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RARA AVIS:
A REAL SILVER STOCK
By Sam Parks
Sam
Parks is no stranger to Moneychanger readers. He has worked with
stocks since memory runneth not to the contrary, especially gold and
natural resource stocks. When I have a quesiton about gold or
silver stocks, I call Sam. I know that he does his homework
thoroughly and is 100% honest. .
Readers
can reach Sam Parks’ office at National Securities, 1001 Fourth
Avenue No. 2200, Seattle, Washington 98154; (800) 426-9993. Any of
Sam’s staff will be glad to answer questions for you.
Looking for a silver
stock?
You have a problem.
Silver stocks are hard
to find, partially due to the nature of mineral deposits. Usually
silver is found in deposit with other metals, and only rarely
alone. Most silver comes as a by-product from mines
primarily composed of other metals: gold, zinc, lead, or copper.
Obviously these mines are not silver investments.
There are also
co-product mineral deposits where silver represents 40% to 0% of
the mineralisation’s value. Finally, there are pure silver
deposits where silver represents 80% or more of the value.
SILVER STOCKS & SILVER
PLATED STOCKS
If we thoroughly comb
all of the producing silver mining companies (pure or co-product)
currently traded on all North American exchanges, the primary silver
stock is a rare bird. Not only are there very few silver
producing companies (three: Coeur d’Alene, Hecla, and Pan
American), the rest of the companies are not silver producers yet.
While Silver Standard and Apex Silver own silver deposits and
co-product deposits, they are not producing mining companies. They
merely own silver deposits.
WHERE ARE THE SILVER
MINES?
If we examine further
the operating mines of the three producers we learn just how rare
good silver mines really are.
Hecla:
Greens Creek,
owned 30% by Hecla.
Reserves & Resources (Hecla’s
share) 45.1million ounces.
Yearly production: 3.2
million ounces (Hecla’s share).
San Sebastian:
Reserves 9 million
ounces.
Production 3.4 million
ounces.
Lucky Friday:
Resources 77.4 million
ounces.
Production 2 million
ounces.
Pan American:
Quiruvilca:
Reserves and Resources
32.3 million ounces.
Production 2.5 million
ounces.
Huaron:
Reserves and Resources
98.3 million ounces
Production 4.5 million
ounces.
La Colorada:
Reserves and Resources
97.8 million ounces
Production .6 million.
For 2005 Pan American projects silver production at 19.8 million
ounces or 74% of revenue (up from 50%).
Coeur d’Alene:
Galina Mine:
Reserves and Resources
47 million ounces.
Production 5.3 million
ounces
Rochester:
Reserves and Resources
65.7 million ounces
Production 6.4 million
ounces
Cerro Bayo:
Reserves and Resources
21.8 million ounces
Production 3.1 million
ounces
MINE VERSUS MINE
The largest mine in both
reserves and production is Greens Creek. Hecla owns 30% of the mine
and the operator, Kennecott, owns 70%. Greens Creek has reserves and
resources of 150 million ounces and it produces annually 10.7
million ounces.
In addition to 10.7
million ounces of silver, Greens Creek produced 102,000 ounces of
gold, 79.6 tons of zinc and 27.3 tons of lead. The value of the
production breaks down as silver 32%, gold 22%, zinc 37% and lead
9%.
Silver mines tend to be
much smaller than gold mines. The average annual silver production
of the above mines is 4.3 million ounces. That equals about 61,000
ounces of gold. A gold producer with 61,000 ounces of annual gold
production wouldn’t even get a hearing today.
Although Minefinders is
not considered a silver stock, its Dolores mine will likely produce
eight to nine million ounces of silver annually along with 200,000
to 250,000 ounces of gold. [end of Sam Parks’ article]
FOOTNOTE FROM FRANKLIN
SANDERS
ON “ALMOST SILVER”
COMPANIES
A number of so-called
silver companies are what I call “almost silver” companies, like
Silver Standard and Apex Silver. The companies in Sam’s article
above actually own and operate silver mines. The “almost silver”
companies own silver properties, but they don’t produce any silver.
By owning silver properties which are not yet in production, these
“almost silver” companies represent a call option on silver, but
they are not operating silver mines. The silver remains in the
ground. They cannot ramp up production or open new mines quickly to
take advantage of rapidly rising silver prices.
For investors the big
question is, how will these “almost silver” companies perform
when silver rises? Will they perform better, the same, or worse
than the silver operating companies? That is anybody’s guess. I
don’t know, and neither does anybody else. Sometimes hype and
perception move stocks as much as fundamentals. So if you want
to take a chance on the “almost silver” companies, bear that in
mind. – Franklin Sanders
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