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Bullion banks get FT's help in trying to talk silver down

Section: Daily Dispatches

Miners Hedge against Fall in Silver

By Jack Farchy
Financial Times, London
Tuesday, February 8, 2011

Silver mining companies have begun to buy insurance against a sharp drop in prices after years during which hedging fell out of favour.

The move by several large miners to lock in prices comes as gold and silver prices have slipped from recent highs, with investors turning to other assets as economic sentiment improves. Some analysts have begun to warn that the precious metals may soon peak after a decade-long bull run.

Gold is down 5.7 per cent from its record high in December. Silver jumped 75 per cent from August to hit a three-decade high last month, but has since fallen 6 per cent, trading at $29.30 an ounce on Tuesday.

Bankers said at least five miners had hedged a portion of their silver output in recent months, either by selling future production ahead of time at a fixed price or by buying options to protect against falling prices. This has helped push the market into "backwardation" -- an unusual condition for silver in which the price for future delivery is lower than for immediate delivery.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit, Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

The quantity of silver hedged in the latest wave of activity is several times the size of previous outstanding hedges, according to bankers' estimates.

Raymond Key, head of metals trading at Deutsche Bank, estimates that about 100 million ounces of silver has been hedged in the past two months. That compares with total outstanding hedges, called the global "hedge book," of 20 million ounces in late 2010 and annual mine production of about 700 million ounces, says precious metals consultancy GFMS.

Michael Jansen, metals strategist at JPMorgan, said 2011 was "probably the year of the producer hedge." He added: "This bull market in commodities is maturing to a point where, as much as supply is under pressure, you can say with a bit more certainty that in two to three years it's going to be different."

Bankers and analysts cautioned against expecting a widespread return to gold and silver hedging, noting that silver was not the main product of any of the miners who had executed hedges in recent months.

Mining companies have cut back on hedging -- and several gold miners spent billions of dollars buying back their hedges -- after protests from shareholders who preferred full exposure to the commodity markets.

Minera Frisco, the Mexican mining company spun out of Carlos Slim's conglomerate, said last month it had hedged 70 million ounces of silver production to 2013.

"Gold and silver's slide in January may have spooked some producers," said Edel Tully, precious metals strategist at UBS. "When you put it in the context of silver's massive rise last year it is not surprising some producers are locking in price gains."

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Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

For the complete announcement, please visit: