Here are a few observations from the Silver Summit. Just a few thoughts as opposed to a comprehensive view. First off the turnout was pretty dismal compared to previous years. That’s partially because this conference is conducted simultaneously with the grand daddy of financial conferences the New Orleans financial conference, so I am sure a lot of attendees were siphoned off. Nevertheless, it was an interesting contrast as opposed to say the 2010 or 2011 show when silver was riding high. Back then there were 2-3X the number of companies represented and everyone was of course fired up back in those pre-POR days. Overall its pretty clear the silver crowd has been fully neutered and bullish sentiment has been fully eradicated. So bullish sentiment is completely gone now, however I thought it interesting that the gold/silver bug narrative of evil FED prints money leads to hyperinflation is still very much alive. There is just a lot of confusion as to why it has not happened yet. At $18 silver there is not much belief from anyone that prices could dip much lower. Whenever I expressed my view that silver could trade down to $12 (I didn’t even mention the possibility of $8) it was not met with hostility as in previous years , but just as an impossibility. So bottom line the average silver bug is no longer living in denial, but they just don’t have any model to explain to them what has happened. There was an exception, however and that would be the views held by Dr. Mike Berry and John Kaiser. These are some of the few who actually get the big picture.

As far as ideas, I took a look at the companies and spoke with management. Simply stated Primary silver producers are in deep trouble. Since 70% of all silver comes from secondary recovery, (copper and gold mines) a primary producer has costs that simply cannot compete. The industry now calculates costs as all in costs as opposed to cash costs so I will use those numbers. The average cost for the primaries is likely around $17-20 so if prices trend down below that for any length of time there is going to be additional massive carnage in this industry. I would say most companies are simply not prepared for this eventuality. They are all holding on at this level hoping for the best. For the most part structural costs won’t be able to go down below $15. So its going to be interesting to say the least. Before comments on individual companies let me answer the question of why bother with the silver space? Well here is my thinking. The silver market is made up of 2 elements in my mind. The industrial supply demand element and the silver bug, monetary or religious element. I am not sure the silver bug element will ever be removed, but it certainly is being priced out of the market equation. So I am just looking at the industrial supply demand side of it. Maybe the silver bug premium gets reintroduced someday and powers the price, but I want to just plan on the industrial supply & demand reality.

So with that in mind the best 2 bottom line ideas I have on the silver market remain the same as I had last year Silver Wheaton and MAG Silver. I would not buy any of these companies until phase III runs its course, but once that event occurs these are going to be lifetime value events. We are talking 10-50 baggers in my opinion

Silver Wheaton (SLW) – This company without question is the most professional, disciplined serious company in the silver space. Over the years every person I have spoken with in this company knows his stuff, knows his numbers. No goof balls exist in this company, I have always been impressed with the talent working here. These guys have discipline, when silver was above $30 they simply refused to do any more deals, they sat on their hands. Their cost per ounce will remain around $4/oz for the indefinite future. Not only that but most of their supply comes from big name base metal producers that are not going to be shutting down even if silver does go to $8. This is the Marque silver investment play. My only reservation with this company is their use of debt for acquisitions. I drilled down on them with my concerns and feel pretty good about how they use this facility and don’t see it as a problem the way they have it structured even at $8 silver. This is the company you want to own at lower prices of course.

MAG Silver (MVG) Mag is the development play thats getting close to production. This company is now about 13 years into the making. It was conceived to make money back when silver was $4/ ounce. Super high grade with huge discovery upside and a top geo to map it out. Take a look at its stock price it has held up really well actually considering they don’t produce anything yet. $90m cash on the balance sheet with total capex of $120. They are almost there. They have held up well due to committed institutional ownership. This company allows one to sleep at night. I am waiting to buy this baby during phase III and a few of the institutional holders are forced to sell and the price gets cut in half. It won’t stay there for long however. Its a keeper.

The Big Boyz (TAHO,PAAS,HL,CDE) I listed these in order of quality. TAHO is actually the new guy and is a great company. PAAS is run well with good mgt, however Argentina properties will hold it back. HL & CDE are debt laden companies but they do have cash on their balance sheet. If we have a crash in silver that I see coming their stocks will continue to get crushed. If they don’t go BK they will have unbelievable leverage to the upside once the bull market begins so keep them on your radar. I do have to say that I was impressed with the people of CDE. This has been the most despised silver company I know with a history of being moronic, however this is changing, as they have cleaned house of 90% of previous management moved from Coeur d’Alene to Chicago. They have a top notch geo and a good shareholder rep. This is a company that bears watching I believe. I never though I would say that as I have hated this company, although they did buy my position in out in Palmarejo in Mexico, but thats why I have had such a low opinion is that they way overpaid. Anyway with higher silver prices and their stock so severely beaten down this could be the turnaround candidate of the sector. Put it on your watch list and don’t hold grudges

First Majestic (AG) This was of course the darling of the last cycle, mainly because Keith Neumeyer executed so flawlessly and delivered what he promised. He is a good operator. I am sure this will continue to be a great upside stock in the next cycle, but there are a few things I don’t like. Maybe its just me, but I place a lot on how serious a company presents itself to the public, as it is a reflection of a companies culture and discipline. That’s one reason I am so impressed with Silver Wheaton. Well Keith has chosen to place his daughter as the shareholder rep and frankly I am not impressed. She is just a girl who got a job to pass along information. She has no passion for the business along with the sidekick she has working with her. They left their company table early in the day to go goof off. She does not really know that much about the numbers of the company. With so many other companies competing for my limited investment dollars this tells me a lot and i will send them elsewhere.

