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11th August 2013, 04:47 AM
by Ranting Andy - Miles Franklin
Published : August 10th, 2013
In recent weeks, essentially all major PM miners have announced MASSIVE asset write-downs, care of the PAPER PM raids that have taken gold and silver costs below their respective costs of production. Not to mention, we have seen development delays, capital expenditures and dividend cuts; with the “granddaddy of them all – RESERVE and RESOURCE write-downs – waiting “on deck.”
Alarmingly, one of the largest write-offs was $1.9 billion from Goldcorp’s “crown jewel” Penasquito project in Mexico; i.e., the raison d’etre for acquiring Glamis Gold for $8.6 billion in 2006. Heck, even Fresnillo, the world’s third largest silver miner – and more importantly, the largest primary silver producer, with ALL its operations in Mexico – announced a series of dramatic cost cuts and a 68% dividend reduction earlier this week. Fresnillo is likely the world’s low cost silver producer; and thus, if it is slashing costs, you KNOW the industry production outlook is dire.
Anyhow, I am focusing here on Penasquito and Fresnillo because Mexico is the world’s largest silver producing nation – accounting for roughly 21% of the 2012 total. In other words, the fortunes of the Mexican mining industry go a long way towards determining if global production rises or falls…
For years, I have written of how massive Cartel PAPER raids directly correlate with lower PHYSICAL production; as was the case after 2008’s Global Meltdown I, when Cartel efforts to suppress PERCEPTION of PMs traditional safe haven role yielded a more than 9% gold production decline – worldwide…
Today, however, the PM production outlook is far direr; as discussed in “PRECIOUS METALS SUPPLY CRUNCH.” Dozens, if not hundreds of exploration companies have been bankrupted by the Cartel’s post-2008 efforts to DESTROY the industry’s traditional “safe haven” appeal. Moreover, with anti-PM PROPAGANDA at an all-time high, mining indices are plumbing multi-decade lows; all but shutting down badly needed investment capital to an already reeling industry…
Furthermore, with much of the “low hanging fruit” – i.e, high-grade, low-cost deposits in mining-friendly jurisdictions – already “picked,” the industry faces an extremely steep cost curve, irrespective of the aforementioned price suppression. Frankly, it’s no different than what I observed as an energy analyst from 1996-2005; after which, the cumulative effect of similar factors – not to mention, an extremely aged work force – caused prices to permanently surge higher.
The indefinite delay of Barrick’s MASSIVE Pascua Lama project – as discussed in “EVIL PERSONIFIED”; the TOTAL write-off of Kinross’ Fruta del Norte project – per “THE ONLY MAJOR GOLD DISCOVERY IN A DECADE – GONE, GOOD-BYE!”; and oh yeah, the likely permanent closure of Rio Tinto’s Kennecott mine – which produced 10% of the U.S. silver supply; are prime examples of how difficult it has become to maintain PM production these days – let alone, increase it.
Back to Mexico, I just read two incredibly ominous articles from perhaps the best fundamental PM analyst this side of the Atlantic – i.e., Steve St. Angelo of the SRS Rocco Report. In the first, he dissects Fresnillo’s 1H 2013 earnings report – noting how at current PM prices, it may actually post a 2H 2013 loss. Secondly, he notes that cumulative Mexican Silver Production is down a Stunning 10% in the first five months of the year – compared to previous analyst expectations of an increase…
Steve has been at the forefront of discussing the dire PM production outlook for some time – with a key to his analysis being, among other things, the increased ENERGY needs required to maintain production. In other words, without substantially lower energy costs, there’s not a chance PM production can be meaningfully increased – let alone, maintained.
By the way, take note of how low in the “production standings” the U.S. sits. In 2012, American mines produced a measly 33 million ounces of silver – compared to the run rate of 50 million ounces currently observed for 2013 U.S. Mint silver Eagle sales. If production is falling worldwide, and the U.S. can’t even produce enough to fund its own, legally binding U.S. Mint program (for what that’s worth), HOW ON EARTH can they supply it without dramatic silver import increases.
And for that matter, what if the Cartel loses control in 2014 – yielding 100 million ounces of demand for this one tiny silver buying program. Based on 2012 worldwide production levels of 787 million ounces, that would represent a whopping 13% of 2012 supply – which could be significantly lower by 2014. And oh yeah, U.S.-based silver buying represents less than 10% of total global investment demand! Think long and hard of what I am writing; and subsequently, if you believe it’s even possible for silver prices to materially decline from here.
http://www.24hgold.com/english/news-gold-silver-mexican-silver--production-collapse-.aspx?article=4473228562G10020&redirect=false&contributor=Ranting+Andy&mk=1
Published : August 10th, 2013
In recent weeks, essentially all major PM miners have announced MASSIVE asset write-downs, care of the PAPER PM raids that have taken gold and silver costs below their respective costs of production. Not to mention, we have seen development delays, capital expenditures and dividend cuts; with the “granddaddy of them all – RESERVE and RESOURCE write-downs – waiting “on deck.”
