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Precious Metals

What’s In Your Loan?

OK, so it’s not a housing bond. It’s a dollar bond used to finance the purchase of houses. These are not the same thing at all, the way chalk and cheese…

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“Real estate is the future of the monetary system,” declares a real estate bug.

Does this make any sense? We would ask him this.

“OK how will houses be borrowed and lent?”

“Look at this housing bond,” he says, pointing to a bond denominated in dollars, with principal and interest paid in dollars.

“What do you mean ‘housing’ bond’,” we ask, “it’s a bond denominated in dollars!”

“Yes, but housing is the collateral.”

OK, so it’s not a housing bond. It’s a dollar bond used to finance the purchase of houses. These are not the same thing at all, the way chalk and cheese are not the same thing, despite both being single-syllable words beginning with the letters “ch”.

El Salvador’s Bitcoin Gamble

A few weeks back, we looked at the investor’s side of the lending equation. We described the difference between speculating on an asset’s price vs. lending money to a productive enterprise who pays part of its production to the investor in the form of interest.

Now, let’s look at the borrower’s side. The country of El Salvador just announced that it will issue “bitcoin backed bonds.” On Twitter, it is common to see many calling them “bitcoin bonds,” like an attempt to blur the distinction between chalk and cheese.

It is telling what El Salvador plans to do with the billion dollars—yes, let’s be clear, this is a dollar-denominated bond—that it plans to borrow. Half of the proceeds will be used to buy bitcoin, and the other half will fund government subsidies to create a new city powered by a volcano (you can’t make this stuff up).

The magic is that bitcoin is projected—by one of the promoters—to hit $1,000,000. This is about 15 times its current price. This price rise is treated as a given. At this price, the country will sell some of its bitcoin to repay investors.

So, this scheme is just a way to leverage bitcoin as a free money—i.e. dollars—machine. They are borrowing dollars to fund a speculation on an asset. And they are mixing this in with borrowing to spend on infrastructure, such as a volcano power plant and a new circular city promised to be like Alexandria, and the new financial capital of the world.

It gets better. A key part of the scheme is to corner the market for bitcoin. Or, in the words of the promoters, “bitcoin would be taken off the market for several years.” So, they not only speculate on the price of bitcoin, but openly tout that they will drive the price of bitcoin up and profit from this rise.

Contradictions and Flaws

We will leave aside the two obvious flaws. One, the price will rise as a result of their buying. In other words, they will pay more for their bitcoin. And two, the price will drop as a result of their selling in five years. This is a problem that all large investors have to think about.

The deeper problem (assuming that this will work at all) is revealed in the fact that a poor little country could drive the price up so much. If bitcoin is to be money—and not just a chip for betting to make dollar gains—this is a bug, not a feature.

One should want stability, not big opportunities to make big amounts of money. For example, even during times when India is buying a lot of gold, the price does not necessarily go up. And India buys a lot more gold than El Salvador could ever hope to buy of bitcoin.

El Salvador’s scheme is to borrow dollars to use bitcoin as a means to make more dollars. Those dollars will (they hope) be forked over by savers who will buy from them at a million bucks. Presumably, these new speculators will buy at a million bucks because they hope to sell at two million. Or ten million.

The yield on the billion dollars of this bond, will be paid in dollars. This is assuming that it is paid at all (Moody’s recently downgraded the country to caa1, which means the issuer is in poor standing and there is a very high credit risk).

We would assume that the only way the country will repay this bond is if bitcoin does indeed skyrocket. This raises the question, if one wants to bet on bitcoin going up 15X, why would one bet on a high-risk credit to earn 6.5%?

Backward Models and Speculation

Moving on from El Salvador, there is another case which is also described as “bitcoin lending.” In this case, borrowers put up their bitcoin as collateral, to borrow dollars. Those borrowed dollars can be used for anything—even buying more bitcoin. This is not borrowing to finance production. And it is not borrowing bitcoin, but dollars.

More importantly, it has the whole borrowing model backwards. If you needed $1 million to build a factory, and you already had $1.5 million, then why would you borrow $1 million at all? Most entrepreneurs don’t have the money, which is why they are seeking a loan.

But in this case, those with a larger amount can borrow a smaller amount (loan to value on these loans can be as low as 25%). This is just another way to speculate, just another way to leverage up speculative assets.

