Hunt for Silver - Canadian Zinc
April 24, 2010
The first "Hunt" in the Hunt for Silver refers to the Hunt brothers family led by Nelson Bunker Hunt, the many children of the Texan oil billionaire who were notorious in being the prime factor in the 1980's Silver price rise to $50 (Eichenwald, 1989):
Silver prices rose from $11 an ounce in September 1979 to a peak of about $50 an ounce in January 1980. The price of silver then collapsed, falling below $11 an ounce in about two months.
Nelson Bunker had formed the idea of investing in the Silver commodity in 1970, when it was still only $1.50 an ounce (Swanson, 2009). By 1974, he had over 9% of the world's free supply, with Silver priced then at $3 USD (Tillberg, 2011), of 55 million ounces in futures contracts under the Hunt family umbrella. For $175 million dollars the Hunts took delivery, which was considered unusual for speculators. Then under the guard of a dozen armed Texas cowboy marksmen (LaBorde, 2011), the Hunts secretly transported a portion of their bullion using unmarked Boeing jets from New York to storage in 6 Switzerland vaults (Hurt III, 1980).
Later, on July 1, 1979, in Bermuda, the Hunts formed the International Metals Investment Company together with two affluent Arabs, Sheikh Ali bin Mussalam and Sheikh Mohammed Aboud al- Amoudi (Markham, 2002) as partners for Silver investment. This company bought 43 million ounces of Silver. Another associated investor Naji Robert Nahas, an Egyptian born Brazilian, in partnership with Norton Waltuch, bought 42 million ounces of Silver (Tillberg, 2011). There were other unidentified Middle Eastern traders that were Silver buyers in the fall of 1979.
On October 3, 1979 when Silver had risen to $17.88 USD (Hurt III, 1980), the Chicago Board of Trade (CBOT) changed the rules so that no traders could hold more than 3 million ounces of Silver futures (Maloney, 2011). Those holding more were forced to liquidate. Then on January 7, 1980, COMEX the other exchange, also changed the rules limiting investors to 10 million ounces of Silver futures and any overage had to be liquidated. The January 21, 1980 peak of the Silver price rise was $49.45 USD based upon the London PM fix (Silver Institute, 2011), with Silver futures priced at $52.50 USD (Maloney, 2011). It is estimated that the Hunts and their allies controlled 77% of the world's Silver at that time (Tillberg, 2011). That same day , January 21, 1980, COMEX, with the backing of the Commodities Futures Trading Commission (CFTC) in Washington, announced liquidation orders only, no new buying (Maloney, 2011). The Silver price began to plummet. As some of the Hunt holdings were purchased on margin, with the dropping Silver price, the Hunts had to find more funds. This they did, using their other investments until March, 1980. On March 14, 1980, Volker, then head of the US Federal Reserve decreed that banks could not make loans for speculation in precious metals (Tillberg, 2011). Now the bank sources of funding for the Hunts dried up.
The climax of the unravelling of the Silver prices came on "Silver Thursday" (Wikipedia, 2011), March 27, 1980, in a $100 million margin call for the Hunts. They faced a $1 billion USD in losses on that one day. The Hunts' Silver holdings were estimated to have been $10 billion at the peak and had dropped to around $3 billion earlier that Thursday (Time Magazine, 1980). Then the Silver price collapsed from $21.50 to $10.20 within 3 days (Time Magazine, 1980).
Following these wild Silver price gyrations, the CFTC in 1981 set speculative position limits in futures contracts to forestall future attempts to corner commodities (Stephenson, 2011). The two Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt were charged by the CFTC in 1985 (CFTC, 2007) after an investigation that they had attempted to manipulate Silver prices in 1979 and 1980. Because of these charges, legal proceedings and fines, the Hunts filed for bankruptcy protection in September, 1988 (Wikipedia, 2011). In 1989, Nelson Bunker Hunt settled with the CFTC (Eichenwald, 1989).
William Bunker Hunt's reason for investing in Silver was stated as (Time Magazine, 1980):
"Silver looked safer than overseas oil concessions, the way things were going. And precious metals were a good hedge against paper money."
Now in April, 2011 the second "Hunt" for Silver may just be occurring at the present time, not by a group of a few rich investors, but as the savings of choice of the new emerging market's middle classes as the Silver prices are closing in on the 1980's record price of $49.45 USD. See the 10 year price for Silver following:
As of this writing on Easter weekend the Silver price has closed trading at $46.45 USD while the price overseas is flirting at over $47 USD.
