2013 FULL YEAR RESULTS: Top Primary Miners Real Cost To Produce Silver

Due to the Fed’s QE policy of propping up the stock and bond markets while monkey-hammering the precious metals, 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.

With these huge losses, you would think the top silver institutions would report this in their annual publications.  Unfortunately, the opposite is the case.  According to CPM Group’s 2014 Silver Yearbook and Thomson Reuters GFMS most recent World Silver Survey, the top primary miners produced silver at a Cash Cost below $10 an ounce.

This low Cash Cost figure gives the impression to the unsophisticated precious metal investor, that silver is very inexpensive to produce.  Now, when I say unsophisticated, I mean lacking the detailed knowledge of the silver market and mining industry.

CPM Group announced that the average cash cost to mine silver in 2013 fell to $9.68 an ounce from $10.01 in 2012.  GFMS in their 2014 World Silver Survey stated the primary silver miner’s cash cost increased from $9.16 in 2012 to $9.27 in 2013.  If we average the figures from both of these institutions, the top primary miners produced silver in 2013 at an average cash cost of $9.47.

Top 12 Primary Silver Miners Suffered A Loss Of $1.00 An Ounce In 2013

According to Kitco.com, the average price of silver in 2013 was $23.79.  Using simple arithmetic, the top primary miners should have made a cash profit of $14.32 an ounce ($23.79 – $9.47 = $14.32).  However, this was not the case.  My top 12 primary silver miners as a group suffered an adjusted income loss of nearly $1.00 an ounce in 2013.

Here are the FULL YEAR financial results for the top primary silver miners in 2013:

Top 12 Primary Silver Miners 2013 FULL YEAR Metrics

Last year, the top 12 primary silver miners stated total revenues of $3.1 billion while suffering a net income loss of $1.7 billion (largely due to impairment write-downs) and $139.9 million adjusted loss for the group.

When I calculate my estimated break-even, I use adjusted income.  Adjusted income removes items that are not associated with the actual day-to-day operations of the mine.  So where’s all the profits?  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?

I did a weighted cash cost average for my group which netted $9.76 an ounce… not too far off from the figures put out by CPM Group and GFMS.  I imagine they included Fresnillo in their calculation as the company produced nearly 39 million oz of silver in 2013…. at a low cash cost.

I excluded Fresnillo in my group due to the fact that they do not release quarterly financial statements and they now enjoy higher gold revenues than silver.  Regardless, Fresnillo doesn’t impact the overall cash cost figure all that much.

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 2013Using 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. 

Let me tell you why the Cash Cost metric is so insane.  When a mining company calculates its cash cost, it takes total production costs and subtracts various items including what they call, “By-product credits.”  All silver mining companies produce additional metals (included in the ore) such as copper, lead, zinc and gold.

For example, Endeavour Silver recorded a $7.92 cash cost an ounce in 2013.  To get this low cash cost figure, Endeavour subtracted $111.5 million of by-product credits.  This is a big amount when we consider that its total revenue for the year was $276.7 million.  Thus, their by-product credits accounted for 40% of their total revenues.

The mining industry would like the investors to believe that by-product credits are a nice BONUS for mining silver…. which is why they only advertise that stupid Cash Cost figure in their publications.

Again, using my formula, Endeavour Silver made an estimated $0.93 adjusted silver profit per ounce in 2013.  Their average realized price for silver was $23.10 resulting in an estimated break-even of $22.17 last year.  If we subtract their cash cost of $7.92 from their average realized price of $23.10, we would arrive at a hefty $15.18 cash profit.

That’s right… $15.18 an ounce cash profit.  Unfortunately, Endeavour Silver only stated a $11.1 million adjusted income gain for the year after selling 7.1 million oz of silver.  If we multiply $15.18 million by 7.1 million oz, Endeavour should have enjoyed a $107.7 million cash profit in 2013….. they’re didn’t.

