A monthly publication by and for members of
The Silver Users Association

MARKET WATCH Month High Low Average July 6.71 5.94 6.37 June 6.17 5.63 5.85 May 6.19 5.51 5.85 April 8.21 5.82 7.06 March 7.94 6.71 7.29 February 7.94 6.04 6.47 January 6.63 6.20 6.36 back to top U.S. LISTS EXPORTS SUBJECT TO EU FSC/ETI RETALIATORY TARIFFS The U.S. Government issued a list of those products now subject to tariffs by the European Union. Included on this list are: Silver, base metals, clad with platinum, not further worked than semi-manufactured Silver, semi-manufactured Silver, unwrought Silver, whether or not plated or clad with other precious metal, jewelry back to top CONGRESS EYES MAJOR TAX RELIEF BILL In recent months, the House and Senate have passed their own versions of legislation that would repeal export tax breaks ruled illegal by the World Trade Organization (WTO) and provide significant business tax relief for U.S. manufacturers and other businesses. House and Senate negotiators are getting ready to reconcile the two bills and craft final legislation. Both bills include similar tax relief, including an extension of the vital research-and-development tax credit, a number of international tax reforms and enhanced investment incentives for small businesses. A centerpiece provision in both bills is a tax break for manufacturing income, however this is one area where the House and Senate bills differ. The manufacturers? tax break in the Senate bill would apply to all U.S. manufacturers, regardless of their business structure. On the other hand, the tax break in the House bill applies only to C-corporation manufacturers. If your business is organized as an S-corporation or is an unincorporated entity, e.g., an LLC, it is critical for you to contact your representative and senators and urge them to make sure that any type of manufacturing tax break applies to all manufacturers. back to top NY SILVER FALLS, FED HIKE BRINGS TECHNICAL SELLING Silver fell to an eight-day low under $6.50 an ounce in New York futures trading Wednesday, as commodity funds used a drop in gold and a rise in the dollar in the wake of Tuesdays Federal Reserve interest rate hike as an excuse to liquidate silver positions. At the COMEX division of the New York Mercantile Exchange, benchmark September silver bottomed at $6.46, equalling a loss of 3.7 percent, during the first morning of New York metals trade after the Fed raised the federal funds target rate to 1.5 percent from 1.25 percent Tuesday afternoon, explaining that it saw a slowdown in economic growth as temporary and due to higher energy prices. At 11:49 a.m. EDT (1514 GMT), the contract was down 20.2 cents at $6.52 an ounce. It set a high of $403.40 earlier in the day. Spot silver was quoted at $6.52/54, down from $6.69/72 last night, and the fix in London was at $6.60. Speculators took profits on bets that silver prices would keep going up. Many of these were booked when the metal was rising to a 3-1/2-month high on Monday of $6.90. The silver market is a lot less liquid than gold, and the lack of participants during the summer has made swings even larger than normal, dealers said. "Massive technical liquidation," said Robert Gottlieb, head of bullion trading at HSBC. "It started from beginning of the day. Theyve been buying all the way up." Leading silver, but not falling as steeply, COMEX December gold was down $4.90 at $397.40 an ounce. Gold weakened as investors cautiously bought dollars, less confident than they were early this week that the Fed would refrain from tightening at every opportunity this year. The central bank increased rates on June 30 for the first time in four years, but economic data since then has shown the economy slowing down from the first quarters healthy pace. Markets now believe the Fed will keep ratcheting rates up at a measured pace to prevent economic overheating and bring rates back to neutral after 13 cuts since January 2001. back to top SEN. KERRY?S MINERAL FEE PROPOSAL WOULD EXPORT MINING JOBS Sen. John Kerry?s (D-MA) proposal to impose a $600 million fee on minerals operations on federal lands in the West would cost between 18,000 and 44,000 jobs and result in a net loss to the federal Treasury of $400 million to $500 million, based on independent analyses, NMA said this week. The Kerry presidential campaign reportedly advised the media the $600 million would come from an 8 percent royalty, a doubling of the annual claims maintenance fee and revisions to the Mining Law governing sale of mineral rights. Monies raised by the proposal would go to maintenance in the nation?s parks and hoped-for jobs creation in associated service businesses. The proposal was contained in a policy statement from the Kerry/Edwards campaign that was highlighted in an appearance at the Grand Canyon. The policy paper (available at www.johnkerry.com/pressroom/releases/pr_2004_0809.html) is vague regarding the terms of the fee, and how it would be applied. It is also unclear if