Mid tier companies in trouble. I would say that all primary silver producers are in trouble mid and small cap especially. Here is a quick summary

Alexco (AXU)- Roadkill thats all their is to it. Maybe someday they survive if higher silver prices come sooner rather than later. To bad I like the CEO.

Aurcana (AUN.V) Beyond roadkill…didn’t even show up. I remember I had lunch with a guy 2 years ago who boasted he had over $1 million in this stock, its lost 97% since then.

Endeavour (EXK) well run company with a future, however they are in denial about lower prices ahead. Did not get the impression they have a plan below $16 silver

Great Panther (GPL) Same old story, good company but way overvalued and can’t survive at $16 silver. CEO is looking for an exit plan (retirement)

Silvercrest ( Probably the best small cap silver stock. The chart has held up well actually

Fortuna (FSM)– Really a top notch company. Managed well, no drama. Will fly with better silver prices, very safe, but still goes down with lower silver prices.

Honorable mention US Silver and gold ( This company I gave up for dead last year, but I am putting it back on my radar screen for when better days return. For two reasons management and its resource. They once had an all in cost of $33/ounce. They are on their way towards achieving $13/oz. That’s some serious restructuring. They have a huge ability to scale upward when prices start to rise. Eric Sprott owns 25% of this company. So when the silver price gets knocked down to lets say $10 it will be time to check into this company and take a look at their balance sheet and game plan….it will be time to back up the truck!

Most outlandish value speculation: Anyone ever heard of Apogee silver?, APEX silver? How about George Soros? Well back in the day in the mid 90’s when the world’s most famous billionaires (Gates, Buffett, & Soros) staked out a position in the silver market because they could smell value Soros took a primary position in a silver mine in Bolivia. This is an old mine that produces the highest grade in the world. Well through all the political threats and changes over the years it has changed hands a few times and most recently managed by Apogee silver. A very gifted Mining engineer named Neil Ringdahl has worked the project. I have spent some time in previous years speaking with Neil and he was just the right kind guy to do the job for this project, but it just wasn’t the right time. Well Apogee is getting bought out by Prophesy Coal a Canadian company with coal interests in Mongolia. Think of them as more of an incubator or holding company of projects. Prophesy coal has also been an industry casualty and its stock is down somewhere around 95%. Recall I mentioned this silver asset is the highest grade deposit in the world and is very simple type mining. Everybody always wants an outrageous shoot for the moon speculation right??? Well here one is. Maybe call this one Plungers lottery ticket. $ 🙂

OK now what you have all been waiting for my take on our gold market prognosticator Bo Polny. First let me say I always admire someone who is willing to lay it all out on the line, damned the critics. That no doubt is Bo, yet I started out with an objective non critical perspective willing to listen. Well, knights I have to come before you and report that Bo is nothing more than a confidence man armed with a few pet theories that don’t hold much water and will be sure to be shredded over time by Mr Market. I was hoping there might be something to his analysis but there just isn’t. Its mostly made up of some goofy numerology applied to cycles that just don’t hold up. As I said as a confidence man it may sound good, but the main argument is made for people that don’t know real market dates and events and can be BS’ed. Example, in his presentation he made a big deal about the number 21 and how all recessions (depressions maybe) come every 21 years. He proceeded to show a 200 year historical timeline and how this all fit. Well, that just so happens to be an area that I know pretty well off the top of my head and his attempt to fit these events to a 21 year recurring cycle was simply film flam. For instance his 21 year recession cycle landed on 1869 and this was supposed to be the down point. Well, if you know anything about stock market history 1873 was the big crash due to the liquidation of railroad debt, so this tool is totally useless since it came 4 years before the crash while he assigns the 21 year cycle to the year 1932, thats 3 years after the top. Pretty worthless tools and that was the main basis of his argument.

I am not really interested in character assassination, but I have seen these flash in the pan prognosticators before and they come and they go. They sound credible for a while but then they get humbled by the market. A case in point I recall back at the 2006 Silver summit the Keynote speaker was a guy named Jason Hummel. I am sure some out there know of him. He was a young kid who was a sensation for making outlandish predictions about the silver market and the stock prices seemed to validate him. He called for stupid prices in just a few years like $500 silver or something similar. It goes back to the old saw that people (investors) will believe anything as long as the price is going up. I remember thinking I know this guy is a flake, but maybe its me that has it wrong. Well, Jason made a ton of money on paper but eventually of course crashed and burned. The thing about Bo is if he had waited until the price of gold bottomed after phase III then started to make his misinformed outlandish predictions he would be a great success as far as selling newsletters. He started spewing his numerology stuff to me telling me that the number 12 was God’s completion number and everything is based off of it. Well time out, I know a thing or two about numerology, biblical or otherwise and its the number 7 that’s God’s completion, I pointed this out and he said some gibberish to try to dig himself out of a hole. Bottom line he ended up being a huge disappointment as its just all fluff and baseless. Now if one wants to listen to some sound reasoned prognostication one might want to subscribe to Tim Woods work. Here is a guy who is not a flake:

Tim Wood

So the silver space is a place I keep my eye on as someday it is going to be the destination to make a lot of money in my opinion, but one must be a student of the market not to get run over first.