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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)?
LARGEST SILVER PRODUCER: Facing Losses at Current Prices
The largest silver mining company in the world just came out with their first half financial results and the figures were dismal. Fresnillo’s first half profits declined a staggering 60% compared to the same period last year
Fresnillo received the following realized prices for gold and silver during the first half of 2013:
Silver = $24.67
Gold = $1,471
However, at current metal prices the largest silver producer in the world could be experiencing losses the second half of the year.
Among top 12 silver producers, the BEST costs is First Majestic, and their Net Income Break Even Cost is about $18/oz. Many others, he mentions at $27, $35, $36/oz. Remember this is BREAK EVEN price, for TOP 12 producers (together they supply about 30% of silver globally)
Silver Mining Industry: Unsustainable at Present Market Conditions
By Steve St. Angelo
08/09/2013
The primary silver mining industry is not sustainable at present market prices. Financial reports are starting to be released and by the end of the month we should have a pretty good idea on how bad the losses will be.
As I stated in my previous article "The Largest Silver Producer Facing Losses at Current Prices", Fresnillo saw its profits plunge 60% in the first half of 2013. Frensillo only reports its financials twice a year, so we don't know how much more their bottom line would have been impacted in the second quarter alone.
According to my calculations of my top 12 primary silver miners (excluding Frensillo & Hochschild as they only release financials twice a year), the net income break-even for the group as a whole was $25.40 in Q1 2013. The average realized price of silver for this group during the first quarter of 2013 was $29.85 which resulted in a $90.7 million in net income from the top 12 miners.
If we look at the table below, we can see the results from Q1 2013:
As I explained before in a prior article, the estimated silver break-even of $26.45 is higher than the net income break-even ($25.40) as I separate the by-product revenue to obtain a more realistic pure silver break-even figure. However, I am only going to focus on net income break-even during this article as it is much quicker and easier to explain.
If we go to Kitco.com and look at the average price of silver during the second quarter of 2013, it was $23.10 -- that should set off some alarm bells. Not only is the average price of silver Q2 2013 much less than the realized price for the group Q1 2013 ($29.85), but its less than their net income break-even of $25.40 by $2.30 an ounce.
This next chart shows each of the 12 different primary silver miners and their net income break-even as of Q1 2013. I have not included the names of the individual mining companies as I will be providing this in a detailed report in the "Paid Reports" area of the site in the future.
As we can see, of the top 12 silver miners seven will more than likely state net income losses for the period. Furthermore, only five are likely to show some positive gains, but this number might be less depending on other circumstances of increased costs and less revenue from by-product credits.
For example, the fifth most inexpensive silver producer in the group had an average net income break-even of $23.97... this is the last one shown in the first group. If this company had a realized price closer to Kitco's average of $23.10, higher costs and lower revenue from by-product credits, then they would be showing losses as well.
The interesting thing to note about the companies in the chart above is the huge range in their net income break-even figures. The most profitable miner was producing silver at a net income break-even of $18.73, whereas the highest cost producer needed $17+ more at $36.02 to make a profit. So, at the current spot price of silver, there is only one company who would be stating profits (shown by the green arrow). I put this chart together before the nice move higher in gold and silver today (Thursday). Even so, it just goes to show how nearly all of the primary silver miners in the group would be stating losses at current silver prices.
To provide a simple estimation of loss for the group Q2 2013, we have to subtract current Kitco average price of $23.10 from their average net income break-even in Q1 2013 at $25.40 to get the following:
$25.40 (break-even Q1 2013) - $23.11 (Avg Q2 2013) = -$2.29
-$2.29 X 20 million oz estimated sold Q2 2013 = -$45.9 million loss for group
What a difference in a quarter... aye? During the first quarter of 2013, the top 12 primary silver miners had a net income gain of $90.7, but now face losses of more than $45 million.
This is just a simple gauge, I would imagine the net income losses will be even greater due to the fact that the price of gold and the by-product metal revenues declined as well. This has been proven by Coeur Mining who just released their financials today.
Coeur Mining: The First Victim of Manipulated Silver Prices
As I was writing this article, Coeur just released its Q2 2013 financial statement, which turned out exactly as I suspected... but much worse. If we look at their financial highlights below, we can see the damage in several areas.
[chart]
First, you will notice that the production costs were much higher this quarter. Let's not compare these costs with the previous quarter because the amount of production was much less in Q1 2013. However, if we compare it with the same quarter last year, you will see that Q2 2013 production costs were $125 million vs $143 million this quarter. That is a 14% increase year-over-year.
Part of the reason for the increased cost is due to falling ore grades. In the second quarter of 2012, Coeur processed 3.35 million tonnes of ore to produce 4.9 million oz of silver, whereas they had processed 3.65 million tonnes to only produce 4.6 million oz this recent quarter. Basically, they had to mill 9% more ore to produce 6% less silver. Second, they stated a net income loss of $35 million compared to the previous quarter where they had a $12.3 million gain. This seems bad enough until you look at the bottom row highlighted in green. In Q1 2013, Coeur only sold 3.1 million oz of silver to have that net income gain. However, they sold an additional 2.1 million oz (5.2 mil oz) of silver Q2 2013 and still stated a net income loss.
