A report composed following my trip to China - investigating demand, supply and reserves first-hand – also features excerpts from a confidential white paper on the Inner-Mongolia Erbaohuo Silver Mine Belts in the heart of China’s National Resource Reserve Area (NRRA). The Chinese have been mapping and mining the Erbaohuo for several decades now and believe this region may now constitute one of the potential most fertile silver districts in China. The white paper, containing information never before made public in the West, was commissioned by a mining company closing on property interests in Erbaohuo. It is the first such outside silver mining company to do so since the area was named an NRRA – with development restricted by government mandate - and a company I reported on last month in my Silver Investor monthly public publication and will continue to feature for my subscribers. This company, like the region itself, holds immense promise for anyone interested in silver investing. [Part 1]

INTRODUCTION

Over the years, numerous sites with wonderfully rich potential have been mapped out for metals extraction in China’s under-explored Inner Mongolia region – but most of these sites have NOT been fully developed due to the inability of a socialist government to properly handle mining in the area. Now China is desperate for the industrial qualities of the white metal and for outside help in recovering resources. Let me not mince words. There may be no greater opportunity anywhere in precious metals investing or mining than in China.

As publisher of the Silver Investor, my living is achieved by reporting on trends in the silver industry, mostly from a monetary standpoint, and by finding opportunities on which my readers can act. I have focused most of my attention on China of late because the most massive macro shift in economics is taking place before our eyes. China is in the middle of biggest industrial boom the world has ever seen. Its government and economy are desperate for silver – and it just so happens that China seems to be sitting on what China’s very-own confidential government mapping shows may be the largest single silver find ever made – in the Inner-Mongolia Erbaohuo Silver Mine Belts.

In our previous report, we analyzed the impact of a newly industrialized China on the world’s silver markets and concluded that China’s compressed industrial revolution could soon trigger price hikes in the silver market. We also focused on the incredibly important point (from a production and investment standpoint) that the solution to the world’s critical, upcoming shortage of silver might be found in China’s own backyard.

A combination of industrial need, a silver industry nearing a crisis and underdeveloped, gigantic silver region (a region of superlative size) - is the kind of critical industrial juncture a precious metals analyst like myself is always attempting to identify. But even that is not enough to provide a foolproof opportunity for investors. You need a way to leverage this situation; in China certain outside companies now in negotiation to help China develop silver assets– including one company I have already identified in a previous Silver Investor, present this. That company is one, which gives investors an immediate chance – perhaps the best chance – to ride the opening-up of the Erbaohuo to its logical, and extremely profitable, conclusion.

So what we have is – demand, supply (virtually unknown outside of Chinese government circles) and leverage. This is the reason special reports on this region are created, and what it means to my subscribers and those interested in silver from an investment or an industrial point of view.

I have already written one report describing the current state of the silver industry and how China’s demand is triggering current events, and how the China’s supply – the big unknown story to this moment – may be the solution to the problem that China has triggered. This second report is intended to examine a portion of the Chinese solution – the regions where the richest strikes may be said to lie. In fact, my last special report ended with the statement that we would discuss the feasibility of finding “super sized” ore bodies in China as well as track the movements of well-known prospectors who might be exploring now. We also wrote that we would launch a fairly rigorous assessment of what regions and mines are likely candidates to help China fill its rapidly increasing silver deficit.

We shall now fulfill these promises in the following order: first introduction; then another look at the evolution of the Chinese silver market and the addition of a major outside player to the Chinese market, and finally a summary of China’s most promising Chinese silver region - the Erbaohuo Silver Mine Belts in the heart of China’s National Resource Reserve Area (NRRA).

Let me add at this juncture that the Erbaohua silver summary is drawn from a confidential white paper to which I have been given access prepared by the Chinese-state operated North China Nonferrous Geological Prospecting Bureau General Exploration Agency (NCGEA), founded in 1974. The observations made at the back of this report are therefore primarily from committed efforts over a 20 year period by hundreds of highly-skilled Chinese geologists and prospectors to identify the richest potential silver mines in China.

