Precious Metals Forum

Go Back   Precious Metals Forum > Precious Metals and Economic News > Silver Bug

Like Tree32Likes

Reply
 
LinkBack Thread Tools
Old 01-21-2013, 12:33 AM   #1
Fly on the wall
 
Join Date: Mar 2012
Posts: 36
Liked: 10 times
Silver mining costs

To all you silver pros out there - I recently had a discussion with one of my friends who I consider to be one of the best minds in economic thinking. I explained to him that I was concerned about inflation and we discussed PMs as a potential hedge. Though he has bought gold, he is concerned that the marginal cost of bringing a new ozT to market is lower than the prevailing market price (his estimate cash costs about $700, all in somewhere around $1300) so if inflation does hit, you will likely not recoup your entire purchasing power if costs rise along with broader inflation.

This got me thinking, so I looked into silver. Some sources cite cash costs for mining the marginal ozT of silver around $5-$7, and all in costs anywhere from $20-$30. What are the real costs? Hard to determine for many reasons, chiefly because silver is a by-product of other mining. Some of these sources go on to say that pure silver mines are not incredibly profitable with silver around $30/ozT.

I can't find any data on WHY the mining costs are lower for silver. The by-product argument makes sense, but I can't quite figure out if mining silver requires less energy or the geological formations are more cost effective to mine. For instance, how much does it cost to mine PURE silver mines, and if they do exist why can it be done for so much less than gold?

Does anyone have any ideas or theories on this? Is it simply the that the other bid for metals are strong enough to support silver as a byproduct (like natural gas as a by-product for more liquid rich plays)?
jd1123 is offline   Reply With Quote
Old 01-21-2013, 01:03 AM   #2
Mote in the Fed's eye
 
Join Date: Jan 2013
Posts: 20
Liked: 22 times
Well I'm not an expert on silver per se, but I am an investor in miners and explorers. Your friend notes an average price of $700 a ton to mine gold, and is concerned that at today's prices, this average production cost is eating almost half an ounce of gold.

But that right there is another *very* bullish statistic for the price of gold; in a time when Bernanke (literally) cannot stop monetizing debt, the fed gov is running trillion dollar deficits, and every central bank in the world is full speed ahead on the printing presses, and the market for physical gold is getting tight--do you seriously believe it should still cost half an ounce of gold to produce the other half? The dollar price of gold hasn't even begun to move yet, it is nowhere near where it should be relative to the amount of dollars that have been printed. When global confidence in the dollar fades, gold is really going to shine.

Assuming his statistic is true, you still have to look at production costs (and in-ground resources) on a project-by-project, company-by-company basis. The production costs vary wildly, but most of the low hanging fruit has already been picked, which is another very bullish fact for gold. But if gold's production costs are indeed that much higher, on average, than silver, it is because dedicated gold projects are a completely different animal. With gold at $1600+, projects that were not economical ten years ago are suddenly looking better, but if they're low grade they might have to move millions of yards of dirt to produce anything, which make for high production costs. The price of diesel isn't helping either. But the moral of the story is, don't worry about gold; gold is where you want to be, don't let the chart fool you, gold IS different and it hasn't even begun to move yet.

Silver projects, on the other hand, are often a derivative production, as you note. But with silver so cheap, the dedicated silver projects have to be high grade stuff in order to be economical. Alexco is my favorite silver junior, they are sitting on a silver bonanza up in the Yukon, and Comstock Mining has boatloads of silver in the old Comstock lode. In the big picture, gold is superior but I like exposure to silver too.
rblong2us and bushi like this.
MiningNut is offline   Reply With Quote
Old 01-21-2013, 08:22 AM   #3
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
srsrocco has written extensively on this subject: http://www.pmbug.com/forum/tags/srsrocco/
jd1123 likes this.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 01-22-2013, 09:38 PM   #4
Fly on the wall
 
Join Date: Mar 2012
Posts: 36
Liked: 10 times
Thanks for the help guys. I guess this answers my question.

MiningNut - while I agree with you about the monetary policy in this country, I'm more concerned about keeping the purchasing power of what I have right now. If we do enter a period of hyperinflation, it doesn't matter how many quatloos my gold is worth - just that one ounce is worth 1000 loaves of bread.

If you are truly buying a commodity at its marginal price with no risk or other premium in it, it should keep pace with broader inflation (obviously a generalization here). So basically I'm just getting my facts straight - which metal gives me the most bang for the buck. Where are the gaps in production cost - that sort of thing.

PMBug - appreciate the links.

On a similar note - I have been panic buying silver. I am truly concerned about the near future. A couple of my coworkers are on board and we are routinely splitting orders as large as we can handle.

