Monday, June 27, 2011

Guest Post: Silver mining and a falling EROI

By: SRSrocco

In doing research on whether or not the USGS is fudging silver production figures, I came across scads of information on silver producing mines in the United States. Out of the 5 mines I have looked at so far, 4 decreased in production in 2010 while 1 increased. Hecla being the top dog in the USA had silver production decline to 10,566,352 ounces in 2010 from 10,989,660 ounces in 2009. I plan on getting to the bottom of this, but it will take more time and responses from emails.
That being said, I wanted to show you all here at SilverGoldSilver just what happens to some smaller silver miners. This is Revett Minerals that trades on the AMEX on ticker RVM which closed at $4.44 on Friday. I am not pushing or bashing this stock…or any other, but rather using it as an educational guide to give you all an idea of how a falling EROI (energy returned on invested) will destroy future silver production.
If we look at the chart above, we will see that the Troy mine in Montana produced 1,008,089 ounces of silver in 2010, which accounted for 2.6% of total U.S. silver production. As you see from the chart silver production has been falling since 2008. Take a look at the silver ore grade highlighted in yellow. In 2010 the average silver ore grade at the Troy mine was 0.87 ounce per ton or a lousy 27 grams per ton (g/t).
Let’s go back to the good ole days before the 1930’s depression and see what kind of ore grades they had in Montana:

Production at the Butte & Superior, for March from 43,000 tons of ore milled amounted to 10,500 tons of zinc concentrate, and 150 tons of lead concentrate. The zinc recovery was 11,150,000 lb., while the total silver in the ore was 210,000 ounces.
The Creden Mines Corporation, of which William L. Creden of Butte, Montana, is president, has opened the south vein in the Minneapolis mine near Basin. The ore body is said to be five feet wide and assays 5.1 per cent copper, 11 per cent lead, $2.80 gold and 52 ounces silver to the ton.
Anaconda Copper Mining Company is confining work at the Flathead Mine, near Kalispell, Montana, to development, because of the present metal prices, according to a reported statement by Jack Dugan, superintendent. Thirty men are employed in extracting 40 tons daily, of ore, said to average 50 ounces of silver, per ton.
40 tons X 50 oz. = 2,000 oz. X 365 days = 730,000 ounces (my calculations)
If we take the first example above from 1920, the Butte & Superior produced 210,000 ounces of silver in one month in March at an ore grade of almost 5 ounces per ton. Again…looking at the chart above, the Troy mine only produced 245,000 ounces of silver during JAN-MAR 2011 or about an average of 81,666 ounces a month.
The second and third example above show silver grades 50+ ounces a ton. Of course this wasn’t the average ore grade over the whole life and span of a mine back then, but it just goes to show you how rich and concentrated these silver ore grades were back in the early 1900’s.
In the third example I show how only moving 50 tons or ore a day would produce 2,000 oz of silver a day or 730,000 ounces a year. In 2010, Troy mines moved 1,368 tons of ore a day to produce 1,185 ounces of silver. This means the wonderful folks at Troy mines moved 27 times more ore a day to produce a little more than half of what the Anaconda Copper Mining Company produced a day in 1930.
The reason why I bring this up and use Revett Mines as an example is to show how falling ore grades need more and more energy to extract as time by. Back in the early 1900’s you could give 10-30 men a good meal, some hand tools and a few animals and they could produce a great deal of silver for very little energy compared to today. Just think about all that energy Revett Minerals has to consume to mine, transport, produce and recover silver-copper from 1,368 tons of ore…and that’s not including all the energy it takes to manufacture chemicals and products utilized in modern mining practices.
Today we use diesel powered trucks, drilling rigs, mechanical conveyer systems, large earth moving machines, etc and etc to remove smaller and smaller ore grades each passing year. This was fine when oil was cheap and abundant. As world oil production peaks and declines (as it is presently) it will take more energy to explore, drill and produce oil leaving less for the market for the mining industry. This will make low grade ores increasingly uneconomical in the future.
We hear a lot today that mine X or part of mine X is not economical until the price of a certain metal goes higher. What happens when there is less oil to power all this stuff we use to mine metals going forward?? It won’t matter if price goes higher for silver. Up until now, if you wanted to open a mine there was no question about where you would get the energy to extract silver from the ground. At some point in time in the not so distant future, only the best candidates with the best quality and highest ore grades will be produced.
Again, taking a look at Revett Minerals chart above, they have had a net income loss for 6 out of 8 quarters. If that isn’t bad enough, according to their 2011 Q1 report:
For 2011, the Company has sold forward approximately 50% of copper production
at an average price of $3.55 per pound and approximately 25% of silver production at an average price of $19.00 per ounce.
WHY ON EARTH ARE THESE MORONS HEDGING THEIR SILVER AT THESE MORONIC PRICES??? The average price of silver for JAN-MAR 2011 was $31.66. If Revett Minerals lost $2.8 million in the first quarter of 2011 at $31 an ounce silver, what will happen to their balance sheet if the price of silver gets crushed (temporarily) as the deflationary nitwits hope and pray? Do they really expect silver to hit $19 clams an ounce?? Good grief.
As silver ore grades continue to fall alongside a declining energy returned on invested (EROI) in oil, we will see an increasing number of low ore grade juniors become uneconomical in the future. Few if any analysts are writing or discussing this topic. You all learn about it first at the SGS blog forum.
Lastly, a great deal of the so called INFERRED or INDICATED RESOURCES that many of these mining companies have on their books or the USGS lists in the yearly reports may never be mined. Why? Because clowns, morons and politicians in govt. will have to allocate a larger portion of the declining energy production to the farming sector to feed starving people rather than mining metals to produce I-Pods and video games for the tots.
More to come…..


