All this hype about production cost

JB3 said:
Hehe.

Pirocco though, I think, misunderstands me.

I'm not commenting on what the effective production cost of a by-product is when the primary product is not commercially viable. Clearly the situation is different then.

In fact, it can switch completely and the zinc mine producing some silver on the side could even become a silver mine producing some zinc on the margins. Obviously, this depends on costs of extraction and refining relative to price.

It could also become just a hole in the ground.
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I don't know if I misunderstood you. I try to read things in the most obvious way, i.e. I'm not hunting for special interpretations or so.
But what I said, or what was my point in case you didnt recognize it as such, was that that 'byproduct' story, and also regardless % / % ratio, is simply based on what is inside a shovel ground.
In your example case, zinc and silver, are tied right there in that shovel ground, in the ratio nature brought it forth with.
What is mining cost based on: amounts silver, zinc, whatever, per volume ground.
The lower the combination of the elements is relative to the volume, the more expensive the elements will be. The more scarce, the higher the price - is based on this.
And this renders your statement here wrong.
If the ground has a 1 silver / 99 zinc ratio (just a random example), then the mine "has" to be a primary zinc mine. There is no option to switch primary, nature brought that ratio.
A mine "can" go against this of course, but what will it be then? Processing 1000 tonnes ground to then what? Throw away the unwanted zinc, as to prevent zinc from being the primary instead of silver?
Let's assume it does. Just ignore the zinc. Extract the silver and throw the rest of the ground aside.
What just happened? Well, that the amount ground needed to process, per ounce silver, just stayed the amount it was before. Which % of the cost is the ground processing part of a mine? I think alot. If not all.
End to end, all you did by throwing away the zinc, was decreasing your sales income.
So where exactly did I misunderstood you then?
 
lshallperish said:
I dont care what the production cost is lmao... i care about how much demand there is and in 10 years out of 8 of those year's was higher demand then supply.. if we cant even supply enough silver to meet demand in early 21st century.. then how the hell are we going to deliver say 2-5 billion ounces in the future
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One thing should be (but apparently it isn't) obvious: it wasn't production cost and it wasn't industrial use that drove the price the past decade.
It was stockpiling and destockpiling demand, from people like us and others.
Why the production cost hype then?
Maybe some assume a situation where nobody stockpiles anymore.
No bullion sterling etc stockpiling.
Stockpiled silver could be defined as silver that can reappear for sale on the market without any further processing, so no cost, so no general prices/inflation link. At least no direct one, at most a 'mind based' one.
So end of stockpiling.
Only industrial and jewelry and silverware demand.
Then what?
Production cost would become a bigger part of the price. In case production cost didn't rise, and relative to before the destockpiling the price would drop.
So production cost then serves as a kinda floor.
But this situation is what it is: hypothetical.
It requires everybody to cease buying silver and sell all stacks/whatever to industrials etc.
So actually, the degree that production cost matters, just depends on us.
What is also sure is, that any price trend we cause when we buy, will be undone by an inverted price trend when we sell.
Thus, measured over time, years, decades, our net effect on the price HAS to be zero.
So it just shows that avoiding to pay prices driven up by short term pumpers, and avoid to sell at prices driven down by the short term dumpers, is a crucial first step.
It's probably those short term pumpers and dumpers that hype production cost. When they bought in, they hype a high cost. When they dumped out, they hype a low cost.
Reality sits somewhere in the middle. :P
 
Then we are saying the same things.

Your first email implied that I thought the dynamic only worked in one direction: I don't. I was merely trying to point out that if it was profitable to mine the earth for, say, zinc, then the cost of producing the little bit of silver that came with it approaches zero.

And if the cost of producing it approaches zero, then the profit multiplier on selling it isn't affected greatly by the silver price falling by a few dollars, let alone cents.

And all that profit just further helps the profitability of mining the zinc in the first place, which makes the silver extraction even less price-sensitive.

Of course, it works the other way round too, but that isn't the emphasis of this thread.
 
JB3 said:
Then we are saying the same things.

