The Ormetal Report

February 4, 1999

FIRST SILVER RESERVE INC., 
North America's only profitable pure silver play -

The headline above is the same as I had in an October 1997 comment and for one very good reason:

First Silver Reserve Inc.  (FSR.T) is still the only profitable pure silver play. For the nine months ended September 30, 1998, FSR produced 1,795,682 ounces of silver from its San Martin mine, Mexico. Revenue for the period was $US 8.64 millions, up 34% over 1997 nine months revenus. Net earnings were US$1.65 millions or US$0.05 (C$0.07) per share for the nine month period. Not bad at all for a stock that was trading at US$0.45 (C$0.70) when silver made its low near US$4.60 last fall.

Talk about leverage!

Last year, when the Buffett silver rally made the headlines, silver prices increase by 75% during the August 97- February 98 period. First Silver increased more than 200%, one the best performance among North American silver producers. Today FSR closed at C$1.25 up more near 70% since our November 98 new recommendation and up almost  40% in the last 3 days. For these same periods, silver is up 25% and 13%. Clearly, FSR is the perfect mirror of the white metal. But it does the job with a leverage factor of 3.0. You will find very few other silver plays which, not only give you that kind of leverage, but are also profitable and therefore less risky.

Here is an update on this great story:

First Silver now has a Toronto listing. Back in 1997, it was trading only on the Vancouver exchange.I am sure you know that many investors are shunning the VSE and buy only on US exchange or on the TSE. This is adding additional market exposure to the purest silver play in town.

FSR also improved their financial situation. Their working capital increased from less than US$400,000 to more than US$1.5 million.

The company spent more than US$2 millions at its San Martin silver mine in Jalisco State, Mexico. The present mill and processing facility saw its capacity increased by 50% to 750 tonnes per day. Future plans are for another expansion to 1,200 tonnes per day at a cost of $US 10 millions. Current production stands at approximately 2.4 millions ounces per year. It should reach 3 millions ounces in 1999 and more than 5 millions ounces early in the next century.

The silver resource at San Martin also increased in the period. Proven and probable reserves increased by more than 64% to 15 millions ounces of silver. Inferred resources (not yet proven but possible) increased more than 11 times from 4 millions ounces to 47 millions ounces.

On the exploration front, First Silver has discovered a new high grade vein named La Blanca, approximately 70 meters north of the currently being mined Zuloaga vein. This parallel structure has now been intersected in six horizontal drill holes from four levels of the San Martin mine confirming a minimum section of 240 meters by 160 meters. The average grade is approximately 12 ounces per ton with an average intercept of 3 meters. The company continues to explore this new vein with the intention of adding these reserves to the year end new calculation.

Of major interest is the current work taking place on a new target located at the intersection of 3 mineralized faults. This prospective area is approximately 500 meters west of the current mine workings. To reach this zone, an horizontal drift is being extended from one of the mine level.  The date for the completion of this work is the few months. It is believe that this area holds much higher silver grade than the current average of the mine. This development alone could change the big picture at First Silver.

The San Martin mine had been in continuous operations since 1983 and will be there for at least another 10 years. I have no doubt that First Silver, as a pure silver producer, offers one of the best leverage to participate in the coming silver bonanza. Of course, FSR's future, like all other silver producers, depends on future silver prices. First Silver produces silver at a cost below $3.00 per ounce and has extremely low overhead. That is why it has remained profitable in recent years.  Expect the stock price to move in synch with silver prices, both up and down.

Of course, FSR is not our only silver play. We also hold Pan American Silver and Silver Standard and are currently watching Ecu Gold and a few others. Lets hope that the silver Bonanza has just started..

Gold weighs 19.3 times as much as an equal volume of water.