshine mining company, which went bankrupt. SRLM acquired the Sunshine mine. If you want to buy the Sunshine mine, you buy Sterling Mining Company, SRLM. I own shares of SRLM.PK MNMM.OB Additional comments: Mines Management owned 10% of the rights to their property in Montana. The other 90% owner, Noranda, simply gave up on the property and walked away from their mining claim due to "perpetually" low silver prices and political concerns. That explains the rocketing share price. So, the MNMM group got 90% of the rest of the property FOR FREE!--the value of which, and the nature of this transaction has just barely begun to be understood by the market, given the low relative price. Their property also has about 1/2 the value (at current prices) in copper, 2 Billion pounds of copper, and 261 mil oz. of silver. Do the math, people. 261 mil oz. silver x $5.25/oz. = $1.3 Billion. 2 Billion lbs copper x .85/lb. = $1.7 Billion. Amazing assets in the ground for such a small market cap. Three Billion in asset value / 30 million in market cap, means you are paying 1/100th the price. Surely, the profit will be greater than 1% of the asset value, over the life of the mine. They do not have an active working mine--Which is a minus. They will need to raise capital to get a mine going. Noranda had several estimates for the cost to build a mine and mill, around $250 million. But it could be more or less depending on how ambitious or economic they decide to do things. Regarding environmental concerns: Noranda had a fully approved Environmental Impact Statement (EIS) that led to successful project permitting, so environmental concerns were not a factor in their departure in 2002. I own shares of MNMM.OB ------------------------------------------------------ (The order is by largest market cap first, not by "comparative value".) IMR.V / IMXPF.OB Additional comments: This explorer has found bonanza high grades, which many consider to be an outstanding benefit, and they are willing to pay much more for such high grades, which have a much higher chance of being able to be mined at a significant profit in today's environment of low silver prices. Some people say the high grades are far more important than how many ounces are found, and they more highly value this factor than my arbitrary "good value" number of 30 cents/oz. In other words, they might be willing to pay up to 50 cents or a dollar for such high grades. MCAJF.PK CDU.V / CUEAF.PK Additional comments: *** I wrote an article on Cardero in January, 2003. Cardero is in Argentina. They are trying to prove up the property to see if they can make a huge open pit operation out of it. And they have lots of property in the area, and the area may have several large silver deposits that need proving up. This one also has potentially high grades in several very large conglomerate deposits that can be mined at a profit today. Their property was an active mine, but only a few tons/day. But they hope to make a large open pit project out of the main deposit, processing perhaps a few thousand tons/day. I own shares of CDU.V MAG.V TIV.TO / TVIPF.PK Additional comments: This company has many properties in the Philippines. This one looks interesting, but there is just too much unknown for me at this point for me to be able to quantify. So, they are an explorer, listed in terms of market cap size. EPZ.V / ESPZF.PK Additional notes: Please note this "good value" factor number is totally arbitrary. Just like number of shares is an arbitrary number, and share price is an arbitrary number. You need to have something to correlate it with in order to make sense. I have no idea whether this company is a good value or not. I have no way to know, or tell without calling the company and getting a feel for what they are doing. I have not done that yet. Sometimes, people say you should judge a company by the management, and whether they were successful in the past. But mining, and exploration, is still risky. IAU.V / ITDXF.PK Hopefully, you get 19 ounces in the ground for 1 oz. silver. Additional comments: Their "exploration potential" lies withing the "arbitrary good value" range. This explorer/developer tends to focus on good grade, mineable deposits, and form partnerships with other companies to access great information, and expects to produce silver & gold within 2 years, by 2005. They also took the time to contact me, after having seen this silver report. Since this company is about half gold and half silver, the 10:1 ratio really cuts down the "silver equiv" numbers, so keep in mind the "gold bonus" factor here. But it's like that with a lot of the companies on this list, so keep that in mind, and do your own math if you want to use the 70:1 ratio. NPG.V / NVPGF.PK Additional comments: Explorer in Nevada. They do not really know how much silver they might they have in the Amador Canyon project. They are doing drilling this fall, 2003, as they just did a $2.5 million private placement. The Chariman, David Hottman, says that 90% of the value of the company is in gold, NOT silver, and yet, I'm buying this company for the silver value only, and as if the gold componant was worth nothing. (The gold projects are a free bonus, in my book, and help to alleviate the risk of this explorer.) He has 10 gold projects, and