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It's time to buy

Bob Moriarty
May 23, 2007

My very favorite chart is that comparing the XAU over gold.

In my view it gives the best measure of investor psychology concerning gold and the gold shares. Right now it is saying we are in the second best period in the last three years to be buying gold and gold shares. The price of gold has made a perfectly normal correction for over a month and I think the chart is saying it's time to buy.

And I just came back from the New York Gold Show a week ago. There was zero public participation, just the same old crew with an average age of 165 who consider themselves true gold bugs. There were far more sharks than fish.

That is about as good a measure of investor psychology as I know of. The public simply isn't interested in gold and it's going to take far higher prices for the metals to get them interested. That's a giant buy signal. Buy with both hands and back up the truck. The next major move in silver and gold is up. Buy when there is blood in the streets.

I will issue a proviso. The general stock market has been on a tear lately with the number of upside days beating all records going back to 1929. (Do you remember what happened in 1929?) I think we are due a massive market crash later this summer starting with a long term high about the first of July. When the markets crash, gold and gold stocks are going down as well. This is not to say you need to dump your gold stocks. Just be aware of what might happen and have a game plan.

Bush and the Gang of Fools in Washington, DC have pretty much destroyed the dollar and one day soon the rest of the world will notice. We are already in a recession and soon the market will reflect what is going on. The probability of a general stock market crash between July and October is exceptionally high.

Chaos in the Middle East is increasing with both Turkey and Pakistan on the verge of implosion. Iraq and Afghanistan have already imploded. We may have avoided a nuclear war with Iran by the blink of an eye. Even Bush now realizes he's damned if he does and damned if he doesn't. We probably came within a day of war but the President of Iran skunked both Blair and Bush with his timely release of the 15 British sailors.

If there was an area of the world where virtually every mining company has met with success lately, it would have to be Mexico. In one of the great success stories of this mining cycle, the parent company of Palmarejo was bought out for $1.1 billion by Coeur d'Alene earlier this month.

It was an absurd price paid by CDE but they were long on dollars and short on sense. Rather than actually find silver and gold, they figured they could just overpay. They did.

In any case, it was a giant victory for PJO shareholders. The company proved up 3 million ounces of gold in only three years for $6 million and were well on the way to production.

There is another story about a junior progressing in just as swift a manner. The company is called Arian Silver and I went to visit them in early April. We were there on the weekend of a Mexican festival and they do festivals right.

When you go fishing for whales, you want to drop your hook in whale country. Mexico is the world's largest silver producing country with about 94 million ounces produced yearly. Peñoles is the largest silver producer in the country with their Fresnillo mine in the state of Zacatecas producing some >40 million ounces yearly. Zacatecas state has been a major silver production region since about 1600.

Arian Silver President and CEO Jim Williams is pushing forward with an extremely aggressive program of resource definition and project acquisition. He claims to be aiming for a resource of 100 million ounces of silver but the targets he has selected makes it obvious he is aiming a lot higher than 100 million ounces.

Jim has 25 years experience as a geologist and half a dozen years with operations in Mexico. He picked the Zacatecas region for his core operations because that's where the silver is.

We visited two properties on my short visit, the Calicanto project and the San Jose property.

The Calicanto property was in production dating back to 1600. Historical records show average grades of 2.3 g/t gold, 110 g/t silver and 2% lead but the property went out of production in 1956 and has never been drilled before. Arian has identified at least four principal classic epithermal veins. In October of 2006, Arian started driving a decline to access the San Buenaventura, which is more or less perpendicular to the Calicanto structure. When 2,000 tons have been mined, Arian will lease a nearby processing facility at Fresnillo to test process the ore to determine the best and most effective means of milling. Early assay results show between 100 g/t all the way up to 4,000 g/t silver.

One spectacular assay showed 43.5 g/t gold and 2130 g/t silver over half a meter. Arian is working on a 43-101 resource calculation based on a Phase-1 16-hole drill program which was completed last month, a Phase-2 drill program will commence in late summer and the updated 43-101 is due out by year-end.

