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Unlimited Power

Bob Moriarty

Oct 5, 2011

I’m not a big believer in Unlimited Power. Everybody wants to believe Geithner can somehow control the banking system; the EU can keep kicking the can down the road; somehow Greece isn’t really going to collapse financially and some nefarious group hammers gold and silver on a regular basis.

Count me out. You see, I’ve been to war. I went to Vietnam as a 21 year old Lieutenant and came back as a 23 year-old Captain in the Marines. I was there for 21 months. You will never be able to convince me governments are powerful.

I’ve seen flights of B-52s carrying 117 750-pound bombs apiece in groups of three and flights of nine and flocks of twenty-seven planes. When the first plane started dropping bombs, they tumbled down on the jungle for five minutes until the last of twenty-seven finished. That would wake your ass up. We could feel it from ten miles away.

We had F-4s, they had RPGs. We used flocks of 27 B-52s to attack guys on the ground in a jungle carrying a bolt action SKS or AK-47 in one hand and a ball of rice in the other. In 125 missions in the F-4B and 700 in the O-1 Birddog, I never hit a solid target bigger than an outhouse.

All I bombed was a bunch of trees over holes in the ground called bunkers. We would drop twenty 500-pound bombs that did nothing but make holes in the ground to destroy holes in the ground. We would give a BDA (Battle Damage Assessment) for five bunkers destroyed when what we really did is create twenty holes in the ground. Put a couple of trees over it and it was again a bunker, just more of them.

We had all the force of the most powerful armed force in the world. Yet, we lost. Don’t even try to convince me governments are all powerful. They do a wonderful job of destruction and a poor job of creation.

I hear the term “manipulation” on a daily basis even though I’ve challenged ever person who has used it with me to show me a single instance where you could make a profit by even a single trade. After all, a belief in manipulation doesn’t create either a buy signal or a sell signal. Who cares?

I believe in the power of market forces and that’s why gold is up 4500% since 1970 and silver is up some 1500% during the same time frame. If manipulation is important, it certainly doesn’t show up in price unless you mean it’s been manipulated higher.

Governments destroy wealth. Governments destroy jobs. The MSM harps on a constant basis about how the government needs to create more jobs. Every time I wonder what part of the Declaration of Independence or Gettysburg Address contain anything about job creation? After all, we know neither the Bill of Rights nor the Constitution contains a single word about the government being responsible for the creation of jobs.

We are in the wealth creation business and we are in the jobs creation business. I was reminded of that fact recently when I visited Fortuna Silver for the third time in six years. I first wrote about Fortuna Silver when they were a tiny $25 million dollar market cap company selling for $1.04 a share. I saw potential and I was right. The stock climbed up to about $4 a share in late 2007.

I wrote about them again in March of 2009. Everyone got hammered during late 2008 during the bloodbath of the global financial crisis, just as they are right now. But Fortuna Silver was preparing to put a mine into production in San Jose, Oaxaca, Mexico. I thought it was a good move and I thought the stock was cheap. It was. The stock went from $.86 to over $7 a share in 2.5 years.

I just got back from another visit there and while I was impressed with the technical success of the project, it took the smile of a pretty girl to remind me why we are in the mining business.

First of all, the boring stuff. Fortuna Silver is in production of silver, lead and zinc in Peru and have been since 2006. They are and have been profitable and used the profits to explore and buy the San Jose mine in Oaxaca Mexico.

San Jose has a 43-101 resource of 37.6 million ounces Ag Eq at San Jose. I was down for the commissioning of the mine in the middle of September. Officially the mine opened the 1st of September. The mill is operating at 1000 tpd with plans of increase it to 1500 tpd as they open faces and work out the kinks in the system. It’s quite a remarkable achievement since they only began construction a short year ago.

After I visited them in 2009 the company has issues with the locals over where the water would come from to operate the mine and mill. Fortuna Silver took one of the most brilliant steps I have seen a mining company take. They located a local sewage treatment plant some eleven km north of the mine site that was in disrepair. Literally, the waste flowed in and the waste flowed out. When the wind was from the right direction, the neighbors could enjoy the essence of used tortillas. That makes the sewage treatment plant very unpopular.

