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Tahoe Resources ($TAHO): Shahuindo employees now threatening to strike

The latest from the trainwreck of a company called Tahoe Resources ( (TAHO) is that the strike at La Arena continues (nine days and counting), but now workers at its nearby Shahuindo gold mine in Cajamarca is threatening to come out on strike in solidarity with its fellow employees at La Arena. Here's the letter sent to TAHO management yesterday Friday by those at Shahuindo:

So now you know.

The top three most visited IKN posts this week are... reverse order:

Third Place: "SolGold (SOLG.L) ( ($SOLG.L) at La Hueca". This is probably the first time you've heard about La Hueca, believe me it won't be the last. What with this and the Blackrock news on Friday, a good week for SOLG.

Second Place: "BREAKING: Tahoe Resources (TAHO) ( La Arena shut down due to employee strike action". We broke this story (and TAHO then released a NR later in the day) so it's not surprising it got plenty of hits. We followed this story all week too as the strike got worse, not better. TAHO failing to update on that though.
First Place: "3761 St Pauls Avenue, Vancouver". A mystery two word post which was of course explained later. For some reason it got a mountain of hits, I don't really understand why.

Thirty million pageviews

From humble beginnings, IKN has now grown to where it's...well, still humble in fact because even now with around 25k to 30k views per day (on a weekday, weekends get quiet, and all according to Google not me) it's never going to get the hits gathered by Reuters, Drudge Report or one of those blogs of cute pets doing lovable things. Still, for the niche subject that it is, it's nice to report that IKN has just gone through thirty million pageviews:

the counter is down there in the bottom-right of the
blog, if you don't believe me and care enough

It happened a few days ago and I just noticed this morning, while fiddling around in the back office. I really should allow people to advertise here, no? Maybe Bobby Genovese, Stan Bharti, or Louis Lobito Little Wolf James would like to buy some space...


The Friday OT: Athletico Spizz 80; Where's Captain Kirk?

Could have gone with the slightly earlier version by Spizz Energi (the band altered the line-up and name just after), but this vid is great and it's also the single my sister bought at the time.

Fizz bang wow punk. Youtube here.

Uranium, the buggy whip metal

One of the mainstay arguments of the uranium bull camp is that we need U because we need nuclear power because without it, there's no way we'll be able to feed the swarming throng of electric vehicles in our not-very distant future. So read this:

China Installs Nearly 10 Gigawatts Of Solar In First Quarter, Up 22%

And read this Tweet on this very report by somebody who understands the science:
"Do people understand the magnitude of this? This is the power equivalent of 10 giant nuclear plants brought on line in three months"

Uranium is the buggy whip metal.

The Trevali ( challenge

Find me one single Canadian brokerage with a negative view on Trevali ( in 2018:

Glencore is better at mining than you.

Mailbag: Reader RB on Sean Boyd of Agnico Eagle (AEM)

IKN Nerve Centre this morning receives this short'n'sweet mail from reader 'RB':

(title) Sean Boyd should be in politics
Dear Otto,

Sean Boyd provides a demonstration video on 'how not to give a straight
answer' and how to talk around any question.

Best, RB

Here's the video in question and the insightful RB is correct. This morning on BNN we were indeed treated to seven minutes and twenty-four seconds of an eloquent, wealthy and successful business person saying fuck all beautifully.


Angry Geologist does Advance Gold (AAX.v) $AAX.v

I'm glad it's not just me who sees through Allan Barry Laboucan and his obvious scam pumps. IKN is happy to say that TAG has taken up a bit of the slack and gives us her take on this new iteration of the two-faced liar's schemes, Advance Gold (AAX.v). She is, however, far more subtle than this humble corner of cyberspace (e.g. Kms to labs). Read it here.

Jaime Pinto corruption news

You Minera IRL (MIRL.cse) aficionados out there will be pleased to learn that Jaime Pinto, along with a handful of other execs, has just been indicted on a totally separate case of corruption, this time connected with an electricity company at which he is a director "Electro Oriente" (ELOR). The charges are serious and have been levied by the national body that investigates public sector corruption and include a freeze on his assets and also the loss of banking privacy (which means the prosecutors are now allowed to look into his bank accounts and financial movements.

We also remind readers that the whole COFIDE case against Minera IRL still rests on the testimony of Jaime Pinto. Guess who is going to win?

This weekend's edition of The IKN Weekly will feature...

