gwizzie

Sean Brodrick

Intresting article from IC. Prospecting for profits Created: 4 September 2008 Written by: Martin Li "A hole in the ground with a liar at the top," is how Mark Twain once famously described a mine. Oil and gas fields don't fare much better when it comes to reputations for accurate description. Against such uncertainties, it can be particularly difficult to assess the value of resources companies which are not yet in production, and which can't therefore be valued by conventional techniques such as earnings ratios or discounted cash flow (DCF) . But it's not impossible. Despite the challenges, analysts have increasingly had to estimate the value of resources companies still in the exploration phase. Driven by the global boom in commodities, mining and oil and gas companies - many of which remain years from potential production - have in recent months been among the strongest performers on the Alternative Investment Market (Aim). These businesses require special valuation techniques. The treatment of mining companies is slightly different from that of their oil and gas counterparts, although at the core of both lies an estimate of the quantity of commodity in the ground, together with an assessment of how much it would cost to extract, process and transport. Combined with an outlook for the commodity price, this enables an estimate to be made of a company's value. VALUING OIL & GAS COMPANIES Oil and gas analysts classify hydrocarbon volumes into two distinct categories: resources and reserves. Hydrocarbon resources Estimated with limited confidence, resources are approximations of the volumes of hydrocarbons either not yet found ('prospective') or, if found, that require the resolution of various technical, economic or other challenges before they can be considered commercial. Resource estimates are usually based on seismic studies which have not yet been confirmed by drilling, and as a result analysts don't ascribe much value to them. Dougie Youngson, resources analyst at Aim specialist Ambrian, describes their valuation as "a bit of a black art", requiring assessments of geography, geology, management's technical capability and distance to markets. With most of the world's 'easy oil' now accounted for, explorers are increasingly chasing 'exceptional oil' in far-flung locations, in deep waters, and remote and hostile conditions where discoveries would carry heavy discounts to reflect the difficulties of commercialising any find. In the Falkland Islands, for example, the four Aim-traded explorers - Borders & Southern, Desire, Falklands Oil & Gas and Rockhopper - have so far completed limited exploration activities such as seismic assessment in isolated waters from where it would be very expensive to develop hydrocarbons. Any resources would thus far carry very little value to reflect the limited assessment and challenging practicalities. By contrast, in the North Sea, which has been heavily explored and where the pipeline and platform infrastructure is far more developed and access to markets straightforward, resources would carry much lower risks and therefore higher valuations. Because resources are often estimated prior to drilling, much of their valuation is based on the assessment of a 'Competent Person' - a geologist proficient in economics. The Competent Person applies industry yardsticks of hydrocarbon volumes in analogous formations to the location and geological structure of the deposit to be valued. This estimates a benchmark net present value (NPV) of barrels of oil and volumes of gas in the ground. Hydrocarbon reserves Drilling an oil and gas prospect provides the opportunity to hit hydrocarbons, which can then be analysed through more detailed seismic studies and additional, closer-spaced (in-fill) drilling into a more accurate estimate of volume - known as reserves. Reserves are the estimated volumes of hydrocarbons that a field can produce commercially. Reserves are sub-classified as 'proved', 'probable' and 'possible', based on commerciality factors, taking into account technical and economic risks: • Proved reserves have been confirmed with a high degree of certainty and have a better than 90 per cent chance of being produced. • Probable reserves have a better than 50 per cent chance of being produced. • Possible reserves are unproven and have a 10 per cent chance of being produced. • Proved reserves are also referred to as 1P reserves. Proved plus probable reserves are referred to as 2P reserves. Proved plus probable plus possible reserves are referred to as 3P reserves. From exploration to development Compounding the difficulties of estimating a resource or reserve, companies are also valued differently depending on whether they are in the exploration, development or production phase. Exploration Pure exploration companies tend to be given nominal 'in the ground' NPV valuations plus estimates of any premium that somebody might pay. However, such valuations are fraught with uncertainty, particularly because the small number of pre-production mergers makes it hard to create valuation benchmarks. Dr Youngson adds: "The oil industry is a mature one, with many executives remembering when oil languished at $10/barrel. With oil having reached $140/barrel, executives are terrified of overpaying for resources. Nobody really knows how to value pure exploration plays, which might be one of the reasons why the expected consolidation on Aim hasn't yet happened." Development At the point where an investment decision has been taken that a hydrocarbon find can be commercially exploited, analysts may assume that the company can reach production within a couple of years. This enables a more accurate valuation. But risks still exist in the transition from explorer to producer, reflecting dangers of overruns of time and cost. Dr Youngson quotes the example of the formerly Shell-led Sakhalin-II liquefied natural gas project in eastern Russia, which faces severe delays and is set to cost twice its original budget. Production Once in or near production, companies can be valued by more conventional means such as discounted cash flow, multiplying production volumes with sales contract values, and deducting capital and operating costs. Cycling to growth Once an explorer has developed and brought an asset into production, the cycle can begin again, using production cash flows to finance new exploration. This is one way small companies can grow into bigger companies. Dr Youngson quotes the example of Roc Oil, which began with a small find offshore of Australia and is now active across all stages - exploration, development and production - in seven countries. VALUING MINING COMPANIES As with oil and gas operations, the pre-production stage poses the greatest number of uncertainties when valuing mining companies. At the start, a mining explorer might be valued on the basis of drilling costs incurred. Once initial drilling has provided a broad estimate of the likely deposit size, a 'dollars per unit of resource' benchmark can be applied. For example, historically, the cost of making a gold discovery has averaged $35 per ounce (oz). An explorer with a 1m oz gold resource could therefore expect to be valued around the $35m level. If it had spent under $35m in making the discovery, it would have "added value" and vice-versa if it had spent over $35m. In-fill drilling and evaluation by independent consultants helps transform initial resource estimates into more confidently estimated, and higher valued, reserves. The same deposit carrying a value of $35/oz as a resource might be valued at $120/oz if fully developed into a more confidently estimated reserve. Joint Ore Reserves Committee (JORC) Mining companies looking to raise funds must follow industry standard codes of valuation, the most common being the Australian Joint Ore Reserves Committee (JORC) standard. The JORC code identifies a 'resource' as having 'reasonable prospects for eventual economic extraction'. Resources are classified into 'measured' (most confident), 'indicated' (reasonably confident) and 'inferred' (low confidence) categories. An ore 'reserve' is the 'economically mineable part of a resource', and is classified into 'proved" (highest confidence) and 'probable' (lower confidence but still of sufficient quality to make investment decisions) categories. Reserves are a sub-set of the 'measured and indicated resource', and Mr Gibson regards this 'measured and indicated resource' figure as probably the most important pointer to a mine's potential life. "While it is true that reserves are higher quality and therefore higher value than resources, because of the high cost of drilling, it is not economically efficient to upgrade all resources into the reserve category before mining commences," he explains. Equally, though, it is no good having a plant and mining operation that is too small for the deposit. Therefore, companies need to delineate as much of their resource as early as possible so that an appropriately sized mining operation can be decided upon, and then drill up enough reserves to get started. The reserve category can then be expanded with a further drilling programme. As mining operations progress, therefore, reserves should be added to at approximately the same rate as they are being depleted. The ratio of resources to reserves can also be a useful measure. A falling ratio might indicate that a mine is coming to the end of its natural life, and a rising one that it is coming to the end of its economic life. Ideally, a mining company will replenish its resources over time through exploration , while maintaining its reserves, thereby keeping this ratio more or less in balance. Consolidation of junior miners Major mining groups cut back their exploration budgets in recent decades when commodity prices were low, focusing their attentions on extraction rather than resource expansion. Now, though, facing the prospect of declining resources, these miners have resumed exploration. However, what the major miners can afford to spend on exploration comes nowhere close to the combined budgets of the junior miners, which makes acquisition an alternative strategy for major miners looking to grow their resources. As stated