Top Primary Silver Miners Q1 2015 Results: Still Losing Money Even With Lower Costs

With the rapid fall in the price of oil, the primary silver miners production costs declined in the first quarter of 2015.  How much?  Well, actually a bit more than I forecasted.  However, even with lower production costs, the top 12 primary miners as a group still lost money.

According to the U.S. Energy Information Agency (EIA), the average price of a barrel of Brent crude in Q1 2015 was $53.92, down nearly 50% from $101.82 in Q3 2014.  This helped to lower costs for the primary silver miners considerably.  Unfortunately, the average realized silver price the miners received in Q1 2015 fell even further. 

The table below compares the Top 12 primary silver miners financials from Q3 2014 to Q1 2015.  Because many of the silver mining companies do not publish separate quarterly statistics with their year-end results (Q4), I do not post results for the last quarter of the year.  Instead, I publish FULL YEAR results.

If we look at the table below, we can see that the group’s revenue didn’t change all that much from Q3 2014 to Q1 2015.  Total revenues only increased $1.5 million from $853 million to $855 million due to lower realized silver prices balanced out by higher sales of silver (1.5 million oz) and increased by-product base metal and gold sales:

Top 12 Primary SIlver Miners Metrics Q3 2014 vs Q1 2015

Now, the data that showed the biggest difference was the change in the group’s production cost.  Total production cost for the group fell nearly 10% ($53 million) from $586 million in Q3 2014 to $533 million Q1 2015.  While the group’s total silver production declined 1 Moz in Q1 2015 compared to Q3 2014, the majority of the cost decline came from lower oil-energy prices.

As we can see, lower production costs had a positive impact on mine operating earnings.  The group’s mine operating earnings increased $50 million (shown in the change column on the right) due to lower production costs of $53 million.

Unfortunately, the groups estimated break-even of $17.16 an ounce was higher than the average realized price of $16.87 in Q1 2015.  Thus, the group lost a net $0.29 for every ounce they sold.  Again, this is an estimated break-even, but at least it provides us with a more realistic cost per ounce than the industry’s “Cash Cost Metric.”

My estimated breakeven for my top 12 primary silver miners of $17.16 is much higher than the average Cash Cost of $8.37 for 2014 from the top two official silver sources; The CPM Group and Thomson Reuters GFMS.  Their average cash cost figure isn’t too far off from my group’s average cash cost of $8.67 in 2014.  However, I don’t go by the cash cost accounting, because it is a flawed metric that doesn’t account for the real profitability of a company

The Top 12 Primary Miners Estimated Break-Even Lower Than I Expected

In a recent interview, I stated, “I doubt the estimated break-even for my group would go below $18 or the high $17’s.”  Well it did.  It fell to $17.16.  However, I went on to say that I didn’t expect it to fall to the $14-$15 range.  I still believe this to be true.  Why?  Because the price of oil has actually increased in Q2.  While the price of  barrel of Brent averaged $53.92 in the first quarter of 2015, its Q2 average is approximately 15% higher at $61.50.

So, we will just have to wait and see how the group performs when the silver mining companies release their Q2 results in a few months.  Regardless, the silver mining companies in my group produced 29 million oz (Moz) of silver in Q1 2015 and sold 29 Moz of silver for a net adjusted income loss of $16 million. 

While the group suffered a net adjusted loss, four companies stated positive adjusted income while eight stated losses.  Again, I go by adjusted income because it removes financial gains or losses that are not directly related to the actual mining of silver during the period.

For example, Silver Corp Metals suffered a $130 million net income loss for the quarter due to a huge impairment write down.  This large write down had nothing to do with Silver Corp’s performance at its mining operations during the period.  Matter-a-fact, Silver Corps adjusted income was only a negative $200,000 for Q1 2015 (according to my calculations) even though they stated a net income loss of $130 million.

Top 12 Primary Silver Miners By-Product Base Metal & Gold Sales = 50% of Total Revenue

If we look at the table above, the group stated $419.8 million in by-product metal and gold sales for the quarter.   This is nearly 50% of their total revenue (actually 49%).  As I stated before, the industry deducts what they label as their by-product credits to get their artificially low cash cost figure.

Let’s be conservative and say that 80% of that total by-product revenue during the quarter was from base metal-gold sales and not from the few primary gold mines these companies own.  So, 80% of $419 million is $335 million.  If we were to subtract $335 million from the total revenue, the group’s losses would have been much greater.  Instead of an adjusted loss of $16 million for the group in Q1 2015, it would have been closer to -$350 million.

Investors need to understand that these companies NEED THEIR BY-PRODUCT METAL SALES to fortify their balance sheets.  These are not credits, unless the company can be profitable without them.  As we can see from the figures in the table above, they most definitely need them…. LOL.

