Silver Stock Report
by Jason Hommel, June 6, 2007
What is the side effect of lower gold and silver prices? Higher copper, zinc, and lead prices!
Let me share with you a powerful little secret that the entire world has forgotten.
Gold and silver are found with copper, zinc, and lead.
Gold mostly is found with copper, and silver is mostly found with zinc and lead.
Why is this important?
As my readers well know, the excess creation of paper money has had a rather obvious side effect; the depression of gold and silver prices because there is almost no demand or use of gold and silver as money today.
So here’s the big secret! Low precious metals prices have resulted in another side effect; lack of copper, zinc, and lead.
There is a major difference between China’s industrial revolution today, and the one of 150 years ago, that is overlooked by nearly everyone, because gold bulls are too focused on gold, and commodity bulls are too focused on commodities. (Everyone is a specialist these days, and even I was infected with the “disease” as a silver bug for a while, and I simply had no time to focus on anything other than silver!)
But the bigger picture is that China’s industrial revolution is being fueled by paper money, and trade with the west. But printing paper does not create copper. Neither do mergers, nor futures contracts, nor trading copper to the east. None of that creates copper. Not even high copper prices can create copper (not right away)!
Why not? Because higher copper prices are still looked at as an anomaly, as something unsustainable.
The only thing that can create more copper, is investment in copper exploration, development, and production.
Or investment in gold mines and silver mining. But the only thing more depressed than gold and silver stocks are copper stocks! Most silver major mining stocks have P/E ratios in excess of 30.
Currently, with about 10 copper projects in 10 copper companies out there going unfunded, that have forward P/E ratios around 1, the copper bull market in copper stocks has not yet begun.
Today, about 70% of silver is produced as a byproduct of copper, zinc, and lead mining.
But in the long forgotten past, the great silver and gold miners produced huge by-product stockpiles of copper, zinc, and lead, which enabled and fueled our industrial revolution. Our industrial revolution 150 years ago was fueled by capitalism and honest money, the by-product of which was abundant copper, zinc, and lead.
Today, the U.S. is more communist than China, as we have adopted, in part, each of the ten planks of communism, and as our “money masters” whisper to us, “If we all remain in the dollar, we’ll all be ok.” Foolishness! We have to think for ourselves, and protect ourselves from inflation; especially inflation of base metals prices!
Today’s paper money economy cannot create the copper that China needs for power lines, and electrical wiring in homes, and copper pipes.
Copper prices are up from $.75/lb. in 2003, having peaked out at about $4/lb. a year ago, and have since dipped, and then recently flirted with hitting $4/lb again.
The recent dip in copper prices this last year over 8 months reflect the fact that China stopped buying copper on world markets, to live off of their own inventories, in the hopes that copper prices would come back down. They did.
Then, three months ago, China started to import copper again, so copper inventories are dropping again, and the price is headed back up again.
Eric Sprott, in April, wrote a great 3-page report on China. I strongly suggest you read it.
Sprott makes the astounding point that 17 years ago, China consumed 1/4 of the copper as did the U.S.
Today, China consumes twice as much copper as the U.S.! In fact, China’s one year increase of copper is more copper than is used in the entire U.S. housing market!
That’s the kind of data that I’ve been looking for, that proves this commodity bull is not going to end anytime soon. I trust Sprott’s data on that.
Nearly all my life, I’ve heard that the 3rd world cannot develop like the west, because we simply use too many natural resources that nations like China can never have. Well, China is developing, and they are now buying up all those resources!
China seems more intent on buying the things it wants, rather than the gold it should buy, but that’s ok. Just as there is no enough gold, there is not enough copper for them either, not at today’s prices!
My two favorite copper stocks that I own at the moment are Baja Mining, and Coronado Resources. (Neither company pays me to mention them.)
Baja Mining: (BAJ.TO, BAJFF.PK) http://www.bajamining.com/
Jon Nones of Resource Investor wrote up Baja Mining a few days ago:
I wrote up Baja Mining on May 18th, when the stock was $1.71/share, and had a forward P/E ratio of 0.3! http://silverstockreport.com/2007/Baja_Mining.html
Coronado Resources: (CRD.V CRDAF) http://www.coronadoresourcesltd.com/
Coronado, in Montana, hit 41% copper over 27 feet, as I mentioned last year. (Boy was I early!)http://www.silverstockreport.com/email/copper_discovery.html
Several smart men at my member’s forum, (not affiliated with the company) have estimated that Coronado may have as much as $700 million worth of high grade copper underground. Not bad for a company with a $22.5 million market cap.
Coronado has 19,000,000 shares outstanding, and 6,968,000 warrants and options.
Most of the warrants are at about $.80, and expire this month, so now is a particularly good time to buy the stock, as you should be able to get stock cheaply due to warrant holders (like myself) being eager to sell, to exercise their warrants before they expire. Once they expire, in about 10 days, the stock price should really take off.
Coronado is currently constructing a ramp to a zone of high grade gold and copper, and has begun stockpiling copper ore. The company is on the move, and the stock price is on a dip, and the timing is about perfect, especially with the long term outlook for copper being so excellent.
Some of my readers may be wondering about a stock I owned in 2003, called Mines Management. They have low grade copper and silver in Montana, and the stock was a good deal, considering the silver alone.
As you may know, I’ve been developing an online spreadsheet of mining stocks, and encyclopedia of mining stocks, and it calculates a number for “resource leverage” for over 70 junior companies. As of today, there are about 16 stocks that profile to have more resources per (market cap and capex). To see the names of all of these companies, and get access to this database, sign up to “look at my portfolio”. (Or save yourself the trouble, and just buy Baja & Coronado. Then, once you make money on those two, consider subscribing please.)
I own 588,700 shares of Baja Mining.
I own 617,700 shares of Coronado.
I own 400,000 warrants of Coronado at $.80/share Cdn that expire June 13th.