The mass hysteria on mining stocks is now in full blow.

Here is how a seasoned Mining Engineer, long term ts.com member, just wrote us concerning all these up-beat mining stocks lunch presentations which attended during my 2 week stay in Zurich.  I decided to be present at some of these high class mid-day gatherings, so to get a feel of what large Zurich investors currently most want to hear about:

"As a Mining Consultant I can assure you that metal prices, and mineral exploration are cyclic. They always have been. And, yes, countries like India and more so, China, could extend the present run, but they will come down as suggested. Further to the exploration, the supply side works like this. When the metal is plentiful, prices start to slide.

With declining returns, mines are reluctant to invest in exploration. Eventually we go through the slump of several years with marginal mines slowly shutting down. Then the metal stocks run down and prices start to go up.

This encourages some exploration; but it is slow, with no one really enthusiastic, nor does this do much to alleviate the shortage of metals. As a result prices continue to climb and big mines with money will start exploration programs, but still, the shut-down mines cannot yet restart as the start-up costs of a old mine are horrendous. Further the time frame from initial exploration to a running mine is years, the lag time is substantial.

Another problem are the economic gurus themselves. Many analysts are only looking at facts and figures on paper without understanding theabove.

Even more over-looked is the fact that exploration is very expensive, speculative and risky. once a company does actually delineate reserves sufficient to start a mine, the first thing management does is stop all expensive exploration and get to mining to get some money coming back into the company. An average reserve to support a profitable mining operation and return the exploration investment is about 10 years. Reserves are generally divided into proven (this is what the analyst sees and works with) probable and possible reserves.

The rules on how this is determined I won't go into but, they are strictly controlled to stop companies inflating their reserves without proper drilling to support their claims. The proven reserves only, can be used in financial studies; hence the possible and probable are not used.

Many times the company knows that these latter categories will eventually produce reserves but they cannot use them to raise money or their stock price. only when the proven reserves are reduced to 3 or 4 years do they restart exploration to fill in the gaps and bring in more proven reserves. As you can see, this gives even more leverage to the above price fluctuations of metals.

Now, after a good run for a few years, the prices are high. The big mining companies have their exploration divisions in full cry and probably bringing in proven reserves, as they started early, remember? Shut-down mines are getting investor money to restart as it is now feasible and every fly-by-night junior mining company on the Australian and Canadian stock exchanges are putting out great promises of riches untold if you buy their stocks. The mass hysteria is in full blow.

In my opinion, the time to invest in the metals game is probably peaking and one should stand back and watch. I hear there are big seminars in Europe promoting metal investment. But this is probably back-enders trying to get on the band wagon.

If I were to invest in anything, I would see what China is buying first."

PS. The pictures are from a presentation by AMERIX, a Canadian mining company listed on the TSC Venture exchange under the symbol APM. This stock has had a fabulous price run already and the company presents itself as a "precious metal projects with multi million ounce potential", in the Amazon Jungle.

You can see some basic information and financials (yes, they currently operate at a loss) at: http://investdb.theglobeandmail.com/invest/investSQL/gx.company_prof?company_id=163711

During my stay in Zurich I must have heard some 7 different presentations, all on mining companies running mostly with accumulated losses and no future projections nor expected dividends shown.