$17.00 to Produce an Ounce of Silver

I heard a dealer tell me that it costs a mining company $17.00 to produce an ounce of Silver. What are others thoughts?

 

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He's basing that on data from 2011. It's come down significantly since then.

 

Any idea what it is now?

 

Yes. It should be somewhere in the neighborhood of $9.65, maybe a dollar less, depending on existing infrastructure.

Also, FWIW, the $17 cited number was the cost to mine for silver in 2011, assuming existing mines were already at full capacity. Even then, it was closer to $13.88, but the $17 figure was widely cited in 2011.

 

Way to high for today's standards of mining. A lot of factors are used for determining the cost and each mine will be different. Overall, it should be around or just below $10.00 today.

 

I understand it is also a by-product of mining for copper and gold.

 

I talked to Mike Mezack this morning and he told me 2 things:

1. The actual cost of producing an ounce of silver is about $35.00. That's why he has to charge so much for his coins.

2. The earth's supply of silver is just about all gone, so you had better buy as much as you can while you still can.

 

I believe most silver is mined as a by-product of copper, nickel and other mining activities.

 

Ok, so in this thread we have the cost of producing an ounce of Silver at $17.00, $9.65,$8.65, $10.00, and $35.00. Looks all over the board. I'm guessing it differs around the world but there must be an average we can find.

 

Using Capitalism as my guide, ...if me, a schlub, buys an ounce from JmBullion for $19, they have to buy from a smelter somewhere at some price below that. Using 20% Gross Profit, that would make their buy price $ 15 (approx.) The smelter buys the raw stuff below that, again using 20%, at $12 (approx) So I am guessing the mine, who also need a profit, can get that ore out the door at $ 9.

 

There isn't. To know WHY, you kind of have to be a cost accounting geek. First of all, every company will have their own cost, and it will vary daily based upon purity of ore you are mining this month, other metals prices, etc. Second, every company will have slightly different ways of accounting for costing of byproduct versus main product expenses. Third, WHICH cost are you considering? Fully costed, replacement, incremental?

They say there are lies, damn lies, and statistics. I would say the same is true of costs. It all depends on what you wish to do with the number to know what "cost" to report. Cost accounting is an art, not a science. Therefor, its not surprising at all to see such variation. I could take the same mine and most likely report to you a $9 or a $40 cost per ounce, and both be "correct".

 

Remember that fuel and labor are a huge factor in mining. Look at fuel costs between 2011 and now (Drill Baby Drill!!!).

Fuel is down - labor is up. So consider the trend in prices and it should allow you to guage the cost of mining.

And then there's the yield per yard mined.

 

I wanted to know the cost of producing an ounce of silver for general knowledge. I have seen people who invest in silver use whatever number they heard from some source to decide to buy or not. I guess no one really knows what it is for sure.

 

The Bingham Canyon copper mine in Utah can produce several 100,000 ounces of gold and several million ounces of silver each year. In Nevada, silver is mostly a byproduct of gold mining.

 

I would like to know where that figure comes about and from what mine. I am not aware of a specific mine that mines only silver. Would you happen to know one? I believe there maybe one in Australia but are quite uncommon.

Silver in most mines are a byproduct of copper or gold mines and often are considered as bonus when silver does appear. Granted when geologists have to do resource modelling, they factor in the minerals involved. Cost also varies on the difficulty of extracting the minerals, environmental impacts etc.

Also with regarding to mining, one of the biggest cost is fuel. As fuel prices have fallen since record high, would you still think the cost is as high as it was previously?

 

I believe about a 1/3 of Nevada silver production comes from actual silver mines. The rest comes from gold or other mines. I think there are some large silver mines in central and south America as well.

The cost of a mined materials will obviously vary from operation to operation. I am not entirely sure where people come up with these "cost of production" figures. Is there an averaged wholesale number out there somewhere?

 

The average cost is going to be below whatever their selling contracts are. When silver spiked up high the companies could go after the harder to get places that cost more and still make money, when its low they close those parts down and stick to the cheaper parts of their mines. They may mix in a little more expensive stuff as needed to fill a contract but most won't keep selling contracts that will lose them money. The ones that can't cut costs enough in down prices eventually go out of business or sell their mines

The whole it costs more to produce silver then spot price thing is nothing more than marketing designed to make people think spot will have to be at least that price in the near future

 

There is no simple answer to this. With regards to mining, it is geology that ultimately dictates mining practices. This is how mining companies decide if a certain mine is to be open cut, underground and then there are different methods. Sometimes a mine might start off as open cut and then to go into underground or via versa.

As far as I am aware, silver is rarely mined by its own - it's often found in gold-copper deposit or lead-zinc deposit. Some mines are more challenging due to the geology and therefore may be not straightforward. It can even be the extra elements that make it more challenging! For instance if you look at one of America's worst unplanned mine disaster - Berkeley pit, this was a predominately copper mine, with traces of gold and silver. It was a profitable mine until environmental factors start to come to play due to excessive amount of sulfur and arsenic. For more information, this may be of interest: https://en.wikipedia.org/wiki/Berkeley_Pit

Major costs are your capital expenditure such as rock crusher, refinery, smelter, excavators, trucks, pumps, ventilation (for underground) etc. And then consumables such as fuel, explosives, tyres, equipment parts. Transportation cost - are there trains available? Do they have to be built or ores / refined metals have to be trucked out? Are there any environmental concerns? Labour - are there any near the work area or do they have to be hired from somewhere far away?

One thing that don't get discussed often is how companies attempt to control cost by locking in contracts that may have seem to be a good deal at that time, only to see prices going up or maybe down. I highly doubt mines deal with spot prices and often lock in contracts that are medium term such as 3 to 6 months contract which get renewed every few months. This also applies to various suppliers.

It is quite rare for mining companies to publish explicit breakdown cost for each mine. If you are ambitious, you might be able to get hints from major mining companies annual report and they give a rough breakdown figure of their spending and profitability.

 

There are so many factors in determining the costs of mining an ounce of silver. Somewhere there is a report that is put out on this but it is an industry average, not a per mine average. No mining company wants that data published. Some of the factors in determining the costs are ore grade, accessibility, labor, state and federal taxes, milling, trucking and refining.

One should be more concerned about the driving forces behind the price you would buy and or sell at. Todays test level is, Can silver maintain a price above $18.00 per ounce and will the market be tested at the next level of $22.00. No market goes straight up or down. It rides like a roller coaster. If one doesn't have the stomach for it, get out or take some Pepto.