An internal profile of the company describes it this way: “Through years of development the agency has gradually developed itself into a group company engaging in mine exploration, mine development, mine engineering, trading services etc. Geological exploration and mining has always been a pillar industry of the agency. Output from this area constitutes 50% of the agency’s revenue. Currently there are 760 people in the agency, of which 300 are current employers. Of the total staff, more than 200 are with middle level or senior level technical titles, of which 60 are still actively engaged in geological mining work.”

The NCGEA is China’s premiere agency when it comes to identifying, understanding and mapping potential mining sites. Surely some of the studies are preliminary, but the district has been determined as fact. In the case of the Erbaohua and silver, the evidence has been growing for several decades – that something truly significant is in place, geologically speaking, in this region.

To impress further what those “in the know” believe they have discovered, understand this: When the results started coming in and then repeating themselves in size over a period of years, the Chinese government was moved to declare the whole region a national resource reserve!

What did the main mining agency do with all the data developed by the NCGEA? Metaphorically, the government pondered this region closely, they did develop some areas – with great success – but for the most part, the government drew a line around the richest properties and said “hands off.”

All that is changing now – right now. The Chinese need silver, and they need it yesterday.

And that was why I took my little 12-hour jaunt on a jet plane.

ALL THE WAY TO CHINA

Let me emphasize, that leaving my family during Thanksgiving to grind out a week-long China trip – complete with 12 hour plane rides and fairly damp, cramped prolonged investigations of mine sites – was not something at the top of my “to do” list when it came to pleasant adventures.

Sure, seeing China would qualify as “the trip of a lifetime” but relaxing and enjoying it was not an easy task – nor was it one that I successfully achieved. Instead, traveling over there I felt heavily – and still do - the weight of the opportunity that the 2000s has bestowed on me as a silver spokesman and has bestowed on proponents of silver in general.

As someone who is a fairly visible commentator on silver investing and silver re-monetization, it is difficult for me to “relax and enjoy myself” even traveling to an exotic place such as China, when the stakes are immensely high, the ramifications of failure are indescribably grim, and the possibilities of success are so powerful and reward-laden – not only for investors but for the world economy itself.

Don’t get me wrong. I was glad to go. As soon as my traveling partners broached the idea – and they are a part of a team of China-savvy industrialists with some incredible mining opportunities in the region – I knew I would have to travel with them.

Call it fate; call it destiny. From the moment I began to write the Silver Investor I have felt the weight of financial history rests on crucial short supplies of key commodities. Silver happens to be the one best suited for investment for the average investor all the way to Billionaire status such as Warren Buffett and Bill Gates that established their silver positions already. The weight I feel on my shoulders is the weight of tens of thousands of years during which humankind has traded silver, sculpted with silver, built with silver, decorated with silver, even cured illness with silver. It is an incredible mineral, this magical white metal. I have felt its call keenly; I take seriously my duty to act as its representative and proponent – even at times when I stand against the crowd.

It is misunderstood, and at times oversold, but that does not make it any less valuable. Probably more so since investments opportunities rarely take place at the top, do they?

Anyway, stretching my legs and trying not to cramp in my seat from the long plane ride, I was more conflicted than I have been in a long time. Here’s a summary – both the negative and the positive.

Pessimism First

I was soaring over China and I was worried. I admit it. How would you feel if you, almost by your lonesome, had been pointing out the doomsday results of a lack of silver for several years and now were in a position to confirm whether or not there was a solution?

Reviewing the message I’d been teaching for several years, if China does not secure the raw commodities it needs in a timely way, China’s industrial revolution could radically deflate, intensely raising the frustrations of China’s migrating workers – hoping for better- and newly well-off citizens. Additionally, any deflation of the Chinese industrial effort will threaten the entire world economy since China is the main motor driving the global economy these days.

After all, it is the Chinese who are single-handedly driving up the price of commodities while producing goods and services that are sold throughout the world. And the money flowing into China allows for the purchase of U.S. debt – so much so that China is perhaps the number-one buyer of American treasuries currently. Without China’s deep pockets, U.S. Treasuries would go begging and if that were to occur, the dollar’s decline would make the current descent look like a hiccup.

Optimism

Since I am an engineer by training, not much given to emotion when it comes to an analysis of potentialities and probabilities. Even before landing, I recalled what my research had shown me that there was nothing in the world of silver, in the world of precious metals generally, that even with the new silver mines that are expected to come on stream over the next three years or so, China’s demand for silver would still drive the demand side.

