''Midas'' commentary for May 9 posted in the clear at GoldSeek.com

Section:

12:13p Sunday, May 9, 2004

Dear Friend of GATA and Gold:

Here's an exchange between Pan American Silver CEO
Ross Beaty and GATA's Ed Steer and your
secretary/treasurer that may be of interest. Beaty has
been generous not only with the effort of his replies
but also in giving permission to distribute them.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

To: Ed Steer, GATA
From: Ross Beaty, CEO, Pan American

Dear Ed:

I have been pilloried by some people (and strongly supported
by others) for criticizing Ted Butler and his conspiracy
theories on the silver market. Many people have misunderstood
my position or have simply refused to look at the facts on
the other side of the coin.

My position is simple. I do not NEED to rely on conspiracies
to know there is a profoundly bullish outlook for silver. And
I can explain the market long/short reality that Butler uses
to promote his theories, but without needing to invent
manipulations by anyone.

For example, there exist now well over 300 million ounces
of silver sold forward to bullion banks by base metal mining
companies in long-term hedge contracts (going out as
much as five years). These ounces are the ones the bullion
banks use to go short in futures positions against
speculative long positions.

Banks do this simply to offset their risk on the hedge
contracts. But none of those ounces shows up in any market
statistics -- for example, COT reports on COMEX -- because
they exist in private contracts and will be delivered by the
mining companies only when they are mined over the next few
years. But the silver certainly exists; it is in the ground
until it is mined.

In addition to those ounces, there are more than 500 million
ounces of identifiable silver bullion inventories that you can
touch and feel today, as detailed by GFMS in its annual
silver survey. Silver inventories in COMEX, Tokyo, Zurich,
other European exchanges and vaults, and in Chinese and
Indian government hands. Butler conveniently disregards
that because it runs contrary to his theory of conspiracy.
He makes extremely selective use of facts.

Please also note that my silver views do NOT extend into
the gold arena, where the opportunity for government
manipulation is much much greater due to the large
holdings of gold by governments and the obvious bias of
central bankers to hold gold prices down. In fact, I think a
very good case can be made for at least some market
manipulation by central bankers in the gold market.

For the record, I must also defend Pan American's
position not to use our cash resources to buy physical
silver. We have no surplus cash, and if we did we would
give it back to our owners to decide what to do with it
(like buy silver!). Our cash is dedicated to build new
mines and expand our silver production. Had we bought
silver at $8 an ounce we would be looking at a current
loss of 25 percent of the cash deployed to buy silver.
Not too clever.

We are in business to be a mining company delivering
the best possible leverage to silver to our investors, not
a seller of dreams. (There are plenty of exploration
companies that do that.)

Leverage comes in two ways: asset leverage and income
leverage. Mining companies give both to their shareholders.
Mining companies build mines and take world prices as
they are. Pan American has grown from zero to nearly $1
billion in market value in 10 years, and our production has
grown from zero to more than 12 million ounces (our
forecast for 2004) from five mines, while silver prices
have hardly risen.

That is good wealth creation by any measure and I resent
Butler's gratuitous comments to the contrary.

Unless you produce, you have zero income exposure to
rising silver prices in the medium term, due to the normal
three-to-five-year delay of getting projects into production.

Exploration and "resource holders" MAY someday take
their properties to production, but there are many risks in
doing so, and if the properties don't reach production
during the bull phase of the market cycle, they may never
get the exposure to higher silver prices that producers now
have.

I sadly note the tendency of some people to have blind
faith in the kind of loose and dubious (but strongly
presented) words of people like Butler and the tendency to
rely on specious conspiracy theories to explain facts that
can quite easily be explained without resorting to such
theories.

Silver has been my life for 10 years. I have developed good
knowledge about silver markets and don't need to invent
things to explain what is going on.

Here are the facts. There are seriously depleted
above-ground silver inventories in the world, great demand
fundamentals, and constrained supply. Whenever you get
those fundamentals -- in any commodity -- you usually see
dramatic price rises. I believe that will continue for silver
in the near future, as we have enjoyed in the last year. Any
buying of physical silver by investors will simply hasten
this. In that I am absolutely on the same page as Butler.

Pan American is in very good shape now. We are very
close to achieving our mission of becoming the world's
pre-eminent silver mining company, from a standing start
just 10 years ago. We now have more than 34,000
shareholders owning Pan American and who have benefited
as we continue our misson of delivering the best possible
leverage to silver prices in every way.

In 2003 we had a "beta" of 6.6 to 1 between our share
price and the silver price. In other words, for every dollar
the silver price rose, our share price rose $6.60. Those
who suggest an investment in physical silver is a better
way than buying PAAS to play a rising silver price ignore
this. I am extremely proud of what we have done in this
company, and we are going to continue to do it as
aggressively as possible.

