“$12.5 Billion in Abandoned Silver”

by Travis Johnson, Stock Gumshoe | December 1, 2008 12:08 pm

I’ve seen this particular ad a few times in the last week or so, and I know that there are many folks out there in Gumshoe Land with a yen for silver, so I thought it deserved a few minutes of consideration.

The ad is for a special report from the Oxford Club — sounds like it’s a book, more or less, about some hard asset investment ideas they have. It’s entitled Five Ways to Profit from the Base and Precious Metals Supercycle, and they’ll sell it to you for $49. I don’t have any idea whether or not it’s any good, but I can tell you that we’ll spend a few minutes looking for that “$12.5 billion in abandoned silver” that they claim as their key investment idea.

The ad is structured as one of those secret missives, with a copy of an email from a top researcher that lays out the investment case for this particular stock. All hooey, one must imagine, but it probably still works pretty well — it gives the illusion of being an insider, and sometimes investors like that just as much as they like making money. Whenever you see emails like this that purport to share a secret message from a top researcher, just remember that there are probably hundreds of thousands of people just like you getting exactly that same email.

The ad makes the argument for silver in general, too — it’s not just a tease for this company, but for the idea of investing in silver. They use several of the arguments that are probably familiar to many Gumshoe readers …

Both silver and gold have been quite volatile when measured in decades, and both receive lots of attention as “safe” asset investments during times of uncertainty, though gold is at the forefront of that trend — which is probably why that gold/silver ratio number has climbed dramatically in the last year.

So what’s the stock that the Oxford Club folks think we should look at now for silver?

We get a few clues. Here’s the intro:

“One of the top researchers at The Oxford Club has just unearthed an extraordinary find: $12.5 billion in silver that has literally been abandoned for the past 15 years. Given silver’s value as “real money,” this could be a wealth-saving discovery for investors seeking real safety from the worldwide financial meltdown. And that’s just for starters…

“This is not another “strike it rich” mining story. The clever group who discovered this stockpile – called the “Silversmiths” – kept it hidden from the public for a long time and for a special reason. A reason that compounds the silver’s market value and the return to investors. No bullion, no coins, no delivery, no stacking or storing involved.”

And while the actual clues are few, there are a few more details hidden in the exciting sales language:

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“Fifteen years ago, a group of investors bought one of the largest reserves of silver in the world – nearly a billion ounces – spread across seven countries and six continents.

“They spent millions on the acquisitions. But it seemed strange at the time because silver was almost worthless. And once this group had made the purchase, they promptly did nothing with the silver.

“They didn’t mine the silver; they didn’t sell the silver; and they didn’t make any profits from it. In effect, the group decided to “abandon” the silver for the next 15 years and not make a single dollar from selling silver.

“But this unorthodox arrangement allowed the company to build up over $12.5 billion in hidden reserves and fall “off the radar” of virtually every minerals analyst. So naturally, their share price plummeted, which was fine by them. “

There are a few other little clues, too:

“Still, the “Silversmiths” did nothing. In fact, for 15 years, the “Silversmiths” reported practically nothing but small losses – the cost of upkeep on dormant mining deposits and salaries for a few secretaries at headquarters. (They reported a profit twice. Once when they sold off a mine, and in 1994 when they had some remnants from their old business model.)”

and …

“when silver crossed the $15 mark earlier this year, the “Silversmiths” quietly sprang into action.

“At one of their properties in Argentina, the camp for construction and mine workers has just been completed. Connections to a natural gas terminal 36 kilometers away are being put into place. And starting in the first quarter of 2009, the mine should start producing pure profits for the next 14 years.

“Of course, this is just one property. Four other properties are in the advanced drilling stages and well-positioned to take advantage of current silver prices.”

So what is this company?

Well, this is one of those cases where I might be 99% sure, but I can’t guarantee that I’m right — there is one clue that doesn’t quite fit. At one point in the ad they say that this company had acquired potential mines in seven countries across six continents over the past 15 years (that would be all of them except Antarctica), but the company I have in mind for this currently is active in seven countries across just three continents.

