SILVER MINING COSTS EXPOSED: Cash Cost Fallacy

There still seems to be a great deal of confusion about the true cost to mine silver.  After I wrote my article “Can the Primary Miners Survive $18 Silver”, I received a lot of replies that were all over the place.  By that I mean, there seems to be no consensus of what is an accurate cost to mine silver.  That is why I decided to write this article.

As I mentioned in prior articles, the reason why I started to research declining ore grades, fuel consumption and mining costs in the mining industry back in 2009, I really didn’t see much in the way of good analysis on the subject.  It wasn’t until the last year or so, did these aspects of the mining industry really become mainstream.

In researching declining ore grades in the top primary silver miners, I wondered what kind of impact this would have on the cost to mine an ounce of silver.  This was explored in my previous article “Silver Price to Rise as Top Miners Production Evaporates”.   The graph below was taken from that article.

Top 6 Silver Companies Production & Processed Ore 2005-2012B

As you can see from the chart, the average yield of the top 6 primary miners declined from 13 oz/t (oz/tonne) in 2005 to 8.1 oz/t in 2012.  As these average yields declined, these top miners had to increase their processed ore 67% from 9.4 million tonnes in 2005 to 15.8 million tonnes in 2012, just to keep silver production at the same level it was in 2005.

Furthermore, as some of these top mine’s average yields declined substantially, additional new mines were added by the company just to keep production flat.  It is certainly true… as ore grades decline, costs increase.

To get an idea how the percentage of costs have increased relative to pure silver revenue, let’s look at one of the top primary silver miners.

A Different Cost Approach for Pan American Silver

There are several ways the mining industry breaks down the costs to produce a metal.  One is cash costs, where the mining company deducts by-product credits and change in inventory (plus a few smaller items) from the production cost.  Then we have total costs which adds back in depreciation, amortization and other items on top of cash costs.

However, I believe those two methods do not provide the PROFITABILITY of the company as it pertains to costs of production to silver sales revenue.  I have used Pan American Silver as an example on how production costs impact their bottom line from their silver revenue only.

If we look at the chart below, we will see a break-down in production costs to silver revenue.  I obtained the silver revenue figure by subtracting by-product credits from total revenue.  Then, the production cost was divided by the silver revenue to show a percentage (shown in the white line):

Pan American Silver Costs

I decided to use this approach because there has been some commentary that the primary silver miners could survive for a while selling silver below their cash costs.  I find that very hard to believe, but let’s look at the results of the chart.

The quarter in which the ratio of costs to silver revenue was the lowest was during Q2 2011 at 56%, when the average price of silver hit a new average high of $38.17.  In the next two quarters the percentage fluctuated, but remained relatively in the same range.

Then all of a sudden the ratio shot up to 93%.  How on earth could this increase 33% over the quarter before?  It was due to several factors:

1) Average Realized Price of silver fell approximately $3.00 compared to Q1 2012

2) By-product revenue increased $11 million compared to Q1 2012

3) Production costs increased $16.5 million compared to Q1 2012

4) Silver Sold was 700,000 less oz, than was produced that quarter.

I would imagine, if Pan American had sold about the same amount of silver as it produced during Q2 2012, silver revenue would have been approximately $25 million higher and the cost to revenue ratio would have been 75-77% instead of 93%.

In Q3 2012, the production cost to silver revenue declined as Pan American sold more silver than was produced that quarter.  By the first quarter of 2013, you can see costs  (in red) declined a bit, but silver revenues fell even more, pushing the cost to revenue percentage up to 81%.  But, the real problem will occur in Q2 2013 as the average price of silver declined nearly $7 compared to the previous quarter (Kitco).

If production costs remain the same in Q2 2013 and Pan American sells the same amount of silver as it did the previous quarter, silver revenue is estimated to decline by 26%.  Based on these assumptions, silver revenue will fall from $159 million in Q1 2013 to $122 million in Q2 2013, putting Pan American’s silver revenue below its cost of production.  (NOTE:  this is just based on production costs to their silver revenue obtained from subtracting by-product credits).