I look forward to see how the group performs in the second quarter.  Currently, the average silver price for Q2 is $16.46 (Kitco), about $0.41 lower than the average realized price the group received in Q1 2015.   Furthermore, we must remember the price of a barrel of Brent crude is 15% higher in the second quarter.  It will be interesting to see if the group can continue to lower its estimated break-even as the price of oil moves higher.

Lastly, I am putting the finishing touches on my first Paid Report called THE SILVER CHART REPORT.  It will be released shortly.  It contains 48 charts on the silver market and industry from my work over the past six years, all updated and including new ones never seen before.

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29 Comments on "Top Primary Silver Miners Q1 2015 Results: Still Losing Money Even With Lower Costs"

  1. Tore Johansson | June 15, 2015 at 5:39 am |

    Interesting numbers but more interesting should be to know how big part of the rest of the primary miners is really suffering from this silver prices and may not survive.

  2. Any thoughts on FOFOA’s latest hit piece on silver?

    You are mentioned. He predicts a crash in price to $4-8 after a dollar collapse, related to FALLING investment demand (due to gold getting ALL the love) and falling industrial demand.

    Recommends investing in copper over silver (no awareness of storage and transport issues related to inferior value density).

    Does not seem to have any awareness of rising mining costs related to rising energy prices and falling ore grades. Does not seem to think cash flow negative silver mining companies with stock prices in the gutter indicate current prices are unsustainably low. Claims cost basis of primary silver miners are irrelevant as most silver produced as a byproduct.

    No acknowledgement base metal miners which produce silver as byproduct will be in trouble once world oil production rolls over.

    Absolutely no awareness of peak oil and its implications.

    Grateful for your detailed thoughts and critique.

    • Dick,

      Thanks a TRILLION for the comment and link. This will most certainly be motivation for an article. I haven’t read that entire piece, but stopped right when he mentioned my work and Hecla’s cash cost of $1.75.

      While the folks at FOFOA do understand gold to a certain degree, they have no idea (as you stated) about energy, the falling EROI and the real cost of production. The folks at FOFOA are totally clueless about the CASH COST metric. This is typical of what I call “INSIDE THE VACUUM ANALYSIS”. Basically means, analyzing a market or commodity without including external factors and data. FOFOA is guilty of this in spades

      Lastly, FOFOA stated the following:

      ….then how on earth did mines produce 20,000 tonnes of silver (and scrap refiners another 6,300 tonnes) in 2005, when the price of silver ranged from $6.39 to $9.23 per ounce? And how did we ever survive 2003, when the price ranged from $4.37 to $5.96?

      Do these folks not realize the price of oil went up from $25 a barrel in 2002 to $110 in 2011?? Furthermore, do they not understand the top 6 Primary Silver Miners & Companies average yield fell from 13 oz/t tonne in 2005 to 7.8 oz/t in 2013? The top miners now have to extract and process more ore to produce the same amount of metal. This takes energy, which costs a lot of Fiat Dollars.

      My upcoming THE SILVER CHART REPORT explains a lot of this.

      Dick… thanks again. I will write an entire article on FOFOA’s SHOVING OF THEIR FOOT IN THE MOUTH about Silver.

      LOL… Steve

      • I’ve never paid much attention to FOFOA. His concepts might be interesting, but he obviously doesn’t know what’s going on in the real world.

        The production cost of silver has simply multiplied since when silver used to be priced at around 5$. If he doesn’t factor simply facts like these into his concepts, what are they worth? Not much.

      • Silverwillwin | June 15, 2015 at 4:42 pm |

        “Any thoughts on FOFOA’s latest hit piece on silver? ”

        If that blog isn’t a scare tactic then I don’t know what is.

      • FOFOA is dead wrong. Gold and Silver from a historical standpoint rarely diverge for short periods of time let alone for long periods of time. Gold and silver have approximately a 90% historical correlation meaning that when gold goes up, silver also goes up and when gold goes down silver also goes down. Sometimes, silver leads and sometimes gold leads the way but normally silver’s moves are always more manic and larger on a % basis but the correlation is one of the strongest correlations of any 2 things of any market out there. A 90% historical correlation is near perfect 1:1 or 100% correlation. In my opinion, it’s lazy research on the part of whoever posts under the FOFOA…

        • Fofoa’s view is monetary. As the last drop of trust leaves the fiat corpse, ‘they’ have to regain trust; try to get Frankenstein on his feet with gold backed money. SRS looks at the world through the environmental / physical glasses. We should learn from both.

