Thinking Canadian(s)

By : David Bond

Editor, the Wallace Street Journal

Wallace, Idaho – – After touring a portion of the underground workings at U.S. Silver's (TSX: USA.V) Galena Mine complex just west of Wallace Saturday last, it got us thinking – re-thinking, actually – this business of actually investing in Vancouver- and Toronto-based silver mining stocks.

The Galena is in fine fettle, operationally profitable despite huge charges for necessary upgrades and exploration, producing a mix of silver, lead and copper which is shipped to Cominco's Trail, B.C. and Xstrata's Horn smelter in northwestern Quebec. U.S. Silver is free of debt and has about $10-mil in the bank; primary silver production is scooting along at an annualized rate of about 2.3-mil oz., and production of silver, lead and copper will increase significantly next year with rehabilitation of the Coeur mill, the addition of another circuit at the Galena mill, completion of haulage-way upgrades, and much-improved mill-heads.

Accessing the workings underground via the double-drum No. 3 Shaft hoist to the 2,400-foot depth, we lumbered along the drift a kilometer or two to examine extensive repairs under way to the Galena Shaft, which Coeur d'Alene Mines decided to neglect some years back to the point where 800 feet of timber sets went crashing to the sump. The 50-year-old shaft inadvertently intercepted the Polaris Fault – read, ratty ground – during its sinking. Five years ago, under Coeur d'Alene Mines' stewardship, a plumbing leak weakened the rock supporting the shaft timbers; the rock gave way and the timbers went a-crashing. U.S. Silver is making the proper fix that should have been performed years ago: they're creating a concrete cylindrical shaft wall, ala Hecla's Silver Shaft at the Lucky Friday Mine through the 800-foot fault intercept. The the shaft should be back in service by year-end.

While we've all been paying attention to the stock markets – the TSX may finally, mercifully have broken its lockstep moves with the toxic Dow – U.S. investors might be overlooking the fact that the Canadian dollar has fallen precipitously relative to Benanke bucks. A U.S. paper greenback now fetches $1.27 in Canadian money; conversely, you can buy a dollar's worth of Canadian stock for 84 cents U.S. Which meant that some of our tour party's members' dash to the broker's this morning to buy 10,000 shares of U.S. Silver at 10 cents only cost them $780. A year ago the tables were turned: You got $800 worth of Canadian stock for $1,000 U.S.

This 20 percent discount in already heavily discounted Canadian silver stocks gives us reason to pause. Because even were the exchange rate to return to par, there are some incredible bargains out there. It's time to get back to basics. We've had a six-month barrage of news about the $516-trillion derivatives time bomb; the excesses of Bear Sterns, AIG, Lehman, and the rest of the sorry lot; the arrival, front-stage, of the National Socialists and their nationalisations of U.S. banking and commerce.

(And let us get rational. We are not going back to the caves, the best efforts of the Green Movement notwithstanding. The Greens, Al Gore and the lot, just got shoved back into the caves themselves by betting the ranch on Global Warming. Turns out the warming isn't happening at all; our brief warming was a reaction to a flurry of sunspots which now have retreated, and if anything we face a far more serious problem: global cooling. That last thing Western Civilization needs is advancing ice, and fewer places to live and grow crops, so we pray that the political fear-mongers, absent any science, are right.)

But let us stand back and look. Our investment model may be flawed, and criticisms are welcome. We like investments which cost less than their bottom-line net worth. If you can buy Company X, which otherwise unencumbered owns a Gulfstream G550 free and clear, and their current market cap is below the cost of the airplane, you are a fool to not want the company. Canaccord publishes a list of junior minors who have more money in the bank than their share value. This list grows every month.

While we have been dinking around with this story about the Galena and its huge long-term potential over the past week, the Canadian dollar exchange rate has swung between $1.17 and $1.30. So it is very difficult to price US Silver Corp. shares this side of the 49^th Parallel. Changes every day. Somebody is playing games, and we don't mean with USA.V's stock; we mean with the money – our money.

It is about like pricing silver, as Jason Hommel has made grand note of in his recent auctions. The price of silver is hugely elusive, even in this free market. The U$Dollar doesn't appear to be relevant to the value of things any more. It is a ghost chasing vapours.

So there are, in this writer's opinions, only three things to do in this weird market. First, load up on physicals from sources you can trust. Second, find healthy companies that are trading at or below their share value (and play the P/E game, if you like; there are some dandies under 1/1). Third, use the exchange rate, which until next Tuesday or so probably plays in the Amerikanszi's favour, after which, we are laying down no bets.

Some guys do know how to mine the money we call gold and silver. They should be on your team.

David Bond

Editor : The Silver Valley Mining Journal

www.silverminers.com

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