Pan American Estimated Silver Costs

The production cost per oz in the table above was calculated by dividing total production costs by payable silver ounces.  Of course, this does not include any by-product credits, but it was an attempt to gauge the rise in this ratio since Q1 2011.

Regardless, the most important indicator to look at is the decline in estimated Q2 2013 silver revenue compared to production costs (remaining the same).  We must remember, this is based on an average price of $23 for Q2 (according to Kitco).  Currently the average price of silver in July is $19.50, and if the price remains at this level or lower, Pan American will see its silver revenue decline even further.

Primary Silver Miners Cannot Survive at Cash Cost Prices

As I mentioned in the beginning of the article, investors actually believe the primary silver miners can produce silver at or below Cash Costs.  I have received replies to my previous article and listened to analyst commentary stating that the primary miners could survive at cash cost prices.

According to Pan American’s Q1 2013 Report, their stated silver cash cost was $11.33 oz.  If we consider the CLOBBERING that Pan American is going to receive during the second quarter of 2013 with average prices of silver at $23 an ounce, how are they going to deal with $20, $18 or even lower?

The big problem with by-product accounting is that it artificially reduces the so-called CASH COST of silver by deducting the by-product credits.  So, the higher percentage of by-product credits a company has, the lower its supposed Cash Cost.

A perfect example of this is Hecla.  In Q1 2013, Hecla stated a low cash cost of $5.02.  If we look at a screen-shot of their Greens Creek Unit, we can see how a high percentage of by-product credits can lower ones cash cost:

Hecla Silver Cash CostC

Hecla’s Greens Creek unit was the only mine in production in 2012 for the company.  Even though Lucky Friday came back into production in Q1 2013, it was a very small amount.  So, I decided to focus on the figures from their majority producer.

Here we can see that by-product credits were $44.9 million in Q1 2013.  It turns out that Greens Creek by-product metals (gold, zinc & lead) account for nearly 55% of the total revenue, whereas silver is only 45%.  So, it is no surprise that deducting $44.9 million from the production costs, would give Hecla a very low cash cost.

However, low cash costs do not guarantee a high degree of profitability.  Hecla stated a positive $11 million net income in Q1 2013, but that was due to a gain of $21 million of derivative contracts.  Even with the large derivative gain, Hecla’s net income to revenue margin was only 14% during the first quarter.

Furthermore, that 14% margin was accomplished with much higher metal prices.  Hecla had average realized prices of over $30 for silver and $1,620 for gold.  Hecla will more than likely be suffering net income losses in the second quarter — along with Pan American Silver.

That is why investors should not confuse a company’s $5.02 cash cost with the ability to produce silver at $5.02 an ounce.  Just because a mining company can substantially reduce its cash cost with a great deal of by-product credits, doesn’t mean they can successfully produce silver at that amount.

By-product accounting has given the investor an illusion of a “Low Silver Cash Cost” in Hecla’s example above as well as many other primary silver miners.  It doesn’t matter how low a company’s cash cost is, but rather how high their profit margins can be that’s important.

It would be one thing if Hecla was making substantial net income profits based on a $5.02 cost, but that just isn’t that case.  If it wasn’t for Hecla’s by-product credits consisting of approximately 50-55% of total revenue (Greens Creek Unit example) , they would be stating huge net income losses each quarter.   Thus, Hecla’s gold, zinc and lead revenue was just as important as its silver revenue.

I don’t believe the majority of primary silver miners can survive selling their silver anywhere near cash costs as some analysts have commented.  As I have shown in the two examples above, Pan American Silver & Hecla will more than likely be suffering large net income losses when the Q2 2013 results come out — the quarter where average prices of silver dropped to $23.

So, what happens to the miners at sub $20 silver?  Well, according to this new article, “The Miners Best to Survive a Downturn – Dundee”:

A survey of the silver sector released Wednesday by Dundee Capital Markets suggests Silver Wheaton and Tahoe Resources are best positioned going into the lower silver price environment, while Silver Standard, Pan American Silver, Coeur Mining and Endeavour Silver will require “more significant alterations to the current business plan” to adapt.

