Is China the new Silver Valley?
By: Dorothy Kosich
Posted: '23-SEP-05 05:00' GMT � Mineweb 1997-2004
POST FALLS, Idaho--(Mineweb.com) A proposed Chinese silver project generated awe among the fellow silver explorationists Thursday attending at the Silver Summit.
In a presentation to the summit, Silvercorp Metals Chairman and CEO Rui Feng said he expected to earn at the end of this month, a 77.5% interest in the FOUND JV, which holds a 100% interest in Ying Silver Project in the Henan Province in Central China. If Feng is successful in his goal to begin commercial production by March 31, 2006, the project will produce 5 million ounces of silver in its first year of operation.
Judging by the reaction of his audience, Feng was not hyper-promoting the potential of the district, which he believes may form world-class mining camps, similar to the Coeur d'Alene mines in Idaho, which produced more than 1 billion ounces of silver in 120 years.
With evaluations derived from 16 kilometers of tunnels and 6,000 meters of underground drilling, Feng believes five narrow veins contain an estimated 18,832,937 million ounces of measured and indicated silver resources, 137,730 tonnes of lead, and 42,004 tons of zinc. (How he measured the amount of silver so precisely is a mystery). Amazingly there are 35 more veins yet to be evaluated, he added. These evaluations will be made by 400 miners, and 25 geologists, surveyors and engineers now living in four mining camps.
Ying Silver is a rare self-financed exploration project. Sales of byproduct, direct-to-smelter ores and milled concentrates have generated nearly $1.46 million in cash the first half of this year, entirely offsetting exploration and development costs for this year, according to Feng.
The silver production cost per ounce of silver anticipated to be $0, since the lead and zinc revenue "more than covers the entire cost" of mining, Feng declared.
The byproduct ores from exploration and development tunnels are expected to yield 10,000 tonnes of ore and generate $7 million in revenue, he added. Feng estimated the total mining cost of the Ying Silver project at $30 per ton including a shipping and custom milling cost at $12.80 per tonne.
With this cash flow, Feng plans to construct a $5 million, 600tpd mill at the project this year. Geologist Feng, who has worked both in China and Canada, expects to construct 17,000 meters of exploration tunnels this year to double the current resource. Of those, 4,000 meters of development tunnels will be mining ready. Feng estimated the mining cost at $17.20 per tonne.
The Changsha Engineering & Research Institute of Nonferrous Metallurgy (�CINF�) performed mine & mill design for the project, which was required to begin the application process for a mining permit. The five exploration permits granted to FOUND cover 52.6 square kilometers. Silvercorp has invested $3 million in the joint venture.
Despite the potentially incredible scope of the project, a question remains as to whether the Vancouver junior will be able to reap financial benefits from Ying Silver due to China's evolving regulatory and system.
For all I care, Silvercorp may go to the moon, but their last private placement took them off my screen. They sold TWO MILLION shares at $3.20 at a time when the market price was over $4. Each two shares in the sweetheart deal had a warrant attached for a $4.60 buy, to further trash future price rises.
Dilution of this type is common among Canadian PM juniors. Many probably have no choice, but companies that don't dilute do much better. Waiting to see if the dilution pays off is too much of a crapshoot for even me.
Also, PP's are a short seller's dream -- imagine being able to short a gazillion shares KNOWING you will be able to cover at a considerable profit. You might even short a gazillion more. Jason Hommel lost a lot of respect with me when he went on and on about his PP with IGMI, where he got shares for 40 cents while you and I were paying 75. At another point he started ranting about the morality of using Federal Reserve Notes. Why not begin by having fair securities markets and not contributing to the unfairness himself?
The absence of this dilutive crap is one reason I own SLW. TRE is another notable exception -- the boss kicks guys looking for sweetheart PP deals out of his office. He (1) buys the PP's himself, (2) at market price, and (3) holds the stock forever so it is non-dilutive and exposes him to the same risk as other investors. Try charting SLW and TRE alongside four others among the usual suspects, including BCM.V, whose shenanigans get indirectly visited on us:
stockcharts dot com
Note that unlike the lovely exponential rises in SLW and TRE, the others kept up for a while, then started dropping. SOMEbody knew something ugly was about to happen a week to several weeks ahead. After the dip reached its nadir (all the while, SLW and TRE continued to chug merrily skyward), a HUGE block moves at some emetic price, and none of the stocks has done all that well since compared to the undiluted SLW and TRE.
Now it may be true, as pointed out here and elsewhere lately, that Cannacor is holding some of these silver babies down while it accumulates preparatory to a big rise later -- I dunno. More to the point, I DON'T WANT TO KNOW. I just want to own stocks in companies that have a good business model, carry it ou properly, and aren't involved in all the BS. SLW and TRE had sense enough to work in the royalty angle. This offloads hassles, delays, expenses, permits, litigation, and other joys of mining.
I just gave you something for free that cost me $xx,xxx to learn. I did all right this summer, but I would have done a helluva lot better if the money I had in those four vats of Vancouver pixie dust had been in SLW and TRE.
So if you want to swing for the fences with juniors, I suggest something like (besides TRE) MGN or SRLM, or maybe even ASLM for the REAL crapshooters. Their properties also happen to be in Idaho and Montana, where Chavez was not in power last time I checked.
Those of you who know me from other boards know my money is where my mouth is. I currently have at least medium five figures each in TRE, SLW, and MGN. I also confess to owning CZN.TO, for my shot at a hundred-bagger, mainly because I was born in the same wildcatting oil boom town as the Hunt brothers, who developed that property originally back in the 1980's when they cowboyed the silver market. This is not a portfolio I would advise for others, but my mother taught me to play poker before I could ride a bike, so you do you own DD based on your own financial parameters. If you go broke betting my lottery tickets, sue yourself -- 'cause I'll be a greeter at Wally World.
Not sure I understand the SLW warrants. Looks like it takes 5 to buy one share of stock. Is this correct ?
How many new common shares can be created if the warrants are exercised ? And, when SLW reported earnings, I'm assuming this is NOT fully diluted. Is this correct ?
Check out tanzania election post on SH tnx board by 1020. I sold about half of my tre yesterday (not because of country risk) way too high a percentage of my PMs after huge run up.
What do U think of a SLW takeout by Silver Standard? It certainly would give them cash flow that they don't have and Tefler would get a huge gain on his investment.........opinions welcome
In the back of my mind, a little voice is whispering to me ... "something ain't right in all this ..."
For those in Silvercorp, I hope you do well and make a gazillion, but my spider senses are tingling ...