Wednesday 30th November 2005 AD

"LESSER BROTHER FUNDAMENTALS"

Last week we commented that much hype and focus is on Gold and Oil as prices move higher, often overlooking what we like to call the 'Lesser Brother' commodities of Silver and Natural Gas.  We posed the question; do these Lesser Brothers share some similar characteristics and properties to each other? 

Without any doubt silver and natural gas are the great untold stories, both sharing outstanding market fundamentals.

As our valued readers well know, the silver story is very simple.  Everyday we consume way more silver than we mine(1) and we must rely on our now rapidly diminishing stockpiles.  Many analysts will argue that in just 50 years we have consumed most of the silver that took 5000 years to mine. 

Silver is a unique element that is critically important to just about every aspect of our modern, high-tech, industrial age.  It is scary to consider that without silver we wouldn't have virtually any of the advances that we have made over the last 100 years.  WITHOUT Silver we have NO computers, satellites orbiting the earth, the internet, electrical power generation, modern medicine, the x-ray, many common place medicines, solar power, television camera's, plasma screens, compact disks, photography (silver-halide or digital) ~ the list is endless(2). 

Ask a metallurgist and he will tell you that for most of silvers uses, due to its unique properties, there is NO ALTERNATIVE.  Most silver used in its industrial and electronic applications is lost for future recovery(3).

"Cant we just dig up more?" came the question from the floor or a recent investment conference.  "Sure" I replied, "but getting silver out of the ground to the market is way more difficult and much slower than most people expect."  

Most silver mined today is the bi-product of other mining, namely copper, gold, and lead. Most of the world's pure silver deposits have been recovered.  Many of the proven rich silver deposits left are in geo-politically difficult or unstable areas.  An interesting point for us is that the world's remaining proven pure silver deposits are in the hands of a very few companies(4).  It takes many years and massive capital commitment to bring a mine to the point where it produces its first ounce of silver. 

Last week we asked, "Is it possible that these 'Lesser Brothers' could become the 'Greater Brothers' in the future?"  While the future can be hard to predict, we do know that we consume silver at far greater rate than we mine it and we are running out of our 5000 year stockpile FAST!  Every part of lives, to which modern man has become so accustomed,
relies in someway or another on gold's 'Lesser Brother'. 

Best Regards  - Philip Judge pjudge@anglofareast.com


(1) Official figures show global demand at around 800 million oz per year, with mine production around 5-600 million oz per year, for a supply deficit of around 1-200 million oz per year.  Some analysts believe this supply deficit is actually much larger.
(2) Consider the indirect stimulus silver has given the global food and energy supply and distribution chain through our global computer, electrical and satellite network.
(3) It is too expensive or difficult to later recover and re-use that same silver.
(4) This can be good and bad, many small companies offer excellent capital growth potential in an advancing silver market.  Alternatively many larger (silver producing) companies have dangerous hedge book problems.