Submitted by SD Contributor SRSrocco

US SILVER CORP NET INCOME DECLINES Q1 2012

Just like I mentioned in my 2011 COMPLETE COST post, if the price of silver keeps falling, these silver miners are going to start to lose money.  US Silver Corp produced more silver in the first 3 months of 2012 then they did in same period in 2011.  Just look at their COST OF SALES.  They actually made almost $4 million more in total revenue, but the NET INCOME has now fallen 32% over the first 3 months of 2011.

 

Look at this GEM from their Q1 2012 REPORT:

  • Realized silver price decreased to $33.29 in Q1 2012 compared to $37.60 in Q1-2011
  • Cash Costs increased to $21.06 in Q1-2012 from $17.97 in Q1-2011 due to increased operating costs including rehabilitation work and lower than targeted production in the quarter.

Can you imagine going forward??  They will START GIVING SILVER AWAY FOR FREE if the prices of silver keep declining.  If their CASH COSTS are now $21.06, their COMPLETE COSTS are almost $30 bucks.

-SRSrocco

  1. Yep If the price dosen’t mach the cost to get it out of the ground then they will let it stay there.

    Thats why the price of oil is so important! It’s is one of the main factors to over head for the minors.. 
  2. One question for you SRS: I was listening to a Jim Puplava podcast today and he had a guy on (Ned Schmidt) who said silver mine production is about to skyrocket because of the low cost of production.  Any truth to that?  I know in closely following silver and your posts that silver mine production is about 750 M ounces a year.  What the 2012 estimates?  Thanks brother and keep up the great work!

     

  3. This quarter for US Silver will show a loss   20% increase in sales, 60% increase in COGS, 100% increase in GA costs.  33% decrease in NI.  And now silver fetches $28 an oz.  this is very bad for a large profitable silver producer.  This will crater industrial production.  the silver miners will hold ther products off the market until prices recover.  any less would be a self sacrifice.  Mining costs are shooting up due to fuel and labor costs, regulatory costs and related items.  shortages will appear in the supply chain very soon. 

  4. THREE MORE SILVER MINERS 2012 Q1 EARNINGS GETTING CLOBBERED

    Here we can see of the 3 Silver Miners 2012 Q1 REPORT, one has a NET LOSS, the other has barely made money, and the third has seen its NET INCOME decline nearly 50% compared to the same period last year.

    Just look at SILVER STANDARD’s CASH COST already…. its $20+ on oz.  And again, Cash Costs are not ALL COSTS.  If they can’t make money at $32-33 an ounce, what will happen to them when silver hits $25-27 in the second quarter of 2012?

    As for NED SCHMIDT…. he is completely clueless if you ask my opinion.  He is a supposed Gold Analyst and on his website page for over a year, he claimed silver was going to $15 an ounce.  If Silver goes to $15 an ounce, you will see SILVER MINERS close shop and go bankrupt in the droves.

    Furthermore, the marginal price of silver going forward is at least $30 an ounce.  You can read all about that in a article written by a RETIRED GEOLOGIST:

    http://libertyblitzkrieg.com/2012/05/15/silver-plunges-below-marginal-cost-commentary-from-a-retired-geologist/

    Again…. if the price of silver declines further from here, there will be more losses and less NET INCOME.  Most of the silver supply comes from BY-PRODUCT BASE MINES.  They don’t give their silver away for free… unless they have a contract with Silver Wheaton (this is very little silver in the whole scheme of things).  These base metal mines want to maximize profits, so they will sell their silver for close to market value….. THEY ALL DO IT.

    Ned Schmidt is a LOUSY ANALYST in my opinion.

  5. ONE MORE THING…

    Some might say that US SILVER is a small company… so its contribution to the overall silver supply is small.  This is true, but it is still over 2 million oz a year.  There are a lot of these small miners.  Furthermore, the 3 SILVER MINERS I highlighted above produced 12.6 million oz of silver in the first quarter of 2012.  This turns out to be over 50 million oz of the world silver supply in 2012.

    Costs will continue to rise, and if prices of the metals don’t keep in pace, then production will decline. 

  6. Silver Plunges Below Marginal Cost: Commentary from a Retired Geologist

    This is a very important article which I linked in my first post in this thread.  Here is part of what Rhody — the retired Geologist states about the real marginal price of silver:

    Hi Guys:
    Silver has now dropped below its total cost of production, which averages about $29.   Back in 2007, producers could produce silver at about $22 (which was above the spot price of the time as well) but at a 10% inflation rate, cost per ounce now, about 4 years later is going to be around $30.   Ignore mining companies that say they can produce silver at 5 or $6.   That’s just mining costs and ignores exploration, smelting, refining and shipping.   Back in 2007, if you looked at the top three miners, looked at their production and profits, you could calculate their total cost at $20-$24 back while the spot price was $18.    Essentially, silver has been produced below total costs since the 1930′s, which is why only 22% of silver mines subsist on silver alone and the other 78% survive on their other metal production with silver as a mere by-product.    No straight silver mine makes money, unless it is very, very high grade.

