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January 30, 2009

Silver -- It's the Pits
by David Morgan

Throughout my association in the mining industry I have heard almost every story you can imagine. For instance, there is more gold in seawater than can be measured and some company is supposed to have some super technology that can extract it profitably.

Another one that pops up is, "Our gold does not assay by normal methods but believe me we have a lot of it and our super extraction process will make us all rich."

Then we can get into the idea that, "the tailings from the previous mine are worth a fortune just by themselves" . . . and on and on it goes.

One "story" that many investors have bought into, however, is the idea that open-pit mining is very cost effective. This of course is true to some extent, because to build an open-pit mine takes far less money than to build an equivalent underground mine. And although open pits work beautifully for copper and zinc, they seldom work for silver.

This week's missive is why silver open-pit mining may truly be the pits, and our members-only report features information of extreme significance to those of us who are serious about making money in the mining sector.

Your editor has been told time and time again that low-grade projects were economic (they make money for the shareholders) if just enough of "it" (the mineral or minerals in question) were found. In other words, "We might have a very low-grade project but we have so much that it lends itself to an open-pit mining operation, and we are all going to make lots of money."

This never really held much credence with me, knowing from my earliest studies that "grade was king" -- meaning that a high-grade operation would almost always trump a low-grade project. However, there are profitable open-pit mining operations throughout the world that are making money. This of course is dependent upon the price of the metal being mined, whether precious metal or base metal. Simply, what might look great at $1.00 per pound zinc might not be ore (ore is defined as economic) at half that price.

The idea of how to define what really constitutes a good project from one that really might just be promotions by a junior mining concern led me to seek out an answer. And through my many contacts in the industry, the answer came from a very well known geologist, who stated to me that a myth existed that "open-pit" silver mines could be profitable. This individual pointed out the facts that very few silver projects are profitable yet many base metals operations are -- but every mining operation is grade dependent.

To be perfectly blunt, if you hear, "We have two ounces of silver per ton and a gazillion ounces," be careful! Certainly it is possible, but our report this month will clarify the facts and dispel many myths about the costs of mining.

It is an honor to be,

David Morgan
Silver-Investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and The Wall Street Journal. Mr. Morgan does weekly Money, Metals and Mining Review for Kitco. He is hosted monthly on Financial Sense with Jim Puplava. Mr. Morgan was published in the Global Investor regarding Ten Rules of Silver Investing, which you can receive for free. His book Get the Skinny on Silver Investing is available on Amazon or the link provided. His private Internet-only newsletter, The Morgan Report, is $129.99 annually. To suscribe to the Morgan Report click here.

Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Because individual investment objectives vary, this Summary should not be construed as advice to meet the particular needs of the reader. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice. Any action taken as a result of reading this independent market research is solely the responsibility of the reader. Stone Investment Group is not and does not profess to be a professional investment advisor, and strongly encourages all readers to consult with their own personal financial advisors, attorneys, and accountants before making any investment decision. Stone Investment Group and/or independent consultants or members of their families may have a position in the securities mentioned. Investing and speculation are inherently risky and should not be taken without professional advice. By your act of reading this independent market research letter, you fully and explicitly agree that Stone Investment Group will not be held liable or responsible for any decisions you make regarding any information discussed herein.

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