Well, it looks the second quarter is turning out to be a real killer for the miners. SilverCorp Metals just released their Q2 2012 financials, and it was a slaughter. SilverCorp’s net earnings were down 72% since the same quarter last year. This is exactly what I expected as the second quarter of 2011 had the spike to $49 silver.
Also, ore grades fell substantially in the second quarter for SilverCorp. Silver ore grades were down 26% just from the prior year.
NEW UPDATE ADDED BELOW
If we look at the graph below we can see that SilverCorps Q2 2011 silver ore grades were 303 g/t while their Q2 2012 were only 225 g/t (a 26% decline). Even worse was their lead ore grades. Here we can see that SilverCorp’s lead ore grades fell from 5.5% in Q2 2011 to 3.6% in Q2 2012…. a staggering 34% decline.
These huge declines in ore grades on top of much lower prices paid for silver and base metals, lowered SilverCorps overall total revenues from 69.7 million Q2 2011 to a mere $44.5 million in this present financial report. Thus, second quarter 2012 net income declined a massive 72% yoy from $34.2 million Q2 2011, to only $9.5 million.
I must say, this is much greater loss than I would have thought. Some may think that the huge drop in revenue was due to lower amount of overall mining. However, this is not the case. I don’t have the charts, but I will list the total amount of milled ore from the two different quarters below:
Q2 2011 TOTAL OVERALL PRODUCTION
Total Milled Ore = 182,890 tonnes
Q2 2012 TOTAL OVERALL PRODUCTION
Total Milled Ore = 216,665 tonnes
Q2 2011 YING DISTRICT PRODUCTION
Total Milled Ore = 174,926 tonnes
Q2 2012 YING DISTRIC PRODUCTON
Total Milled Ore = 186,455
Also, their cost of sales increase 35% yoy as you can see in the highlighted yellow area.
Most of the silver from SilverCorp comes from the Ying District. They have two other smaller mines that produced the remaining ores. Either way, SilverCorp milled more tonnage this quartre than last year, and ended up with much less silver, zinc, and lead. They actually produced more gold.
I wanted to update the post to included the prior quarter results as a comparison. Some may think last year’s results were a bit optimistic due to the extremely high price of silver. Below is the past quarter and how it compares to the present financials and production:
Q1 2012 Financials & Production:
Total Revenue = $44.3 million
Cost of Sales = $14.3 million
Net Income = $14.1 million
Total Milled Ore = 160,184 tonnes
Silver Production = 1,084,000 oz
Lead Production = 14,670,000 lbs
Zinc Production = 2,890,000 lbs
Q2 2012 Financials & Production:
Total Revenue = $44.5 million (no change)
Cost of Sales = $19.0 million (+33%)
Net Income = $9.5 million (-33%)
Total Milled Ore = 216,665 tonnes (+35%)
Silver Production = 1,224,000 oz (+13%)
Lead Production = 13,744,000 lbs (-6.3%)
Zinc Production = 2,974,000 lbs (+3%)
If we compare SilverCorps Q2 to Q1 2011, we see that the Revenues are virtually the same. However, cost of sales have increased 33% while net income has declined 33%. Moreover, SilverCorp milled an additional 35% more ore in Q2 and produced 13% more silver, but still showed a decline of $4.5 million in net income.
There are some analysts who believe a fair price of silver is below $20. I think they are complete FOS -Full of Sheet. If we reduce the overall price of the metals 20% that SilverCorp would have been paid in the second quarter, this is the result:
Total Revenues = $44.5 X 80% = $35.6 million
If we take that figure and input it into the Q2 Financials this would have been the Net Income:
Q2 2012 Net Income = $600,000
So, we see that if the price of silver which is currently $28.70 and multiply it by 80% it would be $22.25. That means if silver hit $22.25 and the costs stayed the same, SilverCorp would basically break even. However, this does not include all the future Capex and dividends it pays to its shareholders. For that to be a breakeven price of silver, it should be approximately $25-26.
There you have it. The real breakeven price of silver for SilverCorp if we figure dividends and CAPEX, is at least $25-26. Analysts who believe $15-20 is a fair price… need to find new work.