I was going to recommend a copper company yesterday. But there’s a problem.
So I decided to recommend two red-hot silver companies I’ve been tracking.
More on the two silver companies in a moment. But first a story — and some valuable lessons — I think you will never forget …
How a Wild Fox Helped
Make One of the Greatest
Silver Discoveries in History
I’m a born skeptic.
I was willing to accept the story that a gold miner brought his dead wife home pickled in a tin can like a sardine (November 23rd).
And I understood how a doctor could stumble onto the biggest copper find in the world .. and then lose it thanks to so-called “expert†advice (last Friday).
But a massive rush for silver that was started by a wild fox?
Hard to believe?
I thought so too. But let me tell you the tale, and you be the judge. It’s the story of how silver was discovered in Canada. And it will lead us to two lower-leverage ways to buy silver … plus two higher-leverage investments. But first …
What Happened After the Gold Miners
Struck It Rich and/or Went Home Busted
The story begins after the fabled gold rush in the Cariboo, when the gold miners struck it rich, went home busted, or both.
There’s some dispute about what happened next. But one fact everyone can agree on is that Canada’s big silver deposits weren’t discovered until 1903.
That’s when Fred LaRose, a blacksmith working at his forge in the far reaches of Northern Ontario, was being continually bothered by a fox.
Foxes aren’t rare in that part of Canada — they’re about as common as weasels, but with big fluffy tails and better publicists. Usually, though, foxes are smart enough to stay away from people. This darned fox kept coming close — too close.
Fred’s short temper flared hotter than the iron he was working … now he could see the fox’s beady eyes staring at him from a bush. He turned and hurled his hammer at the critter. He missed the fox and went to retrieve his hammer. Behind the bushes, he found his hammer alright. But he also found a glittering vein of ore thrusting right through the surface of the rock.
Fred didn’t know it was silver at first. He showed a sample to the owner of the Matabanick Hotel in Haileybury, telling him that the rock seemed to contain “some kind of damned metal.†The hotel owner then showed the rock to T.W. Gibson, the director of Canada’s Bureau of Mines. Gibson’s conclusion: The rock contained niccolite (nickel-rich ore).
Doesn’t that remind you of that darned copper story? The experts were wrong — AGAIN!
Still, by 1903, nickel was worth something. So, Gibson forwarded the sample to Ontario’s official geologist, Willet Green Miller, who passed it along to Ontario’s assayer, A.G. Burrows. Burrows looked at the rock and pronounced it silver.
Miller trucked on out to Fred’s camp, saw that there were indeed big veins of ore and chunks of metal, just lying scattered around! It was promising enough that he came back with two assistants to do a full geological survey.
Miller wrote in his report of “pieces of native silver as big as stove lids or cannon balls lying on the ground, as well as cobalt bloom and niccolite.”
The cobalt captured his fancy. So, near the ore deposit, by the railroad line on the shore of Long Lake, he set up a sign reading: “Cobalt Station.â€
And that’s how Canada’s silver town became known as Cobalt Station. Where the miner’s pick-ax struck, Cobalt Station sprang into existence out of the wilderness.
But let’s not forget Fred LaRose, the hot-tempered blacksmith. Unlike Dr. Howey in my Friday story, Fred didn’t miss out. He staked out his LaRose Mine and sold half of it to investors led by two brothers, Noah and Henry Timmins, who became big names in Canadian silver.
LaRose sold half his stake for $3,500, a large sum in 1903. A lawyer managed to snag another 20%. Finally, the Timmins boys bought the rest of LaRose’s stake for $25,000, an even larger sum.
But the brothers got a bargain. The LaRose mine went on to produce over 25 million ounces of silver.
Others arrived to make their fortunes. A man named Tom Hebert discovered what later became the Nipissing Mine. More than half a million dollars’ worth of silver was dug out of a single vein.
Another man, William G. Trethewey, arrived all the way from Cornwall, in Britain. On his second day in the area, he found a rich deposit that became the Trethewey Mine. He staked his claim, then moved a short distance away and found what would become another mine, the Coniagas. The silver pulled from that mine was described as “consisting of slabs of native metal stripped off the walls of the vein like boards from a barn.â€
Most prospectors spend their entire lives without finding a single worthwhile mine. Trethewey found two of the richest silver mines in Canada’s history in one week.
On and on they came. LaRose’s hammer toss launched a hundred mines. Most ran out quickly, but by the end of 1905, there were 15 mines in operation. In the first 60 years of their active life, the mines of the Cobalt camp shipped a total of nearly 1,185,000 tonnes of rich silver ore and concentrates. The total production exceeded 420,500,000 ounces of pure silver. At today’s prices, that’s over $33.6 billion worth of the precious metal.
As always seems to happen, the boom was followed by a bust, and in the end, the only thing Cobalt Station was rich in was history.
Lessons Never
To Be Forgotten
Lesson #1. Don’t underestimate the potential value of a great discovery, no matter how accidental it may be.
For example, one of the silver companies I’m looking at right now wasn’t even on my list during my most recent trip to Vancouver. I ran into the company’s chief executive quite by accident. His story was so compelling I just couldnt break away.
Lesson #2. Don’t always believe the so-called “experts.â€
Sometimes your gut feeling and intuition are more accurate. Most of Wall Street, for instance, has been consistently wrong about silver for the past three years. They were equally wrong about gold, base metals, and crude.
