By SRSrocco:

Well, the third quarter results are now out, and it looks like several of the primary silver miners stated a net income loss for the period.

The three primary silver miners produced 8.1 million ounces of silver during the third quarter of 2012 and all showed a net income loss.  Here we can see that for several of the primary silver miners, the break even cost now for producing silver is now $30 an ounce.

As costs rise, so will the break even price of silver.

 

Coeur produced the most of the three at 4.4 million ounces in Q3 2012.  Even though Coeur said they had a $9.83 cash cost per ounce,  it had a net income loss of $15.8 million for the period:

Coeur received $30.09 an ounce for their silver Q3 2012 and had a total of $230 million in revenues.  However, it looks as if break even price of silver for Coeur is now at least $31-32 an ounce.

Silver Standard was another primary silver miner that stated a net income loss for the third quarter in 2012.  Silver Standard produced 2.1 million ounces of silver and had total revenues of $73.5 million in Q3 2012 with a $2.5 million net income loss:

What is noteworthy about Silver Standard’s financials, is that they actually sold 600,000 more ounces of silver in the period (2.7 million oz) than they produced and still came up with a net income loss.

Silver Standard does show in their report that their total production cost of silver coming from their Pirquitas mine is $29.20 an ounce.  They received an average $29.37 an ounce for their silver that they sold during the period.  If we figure that they sold 28% more silver than they produced in the third quarter and still ended up with a net income loss… I would believe Silver Standard would require at least $32-33 to break even.

Hecla as another primary silver miner to show a net income loss for the same period.  While it is true that Hecla lost production and revenue due to the temporary closing of their Lucky Friday Mine (until Q1 2013), we can make a case that Hecla also needs close to $30 to break even.

Hecla stated a net income loss of $885,000 on $81.8 million in total revenues.  This revenue came solely from their Greens Creek mine.  Hecla produced 1.6 million ounces of silver in Q3 2012 at a cash cost of $3.52 an ounce.  With that sort of cash cost, you would think Hecla would be a so-called LOW COST SILVER PRODUCER.  They are… on paper.

Even though Hecla sold 300,000 ounces of silver less than it produced in the quarter, it also did the same thing during the same period in 2011.  What is interesting is that Hecla actually received $35 an ounce for their silver in Q3 2012.  If we were to add another 300,000 ounces of silver sales to their total revenue, but dropped the priced received to only $30 an ounce, I would imagine that Hecla would also be close to break even.

The three primary silver miners produced 8.1 million ounces of silver during the third quarter of 2012 and all showed a net income loss.  Here we can see that for several of the primary silver miners, the break even cost now for producing silver is now $30 an ounce.

Of course all the silver miners did not show a net income loss for the period.  However, Pan American Silver’s net earnings fell from $52.5 million Q3 2011, to only $22.6 million in the present quarter.  This is a 57% decline in net earnings compared to the previous year.  That would be bad enough… however Pan America’s revenues were $252 million this quarter compared to $221 million in the same period in 2011.

Here’s the real clincher.  In Q3 2012, Pan American Silver produced 6.3 million ounces of silver by processing 2.5 million tonnes of ore compared to 5.5 million oz of silver from 1.1 million tonnes of ore the same period in 2011.  Thus, Pan American Silver’s cost of production increased a staggering $49 million (55%) to $138 million from $89 million from the same period last year.

As costs rise, so will the break even price of silver.

  1. It was barely a year ago when you reported that the BE point for mining ws $22-25, if memory serves me  I am not sufficiently up on  mining costs to know why this big jump has occurred in such a short time period.  One poster said that it is easier for a miner to continue mining even at a loss than to endure the shut down and restart costs of the mine.   What will come of this is only conjecture on my part but there does not seem to be any silver lining to this story.

    • The quality of silver ore is falling, so more rock must be blasted, dug, hauled, crushed, processed, and discarded to get the same or sometimes even fewer ounces of silver.  Mining profitability is closely linked to the cost of diesel fuel, as many of the ore diggers, haulers, crushers, etc. run on diesel fuel.

      While this is an excellent article, what we do not know is what accounting games are being played to maximize the miners tax situations.  It would not be reasonable to assume that this is not going on but the extent and effect is likely to be unclear to any of us not directly involved in mining.  In other words, it is very likely that there may be more to this story than meets the eye.
       

    • You’re looking at it wrong.  If the number is in brackets, like in 2012, the company has a net loss.  In 2011 the numbers are not in brackets, therefore, they have a net profit  ;)

    • That’s true! Because of these bargains, it is getting harder to find physical silver at my local coin shops. The dealers have recently started to sell the silver bullion for high premiums such as 5$ over spot for an ounce of silver bar. I’ve never seen something like this!

  2. REPLY TO ALL… not all silver miners showed a net income loss for the third quarter.  I just posted some of the top silver miners that did.  However, as I mentioned about Pan American Silver, their net earnings are declining even though they are showing production growth and higher revenues.

    One silver miner that came close to a net income loss for the period was Endeavour Silver.  If we look at their Q3 2012 report we can see that their net income was only $16,000:

    http://i1178.photobucket.com/albums/x366/SRSrocco/EndeavourQ32012finacials.png

    Endeavour produced less silver than they sold in the third quarter, but produced more gold than they sold.  This almost makes a wash.  Endeavour received approx $28.50 an ounce for their silver in Q3 2012.  So, we can see that break even is getting close to $30 as well.