Historically gold is more expensive than silver. The ratio of silver to gold in the ground is roughly ten to one, the ratio the two metals held between each other for several centuries. In commodity bull markets the gap has close radically to as little as 16-1. Today - still at the beginning of what may be the most historically powerful commodities bull market to ever take place – we are the possessors of a silver-to-gold ratio that is insanely high by historical standards – some 60-1. Therefore the bull market in silver is far from over and new opportunities in the sector will arise those that can see the opportunity can also seize it.

As I was finally able to stand – ducking a little so as not to hit my head – I thought about this salient fact: I had not been attracted to China because of silver fundamentals; it was actually the other way round. Silver’s fundamentals, its positioning as a hyper-powered break-out investment, caused me to search high and low for the best possible opportunities for long term investment. And it had been my conclusion that if you are a committed silver investor, there is no place so over looked than China.

The more I had probed, the more convinced I became. All the elements to drive a silver explosion were present in China. It was a country in desperate need of silver; a geography that includes a 5,000-7,000 year history of silver mining in numerous regions, showing that the country is geologically promising in various areas – and one of the most fertile areas of all, Inner Mongolia, being the least developed from both a historical and industrial point of view.

There was good reason to believe that extensive mapping had been done of mines in less-developed regions - given that mapping is easier for small groups to accomplish. China was not good at exploiting its mineral wealth, under the socialist system. However, individual Chinese entrepreneurs, like entrepreneurs anywhere, have not been hesitant to perform initial geological studies of the highest potential silver bearing regions.

The Best There Is

China is a country with plenty of problems, as we all know, starting right at the top with the political structure. But from a point of view of fulfilling my best expectations – as opposed to my worst fears – China scored just about a perfect ten.

What I’m trying to say is that instead of fulfilling my worst fears, China fulfilled my critical expectations. Again, please understand I am not speaking of the country from a social or political perspective. I understand the inequality and the worker exploitation (communism is an ironic system, yes?) But purely from an economic point of view, the boom is genuine. It may well be a monetary phenomenon; in fact it surely is. But in this report, and in my commentary on China in general, when it comes to investment opportunities I am not discriminating for a very important reason: timing.

The late 1990s were built on a monetary bubble fueling the stock market waiting to bust, and there were those who commented on it – and look smart today. Others invested in tech in the late 1990s, got out at the top – and are rich today. My subscribers don’t buy the Silver Investor to look smart – or even to hear me preach about the morality of a communist country shifting its ideology. They want the wealth the white metal can bring. I’ve got to figure out when, where and how. And China right now provides the answer. That’s the dream for my investors – in China’s case it’s also reality.

I saw the Chinese industrial revolution with my own eyes. I saw the incredible building going on, the bustling open markets, the serious business being conducted at high levels. I saw the concern, even fear in the eyes of Chinese officials who had pegged their careers on getting silver mining in China jump-started. From a silver-mining and investment standpoint I came away from my trip convinced of the following:

-China is determined to open its mines and borders to outside investment and mining expertise.

-Certain individuals and industrial groups did indeed have access to incredibly precise mapping and geological testing showing exactly where the greatest potential ore bodies might be discovered and mined with great efficiency and success.

-Strong outside relationships have already made the inroads with Chinese officials necessary to do what needed to be done to create world class mining businesses going forward.

Two additional areas of criticality for me were to ascertain the viability of the current outside expertise in the region and to reassure myself that the regions were as promising were indeed what they were purported to be.

Strong Associations

China is actively seeking mining companies with a special focus on silver. As pointed out in my previous report, China’s current silver production - fourth in the world – “was achieved under tremendous handicaps imposed by the political structure. [And] it was achieved within the context of rigid multi-year plans and without profit incentives such as bonuses and options packages.”

The idea that China could rise to the rank of number four in the world in silver production with a communist government – and all the inefficiency pertaining to rigid five year plans implemented by a noncommittal and even destructive bureaucracy – is startling, to anyone who understands these matters. China has succeeded despite itself – because of the richness of the opportunity, not the efficiency of the effort.