…While Endeavour Silver has three operating mines, the analysts suggested “it is only the company’s Bolanitos Mine which could survive silver prices significantly below $17-18/oz. …Of the three mines, El Cubo is at the greatest risk of needing to be put onto ‘care and maintenance’. Furthermore, with just over $40M of available credit at the end of Q1, we forecast the company could require additional funding during 2014 if spot prices remain below.”

To lower cash costs at Fortuna Silver Mines, the company could close the Caylloma mine in Peru and cut exploration and corporate G&A by 30%, the analysts suggested. “We believe management is open to putting Caylloma on care and maintenance if lower metals prices are sustained.”

Lichtenheldt and Morrison advised that, of Pan American’s seven operating mines, “we believe at least 3 of these mines would be burning cash during 2014 if silver prices remain below $20/oz and could therefore be candidates for ‘care and maintenance’ if prices do not recover.”

With only one operating mine, Pirquitas, Dundee suggested that Silver Standard’s business and asset portfolio is better suited to a silver price of more than $25/oz. The analysts advised the company could operate at Pirquitas at a loss for a short time; “however we believe management is ultimately committed to profitability and would put Pirquitas on ‘care and maintenance’ if the outlook were for ongoing cash-burn.”

If the price of silver remains below $20, the analysts at Dundee Capital Management believe the two best companies to weather the storm would be Tahoe Resources and Silver Wheaton.  This is interesting because Tahoe is not yet in commercial production and Silver Wheaton makes its margins on $4-5 silver.

Furthermore, Dundee states that upwards of 6 or more mines from four companies quoted in the article above would be candidates to be put on “Care & Maintenance” if silver prices remain below $20.  Also, as these companies burn cash by keeping some of these marginal mines producing silver at a loss, they are consuming funds that would have been future Capex spending for exploration, plant and equipment.

While this article only focuses on the cost based on primary silver miners, base metal  and gold mining companies that produce by-product silver need their silver revenue to fortify their balance sheets.  For example, GoldCorp’s Penasquito mine sells 25% of its silver to Silver Wheaton at $4.02 an ounce.  This doesn’t mean that GoldCorp can afford to just give away all its silver at that price.

The table below shows how a decline in production and price can greatly impact Penasquito’s gold cash cost:

GoldCorp Penasquito Gold Cash Costs

In just 3 quarters, Penasquito’s gold cash cost increased $1,036 an ounce, from a negative $425 in Q2 2012 to a positive $611 in the last quarter.  Even factoring in 25% of the silver sold to Silver Wheaton’s at $4.02 an ounce, Penasquito had an average realized price of silver of $25.54 during Q1 2013.  What will Penasquito’s gold cash cost increase to with the average price of silver $7 lower in Q2 2013?

Lastly, it is a shame that the silver producers are being hurt by the actions of the Fed & Central Banks.  The silver mining companies are producing both a necessary industrial metal as well as an excellent store of value.  Even if industrial demand has declined recently, investment demand should be enormous.  However, as the Fed prints money, purchases U.S. Treasuries and props up the broader stock market, this has created artificial demand for increasingly worthless paper assets and less demand for physical silver (presently).

At some point in time, this sort of charade will end forcing investors to purchase physical assets such as the silver miners and silver bullion to protect their wealth.  Thus, the death in artificial demand in one will cause a skyrocketing demand in the other.

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25 Comments on "SILVER MINING COSTS EXPOSED: Cash Cost Fallacy"

  1. some of my friends can’t take the loss any more and have sold their gold/silver positions.

  2. last summer, when silver was in the 26-28 range, some of the primary silver miners already lost money.

    now, they’re hemorrhaging.

    it’s a crime, more than a shame.

  3. innocent investors got cheated out of their gold/silver positions.

  4. the primary silver miners are easy to track but they only account for 20-30% of all silver production.

    it’s time for someone to track the other 70% of silver production.

    china’s copper mines produce a lot silver too. they’ve lost money last summer and since Q1 of 2013.

    • judejin… yes, it is a real shame that investors are getting fleeced from their positions. However, I believe the safest precious metal assets to own (as you know) are physical bullion.