One related investment that the Hunt's had during the last Silver price run was the Prairie Creek mine in northern Canada. The mine infrastructure was 95% completed in 1982 when the property was placed into receivership. This rich Silver, zinc, lead mine was to become a cornerstone in the Hunt's Silver empire, but due to the Silver price collapse, the property was unclaimed until purchased in 1992 by San Andreas Resources now renamed as Canadian Zinc (US: CZICF, Cdn: CZN).
This mine is distinguished by their high grades of ore, with an average grade of 155g of Silver, 12% zinc, 10% lead and .3 % copper per ton of ore. At today's prices, the ore is worth over $700 per ton. There are 6 million tons of Measured and Indicated (M&I) Resources with a further 6 million tons of Inferred Resources from the 2007 technical report. That gives a value of $4.2 billion USD of metals in the ground by counting only the M&I Resources (another $4.2 billion for the Inferred). Using a rule of thumb for a market valuation scale of from 2% for a discovery to 24% for in production, if we apply a 12% of the in ground value for the M&I Resources over the 138 million share float, the stock value comes to over $3 USD per share.
The found strike length of the resources is over 16 kilometres long with the originally discovered vein mineralization. Recently, stratabound mineralization has been found to be coincident with the vein structure. This stratabound style of mineralization is much thicker and exploration is in progress for further discoveries along the veins.
In the author's opinion, Canadian Zinc is poised for upside with the rising metals prices, pending permit approvals and forthcoming exploration successes.
References:
CFTC. (2007). Significant Dates in CFTC History - 1980s. Retrieved April 23, 2011, from www.cftc.gov: http://www.cftc.gov/reports/strategicplan/2012/2012strategicplanapp0202.html
Eichenwald, K. (1989, December 21). New York Times - Business Day. Retrieved April 23, 2011, from New York Times: http://www.nytimes.com/1989/12/21/business/2-hunts-fined-and-banned-from-trades.html
Hurt III, H. (1980, September). Silver Finger. Retrieved April 23, 2011, from sharelynx.com: http://www.sharelynx.com/papers/BunkerHunt.php
LaBorde, L. (2011). H.L. Hunt and the Circle K Cowboys. Retrieved April 23, 2011, from rapidtrends.com: http://www.rapidtrends.com/hunt-brothers-and-silver-story/
Maloney, M. (2011). How the Hunt Brothers Capped Gold...Yes, GOLD! Retrieved April 24, 2011, from www.silver-info.com: http://www.silver-info.com/how-the-hunt-brothers-capped-gold.htm
Markham, J. (2002). A financial history of the United States. New York: M. E. Sharpe Inc.
Silver Institute. (2011). Price History 1979 to 1980. Retrieved April 23, 2011, from www.silverinstitute.org: http://www.silverinstitute.org/19791980.php
Stephenson, E. (2011, Mar 28). Timeline - US CFTC road to reform. Retrieved April 23, 2011, from reuters.com: http://in.reuters.com/article/2011/03/28/financial-regulation-timeline-cftc-idINN2818930520110328
Swanson, D. J. (2009, March 22). Once world's richest man, Bunker Hunt has "no regrets" 29 years after silver collapse. Retrieved April 24, 2011, from www.txcn.com: http://www.txcn.com/sharedcontent/dws/dn/latestnews/stories/032209dnprobunkerhunt.3d93ff8.html
Tillberg, J. (2011, March 4). The hunt Borthers, How they Did It and What we Can Learn From it. Retrieved April 28, 2011, from Seekingalpha.com: http://seekingalpha.com/instablog/170390-jason-tillberg/144117-the-hunt-brothers-how-they-did-it-and-what-we-can-learn-from-it
Time Magazine. (1980, April 14). Business: The Hunts Are on the Hunt. Time .
Time Magazine. (1980, April 7). Nation: He has a Passion for Silver. Time , p. 1980.
Wikipedia. (2011, April 22). Nelson Bunker Hunt. Retrieved April 23, 2011, from en.wikipedia.org: http://en.wikipedia.org/wiki/Nelson_Bunker_Hunt
Wikipedia. (2011, April 21). Silver Thursday. Retrieved April 23, 2011, from en.wikipedia.org: http://en.wikipedia.org/wiki/Silver_Thursday#cite_note-0
Disclosure: The author is long Canadian Zinc.
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