Malcolm Bucholtz B.Sc, MBA Analyst

Trading Note

The financial world is in a spot of bother right now, but instead of getting sucked into the vortex of fear, investors should take a step back and look for the opportunities that this crisis is presenting. Make no doubt about it, the Federal Reserve with the help of its trusty printing presses will print the financial system out of trouble. The end result, though, will be a bloated money supply (as if it's not bloated already…) which will fan the flames of inflation and further dampen the enthusiasm for fiat currency. The benefactors of this exercise to print the system out of its hole, will be none other than Gold and Silver. But, buyer beware. The world is not all milk and honey. Think twice if you are looking at buying shares of a Gold or Silver firm that is involved in some far flung corner of the world. Geopolitical tension in some of these countries can rise quicker than the temperature on a summer's day in Phoenix. Probably wiser to stick close to home where political risk is not a factor. The question then becomes one of "where do I invest in Gold and Silver in North America"? Well, for starters, take a look at the picturesque State of Idaho.

In particular, Idaho's Silver Valley in the Coeur d'Alene mining district is world renowned for its history of Silver mining. In fact, 1884, the district has produced over 1.18 billion ounces of silver, along with major amounts of lead, zinc, copper, and antimony. In total, more than $2.89 billion worth of metal has been produced from veins in the district.

One company that has caught our attention here at The Market Traders is Canadian listed SNS Silver Corp (TSXv:SNS). SNS is working hard to bring the past producing Crescent Mine into production again. The history of mining at the Crescent Mine goes back to the early 1900's. Records show that between 1924 and 1977 the mine produced 868,926 tons of ore grading 25.97 ounces Silver per ton with smaller associated percentages of Lead, Zinc and Copper. This high grade made Crescent the highest grade producer in the area. But alas, the Crescent Mine produced for the last time in 1983 when low Silver prices forced its closure. At the time of closure, its operators estimated that there still was something like 9.3 million ounces of Silver left in the mine just waiting to be recovered.

Management is working hard to gather enough drill data so that a 43-101 compliant resource estimate can be completed by the end of the year. It should be very interesting to see the quantity of Silver that this resource estimate identifies. With so much infrastructure available in the area, look for SNS Silver to strike a deal with one of the other processors to mill its ore. This seriously will reduce the capital dollars required to start production and will shave huge amounts of time off the timetable because there will be no need to permit, design, finance and build a milling facility.

SNS Silver currently has 40.5 million shares outstanding. At recent prices, SNS has a market cap of just over $12 million. Another pitiful example of how the short sellers have trashed these junior mining markets and in so doing scared investors away from placing meaningful bids. We know that the previous owners in the early 1980's had stated that the Crescent Mine contained 9.3 million ounces of Silver and we know that the team at SNS is going to complete up to 30,000 feet of drilling and factor the data into the 43-101 resource estimate before year end. Now, let's take a look at a "what if" type scenario. What if this resource estimate comes back showing a resource of, say, 15 million ounces? If I apply a nominal value of $1.50 an ounce to this Silver resource, I see that it is worth about $22.5 million in-situ. Dividing by 40.5 million shares outstanding yields $0.55. So, this gives you a rough idea of where SNS shares could go in short order with this kind of resource. I seriously hope it is bigger for I would dearly love to see the short sellers running for the exits in fear.

Here at The Market Traders, we will be watching SNS Silver closely. We are initiating a speculative buy rating on SNS Silver. Start to build a position in SNS stock now so that you are well positioned when the resource estimate is released. As developments unfold further and as news is released, we will be providing further updates. To dig deeper into the SNS story, take a peek at their website at www.snssilver.com

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