earlier, though, the much-anticipated consolidation of Aim-traded miners has yet to happen. Mr Gibson speculates this may be because juniors need to reach a certain size before they become of interest to majors. Michael Starke, a fellow mining analyst at Edison, sees smaller companies as currently lacking the cash to consolidate among themselves into companies of sufficient size to be of interest to majors. Bankable Feasibility Study Once initial resource and reserve appraisals confirm the viability of mining a deposit and the miner has completed a Bankable Feasibility Study (BFS), the valuation process becomes more straightforward. The BFS will set out a mining plan describing the extraction method (such as underground or open cast), estimated mine life, capital and operating expenses, etc, from which a discounted cash flow valuation can be calculated. However, first mining might still be two years away following completion of a BFS, and analysts would still apply a significant risk premium of around 50 per cent to the DCF valuation at this stage. This risk premium reduces as production draws nearer, to maybe 15 per cent just prior to mining. SHARE PRICE TRIGGERS Although pre-production resources companies are notoriously difficult to value, it is often easier to predict when events will move their share prices. Reserve and resource upgrades Many companies issue streams of press releases updating minor increases to resources, the progress of drilling, appraisal, grade evaluation, mine or wellhead preparation and construction. Although certain announcements are required for regulatory purposes - and at least let the market know that the company is still alive - progress reports generally have little impact on share prices. According to Mr Gibson: "Resource upgrades need to be orders of magnitude bigger to move shares." Anticipated reserve upgrades underpinned our recommendations to buy oil and gas companies Volga Gas and Nighthawk Energy and miner International Consolidated Minerals. Feasibility, approvals and partners Completion of a BFS is another potential share trigger for miners, depending on the study's conclusions and the DCF valuation implied by production levels and costs. Securing project finance, permits, licences, and environmental and other regulatory approvals are other vital milestones that can generate price movements, particularly where these are difficult to obtain. Valuations can also be moved by the investment of major industry partners with significant interest in the success of the project. The investment of major miners in Nautilus Minerals, and Corac's partnerships with major gas industry partners provided strong support to our buy recommendations. Production Prior to production, shares invariably trade at discounts to their NPV and reserves, reflecting the risk of time and budget overruns. This discount narrows as companies near production. The start of production triggers a major re-rating for many junior resources companies, since this immediately differentiates the company from the majority of its Aim counterparts. EMED Mining can expect to see a significant re-rating when it resumes operations at the former Rio Tinto copper mine in Spain, expected in 2009. Its shares discount virtually all the upside from this huge project. Mr Gibson adds the example of Ridge Mining, which is close to production at its first project, Blue Ridge. However, just getting into production isn't enough. Analysts want to see that the operating plan works, and will review operations within the first year of production to check whether actual costs and revenues are broadly in line with expectations. With Twainesque scepticism, Mr Gibson describes miners as having a "long and glorious history of coming in over time and over budget". Price killers Downward price triggers can also be predicted with some accuracy, although the market sometimes saddles companies with unachievable expectations, most notably Dr Youngson's favourite: dry holes drilled by oil and gas explorers. Statistically, exploration drilling has only a 20 per cent chance of success. Observers shouldn't therefore be concerned by companies drilling four failures for every success, and failures within this overall hit rate should be share price-neutral. However, the announcement of any dry hole is likely to see the shares fall by 10-20 per cent. Lateness is also punished. One company that has suffered adverse market sentiment through serial late delivery is Van Dieman Mines. On the verge of production, the company should carry just a 15 per cent discount to net present value, but trades at over a 50 per cent discount due to repeated project delays that have run into years. On the positive side, this provides much more upside potential for the shares when the company finally reaches production. Mr Gibson cautions miners: "Not delivering is a quick way to kill a mining company," and Dr Youngson adds: "If you say you are going to do something at a certain time, make sure you do it, otherwise you set alarm bells ringing." As Mark Twain noted: "Actions speak louder than words, but not nearly as often."

