Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944

Silver Dragon Resources

February 27, 2009




Price range:




Shares authorized:


Shares issued:


Cash in Canada


Cash in China


Silver Dragon Resources is a Canadian-based silver company with a total capitalization of about $10 million. It is a resource company whose assets are mainly in silver, are in Mexico, but predominantly in China, mixed up with other base metals.

There are many small resource companies, or silver resource companies, in the world, and to pick an individual corporation always requires a great deal of research, ordinary geological search, and quite often a deep understanding of the company's management background and potential are essential. By definition Silver Dragon is a mining company focused on acquisition, exploration, development and operation of silver mines in the respective silver district in China and Mexico. The corporate objective is to acquire silver mining assets that contain promising exploration targets, and then produce in properties significant untapped exploration potential.

There is always an objective of management, and the question is whether the resources, the management talent, the money and the geographic ability to have a small company develop into something of a semi-producing silver company. Obviously, the valuation of assets underground is a small percentage of the value of silver when it's produced and sold on the international market.

Mexico is the world's leading producer of silver, and China is the world's leading consumer of silver. Accordingly, Silver Dragon is eventually a participant in providing silver for China from its own resources. At the time of writing, February, 2009, silver prices are definitely on the upswing. In January, 2007, silver was around $10.50 per ounce. It reached $12.50 in February, 2008, and then gradually by February, 2009, the 30-day moving average of silver was over $13.50.

This trend long time and short term has been confirmed. For instance, the moving average of one year silver was $20 in February, 2007. It dropped to below $10 in December, 2008, and then gradually climbed to $14 in February, 2009. The long-term silver price indicated that silver is on the upswing, but in February, 2009, it is in the recovery stage towards its high, which was reached in February, 2008. In 2005, five-year silver was $6. In February, 2006, it was $8. In February, 2008, it reached $20, and at the time of writing silver is recovering from $10 to $14 per ounce.

This is happening when commodity prices are still at a low level, but investors all over the world are putting money in silver ETF's, into silver coins, and the supply is not matching the gradually increasing demand. For instance, silver coins are today representing in many countries over 20% of yearly consumption, and this 20% is likely to stay and increase, thereby taking silver out of circulation. For coins and bullion purchases, it is a monetary metal that people all over the world buy to retain their valuable savings.

As far as Silver Dragon is concerned, we can ascertain that whatever reserves they have underground, it is growing every time the price of silver increases by a dollar.

Various Reserves and Size of Reserves

In the past few decades, the Mexican silver mine called Serro las Minitas has 26.7 million ounces of silver and it has five mineralized zones that the company discovered in 2007 and 2008. It has obtained money from China and particularly the Chinese government.

The company, using its cash reserves, conducted drilling, tunneling and trenching in the Chinese properties, and included the preparation for production in late 2009 and 2010.

Silver Dragon's main goal is to convert its Chinese resources, estimated to NI43-101, complying estimates. The first report would lead to production. During the third quarter of 2008, the company secured $5.5 million as part of a $13 million financing package. Of this amount, a million came from a private placement with an entity designated by Chinese partners.

As a result, the Chinese government, the suppliers of the money, now own 10% of Silver Dragon.

$4.5 million of the above number was secured in an asset transfer to 20% of one of the Chinese entities, and as a result the division of the so-called Erbahou is now 40% owned by Silver Dragon. But with the additional $7.5 million financing for the change of property, Silver Dragon's stock is valued at 25¢ a share.

These sets of financings are very much in line with the policies of the government of China. The Chinese today are buying assets, underground production assets, as opposed to giving money to securities of Western companies. The best example is the current financing with Rio Tinto. Whereas the state-owned aluminum company provided $7.5 million to acquire convertible shares in Rio Tinto, it has also invested $12.5 million in mineral assets in Australia, Chile and possibly in Mongolia. Since China has available cash, the acquisition of assets, exploration assets, semi and fully-producing assets, is done with proper deposits, proper collateral. As a result, the purchases are made on the commodity market and silver is part of it, at a low level. This, however, leads to a vast increase in the paper value of the company, or the stocks, where the transactions are taking place.

The logical development of Silver Dragon is now as follows:


The company has silver assets which it is developing.


The acquisition by China of several of the deposits, or part of the deposits, is like purchasing proven assets at a realistic price


It would provide financing for Silver Dragon.


The value of Silver Dragon's stocks would increase because the dilution of the stock is minimal, but the valuation of the assets is great.


As the price of the stock goes up in Canada or America, a financing can be done after the stock appreciated, with what we call the 21st century commodity financing.


With the larger volume of cash coming from project financing and equity financing, the company is in a position to increase its asset base, develop its asset base, create production, and resell part of it back to the Chinese at solid prices.

All in all, this kind of circular investments, financings, development and production has not been in the vocabulary of the exploration markets. It enables a small company, with adequate resources, management money, to increase its equity base manyfold and create a new kind of winner which is the winner of the 21st century's second commodity boom which we are about to enter.

It is difficult to calculate in advance but it's easy to visualize that if the money from China enables, let's say, Silver Dragon to double its reserves and the price goes to $1.00 plus, and financing can be obtained at a higher price in the Western world, we are facing a rapidly growing international silver company that is totally unique and cannot be compared to the past junior silver companies listed in the Toronto Stock Exchange.

