Silver Price To Head Higher As Cost of Production Forms A Base

Many precious metal investors today are troubled by the current weakness in the price of silver and are concerned that prices could fall much lower.   While the price of silver could continue to fall a bit from here, it’s more likely we will see a higher, rather than a lower trend in 2014.

If we look at the table below, we can see the total three-quarters of financial metrics from my top 12 primary silver miners.

Top 12 Silver Miners Total 2013 Metrics

By adding up all the figures, we can see some interesting data points.  For example, the top 12 primary silver miners recorded a combined $2.36 billion in total revenue for Q1-Q3, while their adjusted income amounted to only $1.4 million.

Thus, the average realized price received by the top 12 silver miners for the first nine months of 2013, was $24.58.  Their estimated silver break-even turns out to be one cent less at $24.57.

Even though this is the average for the first three-quarters of the year, the group was able to lower their break-even to $21.39 in Q3.  I don’t believe the break-even will be much less (and probably higher) due to the fact that the group sold 1.4 million more silver in Q3 than they produced.

Furthermore, the group produced 68.8 million oz of silver for the first nine months of 2013 while they sold 69.7 million oz.  I highly doubt they will continue to sell more silver than they are producing for the next several quarters.

It is quite amazing to see that these 12 primary silver miners had $2.36 billion in revenue during the first nine months of 2013 while only showing $1.4 million of adjusted income.  The power of the FED is mighty indeed.  The net income of a negative $554 million for the Q1-Q3 was due to the huge write-downs during the second quarter.

The Price Of Silver Is Below The Group Average Cost of Production

The current price of silver is $19.40, while the estimated break-even for the top 12 primary silver miners in Q3 was $21.39.  According to Kitco, the average price of silver so far in Q4 is $20.76 or 63 cents less than the prior quarter.

I imagine we may see continued losses from the group in the last quarter as the miners receive a lower price for their silver and as stockpiled silver sales are reduced.  However, there is a chance that we may indeed see a small gain for the group in Q4 if the by-product revenues increase due to stronger prices for copper, zinc and lead (Q over Q) and costs continue to decline.

The Low Price Of Silver & Market Sentiment

This chart from Shortsideoflong.com, shows both the price of silver and public opinion of the shiny metal.

Silver Sentiment Nov 2013

Here we can see that sentiment is now approaching the lows seen in June of this year.  What we have taking place are market sentiment lows as well as the price of silver below the break-even for the top 12 miners.

Yes, it’s true that most of the silver comes from by-product mining, however I have checked the break-even for Hecla and Coeur back in 2000, and I honestly say… the price of silver was not much lower than their break-even at the time.  So I doubt we will see much lower prices for silver.

The Fed and member banks are not that stupid to push the price of gold and silver too far below their break-even as it would as it would force investors to take more physical bullion off the market.

If we look at the next series of charts we can see just how much gold and silver have under-performed the commodity index:

Dow to Silver Ratio Dec 2013

Dow to Gold Ratio Dec 2013

Dow to CCI Ratio Dec 2013

The Dow-Silver ratio has increased 3.3 times since the low in August of 2011, The Dow-Gold ratio is 2.3 times higher than its low in August 2011, and the Dow-CCI – the Commodity Channel Index has only increased 1.8 times since the same time period.

How Jeff Christian can brush off gold and silver manipulation while the Fed & Central Banks prop up the entire market with $Trillions of liquidity makes you wonder why he fails to mention that a good part of his business is in Precious Metal Paper Derivative-Hedging.

You see, the huge rise in the price of silver since 2005 has been due to Investment, not Industrial Demand.  The price of silver remained below $5 since the late 1990’s even though there was a silver supply deficit.

So, if you have your head screwed on correctly, the only way to destroy the price of silver is to crush INVESTMENT DEMAND….. period.  Hence, the work of the FED and member banks.

I have to tell you… its hard to hold my tongue as I read and listen to some of the worst analysis to come out of alternative media…. forget MSM.  I am talking about the folks who are supposed to be part of the alternative media.

A good percentage of the energy analysis that comes from some of the well-known subscription services is absolutely atrocious.  You know exactly who I am talking about.  I am completely taken-back by how much the New Shale Energy Revolution is being hyped as our new savior on the alternative media.

Euan Mearns at the PeakOilBarrel.com brought up a very interesting concern as it pertains to Shale Oil & Gas Production.  In order for the U.S. to increase its shale oil production, it will need to grow its drilling rig capacity from 2,000 rigs up to 5,000 if we want to grow production from shale to the lofty levels that are forecasted.