      While the primary silver miners may be easy to track for you, a good percentage of the investing public still does not have a good idea of what it takes for the primary silver miners to make money — even some well known analysts.

      The problem with the 70% of by-product silver producers is that there are so many of them, and the amounts of silver they produce varies greatly, that it is impossible to cost out their silver AS A GROUP.

      However, I gave the example of GoldCorp’s Penasquito change in gold cash cost by the lower silver price and production. Penasquito produced something like 26 million oz of silver in 2012, which was a great deal for a by-product producer. Anyhow, you can see how important it was for them to use their silver revenue to lower their gold cash cost and fortify their balance sheet.

      What I didn’t include was the change of operating earnings from Penasquito:

      Operating Earnings

        Q2 2012 = $130 million
        Q1 2013 = $24 million

        While Penasquito’s production of gold and silver declined during the first quarter, I still believe things will be much worse Q2 2013, even if production picks up to where it was at the end of 2012.

        All I can say about the 70% of by-product silver mining, is that will become more expensive for the base metal miners going forward and they will need all the revenue they can get to make their balance sheets look decent.

        Lastly, PEAK SILVER will occur in the base metal mining industry first. This is a very important aspect to understand.

        steve

      • can we track silver ore grades at BHP, RIO, the majors first to see the trend? to get an idea when the peak plateau out?

        chinese silver jewelers love low silver prices because retail price of silver jewelry doesn’t fluctuate with silver spot price that much.

        the inventory behind SLV and COMEX is total mystery. big deliveries months saw around 15million ounces physical settlement every time, but comex number doesn’t show any big changes. how does the delivery gets filled?

        i’m just totally amazed that while silver investment demand skyrockets, prices keeps dropping this. why does all this silver come from?

        • Judejin… BHP Billiton’s Cannington mine has suffered substantial declines in their ore grades since 2000

          But, this is only part of the problem. When the USGS upgraded their world silver reserves, Chile had a substantial increase. However, Chile also has huge problems going forward with the energy infrastructure. Unless over $100 billion is spent on energy infrastructure, a good portion of Chile’s copper and silver reserves may not be extracted…. thus PEAK COPPER an PEAK SILVER.

          This is how it will occur. Peak Energy will result in peak metals. And because most of the energy goes into mining gold and base metals, that is where it will be felt first. Primary Silver Mining will more than likely survive a great deal longer due to the fact that primary silver mines use a great deal less energy than their base metal counterparts.

          steve

  5. SRS, is it possible that those declining ore grades are the result of a sensible choice made in response to what had been rising prices? I confess my ignorance of the actual physical mechanics of mining but I imagine that if I were the owner of a silver mine at a certain mountain, let’s say, and I found that the ore grades were much higher on the east side of the mountain than on the west side, I might believe that I could only afford to extract silver from the west side when prices got much higher as it involved a lot more use of fuel and manpower to get the same result on the west side.

    So, when prices go from $8 an ounce to $20 to $30 to $40 I have my guys go at the less likely to be efficient west side of the mountain. So, as prices are rising, my companies ore grades are going down which seems roughly consistent with some of the charts you present.

    I guess the test of this thesis is whether the charts reverse and the ore grades seem to go up when we see the result for this year. This would be consistent with miners going back to the higher quality veins, right?

    • Fred… good question. However, ore grades have been declining since man started to mine for gold and silver. For example, here is a chart on the decline of average gold ore grades since the 1800’s from five countries:

      As you can see, several of these countries were producing gold at an average ore grade of 20+ grams per tonne in the 1890’s. Actually, at its peak, Australia was producing gold at almost one oz gold per tonne (shown in the yellow line).

      The decline in annual ore grades continues. Yes, some companies will mine higher ore grades in certain areas of their projects for part of the year, but overall grades are going in one direction…DOWN.

      In 2012, the top 5 gold mining companies had an average yield of 1.22 grams per tonne. This was down from 1.62 g/t in 2006. Thus we had a decline of average yields at 25% in 6 years or 4.1% annual decline.

