SILVER AND CARDERO RESOURCE
Jason Hommel
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 January 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 Buffett 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 can't
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 you'd 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, it's 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 he's 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.
Cardero's 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 property's
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. That's 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 don't have any
publishable figures that use those terms, but that's 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
geologist's report?
Henk said you look at two things. First, there are
virtually no great silver mining opportunities in the world.
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 today's low prices for silver, which makes it
such a great opportunity.
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.
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.
For more information and press releases, see the company's website: 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 RESOURCE (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.
MALACHITE RSC (ASX:MAR.AX)
MINEFINDERS CP (Toronto:MFL.TO)
QUATERRA RES (CDNX:QTA.V)
WEST COPPER LTD (Toronto:WTC.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)
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 don't 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 won't go bankrupt, it
can't 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, it's 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
7 February 2003
Other essays by Jason Hommel:
25 Reasons To Support The Sound Money Bill - 08 July 2004
I'm Insanely Bullish On Silver - 19 June 2004
Silver Stock Evaluations - 22 May 2004
The Silver Bull Is Back - 04 May 2004
Late April Silver Update - 22 April 2004
Silver Juniors With Cash Flow - 04 March 2004
Major Frauds of the U.S. Monetary System - 26 February 2004
Market Perspective & Cabo Mining - 12 February 2004
Usury Enslaves - 19 January 2004
Sterling Mining - 29 December 2003
The U.S. Trade Advantage With China - 17 December 2003
Rising Gold Prices Will Help The Economy - 02 December 2003
Miners to Use Silver as Cash - 27 November 2003
Private Placements in Silver Companies - 20 November 2003
Is the Silver Market Too Small to Buy? - 13 November 2003
Inflation & Deflation During Hyperinflation - 06 November 2003
Silver Price Expectations of Silver Stock Investors - 30 October 2003
Buying & Tracking Canadian Silver Stocks - 29 October 2003
Canadian Zinc--Silver Potential - 23 October 2003
Silver Stocks--Comparative Valuations - 4 - 13 October 2003
Silver Stocks--Comparative Valuations - 3 - 06 October 2003
Silver Stocks--Comparative Valuations - 2 - 29 September 2003
Silver Stocks--Comparative Valuations - 1 - 22 September 2003
Silver and Cardero Resource - 08 February 2003
The Moral Failures of the Paper Longs - 22 January 2003
CFTC Response to Silver Problem - 14 January 2003
People Talking About $32,567/oz - 10 January 2003
Letter To Authorities of Silver Markets - 06 January 2003
Why no talk of $32,567/oz ? - 02 January 2003
Refuting Myths about Gold - 28 October 2002
Controlling Gold with Paper - 10 June 2002
Impending Gold Futures Default - 29 May 2002
Certain gold stocks are still cheap - 07 May 2002
A Few Supply and Demand Fundamentals of the Dollar and Gold - 06 May 2002
New DROOY Institutional Holdings - 21 February 2002
Hommels View of Gold - 23 March 2001
Gold Price Under Differing Scenarios - 24 June 2000
Goldismoney.com
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