“How the strange disappearance of element ‘107’ could make you a fortune”

Sniffing out Matt Badiali's new Silver teaser for S&A Resource Report

By Travis Johnson, Stock Gumshoe, November 30, 2011

There’s something about using the atomic number for an element that makes you feel extra smart and exclusive, isn’t there?

Or at least, that’s what I’m forced to conclude from the fact that most of the newsletter jockeys appear to delight in intriguing and mysterious references to the “fortune making” fourth element or the “battle for the third element” — perhaps it was the enthusiasm with which investors lapped up those teasers that inspired the Stansberry copywriters to pick this one as the “disappearance of element 107.”

Pitch it they did, though, so it’s our turn to catch — Element 107, as they eventually admit, is actually element 47 the way most folks use the periodic table, that’s it’s atomic number (like lithium’s number is three, and beryllium is four from the past teaser examples above). But 107 is the atomic weight of silver, which they do “reveal” in the teaser.

So yes, this is a pitch for silver — not an uncommon pitch these days, we’ve also seen a number of teasers from John Doody that focus on silver as a hotter investment speculation than gold (the Doody ads say that this is the first time he’s strayed into silver miners, though I’m pretty sure his Gold Stock Analyst and his Top Ten have included silver stocks before).

Silver is a bit of an odd duck in that it’s widely considered a precious metal and as “money” by some folks, but it’s also a critical industrial metal — so unlike gold, which tends to hang around and get melted down for new jewelry and passed down through the generations, silver effectively gets used up. In many years, production of silver has come in below demand for silver, a shortfall that has been made up for by using stockpiles or recycling (ie, selling the family silver so Kodak can keep printing photos — though the end of traditional photography was certainly one of the factors driving silver prices down several years ago).

And that consumption and shortfall dynamic creates the opportunity that Badiali is teasing us with here:

“Over the past 6 months I’ve been investigating one of the most bizarre investment ideas I’ve encountered as both a geologist and as a research analyst.

“In short, one of Earth’s most valuable elements – which I’m calling element “107” because of its atomic mass – has been vanishing from global stockpiles at an alarming rate.

“One report, based on data from the U.S. Geological Survey estimates this element will become extinct in less than 9 years.”

Badiali throws in a few examples of metals that have nearly gone extinct, driving huge price increases — the examples he gives are hafnium and indium, both of which are very rare and obscure to begin with, and are generally used in much tinier quantities than silver.

But still, he thinks this impending shortages and possible “using up” of silver will generate some big money for you:

“Quite frankly, from what I now know, I believe we are looking at one of the most valuable moneymaking opportunities in the world over the next few years.

“I wouldn’t be surprised to see every dollar you invest in this element turn into $10 or more.

“In fact, analyst Theodore Butler says, ‘nothing in the world has the potential to multiply your net worth like [this element.]’

“In a recent Forbes interview, Dr. Stephen Leeb called this situation ‘scary’ and ‘frightening,’ but said investing in this element ‘could be an absolute huge, huge winner.’

“Before it’s too late, let me show you how a small investment in this element today could generate an extraordinary sum of money for your retirement… “

At this point in the ad Badiali still hadn’t let the cat out of the bag that it was silver he was teasing — but probably the reference to Ted Butler would have clued many investors in, anyway, as would the fact that we can probably check all those quotes.

He later goes on to add that the first question (why don’t we just mine more to meet demand?) is apparently not as easily answered as you’d think:

“Can’t we just mine more silver?

“Not really.

“You see, about 80% of mined silver is a by-product of other metals – zinc, copper, and gold.

“In other words, most of the silver supply comes from operations where other metals are the primary revenue generators.

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‘Most mining companies just don’t target silver as their primary revenue generator. The geology doesn’t make it a high-probability play and the money isn’t as lucrative as the more popular precious metal,’ says investment writer Scott Wright.

“Even worse, the amount of silver found in the (copper, gold, zinc) ore is so small, that most mine owners won’t even care when the price skyrockets.