      Furthermore, this can be seen in the United States and Idaho. This next chart shows how both the U.S. & Idaho dry & siliceous silver ore grades have fallen since the middle of the last century. In Idaho’s example (shown in blue), their average ore grades fell from almost 30 ounces per ton in the 1940’s to less than 10 oz per ton today. The reason why Idaho’s ore grade figures stopped after 1980 was due to reporting by the states. They simply stopped reporting this data to the USGS.

      Ore grades will continue to fall as the industry has to resort to less quality reserves.

      steve

  6. question I’m a bit confused about. I’ve seen it stated that the cost of gold production is about $1200/oz while sliver is about $22/oz.

    This is a 55/1 ratio in production costs. If the ratio of these metals in the earth is 10/1 or even 15/1, therefore the 15 to 1 price ratio throughout history, why would the mining costs not reflect a similar ratio? what am I missing?

    • webster… according to my calculations, net income break-even for the top 5 gold miners is $1,300-$1,350 and for the top 12 silver miners it was $25.50, Q1 2013. This turns out to be about a 53/1 net income break-even ratio — quite close to the 55/1 ratio you stated.

      Now, the reason why the production costs have changed compared to the ratio in ground of 10/1 is due to the falling EROI of oil since the beginning of the 1900’s.

      EROI = Energy Returned on Invested

      Human and animal labor were the energy source that mined gold and silver for the past 2,000 years. The production cost paralleled the extraction of gold and silver at that 10/1 in the ground ratio via the EROI energy of this human and animal labor.

      However, as oil came on the scene in the early 1900’s, it destroyed the historic 10-15/1 ratio by powering earth moving machines that were able to mine a great deal more base metal ore which produced a great deal more silver.

      Thus, the very high EROI displaced the historic ratio, but this is starting to change as the world is now in a plateau of oil production and the EROI of oil has been falling substantially since the 1930’s.

      U.S. OIL & GAS EROI RATIOS

      1930’s = 100/1
      2000’s = less than 10/1

      steve

      • Thanks. Bear with me here, I got a couple more clarifications….

        Then would this mean that the expenditures for mining OTHER industrial metals in part subsidizes the production of silver? On the other hand, gold mines are more often primary production, therefore gold itself bears the major brunt of production costs?

        So during the golden age of oil, the ratio out of the earth then HAS been different than the historical norm? At the end of this industrial methamphetamine trip then, have we skewed the ratio such that what there is left in the earth is now even LESS sliver/gold ratio than there has been historically?

  7. So it is possible for silver to go down to $5 an oz. If the byproduct producers can still produce silver much cheaper than a primary mine. I think that is really good news. I sincerely hope the primary miners go out of business since they have no business being in business if they cant compete with other producers, that is business. Not to mention the certain shortage in supply that would cause. So hopefully the price will continue to drop and some if not all primary mines go out of business. I would love for another run at $50 so I can dump this cursed metal and make a little $$.

    • Mike…. I sense a little frustration in your comment. I don’t blame you as I don’t think any precious metal analyst saw $18 silver coming when it was $32 in the beginning of the year.

      That being said, never in the history of mining, has the whole primary silver mining industry gone bankrupt. At $5 an ounce, even Fresnillo, which is one of the cheapest silver producers would be shut down. You have to remember, most will not go bankrupt, instead they would put their mines on care & maintenance.

      The recent take-down in the paper price of silver and gold was due to Central Bank manipulation. I would like to remind the reader that manipulation does not just have to be just a PHAT FINGER during low volume Asian trading. It is taking place more in the monetary printing, Bond buying and derivative manipulation aspect of the financial system.

      Mike, even though you may be holding on silver at a loss presently, I would hope you would concentrate your frustrations on the Fed & Central Banks instead of the primary silver miners.

      The 10 year bond interest rate went up 8% just on Friday. This is indeed a bad sign for the FED and its control on interest rates. I think there will be problems within the next 6-18 months with the whole manipulated financial system.

      If silver investors can hold on to their silver, they will be greatly rewarded.

      steve

  8. Steve, thanks for the great article.

    Wouldn’t the miners be motivated to continue producing unless their variable unit cost exceeds their average unit revenue? This is a survival situation for them and the only alternative to liquidation is to focus on cash flow by cutting their burn rate and raising more capital.