EDIT: MiningNut - do you have any production cost information for those silver projects you mentioned?

Last edited by jd1123; 01-22-2013 at 09:43 PM. Reason: additional question
jd1123 is offline   Reply With Quote
Old 01-22-2013, 10:15 PM   #5
Mote in the Fed's eye
 
Join Date: Jan 2013
Posts: 20
Liked: 22 times
Alexco and Comstock Mining are both juniors who are just moving into production. They are both working the bugs out of their systems while expanding their processing and production capacity, so at this point I think the extremely high grades they are sitting on are more important than what the final production cost will be (since it's so hard to tell at this point anyway).

But you could probably check their filings to see if they have anything detailed on production costs, with juniors my focus is on 1. ore grade and 2. political stability. High grade gold & silver anywhere in the US or Canada is the safest bet in mining stocks. But Mexico has made big strides in their conception of property rights (to attract foreign investment), and I would not lump them in with the rest of the South American countries (who I avoid like the plague).
MiningNut is offline   Reply With Quote
Old 02-26-2013, 04:37 PM   #6
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
I just came across these two articles today:

http://seekingalpha.com/article/1217..._article_title

http://seekingalpha.com/article/1209...to-mine-silver
Unobtanium is offline   Reply With Quote
Old 02-27-2013, 06:06 AM   #7
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
Quote :
...
The third quarter production of these companies incorporates 27 million equivalent ounces and comes out to about $26.54 per ounce of silver -- this should be shocking to investors who follow the "cash cost" number offered by silver companies.
...
Current spot of ~$29/ozt doesn't leave a lot of room for profit.
ancona likes this.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 02-27-2013, 06:21 AM   #8
Ground Beetle
 
bushi's Avatar
 
Join Date: Nov 2011
Posts: 971
Liked: 554 times
wooow! fantastic articles, thanks Unobtanium - great analysis, and it seems that current spot prices are SO close to the marginal production costs of silver! And when you add minting, distribution, dealer margins? I think it is still a firm "buy", after all !
PMBug likes this.
__________________
“...the issue which has swept down the centuries and will have to be fought sooner or later is the People versus the Banks.
Lord Acton
bushi is offline   Reply With Quote
Old 03-13-2013, 07:54 PM   #9
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times

Video discussing why miners state an innaccurately low "cash cost" per ounce for mining silver.

He also comments further on the Silver Mining Costs article at Seeking Alpha posted earlier in this thread.

You can skip the first 1:30 without missing anything.
Unobtanium is offline   Reply With Quote
Old 04-15-2013, 09:18 PM   #10
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
* bump *

According to the analysis Unobtanium referenced, miners are in deep doo doo with spot bouncing around $22-24.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 04-16-2013, 05:18 AM   #11
Big-eyed bug
 
Unobtanium's Avatar
 
Join Date: Nov 2011
Posts: 451
Liked: 344 times
Deep doo doo indeed. Cow manure rubber boots needed, please.

The price of silver "rubber band" gets stretched back further.
Unobtanium is offline   Reply With Quote
Old 04-16-2013, 10:45 AM   #12
Yellow Jacket
 
Join Date: Oct 2011
Posts: 2,053
Liked: 925 times
This little book from 1980 explains a very simple commodities investment strategy. Buy what trades below production cost and wait until it is trading comfortably above costs.

That's what I've done in natural gas last year: http://www.pmbug.com/forum/f9/natura...tion-cost-617/



swissaustrian is offline   Reply With Quote
Old 04-16-2013, 03:14 PM   #13
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
Some mining talk here:


A few points:
* Barrick may go bankrupt over Pascua Lama / sales of unrealized production there
* Silver below cost of production - all miners in danger
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 04-17-2013, 03:58 AM   #14
Ground Beetle
 
bushi's Avatar
 
Join Date: Nov 2011
Posts: 971
Liked: 554 times
For what it's worth, "Ranting" Andy Hoffman, is quite often talking things that are his mere opinions (and sometimes, not very coherent with what he said, in the same interview earlier), and assuming they have the same significance as FACTS. I would recommend caution before reading too much from what he have to say.