Anyone see anything here...suggests a return to high 800's?

This is the part i have a problem with. What makes US treasuries so attractive over gold? Am i mistaken in thinking that they are actually returning a negative yield? Who is carrying that market? Foreign countries?

Dollar vs ? oh...i'm not a good chartist btw but i'd imagine you would need something to compare it against

Great interview with Sean Rakhimov on silver, i'll post it in full so theres none of that clicky link mallarky In this exclusive interview with The Gold Report, Sean Rakhimov explains why he thinks silver will rise like a rocket in the next couple of years. He also gives some advice on how best to participate in the coming silver boom. Sean is the founder and editor of Silverstrategies.com, a website dedicated to silver investing. TGR: Where do you see the silver market going for the rest of this year and into 2009? SR: Let's start with a little background. First of all, the silver market is very small relative to other markets and this introduces a lot of price volatility. Silver is also unique in that it is both an industrial and a monetary asset. It's easy to make quite a splash doing business as usual. In other words, the closure of a mine or opening of a new one can substantially influence the rest of the market. Silver happens to be one of the most versatile metals. Every year there is a continuous flow of new patents. In fact, silver accounts for more new patents for new applications than the rest of the metals combined. A few years ago digital photography was supposed to "kill" the silver market. Back then silver was $5 to $6, maybe $8. Every financial pundit, especially in the mainstream media, predicted digital photography would have an adverse impact on silver prices. Since then silver has tripled or doubled (depends on from where you're counting). I bring this up because it's similar to an equally important contra silver argument widely accepted by analysts and the media, namely, that silver is an industrial metal and not a monetary metal so it will behave more like base metals. Frankly, I find that argument laughable. The reality is that the monetary aspect of silver will dominate and carry it to astronomical heights in this cycle, which I expect to last another decade. I try not to make short-term predictions since it is a futile exercise. Silver is too small and volatile a market with too many moving parts and relationships to base metals, economics, gold and who knows what else. Over the longer term, however, I believe silver will do spectacularly well. I absolutely believe we will see three-digit prices, perhaps over $200, and possibly over $300 - as outrageous as it may sound right now. The looming financial crisis will be much more severe and prolonged than anything we can imagine. There will be a depression of sorts, especially in the U.S. and I expect silver to be one of the stellar performers. TGR: Other than serving as a barometer of the financial markets, what will move silver into more of a monetary role? SR: It's not the financial markets per se that will be the driving force. I think it's going to be driven primarily by the man on the street trying to preserve his liquid assets - his buying power. He will not be reading analyst reports. No one listens to analysts in developing countries. TGR: So you are not talking about the U.S.? SR: I am talking about countries that have savings unlike North America, especially the U.S. I expect silver to make quite a run, perhaps on the magnitude of a double, probably within the next 18 months, pushing it up into the $30 range. When the silver price moves, it moves like a rocket. That is about the shortest-term prediction I can give you. TGR: What's causing it to stagnate now? It recently dropped down along with gold. Are we overly optimistic in the U.S. - putting our heads in the sand regarding what's really happening in the financial markets? SR: In the short term there could be any number of reasons - maybe 50 - but a year from now we're not going to remember any of them. We don't remember the reason silver fell from $15 to $10 a year and a half ago and now it really doesn't matter. TGR: Do you see silver paralleling gold or do you think it will eclipse gold in terms of its percentage rise? SR: I got into silver back in 2000 because I figured that the place to be for the coming decades was the hard assets. Then I narrowed it down even more to gold. Whatever appreciation happens in the hard assets will be ultimately reflected in gold. It won't be one for one, but it will eventually be the mean average. Then I stumbled onto silver, realizing it offers you leverage over gold. It gives you everything gold gives you, only it will give you leverage in terms of the percentage of appreciation on your investment. That's how silver became my focus. Silver is definitely a monetary metal and will continue to be used as such if for no other reason than it can be saved and accumulated and stored. Gold and silver are also the most liquid. If you have a couple of rolls of - I don't know - copper wire, it's not an easy thing to dispose of. But you can take gold and silver to the bank or a coin dealer, or you can put it on e-Bay. The other consideration is silver's relationship to gold. Silver often tracks gold and trades in tandem in terms of price. Yet the fundamentals underlying the two metals are quite different. As a monetary metal, silver has open interests in the futures market, similar to gold, which is many times greater than the physical supply of the metal. In that respect, silver is quite different from base metal. Base metals have