Keep this in mind because it is coming and I guarantee it. As you all know it is happening quickly and the past will repeat.
Africa, South America, Latin America, Russia, Iran, Montana etc. The Silver Valley isn't that bad actually now that the stream is not flowing white like it was 50 years ago.
Going South
David Bond
Sleepless and Solvent in the Silver Valley
March 18, 2004
WALLACE, Idaho - Seems like it was only yesterday when the great Anaconda Copper Company broke its pick in South America - Chile to be exact - but it was actually 33 years ago.
The train wreck that had once been the U.S. mining industry in South America was absolute and lethal. Yet the events leading up to it seemed, even to nominally intelligent Americans, each harmless in and of itself. But the net effect of this - to use the term employed by investigators of fatal airliner disasters - "cascade of events" was catastrophic.
We are reminded of Chile 33 years ago by something that DID happen only yesterday, or at least just last week, and that was the vastly under-reported seizure by the Venezuelan government of 5,400 ounces of Hecla Mining Company's gold.
A Generalissimo Alberto Betancourt, major domo of Venezuela's Bolivar region, marched his National Guard troops over to a supposedly secure warehouse somewhere in eastern Bolivar State, broke in and boosted Hecla's triple-nine - five thousand, four hundred ounces of it, worth (at $402/oz gold) $2,170,000, and hauled it off to Venezuela's Central Bank on Tuesday, March 9th.
The Generalissimo's rationale for ripping off Hecla's gold is no more relevant than Hecla's protestations that it had done nothing to deserve this indignity. The only important fact is that it happened - as it has been happening ever since American mining companies abandoned their North American roots and went for the quick buck in South America.
"Can't those bastards spell Anaconda?" ranted one wild-eyed reporter at the PDAC bash in Toronto, when he heard the news. "What part of nationalization do they not understand?"
What happened to Anaconda in Chile is instructive, especially in the "cascade of events" context, so please hang with me whilst we digress through a little history.
The Guggenheims of AS&R (and RMS Titanic) fame were among the first significant Yankees into Chile with their formation of the Chile Exploration Company in 1910. They mined low grade but massive sulfide deposits of porphyry copper in the Chuquicamata and El Teniente mines.
The Guggs apparently saw Anaconda, who'd been digging around Chile since 1905, a-coming, and in 1924 unloaded their Chile Exploration Co. holdings on them.
Another big American player in Chile was Kennecott, who picked up the big El Teniente deposit from American copper miner Braden Copper Co. in that same period. Yet another American miner down there was Cerro Corp., which through its Chilean subsidiary Compania Minera Andina owned and operated the rich Rio Blanco mine in the heart of the Andes Mountains.
Anaconda, Cerro and Kennecott were left to their own devices through the first half of the 20th Century. The first event in the "cascade" occurred in 1951 when, under pressure from the Truman Administration, the companies signed a deal with the Chilean government entitling that government to dispose of 20 percent of American copper production in its country as it saw fit.
But governments are never satisfied with the status quo when it comes to theft and taxes, and in 1955, the Chilean Senate imposed another round of copper taxes and, more ominously, created the Copper Department - a state-run institution responsible for supervising and participating in the international copper markets, and taxing and regulating copper production, exports and imports.
The so-called Copper Department gave way, 11 years later in 1966, to the creation of Codelco, Chile's national Copper Corporation. With the stroke of a pen, the Chilean government gifted itself to ownership of 100 percent of the Americans' copper operations, but the Americans could buy back into a 49 percent position in those operations, which became known as "Mixed Companies."
Incredibly, they paid up: Kennecott kicked down $230 million to retain a minority position in the El Teniente mine it once owned outright; Anaconda, nearly $300 million for its formerly owned operations!
Still, that wasn't enough for Chile's rapacious socialists, and in 1971, they amended the Chilean Constitution to include a "temporary" provision establishing that "in the interest of the nation and the State's sovereign and inalienable right to freely dispose of its wealth and natural resources, we nationalize and declare that the foreign companies that constitute the large-scale copper-mining industry. . . hereby become part of the full and exclusive domain of the Nation."
Not only did they grab the Americans' property, they seized control of their capital in Chile.
Remember that copper was going gangbusters, price-wise, during this period thanks to the Vietnam war, making the Anaconda and Kennecott holdings that much more tempting. But the real reason the Chilean socialists expropriated these billions of dollars worth of American assets was because they could.
So from a simple tax swindle to a full-blown larceny, the cascade of events that caused the fatal billion-dollar crash took just 20 years, from 1951 to 1971. And the mining industry reacted just like that frog, you know, the one you place in a saucepan full of cold water then put a flame under. The temperature rises gradually enough that the frog never notices the change and just sits there, grinning, oblivious, as it slowly boils to death.
Well, you've hung with me long enough, so I might as well get to the point: There is very real danger, both fiscal and physical, to American miners who venture south of the equator in this hemisphere. I see the magical South American numbers trotted out by juniors and seniors (who should know better) alike, extolling the virtues of $5 extraction costs for gold and a sixpence for silver. But what value is your $5 gold or your six-cent silver to you if some newly installed nationalistic socialist government swipes it at gunpoint from you? AS INVARIABLY THEY WILL!
If we learn one thing from history, it's that we learn nothing from history. Whether Hecla gets their 5,400 ounces of gold back or not is irrelevant. What's relevant is that South American governments can and routinely DO rip off mining properties and assets - unilaterally, and without any semblance of due process, and sometimes, as appears to be the case in Venezuela, just for the king-hell fun of it. Because they can.
Which brings us, dear friends, to the real reason for my shameless touting of Silver Valley, Idaho silver and gold mining stocks. These American companies actually have American mines - patented, permitted, and either in production or mere months from it should the call go out. Yes, America has its generalissimos, in the form of the IRS and the EPA, but compared to a Venezuelan generalissimo or a Chilean despot, your odds are one hell of a lot better.
Consider that it takes between eight and fifteen years to bring a new mine on line in this country - depending on which side of the bed SCLDF, the Sierra Club's Legal Destruction Fund, falls out of that particular morning. Hecla's Lucky Friday silver, lead and zinc mine is coining money, as is Coeur's Galena complex, because they're operating unhedged and are already benefiting from the new bull market.
Ramp-up to full production at Bunker Hill, SRLM's Sunshine, NJMC's New Jersey properties, KMGM's Kimberly gold mine can be measured in months, not decades. And the myriad "little kittens" of this silver camp - SBUM (Silver Buckle); MERG (Merger); MEMLA (Metropolitan); MMMM (Mineral Mountain); CHMN (Chester); and IDLM (Independence), to name a few - all stand to benefit from a sustained strengthening in silver prices as the operations to which they are leased take advantage of the 21st Century's biggest bull market. Silver found and mined in the U.S.A.
Go South if you want. But just remember that at the stroke of a despot's pen, your investment goes south, too. Me, I'm staying off that trip, staying right here, Sleepless and Solvent in the Silver Valley.
David Bond
March 17, 2004
David Bond covers gold and silver mining equities for a number of national and international publishers, including Platts Metals Week, a division of McGraw-Hill. He lives in Wallace, Idaho, heart of the planet's richest silver fields, the Coeur d'Alene Mining District. He is former editor of the Wallace Miner, and holds regional and national firsts in investigative journalism from the Atlantic City Press Club (National Headliner) and from the Society of Professional Journalists (SDX/SPJ) and has edited or written for newspapers on both coasts, Canada and Alaska.
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