Sunday, November 16, 2014

There Are Few Pure Silver Plays

The reality is that there are actually very few pure silver operations. As much as 70% of the silver produced is an offtake of mining for base metals. These producers really don't give a hoot about the price of silver. As long as they're making money in copper, lead and zinc, they don't pay attention to the silver price. They will keep producing no matter how low the silver price goes.

Even primary silver producers are reluctant to turn off the lights temporarily when they are working at a loss. I figure the average all-in sustaining cost per ounce, including taxes, is $23/oz. That makes selling for $17/oz unsustainable. But in the long run, operating minimally at a loss for a few months actually makes more sense than halting production. There are many reasons. Customer and employee contracts would result in big fines if not fulfilled in some cases. Also, keeping the wheels turning is important because mines deteriorate rapidly. A lot of them have to be dewatered, monitored for structural integrity and generally maintained. It actually might cost more to shut down and restart later than run it at a loss for a year as an example.

- David Morgan via Investor Ideas