Silver Mining Companies: The Rise of Bootstrap Mining
by S.R. Nunnally, Editor, Commodities & Resources Report
For the past several months, I’ve been working on a special report that traces the Mexican mining industry back before Cortés set foot on Nueva España. In just a few days’ time, I’ll be releasing this report, but I’ve gotten special permission to publish a few pages of the research that lead to my exclusive report….
Modern mining techniques were late coming to Mexico. For 300 years, miners just dug the ore they found near the surface until digging became too hard. Then, Mexico was thrown into more than 100 years of wars (including a war for independence, a civil war, war with the U.S., and the Mexican Revolution) and the country was facing financial ruin.
It wasn’t until midway through the first half of the 20th century that mining picked up again.
For a while, under the law, any mining company had to have been majority owned by Mexican nationals. In many instances, the government owned large stakes in the companies. In some ways, it was like the Royal Three-Fifths: Giant corporations were allowed to rule the mining industry because of that law that forced companies to be owned by Mexican nationals.
But in 1992, a change in the laws allowed direct foreign investment in both mines and mining companies. In fact, the law allowed up to 100% ownership of the capital stock of a company. This immediately pumped investment dollars into Mexican mines, and by 1999, foreign investment in Mexico’s mining industry reached $800 million!
More than 440 foreign companies are currently investing in Mexico’s mines, and an estimated 360 of them are American or Canadian companies.
These foreign companies have it easy coming into Mexico. According to Trey Wassler of III-D Capital, “In 1994 the North American Free Trade Agreement (NAFTA) was implemented and the peso was devalued. Low metal prices and a devalued peso caused many mines to be shut down. Many already enriched families ‘threw in the towel’ and moved on to other businesses.”
What these mines left behind were existing reserves and infrastructure.
Much of the time and money a small company spends is on exploration and infrastructure. After that, the actual mining of minerals is a relatively cost-effective prospect. “Bootstrap mining” is when a company moves in and reopens an existing mine.
Let me give you an example…
On February 27, 2007, Endeavor Silver Corp. (EDR:Toronto) (EXK:AMEX) acquired exploitation contracts for Unidad Bolanitos, a group of 13 properties (totaling 2,071 hectares) with three currently operating silver and gold mines and several “past-producing” silver and gold mines.
By acquiring high-potential properties at a low price, Endeavor immediately boosts reserves, production and cash flow. It’s easy for a company to raise investment capital when it knows it’s already sitting on mineral reserves.
As always, junior mining companies have strong speculative overtones. With the draw of huge potential with these bootstrap mines, tiny companies are almost a dime a dozen. Due diligence is an absolute necessity. And though prospects for a profitable company are stronger now than 10 years ago, beware of the shell company.
Your best bet is to find a stock with mines already in production in addition to acquiring bootstrap mines.
For the past several months, I’ve been working on a special report that traces the Mexican mining industry back before Cortés set foot on Nueva España. In just a few days’ time, I’ll be releasing this report, but I’ve gotten special permission to publish a few pages of the research that lead to my exclusive report….
Modern mining techniques were late coming to Mexico. For 300 years, miners just dug the ore they found near the surface until digging became too hard. Then, Mexico was thrown into more than 100 years of wars (including a war for independence, a civil war, war with the U.S., and the Mexican Revolution) and the country was facing financial ruin.
It wasn’t until midway through the first half of the 20th century that mining picked up again.
For a while, under the law, any mining company had to have been majority owned by Mexican nationals. In many instances, the government owned large stakes in the companies. In some ways, it was like the Royal Three-Fifths: Giant corporations were allowed to rule the mining industry because of that law that forced companies to be owned by Mexican nationals.
But in 1992, a change in the laws allowed direct foreign investment in both mines and mining companies. In fact, the law allowed up to 100% ownership of the capital stock of a company. This immediately pumped investment dollars into Mexican mines, and by 1999, foreign investment in Mexico’s mining industry reached $800 million!
More than 440 foreign companies are currently investing in Mexico’s mines, and an estimated 360 of them are American or Canadian companies.
These foreign companies have it easy coming into Mexico. According to Trey Wassler of III-D Capital, “In 1994 the North American Free Trade Agreement (NAFTA) was implemented and the peso was devalued. Low metal prices and a devalued peso caused many mines to be shut down. Many already enriched families ‘threw in the towel’ and moved on to other businesses.”
What these mines left behind were existing reserves and infrastructure.
Much of the time and money a small company spends is on exploration and infrastructure. After that, the actual mining of minerals is a relatively cost-effective prospect. “Bootstrap mining” is when a company moves in and reopens an existing mine.
Let me give you an example…
On February 27, 2007, Endeavor Silver Corp. (EDR:Toronto) (EXK:AMEX) acquired exploitation contracts for Unidad Bolanitos, a group of 13 properties (totaling 2,071 hectares) with three currently operating silver and gold mines and several “past-producing” silver and gold mines.
By acquiring high-potential properties at a low price, Endeavor immediately boosts reserves, production and cash flow. It’s easy for a company to raise investment capital when it knows it’s already sitting on mineral reserves.
As always, junior mining companies have strong speculative overtones. With the draw of huge potential with these bootstrap mines, tiny companies are almost a dime a dozen. Due diligence is an absolute necessity. And though prospects for a profitable company are stronger now than 10 years ago, beware of the shell company.
Your best bet is to find a stock with mines already in production in addition to acquiring bootstrap mines.
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