Your first email implied that I thought the dynamic only worked in one direction: I don't. I was merely trying to point out that if it was profitable to mine the earth for, say, zinc, then the cost of producing the little bit of silver that came with it approaches zero.

And if the cost of producing it approaches zero, then the profit multiplier on selling it isn't affected greatly by the silver price falling by a few dollars, let alone cents.

And all that profit just further helps the profitability of mining the zinc in the first place, which makes the silver extraction even less price-sensitive.

Of course, it works the other way round too, but that isn't the emphasis of this thread.
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In a low byproduct % case, if zincs price would approach zero, then the mining company would just cease business, because the silver production, at a same staying silver price, wouldn't suffice by far to keep it running. And then: byebye silver production. That's what working in both directions is. Why then focus on one direction? Silvers byproduct situation makes it come, and go with what it was mined together with.

If the silver price drops, then the mining company loses that share. You say that doesn't matter much. How do you know? It could be that the zinc minings margin is low, and that silver compensates. Or it could be totally wrong. The only way to know, is data.
Figures of all mining (and maybe recycling too) companies, that show what they get for their output, per metal.
Then a US $ comparison can be done directly, as to determine which % silver represents of their earnings, as to have an idea of the impact of a rising or dropping silver price on the whole.
Any easy combined source you may already know?
 
You're talking about what happens when the primary output is not sustainably profitable on its own.

I'm saying that if it is profitable on its own, the output of a secondary product is essentially price-independent. If silver was a secondary output in a profitable zinc mine, the production of silver will be independent of the silver price.

Indeed, it may even be more dependent on the price of the primary output, in this example, zinc.

This harks back to the original post and is why I think it is fallacious to assume that production will meaningfully fall as the price of silver drops nominal production costs in a *silver* mine, when most silver is a by-product.
 
JB3 said:
You're talking about what happens when the primary output is not sustainably profitable on its own.

I'm saying that if it is profitable on its own, the output of a secondary product is essentially price-independent. If silver was a secondary output in a profitable zinc mine, the production of silver will be independent of the silver price.

Indeed, it may even be more dependent on the price of the primary output, in this example, zinc.

This harks back to the original post and is why I think it is fallacious to assume that production will meaningfully fall as the price of silver drops nominal production costs in a *silver* mine, when most silver is a by-product.
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No, I talked about what I said. :)
I asked this question:
"Any easy combined source you may already know?"
In order to judge the share of that "byproduct" in the total income dollars, actual figures are needed.
Without these, one can draw any conclusion from that word "byproduct".
In the past I even came across people that treated "byproduct" in terms of silver weight versus "main" products weight.
And also totally ignoring the price difference by <> main.
There is nothing more crap than a discussion that spans 40 pages solely based on "more" "less" "most" "least" "when" "if" etc.
I hope you understand this?
 
JB3 said:
I do, although I don't understand your aggression.
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My... aggression?
I said that I liked to discuss based on figures / facts, and that I hoped you understood why.
Do you like discussions, based on guesses and assumptions, that go on for 40 pages, to then discover that it all has been useless, because those guesses and assumptions were wrong?
How would you word this, as to not "see" aggression?
 
Just not finding an argument where there wasn't any.

Don't get me wrong: I find your analyses thought-provoking. You've certainly taught me few things (probably without even meaning to), and I always try to enjoy having my way of thinking challenged.

It would just be nice if sometimes you accepted someone else's viewpoint could be correct, or even valid. Posting with you is sometimes like arguing with a lawyer.

But don't worry - I didn't come here to make friends and I suspect you didn't to find them. I just don't think we need aggression here when we are all trying to do the same thing: work out how precious metals might help us achieve our goals in life.


Edit: I'm off for a drink. Prost!
 
JB3 said:
Just not finding an argument where there wasn't any.

Don't get me wrong: I find your analyses thought-provoking. You've certainly taught me few things (probably without even meaning to), and I always try to enjoy having my way of thinking challenged.

It would just be nice if sometimes you accepted someone else's viewpoint could be correct, or even valid. Posting with you is sometimes like arguing with a lawyer.