There are always NGO and local groups who are against mining for a variety of reasons, some even valid. Fortuna Silver looked at the problem of lack of local support because of the water issue and a smelly sewage treatment plants and made a solution out of two problems.

Fortuna Silver approached the local Municipality of Ocotlan de Morelos (sorta rolls off your tongue) and offered to rebuild the plant and put it back into operation and operate it for the next 15 years in exchange for the use of the residual water. They pump the water from the sewage treatment plant to the mine site and store it until the dry season when they may need it.

The neighbors of the now working sewage treatment plant love the solution, they don’t have to walk around with clothes pins on their noses and more. And those squawking about the mine hogging all the water have nothing to complain about. Fortuna Silver is using water that literally would go to waste.

The San Jose mine is processing ore containing almost ten ounces of silver and over two grams of gold. It’s a flotation circuit and they ship the cons even as they think about building a concentrate processing plant nearby down the road. I’ve never seen any other mill that was constructed during such a short period and pressed right into major production. Fortuna Silver President and CEO Jorge Ganoza has done an incredible job of creating wealth for Fortuna Silver shareholders.

Now on to a subject near and dear to my heart. And that would be the subject of pretty girls with a smile on their face and a song in their heart.

Picture this. I’m doing a tour of the San Jose mine and mill. It’s a mine and mill and sooner or later, no matter how fluid the words flow from a writer, it’s a mine and mill at the end of the day no matter how brilliant the management. If you have seen 400, you have seen it all. Almost.

A smile from a pretty girl always lightens up a visit. We have visited the underground and beaten up some rocks. We have looked at the sewage treatment plant that actually doesn’t smell at all. We have studied the drill core until even Ted got bored. Then we tour the mill.

The ball mill is giant. It has to be close to the biggest I’ve ever seen. But it’s a ball mill at the end of the day. So we walk around the plant and it’s pretty cool. Three people run the entire place. That’s right; three people operate a 1000 tpd plant. That’s really cool. We go up into the control room where one person controls every valve and pipe and device in the place with an IBM PC and three monitors.

And then a pretty girl smiles at me. My heart is beating in my chest like a hummingbird in a cage. It always happens.

I ask our guide, “Wait a minute. How old is she?” The answer was 21. Miss Felipa Sanchez Vasquez is 21. She is from the village of San Jose, right next to the plant. She is one of three operators of the plant. I’m gob smacked.

Fortuna Silver went to San Jose, listed the jobs they had coming up and offered to train anyone who was interested. But these were not feel-good, make-work government type jobs. These were real wealth creation work your butt off and succeed type jobs. Miss Vasquez was hired, trained 100% by the company and paid an adult professional wage.

Now take a SWAG (Stupid Wild Assed Guess) as to how high her status is in the village. I’d bet her dance card is signed for the next ten years.

I couldn’t operate that mill. They only started building it a year ago. It took me 18 months to learn how to fly; I doubt I’m capable of doing what that pretty little girl does with less than a year training from scratch.

Lots of companies talk about what they are doing for the neighborhood. Fortuna Silver not only talks the talk, they walk the walk. I was more impressed with the good sense of management of Fortuna Silver than any company I have seen in a long long time.

I was and am very proud to have made a slight contribution to a company with the kind of vision and leadership as they have displayed. Fortuna Silver has made themselves part of the San Jose family and that’s nothing short of brilliant. I’m proud to be part of that family as I’m certain Felipa is.

Fortuna Silver is coming back to us as an advertiser and we are highly biased. They announced a listing on the NYSE the day we were there and the stock rocketed higher. Along with most other silver stocks, they have been hammered lower, the stock is down 33% in ten trading days. If you are a silver bug, you have to love Fortuna Silver. They have a tremendous cost advantage over their lower grade competitors and can make money if silver dropped 50% from here. After a 33% drop they are pretty cheap.

Investors are reminded that we share neither their profits nor their losses and they alone bear responsibility for their investment decisions.

Fortuna Silver Mines, Inc
FVI-T $4.83 (Oct 4, 2011)
FSM-NYSE 123.5 million shares
Fortuna Silver Mines website


Bob Moriarty
President: 321gold

321gold Ltd

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