My humble opinion only, so no offence meant to anybody.
__________________
“...the issue which has swept down the centuries and will have to be fought sooner or later is the People versus the Banks.
Lord Acton
bushi is offline   Reply With Quote
Old 04-17-2013, 05:09 AM   #15
Yellow Jacket
 
Join Date: Oct 2011
Posts: 2,053
Liked: 925 times
A company called Hebba Investments has done a series on the "true cost of silver mining" for several pure silver miners which was published on seekingalpha. They've recently completed the series with an overall industry summary. Their article is available here, the second part requires "free" registration:
http://seekingalpha.com/article/1303...e-2012-figures

If you're accessing the article from a smartphone, you can read the whole article without registration:
http://m.seekingalpha.com/article/1303691

Anyway, the main point is the following, summarised by another SA contributor:
Quote :
Fellow Seeking Alpha author Hebba Investments has been writing a series of articles on the 'true cost' of mining gold and silver over the past weeks. His method is best described in his most recent offering and in most basic terms compares all costs incurred by a company in the course of a year with the ounces mined by this company during the same period of time. Hebba Investments does not distinguish between costs directly related to the actual process of mining and selling production, and other cost positions such as exploration, mine rehabilitation or expansion etc. His argument goes, that all these costs are ultimately necessary for a mining company to produce gold or silver in a sustainable manner. This line of thought has been discussed in much detail following most of his articles on various mining companies, and in conclusion we believe that his (or her) approach has its merits and gives valuable data points when researching precious metal companies. Before we continue we would like to recommend Hebba Investment's line of articles and the lively discussion they have attracted.

In his latest article Hebba Investments provided more food for thought when he presented the accumulated bottom line of his data on various silver producers. Averaged over all silver mining companies that Hebba Investments has analysed so far the 'true cost' of producing one ounce of silver is $23.68 for 2012 excluding write downs, up from $22.21 for 2011. Hebba Investments goes on to argue that this 'true cost' figure provides a floor under the price of silver (SLV), (SIVR), (CEF), (PSLV) since silver companies would stop producing if the price fell below this level.
http://seekingalpha.com/article/1305...-silver-prices

This year, costs have likely continued to rise. We are trading below true costs of production.
PMBug likes this.
swissaustrian is offline   Reply With Quote
Old 04-17-2013, 06:10 AM   #16
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
BTW, the second link works just fine on non-mobile devices (ie. desktop computers).
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 04-17-2013, 06:19 AM   #17
Yellow Jacket
 
Join Date: Oct 2011
Posts: 2,053
Liked: 925 times
Try to click next and access the second page, it requires registration for me.
swissaustrian is offline   Reply With Quote
Old 04-17-2013, 06:36 AM   #18
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
There is no "next" link/button on the "mobile" page ( http://m.seekingalpha.com/article/1303691 ).
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Old 04-17-2013, 07:03 AM   #19
Yellow Jacket
 
Join Date: Oct 2011
Posts: 2,053
Liked: 925 times
I'm automatically beeing redirected to the desktop version
swissaustrian is offline   Reply With Quote
Old 05-03-2013, 07:32 AM   #20
Golden Cockroach
 
PMBug's Avatar
 
Join Date: Oct 2011
Location: In Scrooge McDuck's vault
Posts: 7,055
Liked: 2451 times
Originally Posted by SRSrocco :
...
Here we can see that PRODUCTION COSTS for Newmont increased from 40% of total revenues in Q1 2012 to 48% in Q1 2013. It cost more for Newmont to produce 200,000 less oz of gold in Q1 2013 compared to last year.

...

Furthermore, the PRIMARY SILVER MINERS are going to show NET INCOME LOSSES for the second quarter of 2013 if the price of silver stays below $27 an ounce. Look at what Endeavour is doing:

...

Endeavour Silver is cutting jobs to cut costs… and they are in the TOP 3 in PROFITABILITY of the 12 Primary Silver miners. ...
More: http://silverdoctors.com/srsrocco-th...energy-period/
Unbeatable likes this.
__________________
The journey of a thousand miles begins with a single step. - Lao Tzu

Important stuff: PMBug 101 * Forum Guidelines * Support PMBug
PMBug is offline   Reply With Quote
Reply

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On


Similar Threads
Thread Thread Starter Forum Replies Last Post
The funny accounting of "Cash Costs" benjamen PM Bug 0 11-05-2012 02:18 PM
[VIDEO] Silver mining, how it's done - Discovery Channel swissaustrian Silver Bug 1 11-05-2012 05:58 AM
EU VAT-rate "harmonization" is going to raise silver costs for German investors swissaustrian Silver Bug 14 10-18-2012 03:09 PM
Mining costs changes benjamen Silver Bug 3 08-11-2012 09:47 AM
Newmont Mining (NEM) swissaustrian Mining 3 04-25-2012 12:37 PM


All times are GMT -5. The time now is 11:52 PM.


Powered by vBulletin® from Jelsoft Enterprises Ltd.
Content Relevant URLs by vBSEO 3.6.0 PL2 ©2011, Crawlability, Inc.
Content of PMBug.com copyright © 2011 - 2019 Measuring Up. All Rights Reserved.