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Top 7 Reasons I’m Buying Silver Now
I remember my first drug high.No, it wasn’t from a shady deal made with a seedy character in a bad part of town. I was in the hospital, recovering from surgery, and while I wasn’t in a lot of pain, the nurse suggested something to help me sleep better. I didn’t really think I needed it—but within seconds of that needle puncturing my skin, I WAS IN HEAVEN.
The euphoria that struck my brain was indescribable. The fluid coursing through my veins was so powerful I’ve never forgotten it. I can easily see why people get hooked on drugs.
And that’s why I think silver, purchased at current prices, could be a life-changing investment.
The connection? Well, it’s not the metal’s ever-increasing number of industrial uses… or exploding photovoltaic (solar) demand… nor even that the 2014 supply is projected to be stagnant and only reach 2010’s level. No, the connection is…
Financial Heroin
The drugs of choice for governments—money printing, deficit spending, and nonstop debt increases—have proved too addictive for world leaders to break their habits. At this point, the US and other governments around the world have toked, snorted, and mainlined their way into an addictive corner; they are completely hooked. The Fed and their international central-bank peers are the drug pushers, providing the easy money to keep the high going. And despite the Fed’s latest taper of bond purchases, past actions will not be consequence-free.
At first, drug-induced highs feel euphoric, but eventually the body breaks down from the abuse. Similarly, artificial stimuli and sub-rosa manipulations by central banks have delivered their special effects—but addiction always leads to a systemic breakdown.
When government financial heroin addicts are finally forced into cold-turkey withdrawal, the ensuing crisis will spark a rush into precious metals. The situation will be exacerbated when assets perceived as “safe” today—like bonds and the almighty greenback—enter bear markets or crash entirely.
As a result, the rise in silver prices from current levels won’t be 10% or 20%—but a double, triple, or more.
If inflation picks up steam, $100 silver is not a fantasy but a distinct possibility. Gold will benefit, too, of course, but due to silver’s higher volatility, we expect it will hand us a higher percentage return, just as it has many times in the past.
Eventually, all markets correct excesses. The global economy is near a tipping point, and we must prepare our portfolios now, ahead of that chaos, which includes owning a meaningful amount of physical silver along with our gold.
It’s time to build for a big payday.
Why I’m Excited About Silver
When considering the catalysts for silver, let’s first ignore short-term factors such as net short/long positions, fluctuations in weekly ETF holdings, or the latest open interest. Data like these fluctuate regularly and rarely have long-term bearing on the price of silver.
I’m more interested in the big-picture forces that could impact silver over the next several years. The most significant force, of course, is what I stated above: governments’ abuse of “financial heroin” that will inevitably lead to a currency crisis in many countries around the world, pushing silver and gold to record levels.
At no time in history have governments printed this much money.
And not one currency in the world is anchored to gold or any other tangible standard. This unprecedented setup means that whatever fallout results, it will be of historic proportions and affect each of us personally.
Specific to silver itself, here are the data that tell me “something big this way comes”…
1. Inflation-Adjusted Price Has a Long Way to Go
One hint of silver’s potential is its inflation-adjusted price. I asked John Williams of Shadow Stats to calculate the silver price in June 2014 dollars (July data is not yet available).
Shown below is the silver price adjusted for both the CPI-U, as calculated by the Bureau of Labor Statistics, and the price adjusted using ShadowStats data based on the CPI-U formula from 1980 (the formula has since been adjusted multiple times to keep the inflation number as low as possible).
The $48 peak in April 2011 was less than half the inflation-adjusted price of January 1980, based on the current CPI-U calculation. If we use the 1980 formula to measure inflation, silver would need to top $470 to beat that peak.
I’m not counting on silver going that high (at least I hope not, because I think there will be literal blood in the streets if it does), but clearly, the odds are skewed to the upside—and there’s a lot of room to run.
2. Silver Price vs. Production Costs
Producers have been forced to reduce costs in light of last year’s crash in the silver price. Some have done a better job at this than others, but check out how margins have narrowed.
Relative to the cost of production, the silver price is at its lowest level since 2005. Keep in mind that cash costs are only a portion of all-in expenses, and the silver price has historically traded well above this figure (all-in costs are just now being widely reported). That margins have tightened so dramatically is not sustainable on a long-term basis without affecting the industry. It also makes it likely that prices have bottomed, since producers can only cut expenses so much.
Although roughly 75% of silver is produced as a by-product, prices are determined at the margin; if a mine can’t operate profitably or a new project won’t earn a profit at low prices, the resulting drop in output would serve as a catalyst for higher prices. Further, much of the current cost-cutting has come from reduced exploration budgets, which will curtail future supply.
3. Low Inventories
Various entities hold inventories of silver bullion, and these levels were high when US coinage contained silver. As all US coins intended for circulation have been minted from base metals for decades, the need for high inventories is thus lower today. But this chart shows how little is available.