In my last report, I related that several major, North American silver mining companies - Minco Mining & Metals Corporation (Minco) and Silver Standard Resources Inc.- had “announced a strategic alliance to jointly pursue silver opportunities in China.”

I summarized the deal as it was announced and presented on the Silver Standard website: “Silver Standard will invest C$2,000,000 in Minco Silver to acquire a 20% interest in the new venture. Silver Standard will have preferential purchase rights to participate in future financing of Minco Silver in order to increase its interest up to 30% in Minco Silver. As part of the strategic alliance, Minco Silver will be the exclusive entity for both Minco and Silver Standard to pursue silver projects in China.”

I take this opportunity again to remind readers that when I first recommended Silver Standard the stock was at $2 – and lately it has traded as high as $15. I do so not just to broadcast one of a number of successful picks I have made in the last two years but also as a way of alluding to one of the two most satisfying parts of my Chinese experience.

This report has been written with two goals in mind – to unearth and present China’s secret silver regions, and also to introduce potentially powerful partners about whom you – unless you are fortunate enough to be reading this – will not hear about this elsewhere, certainly not from the general news media for a number of months, or even several years yet.

My China trip confirmed my information about the richness of its regions, as you will see below, but it also confirmed that the industrial group with which I was traveling was making powerful inroads into Chinese silver mining.

And The Winner Is …

I have already announced the name of this group and readers of my monthly Silver Investor report are poised to take advantage of the massively powerful mining position these individuals are building at this moment.

I have written in the past that gold is an explosion waiting to happen while silver is a nuclear explosion –this does sound over the top and those that know me well have criticized my nuclear explosion analogy. My point is as always to get this readership to think. The nuclear explosion that is made reference to, may be similar to what silver did in late 1979 to January of 1980. The price exploded with a force that is still talked about to this day. Some have stated that silver and gold have made their moves that the best is over. This is not the case, what lies ahead for gold is spectacular and what lies ahead for silver will closely replicate what happen in January 1980.

For the record, this move is years away, but that is exactly why getting into the correct silver equities relatively early becomes crucial, you want to be holding these stocks while the feeding frenzy takes place, not worried about your entry point because you established your silver stock holdings well in front of the crowd.

I witnessed these individuals sign documents that may well generate ownership of eleven prime mining sites where some of China’s greatest silver deposits may lie. I was also there when a partnership was forged between this company and China’s most powerful and well-connected corporation – a partnership mind you some two full years in the making.

While I will not release the name of the company in this public report, I do wish to name the partner involved - China International Trust and Investment Corporation (CITIC) - established in 1979 with the initiation and approval of Deng Xiaoping, chief architect of China's reform.

CITIC is not only one of China’s very largest transnational conglomerates - with 44 subsidiaries located on the Chinese mainland, Hong Kong and in other parts of the world – it is simply one of China’s largest private businesses – period. It is a kind of Mini-business Empire of itself with core businesses in the area of finance, energy, manufacturing, real estate and telecommunications. The agreements signed are actually with subsidiary CITIC Metal - one of the few licensed silver importers and exporters in China. CITIC Metal is also involved in the import and export of major metals products such as ferro-niobium, nitrovan ferro-alloy and iron ore.

The significance of CITIC cannot be over-estimated in this deal. Imagine if you will that despite the upheavals of the past half-century, your family has managed to build or maintain power, wealth and prestige - and is now poised to reap the benefits of Chinese privatization. You need a vehicle, however, a private market methodology of doing business that includes recognition of ownership and an ironbound guarantee that contracts will be honored and agreements will be fulfilled. For China’s wealthiest families, this vehicle is CITIC – and the money behind CITIC constitutes the commingled wealth of party members and private citizens – a cross-section of China’s “rich and powerful.”

To be blessed by CITIC is to be blessed by China’s new business class and China’s Old Guard as well. Both elements have a stake in CITIC’s success and its reputation as a dependable partner – and the CITIC connection virtually guarantees the short and long-term success of the deals in which this company is involved.

