IT BEGINS… Primary Silver Mining Company To Cut Production 25% In 2016

El-Cubo-Silver-Mine The low price of silver has finally claimed is first victim.  Endeavour Silver announced that it will cut silver production by 25% in 2016.  The company has three mines working in Mexico and will produce 7.2 million oz (Moz) of silver in 2015.  However, Endeavour plans to shut down production of one of their mines by the end of 2016 and put it on care and maintenance.

According to Endeavour Silver’s press release:

Endeavour’s mine plans for 2016 are focused on minimizing all-in sustaining costs and improving after-tax free cash flow rather than metal output. Silver production is expected to be in the range of 4.9-5.3 million oz, gold production will be in the 47,000-52,000 oz range, and silver equivalent production is forecast to be 7.9-8.5 million oz using a 75:1 silver:gold ratio, as shown in the table below.

Bradford Cooke, Endeavour CEO, commented, “Our Guanaceví and Bolañitos mines continue to be profitable at current metal prices but the El Cubo mine continues to lose money in spite of our successful efforts to expand the operation and reduce cash operating and all-in sustaining costs three years in a row. Therefore, we plan to mine the accessible reserves this year at El Cubo and have suspended investments on exploration and mine development there until metal prices improve. That means El Cubo will see a steady decline of production through the year until it goes on care and maintenance in the fourth quarter.

Endeavour’s El Cubo Mine has had the highest cost structure of the group.  According to the company’s Q3 2015 Report:

Three months ended September 30, 2015 (compared to the three months ended September 30, 2014) Economies of scale achieved in the last year and the falling peso has driven the cost per tonne down 30% compared to the same period in 2014. In Q3, 2015, cash costs net of by-product credits, (a non-IFRS measure and a standard of the Silver Institute), decreased to $8.48 per oz of payable silver compared to $23.10 per oz in the same period in 2014. All-in sustaining costs decreased by 61% to $18.48 per oz compared to Q3, 2014 due to lower operating costs on a per-ounce basis.

Even though Endeavour was able to reduce costs at its El Cubo Mine in 2015, its “All-in sustaining cost” was still $18.48 in Q3 2015.  The company received an average silver price of $14.67, which means the El Cubo Mine was losing nearly $4 an ounce.

As I mentioned in my article, Mexico’s Silver Production Declined Over The Past Two Years, Mexican silver production peaked from 187 Moz in 2013 and is forecasted to fall to 181 Moz in 2015.  This took place because as some primary silver miners ramped up production, other high-cost marginal mines shut down.

Endeavour’s El Cubo Mine is a high-cost marginal mine with the silver spot price at $14.  It will be interesting to see if other primary silver mining companies also announce a cut back in production this year.

Please check back for new articles and updates at the SRSrocco Report.  You can also follow us at Twitter, Facebook and Youtube below:

Enter your email address to receive updates each time we publish new content.

I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

30 Comments on "IT BEGINS… Primary Silver Mining Company To Cut Production 25% In 2016"

  1. Like i said.They will create an artifical Inflation.They want to cut the oil supply.
    Maybe this is a Driver for Gold and silver.

    • Creating Artificial Inflation is done all the time. You get so much product on the market, the bottom drops out on the price. They start removing the Physical Product from the market by buying it, of course they would need somewhere to store it. Once the price falls to a certain level it becomes less profitable, and they cut back on production and eventually the price is on the rise. At some point, the stuff that was bought and stored, such as Oil, will be sold at the higher price and someone has made a tidy profit. Manipulation. As for silver, banks are buying it and increasing their stock by millions of ounces. Doesn’t appear to have had much effect on price thus far though. The Commodities Market is nothing more than a Free for All as far as I’m concerned.

  2. Even if silver is priced only like a commodity; with zero investor impact, price has to go up when demand increases and supply stays constant or decreases.

    If copper demand was going up like silver [it isn’t], it too would have to go up in price and it’s production as base metal mining is down eventually.

    Same for oil but it’s demand is down substantially while supply is high for now…so the bottom drops out on the price.

    Futures markets and fiat prices for paper traded items can be distorted using debt, draw down of stockpiles, and contract leverage.

    Supply & demand dynamics works eventually.

