Investors have good reason to be somewhat dumbfounded at how the mainstream financial press is handling the precious metals volatility. Prior to gold's violent tilt at $390 Shares Magazine portrayed a mood that was downbeat and cautious until the cover, "New Gold Rush" graced our newsagents in February this year. The current issue would bring a sickening feeling to the stomach of a gold bull, and would bring a "Thank goodness I am not in that sector" from an investor yet to embrace it. In all fairness the current issue is based on comments from Andy Smith and reasons why gold is destined never to return to its previous glory days.

If this is the attitude towards gold, what hope is there for silver? Despite the POS recently moving up to an impressive $4.62, silver discussion has all but become limited to die hard bulls and those that have noted silvers gentle push towards another crack at the magical $5.00 level.

Excellent Conditions Emerging In The Juniors

After scanning the market depths of a number of mid-cap and junior resource stocks it is apparent that the buying support has built significantly and many stocks appeared to have already created their rolling 12-mth lows. This situation is more apparent in the junior gold producers, whilst explorers are tending to react to company specific news as opposed to moves in the commodity prices.

The SARS virus has revitalised the biotech sector in Australia, and any company that could be remotely related to the virus is undergoing a resurgence in buying interest, and this would be expected to increase as the race for a treatment/vaccine gathers momentum. Trading volumes across a number of stocks has remained strong, whilst the syringe stocks Eastland (EMS) and Unitract (UNI) have again reacted in similar fashion to the tech boom.

Positive exploration news is still being met with share price re-ratings, although with SARS you have world wide fear, that is likely to turn to greed once promoters attempt to cash in on the green eyes monster.

From speaking to geologists drill rigs are becoming scarce commodities, and importantly assays are taking their time returning from the laboratories as they struggle to cope with the increased traffic. Conditions could not be better for a dose of good old exploration fever, however the distraction caused by SARS should not be underestimated.

The Bearish Case For Silver

• The moves towards digital cameras will seriously dampen industrial demand.
• If the commodity is running at multi-year deficits, why has the price indicated otherwise?
• Silver bulls are fanatics who have proclaimed the imminent price explosion for years, yet continue to cry foul on the manipulation front.
• Investment demand for silver is unlikely to dramatically increase, and with steady industrial demand the catalyst for a major re-rating is non-existent.
• The move to $52oz will never happen again as market regulations are implemented.
• There are considerable unreported stockpiles, and deposits that are likely to be brought on stream as soon as the price sticks its head up.
• The retail investors are focussed heavily on real estate and many would not even consider gold investments. Participation rates will remain low in the foreseeable feature.
• Not even Warren Buffett's purchase in 1997 could provide a floor. What would happen if Buffett announced that he had sold his silver?

The Bullish Case For Silver

• Silver has run multi-year deficits, which is contributing to an exhaustion of stockpiles.
• Conditions for precious metals investment have improved significantly with a deflating USD, a mixture of inflationary and deflationary concerns and a post-war rally that has created a higher-risk environment for equities.
• New uses in timber treatment, fridge lining, and bactericidal applications.
• On an historical basis adjusted for inflation, the POS is near 100-year lows.
• Small market where the downside appears negligible, yet with a minor increase in the participation rate the POS could undergo a stunning transformation.
• New projects will take years to ramp up to full production, whilst the current lull in price activity has kept new entrants in the sector to an absolute minimum.
• Silver remains a cheap option on the gold price, however recent activity would indicate the potential to eventually disengage from gold and run on it's own unique fundamentals.
• The press do not like it, anyone that openly discusses the looming silver bull market is dismissed as a loony tune, whilst we are unlikely to see silver covered in any great depth until we arrive at a short-term peak.
• Apart from a near-term revisit of biotech stocks, where else is there to go in terms the next speculative wave apart from gold?

Turning Fundamentals Into Profits

One may possess a foolproof game plan, a watertight legal defence yet when the whips are cracking they are defeated from poor execution or a technicality. In the case of those that were caught out on the short-side recently, the major barriers to success where the premiums associated with buying puts/selling calls and the risk of another powerful bear market rally as the war relief aspect went into overdrive. Contrarian investors should readily accept the fact that for the majority of the time they are going to feel like an absolute dickhead as the bulk of the retail investors embark on a frenzy that often leads to another lesson and calls of, "I will know next time". So the fundamental outlook for silver on a risk/reward basis is attractive however turning this information into a profit and holding onto the gain is another ball game. Apart from purchasing physical silver or Perth Mint Certificates the investment options in the Australian silver sector are extremely limited, however with this aspect comes the opportunity for significant profits.

MALACHITE RESOURCES (ASX:MAR) 18C

Malachite listed in November 2002 after successfully raising $3.057m. The company currently has 32.24m shares and 7.6 Feb 2006 20c options on issue. BHP Billiton and Macmin Silver LTD emerged as the major shareholders post-float.

Malachite's silver focus is the New England Fold Belt of NSW and QLD, which also offer gold and base metal potential.

