All That Glitters Is Silver

"U.S. players are starting to look at value propositions. They just want to be in silver, and they don't want the physical metal; they want equity because they want to be able to trade it," Thomson says. "It's similar to what happened a few years ago when Chinese, Korean and Vietnamese investors came [to Canada] looking for hard assets. In this case, it's the U.S. funds that are starting to look at our natural resources. It's kind of ironic that it takes a strong Canadian dollar for them to start investing in our economy."

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But not all big U.S. funds are making the pilgrimage north or, if they are, the journey is often short-lived. On March 15, Barron's blogger Murray Coleman reported that U.S. hedge fund managers were buying silver. A week later, however, he told readers "hedge funds in the past week were unloading positions in gold, silver, copper, platinum and palladium."

"There's a lot of confusion out there. There are funds that are dumping silver and there are funds that are buying silver. The funds tend to react to the news, and then become the news themselves when they dump large positions. If you watch those big funds' positions, all you're going to really see is a bobbing cork. I think net their positions are accumulative," says James West, editor of the Midas Letter.

David Keating, managing director of equity capital research with Mackie Research Capital, a sizeable Bay Street player in junior mining financings, says the 60 companies figure is likely on the high side but that Thomson's number is in the ballpark.

"Sixty sounds like a big number but it doesn't strike me as outrageous," says Keating. "There's certainly lots of demand in the market for silver stories."

Keating notes he's getting more calls about silver and is currently looking to finance as many as five silver plays. "You've got U.S. funds and international funds looking at getting direct toeholds in some of these plays and they are prepared to put up the $5, $10 or even $15 million to get the exploration going. We've definitely seen that in the silver names and in the gold names," he explains.

Keating explains that when you get sustained upward price movement in the underlying commodities, a lot of assets that wouldn't have earned a second look at lower prices suddenly become attractive at higher prices. He adds, "Companies these days are able to raise capital, so exploration budgets are going up and you're getting more and more exploration and development. And some of the assets that aren't getting attention can be spun off into cleaner, pure plays."

West, until recently, owned a stake in a precious metals mine in Peru and is connected to junior mining plays all over the world, especially those in Latin and South America. He often gets calls from the "who's who" of Toronto merchant banks and brokerages seeking exploration-worthy assets for capital pool companies (CPCs) or corporate shells.

Brokerages source assets from people like West and-after filing a prospectus and raising seed capital-CPCs buy the assets via a "qualifying transaction," which is needed to get a listing on the TSX Venture Exchange. It's often a well-rehearsed dance between brokers and companies.

"If you look at any of the CEOs on the TSX Venture Exchange who have a track record of value creation in public companies, generally, you'll find them aligned with one or two brokers with whom they do all their business. Usually these groups make money together and they tend to move forward under that arrangement until something goes sideways on a deal, somebody retires, somebody gets sued by their wife. . .whatever," West explains.