You can see how low current inventories are on a historical basis, most of which are held in exchange-traded products. This is important because these investors have been net buyers since 2005 and thus have kept that metal off the market. The remaining amount of inventory is 241 million ounces, only 25% of one year’s supply—whereas in 1990 it represented roughly eight timessupply. If demand were to suddenly surge, those needs could not be met by existing inventories. In fact, ETP investors would likely take more metal off the market. (The “implied unreported stocks” refers to private and other unreported depositories around the world, another strikingly smaller number.)
If investment demand were to repeat the surge it saw from 2005 to 2009, this would leave little room for error on the supply side.
4. Conclusion of the Bear Market
This updated snapshot of six decades of bear markets signals that ours is near exhaustion. The black line represents silver’s decline from April 2011 through August 8, 2014.
The historical record suggests that buying silver now is a low-risk investment.
5. Cheap Compared to Other Commodities
Here’s how the silver price compares to other precious metals, along with the most common base metals.
Percent Change From…
1 Year Ago
5 Years Ago
10 Years
Ago
All-Time
High
Gold
-2%
38%
234%
-31%
Silver
-6%
35%
239%
-60%
Platinum
3%
20%
83%
-35%
Palladium
14%
252%
238%
-21%
Copper
-4%
37%
146%
-32%
Nickel
32%
26%
17%
-64%
Zinc
26%
49%
128%
-47%
Only nickel is further away from its all-time high than silver.
6. Low Mainstream Participation
Another indicator of silver’s potential is how much it represents of global financial wealth, compared to its percentage when silver hit $50 in 1980.
In spite of ongoing strong demand for physical metal, silver currently represents only 0.01% of the world’s financial wealth. This is one-twenty-fifth its 1980 level. Even that big price spike we saw in 2011 pales in comparison.
There’s an enormous amount of room for silver to become a greater part of mainstream investment portfolios.
7. Watch Out for China!
It’s not just gold that is moving from West to East…
Don’t look now, but the SHFE has overtaken the Comex and become the world’s largest futures silver exchange. In fact, the SHFE accounted for 48.6% of all volume last year. The Comex, meanwhile, is in sharp decline, falling from 93.4% market share as recently as 2001 to less than half that amount today.
And all that trading has led to a sharp decrease in silver inventories at the exchange. While most silver (and gold) contracts are settled in cash at the COMEX, the majority of contracts on the Shanghai exchanges are settled in physical metal. Which has led to a huge drain of silver stocks…
Since January 2013, silver inventories at the Shanghai Futures Exchange have fallen a remarkable 84% to a record low 148 tonnes. If this trend continues, the Chinese exchanges will experience a serious supply crunch in the not-too-distant future.
There’s more…
- Domestic silver supply in China is expected to hit an all-time high and exceed 250 million ounces this year (between mine production, imports, and scrap). By comparison, it was less than 70 million ounces in 2000. However, virtually none of this is exported and is thus unavailable to the world market.
- Chinese investors are estimated to have purchased 22 million ounces of silver in 2013, the second-largest amount behind India. It was zero in 1999.
- The biggest percentage growth in silver applications comes from China. Photography, jewelry, silverware, electronics, batteries, solar panels, brazing alloys, and biocides uses are all growing at a faster clip in China than any other country in the world.
These are my top reasons for buying silver now.
Based on this review of big-picture data, what conclusion would you draw? If you’re like me, you’re forced to acknowledge that the next few years could be a very exciting time for silver investors.
Just like gold, our stash of silver will help us maintain our standard of living—but may be even more practical to use for small purchases. And in a high-inflation/decaying-dollar scenario, the silver price is likely to exceed consumer price inflation, giving us further purchasing power protection.
The bottom line is that the current silver price should be seen as a long-term buying opportunity. This may or may not be our last chance to buy at these levels for this cycle, but if you like bargains, silver’s neon “Sale!” sign is flashing like a disco ball.
New “London Silver Price” Launching In Just Two Days - Confusion Reigns
Submitted by GoldCore on 08/13/2014
Uncertainty and confusion reigns in London just two days prior to the launch of the new silver fix - the renamed “London Silver Prices”.
The Financial Times reported overnight on the uncertainty regarding the 117 year old silver price fix:
“Build it and they will come. Or that is what participants in London’s $1.6 trillion a year silver market will be hoping. There are just three trading days before the new, electronic replacement for the 117-year old silver fix goes live and there is still considerable uncertainty over who will be participating on Friday.
Since there is no centralised clearing for precious metals markets, the initial users of the new benchmark are expected to be the 11 market-making members of the London Bullion Market Association, which include Credit Suisse, JPMorgan, Goldman Sachs and UBS.
