 Buying Gold
to get Silver
Bob Moriarty
Archives
Mar 6, 2008
Someone wrote to me a few weeks
back and asked me the most simple of questions yet I was totally
baffled. He wanted to know the name of a good silver stock. That's
the kind of thing you might expect me to have right at hand but
I thought and thought and couldn't come up with an answer.
Would you like a nice iron
stock? You could go with Palladon
(PLL.V) that has a lot of iron and may even do something with
it some day. Iron just rose
65% in price; you would think you could make money there.
Or you might like Quinto
(QU.V.) They have hundreds of millions of tons in Quebec, near
rail and port facilities. They should be valued at $2 a ton in
the ground that would give them a billion dollar+ market cap
but are valued at maybe $60 million. Even good old Cardero
(CDU) may spring to life when they complete a scoping study on
their almost-billion ton deposit at Pampa de Pongo.
Silver-lead-zinc companies
I have by the bushel load. Trevali
(ZINC-CNQ) is going into production at a 1000 TPD rate in six
months. They have a 1,000-man facility high in the Andes and
are coming up with blistering
grades. [pdf]
SNS Silver (SNS.V) drilled 13,000 meters at their Crescent
Mine in the Silver valley last year and they are following up
this year with a 33,000-meter underground program defining high-grade
silver-lead-zinc. Even Arian
Silver (AGQ.V) should be announcing
something [pdf] like a 150 million ounce silver equivalent
resource by summer. With 40 something million shares outstanding,
they could triple easily. But it's silver-lead-zinc.
Gold? There are a zillion gold
companies out there. Take your pick, in production or about to
go into production.
I love Pediment,
(PEZ.V) they have boatloads of gold in the Baja and recently
purchased an
existing mill and mine near Sonora. Starcore
(SAM) has been operating way under the radarscope but they are
in production in Mexico now and getting not a bit of respect
for it. ATW
(ATW.V) bought a mine and 450 TPD mill in Australia that they
plan to have in production shortly. Erin
Ventures (EV.V) is in actual placer gold production in Belize
but they work very hard to make sure no one understands it.
Want to go big time mining
in copper-gold porphyries? I even have a few of them. I first
wrote about Southern
Arc (SA.V) in April of last year. They have a giant-in-potential
copper-gold porphyry in Indonesia. I'm not all that happy with
the pace of drilling, they have averaged about one hole a month.
but it's going to be a big project.
I am just back from two weeks
in China and the Philippines. On Mindanao Island in the Philippines,
I saw monster copper-gold porphyry owned by Cadan
Resources (CNF.V.)
But I don't think I have had
a pure silver play since I
wrote about Silver Standard at $1.25 US in December of 2001
when silver hit bottom at $4. I liked Silver Standard then because
they were buying silver at $.025 an ounce, they were a perpetual
call on silver. Those who took heed of what I said have done
well; SSRI is now north of $35 a share.
If you like silver, I've got
something a lot better now. When SSRI [Silver Standard] was buying
silver at $.025 an ounce in the ground, silver was selling for
$4. Silver is now 400% higher. I just visited a company who has
been finding silver at a cost of about $.07 an ounce, cheaper
in relative terms than SSRI was doing six years ago.
 Minco Silver
The company is called Minco
Silver (MSV) and it was spun off from Minco
Gold (MMM) in December of 2005. Every share represents ownership
of 4.5 ounces of silver. Minco Silver has reported a 43-101 resource
of 142.9 million ounces of silver. And it's a pure silver play.
I spent a couple of days there
recently as the guest of the brilliant Dwayne Melrose, VP of
Exploration for Minco Silver. I say brilliant because he and
his team have done a superb job of lifting the fortunes and visibility
of Minco Silver.
Readers may be more familiar
with Minco Chairman and CEO Dr Ken Cai. Dr Cai started Minco
Gold in 1996. He is a Chinese National, which obviously helps
when dealing with Chinese properties, with a PHD in Mineral Economics
from Queens University in Ontario, which helps when dealing with
other Canadian mining companies.
Dr Cai has done an incredible
job of advancing Minco under both iterations. If anything, he
did too well, the companies and projects advanced but he failed
to attract retail investors. So while Minco Silver has over a
65% insider and institutional ownership, the retail side has
been pretty much ignored and the company is way undervalued for
what we know they have.
