What Was The Primary Miners Break-Even Silver Price Q1 2014?

In order to weather the manipulated low paper price of silver, the primary miners cut costs, reduced exploration and capital expenditures.  Utilizing these cost cutting measures, the top primary silver miners as a group managed to pull off a small gain even though the average price of silver was only $20.49 during the first quarter of 2014.

As I stated in my previous article, 2013 FULL YEAR RESULTS: Top Primary Miners Real Cost To Produce Silver, the estimated break-even for the group was $24.05.  However, the mining companies were able to lower this figure during the second half of 2013 and into the first quarter of 2014.

If we take a look at the table below, we can see that the estimated break-even price for the top 12 primary silver miners is now $19.78 or $4.27 lower than the average for full year 2013. 

Top 12 Primary Silver Miners Q1 2014 Financials

The top 12 primary silver miners were able to make $0.53 an ounce adjusted silver income profit during Q1 2014 on an average realized price of $20.31 for the group.  This is a significant improvement compared to the estimated break-even during the Q2 ($25.23) and Q3 ($21.38) of 2013.

Let’s compare Q1 2014 to the same period last year:

Top 12 Primary Silver Miners Group Financials Q1 2014

Even though total revenues for the group increased $27.7 million from $804.9 million in Q1 2013 to $832.6 million Q1 2014, it took the additional sales of 5.8 million ounces of silver to do so.  Furthermore, by-product revenue increased $105.3 million during the same time period.

Which means, it was the increase in by-product revenue not silver, that enabled the mining companies to show a small profit for the quarter.  Here, I will show you.

Revenue Breakdown

Q1 2013 Silver Revenue = $550 million (68%)

Q1 2013 By-Product Revenue = $254 million (32%)

Q1 2014 Silver Revenue = $472 million (57%)

Q1 2014 By-Product Revenue = $360 million (43%)

Thus, the top 12 primary silver miners sold an additional 5.8 million oz of silver this quarter compared to Q1 2013 for a net loss of $78 million in revenue ($550 million – $472 million = $78 million)… whereas by-product revenue increased $105 million.

The difference in these two values is due to a much weaker silver price compared to zinc, lead, copper and gold spot prices.  Now, when I use the term by-product revenue, it also includes revenue that comes from primary gold mines run by some of these primary silver mining companies.

So, without the increased by-product revenue from these primary silver miners, they would have stated a group loss instead of a gain.  This is the very reason why I believe Cash Costs are completely useless as a metric in determining the profitability of a mining company.

In the past year, the top 12 primary silver miners managed to lower their estimated break-even $6.67 an ounce from $26.45 in Q1 2013 to $19.78 in Q1 2014.  While cost cutting and the reduction in exploration enabled the mining companies to become more lean, the addition of Tahoe Resources to the group in Q1 2014, helped lower the overall average even more.

Tahoe Resources Escobal mine in Guatamala is now the lowest cost producer of the bunch.  The Escobal mine started commercial production in the last quarter of 2013, but ramped up operations during Q1 2014.   Tahoe’s Escobal mine produced 4.1 million oz of silver during the first quarter of 2014 (second highest of the group) at an estimated break-even of $16.08.  I imagine once they get their mine to full speed producing 18-20 million oz a year, they will be able to lower that break-even figure to the $15 range.

By adding Tahoe Resources to the group while removing Alexco Resources  (high cost mine which is now on care and maintenance), the top 12 primary silver miners were able to lower their average estimated break-even below the $20 level.

Three quarters of the miners in the group stated adjusted income gains while four recorded losses.  However, if we look at their FREE CASH FLOW for the period, we have the exact opposite…. 8 of the 12 suffered negative Free Cash Flow.  Basically Free cash flow is subtracting capital expenditures and dividends from cash generated from operations.

During Q1 2014, the group suffered a net negative $61 million in Free Cash Flow.  Which means the primary silver miners are still spending more money on CAPEX than cash provided from their operations.

By lowering their cost of production, the primary silver miners now have two positive forces going for them.

1) They can survive for a while in the present low price environment

2) They will enjoy significantly higher profits  when the price of silver heads higher in the future.

Lastly, no company goes into business to break even.  Even though these mining companies were able to lower costs, it is not a sustainable practice over the longer run…. and I highly doubt there is much more room to lower costs in the future.

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22 Comments on "What Was The Primary Miners Break-Even Silver Price Q1 2014?"

  1. Great article. This is why I only read your blog regularly. Great and interesting analysis that addresses the current fundamentals. Here’s my question: what if major manipulative powers allow inflation for every other metal mined by those who mine silver? If such occurred, couldn’t silver just keep going further south with no real negative effect on miners? How long could this last?


