Market Intervention Crushed Profit Margins At Largest Primary Silver Mining Producer

The profit margin trend at the world’s largest primary silver mining company has experienced a rapid decline over the past several years.  Fresnillo PLC in Mexico, is the largest primary silver mining company in the world.  Last year, Fresnillo PLC produced 47 million of silver and 762,000 oz of gold.

For all their hard work, Fresnillo’s profit margin versus its cost of sales fell to an all-time low of 7% in 2015. This can most certainly be blamed on market intervention, which I will discuss in more detail in upcoming articles.

The chart below shows how the company’s cost of sales has increased to $1.01 billion while their attributable profit fell to only $70 million:

Now compare the huge difference between the 2015 figures to 2005.  In 2005, Fresnillo PLC’s cost of sales were only $196 million versus their attributable profit of $136 million.  Thus, the company’s attributable profit margin to their cost of sales was 70%… ten times higher than it was in 2015.

Furthermore, Fresnillo PLC produced a lot more silver and gold in 2015 versus 2005.

Fresnillo PLC Silver & Gold Production (Moz = million oz.)

2005 Silver production = 35.2 Moz

2005 Gold production = 277,000 oz

2015 Silver production = 47 Moz

2015 Gold production = 762,000 oz

Even, though Fresnillo PLC increased their silver production significantly over the past decade, it is their gold production that experienced the most rapid growth.  However, the company enjoyed a much higher profit margin on its cost of sales in 2005 when it was producing a lot less gold and silver.

If we look at the chart above, we can clearly see that the attributable profits for years 2013-2015 were about the same as what Fresnillo PLC made from 2005-2008, but, the cost of sales were three to four times less during the early period than they were from 2013-2015.

As we can see, something clearly changed on Fresnillo PLC’s income statement after 2012.  Again, this was due to market invention by the Federal Reserve and Central Banks via the bullion banks paper trading markets.

That being said, I need to clarify a few things.  While the chart above shows Fresnillo PLC’s cost of sales, this does not include all their total costs.  The cost of sales figures only represent what takes place at the actual mine.  If we add additional costs, such as administration, exploration, selling expenses and even income tax, the total (more realistic) cost is much higher.

For example, Fresnillo PLC’s additional costs were in 2015:

  • Administration cost =  $63 million
  • Exploration cost = $140 million
  • Selling expenses = $14 million
  • Income tax expense = $143 million

Thus, Fresnillo PLC’s attributable profit of $70 million was even less at only 5% when we compare it to their total revenue of $1.44 billion.

Fresnillo PLC Capital Expenditures Have Jumped Nearly Eight Times While Profits Evaporated

Fresnillo PLC’s capital expenditures were $475 million in 2015 versus $61 million in 2005.  The increased capital costs were due to expansion of new projects as well as increased higher sustaining capital costs.  It would have been nice for Fresnillo PLC to make better profits on the large amount of capital and money they spend to provide gold and silver to the market.

I stated in the beginning of the article that “Market Invention” was the cause of Fresnillo’s deteriorating profit margins.  While many things can be blamed on “market intervention” or “manipulation”,  new evidence released from Wikileaks cable published on GATA’s website, states that it was done on purpose to keep the public from hoarding physical gold.

Again, I will be writing articles discussing this in detail.  However, the primary gold and silver miners are few of the only companies producing REAL WEALTH in the world.  It is a shame that “market intervention” is crippling the only industry that provides the world with real wealth.

Lastly, even though I have shown how Fresnillo PLC’s profit margin has really fallen in the past several years, I believe this is one of the strongest primary silver and gold mining companies in the world.  Most other gold and silver mining companies lost money in the past two-three years, but Fresnillo PLC still made some profits.

Furthermore, the best performing mining companies in the future when the GREATEST FINANCIAL PONZI SCHEME in history starts to unravel, will be those who produce mostly gold and silver.  What I mean by that is a company’s revenue that predominately comes from both gold and silver mining.

For example, Fresnillo PLC’s silver and gold metal sales in 2015 accounted for 91% of their total revenues.  Compare that to Pan American Silver’s 73% of total revenues came from silver and gold metal sales for the same year.

Regardless, the market has no clue just how undervalued physical precious metals are as well as the primary gold and silver miners.  When the FIAT MONETARY FAN finally hits the COW EXCREMENT, the market price of these extremely rare assets will surge higher.

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18 Comments on "Market Intervention Crushed Profit Margins At Largest Primary Silver Mining Producer"

  1. Steve,

    I missed something here. How does increasing any of the costs of production affect hoarding of gold and silver when sales are based on the paper price?

    Thanks,

    SteveW

    • SteveW,

      I am not quite sure of your question. Probably me. However, the market intervention is FUNNELING funds away from physical gold buying and into the Gold Futures and ETF markets. Thus, when demand for Paper Gold on the Exchange or ETF’s surges, the bullion banks can add contracts to ABSORB the huge influx. This is the same for the GLD ETFs.

      While the Gold ETF’s state they have all the gold, we know better.

      Thus, it costs more REAL MONEY to produce gold, but the miners aren’t being paid the REAL VALUE because the massive amount of precious metals buying is being siphoned into a VERY FLEXIBLE PAPER MARKET SYSTEM rather than a very TIGHT PHYSICAL BULLION MARKET.

      steve

      • In a few months the final numbers on annual production will be out, and they are exxpected to show an annual decline in production for both metals. If that happens so, the tights market will get even tighter. What is REALLY interesting is a chart of annual added reserves compared to annual production. If it looks anywhere close to the same chart for oil, perhaps we should stop complaining and simply do what has to be done. 🙂

      • vlad the impaler | January 11, 2017 at 7:16 am | Reply

        The information you provide is valuable but the system can be kept functioning for a long time without viable fundamentals. When will in your opinion the resistance line which has been in place for the last 5 years be broken? The recent price spike which peaked at nearly $1400 failed to break the resistence which currently stands at around $1300.