    • David. It hasn’t unfortunatley as long as they can deliver the phyiscal Silver demanded. Fundamentals don’t pay a role in Silver price discovery for decades. So far they were always able to deliver the so called silver deficit and the CRIMEX was always able to rebuild their inventory if needed. The same is valid for the ETF’s. Nothing will change to the better as long as this is the case. Once it isn’t, things will change very quickly though.

      • Yes. Eventually supply/demand works. Needed for it to work sooner? Continuously increasing demand in the face of diminishing supply.

  3. ‘Markets’ are getting crazier by the week, this should spur some more investment silver demand. Together with production cuts and havoc in the paper version of gold and silver, one could ask how many more nails are needed to get the coffin ready for its funeral.

  4. Steve, Endeavour is a victim of it’s own design.
    In search of “new” properties to boost production reserves, it bought up a “pig-in-a-poke” in the El Cubo aquisition at a questionably high valuation.
    Endeavour paid $ 250 million U.S. in April 2012 for El Cubo. Endeavor’s market cap pre-El Cubo was marked at $ 750 million U.S. and after purchase it went to $ 1 billion U.S.D.
    Today it’s market cap has fallen to $ 129 million U.S. Pity the stock holders!

    The El Cubo property may be a positive to the company in the future, if silver prices rise above the cost of mining at El Cubo. That is a huge MAYBE considering the mine has a marginal ore base remaining.
    So the closure is partially due to a low silver price, but mainly from poor Endeavour aquisition management, that has proven to be a financial drain on the company. The stock holders have taken a (red ink) bath because of this.

    • OLI

      Don’t know anything about Endeavor or the El Cubo mine but given the average price of silver environment I can see how they made the mistake;

      2011 Average price of silver per ounce $28.40
      2012 Average price of silver per ounce $30.77 (They probably thought they hit a homerun)
      2013 Average price of silver per ounce $31.11
      2014 Average price of silver per ounce $19.90
      2015 Average price of silver per ounce $17.10

      What I find interesting and important is how long it took them to decide to place the mine on Care and Maintenance and, by inference, how long it will take them to bring it back online.

      I also question how many other silver miners are facing this decision and which ones are not. Those being the ones that are still profitable at $14/oz and the ones to buy.

      Buy for cash and stash.

      stevew

    • Good points. And yet, I don’t know anybody in the sector who saw this current move coming, do you?

      And it’s worth pointing out yet again that the spot price is not the same as the per-ounce-price-plus-premium being charged for physical ounces. The gap between those two measures of value is widening, especially at street level.

      I see that El Dorado (ELD) is likewise some projects, although this is attributed to obstruction of work in Greece by the Greek government. We’re going to see more of that: “green” and “leftist” ideology resulting in job losses within the productive economy.

  5. So, what I can’t seem to understand is, if the low silver price is by design and it will cause over time less future silver supply coming to market, possibly causing a big price spike, then wouldn’t it seem reasonable to allow the silver price to rise a little to keep the golden goose laying eggs? Is this what is in store for stacker? A $20 (give or take a little) silver price for years and years?

    • a very good question. I think it comes down to whether or not there is an increased demand as a safe haven asset to avoid rapidly inflating dollars. Once the FRN Ponzi scheme crashes (as must all Ponzi schemes) people will flock to gold, then silver. So, I think the answer is: no. It won’t be at $20 for years and years – it will skyrocket to multiples of $100, possibly 10:1 GSR.

    • “….then wouldn’t it seem reasonable to allow the silver price to rise a little to keep the golden goose laying eggs?”

      A few years ago I used to read articles about gold and silver prices moving up [particularly before the 2011 peak & subsequent smack-down] that referred to TPTB allowing prices on PM’s to moving up slowly, to let off pressure, and they called it “a manged retreat”. After the success in manipulation that came from advancing computer technology [high frequency trading or algorithms], I think they became emboldened and brazen.For the status quo in the financial system the only thing left to do is to constantly suppress G & S priced in currency,

      Recent Article:

      They Don’t Bother To Hide The Criminality In Silver And AMZN Trading

      http://investmentresearchdynamics.com/they-dont-bother-to-hide-the-criminality-in-silver-and-amzn-trading/

      ALL manipulation fails in time. When this breaks it will break hard.

