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Will 2014 Look Like 2013 for the Silver Market?


Q3 results point to further cost reduction for some.

When it comes to silver market trends, 2014 might end up looking a lot like this year, with some miners continuing to focus on cost cutting, and a "duality" between gold and the industrial world affecting the metal, according to the latest comments out of the sector.

For the miners, earnings season continued this week, with First Majestic Silver (NYSE:AG) weighing in with its third quarter results on Tuesday, reporting net earnings of $16.3 million or $0.14 per share -- a drop of 34% compared to last year -- and revenues of $76.9 million in Q3, up 21% on the third quarter of 2012. Silver ounces produced were up 22% on the same quarter last year.

Looking ahead, CEO and president Keith Neumeyer says that after two back-to-back quarters of total cash cost reductions, management has little choice but to cut further, as they can't count on an improved short-term environment for silver prices.

"Our focus for 2014 will be to optimize operations, to continually reduce costs, and remove all discretionary investments that don't have major impacts on future guidance," Neumeyer said in a statement.

When it comes to the near-term, the Thomson Reuters GFMS Interim Silver Market Review released this week says silver prices have averaged $24.51 per ounce in the first 10 months of the year, down 20.7% year-on-year. Prices are forecast to average $24.24 for the full year, compared to $31.13 in 2012.

"One of the defining characteristics of the silver market is its display of duality, at times closely shadowing developments in the gold market and at others taking cues more from the industrial world. This trend is forecast to continue into 2014, as an improving physical-demand environment is faced with the potential for an unwinding of US government quantitative easing and a stronger US dollar," according to the report.

Last week, Silver Standard Resources (NASDAQ:SSRI), Coeur Mining (NYSE:CDE), and Hecla Mining (NYSE:HL) reported net losses in the third quarter, with Hecla Mining announcing a net loss of $8.6 million, or $0.03 per share, but a 42% increase in silver production compared to the same quarter last year.

SSRI posted a net loss of $14.3 million, or $0.18 per share, compared with a net loss of $1.6 million, or $0.02 per share, in the same quarter last year. Revenues were $43.9 million in Q3, versus $73.5 million in Q3 2012.

After quarter-end, Silver Standard Resources also announced the sale of its San Augustin exploration project in Mexico to Argonaut Gold (TSE:AR) for $75 million. "We have the capacity within these market conditions to be opportunistic to develop, sell, and buy properties," said company president and CEO John Smith.

CDE reported an adjusted net loss of $23.4 million or $0.23 per share, compared with a $34.6 million or $0.35 per share adjusted net loss in the previous quarter. The company reaffirmed its 2013 full-year production guidance of 18.0-19.1 million ounces of silver.
Earlier this week, precious metal streaming company Silver Wheaton (NYSE:SLW) also reported net earnings of $77.1 million or $0.22 per share, meeting analysts' estimates, but down 36% on Q3 2012. Revenue was $166.4 million in Q3, up 3% on the same quarter of last year.

Although it reported record attributable silver equivalent production of 8.9 million ounces in Q3 -- up 17% on the same quarter of 2012 -- Silver Wheaton's average realized sale price per silver equivalent ounce was down 32% on the same period last year. The company says its 2013 silver equivalent production is still expected to exceed 33.5 million ounces and its 2017 guidance has been revised to 42.5 million silver equivalent ounces.

Due to its silver streaming arrangement, Silver Wheaton was also affected by Barrick Gold's (NYSE:ABX) announcement last month to temporarily suspend the Pascua-Lama project on the border of Chile and Argentina.

As a result, the company says it will be entitled to silver production from three of Barrick's producing mines for an extra year -- until the end of 2016 -- to cover any production shortfall at Pascua-Lama, until Barrick satisfies a completion test.

On Thursday, it will be Pan American Silver's (NASDAQ:PAAS) turn to release its third quarter numbers, with analysts expecting earnings per share to come in at $0.05, according to Reuters data – down from $0.25 in Q3 2012. In September, Pan American Silver announced that it would close out its outstanding silver and gold hedges before the end of the year, as a result of its increased optimism about the short-term prospects for both metals.

So far this year, AG, SSRI, SLW, CDE, HL and PAAS are each down more than 40%, compared to a 33% fall for the iShares Silver Trust ETF (NYSEARCA:SLV).

Twitter: @helenbnichols
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