  2. CFO point of view | June 10, 2014 at 7:38 am |

    Something similar in nature is occuring wright now, as there are rising stocks of base metals and prices stubornly are kept much higher as deserves. It can last only so long as there are primary base metals miners who are really sensitive about prices, and as prices for their main product is good for them, they just keep mining. In the same time there is insufficient demand, so stocks of base metals are rising. And miners don’t get proper signal from price to cut mining.
    Some day when prices will be released, they will drop like a hammer, and in that time primary silver miners will need much higher prices to even survive, not mentioning any gain in value.

    • CFO point of view,

      I agree with you that the primary silver miners will need higher prices in the future to survive, but disagree with you on the notion that base metal inventories are rising. Matter-a-fact, they are declining:

      Nickel is the only base metal that is showing an increase in inventories. However, very little silver is found in conjunction with nickel mining.


      • CFO may be referencing the situation in China of the moment, where the commodity financing deals(primarily copper but including other metals) are threatening to unwind…leaving a mass of metal supply to come onto an already weakened market.

        But whether or not he was, there is an increasing danger in using western-based data to interpret supply variables… due to the wests fading control of both supply and demand parts of the equation, interpreting the real import of any given supply situation being reported there is a perilous project!

        The big void in western-based understanding is a grasp of the strategic planning of the Chinese. They become increasingly adept at using stealth to achieve goals that remain entirely hidden from western onlookers – whose insular gaze and tired formulas leave them entirely misdirected when trying to interpret data points which require a more nuanced study of current events. The theoretical proposition David brings to our attention gives us a good example of just that.

        Because it is firmly entrenched in the western mindset that the ‘major manipulative powers’ must perforce be the usual suspects so beloved of the consensus narrative… your JPMs G/Ss, Barclays, etc., etc,… one imagines their continued capacity to play with pricing at the base(as opposed to just warehouse!)level. Yet facts on the ground show a continued divorce between the bullion bankers and the miners… due to the forced retrenchment by those same banks, caused by massive losses and regulatory crackdowns. And without an integration of control over the miners and the warehousing anymore… their scams are starting to blow up…real good!

        What is actually happening at the base level is that in the heaviest copper producing countries… your Peru, Chile, Bolivia, Congos etc… where the best graded and longest-lifespan mines are coming onstream now… those mining properties are falling into the hands of Chinese STATE-OWNED companies – whose deep pockets and delivered mandates are designed to execute long term strategies which will only show up down the road. Their strategy re silver, though hinted at in these buyouts, is so deeply off-radar that nary a clue will reach the western world before the game is over!

        As with gold… and silver… keeping the cost of the other metals down in the short term will greatly profit those long term plans… and letting copper unwind at home dovetails with other strategic objectives by which the China’s intend to manage this period of transition and economic collapse. A totally integrated foreign and domestic policy management… vs taking time out from the golf cart tour to dabble at international and domestic politics….OH MY!

        At the mine level, it will sooner or later be realized by the western onlooker, there are no ‘manipulations’ any more other than those which it is in the power of the Chinese to effect. And that the bankrupt bullion bankers have been reduced to mere agents tasked with executing their instructions. Grasping this would take an awful lot of the mystery out of the puzzle which weary metal holders insist on trying to put together from mismatched pieces!

        When you read the spin put on a deal like the Glencore Xstrata PLC Peruvian copper sale to a “Chinese consortium” by the western media, it becomes clear just how badly misdirected are the interpretations prevalent in the minds of those most concerned with and affected by the seismic shift in global influence in the metals trade. Silver investors hoping to glean essential information from the possums producing these media fantasies are definitely barking up the wrong tree!

        In the game of GO, it is good to remember…You only have one weak group. Your other weak groups are dead.

        • Credit given where credit is due…. concisely written Rogue!

        • store-of-value | June 10, 2014 at 11:54 pm |

          You are assuming that the PRoC will allow these physical metals to exit China. When there are multiple paper claims on limited amount of physical, I would imagine PRoC banks will get dibs on the physical first.

          As a result there won’t actually be any new sources of physical copper, aluminum, PM’s, etc entering the trading pool.

          IMO you would seriously have to be stupid to believe that while these bad rehypothecation loans unwind that this will somehow flood the market with physical.

          When it comes to PM’s, I think it’s even more unlikely that bad rehypothecation loans will result in phys flooding the market. I’m sure there are multiple claims on the single 1Oz on PM’s, and since the ports have locked down access while they investigate, nothing can be removed.

          If the PRoC wants, they can dictate who gets to claim the physical, and I doubt it will be anyone that would like to remove it from Chinese borders…. That said I would think a run on physical PM’s would happen in the West since Chinese might come to our markets to cover their obligations.

