Sons And Daughters Of BBCMF Metals/Silver,Gold,Precious Metals companies/Research.

[mick]

JULY 9 2007 3:00PM - Silver managed to peek above a critical level today with respect to my estimation of its technical requirement to rise at least 60-70 cents above its recent lows. Alas, silver could not hold this level into the close and so it looks like at least another day or more is needed for short term resolution. Gold, on the other hand, had an excellent day by rising more than 1% without much help from the dollar, oil or otherwise. PM stocks continued to rally as well with the HUI closing above the 351.85 minor resistance level set in early May. It appears inevitable that HUI 360 will be taken out as well. I am once again on the verge of turning outright bullish on the short term and I've even started to again mull the outrageous notion that silver could rally above $20, perhaps to $25, this summer. The possibility is certainly not ruled out by technical and fundamental considerations and I really like the contrarian angle as well. On top of being almost fully invested, the most important thing that I have done so far to position myself for this possibility is to buy a few $15 call options. I fully expect these to expire worthless but I couldn't resist--very few "opportunities" provide such awesome leverage that you could be wrong 9 times out of 10 yet still make a killing overall. In this instance, the best case scenario is more than a 100-to-1 return in 6 months or less. At this point, I'm willing to risk a couple thousand dollars on that proposition.



Now I would like to talk about Mines Management, a company I last mentioned a few months ago. MGN made a powerful 16% move today off a "brutal" low around $3.30, but is still down by almost 50% since late last year. Unfortunately, the lack of much development activity at the Montanore project during the past 5 years as well as a major financing this Spring have taken their toll on the shares. What we have now, however, is a company with $30 million in the bank, around 20 million shares fully diluted and a market cap under $80 million, all of which will buy you one of the (arguably) 10 largest undeveloped silver deposits in the world. To give you a sense of just how severely this property is being discounted, if Montanore was owned by Silver Standard it would no doubt be valued at $250 million or more. On the positive side, the small float pretty much guarantees that the slightest positive change in investor sentiment will send MGN shares flying, which is exactly what might be unfolding here. I hold a small core position in the stock for the long term but will be looking to add some shares here in anticipation of a speculative rise in the next few days.



Finally, I'd like to follow up on what I consider a potential blockbuster development for silver, which is the forecast in the recently released The Silver Book of a major new source of silver demand in the form of wood preservation (estimated by Virtual Metals at 25 million ounces for 2007). Based on some further review of the subject matter, it is my personal opinion that such a level of demand is a bit optimistic for 2007 and perhaps even 2008. On the other hand, there are a number of factors that could result in robust demand for silver-based wood preservatives in the years ahead. In fact, this is one area where a new product category has the potential to more than offset the decline of silver use in photography (net of recycling) in the next few years. This assessment does involve some "ifs" and "buts" so it will be important to keep abreast of the developments, something that I plan to do and report on here in the months and years ahead. I am also in the process of investigating the various other miracle innovations involving silver in order to be able to make a first-hand assessment of their impact on future silver demand. That too, will be reported here


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