SGM Metals: Peru Nationalizes Silver Mines, Restricting Production

Dec. 21, 2011 - PRLog -- caseyresearch.com reports: [ Earlier this year, we advised readers of our metals publications to reduce their exposure to political risk in Peru, a country where mining is one of the main pillars of the economy. We didn't like the way then-candidate Ollanta Humala seemed to be riling up anti-mining sentiment – especially among indigenous peoples – to rock the ruling party's boat. Well, Humala won the election and now those chickens seem to be coming home to roost – and we are double glad to have reduced our exposure to the country in our portfolio.

Rock & Stock Stats                   Last          One Month Ago        One Year Ago

Gold                                        1,747.00            1,743.00              1,389.00

Silver                                            33.15               33.83                     28.50

Copper                                          3.52                  3.58                       3.98

Oil                                              101.13                 92.51                     87.98

Specifically, villagers in northern Peru have been protesting Newmont's (NYSE.NEM) Minas Conga gold project, even going so far as to destroy the company's construction equipment. People have been hurt and Humala has just declared a state of emergency. He's sending the army in to clear out the protestors – just the sort of people who voted for him.

1] Mining is an increasingly unpopular business all around the world. "Not in my back yard" sentiments as well as environmental opposition are making it harder and more expensive to permit new mines – where they haven't already made it impossible to do so. And there must be new mines, or there won't be any of the metals upon which our civilization depends. Mines by their very nature deplete resources. In other words, however prices fluctuate in the near term, supply constraints are very bullish for metals and mining stocks in the mid and long term.]

There are two reasons that I have opted to include this information as a point of reference today; 1. all commodities have risen in price as the slow creeping inflation has begun to wreak its havoc 2. the poorer mining nations of the emerging economies when backed into a corner economically often turn to the nationalizing of their precious metals mines in a last ditch effort to prop up their nations economy. Both of these elements play a vital role in the performance of the precious metals above and beyond the organic appreciation of gold & silver prices during periods of currency wars and massive bailouts. These ‘economic solutions’ create an environment where the act of printing bailout monies to hand out to the crony capitalist causes dollar devaluation that in turn drives down the purchasing power of the world reserve currency. This leads to a situation requiring larger volumes of the FED’s ‘wealth vouchers’ (paper dollars) to create an environment where a holder of gold & silver would be willing to exchange his treasure for the monopoly money that you are trying desperately to get rid of.

The more concerning issue of the two is the concept of emerging economies nationalizing their mining industries in a last ditch effort to create a scenario where all of the sudden what was a private industry now is shifted into the governments asset column, making the nations economy appear to be more stable. These radical actions are done in hope of attracting foreign investment dollars into these smaller nation states and therefor keeping the bond yields in a more attractive range so that the bond vigilantes don’t smell the blood in the water and create the frenzy that often leads to crashing smaller economies over night. Make no mistake about it, these are acts of desperation and they have a tendency to send normal bull market runs into the parabolic phenomenon range when you bring human emotion into the equation as investors panic when the realize they might not be able to buy gold or silver in the future. Nothing can make an item more desirable than to make it unobtainable and this is immediately reflected in its price. This is the classic supply and demand  scenario that is sure to create a unique opportunity for those who are willing to turn the TV off and do some looking for themselves.

In a world where you have the US Congress declaring America a battlefield in the NDAA 2011 and US citizens can be defined as ‘enemy combatants’, YOU MIGHT WANT TO ESTABLISH AN ALTERNATIVE CURRENCY SOLUTION IN GOLD & SILVER. When you are watching European companies frantically dismantle their balance sheets to move all of there assets into the European Central Bank, you might want to consider they have identified a very real threat and are making big moves to protect themselves, you might want to buy an insurance policy in gold & silver. When the emerging economies are forced to nationalize the mining industries you should also accept that the availability of inventory on the open market will be reduced heavily and effect the prices swiftly. When Eric Sprott has ordered 45 million ounces of silver in anticipation of what is coming in the global depression, you might want to follow his lead and buy silver as well. When the idea is being floated around amongst the miners that they should create an ‘OPEC style union’ to restrict the flow of metal in the marketplace, you might want to acquire your gold & silver insurance policy now before all of these facts become mainstream news and the mindless herd of sheep get the picture. Time is short and being prepared for the pending crisis will prove to be invaluable. The writing is on the wall.

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SGM Metals strives to offer not only wealth preservation precious metals investments to offset weakness in the economy, but to help educate our family of clients to better identify the threats to their financial security.