Market Opinion

I am a long time fan of Quaterra Resources and the CEO Dr. Tom Patton. You may

remember that Western Silver drilled the Peñasquito deposit in Mexico for several years.

All that anyone saw at Peñasquito was a solitary outcrop in the high Mexican Desert. Well

the deposit is now owned by Goldcorp after two takeouts and there is now more than 20

million ounces of gold and over 1 billion ounces of silver there. With gold headed for the

millennium mark and silver headed for the $20 mark this year Peñasquito (developed by

Patton and field boss Tom Turner) is a world class deposit and qualifies as a discovery

“game changer.”


Quaterra has continued to acquire 100% positions in near term mineral plays. Most recently

it announced a NI 43-101 resource of oxide copper at Yerington Nevada (called the

MacArthur) of almost 800 million pounds. Yesterday the company announced its first

resource at Nieves – a silver property in the western Zacatecas state, Mexico.


The results are impressive. Using a 30 gram cutoff the company reports 25.1 million ounces

of silver in both the indicated and inferred category. Using a 60 gram cutoff the resource is

17 million ounces. Quaterra owns half the resource and a private group owns the remaining

50%. I have visited the property three times in the past few years. Each time I saw more

progress. I counted up to 7 veins on the property with some very high grade silver mined

historically. There are several dumps and 24 shafts on the property to a maximum depth of

180 meters. The property was never mined below the water table. The Spanish first mined

the property in 1540 and, as we now know, the Spanish did not waste time or energy. There

are only 82 drill holes here (Kennecott, Western Silver and Quaterra) and in the most recent

drill program on the Concordia vein the spacing was 100 meters in some cases. That meant

that the observed grades were penalized (cut from much higher grade to 375 grams) by

Caracle Creek (the company doing the 43-101 analysis). More infill drilling should show

continuity and increase the resource to well over 31 million ounces.


Experts have told me that Nieves has a geochemical footprint very similar to Fresnillo 90

kilometers to the south. It is in the same mineral belt. Fresnillo is one of the largest silver

mines in the world.


The key fact is that Quaterra has drilled only 1/3 of the Concordia vein’s 1,200 meters to

build their 25.1 million ounce resource. Average grades range up to 570 grams but the

promise is that the vein is open along strike and a depth. In other words there is likely to be

a lot more silver at Nieves – at least in my opinion. There is also about 30,000 ounces of

gold in this resource. The independent analysis only allowed 350 grams per tonne based on

the wider drill spacing.



Table 1-1

Estimated mineral resources(1)

Concordia vein system, Nieves Property


Ag range Ag Au Ag Au

(g/t) Classification Tonnes (g/t) (g/t) (oz)(2) (oz)(2)


0.0 – greater

than 15.0 Indicated 133,189 8.348 0.046 35,749 198


Inferred 1,477,235 8.074 0.050 383,484 2,365


15.0 – greater

than 30.0 Indicated 326,164 22.400 0.071 234,901 748


Inferred 2,988,093 22.790 0.049 2,189,450 4,714


30.0 – greater

than 60.0 Indicated 863,267 46.909 0.082 1,301,973 2,270


Inferred 4,587,616 44.857 0.063 6,616,366 9,240


60.0 – greater

than 90.0 Indicated 1,258,964 74.543 0.101 3,017,304 4,084


Inferred 1,275,489 72.304 0.100 2,965,086 4,102


90.0 – greater

than 120.0 Indicated 754,187 103.125 0.123 2,500,575 2,990


Inferred 507,865 103.329 0.122 1,687,208 1,998


120.0 – greater

than 150.0 Indicated 388,788 134.132 0.144 1,676,647 1,799


Inferred 250,484 134.991 0.136 1,087,134 1,092


150.0 – greater

than 300.0 Indicated 480,704 188.975 0.175 2,920,646 2,709-


Inferred 221,639 176.033 0.164 1,254,409 1,171


300.0 – greater

than 500.0 Indicated 14,927 320.946 0.258 154,029 124


Inferred 1,117 332.728 0.280 11,949 10


1) Prepared by Michelle Stone, P.Geo., Caracle Creek International

Consulting Inc., an independent Qualified Person within the meaning of

NI 43-101, showing tonnes in various Ag ranges.

