The world’s two largest silver mines have seen their productivity decline substantially due to falling ore grades and rising costs.  Gone are the days when silver mines could produce silver at 15-20 ounces per ton.  Today, the Primary Silver Mining Industry is likely producing silver at an average yield of 4-5 ounces per ton.

In my newest video, I discuss the changes that have taken place in the world’s two largest silver mines, the Cannington Mine in Australia and the Fresnillo Mine in Mexico.  Falling ore grades and rising energy costs have contributed to the doubling and tripling of production costs at many silver mining companies.  Investors who believe it still only costs $5 an ounce to produce silver, as it did in 1999, fail to grasp what is taking place in the silver mining industry:

A big problem that has confused investors is the reporting of the “CASH COST” metric by the mining industry.  Some silver mining companies can brag that they have a very low cast cost of $5 an ounce, but they arrive at that figure by deducting their “by-product credits.”  By-product credits are the revenues they receive from producing copper, zinc, lead, and gold along with their silver.

For example, Hecla Mining stated their silver cash cost of $0.16 per ounce for the first three-quarters of 2017.  They were able to report that very low $0.16 cash cost by deducting $175 million of their zinc, lead and gold revenues.  Hecla’s three silver mines had total revenues of $278 million, but they deducted $175 million in by-product credits to get the low $0.16 cash cost.  They deducted 63% of their revenues to arrive at that low meaningless cash cost.

According to Hecla’s financial statements, they only made $4.2 million in net income on a total of $417 million in total revenues Q1-Q3 2017 (including $140 million from their Casa Berardi Gold Mine).  Thus, their net income profit was only 1% of their total revenues. How bad would Hecla’s losses have been if they deducted $175 million of their supposed by-product metals’ revenue from their bottom line?  How about a loss of $171 million?  So, please disregard the Cash Cost metric as it is totally meaningless.  Cash cost accounting does nothing to determine the profitability of a mining company.

As the silver mining industry continues to suffer from falling ore grades, costs will only increase going forward.  However, the biggest impact on the silver mining industry will be the decline in global oil production.  In my next video, I will do an update on the worsening U.S. Shale Oil Industry, even though production continues to increase.

Today’s videos and charts (double click to enlarge) (originally published Jan 26th)

SFS Key Charts & Video Update

SF60 Key Charts & Video Update

SF Juniors Key Charts & Video Analysis

SF Trader Time Key Charts & Video Analysis

Thanks,

Morris

Morris Hubbartt: Chief Market Analyst, Trading Risk Specialist.

website: www.superforcesignals.com
email: trading@superforcesignals.com
email: trading@superforce60.com

A Few Words on the Gold Sector

As the long-term interest rate Amigo continues upward, the anti-USD ‘inflation trade’ continues onward and more and more gold bug writers emerge from the woodwork, it is time for a little antidote to the inevitable pitches and hype to come.

Everything is playing to script and with this little pullback to a higher low in the miners being resolved in the favored direction, the writer bugs are going to further their bullish message and try to get more reader bugs to follow their guidance. But absolutely nothing has changed.

We caught the seasonal rally amid much disgust by writer and reader bugs, and it has simply not yet concluded. Nothing more to read into it than that. While I think 2018 is likely to see the confirmation of a new bull market, a selling opportunity is probably upcoming amid gold bug bravado and pomp (oms) because the fundamentals are not yet in order.

Everybody’s gonna be touting inflation when yields hit their limiters (again, ref. Amigo #1), and run away inflation is not the proper lock & load fundamental backdrop. The miners can go a long way as inflationist bugs tout gold, silver, oil, copper and resources of all kinds. But the other stuff is cyclical and the best case for gold mining is counter-cyclical.

Anyway, here is some droning from NFTRH 483 (1.21.18)…

Gold has obviously been bullish vs. both the US dollar and long-term Treasury bonds and each of those conditions is indicative of an ‘inflation trade’. Please see the weekly Gold-Eagle article to be linked at nftrh.com later today for more on the sector and why I think its rally is nearing its end, if it is not already complete.

While said ‘inflation trade’ is ongoing as part of the risk ‘on’ macro party, the gold sector is an also ran. If you’d like self-reinforcing gold bug feel good sentiments you can find them aplenty out there now, and that is part of the problem. The bugs are on the tout.

I won’t play that game. The fact that the gold herd is getting more bullish now only reaffirms that profit taking is a good idea, with the question being did the rally end last week or is it going to take a final leg up per the still-intact uptrend?

So as noted in Thursday’s update, HUI remains on its uptrend from December and thus far holds a higher low. Another leg up (or 5^th wave) could be the best yet and really cement gold bugs into a full bull view. A loss of the SMA 200 and the January low brings on a stern warning that the rally ended at the 1^st target of 205 (ultimate target near <omitted>).

<inserting an updated, and more detailed chart (than the one in NFTRH 483), which tells the story of the index since we caught the top at 220, got frustrated w/ a couple of failed bounce attempts, caught the sentiment washout and seasonal bottom in December and began managing the ongoing rally and its intact series of higher highs and higher lows>

Right or wrong, I am not going to mince words because I’ve seen the cheerleaders become most vocal at exactly the wrong time too many times over the years and I’ve sometimes regretted being delicate, in hindsight.

Among good, sharp analysts the sector is also populated by charlatans, pitch men, people who desperately want you to be bullish because they know that emotion sells (there’s no fever like gold fever) and finally, non-analysts pretending to be analysts. I believe that many regular people who want to be bullish on gold feel in their hearts the reasons why; they abhor dishonesty and they respect integrity. But that is what the gold cult “community” uses as currency. It sells good (vs. evil). But these are the financial markets and there is nothing inherently good about them. They are what they are.

I see no reason to change the play now. The fundamentals have not improved appreciably as the ‘inflation trade’ moves forward. The seasonal factor is now mature and the pompoms are no longer afraid (or embarrassed) to tout gold. I think 2018 will be good for gold, but a selling opportunity may well come first. And this would be it.

NFTRH.com and Biiwii.com