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Wallace Street Journal

A take on Toronto

David Bond
March 9, 2004

TORONTO, Ontario -Lead, zinc, copper, silver and gold - the bread and butter of North Idaho's once-beggered mining industry - are poised on the verge of a 50-year renaissance in price thanks to insatiable Asian demand, aging Baby Boomers and an unsteady U.S. dollar, analysts say.

"We are seeing a strong, cyclical and secular recovery in metals, particularly base metals," said Patricia M. Mohr of Scotiabank Group, Toronto. Growth in metal prices (27.8 percent) far outpaced that of oil and gas (15.3 percent), forest products (26.6 percent) and agriculture (0.7 percent) in 2003 and will continue to do so in the future, Mohr said.

Increases in gross domestic product (GDP) in the Asian sector also will outpace the West this year, she added. China will lead the way at 8.7 percent in GDP growth, followed by India's 6.5 percent and South Korea's 5.5 percent anticipated growth in GDP. Europe will be next at 4.9 percent, the U.S. at 3.8 percent and Japan at 2.8 percent GDP growth for 2004 and 2005.

These growing economies are gobbling up metals at heretofore unheard-of rates.

"Gold should achieve an average price of $428 per ounce in 2004, end the year at $445, and come out of 2005 averaging $460," said Martin Murenbeeld, CEO of Murenbeeld Associates, Victoria, British Columbia. Exactly one year ago, also in Toronto, Murenbeeld predicted the 2003 price of gold would average $364 per ounce. He was off by $1; 2003's average gold price was $363.

"I expect to return next year to find out if I was right again or just lucky last time," he said.
Murenbeeld's 2004 price prediction was more or less shared by Kamal Naqvi, senior metals analyst for Barclay's Capital of London, who called for a $450 price average this year.

"Long-term investors are returning to the gold market," Naqvi said. "De-hedging (the elimination of short-selling positions by producers, banks and speculators), falling interest rates which reduce holding costs for purchase contracts, a soft-money policy by the U.S. Federal Reserve Bank and the equity markets all are bullish for gold."

The world's banks are on the verge of renewing a pledge limiting sales to 500 tonnes per year, he said.
Closer to home, silver should peak at about $8 per ounce during the first half of this year, then settle back to its new "natural price" of $6 per ounce or so, said Bruce Alway, senior analyst for GFMS of London.
"Institutions and funds have returned to the silver market," Alway said. Investment funds' net long position on the New York Commodities Exchange (COMEX) rose from 177 million ounces in the fourth quarter of 2003 to 260 million ounces thus far in 2004.

While silver and gold both closely track the growing disparity between the U.S. dollar and the Euro, silver has broken away from its historic relationship to gold and is being price-driven by industrial demand and the surge in copper, lead and zinc prices, Alway said.

Photography now ranks third in worldwide silver consumption at 23 percent, behind industrial use (43 percent) and silverware and jewelry (30 percent), he said.

Most all of the silver used in medical and consumer photography is recovered when the film is processed and accounts for more than 70 percent of the "scrap" supply of silver returned to market. Scrap, or recycled silver, accounts for 22 percent of the silver available to the market. Virtually none of the silver used in industrial applications - ranging from contacts in a cell phone to reflective window coatings - ever returns to market, he said.

The remarks of these and other metal experts came before the 72nd annual meeting of the Prospectors and Developers Association of Canada here - a week-long confab attended by 9,000 delegates from 70 countries. Some 350 mining companies, mine service companies, provinces, states and nations rented booth space to advertise their wares and opportunities in Canada's largest and most cosmopolitan city on the shores of Lake Ontario.

One of those speakers, Phil Baker, CEO of Coeur d'Alene-based Hecla Mining Co., said Monday he liked what he heard.

"This is just incredible," Baker said. "This is the start of the next generation of mining. It means the Lucky Friday Mine (in Mullan) will continue to be a cornerstone for Hecla and the Silver Valley for decades to come."

Bunker Hill Mine owner Bob Hopper said China's "insatiable demand should condition us in the U.S. to appreciate our abundance of minerals. We must give many thanks to our environmentalist friends who have impeded mineral development and helped create these very shortages. We have zinc deposits that run for miles and look forward to serving this new world demand."

"Regardless of the ups and downs, and the number of companies that have abandoned us because of U.S. environmental idiocy, there are actually companies and properties - the Lucky Friday, the Galena, Sunshine and, yes, Bunker Hill, that are still operating here. This is one place that is ready to go.
"We're still here, man," Hopper said.

The glowing forecasts are reason for optimism from Sterling Mining Co. President Ray DeMotte, and auger well for Sterling's idled Sunshine Mine.

"Silver's strength in staying over $6 is significant for the Lucky Friday, the Galena and Sunshine," DeMotte said. "It bodes well for us in our efforts to bring Sunshine back into production and encourages Sterling to continue its exploration for new mining opportunities in the Silver Valley."

The base and precious metal bulls will be in town at least for another half-century, predicted Peter O'Connor of Investment Management Selection Limited, London.

"While the U.S. is still the locomotive of economic growth, the boom is going global," O'Connor said. Having undergone the first phase of its industrial revolution, China is now diverting more capital into consumer spending.

Real per-capita income in China, now about $5,000 per year, will double by 2008 as the "world's largest economic, not political, democracy" seeks to encourage consumer spending. One Chinese export - tourists - will increase ten-fold by this decade's end, from 10 million leaving that nation's borders to see the world to some 100 million, and they'll be buying disposable cameras, he said.

As Boomers leave the workforce and begin collecting social security, central and bullion banks will have no choice but to print more money, attempt a course toward "reflation" in an effort to bolster commodity and product prices, and stay a course of soft money.

"In the next 50 years, Brazil, Russia, India and China will be a larger economy than the G-6. By 2050, only the U.S. and Japan will rank among the top six economies of the world," he said.
"The prospects for metals and mining are exceptional."

David Bond
March 9, 2004

David Bond covers gold and silver mining equities for a number of national and international publishers, including Platts Metals Week, a division of McGraw-Hill. He lives in Wallace, Idaho, heart of the planet's richest silver fields, the Coeur d'Alene Mining District. He is former editor of the Wallace Miner, and holds regional and national firsts in investigative journalism from the Atlantic City Press Club (National Headliner) and from the Society of Professional Journalists (SDX/SPJ) and has edited or written for newspapers on both coasts, Canada and Alaska.
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