So I think the company they’re teasing here is …

Silver Standard (SSRI)

It does match the clues in most ways — it did become a major silver investor in 1993, back when silver was much cheaper ($3 an ounce or so, and you could buy potential reserves in the ground for a penny or two an ounce). Their plan was to buy up reserves and hold them until silver got as valuable as they expected it to, and for the most part they’ve been vindicated (as long as silver stops falling, as it’s doing today). The company has actually been around for much longer than that, at least back 50 years or so, but did reorganize to focus entirely on silver in 1993.

They did sit on most of those properties for a long time, though they weren’t totally inactive otherwise — they’ve made occasional profits by selling off shares of mines, and they’ve been exploring and acquiring all along even as they didn’t actually produce much.

And currently, their first property for development is indeed on the eastern edge of the Atacama desert in western Argentina … it is indeed commissioning this quarter and, one hopes, starting production early next year. It is also 36 km from an existing natural gas pipeline, so that might also match that clue. This mine, called Pirquitas, is expected to produce for 14.5 years and to deliver 10.9 million ounces of silver a year, on average (along with a bunch of zinc and tin).

And they do have four other projects in advanced stages of development, up to and including exploratory drilling: San Luis in Peru; Pitarilla in Mexico; Diablillos, also in Argentina; and Snowfield in British Columbia, Canada. The other continent that gets us to the total of three is Australia, where nothing is as far along as those North and South American projects.

I’m no expert in mining, so I can’t tell you what their mines look like or how their reserves stack up in terms of their cost of production or any other metric like that, but I can tell you that they claim to own the largest reserves of silver of any publicly traded silver-focused company in the world (there aren’t a huge number of those — some of the others are Pan American, Silver Wheaton, Hecla and Couer d’Alene). Silver Standard claims just over 1.5 billion ounces of potential silver, but the lion’s share of that is classified as measured, indicated, or inferred resources — the actual proven and probable reserves are significantly smaller than Silver Wheaton or several others.

So is this the stock for you? It has been a favorite of many “silver bugs” for many years, and has often been characterized as an “option” on silver, since the stock was considered really to be just a way to leverage your silver investment by buying cheap silver that was still safely buried in the ground. That’s starting to change now that they’re getting close to producing at their first major mine, which is probably both good and bad news — with the deflation buzz hitting silver prices at the moment, the shares of Silver Standard are down more than 10% as I type this on Monday morning, and, as with all actual producing miners, their prices can now fluctuate with performance and execution in their mining operations, and with subsequent changes in reserve assessments, as well as with the movement of silver prices.

It’s an interesting company, well followed by the investment press as a significant silver player, with probably the most compelling comparison being Silver Wheaton (even though SLW operates as a royalty owner on other peoples’ mines, it is similarly leveraged across a wide array of mines that may produce silver). In the end, though whether you want simply to owns silver or to investigate a junior miner that is highly leveraged to silver, what matters most is the future direction of silver prices — if they fall well below these prices, there will come a point when Silver Standard’s projects aren’t economically feasible, if they climb SSRI should have great results.

SSRI right now has a market cap of a bit under $600 million, and though they’re not yet profitable the analysts do see profit for them next year — the projected forward PE ratio is 11, but that’s based on just two analyst estimates, and I doubt they know exactly where silver prices will be a year from now, either. The shares had a great year in 2007 as silver prices climbed and their mine development and permitting moved forward, and traded mostly at or near $30 a share for the better part of 2008, too, but the autumn collapse hit them at least as hard as others — you could have bought shares for about $6 if you were watching a few weeks back, and you can buy them today at about $9 if you’re interested.

The big argument for both silver and gold remains the same, at least as most investment touts present it: As a consequence of the massive creation of new money by the Federal Reserve as we attempt to flood the broken credit system with cash, the US dollar is going to fall, and inflation is going to rise dramatically, which will drive the prices of precious metals higher.

