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  Because many of the silver mining companies do not publish separate quarterly statistics with their year-end results (Q4), I do not post results for the last quarter of the year.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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Tore Johansson
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Tore Johansson

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.

Dick
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Dick

Any thoughts on FOFOA’s latest hit piece on silver? http://fofoa.blogspot.co.uk/2015/06/silver-dollar.html 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… Read more »

Michael
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Michael

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
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SilverSeeker

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.

OutLookingIn
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OutLookingIn

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… Read more »

Markus
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Markus

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.… Read more »

silverfreaky
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silverfreaky

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

Tore Johansson
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Tore Johansson

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

Markus
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Markus

.. 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
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silverfreaky

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.

Jason
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Jason

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?… Read more »

Max Meister
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Max Meister

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

silverfreaky
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silverfreaky

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

David
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David

“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… Read more »

Silverado
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Silverado

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:

http://www.alexcoresource.com/s/Home.asp

OutLookingIn
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OutLookingIn

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… Read more »

silverfreaky
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silverfreaky

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.

David
Guest
David

Washout of what?

silverfreaky
Guest
silverfreaky

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.