Resource Stock Report - V14 #11.0 - Markets, Silver Stocks, Hecla - Nov., 19, 2008

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A Myth!!!

For decades or as long as there has been investing and markets, a common theme is that markets
always anticipate and price in future events and outlooks. I agree that this use to be the case, but
not anymore, it has now become a myth. Our markets are so poorly regulated, traded with computer
models that all make the same predictions that are right or wrong and are now so heavily manipulated that they no longer reflect nor predict any kind of reality.

As you know I was predicting a severe recession and stated many times that I felt the U.S. economy
was in recession back in the 1st qtr. of 2008 and even sliding into one the last qtr. of 2007. I
have no doubt that is true, but the markets no longer reflect reality nor do they price in future
events very well.

It is easy to see now that the stock markets did not sell off until we were well into the recession.
They did not forecast or price in any kind of economic recession or slow down.

s&p500 chart

The market did not break down, meaning fall below its longer term support or lower low from mid 2006 until mid to late September of this year.

Those that now say the markets turn back up into a new bull market about 4 months after a recession
sets in or after a bottom or what ever - better rethink their prognosis.

The markets will turn back up for one reason, and that is when the Fed and U.S. policy is successful in re-inflating them. So do not take a market rally to be a signal of better economic times but one that re-inflation is working.

A few months back I presented a chart on copper prices because it is know to have a Ph.D. in
economics. Copper is heavily used in all aspects of the economy and its price variation has always
been a good future indicator of whether the economy would continue doing well or poorly. I pointed
out that copper prices were still holding up so economic demand would still be reasonable, a mild
slow down, at least to start with.

But I have now stripped copper of its Ph.D., it, just like the markets has simply reacted and it did not break down in price until October, well into the recession when everybody knew economies and demand was falling.

copper chart

Our markets are a mess!. Now that was not the main purpose of this newsletter. I wanted to talk
about opportunities in silver and gold. I am sick of hearing 'cash is king', and those holding cash
will be sorry. There was a time and place to go into cash but that is over. My next newsletter will
be devoted to this subject:

"Cash is King = Checkmate"

Gold and silver stocks, especially silver stocks have been decimated and I am getting lots of emails
whether to buy this stock or that, like Hecla, Couer etc.

What silver stocks to buy? It matters more than ever now !!!!!!!

The silver stocks have been beaten up more than gold stocks, for a few reasons.

Gold chart Weekly

The silver price has declined much further than gold. Gold is down just 25% from its $1,000 peak
while silver is down about 50% from its $19/20 peak. Silver is oversold more and for that reason
could rebound stronger than gold on a percentage basis.

Silver chart Weekly

But, the most important factor and one many silver investors miss is that a lot of silver companies
are also big base metal producers. This is far more important than many realize. First off, base
metals prices have corrected further and their outlook is less robust with a recession. I think base
metals will also recovery in price with a recovery in commodities, a falling US$ and continued
strong demand in the future, but precious metals will perform far better and especially in the
shorter term.

Gold production continues to fall, but silver production will now fall further and faster for one
simple reason. Silver is a by-product of many base metal mines and as many of these are cut back, closed and shelved, less silver will be produced at a time when there is the strongest physical demand ever. This is very bullish and is an example of another mess in our markets, but will result in silver prices higher than most imagine!!

I will outline a few factors that make a big difference between silver producers and again the key
factor is whether their silver mine is a silver/base metal mine or a silver/gold mine.

A silver/gold mine has lower costs and gets higher prices, also considering gold has dropped far
less than silver. A silver/gold mine will produce a silver/gold dore bar with a flotation process or
leaching. This is a small bar, perhaps weighing 25 to 100 pounds that can be shipped direct to a
refinery and because of its small (and valuable) size, many of them could be shipped out in a small
plane or pickup truck for that matter. Three quarters a ton of dore bars in a pickup could be 80%
silver and gold or almost 20,000 ounces of precious metals worth $3 to $4 million if it was 25%
gold. A 3/4 ton base metal concentrate would be valued at less than $5,000 including the precious
metals in it

You get the picture, what would you want in your pickup, the dore bars or base metal concentrate??

