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

To: long-gone who wrote (1263)	8/7/1998 6:06:00 PM
From: Ray Hughes	Read Replies (1) \| Respond to of 8010

Hi Rich, Were it all so simple. The quick & dirty valuation is based on the amount of silver reserve/resource per share and the adjusted market price one pays for that leverage. Start with a benchmark which is the price to buy a short term option on Comex silver - its about 25 cents/oz. for a Dec $5.50 call. That is roughly 5% premium to underlying for a very short at-the-money option. Compared to this, for a silver share you will pay between 7% and 15%. (because this option is longer lived). This is after adjusting for cash and non-silver assets per share. The % varies with market sentiment about silver price direction. The recent correction has lowered the premium % toward the lower end of the range. With a seasonal silver rally very possible through February, the reduced premium % looks like a buy signal. The essence of the analysis is to see which company gets the biggest increase in asset value per share from a silver price rise. The present value of increases in yearly free cash operating income plus projected increases in production (and income therefrom) as higher cost resources become economic, constitutes the asset value. While Penoles mines more silver yearly than any company, the amount of its reserves/share per share is minuscule because of its 400 million+ shares out. CDE produces plenty of silver but its reserves/share is, if memory serves, about 3 ounces versus about 15 ounces for PAA (adjusted by discounting a large part of the Dukat reserve in Russia because its Russia). All other silver companies have less silver reserve/resource per share than PAA which also has much cash which many others don't, no debt which others have lots of, vigorous & lean management which many others don't, etc. rh