Let me tell you why the Cash Cost metric is so insane. When a mining company calculates its cash cost, it takes total production costs and subtracts various items including what they call, "By-product credits." All silver mining companies produce additional metals (included in the ore) such as copper, lead, zinc and gold.
For example, Endeavour Silver recorded a $7.92 cash cost an ounce in 2013. To get this low cash cost figure, Endeavour subtracted $111.5 million of by-product credits. This is a big amount when we consider that its total revenue for the year was $276.7 million. Thus, their by-product credits accounted for 40% of their total revenues.
The mining industry would like the investors to believe that by-product credits are a nice BONUS for mining silver.... which is why they only advertise that useless Cash Cost figure in their publications.
Again, using my formula, Endeavour Silver made an estimated $0.93 adjusted silver profit per ounce in 2013. Their average realized price for silver was $23.10 resulting in an estimated break-even of $22.17 last year. If we subtract their cash cost of $7.92 from their average realized price of $23.10, we would arrive at a hefty $15.18 cash profit.
That's right... $15.18 an ounce cash profit. Unfortunately, Endeavour Silver only stated a $11.1 million adjusted income gain for the year after selling 7.1 million oz of silver. If we multiply $15.18 million by 7.1 million oz, Endeavour should have enjoyed a $107.7 million cash profit in 2013..... they didn't.
Why? Because every primary silver mining company NEEDS ALL OF ITS BY-PRODUCT REVENUE to fortify its balance sheet. Can you imagine the losses Endeavour Silver would suffer if it excluded its by-product revenue??
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