There is a big difference with base metals. Silver here is produced in a lead, zinc or copper
concentrate or a combination of these. These concentrate shipments are in the hundreds and thousands
of tons and therefore with the weight are much more expensive to ship. They also have to be
processed in a smelter and the distance to a smelter that has the capacity is a big factor in cost.
Precious metals are removed with the smelting process and then still have to be sent to a refinery
to finish. Smelting can easily take 20% of potential profits off the top.

So you can see the big difference here and different challenges and costs. The silver/gold mine is
far superior and robust than the silver/base metal mine.

This is why a stock like Sabina Silver (SBB) is selling for less than cash value and no value for
their deposit. It is a silver/base metals deposit located remotely in Canada's far north and in the
environment we have today there is no hope in hell that this would be developed or sold.

This is why Aquiline and their massive Navidad discovery in Argentina has gone through another
scoping study to focus on just the highest grade silver zones but still would produce a
copper/silver concentrate that would need a smelter, but at least copper prices are still doing
better than lead and zinc that is a major component in other zones on their discovery. Still the
processing of their ore makes up the higher cost ($2.00/oz.), even above the fixed capex cost
$1.85/oz) of building the mine

This is why Couer D'Alene paid such a high price for Palmerajo, it is a silver/gold deposit.
Palmarejo is expected to become one of the world’s largest and highest grade silver/gold mines. It
will be Coeur’s largest silver producer and cash flow generator with 5.1 million ounces of silver
production and 67,000 ounces of gold production in its first partial year of production.

This is why I like Paramount PZG so well, it is close to Palmerajo and is a silver/gold deposit that
will fetch a high premium compared to many other silver deposits.

This is also why I have picked First Majestic (FR) it for the most part has silver/gold mines. The
last quarterly statements show they produce 719,399 ounces of silver worth about $8.8M, 536 ounces
of Gold worth  $0.4M and 1,518,271 Lbs of lead worth $1.3M. Lead only represents about 12% of
production and is probably from just one of their 3 mines.

Also why I have picked Orko Silver OK, it will be a silver/gold mine. They have run recovery tests
for silver and gold resulting in high recovery rates using a leach process.

Many of you have asked about Hecla, HL and I think they are a good company and the stock is really
beat up and oversold at $1.30. Hecla is mostly a silver/base metal miner but I still expect will
recover from this ridiculous stock price, but you may want to consider this more as diversification
if you already own silver producers like First Majestic, Couer and Pan American.

I looked at the production numbers of a bunch of silver producers.

Hecla's 3rd qtr. production breaks down as follows

Hecla 3rd qtr Production          Today's Metal Price
silver $32.9 million  at $12.30      $9.50
Gold   $14.8 million  at $848        $742
Lead   $16.5 million  at 0.87/lb     $0.61
Zinc   $21.5 million  at 0.73/lb     $0.53

Base Metals represent $38M of revenue and Precious Metals $47.7M. So base metals make up about 45%
of production with much higher costs

Pan America, PAA qtr. production at same metal prices as Hecla
silver  4,857,840       $59.8 M
Zinc ton   9,648        $14.1 M
Lead ton   3,967         $6.9M
Copper ton 1,514 $1.67   $5.1M
Gold      6,449          $4.8M

Base Metals represent $26.1M and Precious Metals $64.6M. You can see that Pan American produces
mostly precious metals, but quite a bit of zinc from one or two of their mines. Pan American has
probably got the best balance sheet and this and their 72% production in PMs is why that stock has
not come down as much.

I mentioned Couer D'Alene above, it is pretty much all a silver/gold producer and its two new mines
coming on stream Palmerajo (silver/gold) and just started producing silver at what is expected to be
the world’s largest pure silver mine – San Bartolomé in Bolivia.

http://www.stockhouse.com/comp_info.asp?symbol=CDE&table=LIST

I think the stock has been beat up more so than some others because there is some concern if they
have enough financing for startup of their two new projects. The company reports that it is on time
and budget, but I expect because so many projects have cost over run there is concern. However, what
many are not factoring in is that many costs have come down in the past few months. The stock was
also heavily owned by funds/institutions that were forced to liquidate. It was also heavily shorted
and at one time had about 80 million shares short. There has been a significant decrease in shorts,
now about 54 million compared to 71 million last reported.

It is quite typical even in normal markets for a stock like CDE to under perform because of new
project risk and development. But as these new projects come on stream and bring in cash flow and
profits, the stock usually makes a significant move upwards.