...Atico Mining (ATY.v).

Congratulations, Tommy Humphreys!

Further to the post yesterday, this humble corner of cyberspace would like to heartily congratulate Tommy Humphreys on his purchase of 3761 St Pauls Avenue, Vancouver. According to our sources in the Vanc real estate business he managed to pay the asking price of $6m in cash, too. Not bad for a stock promoter, and not bad considering he was sharing the rent on a place just a couple of short years ago.

We are of course fully confident that the other users of are making as much as Tommy. Right guys?

UPDATE: What, you're not? Oh, I wonder where your money went...

Chart of the day is...

...the US Dollar Index once again:

USD is the centre of the world today. The rest is noise, which certainly includes nominal metals prices.

Belo Sun ($ and Agnico Eagle ($AEM): Looks like Agnico bowed to anti-mine pressure groups

Part of the fall-out of the decision taken by Agnico Eagle to dump its shares in Belo Sun (, alongside the jaw-dropping chutzpah of Stan Bharti and his merry band to buy shares on the company's own coin, is this English language report from Brazil's Xingu Vivo, who have campaigned against the Volta Grande mine for years and are clearly happy that AEM have left. It's a factual report and has the local community's point of view, but what caught my eye was a one line paragraph in the middle of the piece:
"Now, one week before its general annual meeting, 
Agnico also cancels its stake in Belo Sun."
It stood out as a non-seq and looked weird, why should Xingu Vivo care about AEM's AGM? It piqued my interest, so I got in touch with the people behind the group and they told me the back story. In recent weeks they, along with another group called Avaaz, have been collecting a petition in the region and had got an enormous response. Avaaz had also been in contact with AEM at the highest corporate level and told AEM about the petition. Also that they planned to picket the AGM and put together a publicity-friendly protest on the day, which would also announce the results of the petition. And now, all of a sudden, AEM has dumped BSX. Coincidence?

This may also explains why Xingu Vivo put this at the end of its report:
Now we demand:
Sun Valley Gold to divest its 16.33%
Sun Valley Gold Master Fund to divest its 10.44%
RBC Global Asset Management to discard its 6.98%
1832 Asset Management to discard its 6.46%
I dunno 'bout you, but I get the feeling these people are going to repeat on a successful strategy.

New Gold (NGD) 1q18

Oh dear. And Rainy River cost over a billion dollars but only produces 40k oz a quarter? Wasn't that supposed to be 75k? And Rainy River achieved commercial production on October 19th 2017, but is still ramping up? And all those recent management and board changes? And a mine plan that simply does not work (see the plan to increase throughput, that's "we can't run at 1.3g/t ever")? And the debt? Oh dear.

The best thing we can say is that once we get to the Friday close and know the new share price of NGD, The IKN Weekly this weekend is going to take a hard look at the NGD numbers to see whether there's a trade here. As one of my smarter friends once said to me about a year ago, Rainy River will one day be a profitable mine for somebody, but it won't be for NGD shareholders. A complete tale of woe, there really should be a law against what has happened here.


Catching up on the Pretium ($PVG) 1q18 production numbers

Remember a couple of weeks ago when the PVG 1q18 production numbers came out and sell side anal ysts were all breathless about those Q1 numbers and exhorted you all in RetaiLandia to buy now before it's too late and Allan Barry and Louis James and Stockhouse dumbasses and too da moon and Rick Rule is never wrong and money and unicorns and things?

Good. Glad you remember.

3761 St Pauls Avenue, Vancouver

Nice house.

UPDATE: This post, explained.

There's something strange happening with GLD inventories

It's goldbug tinfoil hat time at IKN, because this is weird:

After running up the way it has recently and right in the middle of a period of intense market turmoil, just the type of action that makes gold safe haven strategies attractive, gold inventories at GLD have stalled at 865.89mt and stayed right there for nine days running. That's also just under the record since Trump came to power. Parrot required:

Regular readers know that IKN doesn't jump quickly into conspiracy theories and blather about Bildebergs and "THEM!!!", but your humble scribe is also keenly aware that markets get rigged from time to time. There is something amiss here, it's not as if gold should be ignored at the moment. Data from here of course.

