Buying Gold to get Silver
Someone wrote to me a few weeks back and asked me the most simple of questions yet I was totally baffled. He wanted to know the name of a good silver stock. That's the kind of thing you might expect me to have right at hand but I thought and thought and couldn't come up with an answer.
Would you like a nice iron stock? You could go with Palladon (PLL.V) that has a lot of iron and may even do something with it some day. Iron just rose 65% in price; you would think you could make money there. Or you might like Quinto (QU.V.) They have hundreds of millions of tons in Quebec, near rail and port facilities. They should be valued at $2 a ton in the ground that would give them a billion dollar+ market cap but are valued at maybe $60 million. Even good old Cardero (CDU) may spring to life when they complete a scoping study on their almost-billion ton deposit at Pampa de Pongo.
Silver-lead-zinc companies I have by the bushel load. Trevali (ZINC-CNQ) is going into production at a 1000 TPD rate in six months. They have a 1,000-man facility high in the Andes and are coming up with blistering grades. [pdf]
SNS Silver (SNS.V) drilled 13,000 meters at their Crescent Mine in the Silver valley last year and they are following up this year with a 33,000-meter underground program defining high-grade silver-lead-zinc. Even Arian Silver (AGQ.V) should be announcing something [pdf] like a 150 million ounce silver equivalent resource by summer. With 40 something million shares outstanding, they could triple easily. But it's silver-lead-zinc.
Gold? There are a zillion gold companies out there. Take your pick, in production or about to go into production.
I love Pediment, (PEZ.V) they have boatloads of gold in the Baja and recently purchased an existing mill and mine near Sonora. Starcore (SAM) has been operating way under the radarscope but they are in production in Mexico now and getting not a bit of respect for it. ATW (ATW.V) bought a mine and 450 TPD mill in Australia that they plan to have in production shortly. Erin Ventures (EV.V) is in actual placer gold production in Belize but they work very hard to make sure no one understands it.
Want to go big time mining in copper-gold porphyries? I even have a few of them. I first wrote about Southern Arc (SA.V) in April of last year. They have a giant-in-potential copper-gold porphyry in Indonesia. I'm not all that happy with the pace of drilling, they have averaged about one hole a month. but it's going to be a big project.
I am just back from two weeks in China and the Philippines. On Mindanao Island in the Philippines, I saw monster copper-gold porphyry owned by Cadan Resources (CNF.V.)
But I don't think I have had a pure silver play since I wrote about Silver Standard at $1.25 US in December of 2001 when silver hit bottom at $4. I liked Silver Standard then because they were buying silver at $.025 an ounce, they were a perpetual call on silver. Those who took heed of what I said have done well; SSRI is now north of $35 a share.
If you like silver, I've got something a lot better now. When SSRI [Silver Standard] was buying silver at $.025 an ounce in the ground, silver was selling for $4. Silver is now 400% higher. I just visited a company who has been finding silver at a cost of about $.07 an ounce, cheaper in relative terms than SSRI was doing six years ago.
The company is called Minco Silver (MSV) and it was spun off from Minco Gold (MMM) in December of 2005. Every share represents ownership of 4.5 ounces of silver. Minco Silver has reported a 43-101 resource of 142.9 million ounces of silver. And it's a pure silver play.
I spent a couple of days there recently as the guest of the brilliant Dwayne Melrose, VP of Exploration for Minco Silver. I say brilliant because he and his team have done a superb job of lifting the fortunes and visibility of Minco Silver.
Readers may be more familiar with Minco Chairman and CEO Dr Ken Cai. Dr Cai started Minco Gold in 1996. He is a Chinese National, which obviously helps when dealing with Chinese properties, with a PHD in Mineral Economics from Queens University in Ontario, which helps when dealing with other Canadian mining companies.
Dr Cai has done an incredible job of advancing Minco under both iterations. If anything, he did too well, the companies and projects advanced but he failed to attract retail investors. So while Minco Silver has over a 65% insider and institutional ownership, the retail side has been pretty much ignored and the company is way undervalued for what we know they have.
We know they have 142.9 million high quality 43-101 ounces at the Fuwan project located some 45 km southwest of China's 4th largest city, Guangzhou. The silver mineralization is shallow, flat lying and strata bound. Minco Silver has located six different silver zones with total strike length of 2,800 meters, still open to the south and southwest.
Fuwan is a world-class silver deposit with enormous potential for expansion. The land package consists of over 200 square km and less than 2% has been drilled to date. Minco is in Phase VI drilling with the intention of drilling 49 holes with a total of about 13,000 meters. This drilling consists of primarily step-out holes to expand the deposit.
Back of the envelope calculations show underground mining and milling costs of about $29 a ton with a cost of production per ounce of about $3.50. ($2.40 per ounce after by-product credits). Minco Silver has a target production rate of 2,500 tpd with a 12-year mine life and annual silver production of just less than 5 million ounces per year. Preliminary testing shows recoveries of about 97% for silver and 77% for gold using flotation and standard reagents.
The project has so much potential for expansion that it would be best to let them get a better idea of the potential before discussing mining plans. I think at the end of the day they will be doing a lot more than 2,500 tpd. In any case, Minco Silver will probably be China's largest pure silver play and may well be one of the world's swing producers of silver.
Being too successful at exploration in China can bring its own problems. Any mining company, no matter how well connected is pretty much at the mercy of the local authorities. The rules are what they make them. While Minco Silver owns 100% of the project, they have a 10% profit sharing agreement with the state-owned exploration company GGEDC. That agreement is evenly balanced enough that the state has all the reason in the world to want to see Minco Silver succeed. And that's a good thing in China.
I was especially impressed with Dwayne Melrose and his team. Dwayne was the exploration manager of the Kumtor Gold Mine in the Kyrgyz Republic. Kumtor produces plus 350,000 to 600,000 ounces of gold a year and Dwayne's position was one of those highlights-of-a-career jobs. For him to make the move over to Minco speaks volumes about what he thinks about the potential in China. Even better he brought over a key member of his staff and when they went to work, they hit the ground running.
I am not a pure silver bug. There is no shortage of silver and it's not the most manipulated commodity on earth. $20 silver is going to suck silver out of the ground. Actually silver and gold haven't performed nearly as well as far less interesting metals such as lead and zinc. But the world's financial system is collapsing as I write and only about 50 people in the world get it. At the end of the day, all currencies are going to collapse as the banking system shuts down worldwide. We are going to need a solution and the only solution is real money.
In a gold backed system, the metal most in demand will be silver. You can't pay for a tank of gas with a Double Eagle or Maple Leaf (because of their high value). When that happens, silver will regain its real value as a monetary metal. At a lot higher price. We aren't going to a gold system because anyone thinks its some kind of great idea. The Powers that Be will be fighting it with all their power. We are going to a gold based system because there simply is no other choice.
Strangely enough, a really good way to buy Minco Silver is to buy Minco Gold. MMM owns 13 million shares of MSV. With MSV selling for $3.80, MMM has a $49.4 million dollar share of Minco Silver but has a market cap of only $48 million. You can buy Minco Silver cheaper by buying Minco Gold and you get all the gold assets for free. That's a good deal by any standard.
Minco Silver is an advertiser. Minco Gold is not. I am not compensated in any way for writing this article but I am biased. Minco has made great progress before Dwayne Melrose came along but I think he is the catalyst that will really move both companies forward.
Minco Silver is an easy double or triple from today's prices and represents a pure bet on the price of silver. If you like silver, you have to love Minco Silver.
Mar 6, 2008