Pennaluna Prospector™
Month-of-Sundays Edition

Tom Wobker
Jun 27, 2011

Northwest Mining Stock News -- Coeur d' Alene, Idaho -- June 24, 2011

[A note to readers: Can you believe it? Terrific metals prices and important developments -- yet it's been forever since we gave you a report on Silver Valley mining news.

That's because securities firms like ours are buried under an avalanche of government red tape from the Patriot Act, Bank Secrecy Act, Sarbanes-Oxley Act, Dodd-Frank Act, and other decrees. We've been working like crazy to dig our way out.

Fortunately, we've lured Luke O'Dowd to our staff. He's a local lad, onetime North Idaho College hoopster, and lawyer with a high pain threshold. With Luke here to help us shovel, we aim to get the Pennaluna Prospector out to you more often.]

Silver Valley Mining Update - Part I

Things are different in North Idaho's Silver Valley since the Wall Street Crash of 2008.

Some changes were dramatic and maybe you saw them in the headlines -- like the damage to mining stocks from the market collapse; settlement of the Valley's last major Superfund claim after 15 years of litigation; the steady climb in metals prices; and the current disconnect between those prices and mining stock performance.

Other important developments were not as striking and probably didn't make the front page. For instance, you may not know that:

• Hecla Mining is running full tilt at the Lucky Friday Mine and spending $200 million to expand the operation
• U.S. Silver has the Galena producing over 2 million ounces of silver a year
• Silver Opportunity Partners (Thomas Kaplan) has invested over $ 24 million to revive the Sunshine Mine
• United Silver Corporation is getting the rich old Crescent ready to operate again in Q1
• New Jersey Mining is pushing to take gold once more from the Golden Chest in the historic gold rush/gold belt area near Murray

To bring you up to speed on these changes, we'll look at Silver Valley mining from 10,000 feet... with an eye mainly on mines now in production or nearing it. This report is lengthy, so we'll split it up to run in multiple issues.

Today we'll cover:

1. Silver Valley mineral riches click
2. Old guard and new players click
3. Sunshine Mine (Silver Opportunity Partners and Thomas Kaplan) click
4. Crescent Mine (United Silver) click
5. Plus, why paper stock certificates are vanishing click

In the next couple issues we'll review the Galena Mine, Coeur Mine, Caladay Project (U.S. Silver) the Golden Chest Mine (New Jersey Mining and Marathon Gold) the Lucky Friday Mine (Hecla Mining Company) Bunker Hill Mine (New Bunker Hill Mine Company) plus, notes on the District's gold belt and other subjects.

Now let's see what's been going on around here.

1. Idaho's Silver Valley: mineral riches, no Hugo Chavez

First, recall why miners, geologists and investors care about this region in the first place and that's the magnificent mineralization.

Though the formal name is the Coeur d'Alene Mining District, most folks just call it the Silver Valley. And for good reason.

The combined production of all the mines of Nevada's famous Comstock Lode was under 200 million ounces of silver. Idaho's Silver Valley has already produced six times that much - in fact the Sunshine Mine by itself almost doubles it.

Since the 1880's, mines around this 40-mile treasure trove have produced enormous wealth: more than 1.2 billion ounces of silver plus 8.4 million tons of lead 3.3 million tons of zinc and gold, copper, antimony and cadmium.

Miners say the best place to look for a new mine is next door to an old mine. That's clearly been true here.

The Valley claims to be the richest primary silver mining region on earth. The three most prolific silver mines in U.S. history are here, and the area produces nearly as much silver as all the rest of the country combined. Historical output rivals Mexico's top districts and Bolivia's Potosi.

In addition, there's a key factor people often overlook about mining in the United States, and it applies to the Valley.

It's this. Costs may be cheaper elsewhere in the world but here, on the other hand, you can own, develop and operate a mine with reasonable confidence it will remain yours.

Yes, there are problems in this country. Government regulation is costly and convoluted. D.C. busy bodies meddle in business and personal life. The ruling class is often arrogant, scheming, and wily rather than wise.

Still, so far the rule of law remains at least generally in effect -- compared to a spot like, say, Venezuela, where your mine might be nationalized with a snap of El Presidente's fingers.

Much more ore still waiting?

Vast amounts of ore have shipped from the Silver Valley over the past 120 years. And many experts believe there's a lot more waiting in the rock beneath the pine and tamarack.

Earl Bennett is Dean Emeritus of the University of Idaho College of Mines, and former Director of the Idaho Geological Survey. He put it this way in a 2005 interview about the Silver Valley:

"I'm like all the other geologists that have worked in this area. We all think there's much more there than has been mined so far."

Then he added:

"So from that end, we think the silver elephant still sits in these hills out here. Now, whether it will ever be mined or not, I don't know, and that gets into the whole end of the economics of silver and base metals, the lead and zinc."

Buoyant prices for precious and industrial metals make the economics look even better now than when the Dean spoke six years ago. And the silver elephant he mentioned hasn't walked away in the meantime.

Silver Valley veins run deep and rich.

