The BarkerLetter

Greetings investors

I wish people would stop talking about how stupid Nixon was to take the US dollar off the gold standard.  It was the smartest thing he ever did.

Yes, yes … I know the likes of Jim Dines will call me a cretin and go on and on about recent currency debasement and how the folks who run the printing presses will eventually come to ruin, etc. etc. 

But has anyone really thought this thing through?

I mean, gold is a small commodity compared with copper or pork bellies. In fact, the entire world’s supply would fit neatly into a small warehouse.  The U.S. owns a mere quarter of that.

Wouldn’t a gold backed dollar essentially hand over control of the currency to whoever owns the rest?

Do we even know who those people are?

The central banks? The EU?

The gnomes of Zurich? George Soros? King Faisal? Newmont? The Oxford Group?

The antedeluvians always point to the historic stability of gold, which is intended to prove their point that attaching the dollar’s value to it would have a stabilizing effect. Well, sure gold was stable — back in 1870!

Currently, the value of the dollar is controlled by the folks who run the printing presses, people who are appointed by duly elected representatives.  Sure, they’re insufferable fools. But I’d rather have them determining U.S. fiscal policy than a handful of speculators in London and Brussels. Hey, if they screw up you can fire them.

Anyway, I happen to think the U.S. dollar is exactly where it is intended to be. Washington doesn’t leave these things up to fate, or kismet, or the Arabs, or a kind and loving God. The dollar is controlled by supply and demand, like any other commodity. As long as the U.S. Federal Reserve controls the supply, they’ve got the edge.

I don’t think they’re going to surrender that trump card to appease some gun-toting survivalist in Montana with a handful of Krugeraands stashed under the floorboards, or a few wise guys who aren’t fit to carry Paul Bernanke’s briefcase.

Careful out there.

Kb

Greetings investors.

I’ve had a look at Ecuador’s new manifesto regarding ongoing stewardship of its mineral resources.

First, the back story: Virtually all of these ownership issues in Latin America are basically two-fold: One the one hand you have an existing community of artesanal miners who fear the insiders in the judiciary and government will sell the land out from under them to a handful of multinationals. They may look like simpletons out there with their donkeys and pick axes, but they’re really not. Some of them are very good miners as well. 

Second, many of these countries have had experiences with undercapitalized juniors who got ahold of mining projects back in the 90s when gold prices were low and subsequently went under, leaving the promises of schools, hospitals, and infrastructure unfulfilled.  I think after a decade of false starts they’re all a bit wary.

I don’t really believe the political rhetoric coming out of Quito over this proposed new mining code. I think it’s shrill and overdone.

However, this new president, Correa, is an agriculturalist — which doesn’t bode well for the likes of us. He’s also a crook. Last month the Colombians staged a daring commando raid on the FARC’s jungle camp in Ecuador and recovered a laptop that detailed cash payments made to Correa by the guerrillas. So that’s what we’re dealing with here.

Yes, it’s true that Aurelian will have some more hoops to go through, and the company’s net worth will diminish, and their mining costs will go up. That transborder region with Peru is spitting distance from the headwaters of the Amazon, where the Peruvians have just finished making an unusually large nature preserve. But it’s far from over.

What investors have to fear is world opinion rather than new mining codes. Chavez, Correa, and Morales (Boliva) have made so much political hay from their quasi nationalization programs that they’ve managed to frighten investors half out of their wits. It’s why the stock prices for companies like Crystallex (KRY.TSX), which sailed through the new mining and environmental regulations in Venezuela and is busily mining gold in Kilometer 88, is still trending down a year after it all happened.

Greetings investors.

Here’s our current fave, a real sleeper called Fortuna Silver Mines Inc. (FVI.TSXV), with silver/polymetal assets in Mexico and Peru.

Shares of FVI spiked 25% yesterday on news from its 76% owned San Jose silver-gold deposit in southwest Mexico. It released the best intercepts from drilling that ranged to 4.36 grams gold and 302  grams silver per tonne over 7.1 meters.

That’s the first of many such media releases to be expected in the coming weeks. The company drilled a total of 43 holes in the project’s Trinidad zone and 23 in the San Ignacio during 2007, and assays for all are in the pipeline now.

Fortuna plans to use the data to update its mineral inventory at San Jose by the end of the next quarter. That currently stands at an indicated resource of 17.7 million ounces silver equivalent, with another 49.1 million inferred ounces.

That’s not bad for a deal with $46 million in the bank and a market capitalization of $195 million. In fact it’s among the best silver deals I’ve seen.

They even have some ‘elephant country’ stories from Peru, where the company’s wholly-owned, silver-lead-zinc Caylloma Mine is situated, in Arequipa Province. How does 6,231 grams per tonne silver over 7.35 meters grab you? That intercept was made along the eastern extension of the Bateas Vein, located more or less in the center of the concession area.

Caylloma has proven reserves of 3.6 million ounces silver, and about another 13 million ounces in the inferred resource category. The mill there currently processes approximately 850 tonnes per day.

If you’re looking for a silver deal with home run potential, this is as good as it gets!

Kb
 

Greetings investors.

Shares of Ivanhoe Mines (TSX:IVN) are in the tank after the company reported steepening losses from last year. The stock is in a firm downtrend after reaching its high of $18 Cdn per share last July, and now trades under $12 Cdn per share.

The real problem for Ivanhoe stock appears to be the lack of a definitive agreement with the Mongolian government over its Oyu Tolgoi copper project, despite all the mightly efforts from last year to close a deal. The matter is reportedly pending amendments to the country’s mineral laws which are now before its parliament.

Oyu Tolgoi has a projected mine life of 40 years and peak annual production of 1.6 billion pounds of copper. Virtually all of that is destined for China.

Typically, projects of this scale require substantially more lobbying efforts to get into production, and Oyu Tolgoi is no exception. However, I believe it will be permitted eventually and Ivanhoe stock will return to its highs. I just hope it happens during the current peak in copper and gold pricing.

It’s worth noting that mineral giant Rio Tinto PLC, which has a 9.95 per cent stake in Ivanhoe, is in China at this moment promoting good will and the need for infrastructure projects. My bet is they’re pushing the Chinese to built the transportation nexus needed to bring mineral production from Oyu Tolgoi in the east to markets in the west. I wouldn’t be surprised to see Rio Tinto involved in some of those capital projects, as a joint venture partner.

An announcement of that nature couldn’t help but assist Ivanhoe’s efforts to get the green light in Mongolia.

So watch for that!

Kb