How Silver Is Profitably Mined

It still seems like yesterday. In November 2008, I asked Fools to wake me up when silver mining became profitable again. Pan American Silver (Nasdaq: PAAS  ) had just reported a loss, as an abrupt return to single-digit silver prices dipped beneath the miner's all-in cost of production.

A couple of years hence, it's a brave new world for silver miners, and my nearly successful nomination of Silver Wheaton (NYSE: SLW  ) as the world's most profitable company underscores the incredible power of the metal's ongoing resurgence.

Of course, I didn't actually go to sleep back then (good thing; you never called!).

That same month, I recommended Silver Wheaton when it traded for $2.51 per share, and the stock has since appreciated more than 1,700%. I also encouraged readers of my CAPS blog not to overlook two junior silver miners in particular, and soaring silver sensations Endeavour Silver (NYSE: EXK  ) and Great Panther Silver (AMEX: GPL  ) have since become an eight-bagger and a 16-bagger, respectively.

Today, with silver prices barreling above $37 per ounce, reaping substantial profit from mining operations has grown rather simple. Endeavour Silver earned $5.6 million in the fourth quarter of 2010, and saw cash flow leap 107% to $28.5 million. The miner's average realized silver price for the period was $24.16 per ounce, which entices Fools with visions of the incredible looming profitability at current market prices. As CEO Bradford Cooke states: "Cash costs are expected to continue declining into the mid-$5 per oz range and if we assume a US$30 average silver price in 2010, our mine operating profit margin will be around $24 per oz -- remarkable by any standards." Not surprisingly, larger producers Pan American Silver and Coeur d'Alene Mines (NYSE: CDE  ) posted some blowout fourth-quarter results of their own.

So if mining silver profitably is the easy part, where does the real challenge come in? The physical process of extracting payable silver from the ground is something of a mystery to many, including many silver investors. As a rare visual window into the nuts and bolts of an underground silver mining operation, Endeavour Silver's second installment in its "How Silver Is Mined" video series (view Part 1 here) is one of the closest proxies I've seen to an actual in-person site inspection. Now that you know how profitable silver mining can be, it's time to comprehend more fully how the metal is mined.

Please share your thoughts about the above video in the comments section below. If the never-boring silver mining industry piques your Foolish curiosity, be sure to add these stocks to your free, personalized watchlist and follow all the precious news to come.

Fool contributor Christopher Barker is the self-appointed sultan of silver, and the gentle giant of gold. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Coeur d'Alene Mines, Endeavour Silver, Great Panther Silver, Pan American Silver, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a highly reflective disclosure policy.


Read/Post Comments (8) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2011, at 11:05 AM, Jbay76 wrote:

    Chris,

    Thanks for this post, your insight and the embedded movie!

    J

  • Report this Comment On March 24, 2011, at 11:49 AM, voelkels wrote:

    Great videos!!! As an ex-chemist and petroleum engineer, I wondered how they mined & refined silver, me.

    C.J.V.

  • Report this Comment On March 24, 2011, at 12:01 PM, Jbay76 wrote:

    Great video! what happens to the cyanide? Does it get reused or treated as toxic waste?

  • Report this Comment On March 24, 2011, at 3:07 PM, bomer777 wrote:

    Couple days ago, CDE was listed in throw away list, after that comment, CDE sky rocket like crazy. What are you guys doing? Are you helping the big guys to cover back after lots hard earned money guys short CDE?

  • Report this Comment On March 24, 2011, at 3:09 PM, meh11 wrote:

    The video (like the previous one) doesn't display.

  • Report this Comment On March 24, 2011, at 5:09 PM, XMFSinchiruna wrote:

    meh11,

    I'm sorry you weren't able to access to videos. I'm not sure why that is the case, but I suspect it has something to do with your computer's settings or configuration.

    Jbay76,

    I have wondered the same thing myself. I'll pose the question and get back to you.

  • Report this Comment On March 25, 2011, at 5:25 PM, BBFK wrote:

    Those mysterious covert forces are still at work. Let's look at a few facts and actions.

    1) Silver is in short supply.

    2) Demand is rising.

    3) Silver prices rise pre NYSE open.

    4) Massive selling occurs when NYSE opens and the silver price plummets.

    5) No sooner has the NYSE closed than silver prices once again rise.

    I was under the impression that price fixing and cartels were illegal, are you listening JPM, or are you just keen to get in on the lawsuit action? I look forward to hearing your defense when your day in court comes. Come on COMEX earn your money and be worth something, sort it out!!!!!!

  • Report this Comment On May 17, 2011, at 4:26 PM, AgAuMoney wrote:

    try it directly on youtube... Don't know why it was stolen/embedded here without the normal youtube link.

    http://www.youtube.com/watch?v=yGGUgC7V-vs

    (endeavor has several other videos up there as well)

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