I have been watching the trends for silver and gold transactions as cash-strapped miners sell forward production to third party buyers. So far the buyers are getting the premium on these deals. I added recently to my holdings in SLW because that company has secured long term price protection for leverage to silver and some gold at fantastic prices with only modest increases allowed for inflation. SLW is by far the biggest player in the sector and I own it because I think the days are coming to an end where similar transactions can be closed anywhere near the currect price regime.

To my mind the day is coming when the seller will be awarded a high premium, ie. the deals will be offered at a significant increase to market bullion values, and there will be competition amongst the buyers to gain said gold and silver. This is how things evolve in a true market for a commodity in demand.

Now I know there are many who point out that gold is not really in supply deficit because central bankers hold the majority of all gold ever mined and can easily dishoard. Well, I would argue that is underway as we speak, along with the latest IMF gold sales that are specifically designed to try and cap gold. The metal marches higher by the day nonetheless. What happens when that latest slush pool of gold is gone? Right now there are still a small group of worldwide buyers that are actually lined up to acquire real bullion. What happens when it becomes a real frenzy and there are many, many more buyers willing to pay up to get their hands on physical?

In time, the producing miners will hold all the cards. Already some mines have held back some production to market directly to retail buyers at a premium. That trend will grow and begin to represent a significant profit center for the mines. Others will follow.

In time, the big buyers that want bullion by the ton will come knocking. They will not be able to buy in that quantity on world markets, not from the bullion banks, not from the IMF, not from the CBs. There will be no one left willing to sell bullion by the ton. The producing mines will be the last place to turn to, and they will have to pay up to secure supply.

I am pleased to see that ECU is beginning to accelerate the pace of production. The company is going to achieve an operating profit first, sufficient to fund the day to day biz of running a mine with a bit left over. As the mills continue to win higher efficiency, and the mines continue to ramp up raw ore feed, this production will grow and generate stronger revenues. The next stop will be to achieve profitability as a company, after all other admin, taxes, interest service, and capital reinvestment needs are taken care. Perhaps we are a few quarters from that objective, but I think the company will get there.

I have seen several belligerent commentaries posted to knock ECU and its management. People forget that going from exploration to production, and from burning cash to generating cash, are processes that take time to achieve. There are a number of stages that must be accomplished to get to the next level. The company is getting there, along with some hiccups and set backs.

I owned shares in AGI a few years ago, when operations were running into problems and the company was losing money. The share price was hammered. Idiots were posting online that the operation would go bankrupt, the grades were too low, the management was incompetent... It was very similar to what I am seeing for ECU today. AGI has since tripled in price and should still go higher. The company is swimming in profits and production records are set quarter to quarter. In time, I think that ECU has that same potential.

I will not be surprised to see ECU achieve sustainable, profitable production levels, and in the future attract a qualified buyer to take a big chunk of that gold and silver at a premium to market. I am not looking just a few months into the future. I have been a shareholder since 2004 and it has been painfull, but I think we will get there.

cheers!

mike