    The situation reminds me a local steel mill in the 90’s. They were stuck with a market price that was, at one point, below the equivalent price for lumber! The plants remained open, so long as they could cover their unit variable cost. They were in and out of chapter 11 several times before they succumbed. But near everyone was surprised at how many years they were able to stave off the end.

    The only thing sustaining the miners right now is the thin reed of hope that prices will rebound sharply, which isn’t likely except if we get a major exchange default. I really don’t think that’s plausible since government would be expected to intervene somehow. And if it does happen despite their best efforts, the miners will have to worry about financing fuel and wage costs since precious metals anchor inflation expectations throughout the system… trouble either way.

    If prices don’t start to rise moderately, I see many miners going the way of the old GM. Even the large established companies will have to fold at some point wiping out debt and equity holders. National governments will come in and put forward a proposal to “put miners back on the job” where the union and the public take an even split of the new equity. Eventually, they will try to sell some equity to the private sector in these basically government owned enterprises.

    This allows the politicians to be seen as “jobs focused”. It allows workers to gain more clout. And, national governments get to have shares in great underlying assets.

    Does this line of thought seem reasonable?

    • Tom… you bring up some excellent points, but I don’t have that sort of crystal ball to say how things unfold from here. The big problem with the so-called “CASH COST” approach, is that it really doesn’t give a realistic figure where miners can continue to produce silver.

      As I mentioned in the case of Hecla, their supposed $5.02 CASH COST during Q1 2013, does not mean they can still produce silver at $5.02 and survive. We must remember, all the other base metal and gold prices are falling, so cash costs will be increasing in Q2 2013.

      Lastly, the global energy situation going forward will be the real KABOSH on the world’s economies. I actually think the price of gold and silver will recover quicker than most realize due to the fact that the FED is stuck between a rock and a worthless fiat dollar.

      steve

  9. So bottom line is, most miners will survive, but production will fall off as they will concentrate on their more cost efficient projects. Also there will be virtually no exploration done if these prices continue, because they just cant afford it.

    Sounds to me like a perfect recipe for a supply squeeze that is in its early stage now, and will really manifest itself a couple of years down the road.

    Which is good. If you look at spot prices and production costs, you’ll find that on average, since 2000, PM prices have tracked production costs. Sometimes they went below, sometimes well above, but on average the gold and silver spot price during the current bull market has been the production price. Which makes sense. The gold cartel’s managed retreat has to let the miners make a little profit now and then so that supply is assured.

    The only way to break the manipulation and send PM prices well above production costs is via a shortage. Only then will the physical buyers try to outbid each other. Right now they are all perfectly content with paying whatever fraudulent paper price is offered to them, as they never have to worry about actually getting their hands on the metal.

    Quote: “Peak Energy will result in peak metals.”

    Yep, it’s basically a question of how cheap you can move and go through the ore. If there was an abundance of oil, we wouldn’t have to worry that much about ever running dry of metals in our lifetime. But as it stands now, with me at 30, I think the world will look a whole lot different when I’m 50. Consider the exponential factor – population, energy usage, resource usage, all going exponential. Or at least trying to go exponential. Because right now everybody really doesn’t give a shit about sustainability, they are getting everything out of the ground as fast and recklessly as they can. At some point it is going to hit the world very radically: “hey, we can’t get any more of that stuff out of the ground, it is actually scarce!”. Then things become interesting. And I think before I hit 50, the situation will have become very clear to everyone.

    Of course that’s just the backup plan, waiting until silver production becomes so expensive that we’ll become rich by that factor alone. But, I’d rather have a genuine industrial supply shortage happening way before then, or alternatively, people finally figuring out that this stuff is real and that it is worth something, and a supply shortage happening via investment demand. Or a combination of industrial and investment supply shortage, which should make for some nice price action.

    Risk-reward factor looking good, isn’t it?

