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As the Euro Turns

Bob Moriarty
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Sep 1, 2011

There are times I wonder about the sanity of our government officials. Most of the time I don't wonder at all. The latest fiasco out of the Obama administration is a SWAT team fully equipped with submachine guns and body armor raid on Gibson Guitars.

One presumes that since Gibson still hires highly-skilled labor and pays them well, that this administration wanted to stamp out the last bastion of well-paid labor in manufacturing in the US. It couldn't possibly be because they want to enforce the law because this is the same Justice Department (sic) that thought the most wonderful idea in the world was to supply 2000 illegal weapons to the drug cartels in Mexico.

It was a great idea, one that passed muster all the way to the oval office and Attorney General. Once the program blew up and Congress got involved, some low level staffers got horizontal moves to mythical positions so they could collect points until they can retire. You don't hear Holder or Obama taking any credit for what they approved.

For those who feel no sympathy for Gibson; the evildoer; violator of international law, actually the law makes the transfer of any guitar pretty much illegal if it crosses a state line. You, too, can become a felon, just by selling a guitar.

Perhaps Germany has more sane people in power. A German Constitutional Court rules on September 7th as to the legality of the bailout action to date. It's all quite illegal with the EU taking on powers forbidden it. If the court rules against the bailout, the Euro is dead as far as Greece is concerned. Greece may drag down the rest of the deadbeats. If the Court allows an increase in power to Merkel, a further vote by the Bundestag on September 23rd creates another minefield for the EU and Euro. [possible delay until September 29th.]

Europe's problem is simple. Certain countries spend far more than they take in taxes. They owe more than they can possibly pay. For Americans, this may sound familiar. The solution is pretty simple, far too simple for anyone in government to understand. Write off the bad debts and spend less. I look forward to an America with much less government. And perhaps someday owning a guitar that you don't become a felon by carrying across a state line.

I remain convinced we are due a liquidity event this fall, anytime between now and the end of October. Greece has effectively defaulted and the rest of the PII(G)S are not far behind. An unfavorable decision by the German Constitutional Court in a week could well kill the Euro and start a cascading default of $600 trillion in derivatives. Hell, it's going to happen anyway, let's get it on as our beloved Ex-Presidente once said.

The junior mining sector has been a rotten place to be since May. Now and again a stock wakes up for a few hours and trades by appointment. But after the Labor Day holiday the brokers will be back at their desks, Bernanke will be contemplating QE V and soon we will be off to the races. The shares have held back this year, declining while both silver and gold rocketed higher. Soon shares will have their day. Relative to the price of gold, shares are cheaper today by far than they were at the bottom in 2001. I still feel a correction would be healthy in both gold and silver but the metals could go down as the shares go up.

Murmurs of discontent from sovereign governments are getting louder and louder. Bolivia and Ecuador did their best to destroy foreign investment in mining in their countries. Peru just shafted Bear Creek Mining. It happens in every mining boom.

Just as long as a company is guaranteed to lose money, every country in the world welcomes them and their wallets with open hands. But when a commodity actually goes up and it looks like the company might make some money, sovereign governments start trying to figure out to take all the profit. Even Australia isn't immune. Greed is international.

The issue of jurisdiction becomes increasingly more important as a mining boom ages and this one is in its tenth year. Everything in mining is somewhat subjective and my choices are how I would invest, other writers might well see differently.

My favorite jurisdiction is Canada. It is exactly like the US except the women wear big round glasses and say, "eh" a lot. And the politicians are sane. I can't explain that, they are all insane on this side of the border and sane on the other side. It may be the water.

The 2nd best jurisdiction would have to be Nevada and I do not consider Nevada to be part of the same US as California and Oregon. Anyone connected to mining in California and Oregon suffers from too much stray marijuana smoke. California, motto; "The Golden State" has outlawed open pit mining unless you recontour the land when you are finished. Huh? Are they nuts? Gold made the state, there is still a bunch of it around and the idiots in government are determined to kill all mining in the state. Oregon goes without saying. They don't have a clue; way too much whacky weed smoke in that state.

Nevada actually understands and appreciates mining. If Nevada was considered a jurisdiction by itself on its own merits, it would be the 7th biggest producer of gold in the world. There is a lot of gold left in Nevada and you can mine it.

I went to see a new gold junior about six weeks ago named Meadow Bay Gold. (MAY-V) I should have written about them sooner but they were in the midst of tying up some really prospective ground to the north of the existing Atlanta gold mine and mill. That's right, they have a mine and mill. Sort of.

Meadow Bay bought the Atlanta Gold Mine through the purchase of a private company named Desert Hawk for 7.5 million shares in March. As part of the deal, Meadow Bay exercised an option held by Desert Hawk to purchase the formerly producing Atlanta Gold Mine for $5 million. They also picked up what is called the Colorback gold project and the Spruce Mountain moly, copper and silver project.

The Atlanta Mine was in production from 1975 until 1985. It produced 121,000 ounces of gold and 800,000 ounces of silver during that ten-year period. There is a history only resource of about 460,000 ounces of gold and 3.8 million ounces of silver. One of the first objectives of the new management is to bring the historic resource into 43-101 compliance.

I said, sort of, for the mill because it's a sort of mill. I normally am the first guy to suggest management get into production especially with $1800 gold and $41 silver but that mill belongs in a museum, it's so old. It was old when it was brought to the site in 1975. It's ancient now and any attempt to repair it will turn into a money sink.

The historic resource was based on a much lower price for silver and gold. I suspect that with the drilling going on and a new 43-101 resource, it will be easy to come up with a 1 million ounce gold equivalent. At today's price of MAY shares, you are buying an ounce of gold for $37.53 in one of the most mining friendly environments in the world.

I bought some shares as soon as I saw the story. The company is ok on cash with about $4 million in the till. They are drilling and the first results came out recently. They were pretty outstanding with 18.29 meters of over 2-g/t material.

These guys know exactly what they are doing. It's not going to turn into a 10 million ounce deposit, nor should you expect 2 opt results. But it was permitted, there is a lot of local support from the county and nearby community and with a million ounces in a 43-101 resource in Nevada, they will be a takeover candidate at a far higher price.

I bought shares as soon as I saw the project, the company is an advertiser and I do have a vested interest. It is located in about as mining friendly environment as exists in North America. The management understands what they are doing and all their objectives are obtainable.

Meadow Bay is an excellent call on both silver and gold. When shares awake, MAY is going to be a leader higher. The company has an excellent PR program and is very approachable. I remind all readers that they are responsible for their own due diligence.

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Meadow Bay Gold
MAY-V $.96 (Aug 31, 2011)
MAYGF-PK 39.1 million shares
Meadow Bay website

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Bob Moriarty
President: 321gold
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