SolGold (SOLG.L) ( ($SOLG.L) at La Hueca

The really foolish who disparage SolGold (SOLG.L) ( think the company is just one large but low-ish grade maiden resource at Alpala. Just forget them, they haven't looked carefully. The semi-ignorant think SOLG is only Alpala, but see expansion potential. At least they're watching and using a bit of brain, don't give up on those people yet. The consensus pro-investment view is that SOLG is Cascabel and not only is there tremendous upside potential at Alpala but there are a whole bunch of very interesting places to drill on the larger concession. They've just started on one, more to come.

But there's a whole lot more to SOLG. Start with La Hueca and remember where you saw this name first, ladies and gentlemen. By way of disclosure I own SOLG shares, I know how many shares out they have, I've been happy to hold through the recent dip in price and I am current basically UNCH on the trade, I'm fully aware of its market cap today and it's crystal clear this company is a raging bargain. Even more so now La Hueca is part of the equation.



BREAKING Tahoe Resources (TAHO) ( $TAHO: The La Arena strike is going from bad to worse

Word from La Arena this afternoon is that the local community around the Tahoe Resources (TAHO) ( gold mine in Peru have joined in the employee strike action currently underway and have now blockaded the access roads to the mine. Up to now, TAHO may have been able to keep up the pretense of this dispute not affecting production, that is now well and truly over.

Locals are incensed because the last time they complained about the way in which TAHO had not kept their community agreement promises, management at TAHO promised them they would make amends and give them the type of ancillary work due (e.g. catering, security watch etc). But yet again, those promises have not been kept and the locals have run out of patience.

TAHO Resources is run by two-faced idiots and liars. Time to fire them before it's too late. And Edie Hofmeister should tell the truth to the people who pay her out-sized salary once in her life.

Another thing that continues... the rise in Asanko (AKG), as predicted at first The IKN Weekly and then this blog a few days ago.

Ex-comms I'm 24.7% up on mine in three weeks (in a flat market, see XAU benchmark above) and please recall, this is the blog that successfully called AKG down from its $3+ level and now catches at least part of the upmove, for pleasure and profit. And yes of course, this post exists specifically to annoy the IKN haters. Gotta hate, guys, Gotta hate.

The strike continues at Tahoe Resources (TAHO) ( La Arena gold mine

As you can see from this report and video, published four hours ago by a local media source. What's more, word now reaching this desk has employees at the nearby TAHO Shahuindo mine considering joining in the strike, as they too have not been paid their 2017 participation bonus and are unhappy about a marked deterioration in working conditions.

It would seem TAHO's idea of "payment of bonus" isn't the same as reality. Somebody should ask them if those bonuses they paid were for all employees or just a specific few. And how much. Y'know, basic questions.

Alex Black, Tahoe Resources and Italian pizza

Italian pizzas are delicious, but not all of them because they have those cheapo supermarket frozen brands too. But stating in public "Italians are great at pizza" wouldn't cause a problem because your national stereotype is talking about a positive. However, in these politically correct times it would seem that even when you are obviously talking about  a specific group of people, i.e. the numbskulls who run Tahoe Resources from their gold plated bathroom HQ in The United States, you get into trouble if you don't get the wording juuuuuust right.

It would seem Mr. Black has ruffled a few feathers. To that end, he's just emitted a clarification of his tweet yesterday. Link here, screenshot below:

So now you know.

Mina Justa: Minsur makes a small fortune... starting off with a big fortune and moving into copper. If we consider:

1) 2012 Minsur paid U$505m for 70% of Marcobre SAC, the owner company of the Mina Justa copper project.

2) Then in 2016 it paid U$85m for the other 30% of the company and project ($60m cash, then 5 annual payments of $5m)

3) And now it's selling 40% of Marcobre to Chile's Copec for U$168m.

So even if we assume Minsur has spent zero on exploration, development and feasibility at Mina Justa all this time (which is silly, they've paid millions), they're already U$68m down on the deal. The issue is, of course, how to fund the approx U$1.6Bn capex bill coming up as from 4q18 when this thing is supposed to go into construction. Now they have friends to cover 40% of the upfront, they might just do it.


Alex Black on Tahoe Resources (TAHO) ( at La Arena

And what does Alex Black, erstwhile CEO of Rio Alto Mining (, think of the job done by Tahoe Resources (TAHO) ( at La Arena? We found out today:

Twitter really is more fun this time around, so hey come over and join in. Your humble scribe's account right here. I think that covers everything? Coffee and petit fours, anyone?

The US Dollar index chart is the only one that matters today

Angry Geologist does Evrim (EVM.v) again

And she goes into more detail this time. Don't delay, click here.

