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David Morgan

Mr. Morgan has been published in The Herald Tribune, Futures magazine, The Gold Newsletter, Resource Consultants, Resource World, Investment Rarities, The Idaho Observer, Barron's, and…

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Silver Stackers: Measure your Stash like a Miner

When attempting to quantify the amount and quality of a possible mineralized deposit on their property, exploration companies and producers generally follow a process which seeks to state, in reasonably accurate and concise terms, just what they have...or might have. Following the Bre-X fiasco, wherein 'highly inaccurate' reserves of a supposed deposit in Borneo were publicized and acted upon by a tidal wave of investors, sophisticated and neophyte alike, a new set of reporting rules was enacted.

Canadian National Instrument 43-101, is a rule developed by the Canadian Securities Administrators governing the process of disclosing to the public, scientific and technical information about mining projects. The NI 43-101 report is presented (usually within the context of a company News Release) by a "Qualified Person" - by a (presumably) competent licensed geoscientist, who often works for the company in question and is assumed to be skilled in analyzing the mineralization under review.

Reduced to its essence, the continuum of terms, expressed from highest to lowest confidence levels is as follows:

Reserves (Proven/Probable): Proven reserves are those that can be mined using current technology at current prices. Probable reserves may become economic if they 'pan out' by being confirmed as expected.

Resources (Measured, Indicated, Inferred): This part of the equation is derived primarily from 'sampling' efforts - drill hole programs, trenching, and even 'grab sampling'. These resources, in all three subcategories might be of economic interest and with the passage of time and more research, turn out to be economic.

Brent Cook, an independent geological consultant, Editor of Exploration Insights, conference presenter and active private investor, sums it up nicely when he says:

"An investor needs to bear in mind that not all resources or reserves are of the same quality. One company's two million ounce measured, indicated and inferred resource may ultimately convert to proven and probable reserves whilst the next company's two million ounce resource may end up as no more than an interesting anomaly to be revived during each successive minerals boom. Likewise, Qualified Persons are not all equally qualified and the quality and veracity of any resource estimate is no better than the integrity of the data supplied and person reporting."

So how would you 'measure' this deposit?

In July, 2012, Pan American Silver made an announcement regarding the proposed future of its Navidad deposit, rumored to hold 700 million ounces of silver, located in Chubut Province, Argentina, as influenced by proposed provincial tax draft legislation. They said in part:

"These increased royalties and the net carried interest are in addition to the 10% export duty payable on the sale of concentrates and the 35% income tax rate, which are payable to the federal government.

"This level of government participation and tax burden is unprecedented relative to any of the other jurisdictions where Pan American operates, including the province of Santa Cruz in Argentina, where the Company's Manantial Espejo mine is located. The Company's initial review of the effects of the proposed legislation, when coupled with the current inflationary environment in Argentina, indicates that the increased provincial participation will render the Navidad project uneconomic at any reasonable estimate of long-term silver prices.

"While the proposed law remains subject to revision within the legislative sub-committee and during the debate process in the provincial legislature, in the event that the law is approved as proposed without any meaningful modifications, Pan American will have no other reasonable option but to suspend further investment in Navidad. Without clear potential for positive economic returns, further investment and project expenditures cannot be justified."

The becalmed "battleship project" Navidad, in Chubut Province, Argentina
The becalmed "battleship project" Navidad, in Chubut Province, Argentina

Keep Brent Cook's comments in mind as we move to use these mining terms in an analogy about the future availability of physical silver supplies and how this might apply to you.

For our purpose today,


Proven - "silver in hand" - in a safety deposit box, a hole in the ground in your back yard - someplace where YOU know that it definitely resides.

Probable - from an "allocated" account, in one of the very few Exchange Traded Products (ETPs) which states that you can - if you so desire - take delivery of your silver or gold. (Trust on your part is a factor here, no?) From an "allocated" bank or trust account which claims to be storing silver in your name, in case you would like at some point to retrieve it.

Should you be without a bit of cynicism on this matter, consider looking up the sad story (as reported in 2010 in The Globe and Mail, entitled "An unkind complicatedness") of Canadian Amar Patel, 73 years old, suffering from chemotherapy, dealing with breast cancer, and simply trying to retrieve silver from the bank who was 'holding' it for her in the form of certificates she had purchased decades before.

After undergoing a series of stressful and humiliating detours, including at one point having the bank responding that it could still deny her request if the transaction was deemed not to be in her "best interest", she finally was able to take delivery of her silver.


Measured: The reported yearly global supply, (new and recycled) totals as collated and reported by an established organization like the Silver Institute.

Indicated: A collation of the expected production totals of primary and secondary silver miners, based in part upon the previous year's output, AND upon what the companies themselves project that they will be able to produce during the coming year(s).

Inferred: Presumptive silver potential in the earth's crust as concluded via studies of the U.S. Geophysical Survey, along with such statements from analysts like "Over one billion ounces of silver has been mined from Idaho's Silver Valley. It is estimated that another billion ounces remain to be found."

Or, "Silver can be found in the earth's crust in a ratio of 9:1 (or 8:1), therefore we conclude that another "x" million ounces remain to be located."

So, silver stackers, if you don't actually have that silver in hand - or close by - as Dirty Harry would say, "Do you feel lucky today?"


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