WORLD’S LARGEST SILVER MINES: Suffer Falling Ore Grades & Rising Costs

The world’s two largest silver mines have seen their productivity decline substantially due to falling ore grades and rising costs.  Gone are the days when silver mines could produce silver at 15-20 ounces per ton.  Today, the Primary Silver Mining Industry is likely producing silver at an average yield of 4-5 ounces per ton.

In my newest video, I discuss the changes that have taken place in the world’s two largest silver mines, the Cannington Mine in Australia and the Fresnillo Mine in Mexico.  Falling ore grades and rising energy costs have contributed to the doubling and tripling of production costs at many silver mining companies.  Investors who believe it still only costs $5 an ounce to produce silver, as it did in 1999, fail to grasp what is taking place in the silver mining industry:

A big problem that has confused investors is the reporting of the “CASH COST” metric by the mining industry.  Some silver mining companies can brag that they have a very low cast cost of $5 an ounce, but they arrive at that figure by deducting their “by-product credits.”  By-product credits are the revenues they receive from producing copper, zinc, lead, and gold along with their silver.

For example, Hecla Mining stated their silver cash cost of $0.16 per ounce for the first three-quarters of 2017.  They were able to report that very low $0.16 cash cost by deducting $175 million of their zinc, lead and gold revenues.  Hecla’s three silver mines had total revenues of $278 million, but they deducted $175 million in by-product credits to get the low $0.16 cash cost.  They deducted 63% of their revenues to arrive at that low meaningless cash cost.

According to Hecla’s financial statements, they only made $4.2 million in net income on a total of $417 million in total revenues Q1-Q3 2017 (including $140 million from their Casa Berardi Gold Mine).  Thus, their net income profit was only 1% of their total revenues. How bad would Hecla’s losses have been if they deducted $175 million of their supposed by-product metals’ revenue from their bottom line?  How about a loss of $171 million?  So, please disregard the Cash Cost metric as it is totally meaningless.  Cash cost accounting does nothing to determine the profitability of a mining company.

As the silver mining industry continues to suffer from falling ore grades, costs will only increase going forward.  However, the biggest impact on the silver mining industry will be the decline in global oil production.  In my next video, I will do an update on the worsening U.S. Shale Oil Industry, even though production continues to increase.

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24 Comments on "WORLD’S LARGEST SILVER MINES: Suffer Falling Ore Grades & Rising Costs"

  1. Steve,

    Excellent presentation. Really love the new format.

    Presuming that gold is in the same shape with declining ore grades, seems like it won’t be long until all of the gold and silver above ground is all that there ever will be. I can see the gold/silver ratio dropping like a rock.

    Thanks,

    SteveW

  2. Gas prices are going up in Mexico. Gas prices started the year at $3.64 a gallon. In the last 29 days it has increased to $3.92. That’s a big jump in a short period of time. Especially since the average Mexican makes around $15K annually. I wonder how the increased fuel costs are impacting miners and their Mexican workers. Gasoline impacts everything from food to the price of building materials.I still think in 8 years…probably a lot less Mexico will run out of profitable oil reserves. When it does, you can say goodbye to silver mining and the 250 Billion of food exports to the U.S. Its looking more and more desperate for the good people south of the border. Yet outside of Steve reporting the fundamentals, I don’t hear a peep about the major calamity slowly unfolding in Mexico and by extension our third largest trading partner.

    https://www.insightcrime.org/news/brief/mexico-state-oil-company-says-fuel-theft-reached-time-high-2017/

    https://www.theguardian.com/world/2017/jan/04/gasolinazo-mexico-gasoline-price-hike-protests-petrol

  3. OK, I have bitten the bullet, and signed up to Patreon. Your video was fantastic, and showed (like your earlier ones) some real intelligent analysis. Best of luck!

    It is just a shame that you subscribe to the Catastrophic Anthropogenic Global Climate Change malarkey … given your sensible views on BitCoin and everything else, a bit of research into the Global Warming industry would be an interesting read. Cheers!

  4. I agree with Steve W’s comment above:

    “…seems like it won’t be long until all of the gold and silver above ground is all there ever will be.”

    I couldn’t agree with him more. I really believe that is where we are headed. Sure, like anything else, there might be a couple of companies or nations here or there picking through the bones of old mines. The trends and the curves might be distorted by financial or political actions, just like they are now with shale oil. However, I believe we will reach a point where – for all practical purposes – silver and gold mining and the mining of many materials will be “over”.

    What is becoming more and more clear to me are practices in mining and oil production which are accelerating the “end game”. Silver and gold miners are harvesting mainly the highest ore grades that they have available in order to stay solvent and open for business. Naturally, they do this because the silver and gold prices have been kept too low for too long. Oil production is following basically the same principles.

    Once we reach the point where the reasonably economic ore grades are diminished AND the production of oil becomes seriously eroded, there will be a cliff-like drop in mining (as well as many other human activities).

    • Rob, SRS has been suggesting that the price of gold/silver relates to the cost to extract same. The cost goes up (particularly the cost of oil, which is critical to large-scale miners) and magically the price of Gold or Silver rises.

      The “cliff-like drop” is going to lead to significantly higher prices in Gold and Silver. So, I absolutely agree with SRS that the POO is the essential ingredient for this particular puzzle.

      If the miners say essentially “fuck it!”, then supply falls way below replacement cost.

      We live in interesting times.

