Largest Primary Silver Mine Productivity Falls To Lowest Ever

The largest primary silver mine in the world saw its average yield fall to the lowest level ever in 2015.  Matter-a-fact, the primary silver mine’s yield fell nearly 16% compared to last year.  This is a substantial decline in productivity from the world’s largest mine in Mexico that starting production in 1824.

Actually, the area where this mine is located–Zacatecas, Spaniards start producing silver all the way back in 1540.  When initial production at the Great Fresnillo Mine started in 1824, Mexico was producing 55% of the world’s silver production.  The ore grades were much higher in those days.

For example, average yields for silver production in the United States and Australia in the late 1800’s was 40-50 oz per ton (oz/t).  However, as the world continued to consume greater amounts of silver over the next century, average yields in its primary silver mining industry fell precipitously.

Fresnillo Mine Average Yield Fell To Lowest Level Ever

Fresnillo LLC has several mines in production.  Their flagship operation, is the Fresnillo Mine.  In 2005, the Fresnillo Mine was producing silver at an average yield of 15.2 oz/t, but this fell 57% over the following decade.  In 2015, Fresnillo’s average silver yield was a paltry 6.5 oz/t…. a loss of 8.7 oz/t:

Fresnillo-Silver-Production-&-Average-Yield

Not only did the Fresnillo Mine average yield fall considerably over the past five years, silver production fell by more than half.  In 2010, the Fresnillo Mine produced 35.9 million oz (Moz) of silver at an average yield of 14.2 oz/t.  However, silver production from the mine fell to 15.6 Moz while the average yield dropped to 6.5 oz/t.

Now, the downside to falling silver yields is the increased cost of production.  For example in 2010, Fresnillo processed 2.5 million tonnes of ore to produce that 35.9 Moz versus processing 2.4 million tonnes of ore in 2015 to extract 15.6 Moz of silver from the mine.  Basically, the amount of processed ore remained about the same (close to it), while silver production fell by 56%.

The company realized the ore grades at its flagship Fresnillo Mine were going to fall, so they have been spending a lot of capital to bring on new primary silver mines.  The company’s second primary silver mine that came on production in 2009 was its Saucito Mine.  Ramp up of production of its Saucito Mine helped to offset losses from the Fresnillo Mine.  However, the average yield of these two primary silver mines also declined in 2015.

The Fresnillo & Saucito Mine’s Combined Average Yield Fell In 2015

This next chart shows the combined production of the Fresnillo and Saucito Mine along with their average yield.  As we can see the average yield of these two mines was 14.2 oz/t in 2009, but this declined to 7.9 oz/t in 2015:

Fresnillo-&-Saucito-Production-vs-Avg-Yield

Even though overall production from these two mines is higher at 37.6 Moz in 2015 compared to 36.1 Moz in 2009, the average yield has fallen 44%.  Thus, the company only had to process 2.5 million tonnes of ore in 2009 to produce 36.1 Moz, but this jumped to 4.7 million tonnes last year to extract 37.6 Moz.

Let’s put that increase of processed ore into perspective:

2009 Fresnillo Cost Per Tonne = $36.5

2009 Fresnillo Processed Ore = 2,471,657

2009 Fresnillo Production Cost = $90.2 million

2015 Fresnillo & Saucito Avg Cost Per Tonne = $45.34

2015 Fresnillo & Saucito Processed Ore = 4,749,129

2015 Fresnillo & Ssucito Production Cost = $215.3 million

So, what do these figures show???  The company spent $90.2 million in 2009 to produce 35.4 Moz (Fresnillo only) of silver versus $215.3 million to produce 37.6 Moz in 2015.  By adding the Saucito Mine to offset silver supply losses from the Fresnillo Mine, the overall production cost DOUBLED… LOL.

Another interesting TIDBIT is the increased cost per tonne of production.  The average price of Brent Crude in 2009 was $62 versus $52 in 2015.  So, even with a $10 lower price of oil in 2015 compared to 2009, the average production cost per tonne from the two mines is up nearly $9 a tonne… a 25% increase during the five year time period.

Lastly, Fresnillo LLC has ramped up its gold production significantly over the past several years.  For example, total gold production from the company increased from 596,000 oz in 2014 to 762,000 oz in 2015.  This has impacted its revenue mix.  In 2014, gold sales accounted for 47% of total revenues, while silver sales followed close behind at 46%… the remainder was in zinc and lead.  However, this changed remarkably in 2015 as the company’s gold sales accounted for 52% of the total revenue whereas silver fell to 39%.

Regardless, when the prices of gold and silver move up much higher over the next several years, Fresnillo LLC stock holders will be greatly rewarded as their profits will explode.  Even with lower gold and silver prices in 2015, the company still made a $70 million profit.

The primary silver mining companies that produce more gold than base metals will be the best performing stock prices in the future.