Chart of the day is...

...silver 30 minute:

The woodshed is that building out back. Please go over there, Mr. Market will be along presently.

The Belo Sun ( NR this morning

Further to the NR on Friday evening that announced Agnico was selling shares of Belo Sun (, we got a real fine humdinger of an NR from BSX this morning. Here we go and there are three parts to the NR:

1) The first four paragraphs are all about a share buyback put into place. Pure fluff.

2) Then comes the announcement that four directors were mopping up 29,850,746 shares of the 44,551,000 shares that Agnico sold. The precise breakdown is given as follows:
The Supporting Directors each acquired the number of common shares as follows: Stan Bharti 12,932,835 common shares; Peter Tagliamonte 12,932,835 common shares; Denis Arsenault 2,985,076 common shares; Mark Eaton 1,000,000 common shares. Their respective share ownership prior to the transaction on a non-diluted basis and following the transaction on a non-diluted basis are as follows:

Stan Bharti: Nil pre-transaction and post transaction 2.78%.
Peter Tagliamonte: 0.21% pre-transaction and post transaction 2.8%.
Denis Arsenault: 0.026% pre-transaction and post transaction 0.66%.
Mark Eaton: 1.9% pre-transaction and post transaction 2.16%.
The first thing that comes to mind, executive chair and former CEO Mark Eaton aside (who actually used to visit the project and tried hard to make it work back then), is why these people didn't have any skin in the game before AEM's dumpage. Think about that one, yeah? The second is that the conversation between AEM and BSX must have been a lot of fun, along the lines of:
AEM: "We're selling out, up to you to decide if you want to do it in an orderly fashion or if we just dump on the open market."
BSX: "Right, here's a deal. We'll buy a third of them now, we'll find somebody else to mop up 15m, then give us two months leeway to work on the other half of your position because that way the stock price won't collapse immediately."
AEM: "Ok"
BSX: "Ok"

3) But then comes the absolute killer part, the jawdrop moment which reminds us all of the places not to do business in mining: Afghanistan, Kazakhstan and Bhartistan:

To facilitate the Supporting Directors with the foregoing purchases, the Company loaned them an aggregate amount of C$10 million.  Under the terms of the loans entered into with the Supporting Directors, Belo Sun will receive a per annum interest rate of LIBOR plus 1%, payable on each one-year anniversary of the loans. The principal amount of the loans will be due and payable, together with all accrued and unpaid interest thereon, on the date which is 24 months following the issuance of the loans.  Unsecured promissory notes have been entered into with each of the Supporting Directors for their respective loans.   

Yes indeed, shareholders of BSX: You have just lent money to the directors of BSX in order that they buy shares of your company. You cannot make this shit up.


The IKN Weekly, out now

IKN466 has just been sent to subscribers. It has 30 pages, 14,583 words, several tables, plenty of charts and would not have been written if it weren't for Johann Sebastian Strauss. And coffee.

Tahoe Resources (TAHO) ( provides a NR on the La Arena strike action

Right here. And while reading, please keep in mind this:

 "The IKN First Law of Mining News Releases: Considering that anything contained in a mining news release is presented in the best possible way for the company in question, any piece of information contained in a NR that comes across in any way negative means the real news and/or events behind it must be very, very bad indeed."

Re-Post: Keith Neumeyer is plain wrong about the future of the price of silver

This post from August 2016 continues to be one of the most popular of the blog back catalogue and with silver now making a move and, of course, Keith Neumeyer coming out with a new round of "Gold to $8,000 and silver to $130" nonsense, it's worthy of a repeat showing. It's long and if you want to skip some of the minor matters that's cool too, the most important point comes at the end about the way in which the supply of silver has changed since the advent of large copper porphyry/skarn mines and the large amount of very cheaply produced silver that comes with them. 

And a fact: Since this analysis was first published, nearly two years ago in IKN369 dated June 5th 2016, we have had several other times when Keith Neumeyer and other silverbugs have come out and predicted massive numbers for silver in the near future. Meanwhile, the model as laid out in this post has been a more accurate scenario by far of the market in silver, which has not blasted to $20 then $25 then $30 per ounce and beyond. The gold/silver ratio has not dropped, in fact it's moved up to over 80X (and it's good that it's recently dropped under that line, but don't confuse that with a victory). More large scale silver stream and royalty deals have been inked. Silverbugs, when reality doesn't fit your model...