Why?  Because every primary silver mining company NEEDS ALL OF ITS BY-PRODUCT REVENUE to fortify its balance sheet.  Can you imagine the losses Endeavour Silver would suffer if it excluded its by-product revenue??

Let me be more clear.  I don’t use the term “By-product Credits”, rather I like to label these additional metals as “By-product Revenue.”  Because that is exactly what they are… ADDITIONAL REVENUE.

FOLKS… There’s A Lot Of BS Out There, And It Ain’t Good For You

Looking at the table above once more, we can see that total by-product revenue was a staggering $1.13 billion, or 36% of total revenue for the group.  If the group lost $139.9 million in adjusted income in 2013, can you imagine the hemorrhaging that would occur if we deducted this by-product revenue?

Again, the cash cost metric is not a GAAP – Generally Accepted Accounting Principle and should not be used to determine the PROFITABILITY of a company.  I find it simply amazing that the top professional silver publications continue to advertise this stupid Cash Cost metric as the basis of actual costs.

It is a completely useless accounting method.  Furthermore, the mining companies are now calculating what is known as “All-In Sustaining Cost” per ounce.  Unfortunately, they still deduct by-product credits as a base to get this All-In Sustaining Cost…. which still skews the results to a lower figure.

George Carlin said it wisely in one of his last HBO Comedy Specials, “Folks, there’s a lot of BS out there… and it ain’t good for you.”  Not only does this hold true for the majority of what Americans see and read on MSM everyday, it’s also true in the mining industry.

The top primary silver miners work extremely hard to produce a highly sought after industrial commodity as well as one of the top two precious metals in the world.  It is a shame that the professional analyst community confuses investors with this silly Cash Cost metric.

Cash Costs do not reflect the actual total cost of mining silver.  As we can see, the top 12 primary silver miners as a group lost nearly $1.00 an ounce in 2013.  I’ve received emails from some of my readers stating that these mining companies deduct Depreciation, Depletion and Amortization which allows them to show a lower net or adjusted income.

While this may be true, it’s a deduction for a GOOD REASON… and not just for the sake of stating lower profits to investors or the government.  Furthermore, these top 12 primary silver miners spent a staggering $842 million on capital expenditures (CAPEX) in 2013.  The majority of their CAPEX spending is not reflected in their quarterly financial statement of net income.

Basically, the Depreciation-Depletion-Amortization deductions and CAPEX spending is a net wash… for the most part.  So… it’s a NON ISSUE if you ask my opinion.

After losing money in 2013, the primary silver miners cut costs, exploration and capital spending to become more lean in 2014.  I will be publishing my Q1 2014 results in the next few weeks when the last few mining companies release their financial statements.

The precious metals will become extremely important physical assets to own and hold in the future.  Currently, the Fed and Central Banks continue to manipulate the values of these metals lower discouraging public interest while propping up the stock and bond markets.

This monetary policy has achieved some short-term success, unfortunately it will create an even greater financial and economic collapse in the future.  Precious metals and some of the mining companies will benefit greatly when the world finally wakes up from their 40 year fiat monetary amnesia.

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30 Comments on "2013 FULL YEAR RESULTS: Top Primary Miners Real Cost To Produce Silver"

  1. Yes, paper is a bitch. Shell borrows money to pay dividend to it’s shareholders. The silver fixers exit stage left, the BIS takes over. Miners can take loans for 0,3% interest if needed to postpone the status quo. Rolled over year after year, in the books or in the shadows. 0,03% of the world population can see 15% of the manipulation. Miners are like the western world, unimportant in the world money games.

  2. For those listening to 100% of economists wrongly calling for higher yields on bonds in ’14 and nearly as many for PM’s prices to fall…read and ponder…and realize why the exact opposite of what logic dictates is happening and likely to continue…Steve has shown supply/demand and costs are entirely unsustainable…So, consider what gold and silvers value are in dollars if the Fed’s true balance sheet is double or triple it’s stated size??? And what if “full faith and trust” is lost???