We are not saying don’t speculate, or don’t borrow to speculate (if you understand all the risks). We are saying that this is not the future of our monetary system.

Speculation is a process of conversion of one party’s capital into another’s income, to be consumed. By definition, and by its nature, this process is not sustainable. Capital is precious, and once it’s gone it is gone. It does not “recover”. It can be re-accumulated only by the slow process of saving, of consuming less than one produces.

A Better Monetary System

This is why we say that gold is better money than bitcoin. Bitcoin may be better at skyrocketing (also crashing). But gold is more stable. Gold can be used to finance productive enterprises.

We need a monetary system that works, which means it can finance the production of food, cars, mobile phones, and even houses. We need a stable interest rate, and stable asset prices. Only gold provides these features.

      

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Precious Metals

Looking for Leverage? Silver Sands at a Sub $10 Million Valuation Offers the Highest Leverage Drilling Play Around

Nearing the end of a phase III drill program, this high-leverage silver/gold play couples enormous upside with an unusually low risk profile.  Eric Sprott is the largest shareholder…

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Nearing the end of a phase III drill program, this high-leverage silver/gold play couples enormous upside with an unusually low risk profile.  Eric Sprott is the largest shareholder.

Veteran analysts predict gold and silver are on the cusp of another bull run, with some speculating that after a year of consolidation we may see prices rise to $50 per ounce for silver and $2,500 per ounce for gold near term. A further leg up is forecast, and some say precious metals will hit unheard of levels over the next few years as the US dollar staggers. This is big news considering that past silver bull markets have delivered gains ranging from 330% to 900%.

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Which brings us to Silver Sands Resources Corp. (CSE: SAND), and why its Phase III drill program currently underway makes it the best high leverage silver junior around.   SAND started out with a silver resource of 15 million ounces at its Virginia project in Argentina last year and this is their third round of drilling. Their goal is to have grown that to 50 million ounces by the time Phase III is finished, on their way to 100 million.    

But that’s the low-risk part.  The leverage comes from drilling the silver/gold Santa Rita vein field in the northern part of the property first explored by Mirasol and Hochschild in 2007.  Surface sampling and channel sampling highlights included 340 g/t silver and 5 g/t gold. Mirasol put 7 green field exploratory drill holes into the structure and came up with mineralization in 6 of 7 holes before Hochschild dropped it to focus on their San Jose discovery (now mine).  

Silver Sands largest shareholders are Mirasol Resources and Eric Sprott, who has invested twice – increasing his initial investment by 300%. Commenting on the silver market, Sprott said:

“There’s going to be a shortage of silver. We get information from dealers looking for supply and paying premiums, which is almost unheard of. And when I look at the amount of silver going into ETFs and India, we know a shortage is on its way. The last time silver had a breakout, the price went up 10-fold. Do I think that could happen again? Absolutely.”

Sprott is not the only one with Silver Sands on his radar. In his Gold Newsletter, well-known precious metals expert Brien Lundin firmly put the company into the buy column, reiterating his previous buy recommendation. Speaking to the high leverage nature of Silver Sand’s Virginia project, he described the company as “a great ongoing lever on …… silver.”

SAND is near the end  of a Phase III exploration program at its Virginia project located in mining-friendly Santa Cruz, Argentina, in close proximity to four producing precious metal mines. Virginia started out with a silver resource of 15 million ounces, and the goal is to grow that to 50 million ounces by the time Phase III is complete.

The right people, place, and resource

Silver Sands hits the mining trifecta of people, place, and resource. The company is overseen by market veteran Keith Anderson who brings to the mix a successful 20-year history of structuring and financing resource companies. Leading a deeply experienced management team, Keith has brought in a top-class investor, executed operations under budget, and delivered a clear roadmap towards the development of a significant resource.

The company’s flagship Virginia project is located in mining-friendly Santa Cruz, Argentina, in close proximity to four producing precious metal mines. This year, Argentina was rated the 5th most attractive region in the world for investment, and a global top 10 of silver mining jurisdictions. Furthermore, Santa Cruz ranks above Mexico on the investment attractiveness index. 

Following up on highly successful Phase I and II exploration programs, Silver Sands is nearing the end of its Phase III program which comprises 2,685 metres of drilling across more than 16 holes. The program is targeting seven silver vein structures along with the high priority Santa Rita silver-gold prospect. 