    • I wonder what people would prefer, a 6 month subscription to FOFOA for $110 or the equivalent in silver? I’ll take my chances with the Devil’s metal….lol.

    • SilverSeeker | June 16, 2015 at 3:35 am |

      From first hand experience, when the crisis strikes, and factories stop using silver, they will stop buying all base metals too. The mines go on strike most of the time or shut down simply by bankruptcy, so they stop producing. BTW, silver will be last metal to stop being bought by industrial users.

  3. OutLookingIn | June 15, 2015 at 9:44 am |

    Steve, to add fuel to the fire so to speak (lol) vis-a-vis “by product metal sales” the following stats puts the nail in the coffin for that!

    The Baltic Dry Index (BDI) has been bottom bouncing averaging since the start of the year at 618.00 and currently sits at 642.00 a continuing low level of activity. Global shipping is still dead in the water!

    What some say is the second most important global shipping indicator, the China Containerized Freight Index (CCFI) for routes from Asia to North/South America and Europe is down 41% since January.

    China Rail Freight Volume year-over-year is down 17% 1H 2015.

    Commodities Tracking Index (DBC) an all inclusive global system, has averaged 17.92 since the start of the year and today sits at the ever increasing low level of 17.53

    Cass/INTTRA Ocean Freight Index tracks US containerized ocean export freight activity. In a downtrend since March 2011 with a steepening decent.

    The global economy has all but ground to a halt, sputtering along at idle level of activity.

  4. Thanks Steve, I was waiting for that article to appear 🙂

    I was surprised as well by the obvious big impact of yet lower energy costs. But, who cares, that factor has been priced in now.. the miners won’t benefit from it any further.

    And let’s all remind ourselves that miners have reduced their operations to the bare necessities. If the way they exploit their own business (high-grading, no building of new mines, practically no exploration) continues, good luck getting any silver in a couple of years. The existing mines will run out, and building new ones will take years. And even if you build new ones, eventually these will run out too, and there will be new resources to build mines into, because there has been no exploration.

    • silverfreaky | June 15, 2015 at 10:56 am |

      Primär miner are only 30%.Even when 50% stops the total amount is not much.(15%)

      • Tore Johansson | June 15, 2015 at 11:28 am |

        A 15% less silver to the market would have a huge impact on the price in mine opinion.
        Well, it will not happen shortly.

      • .. and do you think the base metal mining industy, which supplies the other 70%, does not have the same problems? Well, it does. Let Steve explain it to you.. he has gone into this briefly now and then.

        • silverfreaky | June 15, 2015 at 11:59 am |

          I agree.Datas about base miners i searched a long time.
          This should be very interesting to know how long the life cycle of the big base miners is.

  5. Great article. What I would add is what happens if copper heads closer to $2/lb and stays there for awhile and cripples the primary copper miners who produce a lot of gold and silver as a by-product? Will they shut down those large marginals copper mines that were hedged at much higher copper prices years ago? There’s been an enormous over supply of copper for years because of massive central planning in China. What if copper stays in a trading range from $2.50/lb and $2.00/lb for the next 7-10 years? Does a lot of silver by-product then become unavailable anymore? If that silver became unavailable/uneconomic, the paper silver market would be susceptible to a supply shock/squeeze from the physical market. No one on Wall St expects silver by-product to stop drastically and many on Wall St expect a rally in copper.

  6. Max Meister | June 16, 2015 at 3:19 am |

    The lower the production cost, the lower they are going to suppress the price.

  7. silverfreaky | June 16, 2015 at 6:04 am |

    They flood the market with silver instead oft decreasing the supply.
    The mineros are part of the problem.

    • silverfreaky,

      What would we do without your continued negative comments about silver… LOL. That being said, you have no idea of what you are talking about when you say the miners are flooding the market. They are not. Less than 1% of the market buys any silver. In all reality, the Fed is flooding the market with worthless Dollars, not the silver miners.

      Get your facts straight.


      • silverfreaky | June 16, 2015 at 7:50 am |

        Laut der World Silver Survey 2015, veröffentlicht von The Silver Institute und Thomson Reuters GFMS, stieg der weltweite Silberausstoß 2014 um 5% auf 877,5 Mio. Unzen. Das ist der zwölfte Anstieg in Folge und ein neuer Rekord. Dieses Jahr allerdings dürfte die Serie reißen.

        12 years in a row we had an increasing in the silver output.2014 we had an increasing of 5%.Maybe 2015 this will stop.
        Is this not true?

        Is it negative to tell the truth?

        Plese give me your numbers!

        • silverfreaky,

          Focusing on the increased silver supply when there are 7 billion people in the world with a small fraction buying silver, while the majority invest in the BIGGEST PONZI SCHEME in history.. is not a good comparison.