futures markets too but the open interests in gold and silver are actually comparable to currencies as opposed to other metals. That's another confirmation that the market views silver as a monetary metal. In good times, such as those prior to 2000, metals didn't do particularly well. But, in bad times such as I see coming in the very near future, metals will resume the role of safe haven that they do so well. While silver often moves with gold - both have recently been sold down severely - the amount of silver available to the market is actually less than the amount of gold available. Gold is for the big players - governments, big institutions, corporations - the big money. Silver, on the other hand, is for the average guy. And there are 6 billion more of these average guys than there are big players. In the past people used gold coins, silver coins, copper coins, and other forms of exchange. But the relationship between the gold coins and the silver coins was roughly 1 to 10 or 1 to 12, at times, 1 to 15 or maybe 16. That is a pretty strong relationship. Now, the reason for that is called "natural ratio". Essentially that refers to the ratio at which they come out of the ground. That is the ratio at which they occur in nature. The reason this is so important is that if we look at the price relationship of gold to silver, it will be roughly in the 50's. When I started studying this, the ratio was 100 to 1 in favor of gold. So, silver has outperformed gold by about 100% since 2001-2002. There are many things to consider if you want to invest in silver. Some people do it for the insurance rather than to make a buck, so it can preserve buying power. Keep this in mind when you watch silver drop $1 a day or $5 a week. In the long run, I maintain that we will see three-figure silver prices. I believe that silver is very, very undervalued and has an extremely bright future. TGR: Earlier you said: "Silver gives you more leverage than gold." Could you expand on that? SR: That is undeniably true. The natural ratio depends on how much more gold is mined than silver; in some areas more silver is mined than gold, as is the case in Latin America versus South Africa. The natural ratio is in the range of 10 to 15 and it has lasted for thousands of years. I use the word "leverage," not referring to leverage you get by buying, say, mining stocks or futures, or anything like that. What I mean by leverage is simply that there is less silver available, and it's trading at a cheaper price relative to gold. Some catching up has to take place to revert to the mean of the historic price ratio. Leverage exists in silver's relationship to gold; so, if gold goes up 100%, I maintain that silver will do better than that over the longer term. TGR: You are in contact with a lot of silver companies; that's your main focus, right? Are there some that merit investment consideration? SR: The recent performance of the markets would suggest that I don't. TGR: Really? I would think there would be opportunities with some of the pullbacks. SR: Oh, I agree with you. Generally speaking, some of these stocks are trading at levels that present an excellent opportunity to gain exposure to the silver sector. I prefer the juniors because they're more accessible - you can go and meet the president. The juniors are closer to the market, and more in tune with their investors. The bigger companies cater to the bigger investors. So, the silver sector has taken quite a beating along with related stocks in the commodities area, with the exception of potash and oil companies. Even the oil companies are not doing that well relative to the oil price itself. So, in the silver sector, I visited all four of First Majestic Silver's (TSX: FR; PK SHEET: FRMSF) mines maybe two and a half-three months ago. I was very impressed with the company. I think they have a very good future, and at their current price, it will be a good investment for the year ahead. If you had a silver index, I think their performance would beat the silver index. Among the juniors I like the producers. Fortuna Silver Mines, Inc. (FVI) is a good company in that regard. It's been sold off by the market for whatever reason. I think they're going to do well. TGR: They're a producer? SR: Yes they are. There's also a company called Minera Andes (TSX.V:MAI) that is one of my favorites. The company has been around for quite some time in Argentina. They have very good management. Rod McEwen is a large investor in the company. I like the management; I like their style; I like their execution. They have a very large and sophisticated partner for their project that is in production, which is Hochschild Mining (HOC: LSE), a big mining company in Latin America, listed on the London Exchange actually. So, they're a 49%-owner in a producing mine in San Jose, Argentina. They've expanded the project, which (the expansion) should start operating later this year. And they paid their part of the cost of the expansion, but have not yet reaped the benefit. The expansion should double their production, making them a significant producer. Most of these junior producers are in Mexico. One that isn't, that I like a lot is Silvercorp Metals Inc. (SVM). I've been watching it since it was SKN Resources. By the way, for full disclosure, I own First Majestic; I own Silvercorp; I own Minera Andes. I would actually have to think twice before I would recommend a company that I don't invest in myself. So, Silvercorp's operations are in China. This company has done spectacularly well. I think it will continue to perform very well. It will probably become a takeover candidate in the next couple of years