Majority Of Silver Miners Sustaining Cost Significantly Higher Than Market Price

The Primary Silver Miners lastest results were quite dismal as their All-In Sustaining Costs to produce silver were considerably higher than the market price.  Many of the silver miners production costs increased in the third quarter of 2018 due to higher energy, material, and labor costs.

Only one silver mining company out of the group posted a profit of $6.8 million for the quarter, and that was Fortuna Silver Mines.  The biggest loser was Coeur Mining which suffered a $53 million loss for the period.  Even the largest silver miner in the group, Pan American Silver, reported a surprise loss of $9 million Q3 2018.

Now, according to the silver mining companies All-In Sustaining Costs (AISC), only two were lower than the current silver market price:

When I put together this chart, the silver price was trading at $14.02 but has jumped up to $14.17 as the broader markets continue to sell off.  However, as we can see, seven of the nine top primary silver miners AISC is higher than the silver market price (BLUE BAR).  The highest AISC of $22.39 per ounce is awarded to SSR Mining which changed its name from Silver Standard.  SSR Mining is mostly a gold mining company with a very high-cost open-pit silver mine in Argentina called their Puna Operations.

Back in the heyday, Silver Standard’s Piquitas Operation in Argentina was producing nearly 9 million ounces of silver (2012).  Unfortunately, SSR Mining shut down operations at Piquitas last year and is now only processing stockpiles.  So, with just processing stockpiles, SSR Mining’s AISC is $8 more than the current silver market price.

While Pan American Silver and Fortuna published lower AISC’s than the silver market price, the average AISC for the entire group was $16.10.  Even if I was to remove the highest (SSR Mining @ $22.39) and the lowest (Fortuna @ $10.80), the average All-In Sustaining Cost of these miners would still be $15.95.  Thus, the top primary silver miners average AISC is $2 higher than the present silver market price.  

I find it quite interesting that the gold and silver prices continue to show strength during major selloffs in the broader markets.  At some point, investors are going to rotate out of falling stocks and real estate and into the precious metals and the miners.  However, FEAR has not yet made its way into the investor psyche… but it will.

Furthermore, if we consider the Free Cash Flow in the primary silver miners, they are spending $2.5 more per ounce than they are receiving from cash from operations:

The two miners with positive Free Cash Flow in Q3 2018 was Pan American Silver ($8.1 million) and Fortuna ($5.6 million).  However, the majority suffered negative free cash flow with Coeur Mining being the highest at -$33.7 million.  The net free cash flow for the group was a negative $52 million.  Thus, the group was spending $2.6 per ounce more than the cash received from operations.

I calculated that figure by dividing the negative free cash flow of $52 million by the 19.5 million oz produced by the group.

It has been a while since I posted information on the silver miners.  If you have read my articles going back to 2012, you will notice that the group is smaller.  That is due to the shutdown of the Tahoe Resources Escobal Silver Mine in Guatemala, and the removal of SilverCorp Metals and another smaller company.  I had 12 primary silver miners in my group, but now am only concentrating on nine.

Ever since the Muddy Waters Research came out with negative information on SilverCorp Metals, located in China, I don’t trust the company’s data.  While some readers may be upset with this call, I suggest that you watch the documentary, THE CHINA HUSTLE:

In the movie, Carson Block of Muddy Waters provides details of why he believed SilverCorp Metals was not truthful with its data, which is why he shorted the stock.  To be clear, I am not negative on SilverCorp Metals; rather I remain neutral in that I’d rather not use their data in my analysis.  Each investor needs to make their mind up on the matter.

That being said, the primary silver miners are struggling with the low silver price.  While the silver price could go lower, I still believe silver is closer to a low than the stock and real estate markets.  With that understanding, there is a great deal less risk owning silver today than owning most stocks and real estate.

It’s Quite Surprising That Pan American Silver Wants To Buy Troubled Tahoe Resources

Today, Pan American Silver announced its intention to purchase Tahoe Resources and its troubled Escobal Silver Mine in Guatemala that has been shut down for more than a year.  You can read about my take on the Escobal Mine here: WORLD’S 2ND LARGEST SILVER MINE SHUT DOWN: Implications For Company & Market.