“As resource investor Rick Rule says, ‘The interesting thing about silver is that it doesn’t respond to fundamentals very well in the sense that most silver that’s produced, is produced as an adjunct to mining other metals.’

“It’s for this very reason that best-selling author Robert Kiyosaki says, ‘Silver is the biggest opportunity I have ever seen.'”

So how, then, will we be getting rich from silver — which, as you’ve probably noticed, has been quite volatile over the last decade (and downright crazy in the more recent past)? That’s the rub, I guess, and those secret ways to get wealthy from silver are what Badiali is mostly teasing here, in hopes that you’ll sign up for a subscription to his S&A Resource Report to find the answers.

Which may be your cuppa tea, I dunno — you can check out the reviews we’ve compiled on that newsletter here if you’re curious — but you might perhaps more soberly consider a subscription to his letter if we reveal those secrets for you first, for free, no? That’s the idea, anyway.

To the cluemobile, crimestoppers!

The first idea pitched is not actually a mining stock, as I had expected, but a silver coin:

“Silver Shortage Investment #1

“Put simply, I believe every American needs to own real “hold in your hand silver.”

“And I’ve found what I believe is the best form of silver in the world – a rare coin that’s both affordable for the average American and has tremendous upside potential.

“It was minted from 1878 to 1904. However, in 1918 the U.S. Government melted over 300 MILLION of these coins because of excess supply.

“As one coin dealer noted, ‘This unfortunate action has led to one of the great investment opportunities in America’s most prized silver coin.'”

So the coin is rare — and you’ll probably note that this sounds a little bit like Steve Sjuggerud’s repeated teases of some pre-1933 gold coins, with the added bonus that these kinds of “collectible + precious metal” coins often move in price in a way that’s leveraged to the price of the precious metal. Here’s how Badiali puts it:

“… during the silver bull market of 1976-1980 this type of coin shot up more than 990%, while the price of silver shot up just 277%.

“Today, you can buy this investment for around $200 but I believe it will be worth at least 5-times that amount in the next few years.”

This, then, must be what is probably the most widely-collected silver coin, the Morgan Dollar. And if it’s “around $200” and you’re talking about the leveraged value over the price of silver, it’s probably certified Morgan Dollars that carry something around an MS-65 state (that’s on the scale where a perfect, straight from the mint unblemished coin is MS-70).

You can see the enthusiastic endorsement of the Morgan as an investment piece from almost any coin dealer, but the one Badiali quotes is as good as any — he gives a good rundown of the reasons to look at certified Morgans here. I personally hold some Morgan Dollars in my small cache of “junk” silver, and they’re pretty dinged up so I presume they aren’t worth much more than their silver content would indicate (at $32 silver today, the silver content in a Morgan Dollar is worth about $25 — like most silver coins, they’re 90% silver).

I’m far from being an expert on the collectible value of coins, but do note that these are not silver investments at this price, they’re collectibles — silver could go up by 400% and, if collecting interest in old coins dried up, these coins could still lose money if you pay $200 for them. Of course, they probably won’t because they haven’t before, but I have absolutely no idea how the coin collecting market will evolve. If you like just the silver content and don’t care to speculate on the collectible nature of these coins, you can buy “junk” silver dollars, both Morgans and Peace Dollars, in bulk for something like $29 apiece from many online dealers, a small per-ounce premium to what you’d pay for more pedestrial “junk” pre-1965 silver coins (dimes, quarters, etc.).

So that’s the solution for “hold in your hand” silver — how about another idea? Here’s how Badiali leads us on to the next step:

“Yes… you should invest in these coins and potentially make hundreds of percent.

“However, if you’re really looking to make a fortune from the silver shortage and want to see gains that will make you gasp… here’s what you need to do…

“The secret silver producer you’ve never heard of

“If you want to prosper from the silver shortage… I mean really have the opportunity to make a lot of money, you need to buy equity shares of the companies that will see their value skyrocket the most.”

So now we’re looking at a stock, not a coin — he’s teasing a silver miner:

“I believe the best silver stocks to own during a silver bull market are the ones that actually mine and produce silver – these companies are known as the ‘producers.’

