Two Mines Supply Half Of U.S. Silver Production & The Real Cost To Produce Silver

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by Steve St. Angelo, SRSRocco Report:

Just two mines supply the United States with half of its silver production, and both are located in Alaska. It’s quite amazing that Alaska now produces half of the silver for the U.S. when only 30 years ago total mine supply from the state was less than 50,000 oz per year. The silver produced in Alaska comes from the Greens Creek and Red Dog Mines. One is a primary silver mine and the other a zinc-lead base metal mine.

Even though Hecla’s Greens Creek Mine is labeled as a primary silver mine, 56% of its revenues come from its gold, zinc, and lead metal sales. However, Teck Resources that runs the Red Dog Mine doesn’t even list its silver production in its financial reports. Because Red Dog produces one heck of a lot of zinc and lead, their silver production doesn’t amount to much in the way of revenues.

For example, the Red Dog Mine produced 542,000 metric tons (1.1 billion pounds) of zinc and 110,000 metric tons (222 million pounds) of lead, while its estimated silver production was 6.6 million oz (Moz). According to Teck’s 2017 Annual Report, total revenues from the Red Dog Mine were $1.75 billion. With the estimated silver price of $17 in 2017, total revenues from 6.6 Moz of silver were $112 million, or just 6% of the total.

In addition, Hecla’s Greens Creek Mine in Alaska produced 8.4 Moz of silver this year, down from 9.2 Moz in 2016. As I mentioned, the Greens Creek Mine also generated a lot of gold, zinc, and lead, equaling $182 million of the total revenues of $326 million (including treatment costs).

The USGS just came out with their final Silver Mineral Industry Survey for 2017, reporting that the U.S. produced 33 million oz (Moz), down from 37 Moz the previous year. U.S. silver production declined due to the union strike and the shut down of Hecla’s Lucky Friday Mine. As we can see, Greens Creek and Red Dog accounted for 15 Moz of the total 33 Moz of U.S. silver production:

While Greens Creek and Red Dog supplied nearly half of U.S. silver production last year, the next two largest mines provided 21% of the total. Coeur’s Rochester Mine in Nevada produced 4.7 Moz of silver while the Bingham Canyon Mine, the country’s largest copper mine, supplied 2.2 Moz. Almost 7 Moz of silver came from these two mines alone.

Thus, the top four silver producing mines in the United States accounted for two-thirds of the supply… 22 Moz:

Greens Creek, Alaska (8.4 Moz) = Primary Silver Mine

Red Dog, Alaska (6.6 Moz) = Zinc-Lead Base Metal Mine

Rochester Mine, Nevada (4.7 Moz) = Gold-Silver Mine

Bingham Canyon Mine, Utah (2.2 Moz) = Copper Mine

The majority of the remaining 11 Moz of U.S. silver production comes as a by-product of gold and copper mining, predominantly in Nevada and Arizona.

What’s The Real Cost To Produce Primary Silver?
One of the most misunderstood metrics in the mining industry is the real cost to produce primary silver. Now, I am not talking about the cost to produce silver as a by-product of gold or base metal mining. Because 30% of global silver mine supply comes from primary mines, the market determines the silver price based on its cost of primary silver production.

Unfortunately, there are still investors who believe that it only costs $5 an ounce to produce silver. And who can blame them when Hecla comes out and reports that its AISC – All-In Sustaining Cost for its Greens Creek Mine was $5.76. If Hecla’s Greens Creek Mine was profitable at $5.76 an ounce, then why did the company state a $23 million net income loss for the year? Well, part of the reason for the net income loss was due to costs associated with the suspension of its the Lucky Friday Mine as well as losses on derivative contracts.

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