Overall, the Virginia property has the markings of an exceptionally large epithermal vein system yet only a tiny fraction outcrops at or near surface. Silver Sands has just started to scratch the surface of the property’s potential. By the time Phase III is completed, the company believes it will have grown its resource from 15 to 50 million ounces, on the way to 100 million plus. 

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Phase III will comprise 2,685 metres of drilling across 16 holes and is targeting seven silver vein structures along with the high priority Santa Rita silver-gold prospect. This will all be driven by a low-risk model that involves mostly drilling gaps and extensions between high-grade intercepts along known vein structures. 

Adding ounces on the low-risk journey to massive upside potential

The 59,750-hectare Virginia project is a low to intermediate sulphidation epithermal silver deposit nestled in the mineral-rich Deseado massif, roughly 100 kilometres south of Newmont’s Cerro Negro Mine, one of the largest gold mines in the world. 

 Through initial discovery in 2009 and four follow up drill programs between 2010 – 2012, Mirasol Resources defined an indicated resource of 11.9 million ounces of silver at 310 g/t and an inferred resource of 3.1 million ounces of silver at 207 g/t, which were documented in an NI 43-101 technical report filed in 2014. Mineral resources are contained within seven conceptual open pits including Naty, Julia North, Julia Central, Julia South, Ely North, Ely South, and Martina. 

Phase I and II drilling subsequently identified four new conceptual open pits – Ely Central, Ely North Extension, Julia South Extension, and Martina NW. Drilling confirmed the Ely structure can be traced over 2.3 kilometres in strike length from north to south, open along strike and at depth. The Naty-Julia structure now extends to over 3 kilometres in strike length, open to the north and south, and at depth. 

Phase I focused on exploring new high-grade silver zones to expand on the existing NI 43-101 and consisted of 2,831 metres across 18 drill holes along with 80.5-line kilometres of IP surveying. Phase II followed up and yielded some impressive results, testing several new prospective zones through 3,104 metres of drilling across 20 holes. New discoveries were made in areas of lower IP chargeability, showing potential for strike extensions of known veins, as well as new discoveries within previously untested linear trends of lower intensity.

Phase II also led to the discovery of a new high-grade zone at Ely Central, where drilling intersected strong and continuous Ag grades in four drill holes over a 200-metre strike length that lies within a 580-metre untested gap from original drilling in 2012. Furthermore, drilling intercepted high-grade silver mineralization at the Ely North, Martina, and Julia South targets.

Highlights from Phase I and II exploration programs include:

• 639 g/t Ag over 9.60m

• 625 g/t Ag over 10.80m, including 1,110 g/t Ag over 5.70m

• 560 g/t Ag over 9.98m, including 1,578 g/t Ag over 2.87m

• 476 g/t Ag over 4.0m, including 929 g/t Ag over 1.85m

• 198.5 g/t silver over 33.5m

• 123.43 g/t silver over 8.5m, including 168.34 g/t silver over 3.9m

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Phase II encountered phenomenal grades at shallow depths. It also led to the discovery of a new high-grade zone at Ely Central, where drilling intersected strong and continuous Ag grades in four drill holes over a 200-metre strike length that lies within a 580-metre untested gap from original drilling in 2012.

A New Vein Field Target That Looks Like Virginia

Adding to the positive results, an IP survey to the northeast of the existing vein field identified 17 targets with a chargeability response similar to known veins in the main field, suggesting that a new vein field akin to Virginia has been discovered.  The 37.5-line kilometres of IP surveying has since been worked up for drill targeting. 

“In Phase II, we hit some of our best holes ever and encountered phenomenal grades at shallow depths – this is pretty big stuff, indicating tremendous upside potential,” said Keith Anderson. “Our main goal with Phase III is to climb to 50 million ounces, on our way to 100 million plus. Nothing is set in stone, but it’s definitely within the realm of possibility, especially when you consider the size of our property.”

In addition to identifying new mineralized zones and a key target area for expansion, Virginia’s potential is unique in that the property has never been explored to depths greater than 150 metres, while surrounding miners have successfully encountered mineralization to depths as low as 450 metres. 

Furthermore, silver veins in the south and east portions of the Virginia property do not outcrop to the surface and require deeper drilling than what’s been endeavored so far. If Silver Sands encounters mineralization at lower depths the resource potential could very well double or triple.