2) 1 troy ounce equals 31.103 grams.

The TSX Venture Exchange and the American Stock Exchange have not reviewed and do not accept responsibility for the adequacy or accuracy of the contents of this news release, which has been

prepared by management.

Contacts: Quaterra Resources Inc. Nicole Rizgalla Corporate Communications (604) 641-2746 Email: Website: w


Most of this resource is near the surface and more drilling is warranted. In my view the

Concordia vein which runs for 1,200 meters could yield significantly more silver resource


with more drilling. The current plan only drilled about 1/3 (400 meters) of that vein –

and there are additional veins and targets. Geophysicist Joe Inman will be recalibrating

his geophysical analysis based on these drill results.


There is an opportunity for an open pit and / or a high grade mining operation depending

upon economics. Most important there is the potential that this ore will leach or process

easily. I think the company should now perform a small scoping study to test the economics

of the project as it stands while recalibrating and planning the next drill program.


We think the wind is at the backs of investors in Quaterra as silver should be able to climb

to $18 to $20 per ounce later this year and as infill drilling and further exploration of the

Concordia proceeds to completion. One of the world’s best known mineral consultancies,

GFMS, thinks $18 per ounce is in the cards. Concordia and other veins will add to the size

of this resource.


This makes three for three for the Patton team. They discovered significant uranium pipes

on the Arizona strip, developed a low cost oxide copper resource at MacArthur (Nevada)

and now they have the beginnings of a much larger silver resource at Nieves.


This stock, like others has not been treated kindly in spite of the discovery successes of the

Quaterra team. I own shares in Quaterra Resources.


CLICK HERE and scroll down to view Dr. Michael Berry’s chart of Quaterra 




The material herein is for informational purposes only and is not intended to and does not

constitute the rendering of investment advice or the solicitation of an offer to buy securities.

The foregoing discussion contains forward-looking statements within the meaning of the

Private Securities Litigation Reform Act of 1995 (The Act). In particular when used in the

preceding discussion the words “plan,” confident that, believe, scheduled, expect, or intend

to, and similar conditional expressions are intended to identify forward-looking statements

subject to the safe harbor created by the ACT. Such statements are subject to certain risks

and uncertainties and actual results could differ materially from those expressed in any of

the forward looking statements. Such risks and uncertainties include, but are not limited to

future events and financial performance of the company which are inherently uncertain and

actual events and / or results may differ materially. In addition Dr. Berry may review

investments that are not registered in the U.S. Dr. Berry has been awarded 10,000 stock

options exercisable at $7.50 from Senesco Technologies. He has been awarded 100,000

options of Derek Oil and Gas exercisable at C$.47, Valcent Products (300,000 options),

Global Green Solutions (400,000 options) and War Eagle Mining. He owns shares and in

Goldcorp, Senesco Technologies, DataMeg, Immtech International, Horseshoe Gold, Derek

Oil and Gas, Terraco Gold, US Silver, Neuralstem, Piedmont Mining, MegaWest Energy,

Valcent Products, CGX Energy, MacMillan Gold and Quaterra Resources. He has been

awarded 250,000 options on Terraco Gold exercisable at C$.50 for 5 years, for services as

a financial advisor. In his role as advisor he has been awarded 75,000 options from

Polymet which strike at C$2.76. We cannot attest to nor certify the correctness of any

information in this note. Please consult your financial advisor and perform your own due

diligence before considering any companies mentioned in this informational bulletin.



I’m adding Central Fund of Canada (CEF $11.80 Trades Alternet and TSX) to my model portfolio. The last few days IMHO may be the last great buying opportunity for gold and silver in the months to come. While CEF trades at a premium to its NAV, it’s a good way for investors to have exposure to gold and silver bullion.

On a side note, I found the fact that mining shares finished up today and have remained strong versus the decline in gold and silver, a very encouraging sign that gold and silver should resume their rally starting tomorrow.

Like it or not, I think the new administration and the Democrats have made the problems left at their doorstep far worse. I could type for the next 24 hours and not do justice for how more concern I am for America. Sorry to those who believe otherwise but from the very first post on this blog, it’s been my intentions to express myself openly and accept criticism. I believe America is becoming more divided versus coming together. More on this in my “closet” commentary this weekend.

