US Silver Corp (TSXv: USA) – Making Great Strides Forward in Idaho's Silver Valley

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 deep dark 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, since 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 US Silver Corp (TSXv:USA). US Silver is a relatively new story for the markets. In 2006, US Silver acquired over 10,000 acres of land from Coeur d'Alene Mining (for a mere $15 million) which hosts the past producing Galena Shaft(s) and Mill Complex, the past producing Coeur Shaft and Mill Complex and the Caladay exploration shaft. US Silver has since gone on to acquire additional property in the area to being its land holdings to some 18,000 acres.

The Galena Mine has a history dating back to 1887. Modern records on file since 1953 show 160 million ounces Silver, 116 million pounds Copper and 22 million pounds Lead have been extracted from the mine. The Coeur Mine produced continuously from 1969 to 1991 and then briefly from 1996 to 1997. Records show that production was 39 million ounces Silver and 33 million pounds Copper. The Caladay shaft was initially sunk in the 1970's but records show that no development or mining was then attempted.

Since going public in early 2007, US Silver has raised $66 million in the capital markets and has been driving hard to bring the Galena and Couer complexes back to full scale production.

The task of restoring these projects to their former glory has not been easy, but the team at US Silver has risen to the challenge. Interestingly enough, one of the major issues has been the attraction and retention of miners. Go figure. Here we are in the midst of a massive commodity supercycle that has years to run yet and nobody wants to work in a mine. If I was younger, I would be packing my bags, my hiking boots and my mountain bike and heading west to picturesque Idaho to work in the mining industry. Sadly, the young folks in today's world seem adverse to getting their hands dirty and making some serious money. In any case, US Silver shall overcome. I expect the sought after workers will be found which will allow US Silver to further ramp up production.

A recently published 43-101 Report shows that as of January 2008, US Silver is sitting on Reserves of 18 million ounces Silver, 4790 tons Copper and 27,000 tons Lead. Measured and Indicated Resources tip the scales at 12.5 million ounces Silver, 3500 tons Copper and 20,000 tons Lead. Inferred Resources come in at 18 million ounces Silver, 3600 tons Copper and 67,000 tons Lead. US Silver reckons this is enough ore to mine for up to 14 years at an average cash cost of $7/ounce of Silver equivalent. This resource estimate will be updated soon and any increases to the resources will be received favorably by the markets. In the meantime, US Silver continues to drill to even further expand its resources. 2008 will see some 80,000 feet of underground drilling along with 10,000 feet of surface drilling.

At this time of writing, the team at US Silver is operating the Galena Mill at 700 tons per day and the Coeur complex has now commenced operation as well. The Galena Mill has a capacity of 1100 tons per day throughput and the Coeur complex a capacity of 400 tons per day. Heading into 2009, US Silver envisions production rates closer to these rated capacity throughputs which implies annual Silver production of up to 4 million ounces, annual Copper production of just over 1000 tons and Lead production of near 6500 tons. At these rates and at current metals prices, US Silver should realize cash flows of around about 12 cents per share. Using a multiple of 10X, this implies a target price of C$1.20 per share. The chart that follows shows how badly beaten down US Silver shares have become as investors have bolted in fear that the world is coming to an end.

Here at The Market Traders, we will be watching US Silver closely. We are initiating a speculative buy rating on US Silver. As noted above, the key issue to be resolved is labor and we are confident this issue can be overcome. Q1 2008 saw a profit of $1 million and as developments unfold further, as resources are updated and expanded and as further news is released, we will be providing further updates. To dig deeper into the US Silver story, take a peek at their website at www.us-silver.com.