Silver-Indexed Bonds

The concept that is being developed here is by no means a mathematical gain, but rather the utilization of some imagination and the combination of the commodity markets and the equity markets.

To a certain extent, in the last 40 or 50 years the combination of simple equity financing with bonds, warrants, preferred stocks, stock dividends, big commission bonds called junk bonds, and the utilization of commodity values and concepts has been done. The reason why success has been denied for large-scale utilization of what we describe is really the fear of underwriters that some tremendous losses will have to be sustained.

In the year 2009, a drastic conceptual change has taken place. The securities prices of almost any company have declined 30% to 70%, and interest in those stocks is very minor. Furthermore, many companies, through negligence and economic circumstances, accumulated deficits and corresponding bank debt that made both corporate management and underwriters, investment bankers, frightened of their own shadows. This is exactly the wrong attitude because when prices decline, imaginative transactions become possible.

The following pages I want to present as an example that represents a financing through the combination of commodity and bond financing, in a way that is credible, but with no particular risk, and a [directive] for the purchaser and beneficial to the owner of a company.

We start with Silver Dragon. It has 83 million shares. At 10¢, it represents less than a $10 million valuation. The company has silver and other assets, both in China and in Mexico. As an exploration company, it requires cash constantly for further exploration and refining the deposits, building of plants, manufacturing silver, which is an ongoing financial demand basically made possible by the constant reevaluation of the assets, namely silver, underground and later on in production.

The company needs money and we start with that very simple concept. We create a unit of $1.15 a share consisting of 10 shares and 10 warrants at let's say $1.25. The $1.15 unit will have a coupon of 6% which is tied to the silver at $14. If the silver price goes to $14.50, the dividend rate increases to $6.50 and this increase continues up to let's say the price of $20 a share. The dividend is paid in stock and is paid monthly.

Apart from the fact that the investors buy a $1.15 unit, the rate of return can go up to 20% with the silver price. It would also deliver to the company the $1.15 price up front, and the only extra payment for the company is the increased dividend in stocks.

Of course, we can insert other restrictions. Apart from the $20 silver price, the $1.15 unit with its high dividend may be forced to convert at a price of $1.50, which would enable the purchasers to make a nice capital gain and the liability of the company is restricted.

In the following table we illustrate the rate of return of the unit. It is imperative to point out that if an investor accumulates the monthly dividends over a period of two to three years' time, and silver goes higher and therefore Dragon's stock goes higher, it can acquire a savings nest egg of considerable value.

We can break down a small offering of $500,000 with all its ramifications illustrated in Table 6. There is an additional feature which is important to mention. If the issue of half a million dollars is successful and it gets listed on the Vancouver exchange, it would bring attention, it would help the price of the stock, and if at the same time this money is wisely spent on further acquisitions of silver assets in Mexico, the price could go up substantially. Taking advantage of the popularity of the original unit, with monthly increases in stock value in view of the stock dividend, the company can simply true to issue a $2 million similar piece of paper with different numbers, which I illustrate below.

What this really says is that if we go out of this financial environment, which is obviously difficult, but if we see how silver and gold will break through, all sets of financings should be and could be used to acquire monetary assets for the respective companies. A few months ago there was what we call the fertilizer boom. Frankly, I believe there will be another agricultural fertilizer boom. Today we have a gold and silver boom. In order to supply fertilizers, agricultural commodities, silver and gold, at a decent price to the consumer, as opposed to creating a Hunt type of run-up, we must create the necessary financing to mine and produce the goods under consideration, namely silver.

It doesn't take too much imagination to believe that let's say in the year 2012, when more people will work, and we now have 5 billion people working as opposed to 3 billion fifteen years ago, more people will want to have secure monetary assets including silver. If that's the case, what is better? To have more silver companies deliver more silver to the consumer, or see the silver up against $50 and have a monetary crisis like we had in the year 1979 and 1980?

My silver points simply serve a purpose, to enable a silver company to mine silver. What is the duty of a silver company? It's to produce silver. Let the consumer acquire silver and save their capital from the wide fluctuations which have seen before in history, and which nothing ever brought peace and prosperity.

A Sample of Offering Circular



$1.15 consists of

10 shares          6% initial div.
10 warrants at $1.00

Dividend depends on price of silver













Dividend is paid in stock.
Dividend is paid monthly.

e.g.     If price of silver is $14.50

           Dividend rate          9.5%

           Monthly payment    7.92

If silver increases to $20, the value of the dividend is:

           20   x   7.92   =  11.1%


  1. Amount of dividend ------ 15%

  2. Stock with dividend can be called at 20% (dividend stops) 

Offering Unit:


consists of   





50M at $1.00

Total sum raised   

(Up to $5,515,000)

Shares issued   


Average cost   


Note: If warrants are lowered to 40¢, average cost is 25¢.

Share Dilution

By selling $500,000 Units for $1.54, we can attach $1.00 warrants. Reasons:

(A)     Research can popularize the company

(B)     If a silver-indexed bond is popular, it indicates another financing.

(C)     We establish Silver Dragon as a silver monetized company


Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.



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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail:

Copyright © 2011 Andrew Racz. All Rights Reserved.