Mitchell J. Krebs has been the President and CEO of Coeur Mining, Inc., the world’s ninth-largest silver producer, since 2011. Coeur is also a major player in gold mining and has some 2,005 employees in the U.S., Mexico and Bolivia. Coeur markets its silver and gold concentrates to third-party refiners and smelters in the U.S., China, and Japan. From 2013 to 2015 Krebs oversaw a 22% year-over-year all-in sustaining cost reduction that significantly lowered the Chicago-based company’s bottom line. Those moves are being credited with helping Coeur stock take off since the Q1 2016 surge in silver prices. He recently spoke with MetalMiner’s Jeff Yoders on the phone about the silver market and what is impacting prices on both the supply and demand sides.
Jeff Yoders: It’s been a good quarter for Coeur, how have the recent price increases impacted the company?
Mitch Krebs: We have seen strong returns. Our business and our financial results are very tightly wound with the prices of silver and gold. In the first quarter, we saw silver go up about 11% and gold up about 17%, that goes right down to our bottom line. We have been really successful at reducing our costs over the last three years, so our revenue line is going up as our cost line is going down, our cash flow has gone up in multiples as a result our stock price climbing 120% on the year-to-date. That leverage in the change in the silver price is significant.
JY: When we last spoke with Coeur, it was in summer of 2014 when your Vice President and Treasurer, Courtney Lynn, was contributing and helping to design the new London Bullion Metals Association silver price. Has that new pricing mechanism helped your operations since?
MK: That change in the pricing mechanism has been almost unnoticeable, which is exactly what the industry wanted. In the past, as participants in that old fix process declined, it became a much smaller group. There were people scratching their heads saying “is this the most transparent market?” This new mechanism has been a breath of fresh air in terms of transparency. It’s not like we’re getting more per ounce or anything because of it, but it has helped with openness and understanding of the pricing.
JY: We have been hearing that secondary production of silver, mostly by zinc and copper miners, has recently helped other miners’ bottom lines. As a primary silver producer, how does secondary production affect what you do?
MK: When we look at it, worldwide, 800 million ounces of silver are produced. Of those, over half of them are produced by lead, zinc and copper mines. Those three are 55% of that total production. Gold mines, where silver comes out as a byproduct, are another 15%. So, overall, that leaves only about 30% of the total global production to come out of primary silver mines. When we look at “what’s the outlook for silver supply over the next few years,” we start with an assessment of base metals, especially copper, lead and zinc.
With copper prices having declined for the last few years, that has washed out a lot of that secondary silver production. That’s ultimately good for prices when supply has gone down and investment demand for silver and gold has gone up.
Our forecasts show that, here in 2016, global production of silver will be down over last year and that’s the first time that’s happened in more than a dozen years. One of the biggest drivers of those increases had been larger and larger copper production kicking off more silver production, the same was true for lead and zinc miners. During the downturn of the last few years, however, some of those mines have gone away and we’re seeing primary silver production benefit as a result.
JY: So the industrial demand is still strong even with curtailed mining production from secondary sources?
MK: That’s what I like about silver. Gold, it’s almost unfair to call it a commodity. It’s more of a currency. It’s so driven by things like sentiment, which are really squishy and difficult to quantify, but at least with silver you have a few of the same traits as gold — as a precious metal and store of value — but also 60% of its global demand comes from real and true industrial uses, mostly in electronics which is always a good demand driver.
Supply and demand matter a lot more for silver than gold. Econ 101 tells you that declining supply is a good thing for prices over the longer term.
JY: Do you see the base metals recovery continuing this year?
MK: I hate to give an overused answer, but It really does depend on China to a large extent, especially for copper. We are seeing more constructive data coming from China in the last few months. Maybe we’ve seen the worst. That could be true but, as you well know, the lag time between prices starting to rebound and new supply coming onstream is such that we’re seeing companies slash exploration activities and a lack of capital is a factor. Some of the taxation that was placed on mining back in the heydays of 2010 and 2011 is a bit of a noose around miners’ necks right now. It will take time for permits to be had, capital to be raised and new projects to go into production.
JY: On the demand side, what are you seeing as drivers?
We’re the country’s largest silver producer and we’ve been growing our gold production quite a bit. We operate two of the world’s top 15 largest primary silver mines (in Palmarejo, Mexico, and Rochester, Nev.). We have been trying to stay on top of silver as much as we can. There are interesting things on the demand side. There is now three-quarters of an ounce of silver in every new vehicle. Global automotive demand is rising nicely and that’s an important driver for silver.
Solar is also important, every new gigawatt of photovoltaic capacity consumes 2.8 million ounces of silver. In India, China and even here in the U.S., governments are supporting new PV installations. You put those demand elements together with supply and the picture looks bright.