Read on:


From August 2016:

Once again, Keith Neumeyer is giving us his "Silver is 9 to one with gold in the planet, so it should be that price ratio, too" thing. He's even getting traction for it too (Lawrie Williams called it "remarkable" this morning, that's not the adjective I'd use). 

It's time to rebut this Neumeyer nonsense. It's wrong. It's stupid. IKN will explain.

Below find the second part of the intro to IKN369, dated from two months ago on June 5th (just after another article that appeared in ZeroHedge when Neumeyer was peddling the same thing). There are four reasons why the price of silver is never going to get even close to that 9-1 ratio, but please pay attention to the one that just flies over Neumeyer's head (or he just prefers to ignore as it doesn't fit into his quasi-religious belief system), the one that starts "Silver isn't just cheaper to buy".


Gold versus silver (from IKN369, dated June 5th) 
Now for the second question posed by KM, which goes like this: 

KM: Why do you think the gold/silver ratio should be so high? Isn’t the physical prevalence of silver over gold in the earth reflect a much lower ratio? Also, my understanding is that the industrial demand usage will increase over time… I am especially interested in the increasing usage of silver in purification and medicine.

The more I put thought to it, the more I saw it as a good question that deserves an extended answer rather than one of my all-too typical and lazy three line specials. It’s one of the issues we as precious metals investors have in the corner of our eyes but it tends not to be addressed correctly and can fall prey to hype and soapbox-spouting on either side of the debate. To answer KM is to explain why gold stocks are, in my considered opinion, a better bet in the near and long term than anything predominantly silver and for that reason the whole issue expanded into this rather different main section today; I want to lay my position on the line.

Let’s first consider the counter-arguments that promote silver as a better bet than gold, with one of the principle ones the “physics arguments” alluded to by KM in his question. They’ve recently been getting a revival, thanks at least in part to statements made by First Majestic’s ( (AG) CEO Keith Neumeyer who seems to be framing himself as a champion of the silverbug cause. The first ones states that the true silver to gold ratio in the earth’s crust, now generally accepted by the egghead scientists that study these things, is 16X. That’s to say for every ounce of gold in the earth’s crust there are sixteen ounces of silver. Therefore the argument goes that eventually the price of silver will be one sixteenth of the price of gold because the value will eventually reflect the relative levels of abundance. The logic of this argument may be simple, but it’s also sensible enough at first sight.

The second aspect of the “physical argument” is a less theoretical physics, more of a practical mining thing which states that for every ounce of gold mined there are only ten ounces of silver mined (in fact it’s more like 9X, as this chart shows). It then goes on to say that because there are only ten ounces of silver being put on the market for every ounce of gold, their relative prices should reflect that comparative rarity.

Those 9X or 10X or 16X ratios between gold and silver compare to the above, the 30 year chart of the silver/gold ratio shows the fluctuation and though the range is quite wide, if we discount the couple of obvious outlier periods of the early 1990’s and then the 2011 speculative peak on silver, it’s stayed inside the 46X to 84X range. I’ve even dared to add in what I think is a fair best-fit average around the 65X level as over time, the ratio seems to revert to that mean. This 46X to 84X range compares with the fundies/physics/geology-based counter-argument we saw above and, say the most strident promoters of silver over gold (in fact they tend to be silver over everything), that discrepancy shows the type of bright future that silver has. Buy now, they say, before that 65X ratio goes to 16X.

By the way, if that 30 year timescale isn’t enough of a sample for your taste and you want a longer period that includes the US Gold Standard days, be my guest and play with the chart right here (2). But if you’re like me (or at least until Doug Casey’s doom scenario for the USA and the world comes to pass) you’ll probably want to base your anal ysis on the circumstances of the modern day financial world. So, I go for the 30 year chart.

Anyway, back to the debate and with the stage set, the crux of the issue why there should be such a large gap between the relative prices of metals arguably 9X or 16X less common than one another, as one gets to enjoy a price that’s 65X or 75X higher than its stablemate. After all, both are what are known as “precious metals”, they come from the same general area on the periodic table, a bucketful of either one is very heavy, they’re both shiny, you can (and do) make and wear nice things made of them, they’re both connected during human history to the concept of wealth and money.

So, why should gold be that much more expensive than silver? Darned good question.