But don't worry - I didn't come here to make friends and I suspect you didn't to find them. I just don't think we need aggression here when we are all trying to do the same thing: work out how precious metals might help us achieve our goals in life.

Edit: I'm off for a drink. Prost!
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Of course your viewpoint can be correct / valid. Why do you think I asked "Any easy combined source you may already know?"
That was in order to find it out. You can't really blame me for not accepting something 'just like that'?
If data shows you're right, then I'm sure, then I can use your argument myself in the future.
But without supporting data, I cannot do so, because anything I would claim that is based on it, sits on lose ground.
Let alone base decisions on it, as a speculator.
 
That's my point: I was discussing principles based on the question raised by the original post.

Not arguing data.


I still think what said is correct, too. I just don't see why I have to argue that the opposite isn't.
 
This is how I work:
I went to SilverInstitute site, took "Top 20 Silver Producing Companies in 2013" and removed all the "Primary silver producers" from it.
The result is this (Moz):
Byproduct silver companies:
2 BHPBilliton Australia 37.6
3 KGHMPolska Mied Poland 37.3
4 GlencoreXstrata Switzerland 37.1
5 GoldcorpInc Canada 30.3
6 PolymetalInternational Russia 27.2
8 VolcanCia.Minera Peru 20.7
9 Cia.deMinasBuenaventura Peru 18.9
11 SumitomoCorp Bolivia 13.8
12 HochschildMining Peru 13.6
13 SouthernCopperCorp USA 13.5
14 Kazakhmys Kazakhstan 13.0
15 Teck Resources Ltd Canada 11.4
17 IndustriasPeoles Mexico 10.6
18 KinrossGoldCorp Canada 9.0
19 HeclaMiningCompany USA 8.9
20 YamanaGoldInc Canada 8.4
Total: 311.3
2013's total mine production was 819.6.
So this company list represents 38% of worlds total silver mine production.
That's a big enough sample for a statistic.
The next job then is to search the mines of every company in the list.
That needs for every mine its income from the total production, and the one of the silver production separately.
And then, we can draw rough conclusions about the % that silver has, in the total income, and thus the dependency of the byproduct mining, on silvers price.

What is also to not neglect, despite all the byproduct yelling, that the primary mining is not *that* neglectable.
The top 15 of the primary mines produces 157.63 Moz.
That's still 19.2% of worlds annual mine production. A rough 1/5. If they would cease to produce due to a low silver price, that's every year 150 Moz less.
That does count since quite some silver is consumed / never recycled.
Look at 2013, where the $30 > $20 price drop made the recycling drop from 252.6 to 191.8.
That's minus 60.8 Moz and the lowest figure since 2001. BUT (if I had been a Silver Doctor I wouldn't have added this) it's not *that* much lower since the average over that period is 212 Moz and it's about exactly the 2002-2009 average.
So one could state that with $20, silvers recycling returned to pre crisis level.
So the primary mining, does matter. 1/5 is not nothing, and if it would go, demand has to reduce that same 158 Moz amount, for the price to not be affected.

But to judge the byproduct mining the same way, data is not that easy to find. Hence I asked, since you used it in your statements so I thought that you maybe came across such info somewhere.
To be more accurate, I'd need the entire mine list, not just the top 20.
 
ASIC

Hochschild

All-in sustaining costs (AISC) of $15-$16 an ounce next year and silver languishes around $16/oz.

Hochschild targets production of 24m ounces next year up from the 21m it should hit this year, as previously guided. Fair enough.

In plain terms, Hochschild must mine easy-to-access ore at its lower grade Arcata and Pallancata mines for a lower sustaining capital expenditure outlay, and run the related plants at lower tonnages, while compensating by running its higher grade Argentine mine at the same volume.

http://www.ft.com/fastft/243272/post-243272


Fresnillo

London-listed Mexican rival Fresnillo is sitting pretty both on the cost curve where it is the industry leader - and in terms of the decent grades at its Saucito mine, where its AISC was $7.66/oz in its first half.*

http://www.ft.com/fastft/243272/post-243272


FRESNILLO.JPG

http://www.ft.com/fastft/243272/post-243272
Source:
 
Holdfast said:
...AISC, All-in sustaining costs...
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Is there a list of the components of the AISC? What are the major contributors to costs? Basically, I am wondering how much impact changes in the cost of energy would have on the AISC, and how large a factor energy is for the major producers (I assume it would dependent on ore grades and accessibility).
 