  10. There are so many things about the silver market that does not make sense. An example, some of the online dealers of silver eagles are sold out of certain silver products. Yes, it’s been argued that a shortage of one or more kinds of silver products does not translate into actual supply shortages. But logically that makes no sense. Every part of the supply chain is geared to making sure that no products are sold out. Be that jeans, cars, iPhones or silver bars. Merchants selling silver products to the public do not want to be out of stock on any item, ever. Out of stock is a lost sale, period. And this applies to everyone in the supply chain! The mints absolutely want product for their customers. The miners absolutely want product for their customers. And on and on it goes. Only a tight market suffers any sold out circumstances, and yet the price drops.

    While some may argue that inflation is not an issue, I would argue that mining cost, as explained in this article, is experiencing serious inflation. Oil, wages, taxes, benefits are rising much faster than the cost of iPads, bread, eggs, etc. Compare oil costs in the 90s to the costs today. A staggering increase, and yet the price drops.

    From a different perspective, given the collapse in price, IF there really is demand for silver, IF there really is a market need, then physical silver would be purchased in size at these prices but that is NOT happening. PSLV has been trading at a discount to spot prices. If a mint really wanted silver, PSLV has it for sale at LESS than spot prices. The minimum is 10,000 ounces to take delivery. If Barrick wanted to repay Silver Wheaton for the pasca luma mine deficit, they could seriously buy silver from PSLV and give to Silver Wheaton at LESS than production cost. Clearly, I am being only half serious, but facts are facts. You can easily buy 10,000 ounces from PSLV at less than it costs to mine silver. If this is true, and all evidence suggests it is, then why is no one going after PSLV units in size? Why are Apples suppliers not raiding PSLV for cheap silver? Seriously, silver in bar form, in size, is available today at PSLV and yet not one ounce has been withdrawn in 2013. Someone please explain that to me?

    • I think it doesn’t work that way. I think there are offerings, where Sprott announces he will buy so and so much silver in the market, and if enough participate, he’ll got out and buy the silver.

      But you can’t just go in, buy 10 mio oz worth of PSLV, and take delivery. Because the silver would not be there, because Sprott would have to buy it in the open market first.

      So using PSLV for taking delivery in size would be the same as buying in the open market. Unless of course you’ve taken a position in PSLV earlier and want to get your hands on it now. You can do that anytime. But why would you do that? Industrial users would never invest in PSLV anyway, and investment users have no reason to take their silver out of Sprott’s vaults.

      • Marcus

        Just FYI, that is how it works. Sprott has a redeemable option for units with a minimum of 10,000 ounces. So yes, you could buy units from PSLV in size and request physical delivery from the bars already owned by the trust. I understand why most don’t of course, but my point was according to this article and the current discount to NAV on PSLV you can buy physical silver at less than the cost of production yet no one is doing this.

        It’s just something to think about.

  11. Steve,
    Do you think we will see a “bailout” of the miners? The banks know what is coming and I think they are trying to position themselves to be in control of the hard assets. What better way to do it than to bankrupt the miners and buy them for pennies on the dollar. One other question I have is once a mine goes offline, how long does it take to bring it back online? Thanks-
    Mr.T

    • Mr. T… anything is possible, but I doubt we will see a bailout of the gold and silver miners. The FED & Central Bank actions have focused on destroying the faith in these two monetary metals. I don’t think they will be bailing them out anytime soon when they are in fact their competition.

      As for your question about how long it takes for a mine to come back online… I don’t have first hand knowledge, but I have read other analysts and they say it will take longer to come online than it did to put it in care & maintenance. Also, it depends on the size of the mine. The larger the mine, the longer it will take due to the level of employees and contractors.

      steve

  12. last friday night, china started silver/gold futures night session to match new york’s session.

    so one day consists of a night session( 9:00pm to 2:30am) and a day session( 9:00am-11:30am and 1:30pm – 3:00pm). so friday’s night volume plus monday’s day volume is an astonishing 14547 tons, which is equivalent to 93000 comex contracts.

    so china’s silver futures trading volume is close to twice as much as Comex.

    let’s see how this additional paper liquidy will affect the paper price rigging game.

  13. china’s gold futures daily turnove(night + day) is about 50% of comex.

    but OIs of gold/silver is much less comex.

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