Some things to consider about mining

[Carpe Diem]

I know, I need to get out more, but I have just read Coeur Mining's 2013 Annual Report which was out a few months ago.  I learned some interesting things from it which I was unaware of related to how gold and silver is mined, and their outlooks.

 

I have seen a few on here talking about production costs of mining, and the inherant difficulty of calculating such costs.  I thought some might like to see my summary of this report as it may shed light on some things we didn't know.

 

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1.  Mitchell Krebs CEO:  “We expect to see a declining supply of silver available due to declining mines in the next decade, declining scrap supply, and a lack of access to capital which means fewer exploration discoveries.  At current silver prices few new projects are economic and facing more challenging geopolitical, permitting, taxation and social risks.  

 

2.  Lost decade of returns.  $100 invested in 2002 for silver or gold bullion = a return of $501 or $557 in 2012.  The same $100 in a basket of 30 silver and gold mining companies = return of $204 in 2012.

 

3.  They constantly refer to the lack of control they as a business have and that much of their performance relies on metals prices.  Cost containment and margin expansion are however critical priorities.  

 

4.  The reform of the Mining Law of 1872 through the introduction of the Hardrock Mining and Reclamation Act 2014 could have negative impacts on profits in the US.  The Mining Law of 1872 - Allows US citizens and firms to explore for minerals and establish rights to federal lands without government authorisation.  Known as “self-initiation” or “free access” is the heart of the Law.  Since 1992, there has been an annual $100 holding fee for each claim (which gives claimants the “right to mine”, regardless of any alternative use.  

Since 1872, hardrock miners have taken more than $300 billion worth of minerals from public land without paying a penny in royalties to taxpayers.  Currently miners pay from $2.50 - $5/acre to buy or “patent” public lands.  The new law proposes to give a return to the public and protect the environment better by ensuring that historic sites are protected from mines and that water supplies are not adversely affected.

 

5.  Risk Factors and the hedging of risk through deritivates:  The Company’s use of derivative contracts to protect against silver and gold price volatility exposes us to risk of opportunity loss, mark-to-market accounting adjustments and exposure to counterparty credit risk.  

 

6.  Further risk factors for miners:  Silver and gold prices are affected by prevailing interest rates and returns on other asset classes, inflation expectations, speculation, currency values, governmental decisions regarding the disposal of PM stockpiles, global and regional demand and production, political and economic conditions, net outflow from gold and silver ETFs, bullion sales by private and government holders and general global slowdown, also climate conditions and net smelter return royalties - in Alaska it’s capped at 1 million ounces of production.  The royalty ranges from 1% at $400 per ounce of gold to a maximum of 2.5% at gold prices above $475 per ounce.  At Rochester it’s paid when the average quarterly market price of silver is $23.60/oz or more, up to 5% with the condition that Rochester mine achieves positive cashflows. 

 

I hope this info helps others to realise what's behind the silver and gold we put our hard-earned cash into and to get an idea of the current market trend and future outlook.

 

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The full report can be found here

 

 

 

 

[motorbikez]

Re your, point 2 CD that may well be true that's why it is better for investors to stick to the heavyweight miners rather than the crap on aim, yes 1 in a 100 may be a 10 bagger but most of them just p-ss gullible investors money up the wall and leave them with next to nothing of their original investment.

 

As usual DYOR before parting with your cash.