Despite being grossly oversold, the stock market can’t hold onto gains and sells off towards the end of the day. This is very bearish. No government has ever been able to spend its way out of financial trouble. This government will be no different and I think people are starting to grasp that despite hoping beyond hope this time it can be different. The long end of the Treasury market looks like its about to break down. Just last week, the cost of insuring U.S. debt hit a record.

The next big financial meltdown?

Look for Israel and Iran to become a “hot” topic by summer if not sooner. I’m sorry to say but IMHO, it’s not a question of if but when.

“Where’s the bottom?” someone shouted at a recent PIMCO staff meeting. “Which market?” I shot back, which sort of ended the conversation, but provided little else in the way of an answer. The fact is (I should have said) that financial delevering affects most markets in the same way; they are similar trades. As unwinding leverage fails to be cushioned by a government check, prices go down on risk assets. Only the strong – or in this case – the highest quality assets survive. And so the bottom for risk assets is divorced and distinct from government guaranteed assets. “Where’s the bottom and where’s the top?” would have been a better question. No one knows of course, but we make educated guesstimates and try to communicate them to an enquiring public. We believe in giving a listener, as well as any one of our more than eight million individual clients, their money’s worth.

One thing I’ve never done however, is provide expert testimony in front of a congressional subcommittee. Newport Beach probably doesn’t have the cachet of Wall Street, or perhaps my style has always been a little irreverent or my brain a little irrelevant – I’m not sure. In any case, I thought I’d create my own virtual testimony to a hypothetical committee delving into the complexities of our financial crisis. What follows is what might have taken place last week:

Question: Mr. Gross, is this a recession or a depression?

Answer: We don’t know yet, Madame Congresswoman. Recessions are cyclical downturns of a relatively brief time frame, characterized by inventory corrections and addressed by low interest rates and mild doses of fiscal stimulus. Depressions are more extreme with double-digit levels of unemployment but defined more importantly by credit contraction and debt liquidation. The deflation that normally accompanies a depression is dangerous not because prices are going down, but because the “for sale” sign goes up on the credit markets which have always made capitalism possible. At the moment, you policymakers are attempting to prevent that. We shall see.

Question: How did this happen so fast?

Answer: Trillions of dollars of credit have been sucked out of the financial system over the past 12 months. Banks may be lending but the larger shadow banking system is not. All of those SIVs and credit default swaps that once generated credit are now contracting and pulling the real economy down with them. Think of it this way: If you had three or four pints of blood drained from your body you’d be on life support, very quickly. Same thing now. The solution is for government spending to simulate a transfusion of whole blood, plasma, or whatever’s available.

Question: How bad could this get?

Answer: No one knows for sure, but common sense would provide a good guess. If the government cannot substitute credit to the same extent that it is disappearing from the private system, then the U.S. and global economies will retreat. If the economy is viewed as a bathtub filled with water (credit) at two different times with two different levels, then draining it back down to the lower first level might reduce economic activity proportionately. Liquidate debt (credit) to 2003 totals and you just might reduce economic activity (GDP) to 2003 numbers as well. Whoops! That would mean a 10%+ contraction in the economy with unemployment approaching the teens. Keep that bathtub full! 

Question: What can be done?

Answer: Keeping the tub sufficiently full means advancing policies in content and magnitude never contemplated since the days of FDR. The U.S. and global financial systems require credit creation and foreclosure prevention, not bank nationalization as currently contemplated by some. Trillions will be required in the U.S. alone and it is critical that there be a high degree of policy coordination among all nations, which avoids protectionist measures reflective of failed policies in the 1930s. To date, PIMCO’s Mohamed El-Erian’s imperative of “shock and awe” has been more like “don’t bother us, we’re working on it.” Get moving. Risk being bold – Washington.

Question: Are there no negative consequences from “shock and awe?” Will these policies destroy capitalism while trying to save it?