Eventually. Unfortunately, this prediction of the future is often described as a “no brainer” — the teasers and touts and pundits all say (OK, almost all) that it’s inevitable that inflation will climb dramatically, and that the US dollar will collapse in the coming years. I’m not going to tell you that they’re wrong, and I find the argument compelling, too … but there’s no such thing as “inevitable” when it comes to the global economy. The U.S. is suffering through either disinflation or deflation right now, and the U.S. dollar is clobbering most of its competitors in recent months — I agree that if the economy recovers inflation will likely come back at some point, but I don’t think it’s guaranteed to work out that way.

So it’s a very logical argument, and it may well be prescient — certainly it seems to make sense that flooding a system with money will lead to inflation, but remember that there are several components to the money supply and to inflation. I’m not an economist, so this is a partial and simplistic explanation, but the existence of money as created by the government is only one driver of inflation — what is at least as important is the velocity of money (the frequency with which it changes hands), and the expansion of money through new debt issuance. Since the economy is slowing down and people are fearful, they’re saving instead of spending to some degree … that slows down the velocity of money; and since banks aren’t willing to lend, they’re not inflating the money supply by leveraging their dollar of reserves into ten dollars of new loans. At least, not yet.

Will all that money that’s being created start to actually move in the real economy, and start to flood the system with liquidity? We better hope so, but if they overdo it and it turns into hyperinflation then the case for all resource plays might be strong indeed.

And besides, silver is shiny. Who doesn’t like shiny?

full disclosure: I do not own any shares of gold or silver mining companies, including those noted above, but I do own some coins of each metal.

Source URL: https://www.stockgumshoe.com/reviews/oxford-club/125-billion-in-abandoned-silver/

  1. Avatar
    Elissa Stein
    Dec 1 2008, 12:58:13 pm

    Travis, you used a new word- at least to me. I’ve heard of deflation, stagflation, inflation, agflation. But “disinflation”? What does it mean? Is this a new synonym? Please, explain.

  2. Avatar
    Dec 1 2008, 01:54:09 pm

    The gold/silver ratio may be out of wack because a greater percentage of silver production is used for industrial purposes. Thus, silver demand will be more impacted by a recession.

  3. Avatar
    Dec 1 2008, 02:53:44 pm

    So….if we were talking about federal government spending, disinflation would be described as a CUT in spending.
    Don’t worry. I’m with the government and I’m here to help.

  4. Avatar
    Dec 1 2008, 03:27:24 pm

    While the gold/silver ratio and the increasing industrial use are important indicators for the expectation for an increase in the price of silver, (I’m just parroting here, I’ll show who I’m following in a second) by far the largest factor in the price is the huge scarcity of silver compared to gold world-wide, above ground and unmined. That shortage is already showing in the premium for silver coins over their “normal” spot price, let alone the bullion spot price; and it may quite soon become a wholesale / industrial shortage. At which point, you may be very glad you bought physical silver at the present bargain basement prices. I follow Ted Butler on silver analysis, find him very useful and insightful. Be your own judge, and spend a day or two in the arcives at http://www.butlerresearch.com/archive_free.html You may have to copy and paste that, as it doesn’t look live in this message field.
    Best Regards,

  5. Avatar
    Big Mo
    Dec 1 2008, 09:27:32 pm

    “New uses for silver are being discovered — silver fights rot and bacteria”
    Nothing new here. The Russians for countless years have traditionally dropped a silver coin or silver ring into their pitcher of drinking water to purify it. Otherwise, the local water supply will make you ill, and few can afford bottled water.
    Beyond that, interesting stuff; though I question the “billion ounces” also. That’s over 3,000 TONS of silver.

  6. Avatar
    Dec 1 2008, 09:55:26 pm

    The inflation-dollar crash argument does sound persuasive, but similar arguments from gold bugs have sounded persuasive for 20+ years. Maybe it will happen. After all, even a stopped clock is right twiceper day. Or maybe the dollar already did crash, up until reversing recently. Or maybe what has to happen isn’t what will happen.

