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 |   Mon Dec 22, 2003
Express 2003-13: Spec Cycle Holds for two silver bottom-fish
Publisher: Kaiser Bottom-Fishing Report
Author: Copyright 2003 John A Kaiser
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| | Kaiser Express 2003-13
December 22, 2003
Spec Cycle Holds for two silver bottom-fish
While gold's gradual rise above $400 has received most of the market's attention, that humble industrial metal called silver has quietly made a new five year high and is currently trading in the US $5.50-$6.00 range. That is considerably better than the $4.50-$5.00 range which prevailed earlier this year, though the rise has been dampened somewhat by the corresponding decline in the US dollar. It is for the latter reason that the management of Huldra Silver Inc (HDA-V: $0.50) now views US $6.29 instead of $5.50 as the magic silver number at which it would hasten to put the high grade Treasure Mountain silver deposit into production. I am not a big believer myself in sustainable higher silver prices largely because I believe higher gold and zinc prices will eventually flood the market with byproduct silver production. But I certainly would not bet against a short to medium term spike in the price of silver.
While rummaging around in my box of old bottom-fish I discovered two past recommendations which I had never closed out and certainly not commented on in a long time. One is called Huldra Silver Inc (HAD-V: $0.50), which I recommended as a bottom-fish buy in the $0.20-$0.29 range in December 1995. The company has a small high grade silver vein deposit in southern British Columbia that it could conceivably put into production within two years as a small mine. At $5.50 silver the mining scenario is not particularly interesting, especially given that at 200 tpd the reserve would be mined out within two years. But this is the sort of deposit where you never have more than a couple years worth of production blocked out in advance but stay in production for many years. Management has been fanatical about not spending money and has managed to keep the fully diluted capitalization at just under 7 million shares during the past decade while it waited for better silver prices and a change in British Columbia's government. Both these obstacles are slipping away and management plans to get cracking in 2004 with the final work needed to acquire a mining permit. This work should cost only about $200,000, which the company should be able to raise without resorting to the brokerage industry. Brokers are not likely to be interested in this play because of its small size, but Huldra's Treasure Mountain project is extremely well leveraged to the price of silver and could attract all the financial support it might ever need from the silver bug crowd.
At $0.50 Huldra is no longer a bottom-fish buy, but I am providing coverage because a surprising number of my long term subscribers still own this stock and I do think it could go a lot higher. Even better, I bought this stock a number of years ago just to hedge against the possibility that Jim Cook, Ted Butler, David Morgan and the other silver bugs might turn out to be right about the future of silver. Bottom-fishers should be aware that Huldra is run from the president's basement, spends zero on promotion, and is inclined to think small. Any complaints subscribers might have about the quality of the graphics provided in my Profile Snapshot Tracker are justified; I had to scan old hardcopy brochures I found in my Huldra file. But it is better than nothing and I suspect that before long Huldra's management will rise to the occasion and give this old bottom-fish the speculation cycle it deserves. This stock is not very liquid and could be a very volatile trader. My suspicion is that the market will end up hijacking this stock and cause all kinds of trouble for management. I have provided various valuation scenarios at different silver prices which suggest that Huldra could have a double digit price target in a hot silver market. What this means is that the stock could end up trading in the $2-3 range as more silver speculators get wind of this play.
Check out Tracker 2003-29: Profile Snapshot for Huldra
For the real time Huldra Profile check out KBFO Profile for Huldra
First Silver Reserve Inc (FSR-T: $1.40) was last recommended as a bottom-fish in December 1996 in the $0.30-$0.49 range at a time when Tim Ryan was still struggling to launch an intriguing strategy to securitize silver byproduct production as a royalty. The company subsequently gave up and did a simple RTO of a producing Mexican silver mine. The San Martin Mine is marginal at $4.50 silver, and the company has struggled to stay in production and block out new reserves without resorting to equity dilution. And just when things were starting to look up in 2003, First Silver was ambushed by mill problems and an extended rainy season that will bring production for 2003 in at below 2 million ounces silver. However, silver's price rise took place largely during the last quarter of 2003 and the company is positioned to benefit from higher prices in 2004. It is one of the very few publicly traded unhedged silver producers, and will trade sharply higher if silver charges toward $10. The project has considerable exploration potential, and if a case could be made that higher silver prices are sustainable, First Silver would be in a strong position to increase production capacity. With 38.6 million shares fully diluted and a $1.40 stock price First Silver does not have the extraordinary leverage provided by Huldra at $0.50, but the company does have the scale needed to attract institutional money. A solid breakout in the price of silver could take First Silver into the $3-4 range.
Check out Tracker 2003-28: Profile Snapshot for First Silver
For the real time First Silver Profile check out KBFO Profile for First Silver
Remember that to print the Trackers or Profiles without truncating the right side you must set your browser page left and right margins to 0.4 inches.
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