At the most basic level we can state that the gold/silver ratio is high because the market says it is high. After all, 30 years (and longer) of a market willing to pay a 46X and 65X and 84X multiple for gold over silver isn’t something to be sniffed at, there must be a good reason as to why gold gets that sort of premium. But that’s not a solid case, it’s ultimately argumentum ad lapidem (3) because if you adhere tightly to “that’s just the way things are” you don’t ban slavery, women don’t get the vote, smoking tobacco isn’t seen as the health hazard it is, etc. One of the things a natural-born contrarian (such as I) always looks for is a market anomaly, something the world takes as read but ain’t necessarily so, Joe. It is, after all, how the massive money was made in the 2008 subprime crisis (see the movie The Big Short for more on that). But sadly I think in this case the market is pricing silver to gold correctly, or at least fairly correctly inside that wide-looking ratio range over the long-term and that our dear and esteemed friend Keith Neumeyer is being at best disingenuous, most likely plain ignorant, or perhaps just perhaps using the Greater Fool theory to his own advantage because hell’s bells, there are some prize idiots in the silverbug/goldbug world waiting to be harvested.

There are four legs on which I base my argument for gold’s high relative valuation versus silver compared to its physical availability.

Human beings drool over gold like no other material. First and probably least important we vertical, near-hairless monkeys like gold. There’s something about its colour, feel and shiny heavy permanence that gets our animal hearts racing and it’s not for nothing that the vast majority of the wedding bands in our wild and whacky world are made out of the stuff (though not all, e.g. mine wasn’t). There’s an emotional attachment to gold that just isn’t present in silver, even though we like it well enough as a metal. As it can be found in native form, gold was one of the first metals ever worked by human hand (if not the first), it has a close connection with religions of all types, our relationship with gold goes back untold years into pre-history. In short, we the animal and that metal have a lot of collective baggage and that’s not something to discard lightly. 

The rarity premium. Second, as any economist will tell you there’s a rarity premium that we are willing to pay. Put simply, I can pay U$5 for an ordinary bottle of wine, U$50 for an excellent bottle that’s an obviously better drinking experience than the vin ordinaire, then maybe U$500 for something that scores 100 points and wins “Best Malbec of the Year” in Wine Magazine or suchlike. That award winner isn’t ten times the experience of the excellent bottle, but it’s almost certainly “better” and those with the type of disposable income that doesn’t differentiate much between $50 and $500 will snap them up. This opens the door to the other way in which items are priced at higher multiples, the “social cachet” or “snob value” for items, for when people feel the need to impress their peers.

In the case of gold, “rarity premium” also comes with fundamental logic because way back when, it was far easier to carry a lot of wealth in gold coins than it was in silver coins, pure bulk determined that. There are still remnants of that today, e.g. the famous occasion when Warren Buffett bought a very large position in silver, but then sold in on quickly (in 2007 for a modest profit, but before the big lift-off in the metal) when he realized how much the carry cost was for storing a large monetary amount of silver. When you lived in 16th century Paris and needed to pay for something very expensive in Florence, gold made far more sense than silver.

Silver is a quasi-commodity. Thirdly, we can now start to bring things up to date and make some more progress to solving the GSR puzzle by noting that yes they’re both shiny and make pretty jewelry, but in our modern world  perhaps half of silver produced is used for industrial purposes. Silver is a bit Jekyll and Hyde in that respect, it’s an industrial commodity and a lot of it gets used and used up (it’s estimated that a maximum of 10% of silver used in industry is recycle and even then the cycle time is very long). And the same as any other industrial commodity, if it gets too expensive demand becomes elastic and drops rapidly as alternatives are found via innovation. Gold doesn’t have the same quasi-commodity status, there is a slight market for gold in industry but to the vast majority it’s either the raw material for jewelry (in itself a form of storage for an inelastic) or it’s the monetary metal, the asset class, the store of wealth that gets dug up out the ground, purified and then stuck back underground again (in vaults in Switzerland). I once again bow to Paul van Eeden’s definition of gold when he calls it “the very essence of money”. And he’s no permabull on the metal, either.

And before we move on, talking about on silver’s industrial metal side reminds me of the last time I chewed the cud deeply on silver prices, back in IKN320 dated June 28th  2015, when the subject was more about the supposed manipulation of the silver price market. In the end I think silver is somewhat manipulated, but only because every single capital market is also manipulated by big money. The difference with silver is that 1) it’s small enough to see the manip in action, it becomes pretty freakin’ blatant at times and 2) as I wrote in IKN320, over half the customers for silver don’t care. Back then I wrote...