It's worth noting that ore bodies at Valley mines tend to run deep, narrow and high grade. Often they're productive for a long time.

Hecla Mining Company (NYSE:HL) has worked in the District since around 1890. It knows something about the geology here.

An annual report explains things this way:

"Once identified, the vein deposits in the Silver Valley are known to have good vertical continuity, and thus can contain large reserves and resources of silver."

Steve Petroni, Hecla's exploration manager, puts it more colorfully:

"those ore bodies are very long and narrow, and they're almost like exploring for sheets of paper."

In the past, when Valley miners found one of these rich deposits they simply followed it deeper and deeper wherever it went, like a hound on a rabbit trail. They were too busy digging up rich ore today to worry much about theoretical reserves for tomorrow. Exploration was not a high priority -- but it's becoming one now.

As new 21st Century technologies for exploration, extraction, and refining are applied to the Valley's geologic quirks, the odds shift further in favor of the miner.

2. Old guard leaves, new players arrive

One major change since the Crash is the passing of some of the influential old guard of the Coeur d'Alene Mining District.

Gone are Harry Magnuson, legendary mining magnate, business wizard and lover of all things Wallace; Bob Hopper, owner of the fabled Bunker Hill Mine and tireless advocate for mining; and Forrest Godde, savvy resource investor, rancher, and long-time Pennaluna director and friend.

Gone too, in a supernova of bankruptcy, is Sterling Mining Company, a star that once burned bright. Also fading into the past are the 1982 Superfund designation and 15 years of litigation that's now settled with the big miners. And slumbering again are the micro-cap old timers - some many decades old - that stirred before the Crash because they own well-placed properties.

People and companies come and go. But the mountains and their minerals remain. So even as old players exited the Silver Valley stage, new ones were entering. $30 silver is a powerful attractant.

One of the intriguing new players is Silver Opportunity Partners LLC. After Sterling went bust in 2009, this private outfit spent $24 million to outbid other hopefuls and grab the storied Sunshine Mine. It will need to lay out millions more to get the historic honey pot at Big Creek back into operation.

3. Sunshine Mine: over 360 million silver ounces

The Sunshine Mine is one of the richest silver mines on earth, producing over 360 million ounces since the Blake brothers staked the ground back in the 1880's. As we've noted, that's nearly double the silver produced by all the Comstock mines combined.

A 43-101 report by Behre Dolbear & Company four years ago estimated the measured and indicated resources at over 31 million ounces of silver, with another 230 million ounces inferred. There could be a lot more too, since there's been little exploration using modern technologies.

[Ed. Note: The Sunshine is a rich mine, but a deadly one also. 91 miners died there in 1972 in one of the nation's worst mine accidents. Gregg Olson's bestseller "The Deep Dark" describes the disaster.]

The Sunshine closed in 2001. Sterling later bought it and then went broke pushing to get it back in service. With climbing silver prices, Silver Opportunity Partners now is working to reopen the mine. It has at least one very large advantage in this effort: deep pockets. Sterling's were empty.

Silver Opportunity Partners - money, brains, tight lips.

Silver Opportunity Partners is owned by Electrum Group of Companies of New York City. This global investor in gold, silver and platinum mines is controlled by Thomas Kaplan, a Forbe's List billionaire.

Kaplan's not your garden-variety billionaire. He's a multi-talented investor, philanthropist, and art collector who holds a PhD and two other degrees from Oxford (yes, that Oxford). He reportedly admires the investment thought of precious metals fans John Paulson and Marc Faber and he founded Apex Silver Mines, among other ventures.

There's a Business Week article on him here:
www.msnbc.msn.com/id/38883209/ns/business-bloomberg_businessweek

Silver Opportunity Partners keeps a low profile in the Valley, with little fanfare and scant public comment on specific goals, time frames or progress. As a private company, it's allowed to stay mum. But we hear through the grapevine that it's moving ahead with plans to explore and reopen the Sunshine and studying related environmental and economic factors.

Some folks think the understated, focused and well-capitalized outfit is already having a positive impact on the economic personality of Silver Valley mining.

4. Crescent Mine -- new JV at high-grade historical producer

Next door to the Sunshine, the Crescent Mine is also being revived. Starting in 1917, Bunker Hill Mining ran the Crescent for over six decades. During that time, the mine produced around 25 million ounces of silver at average reported grades above 27 opt said to be highest in the District. The Crescent sits between two other silver heavyweights: the Sunshine (360 million ounces) and the Bunker Hill (161 million ounces). They butt up against each other like three fat guys in a pick up truck. All told, the trio has delivered well over 500 million ounces of silver.

About 18 months ago, United Silver Corporation (TZX:USC) -- then called United Mining Group -- inked an earn-in joint venture agreement with Crescent owner Gold Finder Explorations (TSXV:GFN). Goldfinder is the renamed and reorganized successor to SNS Precious Metals, which acquired the mine several years back.

United Silver grew up in the Valley and performed contract mining services at the Crescent before the JV deal was struck. Thus it's familiar with the mine.

