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 [email protected].

Steve.