The primary silver mining industry is not sustainable at present market prices. Financial reports are starting to be released and by the end of the month we should have a pretty good idea on how bad the losses will be.
As I stated in my previous article "The Largest Silver Producer Facing Losses at Current Prices", Fresnillo saw its profits plunge 60% in the first half of 2013. Frensillo only reports its financials twice a year, so we don't know how much more their bottom line would have been impacted in the second quarter alone.
Listen: David Morgan: Production Costs Make Silver Unprofitable For Small Miners
According to my calculations of my top 12 primary silver miners (excluding Frensillo & Hochschild as they only release financials twice a year), the net income break-even for the group as a whole was $25.40 in Q1 2013. The average realized price of silver for this group during the first quarter of 2013 was $29.85 which resulted in a $90.7 million in net income from the top 12 miners.
If we look at the table below, we can see the results from Q1 2013:
As I explained before in a prior article, the estimated silver break-even of .45 is higher than the net income break-even (.40) as I separate the by-product revenue to obtain a more realistic pure silver break-even figure. However, I am only going to focus on net income break-even during this article as it is much quicker and easier to explain.
If we go to Kitco.com and look at the average price of silver during the second quarter of 2013, it was .10 -- that should set off some alarm bells. Not only is the average price of silver Q2 2013 much less than the realized price for the group Q1 2013 (.85), but its less than their net income break-even of .40 by .30 an ounce.
Listen: Robert Quartermain of Pretium Resources: Silver Margins Now Negative; Only the Strong Will Survive
This next chart shows each of the 12 different primary silver miners and their net income break-even as of Q1 2013. I have not included the names of the individual mining companies as I will be providing this in a detailed report in the "Paid Reports" area of the site in the future.
As we can see, of the top 12 silver miners seven will more than likely state net income losses for the period. Furthermore, only five are likely to show some positive gains, but this number might be less depending on other circumstances of increased costs and less revenue from by-product credits.
For example, the fifth most inexpensive silver producer in the group had an average net income break-even of .97... this is the last one shown in the first group. If this company had a realized price closer to Kitco's average of .10, higher costs and lower revenue from by-product credits, then they would be showing losses as well.
The interesting thing to note about the companies in the chart above is the huge range in their net income break-even figures. The most profitable miner was producing silver at a net income break-even of .73, whereas the highest cost producer needed + more at .02 to make a profit.
So, at the current spot price of silver, there is only one company who would be stating profits (shown by the green arrow). I put this chart together before the nice move higher in gold and silver today (Thursday). Even so, it just goes to show how nearly all of the primary silver miners in the group would be stating losses at current silver prices.
Read more: Western Mining Industry in Serious Crisis
To provide a simple estimation of loss for the group Q2 2013, we have to subtract current Kitco average price of .10 from their average net income break-even in Q1 2013 at .40 to get the following:
.40 (break-even Q1 2013) - .11 (Avg Q2 2013) = -.29
-.29 X 20 million oz estimated sold Q2 2013 = -.9 million loss for group
What a difference in a quarter... aye? During the first quarter of 2013, the top 12 primary silver miners had a net income gain of .7, but now face losses of more than million.
This is just a simple gauge, I would imagine the net income losses will be even greater due to the fact that the price of gold and the by-product metal revenues declined as well. This has been proven by Coeur Mining who just released their financials today.
Coeur Mining: The First Victim of Manipulated Silver Prices
As I was writing this article, Coeur just released its Q2 2013 financial statement, which turned out exactly as I suspected... but much worse. If we look at their financial highlights below, we can see the damage in several areas.
First, you will notice that the production costs were much higher this quarter. Let's not compare these costs with the previous quarter because the amount of production was much less in Q1 2013. However, if we compare it with the same quarter last year, you will see that Q2 2013 production costs were 5 million vs 3 million this quarter. That is a 14% increase year-over-year.
Part of the reason for the increased cost is due to falling ore grades. In the second quarter of 2012, Coeur processed 3.35 million tonnes of ore to produce 4.9 million oz of silver, whereas they had processed 3.65 million tonnes to only produce 4.6 million oz this recent quarter. Basically, they had to mill 9% more ore to produce 6% less silver.
Second, they stated a net income loss of million compared to the previous quarter where they had a .3 million gain. This seems bad enough until you look at the bottom row highlighted in green. In Q1 2013, Coeur only sold 3.1 million oz of silver to have that net income gain. However, they sold an additional 2.1 million oz (5.2 mil oz) of silver Q2 2013 and still stated a net income loss.
The reason why this is troubling is due to the fact that Coeur sold 400,000 oz more silver than it produced in Q2 2013 to show a net income loss of million, while it sold 1.8 million oz less than it produced the prior quarter to still make a profit. What a difference a quarter makes.
Third, their average realized price for silver highlighted in yellow, declined .44 in just one quarter. In Q1, Coeur received .30 an ounce for its silver, but by the next period, it had fallen to only .86. Which means that Coeur had a net income loss of .73 an ounce of silver this period.
Thus, Coeur's net income break-even was .59 for Q2 2013. There are a lot more details that I could get into, but I will say this... Coeur's net income break-even was .31 in Q1 2013. It has increased over .00 in the one quarter and that is due to the fact that gold and its by-product metal revenue declined which added to its increased break-even price.
The Fed Focuses on Hammering the Precious Metals
I want to point out to the reader that I am not trying to be negative on the silver miners, but to show how bad the results will be due to the fact that gold and silver have been victims of the FED's policies of protecting the Dollar & U.S. Treasury market at any cost.
This can be plainly seen by the action of the three metals in the chart below:
Since the beginning of 2013, silver is down 40%, gold down 23% while copper has only lost 14% of its value. Silver is down nearly three times in percentage terms as is copper. There is no accident that the price of gold and silver are down much lower than copper -- as well as the other base metals such as zinc and lead.
The primary gold and silver miners are the real banks of the world. Even though the current market situation for these miners is not positive, that will change in time. There is no way that the primary silver miner industry can sustain itself at these current low paper prices.
I have tried to give an idea of what the losses will be for the top 12 primary silver miners in my group, but these will be even greater in the third quarter if prices don't recover. It is quite a shame that these mining companies who are providing real wealth to the market and employing thousands with high paying jobs have to suffer while the Fiat Banking System continues to leech and steal wealth from society.
I will be doing updates once the primary miners release their financial results in the next several weeks at the SRSroccoReport.com. Furthermore, I discuss the interesting trends taking place in the Comex & Shanghai metal inventories as well as the great transfer of wealth into the precious metals in my SGT Report interview.
Comments are always welcome at SRSrocco @ gmail.com