    Ed_B… I would imagine these mining companies do keep some information from the public.   However, I think it would make their break even cost even higher.  

         

    • Hey, any idea why their earnings are higher this year compared to last even though the average price of silver this year is lower than it was last year?

      Thanks 

    • “Ed_B… I would imagine these mining companies do keep some information from the public.   However, I think it would make their break even cost even higher.”

      I’m not suggesting that their mining costs are higher or lower than you say in your article, only that accounting games can and do distort what all companies report as “earnings”, usually for tax purposes.  It is pretty clear that mining costs have been rising, especially over the past decade or so, and that ore quality has fallen significantly.  Both of these bode well for higher metals prices. 

  3. Just came back from the coin shop. I bought a roll of halves this time since they were lower cost than the dimes or quarters. I paid $11.00 each for them. 8-walkers and 12 Kennedys. Deals like this make me higher than any drug. Well, as long as I don’t think of all the ones I have bought before at $5.00.

    • Nice job! What you just did was constitutional and especially patriotic. At one of my local coin shop, it cost 12$ to buy an American silver half coin but at least it cost 24$ to purchase an American silver dollar. My last silver purchase is an American silver half and dime for 14$.

  4. This is an FYI to anyone reading about the profit and losses of public firms. Yes, there are certain games that can be played with the numbers to show a net tax loss.  My business for the last 37 years has been involved in the analysis, rating, underwriting and lending on business financial data and tax returns.  In those years I’ve worked on and reviewed over 100,000 separate sets of tax returns, including 5 years as an analyst and business credit reporter with Dun and Bradstreet.
    There are many things that one can discern within the numbers presented on these financial documents. One critical matter is what the firm’s cash flow is in relation to their performance year over year.  In public firms it is very important that a company shows growth, profitability, free cash flow and key  business ratios that are important to analysts, bankers, stock holders, those expecting dividends or returns on their investments.  It is possible to show very low taxable results so as to keep the tax burden as low as possible. But profits are the Holy Grail of share holders and others who’se expectations are high.  Public mining firms are speculative but free cash flow and profits are still important. Otherwise they are shell games or wild catters.  This is true for any business which produce a good or service that has price swings, expected in the marketplace. 
    That said, even mining firms must show results eventually since there are those within the ownership of the business and those outside who expect results, particularly if they have invested large sums of money and want to see an ROI even if it takes 5 years or so, a typical time period for a large firm to hit the economies of scale from a substantial production of goods or services. 
    If a firm finds itself in an industry where costs rise much faster than income and the bottom line suffers as a result of that, there will come a time when that business or that industry crashes.  Unless someone has a bottomless pit of money to throw at an unprofitable business, particularly one where reporting of financial results is legally required, the tipping point into bankruptcy or insolvency will come about. The public equity markets are littered with the corpses of hundreds of thousands of firms who’s great desire was to thrive and prosper onto to find themselves in receivership and the graveyard of firms who failed.
      Unless your business is the corporation called The United States of America.

    Miners must see price increased or cost reductions if they are to remain viable for the long pull. It is quite possible that somoe of these firms will be shuttered to stop the bleeding. There are thousands of mines now unviable due to rising costs and poor ore grades.

  5. M45
    you bring up something that did not occur to me until you mentioned it.  Consider the aspects of NDAA and NDRP. Both claim soverienty over everything you own including your own labor. Those two executive orders are amazingly inclusive.  Imagine if silver became so scare and valuable that the government war machine ground to halt for the lack of rare earths, and silver fell into that camp.  Leaving aside that NDAA can claim all our silver, it could conceivably claim our labor.  It would not be mass arrests and shipment to the gulag.  We already have gulags populated by 1,900,000 prison convicts, 75% of which are there for victimless crimes. If silver was a strategic metal and consumately valuable, then the labor pool of  American zeks would be frog marched to the Archipelago forthwith.   What would constitute a crime warranting slave labor?
    Anything TBTB want to make it.  Hate speech, criticism of the gummint, posting on SD, naughty FACIABOOK posts, you name it, Chaz Napolitano makes it so.
    As an aside to show how incredibley sheeplike the average zek really is, the TSA conducted a study. For real.
    They asked a random sampling of flyers if they would submit to a body cavity search so they could fly the friendly skies.  57% said no. 13% weren’t sure.  WTF! WTF?   But here is the telling number.  One third said yes.  Want to fly to see the family.  Bend on over, touch your toes, I’ll show you were the wild goose goes’  Wanna fly.  We get to gang rape you. 
    If 1/3 of the fliers in this country would submit to a finger F***, the gulag would be a piece of cake.

    • They asked a random sampling of flyers if they would submit to a body cavity search so they could fly the friendly skies.  57% said no. 13% weren’t sure.  WTF! WTF?   But here is the telling number.  One third said yes.”

      They would be the ones who would enjoy the experience and would fly more often to get it… especially if the TSA agent would put a hand on each shoulder while it was happening.  :-/
       

  6. arsenal009…  Endeavour produced 33% more silver and 139% more gold than the third quarter of 2011.  They also sold 160,000 oz more silver than they produced in Q3 2012 and a great deal more gold than the same period in 2011

  7. I have heard somewhere that on August 2012, it cost 26$ to produce one ounce of silver and now, it cost 30$! That’s a 4$ increase in four months! If the trend keeps going like that, then it is guaranteed that silver will reach 50$ per ounce in the future in my opinion. We just need patience!

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