Even still CDE has performed better than Hecla, it dropped to $0.50 from the $3.00 level in July or
about 83% decline. Hecla has dropped to a low of about $1.10 from $10 in July or about an 89%
decline.

Investor have actually been far better off in a couple of our advanced silver juniors than these
two. Since July Paramount has only declined 76% (1.50 to $0.35) and Orko 80% (1.50 to $0.30)

First Majestic declined 80% from $5.00 to $1.00

http://www.stockhouse.com/comp_info.asp?symbol=FR&table=LIST

Pan American declined 69% from $37 to $11.50

http://www.stockhouse.com/comp_info.asp?symbol=PAA&table=LIST

Some of our silver exploration with no resources

Normabec 84% from $0.37 to $0.06
Arian Silver 75% from $0.20 to $0.05
Avino 85% from $1.35 to $0.20

In summary

I would want to own or be a buyer at today's prices  of Couer D'alene and First Majestic for
producers and Paramount and Orko as advanced juniors.

Once you own these four, I would have no problem diversifying out into Hecla - HL around US$1.25
and Acquiline - AQI C$1.00. Basically you cannot go wrong now, just throw darts, everything is so
oversold that they will see significant recoveries. I would hold off and wait on the explorers, they
will respond later but could still see good bounces off of very depressed levels. The problem is no
volume to buy some of them.

In fact I am going to add Hecla to our selection list.

Hecla Mining  NY:HL   Recent Price US$1.25
52 week trading range $0.99 to $13.14

Shares outstanding approx.  170 million

They just completed a financing at $5 back in September and the stock is well below that.

This long term chart says all that needs to be known

HL chart

You are buying the stock as cheap as anytime in it's last 40 year history. It will survive, they
have managed tough times before and came out of it. Their Greens Creek and Lucky Friday mines are
two U.S. operations that are among the world’s lowest-cost silver mines. Both have survived in even
tougher price environments.

Hecla’s main issue is the acquisition earlier this year of the remaining 70.27% of the Greens Creek
joint venture in Alaska. Hecla has $161 million in debt remaining after completing the $750 million
purchase of Greens Creek. Obvious they could have bought this out far cheaper now, but in the long
run it will be a good deal.

The company remains on track to meet the estimate of approximately 9 million ounces of silver
production in 2008, at an average total cash cost in the range of $3.50 per ounce.

At the end of the third quarter, Hecla had $81.5 million in cash and short-term investments. Early
in the fourth quarter, Hecla repaid $37.1 million of the bridge loan. The maturity date for the
remaining $40 million of the bridge loan has been extended to February 2009, subject to certain
conditions. Including the remainder of the bridge loan and the term loan, Hecla has $161.7 million
in current and long-term debt outstanding.

I believe the company will manage just fine and the stock price has more than all the metal price
declines and other negatives already price in.

Website - http://www.hecla-mining.com

http://www.stockhouse.com/comp_info.asp?symbol=HL&table=LIST

I would not have a problem either with stink bids in on Normabec and Avino

With Avino, ASM bids in the high $0.20s or low $0.30s

http://www.stockhouse.com/comp_info.asp?symbol=ASM&table=LIST

With Normabec, NMB bids  at $0.03 cents

http://www.stockhouse.com/comp_info.asp?symbol=NMB&table=LIST

They just put out a 43-101 for their Real de Catorce project that came in at 33.68 million oz silver
measured and indicated.

But again, as I mentioned above it is a base metal scenario with lead and zinc. NMB now has a market
cap of $2.6 million so the silver resources are valued at $0.08 cents an ounce, ridiculous even for
a silver/base metal mine and when you consider their Pitt Gold project has over 200,000 ounces high
grade gold (not 43-101) with a lot of successful drilling since then. No doubt the resource is much
higher.

They are low on cash, but it was insiders and Pro groups that took down the last financing at $0.35
a few months back, so a bet on a recovery in the stock price seems logical.

(c) Copyright 2008, Struther's Resource Stock Report

All forecasts and recommendations are based on opinion. Markets change direction with consensus
beliefs, which may change at any time and without notice. The author/publisher of this publication
has taken every precaution to provide the most accurate information possible. The information & data
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