    Why would 4 EU banking center nations accumulate nearly as much Treasury debt as China or far in excess of the Core EU and OPEC combined since ’07??? Treasury accumulation seems to have radically changed since ’07, particularly interesting due to the collapsing yields and significantly lower US trade deficit.

    ’07-’14 net Treasury purchases vs. net trade surplus…

    Banking EU 7-1 ratio ($700 B – $70 B)

    EU 1-3.5 ($117 B – $380 B)

    China 1-2.2 ($870 B – $2,000 B)

    OPEC 1-6.5 ($135 B – $700 B)

    BANKING EURO (Treasury holdings)

    ————- Jan ’00——-> ’07 ——> Mar ’14

    Ireland ———$5 B —> $19 B —> $113 B

    Belgium ——$28 B —> $13 B —> $381 B

    Switzerland $18 B—-> $34 B —> $176 B

    Luxembourg – $5 B—–> $60 B —> $145 B

    TOTAL ——-$56 B—->$126 B —> $815 B (650% increase from ’07)

    These nations ran a net trade surplus (almost entirely Ireland) w/ the US of approx. $10 B/yr since ’07…$70 B net surplus.

    CORE EURO (Treasury holdings)

    ——– ——–Jan ’00—> ’07 ——> Mar ’14

    Germany –>$54 B —> $50 B —> $67 B

    Italy ———>$20 B —> $14 B —> $30 B

    Netherland $13 B —-> $15 B —> $37 B

    France —->$27 B —-> $10 B —> $54 B

    Spain ——>$20 B —–> $5 B —> $23 B

    TOTAL —>$134 B —-> $94 B —>$211 B (225% increase from ’07)

    These nations ran a net trade surplus with the US from $70 B/yr in ’13 to $60 B/yr in ’07…$380 B net surplus.

    Compare this to China (Treasury holdings)

    ——–>Jan ’00 —> ’07 ——>Mar ’14

    China –> $60 B —>$400 B —> $1.27 T (320% increase from ’07)

    China ran a trade surplus of $300 B/yr in ’13 up from $250 B/yr in ’07. Stated otherwise…$1.95 T net surplus.

    Or compare to “oil exporters” (Treasury holdings)

    ’00 —–> ’07 ——> ’14

    $45 B —> $112 B —> $247 B (220% increase from ’07)

    OPEC ran a $100 B/yr trade surplus w/ the US…net $700 B surplus.

    or cast the net of interesting Treasury accumulation a little wider…

    GLOBAL BANKING CENTERS (treasury holdings)

    – Jan ’00—> ’07 ——> Mar ’14

    “Carribean banking centers”

    —————$35 B —> $68 B -—> $312 B

    UK — ——-$50 B —> $100 B —> $176 B

    Switzerland $18 B —> $34 B —-> $176 B

    HK ———– $39 B —> $52 B —> $156 B

    Singapore —$30 B —> $30 B —–> $91 B

    Ireland ———$5 B -—> $19 B —> $113 B

    Belgium ——$28 B ––> $13 B —> $381 B

    Luxemburg —-$5 B ––> $60 B —> $145 B

    TOTAL —– $210 B –> $376 B —> $1,550 T (410% increase from ’07)

    Nearly a $1.2 T increase in US Treasury debt ownership among these nations w/ minimal trade surplus… Or stated otherwise, the Fed / “Foreigners” now own $8 T of the $10 T public note/bond market…this means the float of domestically held notes/bonds rolling over plus lower new issuance is well less than Fed’s $25 B QE plus continued “foreign” demand…otherwise known as a short squeeze on the largest debt market in the world pushing yields lower an lower.

    fyi – All raw data from TIC and Census…

  3. Nofaithnewe | May 23, 2014 at 5:27 pm |

    I would like to thank you for you sharing all your meticulous research with us. I preach the value of precious metal ownership to all who would listen armed with information provided by the handful of individuals who have demonstrated the ability to corroborate opinion with cold hard fact but none more cogently then you Steve. For that I salute you sir and await anxiously the privilege of putting my hard earned money to good use as a card carrying paid member of this site ! Carry on !

