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

To: Tommaso who wrote (1137)	5/14/1998 1:13:00 PM
From: Ray Hughes	Respond to of 8010

<<Ten dollars seems a reasonable hope to me.>> The long run equilibrium price of silver will be set by the cost of production (plus adequate return on capital) of providing the marginal supply now coming from liquidation of inventory. This gives us a tool for forecasting the eventual equilibrium price. The marginal supply needed, net of adjusting for a) growth or shrinkage of demand owing to price elasticity, b) potential rise in recovery from scrap, c) growth, or shrinkage, of by-product silver production from base and gold mines, etc. must be provided by a rise in output of new mines. This will require, and the bullish price outlook has spurred, a rise in exploration for primary silver deposits plus, importantly, reopening of some primary silver mines such as those in Idaho and Mexico. The Idaho mines could be reopened quickly if not impeded by environmental concerns, but Boards of Directors will want to witness a sustained silver price above the cost of production. These mines are mostly deep, wet, hot, subject to rock bursts (unstable ground) and small producers. Most will be high cost and historical date with the county tax clerk will show direct operating costs around $7.00/ounce when shut down. Costs will likely be this high, or higher, when (if) reopened due to a variety of factors including increased environmental costs. The developing of new discoveries or ancient mines in Mexico will take considerable time (5 - 8 years) so, for a period, the marginal price of silver should be set by the costs to justify reopening mines in Idaho. With a $7.00 direct operating cost and another $1.00 (approx.) for G&A, interest, etc., and another $1.00 for ROI, the minimum equilibrium silver price ought to be at least $9.00/ounce. RH