Q3 Brings Fall in Silver Producers' Cash Costs: Dundee Capital

Against a backdrop of falling silver prices, Dundee Capital Markets revealed this week that the all-in cash costs of the silver producers it covers fell an average of 13 percent, to $20.08 per ounce, during the third quarter of this year. 

Encouragingly, the firm believes that cost-reduction programs will push those companies’ expenses down even further as 2013 draws to a close, as per Mineweb’s Geoff Candy.

Here’s an overview of the silver companies that Dundee covers, as well as an explanation of the firm’s recent results.

Who’s in the report?

Dundee’s report looks at eight silver companies, according to Candy. Those are:

  • Coeur Mining (TSX:CDM,NYSE:CDE): Coeur states on its website that it is the largest United States-based silver producer, also noting that between 2008 and 2010, it began production at the San Bartolomé silver mine, the Palmarejo silver-gold mine and the Kensington gold mine. The company also owns a non-operating interest in the Endeavour silver and base metals mine, and in April of this year acquired the La Preciosa project, one of the biggest undeveloped silver deposits in the world.
  • Endeavour Silver (TSX:EDR,NYSE:EXK): Mid-tier silver miner Endeavour Silver owns three producing silver mines in Mexico: Guanaceví, Bolañitos and El Cubo. This year, it expects to put out 6 million ounces of silver and 68,000 ounces of gold.
  • First Majestic Silver (TSX:FR,NYSE:AG): Also focused on Mexico, First Majestic owns and operates five producing silver mines in that country and expects them to produce between 11.1 and 11.7 million ounces of pure silver in 2013. The company also owns a number of silver exploration and development properties.
  • Fortuna Silver Mines (TSX:FVI,NYSE:FSM): Fortuna describes itself as “one of Latin America’s fastest-growing silver producers,” and notes on its website that it has “established a reputation as an efficient mine builder and operator.” The company has two operating silver mines as well as property holdings in Peru and Mexico.
  • Pan American Silver (TSX:PAA,NASDAQ:PAAS): Pan American is the second-largest primary silver producer in the world, its fact sheet states, and it has seven operating mines located in Mexico, Peru, Argentina and Bolivia. One of the company’s aims is to continuously replace “silver reserves and resources through a successful mine-site exploration program.”
  • Silver Standard Resources (TSX:SSO,NASDAQ:SSRI): Vancouver-based Silver Standard owns and operates the Pirquitas mine, located in Argentina; it is one of the biggest primary silver mines in the world and began commercial production about three years ago. The company also has two projects that are in the feasibility stage.
  • SilverCrest Mines (TSXV:SVL,NYSEMKT:SVLC): Also headquartered in Vancouver, SilverCrest Mines’ flagship property is the Mexico-based Santa Elena mine, which produces high-grade epithermal gold and silver. The company currently has an expansion plan in the works; it is expected to double the mine’s annual metals production in 2014.
  • Tahoe Resources (TSX:THO,NYSE:TAHO): Tahoe’s focus is on its Guatemala-based Escobal project, from which it shipped the first concentrate in October. The company expects Escobal to produce 20 million ounces of silver in its first full year of production, and has agreed to commercial terms with several smelters.

Dundee also covers precious metals streamer Silver Wheaton (TSX:SLW,NYSE:SLW), but because that company is based around a “significantly lower cost profile,” it is not included in the firm’s research on cash costs.

Lower cash costs? What does that mean?

As Candy explains, Dundee calculated the companies’ all-in cash costs on a silver-equivalent basis. That means rather than deducting by-product revenue as a credit, the firm used it to “gross up ‘silver equivalent’ production in the denominator of the per ounce calculation.”

Overall, site operating costs, which fell by an average of $0.95 per ounce, contributed the most to the fall in expenses. Tax contributions, which decreased by $0.83 per ounce, were the second-biggest contributor, with the remainder of the reduction comprised of a “$0.56/oz decline in maintenance capex, $0.37/oz decline in exploration, $0.23/oz decline in G&A, $0.10/oz decline in ‘other’, and $0.02/oz decline in interest charges,” as per Candy.

In Candy’s opinion, Dundee’s analysis is mainly useful simply because it shows how the companies performed over the quarter. However, it is also helpful in that it indicates just how much work major miners have done to reign in their costs since prices went downhill back in April. In doing so, it offers some hope that those companies — and hopefully their junior counterparts — will have more luck in weathering the current lower pricing environment than was at first expected.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

Tahoe Resources: Aiming for Production in Q4 2013

PROJECT UPDATE: Tahoe Ships First Concentrate from Escobal