“But not just any silver producer will do.

“You see, only the companies with the most silver in the ground – verified by an independent, certified mining auditor – who produce silver at the cheapest possible price, are the absolute best stocks to own.

“This is where a lot of investors go wrong.

“For example, they don’t know the difference between ‘proven’ reserves… or never take into account how much it actually COSTS to get silver out of the ground. As a result, they take on much more risk than necessary, and often lose a lot of money.”

Which producer, you ask? Good question!

First, he gives us an example to get us excited:

“Pan American Silver is the perfect example of one of these companies.

“Pan American owns 7 world–class silver mines, containing more than 230 million ounces of PROVEN reserves.

“During the first half of 2011, Pan American got silver out of the ground at a cost of just $8.53 per ounce. In other words, with silver prices above $32.00 right now, the firm makes more than $23.47 for every ounce it mines.

“But that’s not all. Pan American has no debt… has three mines in development… and plans to double silver production to almost 50 million ounces a year by 2014.

“Now, there’s no question, Pan American Silver is a top producer and could make you a lot of money.

“But here’s the thing. It’s not the best one.”

Ooh, ooh! What’s the best one?! What’s the Best one!?

“This small company gets silver out of the ground for just $5.77 an ounce. That’s $2.76 cheaper than Pan American. That may not seem like much, but when you multiply that by millions of ounces a year, it adds up fast.

“Plus, this company has two world class mines and four more in the works… zero debt… and 842% production growth since it was founded in 2004.

“As a result, this company’s performance has more than QUADRUPLED the silver price over the past 3 years.”

He also lets slip that it’s got a market cap of about a billion dollars, which ain’t exactly teensy in the (admittedly small) world of silver miners.

Well, this isn’t one of the other oft-teased larger silver picks that we’ve seen around these parts, we can look at the chart Badiali shows and be sure that he’s not teasing Silver Standard Resources (SSRI), Hecla Mining (HL) or Coeur d’Alene Mines (CDE).

Nope, this time the Thinkolator has to chug along just a bit longer to identify our secret silver miner … but have no fear, this must be Endeavour Silver (EXK in New York, EDR in Toronto).

Endeavour has become a very successful silver miner over the last few years, emerging to become a decent producer and getting that nice bump from exploration to production that so many junior miners hope for — I think the only time I’ve ever looked at this one was when they were teased by Peter Schiff last Summer, and the stock has certainly done well since then (moving from roughly $4 to roughly $12). And of course, like so many miners they’ve done even better if you give them a starting point at the depths of the 2008/2009 crash, as Badiali does in his three-year chart.

And their cash cost in the most recent quarter wasn’t exactly $5.77 per ounce, but $5.71 is close enough — considering that yes, they did start mining in 2004 and they do have two “world class” silver mines and a portfolio of exploration projects (mostly in Mexico, where their two mines are, but also in Chile — though of course, calling exploration projects “World class mines in the works” is always a bit optimistic). They also tell anyone who will listen that they’ve managed to generate 842% production growth since their 2004 launch, so that’s another good match for our tease.

Is it a good pick? Well, it’s getting on close to my bedtime so you’ll have to answer that one yourself.

Oh, who am I kidding — I have no idea whether or not it’s a good pick. It has some pretty good production numbers and decent reserves, but I’m not a mining expert and they look pretty similar to me to all of the other decent-sized silver miners I mentioned above (though the stock has certainly done better than most of them in recent years). They claim a bit over 13 million ounces in proven and probable reserves and produced a bit over three million ounces of silver over the last year, so they’ve probably got at least four more years of close-to-guaranteed production potential at similar levels (and they are, of course, drilling to try to increase those reserves at their primary mines). They are among the lower-cost primary silver producers, though there are also a handful of silver miners who produce at a negative cash cost (thanks to byproducts of gold, copper, lead, etc.) so they’re not the lowest cost miner.

So I’ll leave it at that — Matt Badiali is teasing certified Morgan Dollars and shares of Endeavour Silver as his favorite ways to play the silver shortage … what do you think? Let us know with a comment below.