In the tiny “shadow world” of Precious Metals commentary, it’s incredibly rare to find high quality financial analysis – in the Wall Street style I personally spent two decades honing. Last year, I came across the great Steve St. Angelo of SRS Rocco Report; who continues to do the best work on Precious Metal mining costs of ANYONE I have read. And given I have seen essentially everything over my “TEN YEARS OF HEAVEN AND HELL” in the PM sector (now eleven), I do mean anyone.
On Friday, “MEXICAN SILVER – PRODUCTION COLLAPSE!” was based on Steve’s fantastic work; while yesterday, I followed through with this theme in “JUNIOR MINING – AND FUTURE PRODUCTION – DEATH.” Given how incredibly important this topic is – yielding nearly irrefutable evidence that an “HISTORIC BOTTOM” was reached in late June – I am publishing a third straight RANT on this topic. And wouldn’t you know I’m again utilizing Steve’s fine work to illustrate my point.
In the past month, he has followed the earnings reports of essentially ALL the world’s major silver producers – and after analyzing the data, has come up with the following, ominous conclusion…
SILVER MINING INDUSTRY: Unsustainable at Present Market Conditions
For months, I have written of how the breakeven cost for the majority of global silver miners is approaching $30/oz. This analysis essentially PROVES it; as seven of the world’s 12 largest primary silver miners have net income breakeven costs exceeding $26/oz. – while three are well above $30/oz…
A case in point is Coeur D’Alene Mining; by resource size, the world’s eighth largest silver miner. CDE barely generated a profit in the first quarter of 2013, when it realized silver prices of $30.30/oz. However, it reported a MASSIVE loss in the second quarter – when silver realization averaged $22.86/oz. Using these metrics – ceteris para bus – Coeur required a $29.59/oz. silver price just to report breakeven results. And thus, it’s just a matter of time before it, too, joins the “hit parade” of MAJOR miners reporting MASSIVE write-offs and exploration/development cost reductions; inevitably contributing to significantly lower industry-wide production.
In my view, the upcoming collapse of GLOBAL gold and silver production could be as big of a story – or bigger – the simultaneous demand explosion that MUST follow such a MASSIVE, worldwide fiat Ponzi scheme. In the case of silver, it is already in EXTREMELY short supply; which is why the U.S. Mint was forced to shut down for 12 days earlier this year, and why prices for PHYSICAL bullion – and “junk” silver, for that matter – remained elevated throughout this summer’s PAPER PM smash.
When “the Big One” hits – and supply essentially vanishes – the great majority of the world’s population (as in 98 %+) will be kicking themselves for not PROTECTING themselves when they had the chance. Of that, I am 100% sure!
I hope you enjoyed your vacation to Asia and that your well primed for what awaits us all. Your latest report above on the Mining Companies net even cost of production doesn’t look good and I’m looking at it this way;_ The banks are probably where these Company’s get their credit and cash flow and if these Mining Company’s go Bankrupt won’t the Banks then take control of the underlying assests i.e. the silver and further corner the precious metals market. It’s just a thought. I’d be interested if you could elaborate on the possibility and the consequences for the overall market.
Away from all that I see at the bottom of Miles Franklin home page a live figure of your U.S. debt. Similarly I imagine you could put up there live, the amount of dollars being created through booking keeping ledger entries and live the amount of physical gold/silver there is i.e. above ground and in current production. Would that not give a good idea of a live true price of gold/silver. I’d be thrilled to see one.
You complimented SRS Rocco Report on their work and I say your work is likewise, keep it up.
Reader in Ireland
I actually answered that very question in today’s RANT – which you’ll see in a few hours!
As for the Miles Franklin home page, not a bad idea; but there is simply too much data to follow, IMO.
Since you are always predicting an imminent move higher to astronomical prices for both gold and silver, not sure how you can then argue that production will collapse because of sustained low prices. It’s one or the other my man.
More specifically, I am predicting an imminent surge in PM purchasing power – regardless of dollar “price” – as confidence in paper currencies collapses.
As for your question, I think I have done a good job over the past two years laying out what I am speaking of. The Cartel has so badly decimated the mining industry, it is on the verge of financial collapse; and has subsequently, dramatically written down assets (which can’t be written back up), cut costs, and slashed exploration spending. There are have been ZERO major investments in years; and those that we saw in decades past are not getting developed due to political risks, rising costs, and other issues (such at Pascua Lama’s title battle). And then you have mine collapses like Kennecott, strikes and electricity shortages in South Africa, and countless other issues.
When PM prices finally do surge, it will take YEARS before capex is turned back around. And even when it does, it may or may not be successful; as if exploration was a failure during the past decade’s mining “good times,” why would anyone expect it to be better now? Costs are now MUCH higher, and governments much more hostile. And oh yeah, if they do somehow find something – which I doubt they will, as peak cheap gold and silver appears to be a very real concept – it takes upwards of a DECADE to get a new mine on line. And LOL, how much will a new mine cost in a decade; and how much will governments want to keep of them?
Since PM prices were high enough to be profitable at most mines until just the past few months, I don’t think there has been much impact on exploration and development until very recently. If prices are on the verge of a major rebound than this isn’t even going to be a factor for long enough to matter long-term.
Also you are arguing that major producers will shutter mines since price is under total cost of production. Again if prices are going to be higher very soon why try to make this argument?
Your larger point about confiscatory taxes and political risk is valid but I think you ought to keep it at that.