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Will there be a happy ending for the Sunshine mine?

May 31, 2010

By David Bond, Editor

Wallace, Idaho " The situational dynamics at the Sunshine silver mine never cease to fascinate. To paraphrase Sir Winston Churchill: Never have so many gotten it so wrong for so long. This includes, at various stages in this game, yours truly. And now that we've teased you with the phrase “happy ending”, let us be reminded of the great Fred Owsley's point that all great mines must end in failure; they run out of ore.

This is in large part the fault of the legendary silver mine's management, most recently Sterling Mining Co., a little penny-stock company which by fluke and sheer balls got control of the silver mine seven years ago, then lost it, handed it back to its owners, then got it back. We can rail and rant and rave about the inequity of a judge who couldn't tell a pot-hole from a gravel pit making un-Constitutional decisions about trampling all over a landlord's private property rights (and we have) but the lay of the land must be contemplated in real time.

We must also use our sniffer, seasoning it with our knowledge of history. What, exactly, is the Sunshine mine and why does it matter? The Sunshine was North America's most prolific silver producer, in years gone by, having served up more than 300 million ounces of the white metal from the 1920s to the beginning of this decade. She's not a stand-alone entity: she's a cobbled-together group of claims involving a half-dozen companies, most of which are publicly traded. To enter the Sunshine means you might be walking on Chester property, Metropolitan property, or even property of Harry Magnuson's considerable estate. You just never know.

The 200-mil ounce claimed silver resource at the Sunshine is as far-flung throughout the mine as stardust. Yes it's there, but in a pillar way over yonder, in a sill beneath you, in a slab of tetrahedrite below the water table, or in a hunk of galena above you that is mildly radioactive. In other words, sloppy seconds. Nobody, not even Ray DeMotte, believed that the Sunshine could survive for long without another major ore discovery. Which is why they ran the Sterling Tunnel three years ago.

The smart money is that there must be another such deposit within the property boundaries that loosely describe the Sunshine mine " something along the lines of the Hook Area, the K Stopes, the Chinatown Stopes, or the Syndicate or Copper or C or Chester veins. Where that unfound lunker lurks, well, that's where the gamblers come in.

Into this picture has walked Tom Kaplan, a resource investor, founder of Apex Silver, current powerhouse behind Gabriel Resources, about which the film “Mine Your Own Business” is a must-see, Jewish philanthropist and confidant of billionaire George Soros. Kaplan, our most reliable sources tell us, was introduced to the Coeur d'Alene Mining District by Wallace native John Ryan. Mr. Ryan, a lawyer by training but a Silver Valley expat at heart, rescued the Galena and Coeur mines from the dustbin of Fred Owsley's warning of failure. U.S. Silver is the consequence of Ryan's efforts, and is chugging out silver and lead quite nicely, thank-you. The Galena was thought five years ago by Coeur d'Alene Mines to have been mined-out, but you'd never think so from their recent production records and efficiencies.

The Silver Valley of northern Idaho is a place of 10,000 people governed by seven discreet incorporated cities (Mullan, Wallace, Osburn, Kellogg, Wardner, Smelterville and Pinehurst), three school districts, three water districts and God-knows-how-many cable companies, telcoms and internet providers. Our election ballots look like scrambled eggs. A retired Shoshone County commissioner once observed to us that this obvious redundancy can never be reconfigured. “We all still sleep in our letterman's jackets,” she said.

We like small and discreet governments: accountability is as near as the councilman across the street. But local fractionalisation may not be so good for our mining economy.  Our companies, individually, are daily beaten up by the smelter owners. Something obviously not clear to idiot mining “experts” is the arbitrage that occurs between mines and smelters. At $18 silver, a local silver mine is lucky to be paid $14 for its efforts. A lead or zinc miner will get half the going LME settlement price, if he is lucky. That is how the game is played. As the late E. Viet Howard, former Sunshine Mining Co. CEO and before that of Bunker Hill used to say, “Owning a smelter is having a license to steal.”

Separately, the mines in the Silver Valley can do little about this smelter blackmail. Collectively, representing a considerable portion of the lead, zinc and silver production of North America, they could do a lot. Smelters have a weak spot: they must run at full capacity or their unit-cost ratio runs off the charts.  They need what we've got. Our miners could, collectively, also gang up on the idiocy of environmentalists who would impose fines upon mines discharging the weekly quantity of zinc into local rivers that a health food store proprietor would recommend to one of her customers to ingest, and nanny-regulators who insist that locks on a certain underground crapper be so-many-inches above the deck.

A united, unitized Coeur d'Alene Mining District would do many good things, for its workforce and for the public weal. We have the Bunker Hill, we have the Crescent, we have the Sunshine, we have the Con-Sil, we have the Galena, we have the Coeur, we have the Caladay, we have the Hercules, we have the Star, we have the Tamarack, we have the Hecla, and we have the Lucky Friday and a hundred myriad portals scattered in between. These are among the finest and richest lead, silver and zinc mines on the planet.

Can you imagine a call option on the Coeur d'Alene Mining District? One play, one future. It could be fun. Perhaps Tom Kaplan's entry into the Sunshine arena is that bold first step. And if guys like George Soros and Tom Kaplan are taking a flier on silver in an obscure place like northern Idaho, what does this say about us?