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

To: ForYourEyesOnly who wrote (1292)	9/10/1998 12:24:00 PM
From: Gerald Walls	Read Replies (2) \| Respond to of 8010

PAASF in Russia: Hi Ray! Do you think they will go through with this?? I'd hate to see them raise all that money just to loose in the Russian casino.......any comments? Did you read the whole release? All future expenditures on Dukat are discretionary and no significant expenditures will be made until acceptable project financing is secured. To date Pan American has spent $9 million on the Dukat project and political risk insurance has been arranged for this amount.

To: ForYourEyesOnly who wrote (1292)	9/10/1998 1:57:00 PM
From: Ray Hughes	Read Replies (2) \| Respond to of 8010

THC: Bottom line is that putting Dukat into production with a US$4.60 breakeven cost can be rationalized only on speculation that the the price of silver is heading higher. Using a zero % "hurdle rate" in calculating the Internal Return Rate shows the project doesn't make economic good sense at current silver prices if a return on investment is required from the project. All investments generate some return which must be measured against the low-risk rate of return to justify investing in anything other than the low risk investment. Even gold mines always have to make a positive rate of return or else the investment is made purely as a speculation on a gold price rise. If there is no current return on investment from Dukat, as implied by use of zero rate, then development is mainly a speculation on a future silver price rise to generate a return. Analysts used a zero hurdle rate in valuing gold projects because they did not want to go to the trouble to properly break out the "option Premium" content of the stock's price nor its "growth" content. Use of the zero rate was a convenient cop out for lazy analysts. Its use in a professionally prepared bankable feasibility study is unthinkable! Investing about US$200 million on futures price speculation isn't in shareholders' best interests. Hecla's management speculated on silver prices years ago and got hung when it backfired. Holding the resource undeveloped for two more years would give PAA the silver resource leverage in the market while preserving cash and balance sheet. Kinda like having the cake and eating the icing. Trading US$5 million of the cash in options on silver might make a whole lot more sense as a speculation. Alternative feasibility scenario to use old mill exposes operation to large transportation costs because mill is far from mine. More importantly, that places huge leverage in the hands of the union(s) that would control trucking. That's hard to justify in view of Russia's record of graft. As an ex-Mining Securities Analyst I see that "themes" have a finite life. Ross was exceptionally sharp in getting on the silver theme in a timely fashion and the market amply rewarded him. However, there are times to lay back, let the theme play out, conserve gains made and strategize for the future. Ross is no dummy. I suspect he sees this exactly as I have spelled out and that Dukat will be strung along for a time until silver price begins a move. Then, much of the capital risk can be laid off by selling forward, doing production loan, buying puts, doing "min-max" with options, etc. Then, with capital risk allayed, and higher IRR in prospect having secured some higher-than-present minimum silver price via futures strategies, the project could go ahead and all win. RH