INTRODUCTION
Over the years, numerous sites with wonderfully rich potential have been mapped out for metals extraction in China’s under-explored Inner Mongolia region – but most of these sites have NOT been fully developed due to the inability of a socialist government to properly handle mining in the area. Now China is desperate for the industrial qualities of the white metal and for outside help in recovering resources. Let me not mince words. There may be no greater opportunity anywhere in precious metals investing or mining than in China.
As publisher of the Silver Investor, my living is achieved by reporting on trends in the silver industry, mostly from a monetary standpoint, and by finding opportunities on which my readers can act. I have focused most of my attention on China of late because the most massive macro shift in economics is taking place before our eyes. China is in the middle of biggest industrial boom the world has ever seen. Its government and economy are desperate for silver – and it just so happens that China seems to be sitting on what China’s very-own confidential government mapping shows may be the largest single silver find ever made – in the Inner-Mongolia Erbaohuo Silver Mine Belts.
In our previous report, we analyzed the impact of a newly industrialized China on the world’s silver markets and concluded that China’s compressed industrial revolution could soon trigger price hikes in the silver market. We also focused on the incredibly important point (from a production and investment standpoint) that the solution to the world’s critical, upcoming shortage of silver might be found in China’s own backyard.
A combination of industrial need, a silver industry nearing a crisis and underdeveloped, gigantic silver region (a region of superlative size) - is the kind of critical industrial juncture a precious metals analyst like myself is always attempting to identify. But even that is not enough to provide a foolproof opportunity for investors. You need a way to leverage this situation; in China certain outside companies now in negotiation to help China develop silver assets– including one company I have already identified in a previous Silver Investor, present this. That company is one, which gives investors an immediate chance – perhaps the best chance – to ride the opening-up of the Erbaohuo to its logical, and extremely profitable, conclusion.
So what we have is – demand, supply (virtually unknown outside of Chinese government circles) and leverage. This is the reason special reports on this region are created, and what it means to my subscribers and those interested in silver from an investment or an industrial point of view.
I have already written one report describing the current state of the silver industry and how China’s demand is triggering current events, and how the China’s supply – the big unknown story to this moment – may be the solution to the problem that China has triggered. This second report is intended to examine a portion of the Chinese solution – the regions where the richest strikes may be said to lie. In fact, my last special report ended with the statement that we would discuss the feasibility of finding “super sized” ore bodies in China as well as track the movements of well-known prospectors who might be exploring now. We also wrote that we would launch a fairly rigorous assessment of what regions and mines are likely candidates to help China fill its rapidly increasing silver deficit.
We shall now fulfill these promises in the following order: first introduction; then another look at the evolution of the Chinese silver market and the addition of a major outside player to the Chinese market, and finally a summary of China’s most promising Chinese silver region - the Erbaohuo Silver Mine Belts in the heart of China’s National Resource Reserve Area (NRRA).
Let me add at this juncture that the Erbaohua silver summary is drawn from a confidential white paper to which I have been given access prepared by the Chinese-state operated North China Nonferrous Geological Prospecting Bureau General Exploration Agency (NCGEA), founded in 1974. The observations made at the back of this report are therefore primarily from committed efforts over a 20 year period by hundreds of highly-skilled Chinese geologists and prospectors to identify the richest potential silver mines in China.
An internal profile of the company describes it this way: “Through years of development the agency has gradually developed itself into a group company engaging in mine exploration, mine development, mine engineering, trading services etc. Geological exploration and mining has always been a pillar industry of the agency. Output from this area constitutes 50% of the agency’s revenue. Currently there are 760 people in the agency, of which 300 are current employers. Of the total staff, more than 200 are with middle level or senior level technical titles, of which 60 are still actively engaged in geological mining work.”
The NCGEA is China’s premiere agency when it comes to identifying, understanding and mapping potential mining sites. Surely some of the studies are preliminary, but the district has been determined as fact. In the case of the Erbaohua and silver, the evidence has been growing for several decades – that something truly significant is in place, geologically speaking, in this region.
To impress further what those “in the know” believe they have discovered, understand this: When the results started coming in and then repeating themselves in size over a period of years, the Chinese government was moved to declare the whole region a national resource reserve!
What did the main mining agency do with all the data developed by the NCGEA? Metaphorically, the government pondered this region closely, they did develop some areas – with great success – but for the most part, the government drew a line around the richest properties and said “hands off.”