as the price of silver goes up. There are two up-and-comers I like. Kootenay Gold (KTN) is one of them. Although their name suggests they're a gold company, their main project is silver. This company has been around for about two years and has some good drill results. We don't know the extent of their discovery yet, but I would certainly qualify it as an "A Discovery" at this point. Another company I like is Geologix (GIX), which also has projects in Mexico. Now, Geologix is actually somewhat different. I met with the management; and was very impressed with the caliber of people they have. The project so far has indications of being equally stellar. They did a deal with Silver Standard Resources (SSRI) and acquired the land around it. The project had some very good drill results, and it looks like it's a big deposit. We don't know how big it is and are now awaiting an initial resource calculation. The market has been less than enthusiastic because Geologix had a potentially large payment coming due for the project they acquired from Silver Standard. The good news is that the size of the payment is directly tied to the amount of the resource they find. So, the larger the resource, the larger the payment, but it also means the larger the value in the company. They had enough cash to get through early 2009, and they had quite a healthy burn rate drilling and extending the deposit in Mexico. So, that's another company that I like. There's a bunch of companies that I like but I hesitate to say flat out "Oh, buy this company." I have discovered that it's better to inquire about the objectives and the investment style of the potential investor. These companies often have ups and downs, which can be quite dramatic and not everybody's cut out for that degree of volatility. Many are very long-term propositions. Mining is a very risky business. For those who do not spend a lot of time researching these companies or understanding the sector, the most prudent and safe choice would be silver bullion - a must-have. I also think that the larger silver companies will perform very well. Pan American Silver Corp. (NasdaqGS:PAAS) will do extremely well. Silver Wheaton Corp. (SLW) will also do very well. They're fantastic investments at current prices. A little company called Silverstone Resources (SSP) will also do very well. TGR: You follow these companies for a long time don't you? SR: I have a long history with some of them and have been tracking them long before they became what they are today. For instance, I picked up Silver Wheaton when it was called Chap Mercantile. At that time it traded at $.65 per share, and today it trades at $14 and is a $2.5 billion company. I think investing is more about the investor rather than the investments. Most people can't get out of their own way in terms of these investments. They need patience. These things take years. I remember Western Silver (WTC.TO) when it was Western Copper and trading below a dollar. It sold for $20 plus. TGR: I'm looking at a couple of charts. Silverstone Resources has been in this $3 base-building area and trading from $2.50 to $3.50 for quite awhile. Geologix was similar. This stock ran up in May of 2007, pulled back down, retested in December 2007, pulled back down, and now appears to be headed for that $3 level, which it has tested three times. From a technical standpoint, both of these stocks have very attractive chart patterns. Can you comment on both of them in terms of what the markets may be waiting for? Is there a 43-101 or are there more drill results? What's cooking behind the scenes in these companies? SR: Let's start with Geologix since I have gotten an update on them recently. Their first resource calculation should be coming out later this year. The payment is structured so that they have to pay per ounce of silver on the part of the property that they acquired from Silver Standard. The same is true for gold. What is often overlooked is that they do not pay anything for base metals that they discover on the property they acquired from Silver Standard, and base metals constitute about 50% of the value. TGR: When you say "later on this year," is that this summer, this fall, or is there a target? SR: I would expect them to have something by the fall. The payment is due to Silver Standard by February 2009, so in the next six to eight months there will be substantial developments for the company. Questions remain as to how they will choose to make that payment or what the size of the resource will be. But the good news is they have a real asset there, and I don't know how it's going to be reflected in the share price, but I would expect it is going to be favorable. TGR: So, Silverstone is a bit of a different breed of a company? SR: Yet it is similar. Last August it had a big falling off, then it ran up back up to that $3 level. The credit crunch explains the drop off in August. TGR: More like a credit meltdown. SR: I would be willing to overlook that. Silverstone models itself after Silver Wheaton. They have royalties that are more like semi-royalties that they would acquire from producing mines at a fixed cost in the future. They are also working on their own silver projects in Mexico. What I find attractive is that the costs on a large portion of Silverstone's future silver production is fixed - at a time when operating costs in the mining sector are skyrocketing. I also like the management; they have excellent people, and have been very successful so far. So I expect good things from them. TGR: Will this be event-specific? SR: They will have some mines that will be coming into production down the line, but in