In an interesting change of events, production at four of the top primary
silver miners plummeted during the second quarter of 2017. This goes well
beyond normal fluctuations in mining companies production figures during
different quarterly reporting periods. The company with the least
percentage decline in silver production still suffered a 20% reduction of
mine supply in the second quarter.
According to recently released company data, silver production declined
between 20-34% from these four primary silver miners during the second
quarter. The company that suffered the biggest decline in
silver production was Hecla at -34%, followed by Endeavour Silver at -26%,
Silver Standard at -24% and First Majestic with a decrease of 20%:
Total silver production from these four primary silver miners fell 27%,
from 11 million oz (Moz) during Q2 2016, to 8 Moz Q2 2017. We can see
the breakdown in the chart below:
Hecla suffered the largest decline in silver production by falling
34% due to a mining strike at its Lucky Friday Mine in Idaho.
Production at the Lucky Friday Mine has been suspended since a workers strike
began at the mine on March 13th. Furthermore, Hecla’s Green Creek Mine
in Alaska saw its silver production decline from 2.1 Moz Q2 2016 to 1.9 Moz
Q2 2017 due to falling ore grades.
The second largest percentage decline in silver production was from
Endeavour Silver. Production at Endeavour Silver fell from 1.6
Moz in the second quarter of 2016 to 1.1 Moz in Q2 2017. This
26% decline in silver mine supply was blamed on several factors:
- Reduction in capital and exploration expenditures in the
beginning of 2016 due to lower silver prices, but the company has
increased spending once again in the second half of 2016
- narrowing veins, falling ore grades and less ore
processing due to a reduced capital expenditures in the beginning of
2016
- less access to mine areas as pump failures due to power
overloading caused flooding in some portions of the mines
This huge decline in silver production at Endeavour Silver, plus falling
earnings, impacted its stock price which fell 16% in one day after the news.
Silver Standard (renamed SSR Mining) which suffered a 24% decrease
in silver production saw its mine supply fall to 1.9 Moz in Q2 2017 versus
2.5 Moz during the same period last year. This steep reduction
in the company’s silver mine supply was due to the closure of their Pirquitas
open-pit mine. SSR Mining’s mine plan for Pirquitas was to move from
open-pit operations to underground mining. Silver production at
Pirquitas for the remainder of 2017 will be from processing of open-pit
stockpiled ore.
Furthermore, SSR Mining will be supplementing silver production from its
Pirquitas underground mine from new venture called Chinchillas project
located 45 km from Pirquitas. However, production from the Chinchillas
project is not expected to begin until the second half of 2018.
The company that experienced the least percentage decline of silver
production in the group was First Majestic. Silver production
at First Majestic fell 20% from 2.8 Moz during Q2 2016 compared to 2.3 Moz Q2
2017. Production declines at First Majestic were due to mine
stoppages at several projects due to unionized worker disputes and labor
issues. In addition, declining silver yields of approximately 8% also
attributed the decline in Q2 2017 silver production versus the same period
last year.
So, we can see how labor disputes, falling ore grades and power outages
have negatively impacted many of the top primary silver miners in the
industry. Of course, not all primary silver miners experienced declines
in production.
For example, Couer Mining reported the same silver production of 4.0 Moz
in Q2 2017 as well as in the same period last year. Fortuna actually
saw its production increase 36% from 1.6 Moz Q2 2016 to 2.1 Moz Q2
2017. We are still awaiting release of Pan American Silver and Tahoe
Resources results next week. However, Tahoe’s Flagship Escobal Silver
Mine was shut down by the Guatemalan Supreme Court on July 6th due to
suspension of its license based on allegations of human rights violations and
the failure of local support for the mine.
Now, this didn’t impact Tahoe’s silver production at its Escobal Mine
during the second quarter of 2017, but it will for the second half, if the
Guatemalan Supreme Court does not allow operations to return for the
remainder of the year. I wrote about this in my recent article, WORLD’S SECOND LARGEST SILVER MINE SHUT DOWN:
Implications For Company & Market.
Investors in silver mining companies are dealing with issues that are out
of their hands. While I believe that some of these mining share prices will
explode higher when the silver price finally takes off, it takes a great deal
of patience and fortitude to continue investing as mining companies deal with
all these issues that impact not only production, but their profitability as
well.
Here is a breakdown of either Adjusted or Net Incomes of these Top
Primary Silver Companies:
Hecla = $15.5 million Adjusted Income Loss
First Majestic = $3.6 million Adjusted Income Loss
Endeavour Silver = $16 thousand Net Income Loss
Silver Standard = $19 million Adjusted Income Gain (due
to two gold mines)
Coeur Mining =
$2.5 million Adjusted Income Loss
Out of the four primary silver mines that suffered big
declines in production, all experienced adjusted or net income losses except
Silver Standard. The only reason Silver Standard reported a profit was
due to its two gold mines. Furthermore, even though Couer
Mining did not suffer a reduction in silver production, it reported a $2.5
million adjusted income loss for Q2 2017.
I like to use Adjusted Incomes because it factors out
financial inputs that are not directly associated with producing silver from
the mine during that quarter. Adjusted Income gives us a more realistic
figure for the profitability of producing silver from the mine, rather than
Net Income that includes derivatives exposure, impairments and gain-loss on
sales of properties… to name a few.
Lastly, it takes a lot of effort, expertise and
management skill to produce silver. Unfortunately, just when a silver
mining company believes it has a good grasp of its operations and future
forecasts, a wrench or series of wrenches can be thrown into the engine to
mess things up. We are seeing that now as four of the top primary
silver mining companies deal with negative issues impacting production and
profitability. Actually, five when we include Tahoe Resources
and their ongoing problems and conflicts with local Guatemalan peoples on
human rights abuse.
That being said, huge production declines at these primary silver
miners haven’t impacting the market price because fundamentals aren’t playing
their roll any longer as the Fed and Central Banks continue to print
trillions of Dollars to support the STOCK, BOND and REAL ESTATE markets.
However, at some point, the Fed and Central Banks will lose control… and
lose control BADLY. When they do, patience and fortitude by investors
in precious metals and their mining companies will be generously
rewarded. Unfortunately, most investors following the
fickle nature of the public, only stay in an investment that is a WINNER.
So, I will continue to read comments by disillusioned precious metals
investors who don’t have either the patience of fortitude to remain committed
in the precious metals space until the point when FUNDAMENTALS matter once
again.
