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Doubling The Silver Bet

By: David Bond

-- Posted 5 January, 2008 | | Discuss This Article - Comments:

The Wallace Street Journal


By David Bond, Editor

The Silver Valley Mining Journal


Wallace, Idaho – Here in the Silver Valley we haven't had a winter like this one – it began snowing in earnest a week before Christmas, having spat quite heavily since Thanksgiving, and here, on the eve past the New Year, it shows no sign of letting up – for 28 years. We're getting between 4 inches and 7 inches per day and per night. The snow is piled up so high along the sidewalk and driveway that one cannot see over the top of the berms. Our barbecue is buried so deep in drifts it looks like a quonset hut, inaccessible.  The freeway is a white-out, sans any wind. We watched a Chevy Avalanche get high-centered on a Wallace street barely 2 hours after our tireless city crews had ploughed it clean.


It's just flat beautiful. There is something peaceful and reassuring about a heavy load of snow, provided you've paid attention to its load on the rooftop and you don't have to go anywhere your feet can't take you. The power flickers on and off, but that is what the ABS boxes and Aladdin Lamps are for; and if your backup power supply gets overextended and the computer can't run and you can't file stories, well, there's always the cell phone to call the Mother Ship and tell them you won't be checking in this week.


If there's a bummer to all of this, it is that our Ron Paul for President yard sign is not visible to King Street over the berms. Shauna has shoveled the Ron Paul for President yard sign out a couple of times, but last night's snowfall covered it completely.


The summer before our last heavy-duty winter, in 1979, we made our pilgrimage to Wallace at the behest of one Harry F. Magnuson, who pointed out to us that Silver was making its own pilgrimage from $5 to $7, and we should pay attention. And despite our lifelong proclivities pro-silver, we hadn't been paying attention. But there it was: Silver was on the Hunt.


The Hunt Brothers get entirely too much credit for what happened with Silver in 1979 and 1980, whether up or down. Remember the geopolitics: Inflation was running at double-digits; a home mortgage below 20 points per annum was a gift; Iranian students had hi-jacked the U.S. Embassy in Tehran; the Shaw was discovered to be a vile old decrepit CIA-propped-up bastard; the Sovs had just pushed themselves into Afghanistan. Jimmy Carter was withering just as “W” is now, and Ted Koppel's Nightline was born, counting the days of the hostage crisis. We bailed on the Olympics. Into this milieu the Hunt brothers waded, their decade-old contracts for the purchase of silver in hand, merely requesting legal delivery. The exchanges could not deliver, and all Hell would shortly break loose.


Heady times, were those 1979 days. Paul Sarnoff held court at the Northwest Mining Association convention at the Davenport Hotel in Spokane that December, being introduced around by Hecla's Phil Lindstrom and telling grand tales. The snow was flying heavily then, as it is now. As the white stuff swirled around the American West's finest hotel and the canaries chirped beside the fountains in the lobby and the piano player played, you could hang by the elevators and see who was getting on and off together, and interpolate the deals that were about to come down.


We are testing memory here, but as we recall, Sunshine had 17 million shares outstanding, Hecla a little less, and Coeur d'Alene Mines, 4 million shares, back them. Day Mines had perhaps 5 million. Bunker Hill we had already lost to Gulf Resources & Chemical Corp., so nobody was keeping track of them. But working for Harry Magnuson's newspaper that winter, we ran some calculations, and figured that it would take less than $1 billion to buy the entire Coeur d'Alene Mining District and all its attendant companies, in 1980. That included the smelters and refineries, and seven producing mines.


In February or thereabouts of 1980, the Hunts offered to take the Bunker Hill smelter and mines off of Gulf's hands for that same $1 billion. Gulf stupidly said No. A third of Sunshine's stock ended up in Arab hands. Hecla swallowed up Day Mines and sunk the Silver Shaft at the Lucky Friday.