However, Euan believes (I agree) that we may be able to increase shale oil production or shale gas production to the levels forecasted…. BUT NOT BOTH.  We just don’t have the drilling rig capacity to do this.

That being said, there is a much BIGGER THREAT that I will bring up in the beginning of 2014 which makes the problem of PEAK OIL pale in comparison.

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24 Comments on "Silver Price To Head Higher As Cost of Production Forms A Base"

  1. Thanks for this great analysis Steve.
    Am I frustrated with the price development of silver? I am absolutely. If someone would have been asking me 2 years ago if I found it possible that Gold and Silver is in the price level they trading now I would have said never ever these metals will go back to those ridiculously low levels, but here we are. But as you pointed out often, fundamentals are better than ever before. It is amazing that there’s so much trading going on completely ignoring the fundamentals at all. Gold warehouse stocks on COMEX in the 15 to 20 ton range with delivery numbers slightly above that and the hedge funds still betting on lower prices to come. The financial markets ignore fundamentals completely now, everthing is rigged. But People just don’t get it and trade with the rigged markets.
    Speaking about that I would suggest to listen to Dr. Paul Cirag Robert on KWN were he gave an interview on Sunday. Steve I believe that when the tight US Oil is peaking the world will wake up, a paradigm on never ending economic growth will come to en end. There was never before in history so much unbaked paper in circulation and this had been possible due the emence economic growth we have witnessed in the past several decades. The growth will come to an end but more importantly the hope of the masses to go back to “normal” will fade away. I can’t think in a different way that this will ultimately bring us to remonetization of gold and silver. Silver IMHO will outperform gold by far. So folks Stack Stack Stack Silver !!!

    Mery Xmas

    • GermanReader
      I bought silver at (substantially) higher prices so I have taken a loss at current prices but I still see the current price level as a godsend because I can buy a lot more silver for my currency. Don’t be frustrated.
      Silver is on sale for Christmas 🙂

      • lastmanstanding | December 23, 2013 at 9:37 am | Reply

        Ag…good advise…if you can’t believe in something real, why be alive?

        Real items that come from the earth and it’s processes are the only thing that will help real people survive what is coming. To many inhabitants of the US and other places put way to much faith in a society that uses/wastes…everything.

        and that friend, is simply how the planet works.

        Doubters of that will be done when the earth purges itself of weak stuff.

      • I am fully invested , and I can by only very small amount now on a monthly base.
        If I wood have a lot money over my expenses, I would be quite happy.
        Here in Germany we have VAT for Silver coins going up from 7 to 19 % on the first January 2014. So I will get less for my money also.

  2. peak water? WW3?

    • lastmanstanding | December 23, 2013 at 9:27 am | Reply

      Global currency reset?…wtf!

      Jim Willie’s recent stuff reveals a USD split…Outside the US, the dollar remains the same as it is now and within the confines of the US it will be devalued.

      When the blood is in the streets…keep fucking stackin.

  3. Alternative media? Like Puplava? Who touted Peak Oil for years and now is calling the development of horizontal drilling and shale oil an “Energy Renaissance”, oh and don’t forget the “Manufacturing Renaissance” too. What’s this guy smokin’ these days? Has he forgotten all of the Fundamentals? Sometimes I wonder about him, although he’s still one of my favorite finance shows.

    • Puplava, I listened his show some years ago frequently, he often gave Jeff Cristian an interview (mabe soon he interview Daniel Yergin 🙂 ). Some weeks ago I listen a potcast in he try to explain why QE is not causing Inflation , I stopped listen in the middle, wasted time. His website is MSM for me now ok mabe a little better than ZDF (Zweites Deutsches Fernsehen)

    • AC_Jitsu... I don’t know what is going on over there at FSN. I will tell you this. I have been sending articles to their site for several years now. One of my articles reached the top 15 of all time on their site when they were showing how many reads for each article.

      In 2013, I was sending them the most articles ever. Sometimes 2 a week. However, 6+ weeks ago they did not run one of my articles. I had an email exchange with their web editor and he told me that they were going to stay away from articles on Hyperinflation-Collapse.

      I decided after that not to send anymore of my articles. I have noticed that they still take some of my articles, such as the last one on Record U.S. Gold Exports and put it as a link on their news area of their site.

      I believe the majority of analysts that they publish on their site are completely worthless to understand were we are going from here.