the short-term these companies react very well to silver price appreciation - and I expect the silver price to double. TGR: What kind of events could trigger something like that? Are you referring to ongoing credit worries? SR: I believe we're going to see across-the-board revaluation of hard assets. $6 copper will become the norm. $130 to $150 oil will be the new reality. This commodities bull market is here to stay and people will accept that. One big development I see coming is a sweeping wave of nationalizations across the world. I think this is going to happen to resource companies across the board, not just silver. TGR: That would put pressure on the entire sector. SR: Yes, and it would certainly put pressure on Mexico where a lot of these companies are. Mexico and Peru are the two largest silver producers in the world. Mexico is part of NAFTA, at least for the time being. We don't know how it's going to shake out in the next couple of years. But Mexico has closer ties to the U.S. and Canada than some of the other jurisdictions. For now, Mexico is considered to be the best mining jurisdiction in the world, which is good for silver and silver companies. But these things can change on a dime. I expect that some of these nationalizations will start to occur after 2010, and perhaps after $50 silver, $2000 gold. I wouldn't expect Mexico to hike royalties and taxes to unbearable levels as Mongolia and Zambia have done. This nationalization process will have governments everywhere saying: "This resource is ours and we're going to hang on to it." TGR: That's interesting. So it's putting up trade barriers; it's putting up nationalistic barriers. SR: It won't be just trade barriers; it's more like bargaining chips. Some countries are already curbing exports of food and some of their minerals - oil, for instance. Eventually all nations will retaliate by withholding their assets. TGR: There's one last stock I'd like you to discuss. Do you have any thoughts on Silver Recycling Company, Inc. (TSR.V) that you'd like to share with our readers? SR: That's a very interesting story. The idea itself is brilliant. I think it has a very bright future provided it works out on the ground. Silver Recycling is unique in the mix of silver investments. You have bullion; you have ETFs; you have futures; you have stocks; you have warrants in some cases; and mutual funds. Then you have companies like Silver Recycling, which may give you exposure to the silver price. Its margins are not tied to the silver price, except in the volume they can process. A mining company produces silver at $5 per ounce, whereas a recycling company has to buy this stuff all the time, so theoretically that reflects the spot price or maybe a futures' price. There's a sliding scale where they will have to pay higher prices depending on what silver sells for. There isn't unlimited upside in terms of margins, but I think the company has unlimited potential for expansion because the number of private recyclers in the U.S. alone is over 100. Silver Recycling Company is just getting started. They will consolidate three private operations and bring them under one umbrella. Many of these operations are family-owned businesses with limited opportunities for expansion. By bringing them together as a public company there are more options for financial expansion, growth, and diversification of assets. Silver Recycling just closed a deal on one of the operations that had $85 million in sales in 2007. This is going to be a cash-flow type business; their numbers will be profitable all the way down to $6 silver. The price they pay for scrap is based on the silver price, so there is a built-in margin. TGR: How many ounces will they process in a year? SR: With the current acquisition, I don't have the latest numbers. But I think it's in the area of five million ounces but don't quote me on that. TGR: How does that compare? Give me a 5 million-ounce producer. SR: Well, actually in the public sector, I don't know that there is one. It falls into that middle area where you have the companies under that threshold, and then you have the companies above that threshold like Hecla Mining Company (HL) and Coeur d'Alene Mines Corp. (CDE). Of course they're in a bit of different league. TGR: How many ounces do they produce a year? SR: I believe Hecla produces approximately 6 to 7 million ounces, but they also have a gold aspect and they recently made a big acquisition in Alaska and another in the Silver Valley. So, those numbers will change. TGR: And those are the silver equivalents? SR: No, the 6 million ounces for Hecla or the 6-million ounce range is for silver itself. Again, they do produce some lead and zinc, and I do not know for a fact if that would be an equivalent, but the bulk of it is silver. TGR: Who is next down on the food chain? SR: The next one down on the food chain would be First Majestic Silver Corp. (TSX: FR). TGR: How many ounces are they producing? SR: Well, they did about 3.5 million last year, and this year I think the plan is to do about 5.5 million, so this company would be in the range. It's a mining company with operations in Mexico, we're not comparing apples for apples here, but that company has a market of well over $200 million. TGR: Different business models - one's got an asset and one's got a business. SR: Right, they're different type operations, but the ultimate product is silver. That's why we're interested in a company like Silver Recycling. It's a start-up with some ambitious goals. It has a very timely and viable idea. It provides another option for diversification of silver investments. www.theaureport.com