  7. Avatar
    Dec 2 2008, 05:32:41 am


    You state that you no longer hold any gold or silver stocks. Does that mean that you have sold out of Centamin. If so do you still track it with a view a re-entering at a later date? Because I have looked at it several times and in spite of the market turmoil it looks a good long-term investment. Your reply would be appreciated. Thanks in advance.

  8. Avatar
    Dec 2 2008, 08:09:54 am

    SSRI sound right to me. SA is of a similar ilk – but focuses on gold (to date, SA has not ventured into actual mining). IT also has been pitched by the Oxford Club, Steve Sjuggerud, and others.

    A few years ago I made ten bagger in SA, but recently this stock has been decimated.

    Bottom line is these things are extremely leveraged to the price of AU or AG – and sometimes will move in ways that make no sense. Also, no guarantee that they know how too mine silver for a profit.

  9. Avatar
    Dec 16 2008, 06:09:35 pm

    SSRI — found news last summer they are building a $140B [Billion?] Silver Mine in Jujuy Province, northern Argentina but not near the Atacama Dessert. Google for yourself. If true, that’s BIG but it is not built yet.

    I did more research on the Atacama Desert boundaries because a poster above said it is in Chile– not Argentina. Got to thinking it could spill over to Argentina too. Here is an excellent Map:


    Notice the location called Nevado Ojo… One of the highest peaks in South America, which straddles both borders.

    There is a town near the Argentina/Chile border in Northern Argentina closer to the Altacama called Mendoza [that’s where this mystery mine might be]:


    My guess from further research is that the ‘Mystery Miner’ might be Freeport McMoran ( FCX )– is their Nevado Ojo del Soltado mine being ramped up?

    Big PLUS: they already have rights/licensing and most importantly infrastructure in place. FCX has a CAPS 5 Star Rating and so does SSRI.

    Which one to pick? I would say practically ANY Silver Miner who is poised to strike will do well in this Market.

    Have a look at this November 2008 prediction re a pending SILVER BREAKOUT:


    Silver is up significantly in the past month. Could be TRUE!

    I am having a hard look at all the Silver stocks I put in a ‘Watch List’ and I am regretting I did not hold on to First Majestic Silver Corp., but the timing was not right –Maybe it is now.

  10. Avatar
    Dec 16 2008, 06:23:16 pm

    Oops! Forgot to include:


    Bonus material: Abandoned Mines. Could some spring back to life? I read a flicker of a string about “Potash” in this Mineral-rich area too.

    If the time is right and cooperation prevails in harmony, the Andes, Plains, Deserts, Pampas and Highlands of South America may once again yield vast riches– not just Silver.

    btw FCX is busy in After Hours Trading while SSRI– not so much at this point.

    Have a look at Silver stocks overnight and GLTA

  11. Avatar
    Dec 16 2008, 06:48:15 pm


    Mendoza is on the West side of Mendoza Province:


    Have not confirmed yet but Mendoza is possibly where Freeport McMoran’s Nevado Ojo del Soltado mine is located. It was formerly owned by Phelps Dodge before being bought out by FCX.

  12. Avatar
    Dec 17 2008, 11:14:08 am

    The paradox of thrift causes folk who have made money in tough times hold on with both hands causing a downward sprial in the economy as the velosity of money slows. The Government is attempting to pour draino into the economy to unclog the hardened mony stuffed into mattresses and zero percent treasuries. At some point it will work but it could take a while for consumers to spend who make up 70% of GDP..

  13. Avatar
    paul lane
    Feb 22 2009, 11:33:56 am

    I did some poking around before landing here I concur that it is SSRI. I belive stocks have more down side to come miners will be included. Down the road silver mines will be hot

  14. Avatar
    Jive Dadson
    Feb 25 2009, 07:51:31 pm

    Be careful comparing Silver Wheaton, which is essentially a royalty company, to actual silver producers. Silver Wheaton (SLW) buys forward contracts for the silver produced as a by-product by base metal miners. If the base metal miners cut back on production because of low demand, Silver Wheaton’s input stream shrinks, regardless of the demand for silver. It’s real hard to put a value on SLW. Too hard for my brains, that’s for sure.

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