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Silver Standard Resources
A Perpetual Call on Silver

Bob Moriarty
Dec 10, 2001

I have heard it said that the easiest way to be successful in any endeavor is to copy the behavior of those who are already experts. If someone wanted to focus on investing to preserve wealth or better yet, to increase wealth, there are a few investors around who have the touch of gold. Or should I say silver because that's what legendary investors Warren Buffett, Bill Gates and George Soros have in common.

Three years ago, world-class investor Warren Buffett sunk over $500 million into 129 million ounces of silver, more than the Hunt Brothers ever owned. He kept his moves so quiet, he barely moved the price while amassing the largest above-ground hoard of silver known.

And what does Bill Gates, the richest man in history, drop his pocket change into? Silver stocks in the form of a direct investment in Pan American Silver [PAAS] to the tune of $10 million.

Not to be outdone, George Sores and his brother Paul own 26 percent of Apex Silver Mines [SIL] - with one project in the famed Potosi district of Peru holding 470 million ounces of silver in reserves.

What do you suppose they think is ahead for the price of silver?

No conspiracy exists to keep down the price of silver. And silver isn't especially needed as a war metal contrary to some popular silver bulls. Many metals are far more critical to our war needs. But there is a price where anything becomes a bargain and if silver isn't cheap now, I'd sure like to know when it will be.

On the retail level, silver got down to $4.00 on a spot basis recently . That's the cheapest in real terms in 5,000 years of recorded history. Are you waiting for it to get cheaper?

Robert Quartermain, President of Silver Standard Resources (SSRI on Nasdaq, SSO on the CDNX) waited patiently for silver to come down. He's buying silver at what he considers a real good price, $.025 an ounce. That's right, 2.5 cents per ounce of silver. It's in the ground and still must be dug up and milled but it can't possibly get much better. You don't really need a conspiracy to buy silver. You don't even need a war. The fact it is so cheap is a darned good reason to buy, all by itself.

Silver was lower in nominal terms 9 years ago when it dropped to $3.52 but when you consider inflation, it's lower today. I don't have any problem saying any silver stock today represents excellent value.

Investors tend to look at silver and gold as simple alternatives to each other. But the dynamics cannot be more different. I've read that 80 percent of all the gold ever produced exists today, we tend to hoard gold as a store of VALUE as indeed we should. So when some talking head talks about a deficit of production, the difference between demand and supply, they are really disassembling. We have a 52-year supply of gold above ground. It wouldn't make very much difference to price if every gold mine in the world either went out of business or doubled production. There is a lot of gold around.

Silver is another story. Most of the easily-accessible above-ground stores of silver have been consumed over the last 50 years. At the beginning of WWII, the US alone maintained a strategic stockpile containing about 25 ounces per man, woman, and child in America. Indeed, silver was so common and nickel was needed for the war effort, so the government replaced the nickel in our five cent coins with a mixture of manganese, copper and 35 percent silver during the war. The silver stockpile is all gone now, we consume silver, unlike gold.

And unlike gold, few miners produce silver as a primary metal. Most silver is produced as a byproduct of gold, copper, nickel and zinc mining. And when prices for the metals remain low as they do today, little silver is produced.

I came across some interesting numbers recently. All the gold mutual funds in the world only add up to about 1.97 billion dollars while the total invested in mutual funds is about 3 trillion dollars, some 1,500 times greater. Another 2 trillion dollars is in money market funds. Essentially it means for every $1 in a gold fund, there are $2499 dollars not invested in gold funds which could be. Is there a bright future for gold? I'd say so. Put another way, of every $100 in mutual funds and money market funds, a mere 4¢ is invested in gold. And silver, far less. Four cents out of every $100 in precious metals, that's remarkable. We've got a fairly good handle on the amount invested in gold, but silver is so out of favor we don't even know.

Demand for silver remains high. Is is so great that demand remains fairly constant no matter what the price is. Economists call such demand inelastic.

In 1993, the management of Silver Standard Resources made a strategic decision to concentrate on the acquisition of silver projects based on their assessment that (1) the price of silver is cyclical and (2) the constant imbalance between supply and demand for silver would eventually cause the price of silver to rocket.

And strangely enough, even though the price of silver has essentially been a disaster for the last 8 years, going from $3.50 in 1993 to about $6.80 in 1998 before tumbling to $4 recently, the price of silver properties declined even more. Silver Standard Resources has picked up some properties for as little as 2¢ per ounce of resources.

Naturally it will take a sustained rise in the price of silver to confirm the wisdom of the decisions made in 1993 but for owners of SSRI shares, they have purchased a perpetual, low cost option on the price of silver, a metal which has maintained a supply deficit for 11 years. At a recent price of about $2 per share, the owner has an unexpiring call on about 12 ounces of silver. SSRI holds positions in mines adding up to about 414 million ounces of silver while there are about 35 million shares on a fully diluted basis. With a daily trading volume of above 100,000 shares, SSRI has the liquidity to both get in and out of a position. We highly recommend the shares of SSRI for those who believe the price of silver is due for a serious advance. Which includes us.

Dec 10, 2001
Robert Moriarty

Neither the author nor 321Gold will make any purchase or sale of Silver Standard Resources for 30 days before or following release of this piece. We have not been compensated for writing this piece and any opinion expressed is our own.

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