          You seem to always forget the Fed and Central Banks are propping up the Economic and Financial System with Trillions of Fiat Currency Liquidity.

          How you can blame the silver miners for bringing on more supply, which is peanuts in the whole scheme of things… makes me wonder if you really believe what you are talking about. You never say anything positive about how Gold and Silver are high quality stores of value.

          Instead you think flooding the world with Monetary Insanity is SANE.

          You have lost the ability to reason in an INSANE world…LOL.


          • You are right Steve. There are much more important issues. However, and I have also voiced this concern, the miners are a big part of what allows the PM price suppression to continue.

            If miners formed an agreement to limit production by 20%, I think that would cause enough of a shortage for the price to at least double. Cut production by 30%, and I think that would cause serious supply disruptions, causing industrial users to go into full aquiring mode, making the market even tighter, possibly moving silver to triple digits. That is aided by the fact that in almost every industrial application of silver, it makes up only a small amount of the total cost. Industrial users would not need to care how much they move up the price – their only priority would be to get the silver to keep manufacuring their products.

          • Max Meister | June 17, 2015 at 1:24 am |

            So far i have heard of FM CEO Neumeyer to hold back Silver from being delivered only. All others doesn’t seem to be willing to follow. So it’s not totally wrong that they are part of the problem allthough we should keep in mind that they probably would if they could. They just have a liquidity problem and need cash to keep their mining operation up and running. Nevertheless Neumeyer was the only one to write a letter to the CFTC and that is actually free of cost. So the passiveness of all the Silver mines in the matter of price suppression leads me to the assumtion that they didn’t arrived at the dead or alive level yet. A company that is in serious troubles would most probably do everything to change their position to the better. So as this isn’t happening i can only assume that they make still enough money by mining and selling their by-products.
            Over all we still have an increase in Silver mining production according to the statistics delivered by the Silver Institute. At the same time we have less demand from the industrial side. Allthough we have a stready increase in investement demand, it doesn’t look like were going to run into a serious shortage in the near future, unless we are running into a currency crisis that would drive much more investors into Silver.

  8. “If miners formed an agreement to limit production by 20%, I think that would cause enough of a shortage for the price to at least double. Cut production by 30%, and I think that would cause serious supply disruptions…”

    While this sounds like a logical way to go, when a business sees as little as a 5% to 10% reduction of revenue [from where they are currently], that usually means they are going out of business. Miners probably need every dollar they can get as soon as possible. They can’t do any holding back as they can’t afford a cash flow decrease. Maybe if they had been organized and resolute when the price was higher and their position stronger they could have, but not now. Same for copper or other base metal mining.

    This is something Steve can relate to because like me he was self-employed. You can’t voluntarily do something that cuts your business income for the hope of better income later.

  9. I’ve followed since 2007 and invested in Canada’s only primary silver producer, Alexco Resources (they also have an environmental services company serving the mining industry that is quite successful in it’s own right). Currently not mining “due to low prices” they have their corporate video posted that tells the story of how and in what form they mine the silver they produce. They are mining rock that contains almost 1000 grams of silver per ton and is the richest ore mined in the world. It’s pretty interesting especially after reading the article here. Anyway, here’s a link:

    • OutLookingIn | June 18, 2015 at 3:59 pm |

      Silverado –
      I hope you didn’t buy in at the initial (April 04, 2006) offering (3 million shares) of $2.50 per share? As of today (June 18) Alexco is listed at 42 cents on the NYSX and 52 cents on the TSX.
      Plus, Silver Wheaton owns 25% of the life of mine silver produced by Alexco and NovaGold owns a substantial portion (1.2 million additional shares) of Alexco shares.
      Something tells me that Alexco’s outstanding debt, to cash flow ratio is substantial.
      Although, at these low levels of share price a small bet would be called for. Thinking back to what Homestead did during the 1930’s Great Depression. Thanks for the tip and Good luck.

  10. silverfreaky | June 18, 2015 at 11:18 am |

    HUI is going down, even when the PM are increasing.What this means is clear.
    We are still in a bear market.The washout is in front of us.

    • Washout of what?

      • silverfreaky | June 18, 2015 at 2:14 pm |

        In the gold fund SPDR GLD are already 700 t gold.This material is 1/4 of the year production.
        All of them they can sell and push the price down.

        What i told all the time.PM need inflation otherwise all papergold will be selled.
        When the big producer stock price is going up, we will see better times.

        The problem is that 100 paper gold oz are equal to 1 physical oz.
        Maybe steve can make an appeal that all paper gold/silver bugs should exchange in an physical oz.Then the spook will find an end.

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