the fee is in addition to a $1 billion tax on minerals operations on public lands that Kerry outlined in remarks at Georgetown University in Washington, D.C., earlier this year (Mining Week, 4-9-04). "We support the National Parks, but funding minimum wage jobs on the backs of miners is bad economics and is bad for the country," NMA President & CEO Jack Gerard said. "Sen. Kerry obviously has not done his math. He would destroy the highest paying jobs in Nevada, Arizona and New Mexico, for example, to pay for entry-level service industry jobs and devastate mining communities throughout the West in the bargain." Gerard added: "At the same time he is promoting energy independence, Sen. Kerry would force minerals exploration and production off-shore and would increase our reliance on outside sources for the materials that are critical to our economic and national security. Local, state and federal tax revenues would be depleted by hundreds of millions of dollars as mining operations are forced into closure." "This is the worst example of robbing Peter to pay Paul," Gerard concluded. The plan follows additional announcements made by the Kerry campaign on Monday to tax parts of American industry to pay for some of his recent campaign promises, including using Superfund and gas and oil royalties to fund proposed energy programs. back to top CHICAGO MUSCLES IN ON SILVER TRADE The Chicago Board of Trade is planning to launch online gold and silver futures that will compete directly with the long-established ones listed on the Comex division of the New York Mercantile Exchange. People familiar with the move say the CBOT is trying to capitalise on the spate of high prices for metals and, more importantly, its customers' complaints about the lack of electronic trading at Comex, where gold and silver are only available online after the trading floor closes. The new CBOT contracts, which will be launched in October, will be pegged respectively to 100troy ounces of gold and 5000troy ounces of silver, the same as the Comex futures. The CBOT already offers thinly traded mini-contracts pegged to smaller amounts of metal, but insiders hope the new full-sized contract will attract larger institutions, such as hedge funds and Wall Street trading desks, that want to place major bets on the direction of prices. The new contracts aim to offer faster trading than is possible during regular hours at Comex. Market participants say electronic trading will also allow traders to use more complex strategies. Some CBOT veterans who trade the precious metals contracts via Comex are especially frustrated at the difficulty of putting on spread trades, in which people place simultaneous bets on the price difference between two different months' contracts. "You've got to ease the friction with which people get into and out of precious metals trades," says Jon Najarian, chief market strategist at Mercury Trading, a Chicago-based futures and options trading firm. However, talk that the CBOT was considering launching the new contracts has been circulating in commodity markets, and Comex members say it won't be easy to take volume from their market. History would seem to bear that out: futures contracts tend to be most successful where there is already an established pool of trading activity. The CBOT's own experience shows that it's hard for another exchange to steal futures market share. The US unit of Eurex, a German-Swiss exchange, this year began offering contracts pegged to US Treasury bonds but the CBOT, which already had Treasury futures as one of its signature products, has kept more than 95per cent of the market share. In the precious metals markets, both the CBOT and its neighbour, the Chicago Mercantile Exchange, have tried several times to outgun Comex with competing contracts, with little success over several decades. The CBOT has carved out a niche among retail investors with its mini contracts but it has long coveted the more active market in New York. Since the 1990s, such battles have become even more common among exchanges offering contracts that are directly comparable to one another's most popular listings in a variety of markets. The new turf wars have been fuelled by a wave of electronic trading and new exchanges, especially in Europe. With that in mind, a number of the CBOT's biggest customers approached exchange officials at an industry conference in March and asked the CBOT to list precious metals futures, people familiar with the discussions say. It is possible that trading will increase in both New York and Chicago once the CBOT launches its contracts, says C.C.Odom, a futures trader and CBOT board member. The bar is high for the CBOT. At Comex, gold futures volume rose by almost 36per cent to a record 12.2 million contracts last year, breaking a 22-year-old mark. Comex silver futures volume rose more than 30 percent to 4.1 million contracts. back to top FIRST SILVER RESERVE INC. REPORTS 2004 SIX MONTH RESULTS Vancouver, B.C.: First Silver Reserve Inc. ("TSE:FSR") today announced its second quarter 2004 financial results. All amounts are expressed in United States dollars. In the six month period ending June 30, 2004, First Silver produced 1,077,523 ounces of silver (2003 ? 