Heraldic achievement of Indomitus Industries

Apex Silver

Apex Silver SIL

We are officially suggesting Apex Silver (SIL). If you noticed our "New Country" section last week, we mentioned Apex and since then the price has sailed up $1.60. Since observant readers had an opportunity to participate at that price, we're using $12.55 as the basis for our calculations on this stock.

From finance.yahoo.com: "As of December 31, 2003, the company held control of approximately 100 silver and other mineral exploration holdings, divided into 34 property groups, located in Bolivia, Mexico, Peru, El Salvador, and Kyrgyzstan. The company owns San Cristobal Project located in Southern Bolivia. San Cristobal's proven and probable reserves total approximately 211 million tones of ore grading 65.81 grams per ton of silver, 1.63% zinc, and 0.61% lead. Apex Silver was formed under the laws of the Cayman Islands in 1996."

So, at least these are people with a clue about jurisdictional arbitrage. With 211 million tonnes of proven and probable ore, and a bit more than two ounces per tonne, the mine at San Cristobal is huge. In order of value to be recovered, it is a zinc-silver-lead mine. Just looking at the silver for a moment, I make it 2.116 ounces per tonne. Or, 446.4 million ounces of silver. At a wholesale-type price of $7/ounce (which may be high or low in three years, we can't know) I get $3.13 billion for a value of the silver. Figure the silver carries the full cost of the mine, which is reported at $600 million. I see $2.5 billion in profits, less a few hundred million for ongoing production costs through the life of the mine.

Given 47.68 million shares issued and outstanding (11.3% of which are sold short at the moment, or about 3 million shares looking to cover) and just going for $2 billion profit on the silver, I still get a net asset value of about $42 per share for a stock presently selling at $14.15.

Looking at the zinc, I see 3.4 million tonnes. Another 1.3 million tonnes of lead. Figure 2,204.6 pounds per tonne. Call it 7.5 billion pounds zinc, 2.8 billion pounds lead. So, that's rather a lot of zinc at about 57.4 cents/pound and lead at 45.7 cents/pound. I get $4.35 billion for the zinc and $1.3 billion for the lead.

Figure absurd numbers for cost of production and there's still another $5 billion or $104.87 per share net asset value on top of the aforementioned $41.95. Back to finance.yahoo.com to pick up the cash and debt. About $9.38/share cash, $7.14/share debt. I make it just over $160/share value being sold at a discount just over $14/share. Should run up over ten-fold as mining stocks appreciate in the coming bull and begin to carry a premium.

So, what about the political risk of Bolivia? Some discussion from last week carries over into the "New Country Developments" section below. It is a long, hot summer. So, there's shouting in the streets. Maybe a bit of rioting in La Paz. Maybe the "Burnt Palace" in La Paz gets burnt again? But who really cares? In three years when the mine is open, there's no way of knowing if Bolivia would even be the same country it is now. It might be three countries.

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Apex Silver was first mentioned as a prospective suggestion in the 23 May 2005 issue when the stock was $12.55. This report first appeared in the 30 May 2005 issue of The Indomitus Report. It is copyright © 2005 Free West Trust. All rights reserved.

The price was recently (20 September 2005) $16.56.