Two Mines Supply Half Of U.S. Silver Production & The Real Cost To Produce Silver

Just two mines supply the United States with half of its silver production, and both are located in Alaska.  It’s quite amazing that Alaska now produces half of the silver for the U.S. when only 30 years ago total mine supply from the state was less than 50,000 oz per year.  The silver produced in Alaska comes from the Greens Creek and Red Dog Mines.  One is a primary silver mine and the other a zinc-lead base metal mine.

Even though Hecla’s Greens Creek Mine is labeled as a primary silver mine, 56% of its revenues come from its gold, zinc, and lead metal sales.  However, Teck Resources, that runs the Red Dog Mine doesn’t even list its silver production in its financial reports.  Because Red Dog produces one heck of a lot of zinc and lead, their silver production doesn’t amount to much in the way of revenues.

For example, the Red Dog Mine produced 542,000 metric tons (1.1 billion pounds) of zinc and 110,000 metric tons (222 million pounds) of lead, while its estimated silver production was 6.6 million oz (Moz).  According to Teck’s 2017 Annual Report, total revenues from the Red Dog Mine were $1.75 billion.  With the estimated silver price of $17 in 2017, total revenues from 6.6 Moz of silver were $112 million, or just 6% of the total.

In addition, Hecla’s Greens Creek Mine in Alaska produced 8.4 Moz of silver this year, down from 9.2 Moz in 2016.  As I mentioned, the Greens Creek  Mine also generated a lot of gold, zinc, and lead, equaling $182 million of the total revenues of $326 million (including treatment costs).

The USGS just came out with their final Silver Mineral Industry Survey for 2017, reporting that the U.S. produced 33 million oz (Moz), down from 37 Moz the previous year.  U.S. silver production declined due to the union strike and the shut down of Hecla’s Lucky Friday Mine.  As we can see, Greens Creek and Red Dog accounted for 15 Moz of the total 33 Moz of U.S. silver production:

While Greens Creek and Red Dog supplied nearly half of U.S. silver production last year, the next two largest mines provided 21% of the total.  Coeur’s Rochester Mine in Nevada produced 4.7 Moz of silver while the Bingham Canyon Mine, the country’s largest copper mine, supplied 2.2 Moz.   Almost 7 Moz of silver came from these two mines alone.

Thus, the top four silver producing mines in the United States accounted for two-thirds of the supply… 22 Moz:

Greens Creek, Alaska (8.4 Moz) = Primary Silver Mine

Red Dog, Alaska (6.6 Moz) = Zinc-Lead Base Metal Mine

Rochester Mine, Nevada (4.7 Moz) = Gold-Silver Mine

Bingham Canyon Mine, Utah (2.2 Moz) = Copper Mine

The majority of the remaining 11 Moz of U.S. silver production comes as a by-product of gold and copper mining, predominantly in Nevada and Arizona.

What’s The Real Cost To Produce Primary Silver?

One of the most misunderstood metrics in the mining industry is the real cost to produce primary silver.  Now, I am not talking about the cost to produce silver as a by-product of gold or base metal mining.  Because 30% of global silver mine supply comes from primary mines, the market determines the silver price based on its cost of primary silver production.

Unfortunately, there are still investors who believe that it only costs $5 an ounce to produce silver.  And who can blame them when Hecla comes out and reports that its AISC – All-In Sustaining Cost for its Greens Creek Mine was $5.76.  If Hecla’s Greens Creek Mine was profitable at $5.76 an ounce, then why did the company state a $23 million net income loss for the year?  Well, part of the reason for the net income loss was due to costs associated with the suspension of its the Lucky Friday Mine as well as losses on derivative contracts.

However, if we factor out some of those costs and look at Hecla’s Cash Flow Statement, the company actually stated $18 million in positive Free Cash Flow:

We arrive at a positive Free Cash Flow by subtracting the Additions of properties, plant, and equipment (CAPEX spending) from the Net cash provided by operating activities ($116 million – $98 million).  If we take that $18 million and divide it by the 12.5 Moz of total silver production, then Hecla made about $1.44 of free cash flow per ounce.  Hecla’s realized silver price in 2017 was $17.23.  So, if we subtract the $1.44 cost per oz from $17.23, then Hecla’s estimated silver breakeven is about $15.80 an ounce.

If Hecla’s estimated breakeven is nearly $16, then how are they posting a $5.76 AISC – All-In Sustaining Cost??  Let’s take a look at the breakdown of their cost structure at their mines:

The reason Hecla can report such a low AISC is by deducting their gold and base metal revenue, which is labeled as “By-product Credits.”  The Greens Creek Mine had $182 million in gold, zinc and lead credits.  By gosh, it’s no wonder Hecla is reporting such a low AISC because it deducted 56% of its revenues.  

