Which Silver Miners Could Have an Upside to Cost Guidance in 2016?



Cost discipline

Cost discipline and lower cost assets are critical for miners (RING)(SIL). They help miners navigate lower metal price environments while improving their margins and free cash flows in times of higher metal prices. In a commoditized business such as mining, cost efficiency differentiates miners based on command premium and outperformance over the long term.

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Improving cost guidance

Apart from increasing the production guidance, Hecla Mining (HL) also upgraded its cost outlook for 2016. It lowered its cost guidance for silver operations to $4.75 per ounce from $5 per ounce. The company now expects a larger contribution from San Sebastian, which should drive lower costs. Hecla’s year-to-date cost performance is quite strong, so there could be a further upside to its cost guidance.

Tahoe Resources (TAHO) reported silver costs of $8.16 per ounce. It also reduced its all-in sustaining cost guidance by $2 per ounce to $8–$9 per ounce.

First Majestic Silver (AG) reported AISC of $10.97 per ounce of silver equivalent production. While the company lowered its production guidance, it simultaneously reduced its AISC guidance as well. Now the company expects AISC in the range of $11.5–$12.35 per ounce compared to $12.29–$13.36 per ounce previously. The expectation for lower costs from Santa Elena due to higher grades and recoveries underpin cost improvements.

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Pan American Silver (PAAS) reported AISC of $11.31 per ounce in 2Q16, which was better than expected. Strong cost performance at La Colorada, Manantial Espejom, and Morococha due to lower input costs and productivity improvements underpinned this performance. It lowered its AISC from $13.6–$14.9 to $11.6–$12.6 per ounce.

Upside to guidance?

Traditionally, Coeur Mining (CDE) has been a high-cost producer compared to its peers (SIL) due to management’s focus on quantity over quality. Since 2015, cost discipline has been returning to Coeur, and it’s been achieving lower costs across all its operations. Its all-in sustaining costs for 2Q16 were $14.80 per ounce, which is 7.7% lower sequentially. It’s also lower than the company’s cost guidance of $16–$17.25 per ounce for 2016. It mentioned in its 2Q16 earnings call that if this trend continues in the third quarter, it could revise its cost guidance downward.


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