SILVER MINING AND A FALLING EROI
CASE STUDY: REVETT MINERALS – TROY MINE
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:
M&S PRESS 04 17 1920 MONTANA MINING NEWS:
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.
MONTANA MINING NEWS MINING JOURNAL 3 30 1929:
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.
MONTANA MINING NEWS MINING JOURNAL 8 30 1930:
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…..