What impresses me almost as much as CITIC is that management had the foresight to approach China a full two years ago to initiate discussions that ultimately led to the partnership they were able to develop. This group is savvy and fast moving - with credibility and a wealth of practical, geological knowledge. I’m sure their reputation preceded them – and that was what first brought them to the attention of CITIC. And as result of CITIC’s involvement, the contacts are first-rate and the properties are top-notch. More on the properties (or at least the region in which they lie) – though not the name of the company - farther down in this report.

As I have written in my monthly report, the final agreements should be signed by February 15, 2005 or perhaps sooner. Once the Memorandum of Understanding becomes finalized it is expected that the company will begin a public awareness campaign that will enhance great visibility in the investment community. At that point this company will begin to make itself known in the investment community that disclosure on my part will be merely academic. Anyone vaguely familiar with silver equities and the China story will know almost instantly that this must be the company hinted about in this report.

With these documents signed, they have acquired some of the best silver properties in all of China and are in a position to option more. In a year or two – as I wrote in my report this month – you may well be reading about this company on the pages of Time and Newsweek while perhaps watching its management being interviewed on CNN?

Seeing is believing, now that I’ve been there, I’ll say it with even more confidence: I’m right about China, just as I’ve been right about silver’s appreciation, right about most of mining companies I’ve mentioned and about this company as well.

If you’ve stayed with me this far, reader, you may well want to take advantage of this information. I want you on board as a witness to history if nothing else. We’re living through tumultuous times and silver is going far higher than it has already – though it’s already double its price in the last few years.

Recently, silver took a drop of some 75 cents and the technical sell-off is probably the beginning of a bottom that, when explored, will result in further price rises. I don’t want to go deeply into the monetary arguments that we make every week, and that we have made in past special reports, but given the inflationary difficulties of the dollar – the world’s currency peg – and low interest rates world-wide, it seems nearly self-evident that holders of precious metals are bound to see continued price appreciation, long term. For those who are confident of the strong nature of this commodity bull market, the recent precious metal’s drawback is a terrific time to invest or to add to current positions.

In this most recent issue of the Silver Investor, (January ’05) just out now, I summarized previous prognostications and made some new ones pertaining to precious metals as follows: “Last year we forecast that gold would reach $500 USD and silver $8.00. We were correct on our silver prediction but off on gold. We also forecast that silver would begin to show strength relative to gold and the data is now available. For the year-over-year numbers, silver is up over 15 percent [and] gold is up over six percent. … Moving into 2005 silver should hit the ten-dollar level at some point. … Silver being a smaller market and receiving non-stop demand from industry, should continue to out perform gold. Make no mistake, the long term precious metals trend is significantly higher with possible peak in 2010.”

Want to subscribe? Take a look at our website www.silver-investor.com then strap yourself in for the rest of the ride! Just remember, traveling on the back of a bull can be bumpy sometimes, and you’ll have to remind yourself to hang on tight during the rough patches. But do that for a few more years, and you’ll get where you are going – then write me a “thank you” card, care of the Silver Investor.

Regions

The other area about which I wanted to assure myself had to do with the richness of the regions that I had been led to believe were both promising and relatively untapped in Inner Mongolia, China’s equivalent of America’s “wild, wild west. ”The rest of this report will be devoted to a summary of these regions as shared with me by the confidential report I have obtained and already mentioned above.

The report confirms in detail what I had suspected from my own studies – the northern regions of China have the potential to be among the best silver regions ever mined. In my opinion that statement hardly needs tempering, so let me rephrase it. I wrote in my last report “if geological patterns are to be believed [in Inner Mongolia] we may bear initial witness to one or more of the very largest silver/lead/zinc systems in the world.” Based on what I have read, heard and seen with my own eyes, I now believe this to be the case.

Imagine if you will a series of intensely rich ore bodies, each one producing more silver than the last. Now imagine that you have evidence that these bodies are LINKED – that each single bonanza is part of a continuous ore body that stretches for a vast, undetermined distance. And we are not talking meters, my friends. Nor miles. Perhaps tens miles or more?

That is the kind of promise we speak of today. And if you have trouble believing that is possible, please let me introduce to you some salient details from the NCNGPB White Paper, “Erbaohuo Silver Mine Belts, Southern and Central Section of Daxinganling, Inner Mongolia, China.” (Please note you are now among the first Westerners ever to read about the incredible precious metals promise of Inner Mongolia, especially when it comes to silver, so pay attention.)

