PAN AMERICAN SILVER COMPLETE COST = $18.54 oz
This is copy of my BLOG entry today, but I wanted to post it here as well for those who did not see it in the blog section. Again, Bob Moriarty and Ned Schmidt believe the cost to mine an ounce of silver is $5.oo an ounce. This is the very reason why they believe silver is overvalued. If we look at Pan American's 2011 Q3 Results we find that they are incorrect on their assumption.
If we just go by Pan American's Cash Cost and Production Cost we find that they are higher than the $5.00 cash cost an ounce that is even stated by the Silver Institute. The Complete Cost is $18.54 an ounce, which is more than 3 times what Ned and Bob believe it takes to mine an ounce of silver.
To get a SILVER CASH COST a mining company takes out by-product credits such as lead, zinc, copper or even gold. This is why we see some negative or zero cost per ounce for silver in some mining companies like Hecla. But, we must remember ALL mining companies sell their by-product credits at market value. If they are all selling their by-product credits at market value, the CASH COST is not a true reflection of profitability per ounce.
That is why I came up with the COMPLETE COST per ounce because we much include all other costs that are not included in cash costs or total production costs. We arrive at $18.54 oz by taking the Net Income and dividing it by the payable ounces. We get a number of $16.46. The average price of silver from Q1-Q3 was approx $35. If we minus $35 from $16.46 it equals $18.54 as a Complete Cost.
A Cash Cost might be compared to a Food Cost in the restaurant business. We have to also include Labor Cost, Energy Cost, and Etc when we figure the profitability of a restaurant. To say it only cost $2.00 to make a Sandwich plate that sells for $6.00, is not a true reflection of ALL THE COSTS of business. A restaurant that does not make a profit does not stay in business.
This is where Bob Moriarty and Ned Schmidt get a "F" grade. Unfortunately, many other analysts and investors fail to understand it takes a lot more than $5 an ounce to produce silver. I would imagine it is more like $18-20 minimum when we include the smaller miners whose costs are greater.