But so far no one has publicly stepped forward to say they will be involved even though testing of the system has gone without a hitch. The CME Group, whose Comex exchange offers the biggest silver futures contract, is providing the electronic price platform and the algorithm that will be used to set the auction’s opening price. Thomson Reuters will take care of the governance and administration.”
Interestingly, the FT also reports that there may be significant buying of silver in the coming days:
“Indeed, there are already rumours in the market place that some big silver producers and consumers are preparing to pepper the market with orders.”
This creates the possibility of the short squeeze that many market participants and silver analysts have been expecting for some time.
The FT says that the uncertainty is “only to be expected” and the list of participants may simply be released Friday.
However, the uncertainty is creating concern in the silver market amongst many participants who rely on the fix. There is a huge lack of transparency and little information about the pricing mechanism has been provided.
All that is clear is that the 117 year old silver fix is being replaced by a new “London Silver Price” with the handy acronym LSP.
The LSP is due to be administered on behalf of the LBMA by the CME Group and Thomson Reuters.
There is uncertainty as to whether the new price will be made publicly available through data providers, brokers etc.
Here is what the Bullion Desk had to say about the confusing situation:
The terms of the agreement state that the LSP should be equally available live for participating vendors With two days to go, it is far from clear that we – or other vendors – will be able to source the LSP and distribute it to our subscribers and data feed customers.
What we do know is that the LSP will be discovered through an electronic auction process. There will be no chairman; instead, the system algorithm will move the auction price up and down until buy and sell orders are matched to within a reasonable tolerance of 300,000 ounces.
There will be a wider number of participants than the old fix, although we do not who they will be.
In addition to the actual LSP price, it will theoretically be possible to follow the live auction process, observing net supply and demand at the various trial prices. Access to the LSP will initially be free but after an introductory period of six months a fee must be paid.
There are many questions then that still need answering, not least what the auction data will look like and what it will cost to follow the LSP process live or observe the price live. FastMarkets will continue to do everything possible to secure this important silver benchmark for our customers.
Silver in Dollars - 5 Year (Thomson Reuters)
Dan Rees, head of strategy for commodities at Thomson Reuters, said last month that in order to facilitate a smooth transition, there would be no major alterations to the current set up for a period of six months. After that point a fee to access the new silver price is likely to be instated.
The old silver fix ended in April, after Deutsche Bank withdrew from the process after the German financial regulator announced an investigation into the gold and silver fixes. This left only two banks on the fixing panel — Bank of Nova Scotia and HSBC Holdings who also under regulatory pressure may have decided to discontinue the fix.
The LBMA led search for an alternative came as market regulators had been scrutinizing benchmarks across the financial sector in the wake of a scandal involving rigging of interest rates, foreign exchange and other markets.
We have concerns about both the new silver fix and the looming new goldfix.
From our point of view, the replacement of a handful of banks with CME and Thomson Reuters was a positive development. However, the devil is in the detail and it is important that the new price discovery mechanism is transparent and that there is regulatory oversight.
CME are the U.S.' largest and the world's second largest futures and options exchange and we would have a concern that the new fixes are derived solely from futures trading and electronic trading rather than from actual supply and demand in the physical market.
Our concerns are due to the abuses that have been seen with regard to rogue traders, 'darkpools' and high speed computer trading. The CME themselves have acknowledged that markets are manipulated via high speed computer programs. Market participants need reassurance that such manipulation will not affect the new London Silver Price.
We believe that the recent rigging of the gold price, as seen in the FCA's findings against Barclays, means that there should be financial regulation and oversight of the new fixing process by regulatory authorities.
Stocks Up, Bonds Up, Gold Up, Oil Up, Dollar Up, F'd Up
Worst Japanese consumer spending data drop ever - BTFD. China financing slowed - BTFD. European industrial production tumbled - BTFD. US retail sales miss dramatically - BTFD. The worse the news the better the buy-the-dippiness as between JPY (102.50) and VIX (12 handle), US equities shrugged off shitty data and worsening geopolitics to jump to August highs. But it wasn't just stocks... investors piled into Treasuries (slamming yields 7bps lower from pre-retail sales), bought gold (back over $1310), bid for US Dollars (now up 0.25% on the week), and lifted oil prices (WTI $97.50). S&P futures volume was the worst of the week (50% below average). Notable oddities: Copper clubbed today (-2% on the week), Brent-WTI jumped $1.50, and the VIX curve remains inverted for 14th day in a row.
The last 24 hours have been "odd" to say the least - in a new normal way of course... (and volume remains abysmal) with futures driven by the European session one way or another and then stalling as EU closes...
On the day, Nasdaq outperformed notably
As bonds and stocks were both bid...The MOAR QE TRADE
And all that mattered fun-durr-mentally was AUDJPY...