Here, from the report itself, is a presentation of its purpose and the information sources it utilized:

“The Technical Report has been prepared to summarize technical information relating to the Erbahuo Silver mine belts and the mining sites to the north of it. The information contained in this report is based on data including regional Mineral Exploration report on the Central and Northern Section of Daxinganling Mountain, the 1998 Erbahuo Silver Mine Technical Report and on data including … mineralized areas mentioned in the 2004 Northern Keshiketeng County Mining Point Investigation Report.”

Part I of the report summarized the Erbaohuo Region with emphasis on both geography and mineralization, explaining the location of the Inner-Mongolia Erbaohuo Silver Mine which stretches from Linxi County in eastern part of Inner Mongolia Autonomous Region to Wulanhaote City in Inner Mongolia. The report states the region is “rich in miscellaneous mineral resources, including copper, silver, lead, zinc, tin, gold etc and being one of the most important geographic area in China for copper, silver, lead and zinc mines. Big silver mines in the region include Bairen Daba super silver and multiple metal mine, Dajing super large silver-tin mines, Mengentaolegai super large silver-lead-zinc mine and Baiyinnuo large silver-lead-zinc mine.”

While, the above-mentioned mines have already become legendary in Chinese mineral circles, especially the super-large deposits of the Dajing and Mengentaolegai, the harvest of the Erbaohuo has barely begun. The naming of the region as a “National Resource Reserve Area” by the Chinese government has slowed development considerably due to “strategic considerations.” Whatever these considerations might have been in the past, they are considerably less persuasive today as the Chinese government is making it clear that these regions are open for joint ventures and aggressive mining.

Again from the report: “Even though abundant geological investigation has been made of the region in the past decades and multiple large scaled mineral mines have been developed, the area remains undeveloped … [Only] with the reform of the mining industry and deregulation of the private enterprises in the mining and exploration of natural resources, [has the state now begun to encourage] private enterprises to participate in exploration and mining of mineral resources, including companies from overseas which can contribute capital, technologies and management expertise. … It is expected that the area shall become one of the most important mining regions in China.”

The openness of the Chinese government to private industry is reflected not only in the thousands of Western enterprises now doing business in China, but also in the kinds of structures that the Chinese are offering to those in the West wishing to become involved with mining enterprises. The Chinese have always had an affinity for silver and with the Erbaohuo opening up; Chinese wealth is being attracted to the region as well as groups from outside China. The resultant joint ventures tend to bind both parties together in a common business interest sanctioned by the Chinese government.

Unlike the development of Russian capitalism, which has proceeded in fits and starts depending on who was in power, Chinese capitalism has proceeded on one track with increasing private involvement and the ongoing blessing of the Chinese state and communist party. The state has a stake in the status quo not only through the various joint ventures being structured under its industrial reform –as we mentioned above - but because it has almost entirely invested its political capital in a successful transition to a market economy.

While it does seem surprising that metals finds of this magnitude should be available in China and virtually untouched, we must keep the nation’s history in mind. Much of the progress in identifying promising mines has come in the last half century. And since the technology and mapping was not labor-intensive, it was not so easily bound-up in the kind of red tape that a one party (communist) system generates on a routine basis. This meant that exploration proceeded in the Erbaohuo region even as development – subject to all the flaws of an incompetent, uncompetitive bureaucracy - lagged. As the report comments: “Before the 1970s, only state enterprises were allowed to do limited mining in the region and no modern state-of-the-art technologies have been applied to do the mining and exploration.”

Perhaps the wisest thing the Chinese communist party did with the region was to declare it a national mineral reserve – putting it off limits for exploration and thus helping to ensure that primitive, badly applied mining techniques did not make extraction more difficult in the future.

Fortunately for silver investors aware of the Erbaohuo, the future is about to be realized. The secret is out – and even the Chinese government realizes that the area’s enormous silver deposits must be mined. The few silver mines already in place speak to the success that both Chinese investors and outside mining groups are expecting from Erbaohuo. The report comments on two recently configured mines that are already considered “historical” in terms of their output and quality, as follows:

“Bairen Daba Silver Mine: The mine is made of more than 30 mine bodies of different scales, of which there are three big scaled mine bodies, with their lengths stretching between 300 to 2000 meters and thickness measuring 0.5 -13 meters. Silver deposit is estimated to be minimally 1500 metric tons and average silver grade is around 800 g/t.

