1) Declining ore grades: As I mentioned in a prior article, the top 6 silver companies & primary mines were producing silver at 13 oz a tonne in 2005. However, in 2012 this fell to 8.1 oz/t. I don’t have the data for 2000, but I can tell you that more than likely the top primary miners were producing silver at 15-16 oz/t at least
So as you can see, from 2000-2012, the top primary silver miners have seen their silver yields decline 50%. This means that their costs just to extract the silver have more than doubled due to falling ore grades alone. And, this does not factor in the price of energy.
2) Energy prices have quadrupled: Since 2000, the price of a barrel of oil has increased from $28 to $111. We must remember when the energy price doubles the costs down-stream can triple or quadruple. As energy costs increase, so do materials, labor and equipment. So, not only are the mining companies paying 4 times the price for liquid energy, they are also paying much higher prices for everything else.
3) Hecla’s Total Production Cost was $5.49 an ounce in 2000. According to Helca’s 2002 Annual Report, their total production cost for silver was $5.49 in 2000, which means they were losing money as the average price of silver in 2000 was $4.95. Now, we must remember, total production costs do not include ALL COSTS.
Hecla actually got their production costs down in 2002 to about $4.00, but the average price of silver was $4.60… so they still were barely making money. Hecla had a net income loss for 2000 as well as 2001. So, even though the prices of the metals were very cheap back then, many companies were not making profits.
Steve