From a recently completed drilling program at Rivertree (Malachite's second ranked silver project), hits up to 755 g/t (narrow) were obtained, and has given further encouragement to undertaking a more detailed geological study before embarking on further drilling.

Malachite have recently commenced drilling at their Conrad Silver Project (20kms South Of Inverell) where previous production was in the vicinity of 3.5m ounces at a grade of 620 g/t with lead, zinc, copper and tin associated with the silver. The current drilling campaign is expected to consist of 10 diamond tipped holes resulting in approximately 3,000m of drilling.

Malachite SWOT Analysis

Strengths

• Well-managed company with a tight capital structure.
• Major focus on silver, whilst providing leverage from gold and base metals.
• Prior to the IPO the company's issued capital was reconstructed. Seed capitalists and retail investors on a more level playing field.
• High-grade targets with historical production.

Weaknesses

• Lack of identity and market profile. Malachite is Copper Carbonate Hydroxide was related to the BHP Billiton alliance in the search for copper.
• No defined resources or reserves. Company is still in various stages of mineral exploration.
• Despite a modest market capitalisation interest in the company remains subdued.
• Investor sentiment towards the silver sector remains low.
• The shares are illiquid and trading is limited at current levels.

Opportunities

• Direct competition for speculative silver funds is limited to Macmin and a handful of juniors whose projects contain silver as a by-product. The money flow in the event of an increase in silver investment would be significant.
• The definition of resources/reserves provides the opportunity for share price re-ratings in a more silver friendly investment environment.
• Malachite could benefit from a major regional discovery by a junior or major silver company in the area.
• First mover advantage where Malachite was the first silver orientated float to list in years. A significant time period for those wishing to list would still exist in the event of a silver price rally.
• With the Malachite-Macmin-Tasgold alliance the opportunity for rationalisation and the sharing of resources exists in the future.

Threats

• Complete market meltdown where the speculative sector is subjected to a further sell off.
• Exploration failure and eventually the exhaustion of capital.
• Continued weakness in the POS and dwindling investor sentiment towards the sector.

Australian Silver Juniors Quick Guide

Macmin Silver (MMN): The most popular speculative silver play on the ASX. Reserves consist of 58 m/t @ 77 g/t (14.4m oz) and 7.8 m/t @ 65 g/t for 16.3 m oz. The company has recently commenced resource evaluation drilling at Mt Gunyon. The shares are liquid and attract a variety of retail, institutional and overseas buyers.

Golden Cross (GCR): GCR have strategic land holdings in the Lachlan Fold Belt NSW where the Kempfield Silver/Barite deposit hosts 11.4m oz @ 95 g/t.

Mount Conqueror (MCO): New England Fold Belt silver explorer who recently completed a drilling program at Boorook (assays pending). Their JV partner Central West Gold (CWG) has interests in the silver leases and a 30% in the Rothsay Gold Project.

PlatSearch (PTS): Significant landholder in the Broken Hill region of NSW, prospective for zinc-lead-silver. Exploration largely funded through JV's with Inco.

Tasgold (TGD): Recently listed exploration junior with silver/gold and base metals projects in Tasmania. Macmin shareholders received an in specie distribution of TGD shares on a ratio of 1 TGD share for every 29 MMN held.

Bolnisi Gold (BSG): Georgian gold producer and JV partner with Gammon Lake in the Ocampo gold-silver project in Mexico (BSG earning 60%). The silver resource at Ocampo is approximately 35m oz at 50 g/t.

Anvil (AVL): Anvil's Dikulushi copper-silver mine in the DRC is expected to produce 800,000oz silver in 2003 (silver grade 266 g/t).

SUMMARY

• Interest in the silver sector remains subdued despite signs of a revival in the POS.
• Environment for PM investments remains positive with an attractive medium-term outlook.
• Silver deficit expected to continue despite concerns over industrial demand stemming from the digital camera.
• Risk/reward profile of silver appears attractive in comparison to gold and other base metals.
• Silver market is tiny with limited investment opportunities therefore creating the potential for significant share price upside across a handful of companies.
• The mainstream press have a hard enough time covering gold let alone silver. Price would have to skyrocket to provide the catalyst for a change in attitude.

As with all major investment mediums the vast majority tend to find situations only attractive at the "peak". Silver is unloved, downright ugly, and at best a cheap insult for failing to win a gold medal. Can you imagine if only a fraction of the dollars currently being thrown away in overpriced real estate moved to precious metals and especially silver?

Tony Locantro
locantro@iinet.net.au

29 April 2003

Disclaimer to Malachite Resources

Terrain Securities were the broker to the Malachite issue and were paid a 5% fee for placing stock to clients. Clients of Tony Locantro have significant holdings in Malachite Resources and may change these holding without notice. Tony Locantro has direct and indirect interests in Malachite Resources and may change these holdings without notice. The information on Malachite Resources does not constitute a recommendation to purchase shares in the company.