VIX cracked back to a 12 handle helping stocks surge...
VIX has now been inverted (short-dated risk above longer-dated risk) for 14 days...
The entire Treasury curve cracked 5-7bps lower after retail sales hit...
And despite a big plunge on retail sales, the USD kept on its path higher (helped by a dump in GBP)...
Gold and WTI rose but copper wass smacked lower after Chinese credit data and US retail sales...
Brent-WTI jumped $1.50 today... as Brent surged
Charts: Bloomberg
Fortuna Reports Solid Q2; Should Exceed 2014 Production Guidance
Wednesday August 13, 2014, 4:55pm PDT
Earnings season is in full swing, with companies reporting their Q2 results left, right and center. Today was Fortuna Silver Mines’ (TSX:FVI) turn — though the company officially released its second-quarter results yesterday, it held a conference call to discuss them this morning.
Summing up Q2, Jorge A. Ganoza, president and CEO of Fortuna, told listeners, “it was overall a very good quarter.” A quick look at the results put out by the company shows that his positivity is partially based on its financial performance — Fortuna generated net income of $2.9 million, up from a loss of $10.6 million in the year-ago quarter, while cash flow from operations “before changes in non-cash working capital” came to $15.1 million, a whopping 157-percent rise from the second quarter last year.
That said, Fortuna’s production numbers are also impressive. The company put out 1,630,422 ounces of silver and 8,519 ounces of gold; respectively, those are increases of 52 and 64 percent from Q2 2013. The numbers mean Fortuna is “in a position to exceed [its] annual guidance of 6 million ounces of silver and 32,000 ounces of gold,” Ganoza said today.
Even more positive is the fact that the company’s all-in sustaining cash cost per ounce of payable silver, net of by-product credits, fell to $17.41, down 21 percent from the year-ago period. The drop came about due to “lower sustaining capital and brownfields exploration expenditures, higher payable ounces of silver and higher by-product credits,” according to yesterday’s press release. Ganoza said that figure is “in line with [Fortuna's] $17 guidance for the year.”
Market reaction
Though Fortuna’s Q2 results are certainly solid, investors have reacted somewhat tepidly — the company’s share price hit a high of $6.45 yesterday, but that’s only a 3.2-percent increase from Monday’s closing price. Currently, shares of Fortuna are selling for just $5.89.
Seeking Alpha contributor Ben Kramer-Miller posited today that the reason for that response may be because already “Fortuna shares have doubled for the year,” largely because ”[i]nvestors have been bidding up shares in the hopes that the company will find more silver and expand its production while it will lower costs.”
While that has “offer[ed] investors an opportunity to take profits,” Kramer-Miller believes prospects don’t look good moving forward. “I think there are better silver opportunities out there that are flying under the radar,” he said.
Others, however, are much more positive about Fortuna. In a Gold Report interview published today, Chris Thompson, an analyst at Raymond James, commented that the company has “absolutely met [his] expectations.” Continuing, he noted, “Fortuna is a rare example of a company that operates two mines in two countries efficiently and cost effectively.”
He added that one of those mines, San Jose, “has had tremendous exploration success through the discovery of a new high-grade zone,” which for Fortuna “is a tremendous opportunity for organic production growth and cash-flow growth.”
Fortunately for the company, most analysts seem to agree with Thompson. Statistics from Analyst Ratings Network show that while two firms have a “sell” rating on Fortuna, five rate it a “hold” and four rate it a “buy.” The company has a consensus price target of $5.50 and will certainly be one for investors to keep an eye on moving forward.
Fortuna Silver Mines' (FSM) CEO Jorge Ganoza on Q2 2014 Results - Earnings Call Transcript
Aug. 13, 2014 4:32 PM ET
Fortuna Silver Mines Inc.
Q2 2014 Earnings Conference Call
August 13, 2014 12:00 PM ET
Executives
Jorge A. Ganoza – President, Chief Executive Officer
Luis D. Ganoza – Chief Financial Officer
Analysts
Benjamin Asuncion – Haywood Securities Inc.
Operator
Greetings and welcome to the Fortuna Silver Mines' Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to Mr. Carlos Baca, Investor Relations Manager. Thank you, Mr. Baca. You may begin.
Carlos Baca
Thank you, Mannie. Good morning, ladies and gentlemen. I would like to welcome you all to Fortuna Silver Mines and to our second quarter 2014 financial and operations results call. Jorge Alberto Ganoza, President and CEO; and Luis Dario Ganoza, CFO will be hosting the call from Lima, Peru.
Before I turn over the call to Jorge, I would like to indicate that this earnings call contains forward-looking information that is based on their Company’s current expectations, estimates and believes. This forward-looking information in subject to a number of risk, uncertainties and other factors. Actual results could different materially from a conclusion forecast or projection in the forward-looking information. Certain material factors or assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information.
