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December 11, 2006

By: Don Hansen

SILVERAXIS.com

In my first article on the Value Strategy for Investing in Silver Mining Shares, I listed four companies that satisfied the criteria outlined there. The main element of the criteria was that a company's shares be undervalued based on an expectation of significant earnings growth in 2007 and 2008 which the market had not yet recognized or factored into the share price. And, that this profit growth did not depend upon either higher silver prices or major new resource discoveries, although such developments would certainly enhance the potential increase in market value.

All four of the companies -- Endeavour Silver, Great Panther, Impact and First Majestic - identified in the first article are currently profitable on an operating basis, which excludes company overhead, administration and exploration expenses. I did not analyze non-operating expenses since they do not increase in proportion to production and so my basic premise is not significantly impacted by excluding them. As a result, instead of the more complex method of valuation which uses after-tax earnings to derive a price/earnings (P/E) ratio, I simply multiply mine operating profit by a factor of 15 to arrive at a simpler and arguably more meaningful estimate of future market value.

Great Panther Resources

In this article, I will discuss Great Panther Resources (GPR in Toronto, GPRLF in Pink Sheets). The historical data and forecasts shown were obtained by personal interviews with company management, company publications and presentations, the Internet, and annual reports. All dollar amounts shown are in US$ millions unless otherwise noted.

Other factors which make, in my own opinion, Great Panther a good investment now include the following:

• The $17 million in working capital is more than sufficient to allow the company to realize the profits projected.

• The exercise of warrants noted above will provide additional cash, although it will also result in an 18% share dilution. This will occur by late 2007 and will undoubtedly put some downward pressure on the share price at that time. On the other hand, Great Panther may not need to raise additional funds through financings and therefore future share dilutions are unlikely to be substantial.

• The company has operating mines in two separate locations, one of them being in the Guanajato area. Silver was first discovered there in 1548, and this district is one of the most prolific and best known silver districts in the world.  Estimates of historic production in this district range from 700 million to 1.5 billion ounces of silver and 4 to 7 million ounces of gold. I believe there is lots more where that came from because the geology is very favorable, most mining was only down to the water table, and the district was never explored with modern technology. Historical production, although substantial, may have literally just scratched the surface. Please note that until 1993, a foreign company could not own more than 49% of a mine in Mexico, which provided little incentive for Canadians or others to explore or invest in Mexican mining operations. And until 2003, metal prices were too low to support many of the recent property acquisitions in the Mexican silver belt. So this truly is the dawn of a new age in Mexican silver mining, and Great Panther is smack dab in the middle of it.

• Great Panther's second operating mining area is called the Topia mine and it is a former Penoles property which has high grade ore and significant expansion potential with good infrastructure in place.

• On the exploration side, the company has a late-stage project underway called KM66 that they believe has the potential to become an open pit mine and significantly add to revenue and profits in future years. Upon development, this could become Great Panther's third operating silver mine, placing the company in an elite league of silver miners.

• The management of Great Panther has done an excellent job of achieving impressive progress in a comparatively short period of time. They have consistently met or exceeded performance expectations thus far.

• The company's shares have just begun to trade on the TSX exchange in Toronto and are expected to be trading on the AMEX by mid-2007. These moves up to the larger exchanges will significantly increase liquidity and support the share price as the company's story becomes more widely known.

I am working on comparable analyses for the remaining two companies on my "value strategy" list and will be providing those in future installments of this series. There may also be other companies worthy of consideration in the future using our criteria, but these four appear to be the most mature, proven successful junior silver producers out there, and therefore we believe they may be the least risky while still possessing high return potential in the near term.

By way of disclosure, I own shares of all the companies featured in this "value strategy" series. Also, no one has asked or paid me to write these articles 

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Don Hansen is a retired entrepreneur who has been investing in silver mining stocks since 2001.

Disclaimer: We hope others will find this approach interesting and useful in making their investment decisions but we caution all investors that this is not an investment recommendation and that each investor must consider his or her own investment criteria, horizon, suitability and other factors before making an investment in these or any other stocks. Inexperienced investors should consult with a registered investment advisor. Information contained herein is believed to be accurate but we make no guarantees to that effect. We are under no obligation to correct errors or update any information, which is only timely as of the date of publication. Forward-looking statements and estimates are the author's own opinion only and any information obtained directly or indirectly from the company is protected by safe harbor laws. Furthermore, all viewpoints expressed herein are solely those of the author and do not necessarily represent the opinions of www.silveraxis.com. The author and persons associated with www.silveraxis.com own shares in all of the companies mentioned and therefore are biased in their favor. No compensation was received from the companies mentioned nor was the author asked by anyone to produce this commentary.

Copyright © 2006 Don Hansen - contact www.silveraxis.com for reprint permission