By adding up all the by-product credits from the three silver mines, it would equal $228 million.  However, if we deduct the treatment costs of $48 million from that total, it turns out to be $180 million.  Now, let’s put our THINKING CAPS on for a minute.  How would the removal of $180 million from Hecla’s Net Income and Free Cash impact their financials?

Hecla’s Net Income = -$23 million – $180 million = -$203 million

Hecla’s Free Cash Flow = $18 million – 180 million = -$162 million

So, if Hecla actually deducted its by-product metal revenues (credits) from its financials, it would be reporting a $203 net income loss and a negative $162 million in free cash flow.  Which means, the ASIC is a totally BOGUS metric that should be thrown out the window along with Cash Cost accounting.

While Hecla is labeled as a primary silver mining company, they are first and foremost, a MINING COMPANY.  Hecla needs its gold, zinc, and lead metal sales to remain profitable or at least, to keep losses to a minimum.  Anyone who uses the AISC -All-In Sustaining Cost as a metric for calculating the cost to produce silver needs to get a job printing money for the Federal Reserve.

Way too many investors fall for this nonsense and do not understand that CASH COSTS and AISC are totally useless in determining the profitability of a company.  Another thing I hear all the time from less sophisticated investors is that these mining companies use a lot of WRITE-OFFS, such as Depreciation, Depletion, and Amortization to show higher costs.  Investors who believe these mining companies are making up deductions so they can show less profit, don’t understand the accounting industry.

Without getting into too many details, if you look once again at Hecla’s Cash Flow statement, you will see that the Depreciation, Depletion, and Amortization are offset by the additional CAPEX spending:

If we add up the total Depreciation, Depletion, and Amortization (D,D & A) from 2015-2017, it totals $352 million.  Thus, unsophisticated investors might think Hecla has made $352 million in profit because they are just writing off D,D & A to show more costs.  Well, if we add up the CAPEX spending highlighted in yellow, Hecla spent $400 million on mostly sustaining and replacing production.  Which also means, Hecla’s net free cash flow for 2015-2017 was a negative $48 million ($400 – $352).

One more thing.  Because Hecla holds $502 million in debt, it is paying a hefty $32 million a year just to service its debt.  Now, to put it another way, Hecla paid $2.80 per ounce of silver just to cover their interest expense last year.  

By investigating Hecla’s financial statements, and doing some forensic analysis, we can plainly see that primary silver mining companies are not producing silver anywhere near $5 an ounce.  If you have read this article and still believe the primary silver mining industry is producing silver at $5 an ounce, then you need to sell all your precious metals and buy Netflix and Amazon stock, hand over fist.

FINAL WORD:  About My Gold & Silver Analysis

For some odd reason, I continue to receive emails and comments from individuals who state that the silver and gold prices are not taking off as I forecasted in my articles and videos.  So, I thought I would CLARIFY the issue.

PLEASE STOP looking at the markets on a DAY TO DAY BASIS… it will drive you bananas.  The trends that I forecasted will take place over the next 1-2 years.  As I mentioned in my videos, it took nearly two years for the Dow Jones Index to fall 53% from its high in July 2007 to its low in Feb 2009.  Nothing goes down in a straight line… especially BITCOIN and the CRYPTOS.

So, be patient.  The fundamentals for STOCKS, BONDS, & REAL ESTATE are just as lousy today as they were in January when the market peaked.  Give it some time and don’t sweat the small stuff.

Lastly, individuals who believe the Precious Metals Dealers are the shills and swindlers pushing worthless gold and silver, please get your head examined.   I hate to be so blunt, but it does seem like IQ’s have dropped considerably over the past few years.  I would kindly like to remind these Fiat Money Einsteins that there is no intrinsic value in paper money unless you want to burn it or use it to wipe one’s bottom.

However, gold and silver can be used in jewelry and industry.   Now, go to Venezuela and see how much the INTRINSIC VALUE is for the Bolivar.  At best, the intrinsic value of a Federal Reserve Note is its printing cost.  Currently, it cost about $0.14 to produce a $100 bill.


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27 Comments on "Two Mines Supply Half Of U.S. Silver Production & The Real Cost To Produce Silver"

  1. “However, Teck Resources that runs the Red Dog Mine doesn’t even list its silver production in its financial reports. Because Red Dog produces one heck of a lot of zinc and lead, their silver production doesn’t amount to much in the way of revenues.”