  5. Okay so over the last few years are you’re saying that silver may be undervalued, energy intensive to attain and essential for a technological existence? I think I’ll get a couple of ounces to tuck away for the future. Glad you’re still writing for those of us that refuse to watch TEEVEE. My life experience is that I live by the frequency and waveform. Everything is energy, which is frequency/amplitude and as a result; a waveform. TEEVEE is 440hz. Here is 440Hz: https://www.youtube.com/watch?v=OUvlamJN3nM
    How does it feel? That’s your TEEVEE.
    I could rant on about the 60Hz power grid, but when I tell you they are trying to shut down our body’s natural and innate ability to heal itself you’d say I was a conspiracy theorist.
    Better too see an educated doctor and take your pharmaceuticals.
    I regress.
    I’ll go back to my charts and watch the world go by out the window.

    Thank you for the unique analysis and peak into the future.

  6. Steve,

    As you are aware of silver is as well mined as a by product for copper, zinc, uranium mines etc.I expect due to higher commodity prices we will see more silver as well coming to the market. There is a lag always between the silver paper price and the real fysical price. There are in facty only a few pure silver mines globally. So the bulk of the future silver supply will come as a by product. This and geo political
    issue,s will define silver future price in near term. Then we will see the larger silver/gold mining companies just accelerating the take overs of the smaller G/S companies.

    • Pieter,

      Yes, I am aware that 70% of silver is a by-product of copper, lead, zinc, and gold production. While the primary silver mining percentage has been fluctuating over the past 100 years, it has mostly been the smaller pie of overall production.

      I disagree with you that increasing base metals prices will bring on more overall silver production. I actually see opposite taking place. When the markets crack, we are going to experience the MOTHER OF ALL DEFLATIONS. Thus, base metal prices will collapse and with it, by-product silver production. I believe PEAK SILVER will first occur from the decline of base metal silver by-product production.

      steve

      • Only in the gold standard currency system, deflation can run for years. Outside of it, deflation can only run for months. The central bank will resolve the deflation with Ctrl+Print+Bold+Underline.

  7. Hi Steve,
    Good article talking about EROI and complex society collapse.
    https://www.silverdoctors.com/headlines/world-news/what-we-know-as-the-united-states-might-not-survive-the-collapse/
    I’m sure you have seen this but if you haven’t….enjoy.
    Crayfish

  8. Interesting presentation, but to keep the horse in front of the cart, I suggest that you add a corresponding chart of the average price of silver and the value per ton of ore over the same time frame. The values received are critical to your analysis and may give you incite as to what is actually transpiring in ALL mining operations….everyday.

    You will then likely find a correlation between the average silver price and the average ore grade mined every year. IF the price of silver is higher, the average grade mined will usually be lower. The higher price offsetting the lower grade mined, yielding a similar cashflow, but not necessarily “profit”
    CUTTING THE GRADE MINED IS DONE INTENTIONALLY by the mine operator to preserve mine life. This is NOT simply a fact of a decreasing quality of resource but of MAXIMIZING the resource. The 3000 gram ores of yesteryear were a necessity due the remoteness of the mine to civilization and the attendant production costs. There are still 3000 gram ores in the Fresnillo mines …. but there is geometrically a much much larger pile of lower grade rock which are profitable “ores” as the silver price rises. A failure to recognize the importance of production of those marginal ores belies credibility.

    The petroleum question is a separate issue and undoubtedly ANYTHING that decreases lead and zinc production will decrease attendant silver production.

  9. Steve,

    Is there any evidence that miners understate their losses from mining while they gain through “subsidies” in the form of hedging mine producion? In other words, the mining is a loss leader for their gains in hedging and possibly being net short on gold/silver.

    • Eric P,

      Any hedges on a miners balance sheet would show up in their net income. However, they aren’t hedging all that much at these low prices.

      On the other hand, I believe the miners are going to see big moves in their share prices when the Stock, Treasuries, and Dollar Markets crack.

      steve

  10. Steve, seems the NYtimes doesn’t agree with you. According to this article, energy production in the US is quite rosy. They fail to mention these companies already deep in debt…haha.

    https://www.nytimes.com/2018/01/28/business/energy-environment/oil-boom.html

  11. Thanks Steve and the (mostly) intelligent comments which augment the discussion. It pleases me that more and more people are finally getting it: to wit: energy is the basis of almost all wealth and certainly economic activity in our industrial civilization. Oil of course is the keystone energy source and not that bud light frack oil that NYT and BBG love to rhapsodize about. Absent heavy oil/bitumen sources to mix with light frack juice, frack oil would have limited utility. The other key thing to understand is that it is not just base and precious metals that are suffering from declining ore quality but almost all of natures resources from fisheries to food to water. It amazes me that government and academic economists don’t get it. supply and demand and the market will fix everything. Once prices of critical resources get high enough then we can drill baby drill our way back to growth and prosperity. Leibig’s Law should be taught in schools of economics and if it were and understood,a lot of the nonsense spouted by these intelligent idiots would cease. The resource in this case is the keystone resource of oil which is the energy source that drives all this extraction. Oil people love to say that the cure for low oil prices is high oil prices but once we start to hit the bottom of the barrel, we are eventually headed to NO oil prices and the whole edifice of industrial civilization topples over.

    • Not only the basis for all wealth, but in fact human life!
      It has taken mankind 200,000 years, until the industrial revolution, to produce a worldwide human population of 2 billion people.
      It has taken only 200 years to push this population amount to almost 8 billion people.
      The responsible agent for this? First coal and steam power, followed closely by the internal combustion engine and the use of oil.
      Interesting that you quote a “Law” that has agriculture at it’s roots (pun intended) which I portend is oil thats about to be the scarce nutrient.
      All those extra human mouths that oil feeds will be going away.

  12. Next Minercrash!The never ending story?To much material at the market.

  13. This is insignificant to silver price changes. I repeat .. insignificant.

  14. Lolz .. what do u expect? Those are old mines .. haha

  15. Michael Kohlhaas | February 1, 2018 at 9:37 am | Reply

    Steve, are you getting ready for your BitCoin report? Not much time left!

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