    • Nofaithnewe,

      Thanks for stopping by and I appreciate the comments. Things are going to get a lot more interesting as time goes by.


      • Yes good one unfortunately I think that most of these small miners either will disappear, either will be taken out by large state sponsored enterprises such the chinese ones.

        I have taken some losses and still keep some of them but they will not resist much longer in my opinion with prices heading to south again and again.

  4. the real cost could be a lot higher:
    1. wages at miners are suppressed by miners’ management. miners are mostly located at third world countries where workers are easily exploited.
    2. environment protection costs are reduced at these miners located at third world countries
    3. artificially low interest rate reduces miners’ financing cost
    4. artificially suppressed energy and food cost reduces miners’ operating cost

    no one knows the real cost of anything because prices of everything is manipulated. thus, precious resources have been squandered.

    • CFO point of view | May 23, 2014 at 11:13 pm |

      Very interesting thing to add is possible price manipulation of base metals to the up side, to keep miners in reasonable shape during price suppresion of PMs. There are huge stocks of each base metal all over the world, so wih PMs price increase, we will very possibly see crash of prices of base metals, and miners still will not be good option to invest.

      • CFO point of view,

        I believe the peak in silver production will take place first in the base metal mining industry. Regardless of what takes place in the financial markets, peak oil will KILL global GDP growth (actually it has done so already). As the world’s economies contract due to PEAK OIL, we are going to see less demand for base metals.

        Thus, 58% of global silver production comes as a by-product of Zinc-Lead & Copper. The rest is from primary and by-product gold production. Actually, 13% of silver production comes from by-product gold mining. These figures are according to the 2014 World Silver Survey.


    • Slvrizgold | May 24, 2014 at 1:24 pm |

      You’re exactly right judejin, and if those 4 factors start becoming more costly silver production costs would be even higher! Then the break even price for the primary silver miners goes over $30! $30+ Ag sustained for 2 years did NOTHING to bring more silver supply online! Tahoe’s Escobal project and First Majestic’s Del Toro are the only primary silver mines of size that are viable. We saw Alexcos very high grade Bellakeno mine UNPROFITABLE even at higher prices as well as some other rich silver ore bodies that failed like Great Basin’s (went BK) Hollister mine in Nevada. Look how much trouble Allied Nevada has had. ANV could bring a lot of new metal supply to the market but it’s barely break even now at low output, and doesn’t justify an expansion until much higher prices.

      The ONLY thing that could bring a lot of new silver supply is IF there were a huge boom in base metal prices like copper, lead, zinc… That doesnt look likely (cough!) But even if that happened does anyone think base metals will explode to the upside and PMs stay in the basement? Nope! In fact when base metals were exploding 2004-2008, it coincided with some of the sharpest up moves in silver and gold to date.

      All in all bullion looks pretty damn good now, miners may perform well if PMs rebound, but this crap may continue. What is certain is silver will never be sustainably and consistently brought to market at $19. And major mine shutdowns are in the cards should silver prices go a leg lower. Declining output is already guaranteed at $19-25 silver, but I am talking about tens of millions of ozs, then hundreds of millions of ozs being mothballed.

  5. Steve,

    Many recommend buying mining stocks. Examples are Casey Research. And Sprott Asset Management.

    One day manipulation will be broken and PM’s and PM stocks will be worth a lot more [not including counter party risk with equities]. But while one can’t go wrong accumulating physical silver at these prices, it is quite possible to lose your shirt in mining stocks. Appealing on one level; scary on another.


    • lastmanstanding | May 24, 2014 at 8:32 am |

      David, these insiders will always be out of the paper before it crashes…Why? Because they always have an out, a heads up, a tip from another in “the club”.

      Will you?

      I take enough risk everyday with things I hope I can control.