Additional information about the material factors that could cause results to differ materially on the conclusion forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the Company’s annual information form which is publically available SEDAR.
I would now like to turn the call over to Jorge Ganoza, President, CEO and Co-Founder of Fortuna.
Jorge Alberto Ganoza
Thank you, Carlos, and good morning to all. Fortuna reported a strong second quarter in terms of production costs and financial results. Looking our production the company deliver 1.6 million ounces of silver and 8,500 ounces of gold in the quarter. A 52% and 62% increase respectively when compared to the second quarter of 2013. Production for the first half of the year is 3.2 million ounces of silver and 16,600 ounces of gold. Based on production results for the first half of the year, we are in a position to exceed our annual guidance of 6 million ounces of silver and 32,000 ounces of gold.
Additionally, during the quarter at the Caylloma Mines, we produced 6.10 million pounds of zinc and 4 million pounds of lead. The expansion of San Jose Mine from 1,800 tonnes per day to 2,000 tonnes per day was completed in early April. When compared against the second quarter of 2013, San Jose processed 64% more tonnage with 15% and 3% higher silver and gold grades respectively. This yielded 1.1 million ounces of silver and 7,900 ounces of gold from Q2, 90% and 70% higher silver and gold when compared to the previous year.
[Indiscernible] only increased with respect to the previous quarter but also against our budget by 14% for silver and 9% for gold. This is a result of mining the inferred resource extension to the South of the Stockwork zone at level 1200. The improvement in grade at San Jose consistent with the increasing grade profile of the mine at depth, the reserve and tonnage and grade reconciliation for the quarter is within acceptable ranges.
Caylloma consistently operated during the quarter at its steady state capacity of 1300 tonnes per day, delivering 500,000 ounces of silver plus by-products zinc and lead. Silver production at Caylloma was 7% above the prior year as a result of higher metallurgical recovery and slightly higher sliver grade. Zinc production increased 9% as a result of higher grade and recoveries which impacted positively on the cash cost per ounce net of LIFO.
Again on our costs at our mines remain well under control with $64 per tonne at San Jose and $91 per tonne at Caylloma. Cost per tonne measured against Q2 2013 dropped by 17% of San Jose and 2% at Caylloma and were both in line with budget. Our consolidated all-in sustaining cash cost net of by-products was $17.40 of silver, in line with our $17 guidance for the year.
All-in sustaining cash cost for the quarter at the Caylloma mine was $15.50 and for San Jose was $15.70 per ounce of silver. Caylloma reported a drop of $9 in all-in cost of 37% when compared to the second quarter of 2013 and San Jose is in line the comparable quarter. Our all-in cost guidance for the year at Caylloma is $17 we expect to be closer to this figure for the year as we catch up with the slow start in the first half on our underground development plan due to a change in mine contract and delaying the energy project.
At San Jose, all-in cash cost per ounce comparable to a first quarter of 2013 saw a benefit of 15% lower costs. All-in cost guidance for the year at San Jose is $14 and we’re on target to meet guided projects. As informed before, we are advancing with engineering for the implementation of filtered tailings and dry-stacks at San Jose. The benefit of implementing this project will be sustaining storage capacity within company grounds for over 10 million tonnes and additional contribution of awarded to our balance.
We aim to start construction in early 2015, and now plan to replacing orders for filters storage at the end of this year. We’re not concluded with engineering, but we can estimate a starts-up of first year CapEx of $27 million at this point. With regard to our feasibility work on the 3000 tonne per day project for San Jane mine, we expect to conclude the trade of studies for the crushing and grinding to quit this month of August, we aim to conclude the study by year-end the efficient to move forward this expansion price should be taken of the first quarter.
On the exportation front, we continue with underground drilling of Trinidad North discovery with two underground rigs, we have drilled 16000 meters to-date. The plan for the remainder of the year is to extend our underground exploration another 250 meters further to the North from the core into northern most boundary of drilling. This drill program will start in September, will continue until the year-end. Trinidad North remains open in three directions, to the north and west and for 300 meters to surface above level of 1300.
With these I can now ask Luis to please give us a review of our financial results.
Luis Dario Ganoza
Sure. Thank you, Jorge. For the second quarter of 2014, we’ve recorded sales of $44.3 million up 47% from the prior year. Net income of $2.9 million compared to the loss of $10.6 million in Q2 of 2013. And cash flow from operations, before changes in working capital and after tax is paid of $15.1 million, up 157% when compared to a prior year period.
Silver and gold sold in Q2 2014 increased significantly as a result mainly of a commissioning of our expansion of the San Jose mine as Jorge described. Silver sold was 1.6 million ounces, up 44% and gold sold was 8,407 ounces, up 55%. Realized prices on our provision of sales for the quarter were $19.60 per ounce compared to $22.80 per ounce in Q2 of 2013.
