Commodity Trade Mantra

2013 Results: Top Primary Miners Real Cost To Produce Silver

2013 Results: Top Primary Miners Real Cost To Produce Silver

2013 Results: Top Primary Miners Real Cost To Produce Silver

Due to the Fed’s QE policy of propping up the stock and bond markets while monkey-hammering the precious metals, the top primary miners gave away their silver at a loss in 2013.  While some of the top 12 primary miners stated adjusted income gains for the year, all the companies suffered net income losses — a staggering $1.7 billion loss for the group.

With these huge losses, you would think the top silver institutions would report this in their annual publications.  Unfortunately, the opposite is the case.  According to CPM Group’s 2014 Silver Yearbook and Thomson Reuters GFMS most recent World Silver Survey, the top primary miners produced silver at a Cash Cost below $10 an ounce.

This low Cash Cost figure gives the impression to the unsophisticated precious metal investor, that silver is very inexpensive to produce.  Now, when I say unsophisticated, I mean lacking the detailed knowledge of the silver market and mining industry.

CPM Group announced that the average cash cost to mine silver in 2013 fell to $9.68 an ounce from $10.01 in 2012.  GFMS in their 2014 World Silver Survey stated the primary silver miner’s cash cost increased from $9.16 in 2012 to $9.27 in 2013.  If we average the figures from both of these institutions, the top primary miners produced silver in 2013 at an average cash cost of $9.47.

Top 12 Primary Silver Miners Suffered A Loss Of $1.00 An Ounce In 2013

According to, the average price of silver in 2013 was $23.79.  Using simple arithmetic, the top primary miners should have made a cash profit of $14.32 an ounce ($23.79 – $9.47 = $14.32).  However, this was not the case.  My top 12 primary silver miners as a group suffered an adjusted income loss of nearly $1.00 an ounce in 2013.

Here are the FULL YEAR financial results for the top primary silver miners in 2013:

Top 12 Primary Silver Miners 2013 FULL YEAR Metrics

Last year, the top 12 primary silver miners stated total revenues of $3.1 billion while suffering a net income loss of $1.7 billion (largely due to impairment write-downs) and $139.9 million adjusted loss for the group.

When I calculate my estimated break-even, I use adjusted income.  Adjusted income removes items that are not associated with the actual day-to-day operations of the mine.  So where’s all the profits?  How did the top primary miners lose nearly $140 million in adjusted income if their Cash Cost was an average of $9.47 an ounce in 2013?

I did a weighted cash cost average for my group which netted $9.76 an ounce… not too far off from the figures put out by CPM Group and GFMS.  I imagine they included Fresnillo in their calculation as the company produced nearly 39 million oz of silver in 2013…. at a low cash cost.

I excluded Fresnillo in my group due to the fact that they do not release quarterly financial statements and they now enjoy higher gold revenues than silver.  Regardless, Fresnillo doesn’t impact the overall cash cost figure all that much.

Looking at the table above, we can see that these primary miners produced 92.7 million ounces of silver and sold 92 million at an average realized price of $23.09 in 2013.  Using my formula, break-even for the group was $24.05.  Basically, the group gave away their silver at a net adjusted loss of $0.97 an ounce. 

Let me tell you why the Cash Cost metric is so insane.  When a mining company calculates its cash cost, it takes total production costs and subtracts various items including what they call, “By-product credits.”  All silver mining companies produce additional metals (included in the ore) such as copper, lead, zinc and gold.

For example, Endeavour Silver recorded a $7.92 cash cost an ounce in 2013.  To get this low cash cost figure, Endeavour subtracted $111.5 million of by-product credits.  This is a big amount when we consider that its total revenue for the year was $276.7 million.  Thus, their by-product credits accounted for 40% of their total revenues.

The mining industry would like the investors to believe that by-product credits are a nice BONUS for mining silver…. which is why they only advertise that stupid Cash Cost figure in their publications.

Again, using my formula, Endeavour Silver made an estimated $0.93 adjusted silver profit per ounce in 2013.  Their average realized price for silver was $23.10 resulting in an estimated break-even of $22.17 last year.  If we subtract their cash cost of $7.92 from their average realized price of $23.10, we would arrive at a hefty $15.18 cash profit.

That’s right… $15.18 an ounce cash profit.  Unfortunately, Endeavour Silver only stated a $11.1 million adjusted income gain for the year after selling 7.1 million oz of silver.  If we multiply $15.18 million by 7.1 million oz, Endeavour should have enjoyed a $107.7 million cash profit in 2013….. they’re didn’t.

Why?  Because every primary silver mining company NEEDS ALL OF ITS BY-PRODUCT REVENUE to fortify its balance sheet.  Can you imagine the losses Endeavour Silver would suffer if it excluded its by-product revenue??

Let me be more clear.  I don’t use the term “By-product Credits”, rather I like to label these additional metals as “By-product Revenue.”  Because that is exactly what they are… ADDITIONAL REVENUE.

FOLKS… There’s A Lot Of BS Out There, And It Ain’t Good For You

Looking at the table above once more, we can see that total by-product revenue was a staggering $1.13 billion, or 36% of total revenue for the group.  If the group lost $139.9 million in adjusted income in 2013, can you imagine the hemorrhaging that would occur if we deducted this by-product revenue?

Again, the cash cost metric is not a GAAP – Generally Accepted Accounting Principle and should not be used to determine the PROFITABILITY of a company.  I find it simply amazing that the top professional silver publications continue to advertise this stupid Cash Cost metric as the basis of actual costs.

It is a completely useless accounting method.  Furthermore, the mining companies are now calculating what is known as “All-In Sustaining Cost” per ounce.  Unfortunately, they still deduct by-product credits as a base to get this All-In Sustaining Cost…. which still skews the results to a lower figure.

George Carlin said it wisely in one of his last HBO Comedy Specials, “Folks, there’s a lot of BS out there… and it ain’t good for you.”  Not only does this hold true for the majority of what Americans see and read on MSM everyday, it’s also true in the mining industry.

The top primary silver miners work extremely hard to produce a highly sought after industrial commodity as well as one of the top two precious metals in the world.  It is a shame that the professional analyst community confuses investors with this silly Cash Cost metric.

Cash Costs do not reflect the actual total cost of mining silver.  As we can see, the top 12 primary silver miners as a group lost nearly $1.00 an ounce in 2013.  I’ve received emails from some of my readers stating that these mining companies deduct Depreciation, Depletion and Amortization which allows them to show a lower net or adjusted income.

While this may be true, it’s a deduction for a GOOD REASON… and not just for the sake of stating lower profits to investors or the government.  Furthermore, these top 12 primary silver miners spent a staggering $842 million on capital expenditures (CAPEX) in 2013.  The majority of their CAPEX spending is not reflected in their quarterly financial statement of net income.

Basically, the Depreciation-Depletion-Amortization deductions and CAPEX spending is a net wash… for the most part.  So… it’s a NON ISSUE if you ask my opinion.

After losing money in 2013, the primary silver miners cut costs, exploration and capital spending to become more lean in 2014.  I will be publishing my Q1 2014 results in the next few weeks when the last few mining companies release their financial statements.

The precious metals will become extremely important physical assets to own and hold in the future.  Currently, the Fed and Central Banks continue to manipulate the values of these metals lower discouraging public interest while propping up the stock and bond markets.

This monetary policy has achieved some short-term success, unfortunately it will create an even greater financial and economic collapse in the future.  Precious metals and some of the mining companies will benefit greatly when the world finally wakes up from their 40 year fiat monetary amnesia.


Courtesy: SRSroccoreport

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The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of or

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