    • David,

      I got out of the mining stocks back in 2008. With the market tanking into 2009, I had no idea how it would impact the global economy. As we can see, the FED’s QE policy has kept the United States and many other western countries alive.

      I believe owning the precious metals is the number one choice. Then if you have additional funds to invest, it would be wise to own some select mining stocks. If physical is hard to come by in the future, the mining stocks will be the next best thing.


  6. Enough proof here to show that the producers are compromised. The executives of these silver companies are picked and placed by TPTB which happened to own the majority shares of these companies. Same for the major gold miners too.

  7. Steve,

    Can you comment about the 96% depletion of Monterey Shale oil reserves?


    • Chris Martenson just wrote a good article on this. Its not 96% depletion, but rather a major downward revision of the original estimates. Coming from the EIA, many consider this quite a stunning admission.

      • It makes you wonder how overstated reserves are not just in other shale plays but in the metals as well. I never believe the USGS reserve estimates.

  8. Fantastic research keep up the good work Steve!

  9. In my opinion, invest in physical gold and silver make sense. But invest in their producers is lose-lose situation: The more they produce, the more gold and silver will flood the market (A lot of the time as a lost) This will drag down the price of these metal. Once the price dropped, they -the producers themselves become the victims of their productivities.

  10. The big news on the demand side is that last year retail investment demand increased dramatically. I seem to recall up 70% average with bar investment more than doubling. Doubtless some of this was due to India switching to silver due to the import restriction on gold however the large increases in sales of the Eagle, Maple and Philharmonic seem to indicate that Western investors are waking up to the potential of silver investment and the weakness of the financial system. It is retail investment that will eventually overwhelm paper manipulation and last year looks like a signal of things to come. Further evidence comes from UK dealers where I detect shortages being reflected not in the price of the metals but increasing premiums on bars. Last December I made several purchases at prices a little below todays despite lower spot prices. It is marginal but noticeable. It looks like the system is straining. If India relaxes gold import restriction this might take pressure of the silver market but if more Westerners (in particular) enter the market the breaking point will come that bit closer.

  11. Max Meister | May 26, 2014 at 8:33 am |

    Yeah “By Product Revenue”. That’s the keyword. That was exactly my point when i commented one of the previous Silver articles on SRSRocco. So it is now confirmed that even the so called “primary Silver miners” do not mine Silver exclusively but rather everything that is marketable. It seems no surprise that they are getting the same “by-products” out of the ground as the “non primary Silver miners” do. Aha the “primary Silver miners” are making 40% revenue share with their by-products. O.k. so they can still handle a lot lower Silver prices without to get in serious troubles. I’ve recently read an interview with the CEO of First Majestic Silver Corp and the topic was also the Silver mining cost. He stated that analysts like Morgan are wrong about their calculations. He said that the true mining cost per ounce is much lower than many people think and that the mining cost as published by the Silver Institute is much closer to reality than the price published by these analysts.

    So, that tells me everything. No more questions from my side until the Silver price dropped below 8US$ / ounce.

    • Max,

      I gather you noticed the $1.13 billion in by-product revenue. What kind of losses would the mining companies suffer if they did not include that $1.13 billion in their balance sheet? The group suffered a $140 million adjusted income loss in 2013, how bad would it have been if they did not include this by-product revenue?

      First Majestic does have a lower cost structure as do a few other companies such as Endeavour Silver. However, the majority would be in serious trouble if they sold silver anywhere near $10 an ounce. I am surprised CEO Keith Neumeyer said that the costs were more inline with GFMS and CPM GROUP.

      I had an email exchange with an EX-CFO of a large gold mining company in Nevada which was bought out by one of the majors several years ago. He said that my NET INCOME BREAK EVEN was a common sense way to show the real break-even for gold and silver mining… which is why the industry doesn’t use it, ACCORDING TO HIS VERY OWN WORDS.

      I now use the ADJUSTED INCOME approach as it excludes items not associated with the day to day operation of the mine.

      Max… by the way, do you have a link to that interview?