The local peoples living around the Escobal Mine have been against the silver project ever since the beginning.  The Guatemalan Supreme Court stepped in and revoked Tahoe’s Escobal Mining license until a consultation of the indigenous communities had been taken.  To me, it is a serious GAMBLE for Pan American to take on this problem.

While the Escobal Mine is the second largest primary silver mine in the world, the evidence I have read suggests that the local people do NOT WANT the mine to reopen.  I have read some western articles suggesting that the local people are protesting so that they can be compensated by a percentage of the mines earnings.  However, the articles coming from the local papers in Guatemala state the exact opposite.  The local people want nothing to do with the mine and would like it to remain closed so they can be assured that the area around them will not be polluted and to also protect their valuable water supply for farming.

So, it will be interesting to see if Pan American Silver can resolve these issues with the local people, but I have my doubts.  Of course, anything is possible, but it still surprising to see Pan American Silver acquire such a troubled asset when they could have concentrated on other projects in their pipeline.

Lastly, even though the primary silver miners are currently struggling, I believe it’s only a temporary situation.  As I have stated over the past year, when the markets crack, the precious metals and the miners will be the GO-TO ASSETS.  Unfortunately, most precious metals investors have given up on the metals and the miners, but this is precisely the time to start getting interested.  Only successful investors buy when the price and sentiment are at an extreme low.

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34 Comments on "Majority Of Silver Miners Sustaining Cost Significantly Higher Than Market Price"

  1. It continues to amaze me how distorted the market has gotten. The time to back up the truck is fast approaching but even at the current price you can’t go wrong.

    If you don’t hold it, you don’t own it. Buy for cash and stash.

  2. “Unfortunately, most precious metals investors have given up on the metals”

    This is not what I have observed. Even though I may not buy, I regularly look at my favorite bullion dealers – many 1oz silver bars/rounds/coins have sold out with the price take-down. People ARE buying.

    • Here are the charts http://learnpowertrader.weebly.com/
      Silver’s trend has gone from uptrend to sideways which it did from February to June.
      Gold’s uptrend is still in place
      Bitcoin has broken the bearish wedge and could be in big trouble
      The S and P is still in it’s uptrend. It looks to me like it could be forming a head and shoulders in which case February or March could be interesting.

  3. The amount of silver mined each year has been in a downtrend.
    The industrial use for silver is on the rise…lead by solar panels. 90 million ounces alone in a 840 million ounce yearly mine output.
    Silver ore grades continues to decline. Takes more energy and tonnage to get the same amount of silver.
    Global debt is snowballing.
    Silver mines are producing silver above the price they are getting per ounce…losing money.
    People are going to prison for price manipulation in precious metals. JP Morgan latest casualty.
    So, of course…with all this good news…the price of silver keeps falling. Not based on fundamentals but because of continued manipulation. When will this manipulation stop?
    When industry can’t get the silver it needs.
    As long as stockpiles are available to supplement the lack of silver production needed to satisfy the yearly demand, the suppression will continue. Period.
    Sooner or later…the silver price will find its true value…but the elites will push this as far into the future as possible. No telling how long that will be.
    Silver was about $50.00 an ounce in 1980…and now it’s $14.00 and some change. Do you really think $100 or more is in the NEAR future?
    The fundamentals have been in place for a very long time to drive the price of silver higher. All the news we hear is positive for a spike in price…But here we are…waiting…confused and frustrated at $14.00
    So, don’t expect anything different anytime soon.

  4. Michael Kohlhaas | November 14, 2018 at 8:58 pm | Reply

    If PAAS can open the Escobal mine they have bought Tahoe at 🔥 sell prices. If not… I don’t know!

  5. Amazing. As inflation marches forward the stagnant silver price is increasingly crushing. Adjusted for inflation, which to perfection is impossible, the silver price may be lower than it has ever been. From energy to dollars to metal, your work suggests the unsustainable can no longer be sustained. And how about that GE stock? FED rate hikes? Trade war, Cold War, hot wars… News from every direction is flat out bewildering. We sit under the big top, mesmerized, looking up. Truly the greatest show on earth.

  6. Crayfish- I propose that silver price manipulation is so well documented, so thouroughly effective, and so damned old that it is one of the fundamentals; a synthetic-fundamental, so to write. It will end, but it’s power has the ability to catch you and gut you like a fish. No quarter, no margin.