Answer: Good question. The substitution of the benevolent fist of government for the invisible hand of Adam Smith involves risk. The private system is the heart of capitalism and generates most of its productivity, so more government usually involves less prosperity and certainly more inflation. PIMCO recommends a 180-degree turn towards government only as a last resort. They have the only credible checkbook in town. Will those checks create inflation? Let’s hope so provided it is low and stable over time. Policymakers are more than vocal about attempting to reflate the economy, which in essence means a hoped for return to nominalGDP growth levels of 5-6%, the majority of which might actually come in the form of higher prices as opposed to increased production. This Faustian bargain would be acceptable if only to stabilize what now appears to be an even more dangerous deflationary debt liquidation.

Question: Why do we assume that the U.S. can unilaterally do whatever it wants?

Answer: Much like we are the world’s strongest nation militarily, we entered this crisis with certain economic and financial strengths relative to all other nations. Our reserve currency status was the primary one which means that we can write checks in our own currency and they are accepted all over the world – sort of like American Express Travelers Cheques. This privilege, however, can be and is being abused. Travelers Cheques are acceptable only when redeemed at 100 cents on the dollar. Lately, quasi-American dollars in the form of Aaa CDOs, corporate bonds, and even national champion bank stocks have floundered closer to zero than par. There is fear on foreign shores that even U.S. agency debt may not be honored and that U.S. Treasury debt itself, when “repoed” as in prior years, may now suffer from counterparty risk. Global willingness to accept American dollars is being tested. Granted, the U.S. currency has appreciated strongly against its counterparts during most of this crisis, but technical short covering as opposed to a flight to quality may have been the dominant consideration. Watch the dollar. If it falls hard, there may be nothing policymakers can do to restore the ensuing financial chaos.

Question: What do you think about nationalizing the banks?

Answer: I think Roubini, Dodd and Greenspan haven’t thought this one through. The U.S. isn’t Sweden, and not just because our blondes aren’t au naturel. Their successful approach revolved around a handful of banks but we have 7,500, as well as many S&Ls and credit unions, which would have to be flushed into government hands. Regulators are overwhelmed as it is, and if you thought Lehman Brothers was a mistake, just standby and see what nationalizing Citi or BofA would do. Our banks remain at the heart of domestic/global financial transactions and daily clearing, while those Scandinavian banks were not. PIMCO would not dispute the need to further capitalize systemically important banks via convertible bonds held by the government, which unfortunately dilute shareholders’ interests. To go further, however, and “haircut” senior debt or even existing preferred stock similar to that issued via the TARP would create an instability policymakers should not want to risk. In turn, forcing creditors to take haircuts would undermine other financial sectors such as insurance companies and credit unions. The goal of future policy should be to recapitalize lending institutions while maintaining the basic infrastructure of credit markets. Outright nationalization and haircutting of creditors will do just the opposite.

Question: Enough already about this still confusing crisis – how should I invest my own money?

Answer: I’d give you an invitation to our PIMCO client conference next month in Newport Beach if you weren’t so busy here in Washington. Its theme is titled “Evolution or Revolution – The Future of Investing.” No golf or vintage wines though – just cheeseburgers and interesting conversation. But come on out if you care. I’m sure we’ll stress our current theme of “shake hands with Uncle Sam” – buying agency mortgages, and other developing areas of government policy support in the credit markets. But we’ll talk about the future of stocks too, leveraging and deleveraging, globalization and deglobalization, and why safe secure income may be the most desirable investment in this evolving economic and financial crisis. Tell you what, Madame Congresswoman, if you can’t make it I’ll write it up in next month’s Investment Outlook.

Question: Well thanks, Mr. Gross, but one last thing. Whatever happened to your mustache?

Answer: My mother always said there was something shady about a man with hair on his lip, but then she’d never met Mohamed El-Erian and Paul McCulley whose mothers undoubtedly approve. I think my mom watched too many Charlie Chan movies in her day, but I can’t be sure. We feel the same way about this economy though, Madame Congresswoman. It’s hard to trust policymakers; there’s too little consistency, not enough boldness, and too much political game playing. Say a little prayer will ya, but tell those Congressmen to shave their lips just in case.

William H. Gross
Managing Director


CLICK HERE for more articles at PIMCO

Most traders are familiar with Stephen Covey’s now classic book, The Seven Habits of Highly Effective People. In that book, Covey wrote about his son, also named Stephen Covey, who has written a wonderful and equally important book, The Speed of Trust. In this book, the younger Covey discusses the fact that trust is essentially the lubricant that moves individuals, organizations and societies forward. Without it, everything slows down:


If I cannot believe what you say, I will need to take the time to verify it.
When everyone along the line has to verify, the machinery grinds to a halt.