          Hopefully this will also cause Westerners to jump in on the ride up driving gold even higher as physical supply gets really tight.

          I’m hooping this leads to a serious short squeeze and run on bullion banks. Time to see some serious pain going the other (upward direction) with PM’s.

          • As much as I appreciate the intent of your assembling an argument to counter my own, I can’t help but wonder what might have transpired had you read and digested that argument prior to weighing in on it… since…

            anyone doing so would have realized that it is impossible to suppose that I either stated… or even implied… that metals would need to “exit China” in order for the possible consequences mentioned to happen. Since the west decreasingly creates the market…at either supply or demand end, nor has the financial wherewithall to intervene in its manipulation, it’s rather hard to imagine that your insistence otherwise is anything but an accretion of antiquated ideas being peddled like yesterdays’ newspaper. That said… I did appreciate the novelty of your notion that “Chinese might come to our markets to cover their obligations.” That shows a certain flare for the imaginative which goes far to balance the ledger!

            Since I’m not really sure what would cause you to read into my remarks something that was most definitely not there…except to create a strawman argument… allow me to suggest that your assumption of what I am supposed to be ‘assuming’ runs so contrary to what was the gist of my comment… as to have indeed created YET ANOTHER strawman in the army of strawman arguments which are regularly inserted on these pages in place of any reasoned rebuttal to what has been actually said. Of course, there may be another reason for making that mistaken assumption…but in any case… all is not lost, as at least it does confirm what I had described… as to the perils of staying in a fixed western-centric view of the world!

            You are of course free to keep whatever preconceptions you choose to… as you are free to continue to hope against hope that the wider world will eventually bow to your desire for it to conform to those preconceptions. I cannot fault you for that… as I myself am guilty of holding on to a certain naive hope…

            that one day there may be an engagement on these pages that does not need involve use of the usual slate of ‘stoopid’…’stupid’……idi…idio…idiot, or such pejoratives as are routinely inserted as a mark of the respondents frustration with having failed to quite come up to the task of making their case in a cogent and good-willed manner. It’s prolly seriously stoopid of me to continue imagining that possibility….in the face of all available evidence to the contrary…

            but hey! We all have our failings! A la prochaine///

  3. Outlookingin | June 10, 2014 at 10:22 am |

    Price observation from a skewed perspective. The death of currency is at hand. When? Who knows! Certainly not the many predictive pundits who inhabit the net. What the future holds will be revealed in time. However there are clues present in the here and now, about what may occur with respect to fiat currency.

    Look no further than the global auction world. Just the vast amount of material being brought forward for the auction market is staggering. All one has to do is study the pre-auction catalogues. Recent prices paid at auction for ‘tangible’ wealth preserving items include;
    a/ A yellow diamond at $85 million USD
    2/ Paintings by old world masters in multiples of +$100 millions of USD
    3/ Paintings by famous contemporary artists at prices approaching $100 million USD
    4/ Collectable automobiles of concourse quality in multiples of +$1 million USD
    5/ High end real estate worldwide at 10’s of millions of USD
    6/ Farmland of ever increasing valuations.

    This ‘tell’ points to the globes richest elites all attempting to exit from fiat currency. The flood of those seeking tangible assets, (in place of all that fiat) is increasing at an alarming rate. These people became rich and preserve their wealth by not being stupid. They see that fiat currencies are going to their final valuation of zero.

    Today’s prices are relative only today. Past pricing (as is the present) was and is, subject to all the machinations and manipulations of the power elites. Their power derives from fiat currency still being perceived as a store of value. This belief is being eroded at an ever increasing pace. This is why your preparation for the coming currency collapse should be well along.

    • Scott Wolf | June 10, 2014 at 8:06 pm |



      Nobody ever dares broach the topic of trust,especially in matters of fiat currencies.Who among us wants to hold a US Bond?And what is wrong with the ordinary citizen taking precautions in this age of ZIRP and currency debasement by holding gold and silver?

      Your assertion that the entire global ponzi scheme is now little more than a frayed rubberband ready to snap cannot be overstated. The grotesque valuations in your list are proof that the cancer is spreading.

    • I do not think that is a flight to hard assets.

      Art and collectibles are narly only social function as these level of prices and it only reflects that people who can pay such prices have more “money” (namely electronic dollars and euros) to spend.

      Farmland is a little bit different and I do not think it is bought by the same people, it is more like I have so much stocks, real estate with low yields that I am gonna buy some farmland now.
      it is fashioned now because prices are rising. Of course there are also people who are already in the business and so they now compete with financiers.