All that is changing now – right now. The Chinese need silver, and they need it yesterday.
And that was why I took my little 12-hour jaunt on a jet plane.
ALL THE WAY TO CHINA
Let me emphasize, that leaving my family during Thanksgiving to grind out a week-long China trip – complete with 12 hour plane rides and fairly damp, cramped prolonged investigations of mine sites – was not something at the top of my “to do” list when it came to pleasant adventures.
Sure, seeing China would qualify as “the trip of a lifetime” but relaxing and enjoying it was not an easy task – nor was it one that I successfully achieved. Instead, traveling over there I felt heavily – and still do - the weight of the opportunity that the 2000s has bestowed on me as a silver spokesman and has bestowed on proponents of silver in general.
As someone who is a fairly visible commentator on silver investing and silver re-monetization, it is difficult for me to “relax and enjoy myself” even traveling to an exotic place such as China, when the stakes are immensely high, the ramifications of failure are indescribably grim, and the possibilities of success are so powerful and reward-laden – not only for investors but for the world economy itself.
Don’t get me wrong. I was glad to go. As soon as my traveling partners broached the idea – and they are a part of a team of China-savvy industrialists with some incredible mining opportunities in the region – I knew I would have to travel with them.
Call it fate; call it destiny. From the moment I began to write the Silver Investor I have felt the weight of financial history rests on crucial short supplies of key commodities. Silver happens to be the one best suited for investment for the average investor all the way to Billionaire status such as Warren Buffett and Bill Gates that established their silver positions already. The weight I feel on my shoulders is the weight of tens of thousands of years during which humankind has traded silver, sculpted with silver, built with silver, decorated with silver, even cured illness with silver. It is an incredible mineral, this magical white metal. I have felt its call keenly; I take seriously my duty to act as its representative and proponent – even at times when I stand against the crowd.
It is misunderstood, and at times oversold, but that does not make it any less valuable. Probably more so since investments opportunities rarely take place at the top, do they?
Anyway, stretching my legs and trying not to cramp in my seat from the long plane ride, I was more conflicted than I have been in a long time. Here’s a summary – both the negative and the positive.
Pessimism First
I was soaring over China and I was worried. I admit it. How would you feel if you, almost by your lonesome, had been pointing out the doomsday results of a lack of silver for several years and now were in a position to confirm whether or not there was a solution?
Reviewing the message I’d been teaching for several years, if China does not secure the raw commodities it needs in a timely way, China’s industrial revolution could radically deflate, intensely raising the frustrations of China’s migrating workers – hoping for better- and newly well-off citizens. Additionally, any deflation of the Chinese industrial effort will threaten the entire world economy since China is the main motor driving the global economy these days.
After all, it is the Chinese who are single-handedly driving up the price of commodities while producing goods and services that are sold throughout the world. And the money flowing into China allows for the purchase of U.S. debt – so much so that China is perhaps the number-one buyer of American treasuries currently. Without China’s deep pockets, U.S. Treasuries would go begging and if that were to occur, the dollar’s decline would make the current descent look like a hiccup.
Optimism
Since I am an engineer by training, not much given to emotion when it comes to an analysis of potentialities and probabilities. Even before landing, I recalled what my research had shown me that there was nothing in the world of silver, in the world of precious metals generally, that even with the new silver mines that are expected to come on stream over the next three years or so, China’s demand for silver would still drive the demand side.
Historically gold is more expensive than silver. The ratio of silver to gold in the ground is roughly ten to one, the ratio the two metals held between each other for several centuries. In commodity bull markets the gap has close radically to as little as 16-1. Today - still at the beginning of what may be the most historically powerful commodities bull market to ever take place – we are the possessors of a silver-to-gold ratio that is insanely high by historical standards – some 60-1. Therefore the bull market in silver is far from over and new opportunities in the sector will arise those that can see the opportunity can also seize it.
As I was finally able to stand – ducking a little so as not to hit my head – I thought about this salient fact: I had not been attracted to China because of silver fundamentals; it was actually the other way round. Silver’s fundamentals, its positioning as a hyper-powered break-out investment, caused me to search high and low for the best possible opportunities for long term investment. And it had been my conclusion that if you are a committed silver investor, there is no place so over looked than China.
The more I had probed, the more convinced I became. All the elements to drive a silver explosion were present in China. It was a country in desperate need of silver; a geography that includes a 5,000-7,000 year history of silver mining in numerous regions, showing that the country is geologically promising in various areas – and one of the most fertile areas of all, Inner Mongolia, being the least developed from both a historical and industrial point of view.
There was good reason to believe that extensive mapping had been done of mines in less-developed regions - given that mapping is easier for small groups to accomplish. China was not good at exploiting its mineral wealth, under the socialist system. However, individual Chinese entrepreneurs, like entrepreneurs anywhere, have not been hesitant to perform initial geological studies of the highest potential silver bearing regions.
The Best There Is
China is a country with plenty of problems, as we all know, starting right at the top with the political structure. But from a point of view of fulfilling my best expectations – as opposed to my worst fears – China scored just about a perfect ten.
What I’m trying to say is that instead of fulfilling my worst fears, China fulfilled my critical expectations. Again, please understand I am not speaking of the country from a social or political perspective. I understand the inequality and the worker exploitation (communism is an ironic system, yes?) But purely from an economic point of view, the boom is genuine. It may well be a monetary phenomenon; in fact it surely is. But in this report, and in my commentary on China in general, when it comes to investment opportunities I am not discriminating for a very important reason: timing.
The late 1990s were built on a monetary bubble fueling the stock market waiting to bust, and there were those who commented on it – and look smart today. Others invested in tech in the late 1990s, got out at the top – and are rich today. My subscribers don’t buy the Silver Investor to look smart – or even to hear me preach about the morality of a communist country shifting its ideology. They want the wealth the white metal can bring. I’ve got to figure out when, where and how. And China right now provides the answer. That’s the dream for my investors – in China’s case it’s also reality.
I saw the Chinese industrial revolution with my own eyes. I saw the incredible building going on, the bustling open markets, the serious business being conducted at high levels. I saw the concern, even fear in the eyes of Chinese officials who had pegged their careers on getting silver mining in China jump-started. From a silver-mining and investment standpoint I came away from my trip convinced of the following:
-China is determined to open its mines and borders to outside investment and mining expertise.
-Certain individuals and industrial groups did indeed have access to incredibly precise mapping and geological testing showing exactly where the greatest potential ore bodies might be discovered and mined with great efficiency and success.
-Strong outside relationships have already made the inroads with Chinese officials necessary to do what needed to be done to create world class mining businesses going forward.
Two additional areas of criticality for me were to ascertain the viability of the current outside expertise in the region and to reassure myself that the regions were as promising were indeed what they were purported to be.
Strong Associations
China is actively seeking mining companies with a special focus on silver. As pointed out in my previous report, China’s current silver production - fourth in the world – “was achieved under tremendous handicaps imposed by the political structure. [And] it was achieved within the context of rigid multi-year plans and without profit incentives such as bonuses and options packages.”
The idea that China could rise to the rank of number four in the world in silver production with a communist government – and all the inefficiency pertaining to rigid five year plans implemented by a noncommittal and even destructive bureaucracy – is startling, to anyone who understands these matters. China has succeeded despite itself – because of the richness of the opportunity, not the efficiency of the effort.
In my last report, I related that several major, North American silver mining companies - Minco Mining & Metals Corporation (Minco) and Silver Standard Resources Inc.- had “announced a strategic alliance to jointly pursue silver opportunities in China.”
I summarized the deal as it was announced and presented on the Silver Standard website: “Silver Standard will invest C$2,000,000 in Minco Silver to acquire a 20% interest in the new venture. Silver Standard will have preferential purchase rights to participate in future financing of Minco Silver in order to increase its interest up to 30% in Minco Silver. As part of the strategic alliance, Minco Silver will be the exclusive entity for both Minco and Silver Standard to pursue silver projects in China.”
I take this opportunity again to remind readers that when I first recommended Silver Standard the stock was at $2 – and lately it has traded as high as $15. I do so not just to broadcast one of a number of successful picks I have made in the last two years but also as a way of alluding to one of the two most satisfying parts of my Chinese experience.
This report has been written with two goals in mind – to unearth and present China’s secret silver regions, and also to introduce potentially powerful partners about whom you – unless you are fortunate enough to be reading this – will not hear about this elsewhere, certainly not from the general news media for a number of months, or even several years yet.
My China trip confirmed my information about the richness of its regions, as you will see below, but it also confirmed that the industrial group with which I was traveling was making powerful inroads into Chinese silver mining. |