The reason why this is troubling is due to the fact that Coeur sold 400,000 oz more silver than it produced in Q2 2013 to show a net income loss of $35 million, while it sold 1.8 million oz less than it produced the prior quarter to still make a profit. What a difference a quarter makes.
Third, their average realized price for silver highlighted in yellow, declined $7.44 in just one quarter. In Q1, Coeur received $30.30 an ounce for its silver, but by the next period, it had fallen to only $22.86. Which means that Coeur had a net income loss of $6.73 an ounce of silver this period.
Thus, Coeur's net income break-even was $29.59 for Q2 2013. There are a lot more details that I could get into, but I will say this... Coeur's net income break-even was $26.31 in Q1 2013. It has increased over $3.00 in the one quarter and that is due to the fact that gold and its by-product metal revenue declined which added to its increased break-even price. The Fed Focuses on Hammering the Precious Metals
I want to point out to the reader that I am not trying to be negative on the silver miners, but to show how bad the results will be due to the fact that gold and silver have been victims of the FED's policies of protecting the Dollar & U.S. Treasury market at any cost.
This can be plainly seen by the action of the three metals in the chart below:
[chart]
Since the beginning of 2013, silver is down 40%, gold down 23% while copper has only lost 14% of its value. Silver is down nearly three times in percentage terms as is copper. There is no accident that the price of gold and silver are down much lower than copper -- as well as the other base metals such as zinc and lead.
The primary gold and silver miners are the real banks of the world. Even though the current market situation for these miners is not positive, that will change in time. There is no way that the primary silver miner industry can sustain itself at these current low paper prices.
I have tried to give an idea of what the losses will be for the top 12 primary silver miners in my group, but these will be even greater in the third quarter if prices don't recover. It is quite a shame that these mining companies who are providing real wealth to the market and employing thousands with high paying jobs have to suffer while the Fiat Banking System continues to leech and steal wealth from society.
I will be doing updates once the primary miners release their financial results in the next several weeks at the SRSroccoReport.com. Furthermore, I discuss the interesting trends taking place in the Comex & Shanghai metal inventories as well as the great transfer of wealth into the precious metals in my SGT Report interview.
Comments are always welcome at SRSrocco @ gmail.com
One thing to consider, that might be at first look counter intuitive, is that when price of metals rise, miners can and often do switch to less profitable veins/ores. This is because, at higher spot price, it makes it economically viable, to mine shite ore grades, yet still turn profits - all the while, preserving more valuable ore grades for a rainy day. Thus, one of reasons, why the reported ore grades were declining together with rising spot prices, might be above bias - to mine the lowest grade available, while still turning a profit.The world's top six miners were producing silver at about 13 oz/ton in 2005, but by 2012 they were down to about 8.1 oz/ton.
The Dark Side Of The Silver Mining Industry
Filed in Mining, Precious Metals
by SRSrocco
on April 17, 2014
There is an insidious Dark Side to the silver mining industry that goes unnoticed by the majority of investors and analysts. Actually, I haven’t come across one mining analyst who puts out comprehensive data on this very subject for the silver mining industry.
According to my figures for 2013, the top primary silver miners suffered the lowest average silver yield ever. That’s correct… another year of declining ore grades and yields.
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Even though the average silver yield only declined 41% since 2005, the amount of processed ore increased 65% from 9.4 million tonnes in 2005 to 15.5 million tonnes in 2013. Not only has the amount of processed tonnage increased to produce less silver in 2013 compared to 2005… the costs of energy, labor and materials have doubled or tripled during the same time period.
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Even with production from both mines in 2013, the total was barely a million oz more than what the Fresnillo mine produced alone in 2005. Furthermore, it now takes the cost of running two mines to supply the same amount of silver in 2013 as the company did in 2005.
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This is the new way of the mining industry…. utilizing contractors so the company isn’t responsible for providing any healthcare or retirement benefits. You see, the mining companies are forced to make these kind of changes to keep costs from getting out of control.
Using Fresnillo as an example, the company added 1,200 more workers since 2009 to maintain silver production at the same level. In 2008, Fresnillo produced an average of 23,200 oz of silver from each worker, but by 2013 this figure fell to 12,832… nearly half.
Falling ore grades and yields are impacting all mining companies. It will become more expensive to produce silver in the future as ore grades continue to decline while costs of energy, materials and labor increase.
For those analysts who believe the price of silver is heading lower in the future… the falling yields and increased costs will prove otherwise.
... the top primary miners gave away their silver at a loss in 2013. While some of the top 12 primary miners stated adjusted income gains for the year, all the companies suffered net income losses — a staggering $1.7 billion loss for the group.
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... How did the top primary miners lose nearly $140 million in adjusted income if their Cash Cost was an average of $9.47 an ounce in 2013?
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Looking at the table above, we can see that these primary miners produced 92.7 million ounces of silver and sold 92 million at an average realized price of $23.09 in 2013. Using my formula, break-even for the group was $24.05. Basically, the group gave away their silver at a net adjusted loss of $0.97 an ounce.
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