  4. Is it possible that mine owners are just trying to keep their mines open, even at a net loss? If they, like us, can see that prices will have to rebound soon, then it forces them to concentrate on operating earnings. So they can pay their salaries and keep their jobs if they increase production of all metals and still operate at a small operating profit.
    It looks like they have increased production of silver by 25% (tahoe/axu?), but many of my small miners have also increased production. If this idea holds any water, then they may be able to produce like this for several more years. I think the Morgue is counting on this and plans to eventually force them to sell their production forward as a last gasp to keep the mine open.
    If this occurs, I’m screwed.

  5. With a metals backed yuan, after the collapse of the western fiat hegemony, due to market conditions or ‘executed’ by the BRICS, the need for governments in the west to confiscate gold & silver can occur.

  6. Hey Steve. Really enjoy your take on things. Especially EROI. Just wondering when the paid report is coming out. Would. Really like to trade some fiat money for that report. Lol


  7. Cleburne61 | June 12, 2014 at 7:47 am |

    Steve, I’m surprised by this report, and a little concerned.

    If the mining companies, in the pockets of the banks and globalists raping planet earth, can manage to lower their costs last year from $28 to $25, and this year from $25 to $20……then why couldn’t they lower them from $20 to $15?

    What is stopping that from happening?

    • Cleburne61,

      I’m no expert in this area. I do have a degree in Geology.

      Cutting costs has come at the “expense” of reduced capital investment in new hardware, software, release of employees, “mothballing” operations that will take an extra amount of capital and energy to open again over maintaining production, and other cost-slashing measures. I’d say they have cut expenses to the bone, with some amputation.

      Steve is better qualified to enumerate from here.

    • Cleburne61,

      Yes, it’s true that the primary silver miners were able to lower their break-even, however I don’t believe $19-$20 is a long term sustainable price for the group. As I mentioned, Tahoe Resources Escobal Mine is one of those exceptions. It has a low cost due to high production and high grade. Most high grade mines are low production, so their cost is high.

      While some of the miners such as First Majestic and Endeavour Silver will be able to lower costs a bit from here, I don’t see much more COST CUTTING for the group as a whole. We must remember, this cost cutting destroys the ability to prove up more reserves and bring on more resources.


      • What do you consider as high grades for gold and silver on underground and open pits ?


        • RD,

          Let me answer by focusing on the Silver Miners… I will discuss gold miners ore grades in an upcoming post. However, Tahoe Resources Escobal mine had an average silver ore grade of 551 grams per tonne Q1 2014, that’s huge. Escobal yielded 15 oz per tonne gold.

          Not only did Tahoe produce silver at a very high grade, it processed 3,041 tonnes of ore per day. Compare this to U.S. Silver’s Galena Mine which had an average grade of 325 grams per ton, but only processed 430 tons per day. While Escobal produced 4.1 million oz of silver, U.S. Silver only produced 386,000 oz during quarter.

          Now let’s compare that to Silver Standard’s open-pit Pirquitas mine in Argentina. Pirquitas milled 5,400 tonnes per day at an average grade of 204 grams per tonne for 1.9 million oz. This was at a yield of 4 oz per tonne, nearly 4 times less than Escobal at 15 oz per tonne.

          Escobal and the Galena are underground mines whereas Pirquitas is an open-pit. Open-pit silver mines do not make sense unless the price of silver is north of $24-25. Silver Standard’s Q1 2014 estimated break-even was $22.72.. but I was very conservative with adjusting their income, it could have been closer to $25-26. Again open-pit mines are great for gold when the company processes a lot of ore… ECONOMIES OF SCALE. If Silver Standard could ramp up produce double say at 10,000 tonnes per day, then they would be yielding nearly 4 million oz a quarter… which would bring down costs.

          Furthermore, Pirquitas doesn’t have much in the way of by-product revenue… just some zinc. For example, Pirquitas had total revenues of $33.7 million with $6.3 million in by-product zinc revenue. Thus their silver revenue was 82% of total revenues… that is extremely high. Which means, there isn’t much of by-product revenue to sweet’n their balance sheet.

          Tahoe Resources Escobal mine is an exception in that it has a very high ore grade and is also processing a lot of ore a day. They plan to get to 18-20 million oz a day.


          • OK thank you very much.

            When will you issue your complete report about energy (EROI), which is to be not free obviously as a very big bhunck of work ?

      • None of this even introduces the black swan events that shatter all the estimates of cost.. Take for example the current collapse of Iraq.. Crude oil trading in the 110-125 range this summer will raise costs substantially for break even??

  8. infometron | June 13, 2014 at 3:21 pm |

    Snyone know what’s happening with roguefaction’s site .

    It has been down for a while with a “db_connect_fail” message.

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