I’m here in Mexico, and I just got done investigating a silver mine deep in the Sierra Madre mountains. I looked at the mine and its mill from top to bottom (literally). I talked to the people working there. I examined rocks, drill cores, and charts of the drilling results.
Here are my conclusions: This mine is rich … its proven resource is likely just the tip of a much larger resource … and I believe the company’s stock is an easy double in the next year. I don’t have too much time to write, but let me tell you a little bit more about what I’ve found so far …
My trip started at a hotel in Durango, Mexico, where I joined a small group before dawn. We made our way to the airport and crammed into a small plane. After a 45-minute ride over plains dotted with orchards and farms, we got to the foothills of the Sierra Madre.
We landed in a horse pasture and jumped into pickup trucks. From a cliff-top, I could see the area’s rich history. The Conquistadors started mining here in the 1500s, and the countryside is littered with abandoned tunnels, crumbling workings, even tall stone smelter chimneys left by Cornish tin miners.
And yet despite hundreds of small-scale efforts, as well as a few really big and organized projects, everyone missed the silver mother lode that my host company is sitting on.
I had a delicious breakfast of eggs and homemade salsa, and got a quick mine safety course (Rule #1: Don’t Die). Next, I strapped on some gear and boarded a motorized cart for the trip into the mine.
The cart passed through the old, historical workings, then the shaft pitched downward and the descent began. Looking up at the roof of the shaft, I could see the remains of the ore vein guiding the cart’s path lower.
Although there are five or six active sections of the mine, the majority of the work is being done in a rich area of nearly-white rock. Against that backdrop, the dark streaks and specks of silver ore stand out sharply. A worker handed me a piece of the ore-rich rock, saying, “This is the honey-pot of the mine.â€
Workers in one section were busy drilling holes for explosives. The mine blasts twice a day, and then they go in and scoop up the ore. About 60 dump trucks per day deliver ore to the mill to be crushed and processed.
We pulled into alcoves as the big trucks roared past us. The silver vein dives into the Earth at about a 52-degree angle, so the miners get as much ore as they can in one area, then tunnel around in a circle to mine further down. I followed this four-and-a-half-mile path deep into the mine, 341 feet below the surface.
That’s the end of the road, but not the end of the vein. Indeed, the miners are finding that the ore is getting richer the deeper it goes. My best guess is that this mine should produce about three million ounces of silver next year. As for how big the resource is … well, we’ll just have to wait for the report on that early next year. However, I expect the company’s stock to start moving in advance of that.
I’ve got much more to tell you, but it will have to wait until next week. In the meantime, I want to forward along something from one of my colleagues, John Ross Crooks. John Ross is a natural resources analyst here at Weiss, and one of the people I turn to when I need a second opinion on the metals markets. Right now, he’s watching some interesting developments that I want you to know about:
Platinum, the Other White Metal,
Primed for Price Gains
While Sean is in Mexico learning the ins-and-outs of silver mining, I’m following another precious and industrial metal that looks poised to go higher – platinum.
Platinum is most commonly used in automotive catalytic converters and expensive jewelry. The automotive and jewelry industries account for roughly 80% of annual demand for the metal.
When it comes to cars, platinum helps control the harmful pollutants that exit a vehicle’s exhaust system. Without getting too technical, platinum helps turn hydrocarbons, carbon monoxide, and oxides of nitrogen into less harmful substances like carbon dioxide, nitrogen, and water vapor. Given ever-tightening emissions standards, platinum’s importance to automakers will likely continue to increase.
The metal’s appeal in jewelry is also on the rise. Back in the 1960s, the Japanese preferred platinum for its high purity and white color. Now that trend has spread around the globe. Jewelers love the metal’s superior strength, which means fewer limitations on what can be created. These days, about half of the world’s platinum goes into jewelry.
However, platinum has plenty of uses beyond car parts and engagement rings. It can be found in everything from anti-cancer drugs to the computer you’re using right now. In fact, the metal’s excellent conductivity makes it popular in a wide range of electronics. It’s estimated that more than 20% of all consumer goods either contain platinum or are produced using the metal. Meanwhile …
Platinum Production Can’t
Keep Up with Demand
Mines in South Africa and Russia account for 90% of the world’s platinum. All told, about five million ounces of the metal get hauled out of the ground annually. In case you’re wondering, that’s nothing compared to annual gold and silver production of 82 million ounces and 547 million ounces, respectively.
This year, stocks of platinum are expected to fall short of demand for the eighth year in a row. And this supply/demand squeeze should only get tighter because of Asia. As Sean’s been telling you, China’s an economic juggernaut, and the country’s torrid growth is transforming its culture.
Interestingly, two of the items that upwardly mobile Chinese want most are automobiles and jewelry. That’s because both items represent elevated social status. In my opinion, that will only help push platinum prices to new highs.
Of course, there’s one more possible development that could really light a fire under the metal …
A Platinum ETF Is Quickly
Becoming a Real Possibility
I think platinum’s numerous uses as an industrial and precious metal are enough to keep prices rising. So increased investment demand could make the metal go gangbusters.
Just last week, prices jumped the most in five years on speculation that a platinum exchange-traded fund (ETF) will be offered in the near future. Like other precious metals ETFs, the fund would purchase and store platinum, allowing investors to trade the metal without physically owning it.
To get a sense of just how much influence the introduction of an ETF can have on its underlying metal price, look no further than the streetTRACKS Gold ETF (GLD) or the iShares Silver ETF (SLV).
As you can see from the charts, gold rose steadily for many months as the GLD bought up ton after ton of gold, while silver prices shot up the most in a decade on the day the SLV ETF began trading. I would expect to see a similar pattern for platinum. In short, the upside potential is enormous.
As with many of the other base and precious metals, platinum touched a record high of $1,340 an ounce this past May. Currently around $1,200, prices are well within striking distance of making new all-time highs.
How You Can Profit
From Platinum Prices
Unlike gold and silver, which have become the standard of metals investing over many years, platinum has maintained a relatively low profile … so far.
Still, just as with gold and silver, you can purchase platinum coins or bars. This is a great way of investing if you plan to hold on for the longer term. But it becomes inconvenient if you want to buy a large quantity because you have to find storage space. If a platinum ETF is launched, that will make investing larger amounts in the metal much easier.
In the meantime, one way to immediately participate in platinum’s potential upside is through diversified precious metals funds.
For example, based on the most recent data, Vanguard’s Precious Metals and Mining Fund (VGPMX) had almost 20% of its portfolio invested in platinum producers such as Lonmin Plc, Anglo Platinum Limited, and Impala Platinum. The fund also has a reasonable expense ratio of just .4%.
Two other funds with big stakes in platinum are Franklin Gold and Precious Metals Fund (FKRCX) and DWS Gold & Precious Metals Fund (SCGDX). They carry slightly higher expenses, but they’re also worth considering.
Best wishes,
John Ross Crooks
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