Huge By-Product Silver Mine Loses Money

One of the largest by-product silver mines in the world recorded a loss during the second quarter of 2013.  This primary gold mine located in Mexico, produced nearly 24 million ounces of by-product silver in 2012.  If we compare this mine to the top primary silver mines in the world, it ranks as the third largest.

Looking at the table below, we can see that GoldCorp’s Penasquito mine which produced 23.7 million oz of silver in 2012 would rank right below Fresnillo, the second largest primary silver mine in the world.

Top 20 Primary Silver Mines & Penasquito

Penasquito is a huge open-pit gold mine that has a great deal of by-product silver, zinc and lead.  Even though Penasquito is a gold mine first and foremost, it still produces more silver than most of the primary silver mines in the list above.

Penasquito was GoldCorp’s darling in the third quarter of 2012, when it alone accounted for $245 million (35%) of its total $704 million in operated earnings.  However, just three quarters later, financial results at the mine totally reversed.

Penasquito’s Revenues & Earnings Fall Off a Cliff

Here we can see in Q3 2012, Penasquito stated $519 million in revenue while posting $245 million in earnings from its operations.  Penasquito received a realized price of $1,758 for its gold and $26.34 for its silver.  We must remember this silver price includes a 25% sale of silver to Silver Wheaton at $3.99 during the quarter.

Penasquito Revenue vs Earnings

As the price of gold and silver were taken down in the first and second quarter of 2013, revenues and earnings plummeted at Penasquito.  In just three-quarters, revenues declined from $519 million (Q3 2012) to $232 million (Q2 2013) or a staggering 55% while its earnings fell negative.

GoldCorp stated a huge impairment write-down which the majority came from its Penasquito mine.  According to its second quarter report, Penasquito actually stated a loss of $2.4 billion, but this included the impairment charge.  I estimated the adjusted loss in Q2 2013 to be approximately $10 million if were to exclude the impairment write-off.  The actual adjusted loss could be more or less than $10 million.

Although, I actually believe the loss could be even greater due to the fact that the mine processed 12% more ore than the quarter before and its costs for mining and milling per tonne increased 7% and 15% respectively.  Regardless, we can see just how much difference the financial performance of a mine can be when the metal prices fall substantially.

For a frame of reference, Penasquito received a realized price of $1,256 for gold and a paltry $15.50 for silver in Q2 2013.  This turns out to be $500+ less for gold and $10+ less for silver than what was received during Q3 2012.

Amazing what Fed & Central Bank policies can do to impact the real WEALTH PRODUCERS OF THE WORLD.

Lower Silver Prices Greatly Impacted Penasquito’s Bottom Line

If we look at the last table below we can see just how much lower silver prices impacted the mine’s revenue:

Penasquito Silver Revenue Loss

In just one year, silver revenues at Penasquito fell an amazing $46 million (-39%), from $117 million Q2 2012 to $71 million in Q2 2013.  Amazingly, gold revenue declined less (-$41 million), from $140 million Q2 2012 to $99 million Q2 2013, it was only a 29% decline compared to silver’s 39% drop.

This just goes to show that the cost to produce by-product silver in this gold mine during the last quarter was at break-even.  While the prices of gold and silver have recovered from their lows and are now presently above what Penasquito received during the second quarter… we can see that anything below $1,250 for gold and $20 for silver (adjusted to include SLW 25% silver-stream agreement), would more than likely show an earnings loss for the mine.

As I have mentioned in many of my articles on the gold and silver miners, I am not singling out GoldCorp and its Penasquito mine in a negative fashion.  GoldCorp is a fine company and Penasquito can and will make substantial profits when the prices of the precious metals recover.

That being said, analysts such as Harvey Dent who forecast the price of gold to hit $850 would be $400 below the break-even cost for Penasquito and probably $200-$300 below what most gold companies need to make a profit.

This is exactly why I wrote this article.  Analysts today have gone completely insane.

If the price of gold or silver fell to the levels that some of the more bearish analysts have forecasted, it would mean the ENTIRE WORLD’S GOLD & SILVER PRIMARY MINING INDUSTRY would be losing serious money. 

On the other hand, as the worlds fiat monetary system continues to disintegrate, at some point in time the public will be forced to move into precious metals to protect their wealth. When this occurs, companies such as GoldCorp will not only be recording huge profits, they will be some of the most highly valued equities in the world.

