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Gold/Mining/Energy : Silver prices -- Ignore unavailable to you. Want to Upgrade?

To: ForYourEyesOnly who wrote (1884)	6/10/1999 3:46:00 PM
From: Ray Hughes	Read Replies (3) \| Respond to of 8010

THC: My starting point is fundamental supply/demand analysis. I'm looking for situations in which there is some natural limit to how much incremental metal can be supplied when consumption is set to exceed current capacity. Fundamentally, in metals I'm looking for smelter/refinery capacity shortages. Sometimes mine capacity shortages will suffice but mines are cheaper, and quicker to build than are smelter-refinery capacity, so I rely less on forecast mine capacity shortage. I'd like to see some sort of natural limit on capital availability operating so as to restrain the industry's ability to finance expansion. This usually occurs following long periods of the metal industry exhibiting losses. As a consequence, bank financing is unavailable and the stock markets will not provide equity capital. Environmental regulation has also helped limit smelter/refinery capacity building. In lead/zinc, about half the world's smelter/refinery capacity has been shut down. For lead/zinc, there is a natural capital limit arising from the bear market in metals. They are out of favour and raising new equity is nearly impossible. There is also an environmental limit - no one wants a lead-emitting smelter within 200 miles upwind of them, so permitting new lead/zinc smelters is a lengthy process. Lead/zinc smelters produce silver and there is, at best, a 2% growth curve in smelter capacity planned for the next 3 years. Ditto copper. Hence, base metal by-product sources of silver are limited to 2% growth. Furthermore, gold production is peaking so silver by-product output will peak. This means that the silver deficit plus about one-half of the consumption growth curve will have to be satisfied by opening old or new silver mines. We can get perhaps 50 million ounces quickly from a few new large (10-15 mil. oz./yr.) mines, then all the rest will have to come from developing new small (3-5 mil. oz/yr.) mines or reopening old small mines. The latter process will take a decade because conservative boards of directors will wait until they are certain of the price stability before risking $ millions. Thus, silver looks like a "lead pipe cinch" but I think the price rise will not be abrupt. There's simply too much old silver scrap held by antique dealers coming into the market. Therefore, I'm an accumulator of silver for the 5-year haul, believing that silver's strength relative to gold signals that the excess inventory is getting "skinny." That makes me nervous about being too conservative, so I trade silver options to have a toe in the water in case we get another WB bump. Re: uranium - I haven't personally done the analysis. Lots of professionals I deal with think its a go but I can't offer any personal insights. RH