ach!! Nothing a good bath of thinners wont fix

I live about 20 miles from it, CDG was/ is on my watchlist. Proven resource is 1g/t. I dont like to poo-poo good news but i think the media have got a bit ahead of themselves and used the drill results to inject a bit of euphoria into an otherwise bleak public sentiment.

He took completely the right approach, if he had sat and done nothing he would have been rewarded with exactly ....nothing.

mmmm.... memories of being shafted in the 70's may still linger with the hunts. I suggest if they do position themselves someone else could be on the end of the shafting. Do you think a huge move in silver could be manufactured to distract attention from accumulation in gold? or vice versa perhaps? I like silver...its frisky and naughty

Everyone likes to talk about an historical ratio of 15:1. Phag took a bit of humping today though , added some more

***Breaking news*** Consumption of silver to rocket! Oh sorry...... In a rocket still...i like their catchy description And for anyone thats interested the silver content priced, works out to be a little under $400,000 / oz.

Anyone else looking at LBUL.L or LSIL.L ?

I was thinking that. But on the other hand gold hasnt really made a parabolic move yet, and when demand increases supply is unlikely to meet it

hands up who punched in bded.L

What do yiz make of this? I'm investigating the proceedure edit: Revenue is made by the sale of seats and the lowest unique bid wins the lot

Ted butler on bubbles (not the monkey)

Intresting. Being students i have no doubt they will find a way to hook it up to the sky digibox now

someone please tell me he is not leaning on the product in question? Clicky de link!

Sorry...did you clicky de link? I was referring to the first gold pour at their Vatukoula mine

Could rvd now be classed as a junior?

On the flip side. How do you go about selling the gold under the bed when the time comes? please excuse my ignorance if there is an obvious answer other than ebay!

was watchin the footie on fox today. among the commercials: http://www.goldkit.com/ Go on... have a larf!