October 8, 2002

(The following essay was written by silver analyst Theodore Butler. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)

For most of this year I have waged a campaign against the manipulators on the COMEX silver market. That effort has involved extensive correspondence and debate with the highest officials of both the CFTC and the COMEX, all of which has been in the public domain. I have continuously warned that excessive, uneconomic and unbacked paper short sales by a few financial firms were capping the price of silver and threatening to send it lower. That is exactly what happened, and is happening.

When asked to explain how 8 or less traders could be allowed to be net short more than 350 million ounces of silver futures and where was the real silver backing those short sales, neither the CFTC, nor the COMEX could explain. When asked why there weren't legitimate speculative position limits in force in COMEX silver, both the CFTC and the COMEX chose not to respond. Given the choice of putting up and showing the real silver, both chose to shut up. Simply disgraceful.

But the biggest disgrace lies not with bungling bureaucrats or crooked traders, but with the silver miners, who, by their silence on this issue, are the real guilty party. Let me be specific. The management of the publicly traded primary silver producers - Hecla Mining, Couer d'Alene, and Pan American Silver, are the most to blame for the recent low prices of silver, as well as all other producers of silver. The CEO of Pan American Silver, Ross Beatty, because he is also the current head of the Silver Institute, can be cited for particularly shameful behavior. Please let me explain.

I find the management of these producers to be shameful because they haven't lifted a finger to fulfill their main obligation to the owners of their companies, the shareholders, of enhancing the value of the companies. (In the interest of full disclosure, I have been and am, through family ownership, a shareholder of each company, at various times). It is simply disgraceful that these managers have remained silent and inactive, this year, when they had the clear responsibility to move against the COMEX silver manipulation. Instead of taking trips to China, attending to personal compensation matters, and speaking in vague tones about the silver market, they could do plenty to help the shareholders.

It is common knowledge that the most important influence on the value of a commodity producer is the price of the commodity produced. I have presented continuous evidence that the price of silver is manipulated. The CFTC and COMEX have responded inadequately to my allegations. What have the miners said about this very public debate? Nothing. What has the Silver Institute said? Nothing. You would think they would at least want to get to the bottom of it. You would think the miners would want to know if real silver backed up the short sale of 350 million ounces by 8 or less paper traders. You would think the these miners would want to know why speculators, in clear violation of commodity law, are allowed to trade in much larger quantities than the miners can produce in a year. These miners act as if they are powerless, when they could get a court injunction against the COMEX, in a heartbeat, for not enforcing legitimate speculative position limits. The miners have been making political contributions for years, yet they won't ask their congressmen and senators to demand that the COMEX document the real silver backing the 350 million ounce short sale. After the COMEX crooks are paraded in front of Congress, the miners will be able to demand billions of dollars of damages from the COMEX officers and directors for the decades-long scam. The shareholders of these silver miners are entitled to restitution. No jury in the world, when given the facts, would deny this restitution.

I have been asked continuously as to why these mine managers don't stand up for the real company owners' rights and attempt to confront the obvious silver price manipulation, especially given the fact that I have cleared the path for them. Nothing would restore financial health to these companies like a free market price for silver. My response is always the same - they are either seized by incompetence or timidity, or they have been warned by the Wall Street con men who simultaneously provide financing to them and manipulate the silver price.

The same Enron-type traders that bankrupted the California utilities have and will bankrupt the primary silver producers. It's just a matter of time. Yet the management of the silver producers do everything to avoid the real issue of price manipulation that is causing the low silver prices. For this they should be ashamed and removed from office. At the very least, they should stop donating the shareholders' silver at a loss just to maintain their salaries and bonuses. If you are a shareholder of any of these companies, and agree with me, you should let them know how you feel. Tell them to stop mining at a loss, or go to the courts.