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Silver & Cardero Resources

By: Jason Hommel, Silver Stock Report


-- Posted Saturday, 25 January 2003 | Digg This ArticleDigg It!

I have recently written how the price of gold could easily skyrocket towards infinity dollars per ounce as a result of a total dollar currency collapse, and how the gold price might stabilize at $32,567/oz. if the U.S. pledged its official gold holdings to back the dollar in a last ditch effort to prevent a total currency collapse, and return to a gold standard. All the monetary reasons for owning gold, such as inflation and collapse of paper currencies, also apply to silver, but silver has other features which make it even more attractive than gold.

1.  The historic silver/gold price ratio was 15 or 16:1, but in recent years, silver is relatively cheaper ranging from about 40:1 to 80:1.  On Jan 24th, 2003, with silver at $4.89/oz. and gold at $368/oz., the ratio is 75:1.  This means that silver is currently undervalued, and cheaper than historic norms, and thus it is a better investment than even gold if you want to "buy low and sell high".

2.  The supply and demand fundamentals for silver are extraordinary.  There has been an ongoing supply/demand deficit in silver for 12 years.  More silver is consumed by industry than is produced by mining and recycling combined.  Some say this deficit reaches back 60 years, and has consumed virtually all the known silver ever mined since the beginning of the world.  The annual deficit has recently ranged from 100 million to 200 million ounces per year.  Annual supply is about 650 million ounces, and annual demand is about 800 million ounces.

3.  Considering refined and mined known silver reserves, there is far less silver in the world than gold.  About 150 million ounces of silver vs. 4000 million ounces of gold.

4.  Most silver, 70-80% brought to market, is mined as a by-product of copper mining, gold mining, or zinc and lead mining.  There are very few silver mines in the world, since most are really copper or gold mines. Therefore, mild increases in the price of silver will not bring substantially more silver out of the ground.  Much silver is consumed in photography; by Hollywood and medical photo imaging.  There is so little silver used in each photograph, that price increases in silver will probably not reduce demand.  With a relatively inelastic supply, and relatively inelastic demand, it will require a dramatic explosion in price to bring the supply and demand deficit back into balance.

5.  Famous Billionaires have bought silver in recent years.  In 1997, Warren Buffet bought 130 million ounces of real silver, due to the favorable "supply and demand fundamentals", and although he bought as much as they would let him legally buy, his purchase was with about 2% of the value of his portfolio.  Another Billionaire who tried to follow in his lead would be unable to do so since there is less silver now available in the world to buy at the COMEX than what Buffet has, and less than that in known, reported silver reserves in the world.  George Soros owns a large percentage of a silver mining company, SIL. Bill Gates owns over 10% of another silver mining company, PAAS.

6.  In the gold market, there has been a large increase in paper futures contracts which are used to suppress the price.  See my essay, "Controlling Gold with Paper".  In silver, the relative amount of paper contracts is much larger.  In other words, there are more paper shorts who will be caught in an impossible situation when the price of silver really begins to rise due to the fundamental supply demand gap.  They will be forced to buy silver or go bankrupt.  Either action will cause a dramatic rise in the silver price.  If they default on the silver contracts, that will signal to the world the severe shortage of silver, and signal a great investment opportunity.

7.  One of the cheapest ways to buy silver:  You can buy U.S. coins dated 1964 or earlier, $1000 face value (4000 quarters, or 2000 half dollars, or 10,000 dimes), in a "bag" of "junk silver", which contain 715-720 ounces of silver, depending on how worn the coins are.  In the early 1980's, when silver was $30-$50/oz., a bag of silver could be used to buy a house!  Imagine buying the money for your next house for $3500 today by investing in silver!

8.  You get so much silver for your money.  A bag of junk silver weighs about 55 pounds, and is the size of a bowling ball.  If you invested $100,000 into junk silver coins, at $3500/bag, that would give you 28.5 bags each weighing 55 pounds, or 57 bags weighing 27 pounds each, or about 1571 pounds total.  Could you imagine moving that much around your house if you had to move?  Silver is so cheap it creates physical problems for investors today!

You will sometimes find quarters in a bag dating back to the late 1800's.  In the early 1900's, you could work all day for a wage of one silver quarter.  Imagine being able to buy a day's wage of real money for less than a dollar of today's money!  Today, in 2003, a day's wage is over $100.  Another way to put it is that the dollar has lost over 99% of it's purchasing power over time, yet, due to silver being undervalued, you can get 100 times the value of your money and labor if you invest in silver.  Imagine if they paid a day's wage today of $100 in silver quarters; they would have to give you about 100 silver quarters today.  The implications are that if silver returns to its historic valuations, silver will need to go up in value about 100 times, to $480/oz.  Silver is truly a bargain.

I recommend that you visit your local coin shop in your local metro area to buy "junk" silver coins.  Look up "coin dealers" in the yellow pages.

Once you understand the story in silver, you canít help but want to buy real physical silver. But what about silver mines? How do those compare? I believe the best way to evaluate a silver company is to see how many ounces in the ground you are getting for every ounce of silver youíd have to give up the opportunity to hold. This brings me to Cardero Resources.