-- Ross Beaty

* * *

To: Ross Beaty, CEO, Pan American Silver
From: Chris Powell, GATA

Dear Ross:

This is in reply to your note to GATA's Ed Steer about
Ted Butler's work.

I appreciate your thoughtfulness on the issue of
manipulation of the precious metals markets, as well
as the wonderfulwork you have done at Pan
American, especially since my family has been well
rewarded by clinging to our shares in the company.

Since you concede the likelihood of central bank
collusion against gold, you have met GATA halfway
and I regret any bad feeling that may have developed
between you and GATA supporters. I suspect that
any such feeling may arise largely from an
incomplete understanding of your position, and if
you ever would allow GATA to distribute something
from you like your thoughtful reply toSteer about
Ted Butler's work, I would be grateful. A dialogue
here can only help.

In any case, let me note what strike me as a couple
of possible weaknesses in your analysis.

1) You may be right about silver inventories Butler
doesn't account for, but I don't think you addressed
Butler's point aboutthe collusive behavior of the
dealers in silver on the Comex, their always acting in
unison. If there's anything to that, I wish we could
get the mining industry to say something about it
to the law-enforcementand exchange authorities.

2) Of course, as you note, it would make no sense
for a silver mining company to invest its cash in
silver at $8 per ounce only to watch the price fall
to $6. But if silver supplies are as tight as anecdotal
evidence suggests, with enough buying by mining
companies at $8 there might not be anyfall to $6 in
the first place. And $8 isn't the only price at which
mining companies might have bought silver. Anyone
who bought silver at $4.50 a year ago is feeling pretty
good about it,and what about buying at $6 now?

Perhaps GATA's biggest disappointment since our
founding in 1999 has been what has seemed to us
the lack of leadership in the mining industry in regard
toboth the anti-trust issues and the more cosmic
issues of what is and what should or might constitute
money. I know you've got a company to run. But when I
read your elaboration I wished that those who are
interested in the precious metals heard your comments
more often.

Thanks for listening.

-- Chris Powell

* * *

To: Chris Powell, GATA
From: Ross Beaty, CEO, Pan American Silver

Dear Chris:

People generally act like sheep when it comes to
investing in that they follow trends. Banks do too.
Just because they act in unison does not mean they
are conspiring.

More to the point, though, in the silver context, it is a
very small market -- about 10 percent of the size of the
gold market -- and there is simply not enough business
for very many dealers.

Many banks have exited the business in the last few
years and a few have mergered. Therefore, few players.
Not a surprise and certainly not anything to cry
"conspiracy" about.

Don't forget too (and Butler seems to ignore this)
that there is no such thing as a market that is net
short. Every short position on COMEX is offset by
a long position. If speculators choose to speculate,
someone has to fill their order.

Sometimes there is silver available that banks can find,
borrow, and sell to speculators in order to make the
market. Sometimes this silver comes from their long
positions via their hedge contracts with producers. And
sometimes speculators themselves will go short to
make the market, and these are often naked shorts.

That is their taking financial risks, against which they
pledge to the intermediary dealers their personal
assets in case their bet is wrong.

It so happens that the silver market has seen many
speculators taking long positions against the bullion
banks because of the general view that silver is
underpriced -- and I absolutely share that view. And the
bullion banks have often made large losses going
against this view -- for example, those caught truly
short when the market went from $4.80 to $8.50 or
so in the last six months.

This action of the bullion banks is simply core business
for them, not conspiracies to manipulate the silver
price. I just don't buy that because I can explain the
world without resorting to that unproven fantasy, and
because it is illegal and because I have a higher
opinion of the integrity of banks than Butler does.

Pan American is simply not in the business to
speculate with our cash, to the extent we need it for
our business. Believe me -- I would love to hold off on
our silver sales and buy or hold silver as a form of
money. A great concept if you are a bull, but to do
that you need surplus cash. We take the view that
the best use of our cash is to find more silver
through exploration,buy more silver reserves and
resources, and increase our silver production for
the long term. That way we build our company for
the long term and create wealth whether silver prices
go up or not.

Of course, we very much want them to rise, but we
cannot influence this. It is simply too big a market.
And it is a very complex market with many interactive
factors.

I have great faith in free markets and I believe that the
silver market is a free market. As the price rises, many
factors enter to force it down. And visa versa.

Silver recently rose profoundly, and it became an
overbought market. Many fundamental buyers simply
stopped buying when it rose over $6, leaving the
speculators to drive prices -- and many of these
speculators had very short-term horizons. There is a
natural correction taking place now. I believesilver
will resume its upward path shortly and that this path
will continue for a long time, but not without bumps.

I hope that answers your questions. It is hard for me
to rebut positions honestly held by my shareholders.
I hate doing it. I might be wrong. It is bad public
relations.

I hope that my points are understood, if not agreed
with.

-- Ross Beaty

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