We know they have 142.9 million
high quality 43-101 ounces at the Fuwan project located some
45 km southwest of China's 4th largest city, Guangzhou. The silver
mineralization is shallow, flat lying and strata bound. Minco
Silver has located six different silver zones with total strike
length of 2,800 meters, still open to the south and southwest.
Fuwan is a world-class silver
deposit with enormous potential for expansion. The land package
consists of over 200 square km and less than 2% has been drilled
to date. Minco is in Phase VI drilling with the intention of
drilling 49 holes with a total of about 13,000 meters. This drilling
consists of primarily step-out holes to expand the deposit.
Back of the envelope calculations
show underground mining and milling costs of about $29 a ton
with a cost of production per ounce of about $3.50. ($2.40 per
ounce after by-product credits). Minco Silver has a target
production rate of 2,500 tpd with a 12-year mine life and annual
silver production of just less than 5 million ounces per year.
Preliminary testing shows recoveries of about 97% for silver
and 77% for gold using flotation and standard reagents.
The project has so much potential
for expansion that it would be best to let them get a better
idea of the potential before discussing mining plans. I think
at the end of the day they will be doing a lot more than 2,500
tpd. In any case, Minco Silver will probably be China's largest
pure silver play and may well be one of the world's swing producers
of silver.
Being too successful at exploration
in China can bring its own problems. Any mining company, no matter
how well connected is pretty much at the mercy of the local authorities.
The rules are what they make them. While Minco Silver owns 100%
of the project, they have a 10% profit sharing agreement with
the state-owned exploration company GGEDC. That agreement is
evenly balanced enough that the state has all the reason in the
world to want to see Minco Silver succeed. And that's a good
thing in China.
I was especially impressed
with Dwayne Melrose and his team. Dwayne was the exploration
manager of the Kumtor Gold Mine in the Kyrgyz Republic. Kumtor
produces plus 350,000 to 600,000 ounces of gold a year and Dwayne's
position was one of those highlights-of-a-career jobs. For him
to make the move over to Minco speaks volumes about what he thinks
about the potential in China. Even better he brought over a key
member of his staff and when they went to work, they hit the
ground running.
I am not a pure silver bug.
There is no shortage of silver and it's not the most manipulated
commodity on earth. $20 silver is going to suck silver out of
the ground. Actually silver and gold haven't performed nearly
as well as far less interesting metals such as lead and zinc.
But the world's financial system is collapsing as I write and
only about 50 people in the world get it. At the end of the day,
all currencies are going to collapse as the banking system shuts
down worldwide. We are going to need a solution and the only
solution is real money.
In a gold backed system, the
metal most in demand will be silver. You can't pay for a tank
of gas with a Double Eagle or Maple Leaf (because of their high
value). When that happens, silver will regain its real value
as a monetary metal. At a lot higher price. We aren't going to
a gold system because anyone thinks its some kind of great idea.
The Powers that Be will be fighting it with all their power.
We are going to a gold based system because there simply is no
other choice.
Strangely enough, a really
good way to buy Minco Silver is to buy Minco Gold. MMM owns 13
million shares of MSV. With MSV selling for $3.80, MMM has a
$49.4 million dollar share of Minco Silver but has a market cap
of only $48 million. You can buy Minco Silver cheaper by buying
Minco Gold and you get all the gold assets for free. That's a
good deal by any standard.
Minco Silver is an advertiser.
Minco Gold is not. I am not compensated in any way for writing
this article but I am biased. Minco has made great progress before
Dwayne Melrose came along but I think he is the catalyst that
will really move both companies forward.
Minco Silver is an
easy double or triple from today's prices and represents a pure
bet on the price of silver. If you like silver, you have to love
Minco Silver.
Minco Silver
MSV-T $3.94 Canadian
(Mar 5, 2008)
MISVF-OTCBB
31.1 million shares
Minco Silver website
Minco Gold
MMM-T $1.17 Canadian
(Mar 5 2008)
MGH-Amex
42.9 million shares
Minco Gold website
###
Mar 6, 2008
Bob Moriarty
President: 321gold
Archives
321gold Ltd
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