    In a previous article I commented that I suspect silver is being acquired off the books, a covert source to build up reserves somewhere – perhaps USG, comex deliveries, or whatever. 6.6M oz of silver is no small amount, unworthy of being on their books. This little snippet above adds another tiny piece to that picture.

    • Uncle Bob,

      While Teck Resources doesn’t include data for silver production at the Red Dog Mine, they include it in their Trail Operations where they refine silver for several mines in the area. Teck’s Trail Operations refined 21 Moz of silver last year. Also, we can find Red Dog’s silver production reported in Alaska’s Mineral Surveys.

      No secret here. Just a typical practice of some mining companies not to report insignificant metals production.


  2. I like the way you do your numbers Steve.

    Those of you, who whinge and whine, should take note; how much would it cost to get this information privately?

    And a reminder;

    Since 1932 Gold is up 6000%
    Since 1999 Gold is up 400 +%

    Since 1932 Silver is up 5000%
    Since 1999 Silver is up 300%

    I am happy with those numbers!

    And the game to be played now is PRESERVING one’s WEALTH.

    I will stick with a modest amount of PM’s as insurance and play with some resources in-situ that is likely to survive the collapse.

  3. Steve,
    Last month Hecla announced the buyout of Klondex Mines. Specifically the Midas, Fire Creek and Hollister gold mines in northern Nevada. This will increase the value of gold production from 39% to 50% of the total value of all metals production by Hecla. There will be also about 1 Moz of silver production added. So Hecla is becoming even less of a primary silver producer than before. However, I think you have it right by saying Hecla is a mining company and not to worry about the gold/silver distinction.

    • Mark,

      Agreed. While Hecla has a lot of debt, when the Gold & Silver prices move up significantly higher, the few stocks worth owning in the future will be the Primary Gold and Silver Miners.


  4. Steve

    “Anyone who uses the AISC -All-In Sustaining Cost as a metric for calculating the cost to produce silver needs to get a job printing money for the Federal Reserve.”


    Great analysis.



  5. After a juicy exploration potential is found, the next most critical factor is successful mineral extraction that is the technology and chemistry such as pressure leaching, ion exchange, removal of impurities from process solutions, use of thiosulfate as an alternative to cyanide in gold leaching, leach-electrolysis treatment of copper recovery from sulfide ores, etc. There are many different process modules linked together, with recycle loops, and environmental challenges.

    Red Dog was a challenge for many years and stayed at the lab test level just to get the flotation chemicals and mechanical systems optimized, they had to find a very specific solution that didn’t otherwise exist. Then there are all the other variables involved such as thermodynamics, source of power and acces to transportation, cold weather experience, etc. Many of these variables change over time, every month and every year requires constant flexibility and operations problem solving.

    Otherwise, all that high concentration of minerals will just sit there. Or so many years into a mines life it just stops.

    There are no two mines the same, as well as the economics involved. They cannot all be lumped into one general category and one general cost per ounce applied. The whole integrated solution is very complex. Company reports don’t mention much of this, they follow the minimum required accounting standards. Plus, they have intellectual property to protect. Red Dog aka Teck will protect their solution.

    The real cost to produce silver is different for each player. And very challenging to ascertain.

    So yah, one cannot use cash costs, aisc, or just reading anything for public consumption such as standard company reports.

  6. An awesome read!

  7. With what Pento is saying we may see physical gold and silver shoot up faster in price by December of this year.

  8. Steve,

    Thanks for the great insight on American mines. I was wondering why Hecla was lagging.

    You did a great article on Pan American (PAAS) a few years back. Was hoping you could do an update on PAAS sometime in the future. Not sure how their debt affects their All In Sustaining Costs. One of their South American mines closed…. maybe because of el-nino flooding? I don’t know. Also what to expect from PAAS dividend-wise when the price of silver goes over $20 an oz. I heard that dividends on gold mine stocks were very lucrative during the great depression.

    Thanks again!

    • Centrist,

      I will be putting out a new PAID REPORT on the SILVER MINERS in the next few months. However, it is true that Hecla is lagging due to the shutdown of its Lucky Friday Mine, but it is one of the few GOOD QUALITY Silver Mines in the United States. Hecla would be an excellent investment in the future when the silver and gold prices finally take off.

      Now, the reason the Gold Miners during the 1930’s depression made a lot of profits and paid out excellent dividends was due to the fact that the Gold Price was revalued by 75% from $20 to $35 an ounce. However, the oil price and costs remained the same. Thus, they had TREMENDOUS PROFITS.

      I do see something similar taking place when the Gold and Silver prices take off when the Markets Implode, but maybe not to the same extent as during the 1930’s depression. But, I could be wrong.


      • Thank you for the reply Steve. I look forward to reading your paid report on silver miners.