  1. So, it seems we have truly reached "PEAK" everything: peak credit, peak debt, peak oil, peak population, peak arable land production,and now peak PM's.

    My Ag value increases daily :)

  2. Great Article! I wish I had more fiat to trade for physical! My fine employer holds back my summer teaching pay until September 1. Will there be physical available by then? I hope so. I don't think we will see these prices ever again.

  3. Pretty sure you should be calling in "Silver Return on Energy Invested".

    EROEI is used to refer to energy production methods. It doesn't make any sense in this context, save as metaphor.

    That said, silver is thought to be the first of a number of strategic resources that will be declining in production over the coming years.

  4. Shite really hasn't hit the fan, as yet. Industry must have reserves of Silver stored for future production of electronic toys. Else, why the deafening silence from manufacturing?

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  7. Thomas M...Energy powers everything. Without can't mine silver or gold. The exponential rise in oil production in the past century has a direct relationship to the exponential rise in the population.

    Furthermore...the exponential rise in oil production also relates to the exponential rise in metal production. When one does the other.

    This does make for a very bullish case for silver going forward. Even more bullish than gold.

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  9. 1) Hmmm... any way to measure the volume of Silver being horded by industry?
    2) Hmmm... If... there were a shortage, would anyone dare say so?

  10. Good post! Fundamentals are what long term investors need, screw Blythe, deflationist mongers and short term trading based on CNBS.

  11. Thanks ! Great article.. This article takes a little different point of view, but just goes to show you how screwed the world is, and why we should keep on stacking..

  12. Well.. this is a little off topic, yet if i didn't value many of the folks on here, I wouldnt post this link.... just check this vid out, do some research, and ummm...lemme know what you think...

  13. When Soros speaks, should we listen?
    "Let's face it: we are on the verge of an economic collapse which starts, let's say, in Greece but could easily spread. The financial system remains extremely vulnerable...

    We are on the edge of collapse and that is the time to recognize the need for change."

    and when soros makes billions betting against fiats, he's going to do this...

  14. @highrise..
    Saw his vids, and if he's wrong in a few weeks we'll know and he loses ALL credibility. Also, if you're into alternative things, check this guy out..

  15. Correction...for some stupid reason I mixed up the numbers. In Q1 2011 troy mines moved 3,227 tons of ore a day not the 1,368 tons. This changes the third examples figures above to 65 times more ore than it did in 1930...not the 27 times number I used above. This makes the present day ratio even worse.


    Great question. Like so many others that haven't taken time to research the issue, they may regard present oil price volatility as transitory. It's not. Once the bond market figures this out, look out below. The "silver lining" for us can be found on a weekly $silver:$wtic chart. It's much better than rolling oil contracts, no shysters involved.

  17. @Phyz Ed - yea... I been followin dutchsinse for about six months now... good to see people out there keepin everyone informed while the media slops garbage in our ears about who won American Idol. If shit pops off here in Cali, best believe i'll be uploadin videos to my channel and blastin a few links on here.

  18. highrise..
    You Scare Me ! lol The more people that know, and it won't take place.. Should post on Zerohedge ! And other sites as well.. I sent it out to other people.. Thanks for the Possible heads up ! Live in Wichita Ks.. Should be safe from what they were reporting.. We have a Big Ditch Built all the way around our city.. And were 1300 feet above sea level.. We might get wet if it happened, but should make it.. Thanks for the heads up !