    —————————————–

    Again… you can read the rest at the link below:

    http://libertyblitzkrieg.com/2012/05/15/silver-plunges-below-marginal-cost-commentary-from-a-retired-geologist/

  7. I was reading or heard it somewhere back that the Goverment where going to try and take over the mining industry and I sort of let this go over my head.  looking back makes me wonder now. Close the mines and buy them out. Mmmmmmmmmmm Goverment Control, I’ll need to see if I can find that story.

  8. CHAFRO…. by the way, Silver Standards mine is in Argentina, some of Coeur D’ Alene’s Mines are in Mexcio and South America…their costs are high as well.  Fresnillo is one of the companies that is making money due to its extremely high ORE GRADES and HIGH AMOUNT OF METAL PRODUCED.

    CHAFRO… go read that RETIRED GEOLOGIST’s article on $30 marginal silver price.  It may change you mind a bit from the PROPAGANDA put forth by mining companies.

    Lastly, GoldCorp’s Penasquito mine is in Mexico, and this is their CASH COST for SILVER:

    silver, lead and zinc were treated as co-products, average total cash costs at Peñasquito for three months ended March 31, 2012 would be $726 per ounce of gold, $12.80 per ounce of silver.

    Here we can see that CASH COSTS for silver at Penasquito was $12.80… and again this is not TOTAL COSTS.  Furthermore, there was a huge 100+ million oz downgrade of Silver Reserves at Penasquito due to HIGHER COSTS:

    As per Goldcorp’s February 15, 2012, disclosure, the reduction in silver reserves at Peñasquito occurred as a result of increased cut-off grades due to higher operating costs than those estimated in the original 2006 feasibility study. In 2012, exploration at Peñasquito will target additional high-grade mineralization in mantos beneath the open pit bottoms, in addition to testing the potential for block cave mining of deep mineralized zones.

  9. CHAFRO…. making TONS?  Here is their numbers:

    REVENUES = $57.8 million

    NET EARNINGS = $26.4 million

    $26.4/ $57.8 million = 45% proft… or $14.4 per ounce PROFIT

    COMPLETE COSTS = $17.6 (based on $32 oz in Q1, 2012)

    If they now get an average $25-$27 for silver in second quarter 2012, they may be looking at a big DECLINE in NET EARNINGS.  If costs remain the same, as well as production you will see that NET EARNINGS fall to $8-15 MILLION.

    …..THATS TONS OF MONEY???

  10. CHAFRO…. I disagree on your statement on EBITDA:

    ‘Earnings Before Interest, Taxes, Depreciation and Amortization – EBITDA’

    1) This is a non-GAAP measure 

    2) EBITDA first came into common use with leveraged buyouts in the 1980s, when it was used to indicate the ability of a company to service debt

    3) A common misconception is that EBITDA represents cash earnings. EBITDA is a good metric to evaluate profitability, but not cash flow. EBITDA also leaves out the cash required to fund working capital and the replacement of old equipment, which can be significant. Consequently, EBITDA is often used as an accounting gimmick to dress up a company’s earnings

    ———————-

    This is why I like to use NET INCOME.  EBITDA is nothing more than good old fashion ACCOUNTING TRICKERY.

  11. Hey SRSrocco, 

    I calculated the complete cost of mining silver for the top 3 primary silver mining companies worldwide for Fiscal Year 2011:  Fresnillo, Pan American Silver Corp, & Coeur D’Alene Mines Corp
    The complete mining costs of silver are as follows:
    Company Complete Cost ($)
    Fresnillo 20.67
    Pan American Silver Corp 20.65
    Coeur D’Alene Mines Corp 31.90
    Looks like companies will have to start stock piling, slowing down production, or going bankrupt, LoL.
    Since abt 2/3 of silver produced is a by-product of other metals, is there a way to find out if those companies will continue to be profitable supplying silver at current prices?
  12.  SRS  your analysis is not only thorough but very telling   I am a neural net, number crunching data wonk so I love working the numbers   Numbers don’t lie so these tell the real story.  EBIDTA is a  phrase that is  by bankers trying to convince their boss the deal is good.  Or tossed around by someone selling a business and trying to slick the numbers so that they mean something.  I have seen it used hundreds of times, but it does not tell the real story.

    The sunk costs of a mine are not something to take lightly since most miners have their hat, horse and saddleblanket wrapped up in their mines, even those which are public.  If the marginal cost of mining is X and the profit margin is shrinking daily, these miners are going to either shut down  or take product off the market until prices are more in line with present situation.  Shutting down a mine, sequestering the phyzz until times are better strips production of tens of millions of ounces from the supply chain.   And gummint taking over a mine.  That would be a complete cluster bleep  Gummint and deserts–sand shortages.   Gummint and silver mines.  total FUBAR.  no supply, no silver   no mas dinero.  US ends up with 0 silver.  We mine about 50,000,000 ounces and import the rest.  Not a good thing to thing about but we would be in direct straights.  China?  #1 producers and #2 consumer of silver will  rule the silver universe and also have a very handy exchange to manage their phyzz.  IMO

     

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