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Another Shaft in the Mining Business

Commodities / Metals & Mining May 20, 2008 - 12:21 AM GMT

By: Darryl_R_Schoon

Commodities

Expect the unexpected and you'll end up in therapy, on drugs or enlightened.

For those aware of the impending collapse of debt-based paper money assets, the fact that the majority still have no idea about the magnitude of the approaching danger is unbelievable. What is also unbelievable are the positions some of those people hold.


It is understandable that most stock brokers, bankers, insurance and real estate agents would still hopefully believe that the current paper-based profit machine will continue to churn out paper profits for their benefit ad infinitum . But when reading the Silver Standard 2007 annual report, the demarcation between those who believe and those who don't becomes clear.

Silver Standard Resources, SSRI, is a well established junior mining company with properties in Canada , US, Mexico , Peru , Chile , Argentina , and Australia . SSRI mines primarily silver and along with gold and the base metals, lead, zinc, copper, and tin; and, most importantly, SSRI does so profitably.

WHEN ABOVE GROUND ASSETS COLLAPSE

BELOW GROUND ASSETS—SILVER AND GOLD—WILL RISE

It will be the monetary metals, gold and silver, that will benefit the most from the collapse of paper currencies and paper debt-based economies now in progress; and, Silver Standard Resource which controls 900 million ounces of in-ground silver, the largest in this sector, will benefit greatly when the collapse occurs.

We have been shareholders in SSRI at various times and are once again. That is why we received a copy of SSRI's latest annual report, a report that was revelatory in a most unexpected way.

The 2007 annual report confirmed that SSRI is well positioned to take advantage of the coming collapse of paper assets. It also confirmed the level of blindness regarding the extent and rapidity of the seismic shift now occurring in financial markets, a shift that has already cost SSRI tens of millions of dollars.

The 2007 report revealed that Silver Standard Resources had invested $57,102,000 in asset-backed commercial paper otherwise known as ass-paper or ABCP for short, paper assets (IOUs) backed by commercial debt that is now illiquid and cannot be sold.

Perhaps the blindness of SSRI can be attributed to its corporate domicile in Canada , a nation that has suffered extensively from its collective trust in asset-backed commercial paper much as Australians recently believed leveraged investments in US shopping malls were a profitable way to ride the never ending expansion.

That Silver Standard bought $57,102,000 of now illiquid paper is testimony to the blindness of those who profit from paper believing that such profits can always be taken off the table. In this instance, they were wrong; and, they will be increasingly wrong in other such instances in the future.

Additionally, Silver Standard's frozen and disintegrating $57 million investment was unneeded news coming from a respected company in the junior mining sector, a sector badly bruised by having been pushed aside during last year's meteoric rise of gold and silver.

A SENIOR MOMENT FOR JUNIOR MINERS

The past few months for junior mining stocks have been difficult. Always a volatile group, it was still a rude awakening that as gold and silver rose, the junior and mid-cap miners did not.

Now, that gold and silver have fallen from their spring highs, some believe the reason for owning gold and silver has abated; that the worst of the financial crisis is behind us; and that gold and silver, the arks in a monetary storm, may no longer be needed in the days ahead.

The truth is that the monetary storm has not abated. It has barely begun. The credit contraction of August 2007 was but a shot across the bow, a warning of what is on the horizon, a historic and cataclysmic disintegration of debt that will leave nations, businesses, and families broke and bankrupt in its wake.

INVESTING FOR THE FUTURE

THE NEAR FUTURE

As the week began, we were not fully invested. We had taken some earnings off the table and were waiting for the correction to end before reallocating assets. Gold and silver are currently in stage III (see www.survivethecrisis.com ), a stage in which gold and silver are subject to volatile swings as paper investors move in and out of precious metals in their search for short term gain, a process that will end in stage IV when the search for short term gain will end in long term loss.

For us, the 2007 annual report of Silver Standard confirmed that SSRI and our other junior and mid-cap miners were still well positioned to take advantage of the continuing bull market in precious metals, a bull market that has not yet rounded the corner to make its historic run down the home stretch, a run that will be accompanied by the collapse of paper money and paper markets.

As the week progressed, we began to add to our physical holdings in gold and silver and later we reentered some ETFs. And, finally, to gain speculative leverage we bought GDX 55 Jan 2010 and Comex gold 2000 Dec 2012 calls.

It was one year ago in May 2007 when www.survivethecrisis.com offered my book predicting a coming global economic crisis. In that same month, in my article Subprime America infects Asia and Europe , I predicted that a crisis would occur that summer ( http://www.drschoon.com/articles%5CSubprimeAmericaInfectsAsiaandEurope.pdf ) and it did. In August the predicted crisis occurred as global credit markets suddenly contracted and began the as yet unfinished process that will end in The Time of the Vulture .

The coming economic cataclysm will not be an isolated event. Now that the entire world is trapped in a world of debt created by central bankers, the collapse of that world will affect everyone, e.g. US, Europe , Asia , South America , and Africa . No one will escape the systemic implosion of global credit and dislocated debt now in motion.

Some will fare better than others. Some will not. Today is the only time left to prepare for tomorrow; because when tomorrow arrives it will be as life changing as was Hurricane Katrina to New Orleans and the recent tragic earthquake to the residents of Sichuan.

Both events were sudden and unexpected. So, it will be again.

“What's wrong, dear?”

“Oh, Beacham, the ship's officers have just said we hit an iceberg.”

Beacham could not help but notice that Lily was in an extreme state of distress. He held her in his arms to reassure her as she was easily disturbed and this was obviously the case.

“There, there” he murmured, “I'm sure everything's alright. It's just a bit of a fright but don't worry. We'll be through this in no time.”

And they were, but not how Beacham had imagined.

Note: I will be speaking at Professor Antal E. Fekete's Session IV of Gold Standard University Live (GSUL) July 3-6, 2008 in Szombathely , Hungary . If you are interested in monetary matters and gold, the opportunity to hear Professor Fekete should not be missed. A perusal of Professor Fekete's topics may convince you to attend (see http://www.professorfekete.com/gsul.asp ). Professor Fekete, in my opinion, is a giant in a time of small men.

Darryl Robert Schoon
www.survivethecrisis.com
www.drschoon.com

About Darryl Robert Schoon
In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later.

In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters.

In October 2005, Marshall Thurber, a close friend from law school convened The Positive Deviant Network (the PDN), a group of individuals whom Marshall believed to be "out-of-the-box" thinkers and I was asked to join. The PDN became a major catalyst in my writings on economic issues.

When I discovered others in the PDN shared my concerns about the US economy, I began writing down my thoughts. In March 2007 I presented my findings to the Positive Deviant Network in the form of an in-depth 148- page analysis, " How to Survive the Crisis and Prosper In The Process. "

The reception to my presentation, though controversial, generated a significant amount of interest; and in May 2007, "How To Survive The Crisis And Prosper In The Process" was made available at www.survivethecrisis.com and I began writing articles on economic issues.

The interest in the book and my writings has been gratifying. During its first two months, www.survivethecrisis.com was accessed by over 10,000 viewers from 93 countries. Clearly, we had struck a chord and www.drschoon.com , has been created to address this interest.

Darryl R Schoon Archive

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