  7. Metals will stay down until they cannot deliver, and cannot naked short, it’s that simple.
    I also noticed that a person can no longer respond to another persons thread here? Just another form of controlling a persons thoughts…

  8. Dale,
    Great point! I guess you could say manipulation is the ONLY fundamental that matters. Perhaps Steve can give us some charts and grafts on that…since nothing else has any real meaning. Lol
    How come we can’t post in “reply”?

  9. The credit bubble is nearer a collapse than many of us realize, I wager. When governments, corporations, and consumers can access unlimited credit with no lending standards and no hope of repayment (think 21 trillion USG deficits, student loans, subprime car and home loans), the end can’t be far away. Remember the days when you couldn’t get any credit unless you didn’t need it, or you could put up collateral? We’ll get back there at some point.

  10. I’m not very bullish on mining operations in Mexico. The average gasoline price is $4 a gallon, and the electric company is doubling the price of electricity. There are gasoline wars between various criminal groups and PEMEX fraud abounds. To make matters worse the Peso is devaluing and all those hurricanes create infrastructure failures that have to be repaired by over an indebted government. Mexico elected AMLO who is a socialist President running a bankrupt state. There are several primary silver miners in Mexico. They will need to overcome a low silver price, rising energy costs, failing infrastructure, rising criminal activity, and a workforce demanding higher wages to keep up with inflation. Should Silver go to the moon then AMLO will be there to ensure Mexican state coffers get their proper cut of the profits. I think miners operating in Mexico have a lot of challenges. Goldcorp is the 4th largest silver mining company in the world. Much of their silver comes out of Mexico and their quarterly report was just terrible. I think we will see more of that in the future. I recently looked at Sprott’s investment portfolio and he holds a lot of Royalty companies. I think I will focus on those as a way to play a rising silver and gold price vs. the miners. There seems to be less risk and a pretty decent upside and I believe some of them pay out a dividend while we wait. JMO..full disclosure..I’ve lost a lot of money going long on the miners.

  11. Your point about the risks associated with getting the Escobal mine re-opened are valid and well taken.
    However,is it not fair to say that the Rio Alto and Lake Shore mines are probably worth more than the value of the bid made for the whole ensemble? From that point of view does it not make financially economic sense?

  12. Michael Kohlhaas –

    You are exactly right! Fire sale indeed.

    Tahoe Resources was trading in August 2014 at $26.00
    This had fallen to less than $3.00 pre take over by Pan American, who paid $3.40 to buy.

    In 2015 Tahoe paid $1.12 billion for Rio Alto.

    For the same amount, PAAS gains not only, Rio Alto, but Lake Shore Gold, and Escobal.
    Fire sale complete!

  13. Where are my crypto trolls??????

    Yeah, I didn’t think so. Crying their snowflake eyes out.

    Good riddance.

    • James r
      Something goes down and you think we cry our eyes out?
      The dollar has about 3% of its original value left and overall Cryptos are still up oh, 1000’s of percent. You need to expand you view…

      • Paul,

        All cryptos are going to zero.

        • james r,

          Couldn’t agree with you more.

          steve

          • The sad thing is each of these mining companies could have created their own cryptos- based on actual metal in the ground, and not ether, that would never “go to zero” and be beloved by the same people who invest in cryptocurrencies( but being, essentially, moles, they lack the brains to think of it (even after others had). Instead of selling bullion coins at $17/oz, why wasn’t Keith Neumeyer, for example, instead of stupidly expanding production during a period of falling silver prices, marketing Firstmajesticoin for what? $1,000 apiece? $6,000?

        • The catch is when…nothing lasts forever. Metals down again…

  14. It’s simple process at this moment,Masters pushing prices of gold and silver to buy miners stocks. We are getting closer to panic mode ,I don’t know what will cause it but it’s coming.
    Who do you think guys pushed gold and silver between 2009-2011 ? Santa??
    They will simply take advantage of coming mess and push gold and other precious metals up again , be prepared!!

    • The ones who should be panicking are the sheeplike shareholders who should have been all over mgmt. to put the mines on care and maintenance until prices recovered, and who now face their corporations being bought out, in cash, representing pennies on the dollar of real value, and at a fraction of they paid for their shares.
      Mark Twain joked that a mine is a hole in the ground with a liar on the top. These days, it is a hole in the ground with management drawing 7 figure salaries who could care less if the shareholder lives or dies.

