Top Primary Silver Miners Facing Declining Ore Grades

In an article titled The Dark Side of the Silver Mining Industry, SRSrocco Report’s Steve St. Angelo states that last year, the six top primary silver miners had an average yield of 7.6 ounces per tonne, down from 8.1 ounces per tonne in 2012.

Commenting further, he notes:

Declining ore grades are the Dark Side of the mining sector because the industry would rather not advertise its impact on the cost of producing silver.

Even though the average silver yield only declined 41% since 2005, the amount of processed ore increased 65% from 9.4 million tonnes in 2005 to 15.5 million tonnes in 2013.  Not only has the amount of processed tonnage increased to produce less silver in 2013 compared to 2005… the costs of energy, labor and materials have doubled or tripled during the same time period.

He turns to Fresnillo plc (LSE:FRES) to illustrate the negative impact of falling ore grades:

In 2008, Fresnillo had approximately 1,500 workers at its mine producing 33.8 million ounces of silver.  I estimated the worker figure for 2008 as they offered no employee data in their 2008 Annual Report.  According to their 2009 Annual Report there were 1,531 workers.

Now, if we look at the situation in 2013.. we see a much different picture.  In 2013, the Fresnillo mine increased its workforce to 1,674 and Saucito had 999 for a total of 2,673.  Thus, it now takes nearly 1,200 more workers to produce about the same silver in 2013 than it did in 2008.

Furthermore, the type of workers at Fresnillo have changed in the past five years.  In 2008, the Fresnillo Mine had 894 employees and 637 contractors working at the project.  By 2013, the number of employees grew 13 to 907, while its contractors increased 130 to a total of 767.

Moreover, the Saucito mine has no company employees whatsoever… the 999 workers are all contractors.  So, the amount of contractors working at these two mines are nearly double (1,766), compared to 907 company employees.

St. Angelo concludes:

This is the new way of the mining industry…. utilizing contractors so the company isn’t responsible for providing any healthcare or retirement benefits.  You see, the mining companies are forced to make these kind of changes to keep costs from getting out of control.

Click here to read the full SRSrocco Report article.