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6 Comments on "Huge By-Product Silver Mine Loses Money"

  1. most ppl know gold/silver has bottomed.

    the real all-in cost is much higher than 1200.

  2. Steve

    Was wondering if you have ever calculated what ratio gold to oil needs to be in order for gold companies to break even (all in)? Would that ratio be a yardstick for investors in the miners? I guess the same question could be asked about silver and primary silver producers.

    Much admire all the research you do.

    Norm

    • Norm… you bring up a good question(s). It’s tough to put a ratio on Gold-Oil because Gold could be up much higher in price along with oil so the ratio moves in parallel.

      That being said, if we go back three years and look at the price of gold to oil we have the following ratios:

      SEPT 2011: 22/1 (High price gold)

      MARCH 2012: 15:1 (Low price gold)

      NOV 2012: 20/1 (High Price Gold)

      TODAY: 13/1 (Low price Gold)

      Furthermore, in June when Gold its all-time low since its high back in SEPT 2011, the gold-oil ratio was almost 11/1.

      So, I would safely say for the gold miners to make decent profits the GOLD-OIL ratio must be north of 16:1… and to make excellent profits, above 20:1.

      steve

      • throughout much of recorded history, an oz. of silver has pretty much always been on par with.. bought… a barrel of oil[ until the last 100 years or so] when the cartel/banksters started dicking with/manipulating silver prices..obviously that would put silver @ about $106 an oz presently [ or about $120 an oz for silver if compared to..and/or buying a barrel of north sea crude..

        silver hit its all time high in 1477 reaching $805 an oz.. [$805 adjusted for inflation that is.. in 2012 dollars] in the next 2-5 years,or very possibly much,much sooner,as the o’Bozo puppet clown kicks off WW3 offically next week,as U.S. warships perpare to fire the 1st cruise missile into Syria for the House Of Rothschild..yes sir..ALL WAR IS BANKSTER/BANKING WARS..the Rothschild clan is more than a little unahappy about NOT being in control of Syria’s [or Iran’s] banking system & therefore not in control of Syria &/or Iran [ give me total control of a nations money supply,& i care not who makes its laws” – Mayor Amschel Rothschild ]
        we will most certainly see silver fetch well beyond $805 an oz in he next few months & yrs,.but then the question begs..
        what will $1,000 or $5,000 or $500,000, or $50,000,000 buy in 1- 5 yrs from now? a loaf of bread?a new tire? a candy bar? who knows where super hyperinflation of the dollar will take us[buying/purchasing power wise] before the banksters finally pull the plug on the phony,baloney fiat paper dollar debt note [since 1913] ..
        no doubt the banksters want a global cashless society, but only one little problem..the banksters & gubermints can still make unlimited amounts of “money” from thin air..aka nothing.. & therefore the problem of inflation – hyperinflation will rear its ugly head yet again during & superhyperinflation in the final stages of a one world,cashless,digital currency..

  3. Most precious metals “analysts” could not analyse their own navals with a mirror, let alone the gold & silver markets! Thats why this article outshines the so-called “analysts.”

    The so-called “smart money crowd’ (global high net worth individuals) have been fleeing currencies and ‘paper’ wealth for over a year now and with increasing numbers, both in wealth and individuals.
    They are following the Asian wealth into anything of tangible, lasting value. eg; Some European countries are now offering wealthy Asians attractive visa and tax options, if they purchase real estate within their countries.

    Also, looking at the public auction sector around the globe through some of the large auction houses reported stats, their sales are way up and growing higher. Art, coins, jewels, real estate, etc. Anything of lasting value is being sought after, as a place to protect wealth.

    The mining sector valuations at present, are a gift wrapped bargain! As with life – due diligence.

    • OutLookingin…. I believe there are a few good analysts out there such as Brent Cook. However, the whole method of quantifying miners in the future such as Enterprise Value and etc will become increasingly worthless in a peak energy environment.

      It won’t matter if a Geologist states that there are 500 million tonnes of gold at an average grade of 0.75 g/t, if there isn’t the available liquid energy supplies to extract it. Basically, it will be SUNK CAPITAL… the same that will happen to the majority of real estate values in the U.S. such as residential, commercial, industrial and warehouse.

      steve

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