  15. The election of AMLO in Mexico will be a disaster IMHO. He has pie in the sky ideas about increasing oil production and a new refinery, however the country is bankrupt. Pemex is the most indebted oil company in the world and Mexico is now or very soon to become a net oil importer. It is my opinion that Mexico will become a failed state in the next 3-4 years and will become much like Venezuela.

  16. The manipulation of the silver market is just part of it — probably not even the most important factor. The manipulation of the equity, bond, and real estate markets (upwards) have been the main driving force behind lack of investment demand in silver. Everyone is crowding into those markets and riding them upwards, while silver, gold, and other commodities remain neglected. As a group, we (silver investors) were so cocky back in 2007-2009, convinced the wheels were about to come off the “cart” and the whole currency regime was about to come crashing down. I am still long silver, refusing to sell my position because it is just too good of a hedge against downside for my other holdings….. but I recognize the wait could be very long for silver to have its day again.

    • DisappearingCulture | November 16, 2018 at 11:58 am | Reply

      Very well stated!
      I’m going to agree with some of the more negative posting on this and other places that G & S priced in dollars will be well capped unless and until there are significant shortages. Even then the COMEX set spot price may stay low…but premiums over spot for the real physical delivered to investors goes up due to shortage.

  17. Silver is the deadest (!) asset in the world. Just look at it for yourself.

    I predict the present system continues for another 20 years at least. And, following that, it will break down in 10 to 20 years, but nobody will really be buying gold or silver either. They will stay mostly in cash and be trying to survive while allowing the big fish to eat each other in the rotting markets.

    It’s not guaranteed that either America or the global financial system will survive this turmoil. Bonds will default, stocks will stop trading and companies will go private. Gold will disappear into hoards while the masses are simply left to fend for themselves and die.

    You guys have a much too rosy view of the future. I’m telling you how it is. Gold and silver won’t solve anything.

    • DisappearingCulture | November 16, 2018 at 9:24 am | Reply

      “You guys have a much too rosy view of the future. I’m telling you how it is.’
      But you also type:
      “I predict the present system continues for another 20 years at least.”

      How are these two statements compatible?? Continuance of the current system for 20+ years sounds pretty rosy to me.

  18. Miners now at the 1 year low.What did i predict?Steve is completley wrong with his fundamental analysis.
    Like i told before, he didn’t understand the money system.

    The manipulators in the USA can shoot the gold and silver market down again and again with endless sums of money, whatever they do. Only a physical shortage could finish that.Basically, we have been in a deep recession worldwide for a long time.
    There is overcapacity everywhere.

  19. Steve,
    This article is basically a rehash of previous articles on same subject with some updated data. That being the case, the fact that you continue to ignore two conjoining realities weakens the case, imo.

    Meaning, in order for someone to trust your basic data on energy and/or metals they must believe you are genuinely intellectually fascinated by your research, regardless of necessary compensation or professional interests.

    #1–Obvious conclusion here, if your facts are true, is that the metal price is being manipulated on a truly gargantuan scale. How else? Yet you never research or mention this. Sure, your readers do.

    #2–Even accepting gross felonious manipulation, How is it possible the primary miners have stayed in business? It is not. This has been going on a very long time. Price has been $2 below cost of production for what, almost a year now? Not possible imo, but even if I’m wrong whats really unbelievable is that the primaries have been producing at the supposed cost of production for many years.

    Sorry, don’t wash. any idiot knows you can’t run any business that way, but especially one so dependent on debt. The elephant in the room. Gotta run

    • Frank,

      While you publish a lot of comments, it seems to me that your thinking doesn’t see the FOREST FOR THE TREES. I hate to be so blunt, but there it is.

      steve

    • Sure the miners lose a little on every sell…BUT they make up for it in volume….lol

  20. The costs you show for SSRI have been updated My information is that they have 3-5 trucks, maybe more, now hauling from the Chinchilas site to the mill at Pirquitas. The new SSRI new November 2018 Presentation shows projected cash costs of $7.40/oz Ag (net of by products)and ASIC of $9.75/oz Ag (net of by products)–a wholly different picture from your paper now with the company update.. I believe the haul trucks started moving the new ore in early October & expect to phase in production to 4000 tons per day by year end or by the end of Q1 ’19. These folks are great operators and have completed a significant work program enabling them to transfer current mining operations to the new site.

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