However, we recorded positive sales adjustments of $1 million in the current quarter versus negative $5.2 million in Q2 of 2013, which were related to metal prices and assay adjustment at the time. Our mine operating earnings were $16.3 million, 157% above Q2 2013. Our gross margins increased from 22% in the comparative period to 37% in the current quarter.
The higher margins have to move to a large extent with the negative sales adjustments recorded last year. However, there is also an important effect from the higher head grades and lower unit cash cost in particular at San Jose where we saw 17% reduction in unit cash costs per tonne of proceeded ore.
On the selling G&A line item, we've recorded $8.6 million compared to $5.6 million in 2013 an increase of $3 million. The breakdown of this line item is provided in Page 11 of our MD&A and most of this is related to close to $2.5 million of mark-to-market effect on share-based compensation resulting from a 45% appreciation in the share price during the period.
Moving forward on the quarterly basis we expect general and administrative expenses to be closer to $4.5 million and the total amount the selling and G&A line item around $5.5 million that is including stock-based compensation. Our net income for the quarter as I mentioned was $2.9 million and our effective tax rate was 60% although year-to-date the effective tax rate was 51% which is only slightly above our expectation for the year, earnings per share were $0.02.
On an adjusted net income basis, our results for this quarter remain at $3 million and the comparative period for a loss of $0.1 million. Cash flow from operations before changes in working capital and after taxes paid was $15.1 million, 157% increase over Q2 2013. The same measure cash flow from operations year-to-date was $32 million, while total of capital expenditure was $23 million, which gives us a free cash flow measure year-to-date of around $9 million.
We need bear in mind however that our incurred income tax for the period is around $4 million above actual taxes paid this figure will lightly increased for the reminder of the year. When compared to the first quarter of 2014 our performance was slightly down as we actually sold 1.5% less silver in spite of having produced 6% more metal. Realized price for silver in Q2 of 2014 was also 11% below the previous quarter. Compare to Q1 2014 our revenue was 2.6% lower, cash flow from operations was 11% lower, $60.2 million an increase of $11.1 million over year end 2013.
On trade accounts receivable we saw an increase over the first quarter of the year and year end 2013 of $10.6 million and $9.5 million respectively. This is related to most of the concentrates sold during the quarter having been delivered in the month of June. And we should see this increase in account receivable flow back into the treasury in July and August.
Thank you, back to you Carlos.
Carlos Baca
Thank you, Luis. We would now like to turn the call over to any questions that you may have.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions) Our first question is from Benjamin Asuncion of Haywood Securities. Please go ahead.
Benjamin Asuncion - Haywood Securities Inc.
Good morning guys, congratulations on a solid quarter. I just have three questions here, I guess just at San Jose I'm looking at great profile in the back half of the year. Are we looking to similar silver grade as we saw kind of in the first half for the year?
Jorge A Ganoza
Hello, Ben. We are certainly slightly above our budget and the explanation for that is that we find our sales mining in area that was not our annually budgeted which is a portion of an incurred resource that we have on the level 1200. A variation is not significant but its to the off site and we plan to continue mining there, what we are seeing today is consistent with what we've been mining for this first couple of years [indiscernible] even though its our budget. We are continuing to see those kinds of grades come from this, so that we are converting as we are developing the mine. So yes.
Benjamin Asuncion - Haywood Securities Inc.
Perfect and just under the comments on Trinidad North, are we still come on track for I guess initial ore production in the beginning of the year and then also on that in terms of the revolution with the community what needs to be in place when you get into initial mining in terms of do you need access to do ventilation or access points and just any comments on that?
Jorge A GanozaYes, with regard to the first one to your second question, we are currently - I mean we continue with the plan to deepen the mines and give ourselves access to Trinidad North zone, the southern boundary to the Trinidad North zone from exiting infrastructure which is mainly the central deep line the main deep line of the mine. So that work continues according to plan, there would be some [indiscernible] days but basically its advancing according to the plan.
The question is are we are going to start mining there starting in the beginning of the year, the purpose of mining in these area at the beginning of the year 2015 was to help us improve grade profile. Now the new variables that we are seeing is like the one we just touched on with your previous question which is we are mining 9% to 10% above plan grades for an inferred zone that we are currently converting in level 1,200 where we already have significant mine infrastructure.
So the second half of the year we do our mine planning for 2015, we will be taking in to consideration the fact that we also have these new alternatives coming from the inferred resources on level 1,200. So the objective is to improve the grade even more, the grade profile of production that we are feeding 2000 tonnes per day. How we do that it can be with contribution from Trinidad North or contribution from this block of inferred resources that we still have on level 1,200.
