The world’s gold market’s were closed on January 1st, but once early morning trading began on January 2nd in the Far East, the price spike in gold was killed immediately…and it became obvious that someone (JPMorgan -NYSE:JPM-, perhaps?) didn’t want gold to rise and confirm that bullish technical indicator I just spoke of, so it was taken down with some authority…as was silver. This lasted until about 1:00 p.m. in Hong Kong, when both metals began to recover somewhat…but the selling pressure showed up again as soon as London opened, and continued that way, with both metals on the defensive when New York opened. Gold was not allowed in positive territory for the rest of the N.Y. trading session, but silver was allowed to tack on about 40 cents. Both metals would have done better yesterday, but it was obvious that someone didn’t want runaway prices to the upside during London or New York…which is what would have happened if the moonshot open in gold that began in early Tuesday morning Globex trading had been allowed to run its natural course.

In Tuesday’s trading, gold open interest rose another 2,142 contracts to 300,448…with silver open interest actually declining 441 contracts to 85,312 contracts. New Year’s eve’s (Wednesday) open interest changes on the big spike showed an open interest increase in gold of a largish 6,203 contracts to 306,651. Silver o.i. rose 611 contracts to 85,923 contracts. It will be of great interest to see what Friday’s open interest figures are like once they become available on Monday morning.

The other item of interest on Monday will be the latest Commitment of Traders report. It will be interesting to see what the CFTC uses for a cut-off date. But regardless of which day they pick…neither Wednesday’s nor Friday’s dramatic action in gold and silver will be in that one. We’ll have to wait four more days until next Friday to see who went long and who sold short these last couple of trading days.

In gold news, the usual N.Y. commentator was not pleased (nor was I) about Indian imports of gold for December and all of 2008…”Yesterday the Bombay Bullion Association announced that India’s December bullion imports dropped 81% from last year to 3 tonnes…and that the full year’s imports were only 402 tonnes, down 47% from 2007’s 759 tonnes.” Equally disappointing was Turkish demand in December…a miniscule 227 kilos. His closing comment was the following…”The rally appears to be fuelled entirely by Western speculative sentiment, which can be very powerful. But with such a weak base in physical demand, it is likely to be short lived.” We’ll see. And lastly, I see that the GLD ETF (NYSE:GLD) added another 150,000 ounces on December 29th to a new record high total of 780 tonnes…if you believe that they actually have all the gold they say they do, that is. Oops…one more thing…”Apex Silver Mines (AMEX:SIL) Limited has received a delisting notice from the NYSE.” If you’re wondering why…just take a look at their hedge book…and the current zinc price.

In other news: an aljazeera.net story where the headline read…”Russia cuts gas supply to Ukraine”…”Russia’s state gas monopoly Gazprom has cut all gas supplies to Ukraine after talks over payments owing and 2009 prices failed.” In a Bloomberg story, a sure sign that there’s big trouble in the municipal bond market is the fact that Pimco is postponing dividend payment on a pair of closed-end municipal bond funds. (Here’s another case where investors should be more concerned about a return of their investment, rather than a return on their investment. – Ed) In a cnn.com story I see that five Democratic governors have asked Uncle Sam for a cool $1 Trillion in aid to the country’s 50 states for various and sundry things. And from The King Report…”2008 will be a year of historic imfamy. The S&P 500 declined 38.5%, the biggest drop since 1937. The Dow Jones Industrial Average declined 34%, the largest drop since 1931. It’s highly unlikely that 2009 will be as ugly. But this does not suggest that it will be a ‘good’ year. ”

Today’s first story is about the man behind the printing presses in Zimbabwe. If you read his bio, he’s obviously not the sharpest knife in the drawer. But what the story does show, is how tyranny can keep a country in fear. The story from the L.A. Times is entitled “Zimbabwe’s Money Man Plans to Keep on Printing”…and the link is here.