      That being said, I will be dropping a BOMB SHELL in the beginning of the year. I imagine I am going to upset many of these ORTHODOX sites…LOL

      steve

  4. Steve,
    1) The cost of mining is very close to the spot price.
    2) Due to environmental regulations, the cost of mining is higher in the US than just about anywhere else in the world.

    Given (1) and (2), if the spot price continues to decline, is it possible US miners will cease production of Silver, while silver mining & processing continues overseas?

    Thanks, and Merry Christmas.
    -Mammoth

    • Mammoth,

      One company called Alexco Resources located in Canada put their mine on care & maintenance over the winter hoping for higher prices in the Spring. They are one of the highest grade silver miners in the world at 22 oz per tonne.

      Coeur & Hecla produced silver at a loss for several years in the 1990’s and early 2000’s and kept on mining. I don’t see companies shutting down because they can borrow money for cheap. The only way I would see some of these companies shut down mines, if the price of silver stayed below $18.

      steve

  5. Glad I’m not the only one who’s been a bit frustrated with the pastepudding turn that FSN has taken lately. I appreciate a balanced view more than constant “doomerism”, but… the whole “manufacturing renaissance” thing struck me as a big joke. I suppose it’s a “renaissance” if you think that five (oh hell, let’s just make it ten) percent of manufacturing will come back here from China and the USA will also build a few thousand ultra-high-tech plants (staffed by 5-10 workers and a bunch of robots.) It all kind of strikes me as the sort of aggravating Greatest Generation USA-uber-alles sort of mentality that I wisely ditched many decades ago. However, I don’t think you’ve given Jim enough credit for his view on fracking. Last I heard him talk he was still a big believer in Peak Oil and just believes fracking has pushed it out a few years. He’s had Bill Powers on the show numerous times. Overall, it’s still well worth listening to and reading (that’s how I found out about this website, by the way.)

    Steve, I’ve got a question for you though. I’ve been hearing a lot about how the cost of production of gold and silver is at or below profitable cost for most producers (amidst me continually trying to make heads and tails of “all-in” versus “cash” costs) and that this is evidence that there will be a rebound at some point. True, this is an untenable situation in the long term, but for how long? Also, how appropriate would it be to extrapolate from the uranium market? Right now uranium is trading for about half of its production costs and I know at least one major producer (Cameco) has shelved a current development effort for the time being. Personally, I think uranium is the can’t-miss play if you’re willing to wait two or three years to turn around. It seems like these miners can just sit around half-dead and bleed cash at unsustainable levels for much, much longer than any rational person would think they can. That being said, I think we’ll soon see a once-in-a-generation opportunity for buying miners. Yamana and First Majestic at $8-9/share just seem too good to pass up, but will they go lower? And what’s the worst cast scenario here?

    Thanks again,
    Jonathan

    • Jonathan,

      Unless the price of silver falls below $18… I don’t see many companies shutting down mines. Maybe we might see one or two mines be put on care & maintenance, but I would imagine due to the ability for these companies to borrow money on the cheap, they will not be shutting down much production.

      As for Uranium… let me just be blunt and say this if you don’t mind. I am totally against mining and using Uranium. I believe we are just starting to deal with problems with Nuclear Power Plants such as Fukushima.

      I will get into more details on this as I have kept my mouth shut on this issue, but I will be more vocal about uranium in the future.

      I agree with you about the silver miners. They will be some of the best investments in the future. This I will also get into more detail in the future.

      steve

  6. Steve, I know you have written many articles about gold and silver mining and declining ore grades. I was wondering about future ore grades from new mines opening, not just gold and silver but base metals and also platinum and palladium. It is difficult finding good information on this. I know peak energy can make some of the projections irrelevant. Is this type of information something you will offer in paid reports eventually ?

    • Keith,

      There is only so much time in the day and I have to say… I spread myself way too thin by all the different subjects that I research. Gosh, I get lost some days in the research. I do have data coming out on Copper ore grades and energy consumption.

      Let’s just say, ALL METAL ORE GRADES are declining. The United States used to mine copper in 1906 at 2.5%, but today its down to 0.43%. And in the mid 1800’s copper ore grades were like 15-20%. Just think about that for a moment.

      I will be focusing on gold and silver, but I will offer some info on Copper and etc.

      steve

  7. Steve,

    Do you have the same analysis for the gold producers?

