First Majestic Silver Corporation: More Costly than meets the Eye!
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| Topic: Silver Mining Companies — December 9th, 2008
On December 1st 2008 we wrote to First Majestic Silver Corporation asking the following question:
Dear Sirs,
Some of our readers have expressed interest in the compilation of your cash costs as to why the smelting costs are omitted, so it would help our readership and us, if you could provide us with an answer to the following question:
Your cash costs are stated in Q3 financial results are $7.65 per ounce, which excludes the cost of smelting. As other silver producers normally include these smelting costs could you please explain to us why you have chosen not to include smelting costs?
The third quarter highlights headline with cash costs at $7.65.
Now we go to the financial statement for a little more detail and find the following:
The third quarter financial statement, page 27 of 45 contains the following:
Direct cash costs per ounce of silver (see Non‐GAAP measures below) were negatively impacted in the current quarter by an extremely wet and stormy rainy season in México, with a cost per ounce of US$7.65 overall compared to US$4.84 in Q2 of 2008, and US$6.73 for the quarter ended September 30, 2007.
If you now go to page 30 you will find a spreadsheet entitled Cash Costs Reconciliation where you can read the following:
Cash Cost per ounce produced = $11.70
Smelting Cash Cost per ounce = (4.04)
Direct Mining Expenses Cash Costs = $7.65
Just click here if you wish to read the report in full.
To our simple minds the real cash cost is $11.70 and not $7.65 per ounce of silver produced and that should have been the headline.
The point being to dig a little deeper when doing your own due diligence and make sure that you understand exactly what it is that you are buying.
As of today First Majestic have not answered our request for an explanation; however, as and when they do reply we will most certainly publish their response for your attention.
Have a sparkling day.
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I think I can answer that for you.
Majestic will probably reply in the odour of:
“To enhance shareholder value in the current financial market situation, we supply our investors with an in-depth view of our cost structure per mined ounce. Due to the extremely wet and stormy mining season in Mexico, we had to incur the negative effect of higher in-house TC/RC costs per ounce.”
As for the smelters companies; When the 25kg ‘dore bars’ are delivered to the smelter refinery, the TC/RC charges are forwarded to the miner. These treatment and refining charges are based on the supply/demand of concentrate in the markets. Oversupplies (as seen today) are being charged to the miners with higher TC/RC prices for the smelter to revive its sagging profits.
The miner is able to lower these charges by cutting production and lowering stockpiles of ore, to limit the oversupply to smelters, thereby strengthening their bargaining powers at the expense of lower short term revenue.
http://www.gold.org/assets/file/pr_archive/html/bars/Categ.htm
Hope this clarifies, brgds
Comment by de Graaf — December 10, 2008 @ 6:40 pm
Praise GOD you people are on the ball….I’ve always had reservations about Mexico
Comment by presto — December 10, 2008 @ 8:56 pm
you still here degraaf? so you decided to change your view of gold and silver huh ? wow what people do just to have some recognition on this site lol you remember me huh? im the buffett fan remember and youre the deflation guru remember? remember i mentioned buffett called time is right to buy saturday october 18 2008 ? now what do you have to say about buffetts market timing hahahahaha
Comment by wil — December 11, 2008 @ 2:40 am
look at degraafs earlier negative statements on gold and silver and his deflation remarks and his earlier comments on gold and silver lol buffett was right on the bottom of the market ! THE WHOLE MARKET WHICH INCLUDES GOLD AND SILVER STOCKS !
Comment by wil — December 11, 2008 @ 2:45 am
THANKS BUFFETT FOR THE FREE ADVICE AND ALSO TO THIS SITE EVEN IF YOU ALLOWED MR DEGRAAFS ARTICLE THAT HAD STATEMENTS OPPOSITE OF WHAT THIS SITES EDITORS HAVE STATED! PRETTY LAME
Comment by wil — December 11, 2008 @ 2:48 am
Chill Willy,
Its called: a contributing opinion.
Comment by de Graaf — December 11, 2008 @ 1:03 pm
Team,
This post was to remind you to look as closely as you can at the financial reports when they are issued and make sure that you know exactly what it is you are buying - everyone’s comments are welcome.
Comment by Silver Prices — December 11, 2008 @ 7:42 pm