“So tell, me, what end user (rather than end-hoarder, big difference) is going to kick up a fuss and complain about artificially low silver prices? The masochist end of the silver market, perhaps?”

...and that’s as true now as it was then. 

Silver isn’t just cheaper to buy. So far we’ve considered theoreticals, historic and cultural reasons. We’ve also considered modern-day demand, but the final piece is in my opinion the most important driver of the modern relationship between silver and gold and it’s from the supply side of the equation.

Silver isn’t just cheaper to buy, it’s a lot cheaper to produce. It’s a tough call to give an exact figure for the operating cash cost of producing one ounce of gold or one ounce of silver. Even if we restrict ourselves to legal formal mines (and eschew all the informal illegals with far lower costs in pure dollar terms) it’s difficult, because “cash cost per ounce” is a classic of moving goalposts, there are mining cash costs, operating cash costs, all-in sustaining cash costs, “All In” cash costs, even “full enchilada” costs for a mining company that needs to spend on exploration and development of future mines to offset the mined ounces. There are protocols but there are no set laws and one company will-or-will-not include this or that line item, things such as financing costs and and taxes muddy the waters, any manner of other things.

So for argument’s sake, let’s go for mine-only costs and let’s say they average at U$10/oz for silver and U$800/oz for gold, which are the type of figures that stand up to reality over the breadth of the silver and gold mining sector. You prefer 15 and 750? Or 12 and 600? All good with me but the point should be clear already, even at the lowest ratio case above we are at a 50/1 cost ratio, 75/1 is easy enough to imagine, 80/1 isn’t out of the question. It’s relatively very cheap to produce an ounce of silver these days and that’s because the nature of silver mining has changed radically in the last few decades. And yes, that 75/1 ratio does look familiar all of a sudden.

The thing with silver is that its supply dynamics have changed radically in the last 50 years or so. Long gone is the image of the lonesome miner and his pick, left deep in the past are the slaves of Potosí and veins of crazily high grading metal, these days most of the world’s silver isn’t a product but a by-product. Or to quote a company that really knows its beans when it comes to the metal, Silver Wheaton (SLW) (4):

“It is estimated that 70 percent of silver production comes as a by-product from base metal and gold mines.”

And there are dozens of examples, the 14Moz Ag annual from Antamina to name just one (and Antamina recently received U$900m by selling a 33.75% stream of that to SLW). Those are just fourteen million of the approximate 600m oz of silver that come from by-product production of either base metals such as zinc and lead (with some copper) or mines where yes indeed, it’s common to find silver atoms sitting close to gold atoms in that 10:1 ratio the natural science people tell us about. Development decisions, construction decisions and annual budgets at these mines are not based on the price of silver. Yes silver’s price will help or hinder the year at the mine in turn, but that’s as far at it goes. As long as Mine X sells its zinc (or whatever) at the right price, that silver is going to come out of the ground whether it’s wildly profitable or not. 

The dedicated silver mining company is a bit of a rarity these days, even more scarce is the silver miner that gets most of its cash from its nameplate metal. First Majestic get around 80% of its revenue from silver and that’s as good as they come, most silver miners are a mix of metals and companies such as Fortuna ( (FSM) or Pan American ( (PAAS) wouldn’t last two minutes without the cash that comes from the zinc, lead and gold they sell. But even the “mixed” dedicated silver mines are a rarity compared to the number of silver mine projects out there, because they have to be able to run at a profit on silver alone and that means, above all, they need to be the best end of the market with the highest grade or the lowest running costs. Or both.

Tahoe Resources at Escobal is one of a kind or, the other side of the coin, why isn’t the silver at Colquipucro (TK.v) being mined yet and why has Tinka moved its flagship to the Ayawilca zinc property? What about the 450m+ ounces of silver at the Levon Resources (LVN) Cordero project in Mexico? For another, it’s under 43-101 compliance there have been technical and economic reports galore and it has all its major permits and is as “shovel ready” as you can imagine, so why isn’t Bear Creek Mining’s (BCM.v) Corani project a working mine yet? Why isn’t it churning out its 8m oz Ag per year? Answer: the silver price is too cheap to make any of those work. Why so? Because a lot of other places can churn out silver and make good money from the by-product.