  6. Keep Stacking. Keep Stacking.

  7. The Cheaper it goes down to the more of it you can buy until their is none left at all.
    They wont be building anything in the future electronics or anything as the majority of silver will be in the peoples hands by then.
    And no one wants to sell it for that paper do they.?
    No Solar panels, no more cars, no more anything that requires this metal.
    And if executive order still stands I would say that the majority wont be parting with their wealth this time “ROUND”

    • Individuals will sell their silver when the price is high enough…if it is at a time the fiat they get in exchange buys something. Or perhaps a sales agreement that bypasses fiat, i.e. a quantity of silver for a used car.

  8. That is a wise decision and overdue for most miners. However there’s a larger quantity of miners needed to cut their output in order to move the silver price.

  9. Steve,
    So neg/rates let me get this right. I borrow $1 billion at .1%. Put it in my account wait for 12 months collect my million dollars for borrowing & give the bilion back?….so reverse capitalism? this has got to work out great.

    • NEVER give the billion back! Arrange to always pay .1% for eternity and be tax free on proceeds, with possibility of borrowing more billions!

      • “never give the billion back” Are you a Clinton fundraiser? You know, I never originally liked Trump because of the bankruptcy business, but after having it explained to me by a wise youtuber. …you cant help but like the guy and at least he’s entertaining ,unlike all the others. We dont have any one like him in OZ ..maybe Andrew Forrester …in a james bond kinda way..

  10. Will mining operations get priority for fuels over civilian uses? Mexico still produces oil and NG, which could be effectively be swapped for harder-to-steal PM’s (compact, easier to secure) at the mines.

    I’m looking at mining from the perspective of a credit collapse. What if a mining operation has to pay cash for payroll/supplies/fuels/power/machines, how many operations will keep going? Keep going by central gov’t order and manned by military conscripts?

  11. Hard to say how that is going to translate in the long run. The Commodities market is largely unregulated and a free for all. Take Oil, The prices would fall, buyers would start buying it and storing it and essentially pulling it off the market, in time that would have a tendency to create a shortage and result in a a rise in price. Just a form of price manipulation. Once the price started rising, they would then start selling off the stocks at a profit. As I said, the Commodities Exchanges are nothing but a free for all for the most part. There are banks really increasing their holdings of Silver. As to shutting down a non profitable mine, it’s anybody’s guess as their will be a definite decrease in total out put. Normally, that would amount to a rise in price to some extent as the demand, such as it is, will remain the same for the most part. I’m neither an investor, nor Collector. I just run across stuff that I like with a good price and buy it.

  12. Article was spot on…except for the laughable, opening assertion that “The low price of silver has finally claimed is *first* victim.” (emphasis added) Um, excuse me, but there are MANY mining companies who have not only cut production, but done so as they went out of business, effectively cutting production by 100% — Colossus Minerals and Global Minerals are only a couple of examples in a long list of producers who are no longer in business.

    • Lee,

      Both of the examples you gave, Colossus and Global Minerals were not producers. There are hundreds of explorers going belly up. However, I was focusing on the PRIMARY SILVER MINING INDUSTRY. That being said, there was an early victim back in 2013. Alexco Resources shut down its high-grade Bellekeno Silver mine several years ago. That was because it couldn’t make money at less than $25.

      Regardless, most silver miners have not yet cut production… but this is changing, especially if the price of silver stays at this level.

      steve

  13. I just listened to a good video I wanted to share that piggybacks on Steve’s article (they even mention this article) while also talking about the rigged benchmark silver pricing of late. Dave Morgan also had a good video on the SGT Report site that speaks to this as well. Enjoy!

    https://www.youtube.com/watch?v=XEJFPNTe-o8

  14. Maybe this is what obama wanted for his secrete pipeline isint that why he rejected the keystone pipeline.maybe we should be investing more in uranium. And just a little in ng.

  15. Well, now.. if this doesn’t call the bottom, nothing does.

  16. How many times we saw the bottom?I can’t count it.

  17. Miners relativ strong.This Looks not bad.Hopefully this is the turning Point.

Leave a Reply to David Cancel reply

Your email address will not be published.


*