    Barry

  8. If the cost to mine silver is over $20 per oz, what are the mining cos getting? I can buy from the Doc at $.69 over spot.
    Spot price $20.80 (all # are hypothetical)
    Retail $21.50
    Retailer pays $20.50
    Wholesaler pays $19.75
    Mint pays $18.50
    Refiner pays $17.50
    My guess is the miner/smelter is getting $16.50-17.50 per oz

    I am guessing that for the mining co. to receive $21.50, spot would have to be north of $25.
    Where am I wrong? The spot price and the break even cannot be looked at as equal.
    Merry Christmas and Happy Holidays to all

  9. Thia article is another sham to try to pump up silver sales for people holding large positions. Mines that produce silver are not even mining for silver. You get copper, zinc, tungsten, etc from all these same mines. Of course they hope silver will go up as well so they can get more money, but truth be told they will still make money even below $15 an ounce.

    • Shawn,

      While you are free to express your opinion, your assumption is totally false. There isn’t a company in my top 12 group that makes any money below $17… ZIP. There is only one that makes money at $18.

      For some reason, you didn’t look at the table with all the top 12 miners info showing that they only made $1 million dollars in Adjusted income on $2.3 billion worth of revenue for the first 9 months of 2013. This was at a $24 realized price for silver.

      You also fail to understand the reason why costs for the silver miners have quadrupled since 2002 is due to the price of oil quadrupling.

      I don’t blame you for having this incorrect assumption…. a great deal of investors still think these silver miners can make money at $10…

      Its fricken hilarious.

      steve

      • But, I believe Shawn has a point even though maybe not made clearly. Your article sir only concentrates on primary silver miners. Much of the silver mined every year is byproduct mining, (mined as a byproduct of mining tin, copper, gold, etc). Costs of this silver can be DRAMATICALLY lower.

        Also, why does total cost of production have ANYTHING to do with price? I have know farmers for years continue farming below their total cost of production. As long as its more cost effective to continue to mine than shut down, they will continue to mine.

        All of this is also against the backdrop of you only discussing supply. Supply is meaningless without demand. Since the major source of demand nowadays is speculation, and all of this silver bought by speculators can be sold by speculators at the drop of a hat, I am viewing silver in a more and more precarious position. Yes, it could spike in political fears, but every year that goes by I view the probability of a huge crash as becoming more and more likely, due to this huge supply of silver in the hands of speculators.

        • chrisf

          Who are “the speculators” ?

          Almost 85 % of total annual silver production is going to fabrication (industrial applications, photography, silverware, jewelry, coins, medical…)

  10. There was an Article in the WSJ: Millions of Tons of Metals Stashed in Shadow Warehouses
    http://online.wsj.com/news/articles/SB10001424052702304244904579276830893405644?
    mod=WSJ_hps_LEFTTopStories
    Sadly its behind a paywall so I read online the headline, and the first line from the article. They talk about base metals in the article. It court my intention because of the mismatch between base metal prices and stockpiles.
    Brotherjohnf made in one of his recent videos the argument that base metal prices are manipulated to the upside to keep byproduct silver mining going on.
    Can somebody comment who can read the article.

  11. After having read a good number of the comments, all I can say is, there seems to be much whistling in the dark;
    Each unfortunate loser is trying to cheer one and other up.
    Think about this, the dealers speak about how silver is used to a greater extent by industry.
    Take a year back in the 1950s, let’s pick 1957 as an example, what was the price of silver then? It was much less than a dollar, yet the U.S. coinage above five cents was 92% silver and the silver miners were making a really good profit at that time.
    Allowing for inflation from that time to this, it’s around ten times, in other words, ten dollars today is equal to one dollar in 1957.
    So, if an ounce of silver was sold for less than a dollar at that time, does it not stand to reason that silver today should be less than ten dollars per ounce?

    When silver was soaring, and the price hit $43.00 in September 2011, the silver mine owners were practically fainting with delight, and why not?! It was they at that time who boasted of the killing they were making, they were mining and refining an ounce silver at a cost of five dollars.
    Now, I’m not gloating, I only wish that I had unloaded the silver I had when it reached that $43.00 level instead of listening to all the ‘silver SELLING gurus’,… the replacements for the travelling medicine shows of yesteryear, they were writing, and even holding seminars about how silver was going to hit $200.00 an ounce, and all the rubes …… including myself bought the “bottles of their wondrous elixir”.
    Unfortunately, tarring, feathering and run out of town on a rail is now frowned upon.

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