Cardero Resources is one of the most outstanding silver investing opportunities available that I have found.

Cardero is an explorer that is in the process of proving up the potential size and location of very high grade silver ore that, when it was mined previously, graded between 350 to 600 grams of silver per tonne. At .0353 oz/gram, that's 12.4 to 21.2 oz. per tonne. The stock symbols are CDU.V on the Vancouver Exchange that lists the Canadian price and CUEAF.PK that shows the U.S. dollar price. Both symbols will give you a price quote at Yahoo! Finance. Cardero has several mining properties, but their biggest and primary silver project is in Argentina.

Cardero has 28.3 million shares fully diluted (assuming all the options and warrants are exercised, which are all "in the money"). At the current stock price of $1.49 US or $2.28 CAN / share, they have a market cap of $42 million U.S. or $64.5 million CAN.

The company is debt free as stated in their required filings.

As Cardero is an explorer, itís quite hard to estimate how much silver their properties contain.

Cardero now has $4 million CAN in the bank. They have issued stock options and warrants that are all in the money, and when fully exercised, they will bring in an additional $6.5 million CAN. In fact, they are being exercised and bringing in money at about the same rate that the company is spending money on drilling. Cardero does not want or need to do any more financings in the near future, and therefore is keenly interested in preventing further dilution of the stock at the present time.

Henk Van Alphen, president and director, owns 1.3 million shares of Cardero. So he has a strong personal reason to keep dilution to a minimum. This is a company that the president strongly believes in, and is overjoyed to be involved with. He is extremely excited about the very high grades of this silver project heís working with.

Henk says he loves the process of developing a company in the exploration stage, and he has intentions of getting Cardero Resources into position to be acquired by a major so that the mining is done with someone with the experience best needed to optimize the return on investment for shareholders. Henk is a developer and explorer with 23 years of experience in the mining business, and he calls himself an entrepreneur.

Carderoís main property is the Providencia mine in Argentina. The previous property owner was not a miner, he was a lawyer. He never did any exploration to prove up the propertyís potential, yet he was able to mine the location for ten years until 1996, processing 60 tonnes a day. Henk says this property is the kind of outstanding world-class mine that should be developed by professional miners processing 6000+ tonnes a day.

So, how much silver is on the property? Frankly, nobody knows. Thatís why this company is still called an explorer.

But to try to get an answer to that question, I called Henk and I asked him what all those terms mean that are used in the mining community such as, "proven, probable & inferred" and "Reserves & Resources", and if the company has any estimates of that sort. Henk said that as an explorer, they donít have any publishable figures that use those terms, but thatís what they are working on by doing the drilling.

So, I said, well, how do you value the company? What do you have? How much silver are you sitting on? How do you decipher a geologistís report?

Henk said you look at two things. First, there are virtually no great silver mining opportunities in the world.

There is Silver Standard Resources (SSRI), also known as the "clean shovel" company. But they are basically a property holding company, not doing any active silver mining. SSRI is holding on to many great silver mining properties until a much higher silver price is reached, at least over $6.00/oz. Thereís nothing wrong with that strategy. In fact, I really like SSRI and the silver investing opportunity their company represents, as well. Yet with SSRI, at current silver prices, their silver is not really economical to mine at todayĎs prices. Yet, SSRI is a great silver investment opportunity simply because I believe the price of silver must head higher. The other major silver miners, Pan American Silver (PAAS) and Apex Silver (SIL), the mines owned by the Billionaires mentioned above, often mine at a loss because the price of silver is so low right now.

Please understand, Iím not bashing SSRI, PAAS, and SIL. I own all three, and they are all among my favorite silver mining investments. But even SSRI bought $250,000 worth of Cardero stock recently in the latest stock offering.

The point is that this property in Argentina that Cardero owns has very high grade silver, and was being successfully mined for ten years by the previous owner. The property is a mine, because it was a mine. And this is the kind of mine that should be quite profitable even at todayís low prices for silver, which makes it such a great opportunity.

Also, the mine can be run as an "open pit" mine, as the silver is near the surface. The mineralization is found in a porous material that is unique. This material stretches from about 700 meters by 200 meters wide. Estimating the depth is the tricky part that requires the drilling. There was one drill hole in the 1970ís that went to 150 meters and they were still getting silver.

Apparently, it is a bit difficult to get accurate core samples from the types of deposit they are working with. It's a porous Tertiary rock that consists of poorly cemented congolmerate or sediment. When the rock is very solid, you can get solid core samples, and you can then know what is in the rock. When the rock breaks apart more easily and is porous, it is more difficult. The way a drill works, you have to run water on the drill bit constantly or it will burn up in a second. When the rock is porous, the water has a tendency to wash away what you are trying to sample, so you end up sampling the mud slurry that you get, and you hope that the water you didn't collect didn't wash away too much of the mineralization.

