Commodity Investing

Deep in the Dragon’s Belly: A Visit Inside a Silver Refinery

recently returned from a trip to Mexico, where I checked out a silver mine.

I’m a big believer that “boots on the ground” beat a fancy suit every time. That is, I find checking things out in person helps me determine if a company really has something worth investing in.

Here are four reasons why…

Discover the truth. There’s an old saying that “a gold mine is a hole in the ground with a liar on top.” While you can hope that preliminary research will weed out the bad apples, sometimes it’s impossible to know if a mine is a going concern until you visit it.

The good news is the mine I just visited isn’t doing fine… it’s doing great. And it has good management, too. But I’ve been to places where it’s painfully evident the company made assumptions that were not likely to come true.

Geologic realism. It’s true that miners must be optimists. After all, their job is to take a barren piece of desert ground and turn it into a producing mine. But what I need to know is if they are dreamers. That’s why when I do a site visit, I always ask to talk to the chief geologist. Do they have realistic expectations in what they can accomplish? It’s an important question that needs answering.

Go beyond the reports. Sometimes when you scout out a site you can spot developments that the company isn’t comfortable including in its reports yet. You can see that ore grades are getting richer as a hole goes deeper… or how they might be sitting on a massive deposit that isn’t quite defined yet.

To do that, you might have to go deep underground, as I am doing in the photo. Going hundreds of meters underground isn’t everybody’s cup of tea, but I often find the information I glean down there to be invaluable.

Management. If you’ve been to enough of these mines – and I think I have – you can start to sense if they’re performing on-plan.

For example, the mine I visited last week has built a new crusher, ore bin and ball mill in less than eight months. That’s really fast. They did it under budget, too. So obviously these guys know what they’re doing.

Of course, I understand not everyone has the time – or resources – to hop on a plane and travel 2,000 miles to inspect a mining operation. But if you have the means, I highly recommend embarking on just such a journey. To give you an idea of what to expect, let me share some more details from my latest expedition…

A Rare Treat – A Visit Inside a Silver Refinery

When a mine produces silver, the metal is processed and comes out in a semi-pure alloy bar called doré. The purity of these bars varies widely. They can also contain various amounts of gold, as well as traces of other metals that are bound with the silver in the initial deposit. Here’s a picture of some doré bars piled up at the mine I just visited.

What do mines do with the doré? It has to go to a refinery. During my trip, I got to visit the Met-Mex Peñoles refinery complex in Torreón, in the state of Coahuila, Mexico. There, I visited the facilities that process silver and zinc.

This was fascinating. Met-Mex is legendary, first of all, because it’s the largest silver refinery in the world. But also because it will take just about anything. Whereas most refineries specialize, Met-Mex takes silver, gold, zinc, lead, cadmium and bismuth. It’s a chemical refinery, too, that takes sulfuric acid, oleum and antimony.

The fact that I was extended an invitation to visit this refinery was very gracious. Because let me tell you, you don’t just waltz into a silver refinery, amigo.

The Process

When we showed up we were issued protective gear: hard hats, goggles, jackets, boots and breather masks like Walter White wore in Breaking Bad. (To the right, you can see me getting dressed for the tour.)

The thing about wearing the breather mask is everyone’s voice is really muffled. The mask is required at all times because there are potentially dangerous fumes in the smelter, especially if you go to the lead smelter that Met-Mex has on site.

Next, we went to the silver refinery – and jumped through increasingly strict levels of security.

  • We had to submit our passports. (One lady tried to get in with her Mexican driver’s license but it wasn’t enough.)
  • I and another analyst were sent back to the front office and forced to shave. (Safety rules say a beard/goatee might prevent breather masks from making a proper seal. So, with disposable razors and soap from dispensers in the men’s bathroom, we hurriedly complied.)
  • Several folks ahead of me ran afoul of medical tests, because someone made an offhand remark. The house doctor scrutinized them, accused a few of them of looking sick and put them through a battery of tests. (One guy could not pass the physical, which meant he couldn’t go on the tour. I also heard that while this group was in the doctor’s office, another man kept setting off the metal detector. He was stripped half-naked before they realized it was the metal buttons on his shirt.)

And this was all before the first guard station! At the next, I had to leave my passport and wedding ring. I had to leave my wallet and watch at another. We had to put blue booties over our boots, then tie cloth “hoods” OVER the booties. Then we donned latex gloves.

Between all this and the blue denim jackets and breather masks they issued us, we looked like some bizarre prison work gang. And before we could move forward, we had to swear to never, ever touch anything without permission.

When we finally went through the silver smelter, we saw big flat sheets of silver alloy metal. These were then separated into silver, gold, zinc, copper, etc. We saw mining cars (or mining car-like buckets) filled with shreds of silver.

Ahead, workers busily fed silver scrap into the mouths of two furnaces that were hot as hungry dragons. And we saw that molten silver come out shaped into bars. They descended on a conveyor into water, which bubbled and hissed at the touch of the white-hot metal.

Once the silver bars were cooled, a human polished them. Then a robot stacked them. Eerily, the robot would then nudge the bars until they were lined up just so. (It seemed like a very human thing to do… we gotta keep an eye on those darned robots.)

Nearby, we saw stacks and stacks of 10-kilogram silver bars. We counted about $6 million worth on just collection of pallets. And they had a whole roomful of silver bars stacked on more pallets beyond that…

So now do you see why security is so tight?

All This Silver… And Gold, Too!

As I mentioned, doré doesn’t just contain silver. Met-Mex needs to refine it down to 99.99% pure silver. They do that by removing “impurities” such as gold. And while gold is only present in doré in tiny amounts, Met-Mex is the biggest silver refinery in the world… so it adds up.

At the end of the tour, they wheeled out a table of gold bars for us to hold and pass around. I held one that weighed 403 troy ounces (12.55 kilograms).

Now, here’s where you’re going to think I’m telling the world’s biggest fish tales… because I have no photos – other than me in a mask – to prove any of this. They made us leave cameras, phones, iPads and any recording or communication devices behind when we suited up. And they wouldn’t accept my requests to print a photo from the security cameras, which were everywhere. Dang it!

As I’m sure you can imagine, with security so tight on the way in, it was even worse getting out. It wasn’t just metal detectors I had to contend with… I had to drop my pants for inspection, as did every other guy on the tour. The women did not have to go through this (thank God) but they had to stand with their heads down and shake their hair to prove they weren’t sneaking silver out.

The next stop was the zinc refinery, which has its own tight (but very different) levels of security. Though I’ll save the details of that adventure for another day.

Met-Mex is owned by Peñoles, Mexico’s second-largest mining group after Grupo Mexico. Despite the super-tight security, I really appreciated the opportunity to see something most outsiders will never lay their eyes on.

As we exited the silver refinery, an armored truck from the mine I mentioned earlier pulled up. It was delivering a shipment of silver doré. They’ll need plenty more of it to feed the hungry, fiery furnaces of Met-Mex.

If you want to own Met-Mex Peñoles silver, by the way, they sell those 10-kilo bars to bigger customers, including banks, funds and jewelers. And if you have a spare $14,450 or so to spare, you can buy a 25-kilo bag of Peñoles’ .9999 fine silver grains at APMEX.com, one of my favorite places to buy silver.

APMEX, as its name implies, sells Mexican silver and gold, along with coins from the U.S., Canada and around the world. I’ve bought silver from them before, and will again. Because, at recent prices, silver looks like a bargain to me.

All the best,



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