The New York Times

By ROBERT J. COLE

The Sunshine Mining Company, the nation's largest silver producer, said yesterday that it planned to raise $50 million to expand operations by selling $1,000 certificates redeemable into elther cash or silver.

The interest-bearing certificates, to be traded on the New York and Pacific Stock Exchanges in much the same way as bonds, will be the first silverbacked obligations of any kind since the United States withdrew silver back. ing on paper currency in 1963.

They will be offered publicly in about a month through a Wall Street invest ment syndicate to be managed by Drexel Burnham Lambert Inc.

Andrew G. Racz, an authority on sil ver and president of Racz Internation al, New York, called the move "the historical turning point in legitimizing gold and silver as backing for curren CY"

As proposed by Sunshine, investors would be unable to collect silver for their certificates for at least the first five years. After that, at Sunshine's option, investors would receive either silver, its value in cash at that time or the $1,000 face value, whichever is greater.

The company, announcing it had filed papers for the offering with the Secunties and Exchange Commission, said the certificates would become due March 1, 1995

"The principal amount of each certificate whenever due shall be the greater of $1,000 or the price of a certain number of troy ounces of silver hullion" the company id in a statement. They would be freely negotiable in the meantime, however. The amount of silver to be offered and the interest rate to be paid-both of which depend on market forces will not be made public until shortly before the offering.

One well-placed Wall Street source asserted that the importance given ilver as an inflation hedge would help set the interest rate Sunshine will pay. He maintained that the rate might be substantially less than Sunshine would nor mally pay to raise funds.

Silver bullion stoort at $6 an ounce at the start of 1979 and soared as high as $50 an ounce in the middle of last month. As measured by the February futures contract, silver closed yester. day at $33 an ounce.

Sunshine's novel offering - the first of many expected to be made by other companies with large silver holdings if this one is successful emerged in London last month after company officers told investment analysts there that they envisioned issuing as much as $300 million in silver certificates to finance expansion. Industry sources seriously doubted whether Sunshine would later offer more than the present $50 million.

Explaining how the new certificate appeared to him, Paul Sarnoff, New York commodities research director for Conti Commodity Services, said: "You've got yourself a way of investing in silver. You're getting a return on your money, and you have a chance for growth with the rise in the price of silver."

In its prepared statement, Sunshine said that proceeds from the $50 million sale would be used in part to finance silver exploration and development on the company's properties, situated in the Coeur d'Alene mining area of northern Idaho. They also would be used, it added, to complete a second mine shaft and to develop a pilot refining plant.

TUESDAY, FEBRUARY 5, 1900

Sunshine Mining President G Michael Boswell

Getting out of distractions like manufacturing to bet everything on silver.

Reprinted by permission of FORBFS magazine from January 21, 1980 issue.

By Michael Kolbenschlag

THE SUNSHINE MINING Co. is best known for the giant silver mine of the same name it operates in the Coeur d'Alene district of northern Idaho. In recent years, however, the Dallas-based company has gained half of its income and as much as 75% of its revenues from other operations like fencemaking, electronics and oil and gas.

All that changed last year when the price of silver soared to $27 an ounce, more than four times its price in 1978. Sunshine's estimated earnings quadru pled with the higher price of silver, rising to $13 million, or $2 per share, on revenues of $75 million.

A one-shot performance? If silver remains at these lofty levels or soars above them, it will be breaking all precedent, but G. Michael Boswell, Sunshine's 39year-old president, insists that 1979 was not a fluke. He is liquidating all of Sunshine's nonsilver-related manufacturing operations and is planning to expand further into silver, using Arab petrodollars plus money raised through the sale of unique silver-backed securities. The result, says Boswell, "will be a vertically integrated metals firm devoted solely to silver."

Since 1918, when the company was founded, Sunshine and its partners, the Hecla Mining Co. and Silver Dollar Mining Co., have extracted over 300 million ounces of silver from the Sunshine mine of which Sunshine owns 57%, Hecla 33% and Silver Dollar 10%. Bos well, who took over the $130,000-a-year (plus bonus) Sunshine presidency in 1977, says that "management in the past just plain ignored the basic asset of the company. They didn't put the kind of manpower or investment into the mine that was needed."