After the deal, USC spent aggressively on rehabilitation, exploration and construction and quickly earned its 80% mine ownership.

USC says as operator it will spend about $ 3 million a month to develop the Crescent. It plans commercial production in first quarter 2012.

United Silver has the benefit of expertise and cash flow from its Kellogg-based Mine Services Division (contract mining, construction, fabrication and machine services). Division revenue last year topped $10 million, with gross profit above $ 1.6 million.

[The rest of this Update will run in future issues of the Pennaluna Prospector]

5. Why paper certificates are vanishingand their cost is rising

Let's say you want your stock issued as a paper certificate and sent out to you.

At most brokers these days, this will set you back a couple of hundred bucks or more. If you decide to sell the stock later, it will likely cost you another hundred or so to redeposit the paper cert -- if the broker will accept it.

Why? Because Wall Street wants to wipe out paper stock certificates. It's working to end them through a process it calls "dematerialization" a move designed to boost clearing and settlement efficiency and to cut costs.

This was triggered by a paperwork crisis in the late 1960s. Growing trade volumes flooded brokers with great waves of paper certificates and payment checks for millions of individual trades. Snafus, errors, expense, and loss ensued. At times the exchanges closed on Wednesdays so back offices could process backlogs. Many firms sold out or went under.

At one point, processing paper certificates cost the U.S. securities industry an estimated
$ 250 million a year. But computerization offered a fix.

Depository Trust Company and National Securities Clearing Corporation were created in the 70's to use new technology to solve the market's problems of clearing, settlement and information services. Later, the Depository Trust & Clearing Corporation (DTCC) was formed as a holding company for these and related subsidiaries.

DTCC says dematerialization cuts the risk of lost or stolen paper certificates, and saves money on clerical processing, insuring, special handling and shipping. (Other reduced costs include vaults, special custody procedures, audits, and surety bonds.)

Paper certs fast disappearing.

While DTCC can't yet claim "mission accomplished", the program is getting closer to its objective.

Latest data show the number of transferable paper certs in DTC custody has plunged. There were over 32 million in 1990 but under a million now. And a growing number of companies issue shares solely in electronic form.

Meantime, non-transferable paper certificates -- dead company, no transfer agent, or otherwise worthless -- are methodically shredded. DTC says the number it holds fell from 1.4 million in 2004 to 450,000 in January.

Because of dematerialization, paper certificates now must be processed outside the normal electronic clearing and settlement system. This is more complicated, entails more labor and incurs added costs. Ergo, higher fees.

It's safe to say not everyone loves the program.

For example, our customers are a pretty independent bunch and often they want to deposit or receive paper certificates. Happily, we can usually still accommodate them in this regard. especially in the case of restricted stock. But they grumble about the changes. And the hoops we're forced to jump through to handle their physical certs are getting higher and higher, and smaller and smaller, and pricier and pricier.

We do a lot of Canadian trades too, and we can tell you dematerialization is taking place up North as well. The Canadians got a later start on it. But from what we see, they may be moving faster now than the U.S. is.

Except maybe for restricted stock, it looks like only a matter of time in North America before paper certificates are simply a memory.

USA Today discussed dematerialization here:
http://www.usatoday.com/money/markets/2010-05-25-certificates19_ST_N.htm

You can learn more about DTCC than most people want to know here: http://www.dtcc.com/

And with that, this issue of the Pennaluna Prospector will dematerialize. We'll see you again soon. Please review the Disclosure below for exciting legal notices. And thank you for reading.

"Be thankful we're not getting all the government we're paying for."
-Will Rogers (1879 - 1935)

Editor Tom Wobker

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Founded in 1926, Pennaluna trades stocks on all U.S. and Canadian exchanges, Nasdaq, OTCBB and Pink Sheets.

Phone 800-535-5329 or visit www.pennaluna.com.

For online trading see www.penntrade.com.

Disclosure: Pennaluna & Company is a FINRA broker-dealer and market maker. As such, it frequently buys or sells stocks for its own account, or in order to make a market. Consequently, Pennaluna may at any time buy or sell or make a market in any stock mentioned herein, and associated persons may also buy, sell or hold such stock at any time. The firm and/or associated persons may also engage in private placements or other investment banking activities with any company mentioned. Some securities mentioned may be small-cap stocks and subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information; some may be foreign securities and subject in addition to currency, political and other risks. Mention of a security does not imply an endorsement. Comments and opinions are solely those of the writer. This publication is not investment advice; is not a research report and provides insufficient information upon which to base investment decisions; is intended solely to provide readers with information; is not a solicitation for the purchase or sale of any security; and is not intended to be nor should it be used as tax advice, which should be sought from a professional familiar with your individual financial situation. Mention of a company or stock does not in any manner constitute a recommendation, unless specifically so stated. Information is believed accurate but accuracy is not guaranteed. Any websites mentioned other than www.pennaluna.com and www.penntrade.com are not under the control of the firm and it can take no responsibility for information found on such sites.

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