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14 Comments on "Largest Primary Silver Mine Productivity Falls To Lowest Ever"

  1. OutLookingIn | March 9, 2016 at 12:15 pm |

    You know your history Steve!
    The Spaniard’s opened the Zacatecas and Guanajuato silver mines between 1531 and 1550.
    Although the rich silver mines of Potosi were opened in 1545 and proved that Peru produced about two-thirds of the total output of precious metals for Spain during that time.
    These mines are (or have been) in operation for some 480 years now. Despite vast improvements in mining techniques, practices and smelting, these mines are coming to the end of their respective lifetimes.
    Unless new, rich discoveries of silver deposits are found, this vital element to mankind may very well be the first one to vanish from the periodic table!

    • OutLookingIn,

      Yes, the situation for future silver mine supply is in jeopardy. However, I see it mostly from falling silver supply from the Base metal mining industry. I actually believe primary silver mining production will continue to increase along with the price in the immediate future.

      Unfortunately, global silver mine supply will fall because any increases from the primary silver mining industry will not offset declines from the Base Metal by-product supply.

      steve

      • Hi
        Saw this chart yesterday, don’t know if you have seen it, but in years of looking at charts it is one weird chart. A massive divergence.
        http://kingworldnews.com/wp-content/uploads/2016/03/KWN-II-382016.jpg

        • Looks like the start of the massive fed market manipulation that is still going on!!

          • It says to me that stocks could get very ugly very soon. And I mean very very ugly. The S and P should be 700 but with the energy built up it could be worse than that.

        • thanks for posting that chart…I think. The implications of those charts converging as in the past is frightening.

          • You would expect gold/silver ratio to drop to 100 to 1 resistance on a stock plunge but…….
            The ratio has strong resistance at 80, a bullish 4 year descending wedge and a very oversold condition on the RSI.
            This could mean you could get a sine wave situation where silver goes to 20 to 1 as stocks go below 700 before they converge.
            Or QE4 and neg rates where silver converges with the S and P making new highs at 10 to 1.
            Take you pick.

    • OutLookingin
      While I’m sure you are making a hyperbolic point about an element vanishing, I want to illustrate the point a little. The reason we will never run out of any element is because while we have decreasing supply will have an inversely proportional increase in price. This will have the prohibitive effect of making an element too costly for common use. If this is true regarding silver, then the current investment climate has a high probability of being quite favorable.
      Saxon

      • OutLookingIn | March 10, 2016 at 3:15 pm |

        Saxon
        Yes. The current level of silver valuation is much too low versus the USD.
        Now that China has a ‘seat’ on the silver fix London board and are putting in place the mechanism to trade silver futures that are Yuan based, the USD fix will be less important.
        As Jim Sinclair has stated; “Silver will be gold on steroids”. The trick will be to choose your sell point in silver and then convert your liquidity into gold.

  2. Hey Steve,

    Off the topic of silver but right now I see crude oil at 38.21.

    Do you have any sense of where that is going in the near-term? Art Berman talks about price relating to storage capacity, like in Cushing Oklahoma. Are they still moving toward full capacity? If so crude prices should be dropping.

    • David,

      I see the huge move up in oil as a ALGO & Trend Trading momentum move, but on bearing supply fundamentals. Gold is doing the same thing, however on top of bullish fundamentals.

      I am actually writing a new BULLET REPORT on the Gold Market. The information in the report shows just how out of whack the present gold market has become.

      steve

      • Stock market indices seem to be moving up because of the rise in oil price; mainstream financial writers [who have smoked hopium and deceivium] are proclaiming the bull run in stocks has resumed. Several articles just came out as the bottom of the markets was exactly 7 years ago. The recent rise in stock markets resulted in writers talking about the bull market going on for years.

        • Another angle to the recent rise in indices per Craig Hemke is the connection of the dollar/yen trade and it’s influence on the algos. Today we see the ECB dropping deposit rates yet again to -0.4% and refi rates to 0.0% How long before the insane talk stateside of NIRP and eliminating cash takes center stage?

          What a joke this has become for everyday citizens. Here’s the interview with Craig to explain the stock market action further…

          http://financialsurvivalnetwork.com/2016/03/223157/

  3. Hi Steve,

    Glad you are having a Q&A tonight 🙂

    In many comments, posts, etc. you talk about EROI, and if we have passed Peak Oil (not sure if we are approaching, at, or past), then the cost to pull gold and silver out of the ground in the long run theoretically becomes cost prohibitive. I believe I am summarizing a past article of yours, but please correct anything I have butchered 🙂

    The manipulated paper price has kept gold and silver undervalued in the spot market, and miners have reacted by cranking up mine output, which would jive with all the record “production” hitting the headlines (although I think you’ve said that this is bad somehow for the ore grade).

    The manipulated paper spot price and supply vs demand fundamentals has been happening for some time now, definitely before the price of oil plunged. Oil is a raw material input in the mining of silver, gold, and other base metals.

    So, theoretically, the low price of oil is easing the primary silver miners, and other miners, pain from artificially low prices, correct? Assuming this is correct, how much of their expenses are derived from oil (or whatever refined stuff they use from it), how much will it actually help or is it not that material except in a shortage?

    Ultimately, silver hasn’t recovered that much from a price perspective relative to most primary silver miner costs, so will the drop in oil slow down the cash burn, shutting of mines, elimination of exploration, etc.

    Just curious of your thoughts if you have the time. Thank you for all that you do to help educate people like me who are clueless about such aspects of PM – more of a coin collector 🙂

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