SilverPete said:
Holdfast said:
...AISC, All-in sustaining costs...
Click to expand...
Is there a list of the components of the AISC? What are the major contributors to costs? Basically, I am wondering how much impact changes in the cost of energy would have on the AISC, and how large a factor energy is for the major producers (I assume it would dependent on ore grades and accessibility).
Click to expand...

It's a complex question since I know mining here in South Australia requires at least two types of energy to get final production out, diesel for trucks and coal fired electricity for the plants (some times small amounts of gas for smelting). Throw in various carbon pricing schemes and taxes in different countries and transport costs from mine to refiner and things get tricky.

I know for a fact that at various times here in SA silver as a by product has been basically wasted and not reclaimed when it wasn't profitable (normally when they couldn't be bothered putting money in to fix the extra machinery used to separate and refine the silver) and then when it looks like the spot is going to rise they bring it back online. The last 10 years or so though I think prices have been high enough that even when cost is getting close to non profitable they've not considered turning the silver tap off because over time it will come back and it's cheaper not to close down and restart process lines.

But again, I would make the claim that it's not relevant that most of the mines cost of production is under current spot, you only have to push the top 10% most expensive producers out of the market to cause a shortage. What the normal or industry average production costs per ounce isn't super relevant because if you added together the mines, primary or tertiary, that were producing silver at that average cost level or below they wouldn't satiate demand.

Add to this the millions of ounces that won't come out of the woodwork through recycling for every dollar the spot drops and the millions of extra ounces used in industry and in jewelry when the price drops and you start to see a break on lower prices. Certainly not an absolute limit, the price could certainly fall another few dollars but it's not like 2012 where you could lose a few dollars and it wouldn't really impact producers or recyclers output much, every dollar dropped at today's levels will be putting the squeeze hard on someone somewhere.
 
Silverpete, re ASIC

It's probably easy enough to go through each companies 1/4 or financial year reports, I've done that before researching what it costs to mine but it's very confusing so...I'll leave that to others, hopefully some of the links in this thread will allow those folk who are interested to do a bit more research. Not trying to flob you off or not answer the question but.....:)

As a side note.

I think it's quite interesting that production of silver in many cases is a by-product of Gold, zinc, lead and copper mining and of course, if the gold price takes a further tumble, there's a very food chance of gold miners closing shop. Rangold has said they are cashed up and will take-over other miners if they get the chance.

Obviously the closing of gold mines and the slow down in industry for copper, lead and zinc will have a flow-on effect for silver.

Some say that about 60% of silver comes as a by-product from mining gold.

If the silver price goes lower for a lengthy period even those mines that focus on silver will be doing it tough.

That means to me, that silver production will be down which for the long-term is quite bullish for silver.
 
Holdfast said:
Silverpete, re ASIC

It's probably easy enough to go through each companies 1/4 or financial year reports, I've done that before researching what it costs to mine but it's very confusing so...I'll leave that to others, hopefully some of the links in this thread will allow those folk who are interested to do a bit more research. Not trying to flob you off or not answer the question but.....:)

As a side note.

I think it's quite interesting that production of silver in many cases is a by-product of Gold, zinc, lead and copper mining and of course, if the gold price takes a further tumble, there's a very food chance of gold miners closing shop. Rangold has said they are cashed up and will take-over other miners if they get the chance.

Obviously the closing of gold mines and the slow down in industry for copper, lead and zinc will have a flow-on effect for silver.

Some say that about 60% of silver comes as a by-product from mining gold.

If the silver price goes lower for a lengthy period even those mines that focus on silver will be doing it tough.

That means to me, that silver production will be down which for the long-term is quite bullish for silver.
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it is infact 70% of ALL silver production around the globe is a byproduct of mining another primary metal. e.g. Zinc, Leah, Gold
 
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