  12. Max Meister | May 26, 2014 at 11:59 am |


    I don’t remember exactly where i have read that interview. I think the interview was done by a well known financial newspaper but i’m not all that sure.
    I think one should not spend too much thoughts on how bad the primary silver miners would do if they wouldn’t generate that extra revenue by selling their by-products. Fact is they do and they will continue to do it. I’m quite sure that the whole thing is part of their risk management as every silver mine should be preparred for high price volatility and rigged marked conditions whatsoever. So that latest discoveries just shows me that they are well preparred.

    • Max,

      The point I am trying to make is that by-product accounting in calculating CASH COSTS are not a true measure of profitability. FREE CASH FLOW is a great measure of profitability… not CASH FLOW. The top 12 primary silver miners suffered a net FREE CASH FLOW loss of $339 million in 2013. That is by adding back in impairments and Depletion, Depreciation and Amortization.

      So, how did these mining companies state a FREE CASH FLOW loss of $339 million in 2013 if their true costs were much lower???

      The point I am trying to get across is that a $10 figure is not a figure any of these primary mining companies can survive. Some could survive at $16 or so for a while… but who goes into business to break-even?

      Again, CASH COSTS are a bogus metric. By taking out their by-product revenue, which lowers their cash cost… doesn’t mean they would be more profitable at this lower figure.

      Lastly, if we did take out that $1.13 billion by-product credit, you can tack that on top of their $140 million Adjusted loss for the year as a GROUP at it would be $1.27 billion ADJUSTED LOSS.

      That would also mean their FREE CASH FLOW would have been a negative $1.47 billion.

      Sound like they are making a LOT OF MONEY…aye?


  13. Max Meister | May 26, 2014 at 2:06 pm |

    Yes i’m sure you have good reasons for your calculations and analysis. Morgan is also too long in the business to be totally wrong i guess. Actually it’s hard to know who tells the truth. In today’s rigged markets is very hard to know the true price of just about anything, especially that of the PMs. Appart of the price rigging there are just too many lobbyists around who’s aim is to make you believe what serves them most.
    I was always courious why the miners don’t get together to move heaven and earth to stop the artificial price suppresion. They much more behave like victims rather than strong market players. I never had a good explanation on why that is the case unless recently. I mean if it’s true that their production cost is way lower than the current price, then this might be a reason why they stay relatively cool at the current time. Economy 101 tells me that no enterprise can afford to work at break even or even at a loss over an extended period of time, but if the miners would really suffer at today’s prices it would become obvious. You would hear of more silver mining companies shutting down, reducing or suspending their production, but that’s simply not happening. In turn they have constantly increased their mining output over the last couple of years. I only heard of Hecla mining who suspended part of their production due to the low prices, but i think it wasn’t even their silver production. So there must be something. I mean if i would be the mining Entrepreneur i wouldn’t wand to sell more of my silver for a cheaper price unless i can sell also the copper, lead, zinc and gold along with at an overall profit. So for the silver investor it could become rather ugly before it gets any better.
    Do you believe the manipulators are not aware of exacly these things? Certainly they are. They know exactly what’s going on and they will make a use of it and challenge the market on how deep they can suppress the price without causing a supply crunch. So from that point of view i don’t think it is a good idea for CEO’s such Neumeyer to make such statements in the media. It most probably wont help them to get a better price for their silver.

  14. Steve nice work. Our total costs are very close. Appreciate a public domain backup. We have been “slammed” by some fairly big names in the Industry for being– wrong.

    Doubt any of these folks will acknowledge the facts. However the facts are hard to deny.

    David Morgan
    Silver investor

    • Bay of Pigs | May 27, 2014 at 9:08 am |

      How can you guys be wrong when you see the valuations of the miners? They have been slaughtered. And look at these ratios. They are at insanely stupid levels.

      Gold/XAU Ratio 14.81
      Gold/Silver Ratio 66.53

      They called GATA wrong for over a decade too. Now we know for a fact they were right all along.

      Thanks to both of you.

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