Last week, I was a dissenting voice in a MarketWatch.com story, “End of the line for the metals rally?â€
And sure enough, the story included people trotting out the same tired old bearish arguments. Meanwhile, copper surged 9.3%, gold rose 2.2%, and silver ended up 5.1% — all last week.
Lesson #3. Don’t expect every prospect to turn into a winner.
Sometimes, stories are too good to be true. When a guy tells me he has a prospect north of the Arctic Circle, that he’s finding diamonds as big as his fist, that he’s got gold nuggets the size of his head, and all he needs is $10 million to develop it properly, I smile, nod and cross him off my list. Those are the easy ones to discard.
Other times, it’s not so easy to spot the losers. Management may be sharp. They may even have plenty of money in the bank. But something goes wrong. Why? Because management has no track record … or the numbers in their financial statements just don’t add up … or I myself miss something. That can happen too.
Lesson #4. Avoid the easy-come-easy-go syndrome.
Too many people who get rich quick get poor again quicker. That’s why it’s smart to take some money off the table when positions run up quickly. Bulls and bears make money. Chickens can too. It’s the pigs that get slaughtered.
Back to the Present:
Silver Surges to $8.66!
Silver just surged AGAIN yesterday — to over 8.66 cents per ounce. That’s a big difference from 1903 when silver traded at 56 cents!
But the difference is deceptive. After adjusting for inflation, 56 cents in 1903 dollars would be $11.93 today.
And $20 silver in 1980 is the equivalent of nearly $51 right now.
(Silver prices actually went much higher in 1980, but I discount that spike because it was due to the Hunt brothers’ artificial manipulation of the market.)
No matter how you calculate it, there’s plenty of room on the upside.
A silver price explosion is already under way right now. So my intermediate term price target for silver — $9.50 per ounce — is very achievable.
And longer term, if some of the very smart people I talked to in Vancouver are right, silver could double from over $8 to over $16.
We’ll see. In the meantime …
Silver Exploration and Mining,
Long in Slumber, Is Springing
To Life Again, Driven By MAJOR
Supply-Demand Imbalances
Here are the facts …
- India’s silver bullion imports doubled in the first nine months of this year, and demand continues to rise. Silver is the safe investment of choice for people who can’t afford to buy significant amounts of gold, and there are about a billion of ‘em in India.
- Chinese demand is red-hot. It hit 1,624 tonnes last year and is expected to rise to about 2,870 tonnes in 2010.
- About the only place silver demand is lagging is in photography, as the developed world goes digital and demand for silver halide film hasn’t grown as much as expected. But growth in industrial demand (up 6%) and jewelry demand (up 14%) has more than offset that decline.
- Total global demand numbers for silver in 2005 aren’t in yet. But here’s a telling fact: While gold prices are up nearly 15% this year, silver prices have surged nearly 25%. Gold is hot. Silver is even hotter.
On the supply side, there used to be a saying, “silver is as common as cockroaches.†But that’s changing in a big way:
- Silver mine production grew by just 0.4% (2 million ounces) in 2005, according to Gold Fields Minerals Service (GFMS), which collects statistics on a variety of metals. Another 2 million ounces of new supply is expected to come online in 2006. But that’s not much — especially in the face of this rip-roaring demand.
- Much of the world’s supply has come from silver scrap. But that has limits, and with silver halide film in decline, sources for silver scrap have declined correspondingly. In fact, GFMS, which collects statistics about all kinds of metals, said scrap supply actually fell by 20% year-over-year.
- The third big source of supply is government sales — down by about 3% in 2005.
Lower-Leverage
Ways to Buy Silver
If your funds are limited, and you still want to own a piece of silver companies, many precious metals funds invest in both gold and silver mining companies.
The AIM Gold & Precious Metals Fund (IGDAX) is a good one, and it has Pan-American Silver, one of the big silver companies, in its portfolio. Ditto for American Century Global Gold (BGEIX).
Higher-Leverage
Ways to Buy Silver
I’m recommending two silver companies to subcribers to my Red-Hot Canadian Small-Caps.
Company A is debt-free, unhedged, and strongly leveraged to the price of silver. Here’s why I’m so intrigued:
- The company is a turn-around wonder that went from losing money in the third quarter of 2004 to big fat profits in the most recent quarter.
- Fueling that profit is the fact that costs are capped — it has locked in deals from its suppliers that insulate it from rising labor and fuel costs.
- It’s currently producing well over 5 million ounces of silver a year.
- The company’s costs are locked in at under $4 per ounce of silver. At $8 an ounce, the company has 2-to-1 leverage. At $12, the company’s leverage rises to 3-to-1.
Company B is a miner with some very interesting properties in Latin America. Some of the ore that is mined in the area is so rich, it can be shipped right to the smelter without processing. Nothing’s guaranteed, of course, but if these rich results turn into proven and probable reserves, this stock could lift off the launch pad.
Are these aggressive investments? Of course. But they aren’t “maybe-someday†companies. We’re talking working mines, with real production, well-positioned to feed the supply/demand gap that has developed in silver.
Silver foxes and flying hammers make for a rich and interesting past, but when you get down to the nuts and bolts of what could make you rich in the present, I go for stone-cold facts.
If you’d like the full scoop, call us at 800-871-2374, and we’ll answer your questions about my Red-Hot Canadian Small-Caps.
Best wishes,
Sean
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
© 2005 by Weiss Research, Inc. All rights reserved.
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