There are literally dozens of low grading silver projects out there in our strange world of junior mining capital markets and they’d all work if silver were at U$25/oz. In fact, my thought experiment would be to 1) watch silver spike to $25/oz then 2) buy out BCM.v and buy long-dated calls and puts on silver to collar 8m oz of the metal at exactly U$25/oz for the next 25 years then 3) finance and build the mine. They’d (We'd) raise the cash easily once the finance people see the company had 100% rock-solid guaranteed U$1.3Bn per year of topline revenues. It might screw the share price totally and leave nothing for equity holders but hey...who cares? The executives would get their salaries!

Silliness aside, what gold mining companies bring to the table is specialty, to a large extent the formal production of the world’s largest mining companies set supply. Gold’s pricing is complicated because it reacts as a money, but I don’t think it’s much of a coincidence that it settled at lows just under U$1,100/oz at the bottom of our recently finished bear market where bottom line profits go to zero for the majority. That doesn’t happen to the dedicated silver miners because price discovery is totally out of their hands. The ones that make it are the ones that show they can operate at the price set by the market and they’re the ones that have a tight rein on costs, or high grade to offer margins, most likely both. In the world of gold, if your timing to market is fortunate can get across the capex hurdle and with a 0.5 g/t resource, you get to be a winner (Rio Alto showed us that) as long as your costs are low. But 15X that grade would be a 7.5 g/t open pit silver mine...see many of those around you? Even double and a 30X Gold/Silver ratio at 15g? Or for another example, I’ve always been a fan of the Ollachea gold project (definitely more than the mess of a company that owns it) that may be only 3.4 g/t gold for an underground project, but I know the costs parameters and economics work (and so does Cofide and, dammit and spit, all the nasty scumball people trying to usurp it know too). You may get a couple of silver mines running at 50X that ratio and 170 g/t Ag, but only as long as they mine and process and sell enough zinc and lead by-products that come out with the rock and even then, in today’s price environment they’re not much more than breakeven (example Fortuna Silver at Caylloma). In the real world, silver mines are limited by their margin because they don’t set the market price, the near zero cost by-product ounces from the massive porpyhry, skarn, IOCG etc production facilities around the world. 

The bottom line 
We the retail mining investor still have a reasonable shot at finding a real winner in the world of junior gold explorecos and development companies because gold project tend to be masters of their own fates. Once found and defined, they can stand alone and can hold up to a low cost scenario but it’s far more difficult in the silver sub-sector to find an equivalent economically robust project. It’s why the silver market jumps through hoops for the rare ones like Tahoe’s Escobal, or puts high valuations of the 44% of Valdecañas/Juanicipio development project owned by MAG Silver, or gets hot and sweaty about discoveries like the recent and promising Sandra Escobar discovery All three of those have (or are looking like having) the killer combo of high grade and strong mining width and the silver market goes loopy over them precisely because they’re very few and far between and will attract the companies looking to be silver-centric.

At the same time, dedicated silver miners are fighting the price discovery weighting of the producers of silver as a by-product. They don’t have their livelihood at stake, the metal’s value is useful without being vital, anything above cost of production is ultimately a reasonable deal. As we’ve seen, market price of silver can be pushed to levels below cost for the silver miners and the weight of by-product Ag is to blame. The result is hundreds of millions of ounces of marginal silver ounces (all supposedly economic if you believe those 43-101 reports) sitting on the sidelines while their respective company officers light candles and pray to the Market Gods for higher metal prices that are not going to happen, not in the way they need, because marginal stays marginal as cost parameters rise with metals prices.

But it’s the combination of four factors, 1) near-religious human attraction for that special colour of shiny 2) we way we pay extra for rare things 3) silver’s commodity factor 4) the cost profile of producing silver, that result in a price ratio that’s much higher than the “physical ratios” so loved by the silver salesmen and women. Yes we can and may get a lower gold/silver ratio in the intermediate future (in the range of that chart at least, we’re not seeing 15 to 1 ever again), yes the charts have seen this particular squiggly line go up and down in the past but there are absolutely no guarantees on the line moving down the way it’s done in the past, not fundamentally-speaking at least. A world awash with by-product keeps silver deposits sidelined and building up, any higher move releases the Coranis of this world and supply cranks up quickly. There are far too many marginal silver projects out there (and for that matter, precious few producers that rise above the level of marginal or mediocre). When push comes to shove and I demand quality from my junior exploreco or Rule 1 (make a profit) from my small or medium-sized producer, gold options always outnumber those in the silver space. And that’s where I will stay.