  19. Great work.

    What puzzles me is that "the powers that be" can't be that stupid? Can they?

    A very tiny voice at the back of my mind sometimes asks whether the whole precious metals manipulation is a honey-trap.

  20. George...yes they can be that stupid. Rome fell due to the same arrogance and stupidity

    Rome devalued their currency by putting less silver content over a long period of time. The US took all backing of both precious metals.
    The big difference between Rome and the US is that Rome didn't acquire $100 trillion in unfunded liabilities and debt. This will make the collapse of the US empire orders of magnitide far greater.

  21. Oh...I forgot to end my previous post with:

    Good grief.

  22. SRSrocco: Sure, energy powers mines, but a silver mine doesn't exist to harvest energy. There is no energy returned, so using an energy industry term like EROEI doesn't make any sense, and makes you look stupid, like you don't know anything about miners.

    Sure, you can argue for peak silver, and I'm not arguing against that. SIlver production will decline so long as the price remains manipulated like it is. But if you are going to use those types of terms, you need to adapt them for the industry you are talking about.

  23. Silver - looks like $34 is resistance and 33.50 support. Although it would not surprise me if we went lower, I think support will be difficult to breach as we tested $33.50 in May17 and Mar16.

  24. Has anyone heard about over the counter gold being illegal to purchase now?

  25. Thomas...looks like we are going to agree to disagree on this one. I am not making the point that silver is used to harvest energy. The point I am trying to get across to the public and many braindead gold and silver analysts is that in a falling EROI environment (oil and natural gas), the system for mining metals will disintegrate.

    Strip mining is possible due to cheap oil that comes from a relatively high EROI. Period. Why you don't get the connection is beyond me. Of course, this concept is oblivious to most, so why should I waste valuable time debating you on the subject.

    Anyhow...the falling EROI is causing havoc in all areas of our complex society. In a future post, I will compare the collapse of the Roman Empire and the soon US Empire due to a falling EROI.

    Many believe as Martin Armstrong who I have the uptmost respect, that the Roman Empire collapsed due to Socialistic Emperors and debasing of the currency the denarius. These factors were mere symptoms...and not the disease itself. It was as it is today...the falling EROI that collapsed the Roman Empire.

    Oh...Lastly, when I wrote my article on Peak Silver by a falling EROI back in Nov 2009, I got emails from all over the world. Several from highly intelligent engineers who study the EROI and they thought the article was and excellent piece to try and educate the financial. are of course free to have an opinion on anything in this day and age.

  26. When discussing important issues it is paramount that we not get our collective underwear knotted over semantics.

    The point being (if I may paraphrase SRSrocco) that it is becoming ever more costly to get silver out of the ground, to the point where it is no longer economically feasible, at these prices.

  27. SRSrocco: We are clearly talking about different things. The article refers to EROI with regards to SILVER. This simply makes NO SENSE. You might as well talk about rising miles per gallon of silver. EROI talk only makes sense with regards to energy production. Silver is not energy, so that term should not be used here, unless you are going to make an argument about rising energy costs, and then it would only make sense when you are talking about oil production. If you want to make the highly valid argument that the cost of extraction of an ounce of silver is going to rise due to rising fuel prices, then make that argument, but don't use terms that don't make sense in context.

    Also, the Roman Empire didn't fall because of falling EROI. They were fueled by grain. Falling EROI in that context implies that it was getting harder and harder to grow grain, which doesn't make a whole lot of sense. Instead, and much more likely, the Western Roman Empire simply got more and more corrupt and reliant on socialistic practices that it could no longer afford until the Eastern Empire got pissed off at them and sent in the Ostrogoths. The real empire persisted in the East for more than a thousand years after that. If grain production was a significant factor, then it would have hit across the entirety of the highly interconnected Mediterranean region. Constantinople would have been hit as hard as Athens, which would have been hit as hard as Thebes, which would have been hit as hard as Novo Carthago, which would have been hit as hard as Rome.

    That said, I would be interested to see your argument. History is a passion of mine, and I enjoy seeing other interpretations, especially well researched, non-superficial ones.

  28. Sorry, Visigoths, not Ostrogoths.

  29. Thomas..I can't get into it now, but your assumption of Rome's grain as their eroi is invalid. Try reading Ugo Bardi or Joesph tainter on their recent work on Rome's collapse based on a falling eroi.

    Your focus on the term eroi is too limited. If you allow me the time to put it in a guest post you might see it in a different light