GETTING CLOSE TO BREAK-EVEN: SILVER & U.S. COPPER INVENTORIES PLUMMET

By SRSrocco:

In just eight months, the U.S. LME copper inventories are down nearly 60%.

The top 10 Primary Silver Miners (does not include Fresnillo & Hochschild) had total revenues in Q3 2011 of $954 million with a combined net income of $241 million.  As the table shows, this was 25% margin compared to total revenues.

However, in this past quarter we can see the damage to the balance sheets as the miners received about $8.00 less an ounce for silver in Q3 2012 than the same quarter last year.  Total income declined to $895 million even though the overall production was a million oz more.  Furthermore, we can see that net incomes have plummeted 78% to only $53 million…. a mere 6% of total revenues.

From my simple calculations, the break-even price to Net Income was about $28.00 for the combined primary silver miners.

 

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First, let’s look at what has happened to the NET INCOME from the top 10 primary silver miners in the third quarter of 2012 compared to the same period last year:

Total Revenue & Net Income are stated in $millions.  The two ratios below are Net Income divided by Revenue and Net Income divided by total silver production of the group.

The top 10 Primary Silver Miners (does not include Fresnillo & Hochschild) had total revenues in Q3 2011 of $954 million with a combined net income of $241 million.  As the table shows, this was 25% margin compared to total revenues.

However, in this past quarter we can see the damage to the balance sheets as the miners received about $8.00 less an ounce for silver in Q3 2012 than the same quarter last year.  Total income declined to $895 million even though the overall production was a million oz more.  Furthermore, we can see that net incomes have plummeted 78% to only $53 million…. a mere 6% of total revenues.

From my simple calculations, the break-even price to Net Income was about $28.00 for the combined primary silver miners.

I am working on breaking down the various costs for each silver miner.  The table below lists the total revenue for the first nine months of 2012 for each company with the Cost of Sales… and ratio.  The Cost of Sales are only the basic mining costs at the mine.  This does not include all costs which will be broken down to get a more break-even cost per miner.

(The Total Revenues and Net Income are in $millions)

The table has been put in order by the lowest percentage of COST OF SALES to revenues.  Here we can see that First Majestic, and SilverCorp have the lowest cost of sales to revenue percentage.  However, this is only part of the picture.

For instance, three of the companies listed above had NEGATIVE NET INCOMES during Q3 2012.  They were Hecla, Coeur ‘d Alene and Silver Standard.  The reason why Hecla stated a net income loss was due to the shut down of their Lucky Friday mine.  Lower production kills ones balance sheet.

Furthermore, we can see that the two miners with the highest COST OF SALES to revenues were the two that suffered net income losses.  On the other hand, First Majestic is performing the best out of the bunch… which is a good reason why its stock is still holding up quite well.

U.S. COPPER INVENTORIES PLUMMET

The next chart really shows just how bad the situation is becoming in copper inventories in the United States.

In just eight months, the U.S. LME copper inventories are down nearly 60%.  Even though it has the LME listed on the table, these are copper inventories located in the U.S.  Most of the decline of copper inventories are not due to exports, but rather domestic consumption.

Looks like the price of copper won’t be falling all that much any time soon.

 

I have been watching the markets from a distance as I collect data on the gold and silver miners.  I also have been reading some of the comments in the blog about the present weakness in paper gold and silver.  All I can say is…. IT’S JUST TEMPORARY.

In the past several months I have been receiving an increasing amount of requests for a website and subscription based newsletter or information.  I am seriously considering it now.

NOTE:  If any one has any comments about my starting a website and offering a subscription service… please email me at SRSrocco@gmail.com.

Steve.

Comments

  1. I am curious what will happen to copper prices as this situation unfolds.  Traditionally, copper-to-silver is around 60:1 and right now it is around 130:1 which would seem to point to copper being greatly undervalued.  Copper has also effectively been de-monetized along with silver and who knows if these warehouses in China and around the world which are supposedly filled with steel, copper, nickel as they claim or are just phantom collateral.

    Hypothetically, a massive move in silver and gold could make those metals all but unavailable to the common man. This could effectively re-monetize copper and nickel and push them back to historical ratios.

    • SRSrocco;

      I’m always on the hunt for sites that can accurately value silver miners. I have subscribed to a number of them, and have scavaged valuation techniques from them and have found useful metrics myself which I find helpful.
      Im happy to say I hit First Majestic on its run in 2Q11, and ran with SVL as well. SVL and FR are both still good companies, but the trick is to find the Miners with the MOST upside. For instance, what was it about FR that made it run so wild, while a dog like GPR didnt go anywhere, and Fortuna has never really gained traction. These are valid questions, and there are reasons why these things were so. Silver miners are a small universe, the gains can be explosive, and I believe a sophisticated site devoted to them utilizing appropriate metrics would do well. Inbox me if you would like to discuss this further.

    • Wasn’t to long ago when a scandal broke in China over missing stockpiles of metals.

    • I’ve never seen the silver to copper ratio’s chart so I don’t really know how it looks like. In my opinion, as gold becomes more expensive, silver will replace gold and as silver becomes more rare due to its low supplies, copper will replace silver.

  2. Great job Steve, thanks for keeping us informed and up todate on these markets. really appreciated. Keep Stacking

  3. This is confinscation by other means!

  4. “confinscation”?  Huh?  lol

    In this day and age of hypothecation to the Nth degree, who knows what’s really in ANY warehouse or vault these days?  There could be millions of ounces of silver in a huge vault somewhere, but with 10 times that worth of ownership titles purchased on it.  So… who REALLY owns it?  They who actually HOLD it would be my guess.
     

  5. That’s one more reason why we should also buy some copper. We have a lot of access to copper such as copper pennies and copper pennies are worth more than their face value. Copper is more undervalued than silver by the way.

  6. copper is more undervalued but it also doesnt store its wealth as well as silver and gold …. its physically bulky in comparison 10 kg s of silver with the same value as a tonne of copper easy to store and hold 10kgs not the same for a tonne

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