This is what is happening now in the US economy. One after another, the people and institutions we trust to manage our money by employing the principles of honesty, integrity, and strict fiduciary guidelines established by law, the Bernie Madoffs who exemplified those qualities, have sidestepped those principles in the name of pride, greed, and expediency. The entire system of credit ultimately depends upon trust; and without trust, the system has crumbled.


But, the problem has gone deeper than merely our financial institutions. A growing cadre of the elected officials we entrusted with the responsibility to lead us, to make our laws and ensure their enforcement, to use our tax money to protect and support us and to protect our constitution and its implementation, have broken that trust. They have been caught hiding bribe money in the refrigerator, selling congressional positions to the highest bidder, and just about every nefarious and illegal act imaginable.


We have even learned to distrust the source of our food supply. Foodstuff from foreign sources that do not adhere to our safety requirements has infiltrated our system. Lethal E-coli bacteria and salmonella infected countless citizens. Shortcuts taken in the raising, production, and processing of our food have led to the contamination of our basic necessities of life.


People have started looking around and asking themselves, “Whom can we trust?”


What does all of this have to do with making money in the markets? The gears that drive a trader’s business are greased with trust. The trade you just entered or exited was placed on the basis of trust, trust that whoever is responsible along the line to execute that trade will have done so based on the rules of the game. When traders conclude that they cannot trust the people on the other end of the transaction, they must verify everything that happens to their money. The gears slow down and eventually grind to a stop. This example is just one step taken in your trading day that involves trust.


What about those annual reports? On the basis of the financial statements made by a company’s top executives and signed off by their lawyers and accountants will determine the investment decisions made by investors who do not have the resources to personally investigate the financial condition of each and every company on the exchange. Regardless of how deep or shallow the pockets are of those who are making investment and trading decisions, lives will be seriously and adversely affected if the accounting firm that signs off on the audit is being paid generously to cook the books. When you discover the ruse, you lose trust. You are then forced to stop and reconsider your entire investing strategy.


Suppose you discover that the single most important source of information about the markets can no longer be trusted, what do you do? Where do you go for the information vital to your decision-making? For many loyal readers, their major city newspaper’s imprimatur on a story was the very guarantee of authenticity. Then, in recent times, stories began to circulate about the lack of fact-checking and editorial rigor and of political and personal bias that colored reporting and pushed politically embarrassing stories to the back of the paper or simply off the radar. The result has been a decline in readership due, in part, to a lack of trust. In the news business, trust is the coin of the realm. One major newspaper in the US that is not experiencing a decline in readership is the most trusted source for business news, The Wall Street Journal (and no, this is not an advertisement for TWSJ). But, just suppose that you could no longer depend upon it?


The speed of trust goes all the way down to the people who clean your offices at night. If you cannot trust them not to go through your files, hack into your computer or steal the money in your desk drawer, you will be forced to clean your own offices after work hours.


As we watch in amazement at how rapidly the speed of trust is slowing down, we ask ourselves if there is a way back out of this mess. The answer is yes. It starts with each of us showing the people around us that our word is unimpeachable, that we are willing to do what we promise to do, that we are following the rules (our own rules as well) and that we can be trusted. Then, we can rightfully demand the same from those upon whom we depend. Reagan said it well so long ago: trust but verify.


Each and every one of us is hurt by the broken trust of one of our colleagues. Our profession is smeared with the same brush. We can, however, restart the speed of trust by raising the bar, by expecting and demanding more trustworthiness, and by verifying that we are getting it. If we do not do this, if we simply wring our hands in dismay, we will not be able to get the machinery back up and running. And we must do this across the board. We need to hold our elected officials accountable and let them know that government by the wink-wink-nod-nod process of governance is not acceptable and we will not allow the game to be played by those rules. The trillions of dollars being borrowed from our children and grandchildren to “jump start” the economy cannot be distributed like a shell game or we will all be the losers as trust further erodes and, instead of being jump started, the economy will lay down and slip into unconsciousness.


Adrienne Toghraie, Trader’s Coach