one silver-but it may be big. On the website, for David Hottman's bio, it says he was a founding member of Eldorado gold. "During his tenure, Eldorado's market capitalization grew from Cdn $7 million in 1992 to a peak of Cdn $781 million in 1996." Please note, exploration is risky, and costly. Last week, the company proposed stock options for "for directors, officers, consultants and employees". If they now believe the share price to be headed much higher, they would want to lock in options at this low price. Investors have to be aware of this kind of share dilution. This one is 1 million shares. Thus, it increases the market cap, increasing the "cost", and reducing percentage ownership for existing shareholders. But this still looks like a good deal. NJMC.OB MMG.V / MMEEF.OB GNG.V / GGTHF.PK I bought shares of GNG.V last week. Additional comments: Silver Explorer in Mexico in the the Sierra Madre mountains: Uruachic. The largest placee in the recent private placement was Sprott Asset Management, run by John Embry. SPM.V www.scorpiomining.com. SHSH.PK ROK.V ITRO.OB Additional comments: Itronics is not an explorer, and not a miner, and has no reserves. As such, it is extremely difficult for me to value this compared to other silver stocks. Final Category: Silver stocks FOR YOU and I TO RESEARCH further: I strongly recommend you try to "get ahead of me," and research these stocks to see if I left out any great values. I probably did. I simply did not have time, or could not yet find information (without using the telephone) on all the three key figures needed to get the "price per oz." in the ground. You need: number of shares fully diluted x share price to get the market cap. Then, you need an estimate of the oz. in the ground. Usually, I've been finding the oz. in the ground resource estimates right off the company webpages, and I get the number of shares by looking for it burried in the financial statements like the quarterlies or annual reports, which are also usually right on the company webpages. Have fun this week! QUATERRA RES (CDNX:QTA.V) Vista Gold Corp (Yukon Territory) (VGZ) Eurozinc Mining Corp (EZM.V) MorNorth Mortgage Holdings Inc (UNCN.OB) Metalline Mining Co (MMGG.OB) Mountain Boy Minerals Ltd (MTB.V) III.TO/ IPMLF.PK KIMBER RSCS INC (CDNX:KBR.V) Mascot Silver Lead Mines (MSLM.PK) Malachite Resources NL (MAR.AX) ROSS RIVER MINL (CDNX:RRM.V) Silver Buckle Mines Inc (SBUM.PK) Fischer-Watt Gold Co Inc (FWGO.OB) Metropolitain Mines Ltd (MEMLA.PK) SLSR.PK Reports such as this usually cost an annual subscription such as $100 - $300 or so. Articles like this one, that present opportunities as good as these, can tend to move the markets in these stocks. So, be careful when buying. If you place any market orders at the open for any of these small stocks, you might end up buying at prices that are significantly higher than you intended. Limit orders might be better, but then, you run the risk of your order not being filled if the stock price exceeds your limit. And bid / ask spreads such as 15% on small cap silver stocks are not unusual. Markets can especially be moved given the wide readership of gold-eagle.com. I've seen markets moved even by small private newsletters such as lemetropolecafe.com and silver-investor.com (I subscribe to both), which reach much smaller numbers of people than gold-eagle.com. Some of these stocks can move up 15%, 30%, 50% or even over 100% in a single day. Thus, valuations can change very, very quickly. So, be careful, and re-check the numbers if the prices move up. Do your own math. Also note, the majority of these companies have an emphasis on silver only. Most silver is produced as a by product of other mining, like lead or zinc or copper mining. Those companies that primarily produce other minerals are not featured in this report. This also helps to explain and prove, that silver is undervalued. If silver miners cannot mine silver profitably, and this report shows that to be true, then something is wrong with the silver price. It must go higher. More Information Sources on Silver: Book recommendations: "Silver Bulls" by Paul Sarnoff. Details the 1980 rise and fall of silver. Written in 1980. "Silver Bonanza" by James Blanchard. 1993. Outlines the case for silver. "The definitive guide to North American mining stocks" by Doug Casey & Jerry Pogue available thru alibris.com & amazon.com. Jerry Pogue is a director of Mines Management. Doug Casey has been #1 booster of mining shares since 1978 publication of "Crisis Investing " and 1982 "Strategic Investing" and 1992 "Crisis Investing for 90's" The three best sources for commentaries on the silver market that I've found on the internet today are David Morgan, Ted Butler, and a report by "Kazvestor". I subscribe to, and read, David Morgan's newsletter, and I recommend it. Some of the reserves and resources listed for the above companies, especially the juniors, may have been drilled out and calculated based on old regulations, before the new 43101 compliance rules were put into effect. (Not all are 43101 compliant reserves & resources.) For information from the SEC on how to protect yourself from a "pump & dump" scam, see the following: Pump and Dump Schemes Jason Hommel
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