Silver Mining - It's the Pits

Throughout my association in the mining industry I have heard almost every story you can imagine. For instance, there is more gold in seawater than can be measured and some company is supposed to have some super technology that can extract it profitably.

Another one that pops up is, “Our gold does not assay by normal methods but believe me we have a lot of it and our super extraction process will make us all rich.”

Then we can get into the idea that, “the tailings from the previous mine are worth a fortune just by themselves” . . . and on and on it goes.

One “story” that many investors have bought into, however, is the idea that open-pit mining is very cost effective. This of course is true to some extent, because to build an open-pit mine takes far less money than to build an equivalent underground mine. And although open pits work beautifully for copper and zinc, they seldom work for silver.

This week’s missive is why silver open-pit mining may truly be the pits, and our members-only report features information of extreme significance to those of us who are serious about making money in the mining sector.

Your editor has been told time and time again that low-grade projects were economic (they make money for the shareholders) if just enough of “it” (the mineral or minerals in question) were found. In other words, “We might have a very low-grade project but we have so much that it lends itself to an open-pit mining operation, and we are all going to make lots of money.”

This never really held much credence with me, knowing from my earliest studies that “grade was king”—meaning that a high-grade operation would almost always trump a low-grade project. However, there are profitable open-pit mining operations throughout the world that are making money. This of course is dependent upon the price of the metal being mined, whether precious metal or base metal. Simply, what might look great at $1.00 per pound zinc might not be ore (ore is defined as economic) at half that price.

The idea of how to define what really constitutes a good project from one that really might just be promotions by a junior mining concern led me to seek out an answer. And through my many contacts in the industry, the answer came from a very well known geologist, who stated to me that a myth existed that “open-pit” silver mines could be profitable. This individual pointed out the facts that very few silver projects are profitable yet many base metals operations are—but every mining operation is grade dependent.

To be perfectly blunt, if you hear, “We have two ounces of silver per ton and a gazillion ounces,” be careful! Certainly it is possible, but our report this month will clarify the facts and dispel many myths about the costs of mining.

Comments

[ManAboutDallas:]

Well, Mr. Morgan, with all due respect to your reputation and your skepticism, there is a company now very close to commercial production of gold from "seawater"; actually, it's from a fresh water aquifer, but let's not quibble over small details. The company is Global Platinum + Gold, and after years of trying now have "proof of concept" and are ready to go into commercial-scale production. Yes, I can see your eyes rolling from here. So be it. Humankind tried to fly for centuries, before the Wright brothers made the breakthrough. So it is with this paradigm shift.

Jan 30 09:56 AM

[GMiki1:]

There's another popular company doing ocean extraction, but not from seawater, just ocean mining. It has big-name investors.

I hold Northern Dynasty, which controls two enormous gold/copper low-grade sites in Alaska. It's a Hunter-Dickenson Company and has very big investors such as Anglo American and Misubishi. Low grade, but the total in ounces of gold makes it one of the biggest potential mines on the planet. The share price is now at ridiculous lows for several reasons, including the drop in the copper price. It's selling as if they were going to extract dirt and not gold. They've had struggles over environmental concerns, but they've made clever moves and have overcome problems. Look it up. Do your research. But low grade, yes.

I love high grade finds, such as Detour Lake or Bravo Group, but sometimes low-grade works, apparently.

Jan 30 10:45 AM

[ibejack:]

Let's hope nobody ever has a scientific break through that enables salt water mining of gold. If that ever occured successfully then gold would flood the market like any other hard metal.

Jan 30 02:08 PM

[Ian R. Camp...:]

On the issue of 'gold from seawater' I would side with David Morgan. Many years ago I was a director of a company that owned patents to extract 'gold from seawater' that came out of the labs of a world renouned university. Three years and many, many millions of $ later the company failed because commercial scale extraction costs were prohibitive at virtually any gold price.

The economics of an open pit mine (or any mine for that matter) are no different. Indeed, as Mr. Morgan says, commercial viability of a mine is dependent on grade and metal price. However, to stop there is simplistic and I expect Mr. Morgan will explain that in report he speaks about. Commercial viability also depends on metalllergy, the type of extraction process, availability and cost of infrastructure, both external and internal, water and utility costs, labour rates, proximity to market, permitting costs, site closure remediation costs, etc. etc. I am told by a geologist friend that as a 'rule of thumb' an open pit mine can be operated today at a 'cost per ton' in the order of $9 - $12 per ton. Such a cost structure goes a long way to suggest that unless circumstances are unusual an open pit silver mine is unlikely to be seen as viable from a risk/reward Point of view. I think this given (among other things) historic silver price cycles, what I see to be the complexity of the silver demand/supply equation, and the up front and ongoing capital costs and repair and maintenance costs associated with an open pit mine.

Jan 30 03:18 PM

[johngonole:]

Well in Florida we are beginning to have a problem with lack of fresh drinking water. Lets build desalinization plants that pay for themselves by also producing gold.

Jan 31 02:03 AM

[copesetic:]

news.yahoo.com/s/nm/us...
gold from sewage :)

Jan 31 09:00 AM

[notsosmart:]

if gold comes from enough sources it will become just another metal.forget investing.

Jan 31 01:55 PM

[john s. gordon:]

economics of low grade ore resemble

"we lose a little on every sale but make it up in volume"
> jack

Jan 31 03:05 PM

[ibejack:]

I am always amazed at how difficult open pit mining can be. On paper they all seem to look good, but once the actual mining gets underway random costs seem to always appear. It's one of them things "Easier said then done"--

Jan 31 07:49 PM

[Turnipseed:]

Mr Campbell summed up a lot of the variables that affect production costs. Most open pit, low grade Au deposits use cyanide leaching for good to excellent Au recovery from ore. Low grade Ag ores often are more refractory, causing poorer recovery. For example, Coeur's Rochester mine only gets 60-65% Ag recovery.

Jan 31 08:49 PM