        • vlad the impaler,

          Yes, we are all surprised at the ability for the Fed and Central Planners to stretch out the agonizing death of the cancer ridden patient.

          Now, your statement, “but the system can be kept functioning for a long time without viable fundamentals”, has been proven true, SO FAR, but the energy predicament will be the BRICK WALL that puts fundamentals back on the FOREFRONT.

          I will be doing more work on detailing this energy situation, as it is KEY to knowing when the FAN WILL HIT THE SH#T.

          steve

    • It means you’re being handed a once-in-a-lifetime opportunity to take advantage of a moneychanger-subsidized discount on your physical purchases.

      • Hey, I am already buying as much as my limited retirement allows. Maybe it is time to try the lottery.

      • I LOVE Silver. Try to add 4 oz of Silver every week…lol or more…..don’t mind saying….I’ve bought Phyzz silver at $52…and at $18…..and I like buying at $18 a lot better! The time is coming–likely sooner that I want, that Spot and Premium will be the same….and a phyzz holder will almost be more excited about how high the premium has moved than how high spot has jumped…… Then—-coins only a few years old….will also get a Numismatic value jump too—making three rising factors on your Silver coin…. just wait….it’s coming… another thought for you… Recycled Silver rose in 2016. Why? WHY is it worth the trouble to recycle so much silver now…at a lower price than we saw in say 2014 or 2013???? I think THERE IS NO SILVER. ….”They” don’t want it widely know that there is NO SILVER…. Some think that JPM isn’t holding Phyzz silver to make a profit, but rather to sell it into a rising market to keep the price from Jumping to like $300 an oz…..I lean to the JMP wants to make a huge profit side of that line of thought….but donno for sure… just try to add weekly….

  2. When in doubt stack.

  3. Thanks Steve, regards

  4. With all these goings-ons, why isn’t there a silver shortage? India is buying, 1.6 million Muslims
    are now free to buy, mint production is up, China solar is up and on and on. Regardless of what
    I read, until premiums rise and delays on shipping are in, the demand isn’t there. All the oil and
    currency/ debt problems are years down the road. Stacking silver is for our grand children. I said
    it before and I’ll say it again, I don’t want to be in the USA when those predictions unfold. Chaos
    comes to mind. You think Venezuela is bad? How did those silver stackers fair in Venezuela when
    grocery stores are empty?

    • If such a system were to continue long enough, new mines are not funded/opened, old mines use up their higher-grade ores in a survival mode, investors become disenchanted with mining shares making raising money for new projects or re-financing expansion more difficult. Add shortage/expensive fuel and/or credit collapse and it’s worse.

      The current system is massively under-pricing silver in relation to skilled labor. Most people have labor to sell, but are using unlimited-quantity markers to value it. Criminals are looting value from working people with expanding fiat digits. PM savings stops this. Propaganda is slowing US sales of physical precious metal into the hands of the people, but not slowing sales of weapons/ammo.

      Disagree that the region formerly controlled by the USA will not be worth being in post-collapse. The cities will burn/starve/loot, but low-population areas with local food will get through.

      Dmitry Orlov and Bison Prepper have some good basic points. 1. Don’t be in cities when they collapse 2. Be somewhere else with deep stock of cheap calories (buckets of dry wheat) and an accurate supportable rifle. 3. Collapse your lifestyle now to save, and to beat the rush.

      Thanks Steve, for the Report.

    • Joe , Answer : a single ounce of silver can buy enough food for a family to last three months
      Source :http://www.thedailyeconomist.com/2016/08/why-do-you-need-to-own-physical-gold.html

  5. I heard one silver oz in Venezuela buys $250 worth of food and where there is food available the seller prefers and allows the buyer with silver to the front of the line.

    • Similar stories of preferred currency in post-WWI Germany. Silver is easy to buy/sell with, just as soon as no one wants “quickpay” RFID cards for payment ’cause the banks are closed. People regularly walk around without the price of a drink and a city-bus ride in their pocket, in cash. Not me, I want the anonymous break between my bank and my spending/saving. Banks are for cashing checks, making change, and getting Amazon deposits.

  6. Fresnillo digs up ever more silver to stay alive, with rising costs. Sounds like an oil company.

    @4 oz, don’t forget gold.

  7. I think the Petro system is ending and that we’ll go to a commodities for oil trade. I think Gold, silver, finished goods, agricultural output are all part of the new system that will eventually be implemented. PM manipulation is to ensure the masses stay part of the working class caste system in America and don’t become wealthy under the new structure.

    We tried killing for oil. Efforts were stopped in Syria and the Ukraine. I think that avenue is closed.

    Trump’s focus on manufacturing and border security reinforces my trade for oil perspective. If you don’t have a factory no one is going to build one in a nation that has no trade goods. If you don’t have trade goods you don’t get oil. If you don’t have oil then you are in serious trouble.

  8. Steve, if we face a near term petroleum energy collapse, why would any miner be a viable enterprise in the future? Especially with ever diminishing yield from gold and silver ore. Do you have an opinion on the likely outcome for miners?

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