So that’s something we will be assessing and I cannot tell you how the final outage is going to be there, well I can tell you that we have [indiscernible] things right now and we plan to continue pushing with the development towards Trinidad North, we’ll have that flexibility and work production will – starting in 2015 it could come from Trinidad North or this new zone that is helping us already to increase the grade.
With respect to your last question, we had an important breakthrough with the community of Megalania over the course of the last 30-days, authorities from Megalania did a joint – obviously between you know municipal and few authorities, [indiscernible] underground mine and that was very positive and we have the opportunities to visit and sample with their authorization along strikes from the current structures where we are mining underground.
So they allowed us to go in and take samples and do some mapping. So that is a very positive breakthrough, we still need the drilling permits, but we are still confident that we are going to get that. This is a process, we've been here before, we were able to resolve it, and I think we’re going to resolve it again. It just takes time and patience and I think the team on site is doing it appropriate.
Benjamin Asuncion - Haywood Securities Inc.
Perfect. And just a last thing from release just on taxes and the timing, I guess in the last few quarters we’ve seen through the cash components taxes being lower than the income statement. You did make some comments on seeing this kind of increase I guess in third quarter or going forward. I just want to get sense of what proportion we would been looking at from income tax presentation to what the actual cash tax is paid with the...
Luis D. Ganoza
Yes sure so year-to-date we have incurred income tax amongst both subsidiaries for $4 million above the actual tax that we have paid and towards the end of the year as I mentioned that period is likely to increase, likely double towards the year-end. So that’s the kind of gap we could see between actual taxes incurred and taxes paid.
Benjamin Asuncion - Haywood Securities Inc.
Okay, perfect. All right. That’s it from me. I’ll hop back in the queue if I anything else. Thanks again.
Jorge A Ganoza
Thank you.
Operator
Thank you. (Operator Instructions) Okay gentlemen it doesn’t appear that we have any further questions. Would you like to make any additional or closing remarks?
Jorge A. Ganoza
It was overall a very good quarter for the company and I thank all of you for your time this morning.
Operator
Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. And thank you for your participation.
Fortuna Silver earns $2.9-million in Q2
2014-08-12 18:31 ET - News Release
Mr. Jorge Ganoza reports
FORTUNA REPORTS CONSOLIDATED FINANCIAL RESULTS FOR THE SECOND QUARTER 2014
Fortuna Silver Mines Inc. had revenue of $44.3-million, cash generated from operations, before changes in working capital, of $15.1-million and net income of $2.9-million in the second quarter of 2014.
Jorge A. Ganoza, president and chief executive officer, commented: "Financial results for the second quarter reflect our continued emphasis on free cash flow generation through organic growth and cost control. We have delivered a consolidated all-in sustaining cash cost of $17.41 per ounce of silver, a reduction of 21 per cent, compared to the previous year, and year to date, our treasury plus trade receivables have increased by over $20-million."
Mr. Ganoza continued, "At San Jose, our attention remains centred on laying out the next phase of organic growth as our step-out drilling campaign at Trinidad North continues to expand the new high-grade mineralized zone."
Second quarter financial highlights:
Compared with the first quarter of 2014, silver and gold production rose 6 per cent and 5 per cent, respectively, however silver and gold sold was lower by 2 per cent and 4 per cent, respectively, due to timing issues of concentrate delivery.
Cash flow from operations, before changes in working capital, increased 157 per cent to $15.1-million (second quarter of 2013, $5.9-million).
Basic earnings per share were two cents (second quarter of 2013, loss of eight cents). Operating cash flow per share, before changes in working capital items, increased to 12 cents (second quarter of 2013, five cents).
Cash and short-term investments at the end of the second quarter of 2014 was $60.2-million, an increase of $11.1-million over year-end 2013. In addition, trade accounts receivable increased by $9.5-million, most of which was credited to the company's treasury in July, 2014.