Since taking office, Boswell has done
just that, plowing $12 million into cap-
ital improvements since 1978, with an-
other $20 million scheduled for invest-
ment in the early 1980s. This, he says, is
only the beginning. The Sunshine mine
produced about 5 million ounces of silver
last year. Boswell predicts, "It will be
producing 7 million ounces by 1983 and
in excess of 9 million ounces by 1985."
However, Boswell says he can see silver
rising substantially higher in the decade
that has just started. Putting his money
where his mouth is, Boswell plans to
purchase additional silver-producing
properties while anticipating production
at a Nevada mine in which Sunshine has
a two-thirds interest. "If our plans work
out, we'll be getting as much silver from
the other properties as we'll be getting
from Sunshine," he says. If that happens,
that would give Boswell 18 million
ounces a year, worth $486 million at
current prices.

the
To get that production he talks of in-

Shift change at Sunshine, the U.S.' largest silver mine, in Kellogg, Idabo
Will silver's quadrupled price in the last year keep soaring?
the French government, which has in-
dexed certain bonds to gold. (There are a
number of U.S. railroad bonds issued in
the 1880s whose redemption was prom-
ised in gold, but the promise was voided
when the U.S. made gold holding illegal
in the 1930s.) One of Boswell's securities
could be a preferred stock that would pay
a cash dividend of 5% or 6%. Sunshine
would agree to redeem the stock at par
value in terms of a fixed ratio of silver
weight to value.

will, the promise to deliver silver at a
fixed price would penalize future profits.

The alternative would be a bond. It would be redeemable-after five years, say-for a fixed amount of silver. With silver backing, Boswell thinks such a bond could carry an interest rate less than half the current prime lending rate. What the buyers would lose in interest they would gain in inflation protection on the assumption, of course, that silver

Nevertheless, Sunshine's lawyers are currently deciding which of the two instruments is the more desirable and are devising an array of downside protections for both the company and the investor. Boswell hopes to launch the first $50 million of these instruments in 1980, possibly offering them first to his own shareholders and later to a wider domestic and international audience.

Boswell's mind clearly runs to the unorthodox deal. Last summer he horsetraded 160,000 shares or 3% of Sunshine's stock to Arab financier Roger Tamraz of the First Arabian Corp. for First Arabian's London-based commodities firm, J.H. Rayner (Holdings) Ltd. He is now restructuring Rayner so it can serve as his international bullion dealer.

Sunshine Mining is precisely the kind of investment that appeals to Arab oil money. It bothers the Arabs to exchange oil for depreciating paper dollars. By contrast, it makes sense to many of them, in effect, to swap their oil for other resources in the ground. Capitalizing on this, Boswell plans to place control of the company with an Arab group that will give him a free rein in running the company. Here's the story:

Boswell is a tall, native Texan, born near Dallas, schooled in finance and law at Southern Methodist University and fond of flamboyant speech, Swedish Tiger-brand three-piece suits and $300 Lucchese boots. He was originally put in charge of Sunshine by Nelson Bunker and William Herbert Hunt, the Dallas petromagnates who took the company over in a bloody 1977 tender offer, which I left them with 28% of the 6 million shares of common stock. Last June, however, Boswell bought out the Hunt interests with money borrowed from the company when the tender offer stalled short of a full takeover. Now Boswell has sold the Hunt stock to the Luxembourgbased Arab Investor Group, which consists of Saudi and Kuwaiti private investors. Why Arabs? "Because," he replies, "we were looking for a very stable longterm equity investor who would not seek to control Sunshine but merely be satisfied to see his investment appreciate in a fashion that we've outlined to him in advance." Looking pleased with himself, Boswell calls the Arabs "silent partners."

Boswell has gotten some flak for the Arab deal from Andrew G. Racz, president of Racz International division of the New York securities firm Philips, Appel & Walden, Inc. A minority investor in Sunshine, a metals analyst and a bull on silver, Racz gives Boswell high marks for putting Sunshine Mining on the road to becoming the only totally integrated silver company in the U.S. But he flunks Boswell for concluding his deal with the Arabs in only two days with little or no dickering while both the price of silver and the price of Sunshine stock were climbing dramatically. He is particularly miffed that Boswell turned down his offer on behalf of U.S. investors that was $1 per share higher than the Arabs' deal. "For $33 million Boswell is handing over the American silver market to the Arabs," he gripes. Racz is appealing to influential congressmen to stop the deal. But Boswell considers the matter closed: "It's a little unfortunate that the gentleman had to take an adverse position in this transaction," he says in an unusual moment of understatement.

Mike Boswell clearly has giant ambitions. Can he fulfill them? That question can only be answered with another question: What's going to happen to the price of silver? We're not brash enough to answer that one.

FORBES, JANUARY 21, 1980