“Longtoushan Silver Mine: Longtoushan Silver mine is located in Alukeerqin County of Inner Mongolia. The site has an estimated silver deposit of 3100 tons, a lead deposit of ca. 223000 tons and a zinc deposit of 309000 tons, with its total estimated market value being around 7 billion RMB (ca. 900 million USD). In addition, there are another four paralleled belts where anomalies have been identified. It is estimated that they should have the same potential as the discovered mine bodies”.

But, as I have written above, these mines and two others, barely scratch the surface of the richness that Erbaohuo holds. The report summarizes three reasons for the regions attractiveness - before going on to deal with individual properties in some detail - as follows: [Mapping and sampling] results show that the region is rich in miscellaneous types of resources including silver; past and recent findings have again and again confirmed theoretical predictions; funding from both public and private sources is pouring into the area as China’s acute silver shortage makes itself felt.

The report now analyzes 11 separate properties – but I shall focus on one, the so-called Erbaohuo itself which the geography of which the report describes as follows: “The Project is located in Wenniute Country of Inner Mongolia, China, East Asia on … the south edge of hercynian fold belt of Great Xingan Mountains. This entire tectonic setting provides a dynamic geologic environment for the development of mineralizing systems in China. The magmatic activity in the area is strong. … Enough information is available that a previous operator calculated an inferred resource of 58.4 tons, with an average grade of 248.02 gpt silver at a cut-off grade of 200 gpt Ag.”

The report also informs us that the discovery of silver in the area ranged from 1989 to 1992 – as a result of ”gross exploration” and that from 1998 to 2002, exploration and mining were carried out with the “total amount of ore mined about 30,000 tons.” Additionally, “A total of several adjacent silver areas have been identified.”

Conclusions? “Bright prospects of finding silver mine in the surrounding area of the Erbaohuo mine. … Based on the above analysis, it can be said that the prospect of silver mine exploration in the region is good and promising.”

You can see a certain scientific reticence in the language above given that the area has already yielded “30,000 tons of ore.” There is a reason wealth is rushing to the Erbaohuo, and it has to do with this mining area itself as well as adjacent sections and the possibility that the geology which seems fairly similar throughout the various areas identified will yield one contiguous world class district.

I am grappling with ways to explain the significance of what may occur in the Erbaohuo Silver Mine Belts. Perhaps the best way to describe what this area is means in terms of potential is to remind precious metals investors that the most successful recent mine strike was Goldcorp. This once junior-mining entity generated a market cap of hundreds of millions with a gold strike the size of, say, a single train boxcar a quarter-mile down.

What we are talking in Erbaohuo is relatively shallow silver spread over a region of dozens and even hundreds of miles. If these silver areas are actually connected by geology, and it does seem possible at the moment, then we are looking at more silver than a boxcar full.

We’ve established the world’s critical need for silver and the probability that the solution to that need is located right in China’s back yard in the world-class precious metals reserve of the Erbaohuo Silver Mine Belts. We’ve also established that we’ve found a company that is positioned to exploit not only the China trend (the compressed industrial revolution that chewing its way through the world’s silver) but has also positioned itself with the Chinese industrial and political elite.

In my next report, I’ll reveal much more about this company, its prospects and what the future holds from both a production and investment standpoint. If you need to know more now, you’ll have to subscribe to the Silver Investor.

In closing, I’ll just say that I can’t imagine any serious investor not wanting to know more about the opportunity I believe this company provides. Look at it this way. China and the world need silver in the worse way – and this company is ideally positioned to provide it. It’s rare you can do well for yourself by doing good for others. It is even more rare when you can invest in a company that has strong ties to the largest conglomerate in China (CITIC) that will keep the sputtering world recovery on track. Imagine that. Make a decision to invest early, and improve the world at the same time.

It doesn’t get any better than that, my friends.

At times like these, I love my job.

© 2005 David Morgan. All rights reserved.
www.silver-investor.com

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