Three months ended June 30, 2014
Consolidated metal production Caylloma San Jose Consolidated
Silver (oz) 529,011 1,101,411 1,630,422
Gold (oz) 562 7,957 8,519
Lead (000 lb) 3,962 - 3,962
Zinc (000 lb) 6,697 - 6,697
Production cash cost (U.S.$/oz Ag) 7.72 3.93 5.15
All-in sustaining cash cost
(U.S.$/oz Ag) 15.48 15.77 17.41Three months ended June 30, 2013
Consolidated metal production Caylloma San Jose Consolidated
Silver (oz) 493,438 580,570 1,074,007
Gold (oz) 502 4,681 5,183
Lead (000 lb) 4,666 - 4,666
Zinc (000 lb) 6,131 - 6,131
Production cash cost (U.S.$/oz Ag) 8.78 6.56 7.58
All-in sustaining cash cost
(U.S.$/oz Ag) 24.53 15.58 21.98Six months ended June 30, 2014
Consolidated metal production Caylloma San Jose Consolidated
Silver (oz) 1,068,835 2,098,446 3,167,282
Gold (oz) 1,085 15,583 16,669
Lead (000 lb) 7,855 - 7,855
Zinc (000 lb) 13,226 - 13,226
Production cash cost (U.S.$/oz Ag) 7.32 3.77 4.96
All-in sustaining cash cost
(U.S.$/oz Ag) 14.32 15.12 16.98Six months ended June 30, 2013
Consolidated metal production Caylloma San Jose Consolidated
Silver (oz) 992,882 1,073,343 2,066,225
Gold (oz) 1,035 8,641 9,675
Lead (000 lb) 9,280 - 9,280
Zinc (000 lb) 12,067 - 12,067
Production cash cost (U.S.$/oz Ag) 7.84 6.44 7.11
All-in sustaining cash cost
(U.S.$/oz Ag) 24.09 19.68 24.58
Silver and gold production for the second quarter and the first six months of 2014 increased over the same period in the prior year by 52 per cent and 64 per cent, and 53 per cent and 72 per cent, respectively, explained largely by the commissioning of the San Jose mine mill expansion from 1,150 to 1,800 tonnes per day in September, 2013, and to 2,000 tonnes per day in April, 2014. The company is on track to meet its guidance of 6.0 million ounces of silver and 32,300 ounces of gold or 7.9 million AgEq ounces for 2014. Silver equivalent (AgEq) is calculated using metal prices of $1,260 per ounce for gold and $21 per ounce for silver.
All-in sustaining cash cost per payable ounce of silver for the second quarter 2014, net of byproduct credits, decreased 21 per cent to $17.41 (second quarter of 2013, $21.98) as a result of lower sustaining capital and brownfields exploration expenditures, higher payable ounces of silver, and higher byproduct credits.
San Jose mine, Mexico
San Jose was successfully expanded to 2,000 tonnes per day in April, 2014 (see Fortuna news release dated April 14, 2014), and studies are currently under way to assess the economic robustness of a potential mine and mill expansion to 3,000 tonnes per day. Production for the first half of 2014 was 2,098,446 ounces of silver and 15,583 ounces of gold, 96 per cent and 80 per cent above the first half of 2013, respectively. San Jose is on track to meet annual production guidance of 4.0 million ounces of silver and 30,400 ounces of gold.
Silver and gold production for the second quarter 2014 was 90 per cent and 70 per cent above second quarter 2013, respectively. The increase is the result of higher throughput of 64 per cent, and higher head grade for silver and gold of 15 per cent and 3 per cent, respectively.
Cash cost per tonne of processed ore for the second quarter 2014 was $64.08 per tonne or 17 per cent below the cost in the second quarter 2013, and is below guidance of $67.10 per tonne. All-in sustaining cash cost per payable ounce of silver, net of byproduct credits, was $15.77 in the second quarter 2014 and $15.12 for the first half of the year. Management expects all-in sustaining cash cost per ounce of silver to be in line with annual guidance of $14.43.
In light of the growth of resources over the last year, the company has made the decision to advance with engineering studies to address long-term tailings management. The project calls for the implementation of filtered tailings and dry stack disposal. The project is in the engineering phase with a construction decision expected before year-end.
Caylloma mine, Peru
Silver production for the second quarter 2014 was 7 per cent above the same period in the prior year as a result of higher metallurgical recovery and slightly higher head grade. Zinc production increased 9 per cent as a result of higher head grade and metallurgical recoveries. Lead production decreased 15 per cent due to reduced head grade. Caylloma is on track to meet annual production guidance of 2.0 million ounces of silver and 1,900 ounces of gold.
Cash cost per tonne at Caylloma for the second quarter 2014 was $91.70 per tonne of processed ore, a decrease of 2 per cent from second quarter 2013 and 4 per cent above annual guidance. All-in sustaining cash cost per payable ounce of silver, net of byproduct credits, at Caylloma in the second quarter 2014 was $15.48 and $14.32 for the first half of 2014. Management expects all-in sustaining cash cost per ounce of silver to be in line with annual guidance of $17.01.
The financial statements, and management discussion and analysis, are available on SEDAR and have also been posted on the company's website.
Conference call to review 2014 second quarter financial and operations results
Date: Wednesday, Aug. 13, 2014
Time: 9 a.m. Pacific Time (12 p.m. Eastern Time) (11 a.m. (Lima time))
Dial-in number (toll-free): 1-877-407-8035
Dial-in number (international): 1-201-689-8035
Replay number (toll-free): 1-877-660-6853
Replay number (international): 1-201-612-7415
Replay passcode: 13587139
Playback of the webcast will be available until Nov. 13, 2014. Playback of the conference call will be available until Aug. 27, 2014, at 11:59 p.m. Eastern Time. In addition, a transcript of the call will be archived in the company's website.