One report said that the depth of the silver project might range from 25 meters to 75 meters. To calculate what that means, and how many tonnes the overall volume might be, you multiply the figures, 700 meters x 200 meters x whatever depth is reasonable, and then multiply by the density factor of 2.5 to get a figure for tonnes. So, an example might be, 700 meters x 200 meters x 50 meters x 2.5 density factor = 17.5 million tonnes. If the depth averages 50 meters in that area, and if it contains a minimum of 10 ounces of silver per tonne, thatís at least 175 million ounces. But understand this is speculation, and not a representation that they have that, since they are an explorer and need to do drilling.

Drilling, to prove up the depth of the Providencia area is scheduled to begin by the end of Febuary, 2003.

But silver is also being found outside that zone. The company believes there are other, similarly sized projects to the north and to the west. Chingolo to the west, has an identical imprint, and Ramona to the north, has silver and copper as well. So, the company believes that Providencia is only one of many. So, obviously, there is plenty of exploring to do on their properties.

In essence, the property that Cardero owns in Argentina could contain as much as three times what they are working on proving up at the Providencia mine. If as much as 250 million silver ounce reserve were found at Providencia, the company could be worth perhaps $350 million dollars U.S. due to the very high grades of silver that have been mined in that area.

The property is located in Northwestern Argentina. The silver comes through huge fault structures in the Bolivian silver belt. Argentina has a rich history of silver. Silver is how Argentina was named.  Argentina is derived from the Latin, Argentums, which means silver.

I first met Henk at the Mining Conference in San Francisco on December 1-2, 2002. At that time, the share price of Cardero was $1.50 CAN. The stock price hit a recent high of $2.69 CAN and is now trading at $2.19 CAN.

Essentially, this is a company with very high silver grades that looks to be very profitable regardless of whether the silver price moves up significantly. They have a large amount of world class high grade silver in the ground, and a great stock price that remains a good buy, but the price is on the move. In fact, if I was a technical analyst who looks at charts, which Iím not, Iíd say the stock just broke out on the upside well above its trend, which was up.

For more information and press releases, see the companyís website: http://www.cardero.com

Or, contact Henk Van Alphen in Vancouver at 604 408 7488 or by email: hvanalphen@cardero.com

Other silver companies that may be of interest are the following, which you can use as your own list to start doing your own research. The first eight companies are listed in terms of market cap, largest first.

APEX SILVER (AMEX:SIL)

HECLA MINING CO (NYSE:HL)

PAN AMER SILV (NasdaqNM:PAAS)

SILVER STD RSC (NasdaqSC:SSRI)

WHEATON RIV MIN (AMEX:WHT)

COEUR D'ALENE (NYSE:CDE)

CARDERO RESRCE (CDNX:CDU.V)

MINES MGMT INC (OTC BB:MNMM.OB)

The rest of these companies below did not have their market caps listed at Yahoo!, so the information for that is not readily available, and they are listed in no particular order.

QUATERRA RES (CDNX:QTA.V)

WEST COPPER LTD (Toronto:WTC.TO)

MINEFINDERS CP (Toronto:MFL.TO)

INDUSTL PENOLES (Other OTC:IPOAF.PK)

GAMMON LAKE RSC (Toronto:GAM.TO)

ECU SILVER MINI (CDNX:ECU.V)

CORNER BAY SLV (Toronto:BAY.TO)

MALACHITE RSC (ASX:MAR.AX

ITRONICS INC (OTC BB:ITRO.OB)

SILVER SURPRIZE (Other OTC:SLSR.PK)

STANDARD SILVER (Other OTC:SDSI.PK)

HORN SILVER MINE (Other OTC:HRNS.PK)

SILVERSTAR (NasdaqSC:SSTR)

In sum, there are two main reasons why Cardero resources offers an opportunity that rivals physical silver. First, with Cardero, you get much more silver for your money. This means that the value of Cardero shares have the potential to appreciate at a faster rate than physical silver.

The second reason is that Cardero shares donít pose the physical problems of owning a lot of silver. $3600 worth of silver weighs 55 lbs., and $36,000 worth of silver weighs 550 lbs.

Physical silver is great. It wonít go bankrupt, it canít default on you, and represents very little risk--only the risk of loss through theft. It represents real tangible wealth, and there is no substitute. But after you accumulate enough physical silver that you are comfortable holding, itís time to consider other options, such as Cardero.

Buying a futures contract for silver, or options on futures contracts does not represent a viable alternative to owning stock in a silver mining or exploration company. I regard futures contracts as speculation, as extremely risky, and as worse than gambling, and not a legitimate investment choice. See my recent essay, "The Moral Failures of the Paper Longs".


Disclaimer: I am not a licensed investment advisor. I am not a broker. I hold positions in precious metals and mining stocks, which are subject to change without notice. I am biased against what I consider to be the fraud of fiat money, which are false weights and measures, and an abomination. I am biased against the fraudulent practice of creating money out of nothing. I am biased against debt: particularly when money is lent at any interest rate whatsoever, a practice called usury.

For a list of many other reasons why I believe now is a very good time to buy gold and silver, see my web site. www.goldismoney.com

Jason Hommel - jasonhommel@yahoo.com


-- Posted Saturday, 25 January 2003 | Digg This Article




 



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