Arian Silver is paying $370,000 for the Calicanto project over two years and it carries a 3% NSR. Arian is gaining a 100% interest.

Arian's 4300 hectare property at San Jose covers a past producing mine with historical figures showing 35 million ounces of silver produced from 2.2 million tons of ore at an average grade of 257 g/t silver. The mine has over 4 km of strike length and has a primary vein up to 20 meters wide. Jim is targeting bulk underground LHD (Load-Haul-Dump) mechanized mining techniques and with a 20-meter wide ore body, mining costs would be tiny indeed.

There is a 3 km underground main haulage ramp in place, which should help fast track any near-term bulk mining, and three exposed vein systems. In May of 2007 Arian commenced a 5,000 meter surface diamond drill program to explore the San Jose vein system. Results will start coming out soon. I expect the drill results to give the shares a good boost. Arian has just completed a detailed remote sensing and photo geology survey, the former of which has indicated the presence of previously undiscovered structures. An IP study (Induced Polarization) to test the San Jose and the Dos Vetas vein systems is in progress.

Arian Silver picked up the San Jose mine in December of 2006 for a total of $1.5 million spread over three years. They will own 100% of the project with a 2% NSR which can be bought out for $1 million at any time. The mine came with a head frame and a 4,500 TPD hoist. The mine was in operation right up until 2001.

We didn't get a chance to visit the Tepal property some 170 km to the south of Guadalajara. It's a 14,000 hectare project which Arian has committed to paying $5 million for over a five year period to earn a 100% interest subject to a 2.5% NSR.

The project has been owned by Inco and Teck Resources in the past as well as Minera Hecla. There was a historical non 43-101 compliant resource of 79 million tons containing about 1.2 million ounces of gold and 432 million pounds of copper. Amazingly enough, the property was never systematically tested for silver. Arian is in the process of conducting a 3,000 meter drill program to bring the resource into 43-101 compliance. An additional 1,000 meters of exploration drilling is planned in this first phase aiming at eventually bringing an additional 120 million tons into the fold.

It's not easy to come up with a fair price for a junior exploring for silver in Mexico. Market caps range from $10 million to over $100 million and it's less of a science and more voodoo than anyone wants to admit. I place a high value on management. I have known Jim Williams for years and he is first class. Plus, it's pretty hard to screw up looking for silver in Mexico. Contrary to the perennial Silver bugs, there is no shortage of silver around. It just didn't make sense mining it at $6 an ounce. With $14 silver, the stuff is being sucked out of the ground and there have to be 20 silver juniors in Mexico, almost all have succeeded wildly.

There is the Frank Giustra factor. He and his crew at Endeavour Mining Capital are behind Arian. That doesn't guarantee success but it means Arian will always have access to capital. Overall, I'd have to rate Arian and Jim Williams in the top 10% of my favorite Mexico (or anywhere else) silver picks. Jim is taking a very aggressive approach to exploration and I would expect them to be planning hard for production by late 2008.

Jim has done a far better job of getting attention to his company than most juniors do and that's to his credit. Basically if a company is worth owning, it is worth promoting. If it isn't worth promoting, it isn't worth owning. The shares have excellent liquidity and trade on the AIM, TSX and OTCBB exchanges.

I think it's a buy and hold for news stock. $55 million market cap reflects the Giustra premium but it sure doesn't reflect the Jim Williams premium or the Mexico premium. Look for Jim to pull off another Palmarejo. I suspect shareholders will be sitting on a polymetallic company with 3-5 million ounces of gold or its equal in 2 years.

Arian Silver is an advertiser. We don't own any shares at present but I would be looking hard at a purchase below $.50. Over two years, the stock is a slam-dunk 10 bagger. Once the drill results start coming in, you are not going to buy this company cheap.

Arian Silver Corp
AGQ-V $.55 Canadian (May 22, 2007)
ASLRF-OTCBB 104 million shares
Arian Silver website

Bob Moriarty
President: 321gold

321gold Ltd