The United Snakes Government was so threatened by Silver's power over the US Dollar in 1980 – there was a flight of Fednotes into silver bars, silver stocks and silver bonds – that it flooded the financial sewers with the 1 billion ounces of silver it had extorted from Europe before, during and after World War II at prices well below the cost to mine the stuff. Jimmy Carter, Ronald Reagan and Paul Volcker managed to save the United Snakes' dollar's face, but the price was paid by the western hard-rock miners, and by the people whose faith in the integrity of their Republic was blown to smithereens. It was the denouement of the slow-motion train-wreck that began in 1966, when the war-criminal Lyndon B. Johnson replaced the silver in American coins with pot metal.


So Silver was brought to its knees. From $48 to $4.88. The threatened Dollar was “sound as a dollar” once again. Except it wasn't. Since those courageous acts of Carter, Reagan and Volcker's Fed, that paper debt-note you call a dollar bill has lost more than one-half of its purchasing power, and since 2002, the loss of its value has turned inexorably hyperbolic. The maligned Canadian dollar, which also is a mere fiat currency but at least represents the economy of a nation that produces natural resources, has rebounded from a 35% discount to, now, a modest premium. Paper Euro dollars, which were launched at 75 cents to the U$D, now are worth $1.47 U$D.  A U$D will barely get you 50 cents in GB Pounds. It is humiliating to present a U.S. passport overseas: They think we are nuts bent on bankrupting and/or blowing up the world, and can you blame them?


Researching our year-end rant for Metals Week, we suddenly realized we were about the bury the lede, which is: This maligned Silver Valley is about nearly to DOUBLE its silver production next year, from 4.9 million ounces in 2007 to 9.7 million ounces in 2008. That's more silver than we've produced in a year since 2000.


U.S. Silver is doubling its Galena Mine production from 2 million ounces to 4 million in '08;


Sterling's return of the Sunshine Mine to production will serve up another 2.8 million ounces;


Hecla's Lucky Friday will remain in steady-state production next year, but a new winze extending from the 4,050-foot level to 8,000 is in the works, as is a new surface-breaching shaft, and there are whispers throughout the company of a brand new mine, either between the Lucky Friday and the Star, or between the Star and the Dayrock or Tamarack.


We haven't sunk serious shaft in the Coeur d'Alene District since the Silver Shaft and the Caladay in the early 1980s. Now, we are talking about two, three, or even four new ones, as exploration progresses at the Hecla, Bunker Hill and the Silver Royal Apex properties.


The $20 million that Hecla spent on the Silver Shaft at Lucky Friday and that Callahan Mining (now part of Coeur d'Alene Mines, and gone away) in 1980 translates in this day's Fednotes to about $60 million. Multiply that by four or five new shafts in the Coeur d'Alene Mining District and you have, in flat U$D, about what the net worth of this camp was back then.


We are, in this time of increased production, also poised on the verge of a silver price explosion that will make 1980 look like mere foreplay. We polled pundits from Spokane to Toronto and nobody is seeing single-digit silver ever again. James Turk thinks $27 is reasonable. Sprott's John Embry sees a sea change: “The key is, and this cannot be over-emphasized, is that all this money we've created, all this shit has blown up and people are going to turn to precious metals.” Thirty bucks to Embry is a no-brainer.


All the silver mines in the Silver Valley's Coeur d'Alene Mining District will be producing silver for substantially less than $10. Hecla has screwed costs down to $4-something at the Lucky Friday thanks to lead and zinc credits; Sterling will weigh in below $8 at Sunshine; U.S. Silver, which inherited a hideous cost structure from Coeur d'Alene Mines at Galena, will be in the same ballpark. Silver could crash to $12.50, or even $10, and we would wail and gnash our teeth accordingly, but the profits here are going to be tremendous, legendary, anyway.


So comes the inevitable phone call. “David, are there any good plays left in the Silver Valley?” To which we can only answer: “Put on a blind fold and throw a dart at the board. You can't miss.”


This is a great way to start 2008. There are no wrong moves in the silver market (unless you're selling) and there are no wrong moves in the Silver Valley. The only thing that can attempt to destroy this market is an attack by the full faith and credit of the United Snakes Government. And they have neither faith nor credit. Bring on the snow. It's our time. Get aboard.

-- Posted 5 January, 2008 | | Discuss This Article - Comments:

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