        One more thing. I noticed today that palladium price dropped lower than platinum price for the first time in a while. Conventional wisdom says that palladium is used more in Europe than America because they prefer diesel over gasoline. Also read today that diesel sales are falling in Germany. Could this be a sign in the tea leaves that the European economy is starting to falter? I don’t know.

        • Diesel sales are falling in Germany only due to a recent court decision allowing individual cities to ban them. Bans are due to particulate matter emissions. Economy here in Germany is fine with close to full employment

  9. Sir, you state that, ” If you take your gold jewelry to a pawnshop, you are very likely to receive close to spot, $1,300 an ounce and $16 an ounce for silver.”
    I have never heard such a preposterous statement. Where did you get that from? Most pawn shops pay 50-60% of spot if that.
    Seriously, state your rationale or prepare to stand down.
    Graduate Jeweler, Fine Jewelry Consultant, 50y rs in the market.

    • Moriyah,

      You are correct. I should have stated, based on the spot price, they will pay less than the market price. Yes, the gold scrap jewelry has to be remelted and then refined… so there is a cost to that. However, I have seen 70-80% of spot price.



  10. If you think that gold and silver are money, try going anywhere and paying for anything with them.

    If you think dollars aren’t money, try going anywhere and see who doesn’t accept them.

    Money is not an object. Money is an idea, a concept. Money is simply what we agree upon. People use and accept dollars, so dollars are money. It’s the usage that makes them money.

    • DisappearingCulture | April 6, 2018 at 10:41 am |

      You comment did not use the term currency. It is useful from time to time to study the definitions of money and currency; they are not exactly the same. You say “it’s the usage that makes them money”. I would say it’s the usage that makes them currency.

    • I sold two ounces of Gold at the bank near spot and deposited the proceeds in my account and paid for my 60th Birthday party. No problem. The banks buy and sell gold. That’s how it works in Germany. Silver is a bit tougher due to 8% sales tax.

  11. One often reads articles abot the coming armaggeddon and comments like this appear at the end: If you wand to avoid it, we offer PMs at attractive prices. Steve, even if your theory is plausible, still numerous people bought PMs 5-6 years ago they may feel cheated.

  12. silverfreaky | April 6, 2018 at 5:33 am |

    What else must happen that silver increases?The end of the world?It’s obvious that PM has no monetary value anymore.And for industrial reasons is enough available.
    The trick is simple, the debts they book out to the next central bank.It’s an agreement between all great nations.Otherwise one big nation had already buy up the whole PM market.

  13. In other words, the stuff don’t come out of the ground easy even when you can find it. $16 silver sounds like a heck of a bargain to me.

    Kitco is showing a small clip of Mark Cuban saying he “Hates gold with a passion.” That’s the thinking nowday’s isn’t it? Getting rich off of paper shifting, and don’t want it to end. When the rubber finally meets the real road of reality, like you said, at least you can wipe your butt with the endless paper supply.

  14. SilverSeeker | April 6, 2018 at 10:00 am |

    “8.4 Moz of silver this year […] of the total revenues of $326 million” –> it cost them by average as much as 38,81$ per oz to run the whole mining operation. Yet they give away it for just 16$ per oz. It’s a sale of the century 🙂

  15. Will the next crisis be a financial asset crisis or a currency crisis? The former we already had in ’08-’09. We have to ask ourselves this question because the impact is different. Not marginal, but major. My guess is on the latter.

  16. Billy Lone Bear | April 8, 2018 at 9:41 am |

    Great article. If you take a look at the USGS reported reserves and production by country Mexico produces slightly more than 20% of the planets silver (5600 of 25000 tons). You’ll also notice that their reserves reported at 37000. If we take 37000 and divide by 5600 we get 6 to 7 years before the largest silver producing country’s ability to produce runs out. If we also assume their ore grade deteriorates and a diminishing return on investment as they get closer to zero this could shorten that timeline perhaps by a couple years.

  17. Thomas Van Ausdale | April 28, 2018 at 4:36 am |

    To calculate a multi-product company’s cost and profit for one of their products a standard cost accounting procedure must be available. Common costs could be allocated. One pile of unrefined ore, taxes, equipment, etc. is the fixed cost. Refining cost for each product minus profit is the result. All information to calculate the net profit could be found on company reports and a standard accounting process be employed.

    • Thomas,

      I disagree. As I mentioned, CASH COSTS and AISC for the Primary Silver Mining Industry are BOGUS metrics. Cash Costs or the AISC do provide investors information on the profitability of a company. If a company is deducting 30-50% of its by-product revenue to show lower costs, then it would be suffering a massive loss without that revenue.


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