1,109,124 ounces) and 2,466 ounces of gold (2003 ? 1,611 ounces), from the Company?s wholly owned San Martin Silver Mine, located in Jalisco State, Mexico. Silver production was 31,601 ounces (2.8%) lower and gold production was 855 ounces (53.0%) higher than in the first six months of 2003. Total mill throughput was 133,767 tonnes, as compared to 123,221 tonnes in the first six months of 2003. In the first six months of 2004, the mill head grade was 290 g/tonne silver and the mill recovery rate was 86.4%, as compared to a head grade of 313 g/tonne silver and a recovery rate of 89.4% in the first six months of 2003. For the three months ending June 30, 2004, silver production was 512,191 ounces (2003 ? 561,665 ounces) and gold production was 1,178 ounces (2003 ? 799 ounces). Silver production was 49,474 ounces (8.8%) lower and gold production was 379 ounces (47.4%) higher than in the three months ending June 30, 2003. Total mill throughput in the three months ending June 30, 2004 was 65,899 tonnes, as compared to 61,155 tonnes in the three months ending June 30, 2003. In the second quarter of 2004, the mill head grade was 310 g/tonne silver and the mill recovery rate was 83.4%, as compared to a head grade of 312 g/tonne silver and a recovery rate of 91.4% in the second quarter of 2003. During the second quarter of 2004, mill feed included material with a higher sulfide content which negatively affected silver recovery. In the six months ending June 30, 2004, revenue was $7.73 million as compared to $5.70 million in the first 6 months of 2003. Revenue for the three month period ending June 30, 2004 was $3.50 million as compared to $2.82 million in the same period in 2003. The Company recorded a profit of $1.93 million or $0.05 per share for the six month period, as compared with a loss of $0.28 million or $0.01 per share for same period in 2003. Net earnings for the second quarter of 2004 were $0.48 million or $0.01 per share as compared to a loss of $0.26 million or $0.00 per share in the second quarter of 2003. The increase in net earnings is attributable to a combination of an increase in gold production and silver prices during the period. In the first six months of 2004, the average London pm price for silver was $6.48 per ounce, as compared to $4.63 per ounce in 2003. Cost of sales were $4.74 million for the six month period, as compared to $4.91 million for the year earlier period. General and administrative expenses were $0.57 million for the period as compared to $0.56 million in the first six months of 2003. Depreciation was $0.43 million for the period, as compared to $0.44 million in the year earlier period. Cash costs, net of gold credits, were $4.27 per ounce of silver in the six months ending June 30, 2004, as compared to $4.50 per ounce of silver in the year earlier period. Total costs, net of gold credits, were $4.62 per ounce of silver in the six months ending June 30, 2004, as compared to $4.86 per ounce of silver in the year earlier period. Cash costs, net of gold credits, were $4.56 per ounce of silver in the three months ending June 30, 2004, as compared to $5.45 per ounce of silver in the year earlier period. Total costs, net of gold credits, were $4.92 per ounce of silver in the three months ending June 30, 2004, as compared to $5.90 per ounce of silver in the year earlier period. Costs in 2003 were increased due to mill equipment breakdowns. back to top SUA?S OCTOBER MEETING October 18, 2004 SUA members and prospects arrive in Washington at the Army-Navy Club October 19, 2004 Meeting of the committee chairs to discuss budget and other programs 5:30 p.m. Reception to welcome SUA members with emphasis on welcoming prospects 6:15 p.m. Buffet dinner w/ speaker (Sponsored by Mitsui & Company (USA) Inc.) Invited Speaker: Dave Wenhold, One of Washington?s top grassroots tacticians October 20, 2004 8:00 a.m. Sit down breakfast (Sponsored by Ames Goldsmith) Invited Speaker Lisi Kaufman, Chief of Staff for Commerce Secretary Don Evans 9:30 a.m. Board Business 10:30 a.m. Invited Speaker Amy Swonger, Deputy Asst. to the Vice President for Legislative Affairs 11:00 a.m. Invited Speaker Kelly Ludlum, Majority Staff Director, House Agriculture General Farm Commodities & Risk Management Subcommittee 11:30 a.m. Stephen Gold, NAM 12:00 p.m. Adjourn ** Other Guests Include: Jeff Christian, CPM Group back to top About SUA The Silver Users Association is a non-profit organization that was established in 1947 to represent the interests of companies that make, sell and distribute products and services in which silver is an essential component. The Washington Report is a member service of the Silver Users Association. 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