The next story is from forbes.com. It’s columnist Dan Gerstein’s last offering of the year, and he lets it all hang out. It’s entitled “Dangerous Thoughts: The Most Distrusted Institution in America”. The link is here.

In the next story, British savers are about to find themselves in the same boat as their American counterparts…0% interest on their accounts. The story is from telegraph.co.uk in London where the headline reads “Savers facing accounts with no interest”…and the link is here.

Lastly is the latest from James Turk over at goldmoney.com. His commentaries are always happy reading…and this one is no different…as he discusses the enviable record that the US$ gold price has racked up. The story is entitled “Gold Climbs Again – Eight Years in a Row” and the link is here.

I need to confess that I have no idea where the S&P500 will be in a year’s time. But given the catastrophic economic conditions we find ourselves in, I’m convinced that governments around the world will increase the intensity with which they will be attempt to save the world with monetary and fiscal measures. As pointed out in last month’s report, this will increase volatility and should be ‘gold friendly’. – Marc Faber

Today’s ‘blast from the past’ is from the 1970s. I hadn’t heard this song in ages until I dug it up on the Internet about two weeks ago. It’s got a great driving beat…and I hope you enjoy it…so turn up your speakers and then click here.

Despite the big day on the US equity markets yesterday, nothing has fundamentally changed. How long this ‘rally’ lasts remains to be seen. But when the economic, financial or monetary systems cough up their next hairball, we’re going to see another nasty turn to the downside…and gold will be the only show in town…just like it’s been for the last eight years in a row.

Source: And Then There’s This…Monday, January 05th, 2009

This from Today’s Financial News:

Our sources indicate that Apex Silver Mines (NYSE:SIL) might be a promising short play at this point in time.

Crashing commodities prices are not just putting hedge fund managers into a jam, they’re also putting resource producers at risk.

The price surge triggered by the commodities super-cycle had been a boon to large-scale miners in particular. Soaring prices for oil, nickel, copper, molybdenum made the exploration and development of marginal sources not only feasible but profitable. Across the world, mines (especially silver mines) re-opened that had been abandoned as too expensive a decade and a half ago.

(The only fly in the ointment was the falling dollar, which made operating expenses in non-dollar countries relatively more expensive.)

But as the world economy moves into recession, credit locks up, and commodities prices continue to fall, we predict that a large number of mines will again be abandoned over the next three months. And that a sizeable number of mining companies will file for bankruptcy.

We have picked up rumblings that one of these companies might be Apex Silver Mines (NYSE:SIL). Of course, we cannot tell for sure. Some of the information we have obtained could not be verified independently. Other bits may qualify as “insider information”. But most of what we have compiled here is easily documentable in public sources.

We have a couple of rules here at TFN. We don’t spread rumors. We don’t trade on insider information — we publish it when we find it. And we don’t trade on our own recommendations — unless we disclose it to our readers. With appropriate warnings that you should do some digging on your own before you make a decision to buy, borrow, or sell shares.

According to our sources, the only important asset Apex currently owns is its 65% share in Minera San Cristobal (MSC), a sizeable silver, zinc, and lead mine in southwestern Bolivia.

The problem is that the Bolivian government, inspired by its petro-Communist neighbors in Venezuela, has recently raised applicable mining taxes, increasing the income tax rate from 25% to 37.5% when prices meet specified thresholds and eliminating the creditability of the complementary mining tax against the income tax. These changes will result in a higher income tax burden, and hence cost base, for the company.

But there appear to be internal issues as well that point at lack of financial stability

* Entry into a Material Definitive Agreement for a $225 million Senior Secured Loan arranged by BNP Paribas at LIBOR + 3.5%, secured by all tangible and intangible assets owned by Apex and all its subsidiaries (8-K Filing dated Dec 8, 2005).