Alarmingly, one of the largest write-offs was $1.9 billion from Goldcorp’s “crown jewel” Penasquito project in Mexico; i.e., the raison d’etre for acquiring Glamis Gold for $8.6 billion in 2006. Heck, even Fresnillo, the world’s third largest silver miner – and more importantly, the largest primary silver producer, with ALL its operations in Mexico – announced a series of dramatic cost cuts and a 68% dividend reduction earlier this week. Fresnillo is likely the world’s low cost silver producer; and thus, if it is slashing costs, you KNOW the industry production outlook is dire.
Anyhow, I am focusing here on Penasquito and Fresnillo because Mexico is the world’s largest silver producing nation – accounting for roughly 21% of the 2012 total. In other words, the fortunes of the Mexican mining industry go a long way towards determining if global production rises or falls…
For years, I have written of how massive Cartel PAPER raids directly correlate with lower PHYSICAL production; as was the case after 2008’s Global Meltdown I, when Cartel efforts to suppress PERCEPTION of PMs traditional safe haven role yielded a more than 9% gold production decline – worldwide…
Today, however, the PM production outlook is far direr; as discussed in “PRECIOUS METALS SUPPLY CRUNCH.” Dozens, if not hundreds of exploration companies have been bankrupted by the Cartel’s post-2008 efforts to DESTROY the industry’s traditional “safe haven” appeal. Moreover, with anti-PM PROPAGANDA at an all-time high, mining indices are plumbing multi-decade lows; all but shutting down badly needed investment capital to an already reeling industry…
Furthermore, with much of the “low hanging fruit” – i.e, high-grade, low-cost deposits in mining-friendly jurisdictions – already “picked,” the industry faces an extremely steep cost curve, irrespective of the aforementioned price suppression. Frankly, it’s no different than what I observed as an energy analyst from 1996-2005; after which, the cumulative effect of similar factors – not to mention, an extremely aged work force – caused prices to permanently surge higher.
The indefinite delay of Barrick’s MASSIVE Pascua Lama project – as discussed in “EVIL PERSONIFIED”; the TOTAL write-off of Kinross’ Fruta del Norte project – per “THE ONLY MAJOR GOLD DISCOVERY IN A DECADE – GONE, GOOD-BYE!”; and oh yeah, the likely permanent closure of Rio Tinto’s Kennecott mine – which produced 10% of the U.S. silver supply; are prime examples of how difficult it has become to maintain PM production these days – let alone, increase it.
Back to Mexico, I just read two incredibly ominous articles from perhaps the best fundamental PM analyst this side of the Atlantic – i.e., Steve St. Angelo of the SRS Rocco Report. In the first, he dissects Fresnillo’s 1H 2013 earnings report – noting how at current PM prices, it may actually post a 2H 2013 loss. Secondly, he notes that cumulative Mexican Silver Production is down a Stunning 10% in the first five months of the year – compared to previous analyst expectations of an increase…
Steve has been at the forefront of discussing the dire PM production outlook for some time – with a key to his analysis being, among other things, the increased ENERGY needs required to maintain production. In other words, without substantially lower energy costs, there’s not a chance PM production can be meaningfully increased – let alone, maintained.
By the way, take note of how low in the “production standings” the U.S. sits. In 2012, American mines produced a measly 33 million ounces of silver – compared to the run rate of 50 million ounces currently observed for 2013 U.S. Mint silver Eagle sales. If production is falling worldwide, and the U.S. can’t even produce enough to fund its own, legally binding U.S. Mint program (for what that’s worth), HOW ON EARTH can they supply it without dramatic silver import increases.
And for that matter, what if the Cartel loses control in 2014 – yielding 100 million ounces of demand for this one tiny silver buying program. Based on 2012 worldwide production levels of 787 million ounces, that would represent a whopping 13% of 2012 supply – which could be significantly lower by 2014. And oh yeah, U.S.-based silver buying represents less than 10% of total global investment demand! Think long and hard of what I am writing; and subsequently, if you believe it’s even possible for silver prices to materially decline from here.
http://www.24hgold.com/english/news-gold-silver-mexican-silver--production-collapse-.aspx?article=4473228562G10020&redirect=false&contributor=Ranting+Andy&mk=1