* A complex derivative instrument required by the Senior Secured Loan which represents a current liability of over $450 million. This hedge accrues losses at a rate of approximately $115 million per month. (8-K filing dated August 12, 2008)

Our source writes: “This Facility requires a first payment of the principal by Dec 2008 AND completion of Minera San Cristobal construction at full production by year-end 2008. Apex will not be able to comply with this requirement and thus the senior lenders , by contract, may require payment of the principal in full and settlement of the hedge position.”

As early as the third quarter of 2006, the company had to sell 35% of Minera San Cristobal to Sumitomo for $224 million in cash and a Deferred Payment Agreement valued at $108 million (8-K filing of September 8, 2006). This past May, analysts expressed concern about the multi-million-dollar funding requirements of the San Cristobal silver mine in Bolivia. In response, Apex announced it had reached an agreement with joint venture partner Sumitomo Corporation to sell the rights for deferred payments to Sumitomo for $70 million.

Effective March 9, 2007, Apex Silver entered into an Indemnification Agreement with each member of its Board of Directors and its executive officers, “agreeing to indemnify each director and executive officer to the fullest extent permitted by law if he/she is made, or threatened to be made, a party to any threatened, pending or completed action, suit, or proceeding by reason of his affiliation with the Company. ” The Agreement provides for the advancement of expenses incurred in defending or participating in any proceeding. (8-K filing dated March 15, 2007)

Our source believes the company was able to survive for the last three months by settling the Deferred Payment Agreement of $108 million it had with Sumitomo for $70 million in cash, taking a loss of over $30 million in the transaction (8-K filing of July 8, 2008); and by tapping into a line of credit of $50 million from Sumitomo (8-K filing dated August 15, 2008) which was recently increased to $75 million (8-K filing dated October 3, 2008). Sumitomo has the option of exchanging debt for a greater share of Minera San Cristobal.

Meanwhile, the company urgently needs cash to continue operating the mine, make the first payment of the principal to the senior secured lenders, make good on the accrued hedge losses, and restructure the senior loan because it will be unable to comply with the requirement to have MSC completed by Dec 2008.

This is what the company writes in its August 12, 2008 8-K filing. “Notwithstanding this new line of credit, the company believes that it is likely to require a significant restructuring of its operations or indebtedness based on the foregoing factors and its projections with respect to the San Cristóbal mine. The company has engaged Jefferies & Company, Inc. as its financial advisor to assist it in reviewing strategic and financial alternatives, which could include new debt or equity financing, a sale of additional interests in San Cristóbal or in one or more of the company’s exploration properties or a restructuring, refinancing or amendment of the Facility or the related metal derivative positions.”

With the current worldwide credit meltdown, it the only realistic source of cash for Apex now is Sumitomo. Here’s what could happen in the next weeks:

* Sumitomo may purchase the Loan Facility ($225 million) at a discounted price from the Senior Secured Lenders, which are desperate for cash and will book a receivable of $225 million from Apex exchangeable for shares of MSC, as in the case of the recent loans.

* Sumitomo will pay the accrued derivative liability and book a receivable from Apex.

Our source speculates: “For those SIL shareholders that were hoping for some big company to purchase SIL at a premium, the sad news is that Apex executives, in effect, are selling the only significant asset (MSC) to settle the huge liabilities it has.”

When all is said and done, “Apex may owe Sumitomo more than $700 million. Considering it bought 35% of MSC for $294 million ($8.4 million/percentage ownership in MSC), this is more than enough to get 100% ownership of MSC. With Sumitomo sole owner of MSC, Apes Silver Mines Ltd. becomes an empty shell with some unwanted liabilities and Chapter 11 in the very short term. Of course, also some very angry shareholders. (Auditors PwC: look out for the class action lawsuit).”

Today, SIL is trading at $1.56 a share, down from its 52-week high of $21.33.

PS: More gloom for precious metals today. Gold Trust ETF (NYSE:GLD) is down over 5%. The Silver Trust ETF (NYSE:SLV) is breaking through 52-week lows.

Source: Could Apex Silver Mines Ltd. (SIL) go bankrupt?