The world’s elite silver miners just finished reporting their operating results from 2016’s first quarter, and they were impressive.  This industry continued to drive its costs lower even as silver finally started mean reverting out of mid-December’s deep secular low.  The silver miners are beautifully positioned to enjoy soaring operating profits as silver’s young new bull market continues gradually marching higher on balance.

Silver mining is a tough business geologically and economically.  Primary silver deposits, those with enough silver to generate over half their revenues when mined, are quite rare.  Most of the world’s silver ore formed alongside base metals or gold, and their value usually well outweighs silver’s.  According to the just-released World Silver Survey 2016 by the venerable Silver Institute, silver largely remains a byproduct.

Last year production from primary silver mines accounted for just 30% of the global mine supply.  Well over 2/3rds of the 886.7m ounces of silver mined in 2015 was simply a byproduct from base-metals and gold mining!  And as rare as silver-heavy deposits supporting primary silver mines are, primary silver miners are even rarer.  Most silver-mining companies have multiple mines, including non-primary-silver ones.

This isn’t simply due to the geological constraints in finding and developing silver-dominant deposits.  The cash flows silver mining generates are relatively small compared to other metals.  While base metals are far less valuable, they are found in vastly greater quantities.  And while gold is much rarer, it is worth radically more than silver.  So it’s even challenging for miners to derive the majority of their revenues from silver.

In Q1’16, silver averaged just $14.90 per ounce.  That’s pretty dismal, just 0.9% higher than Q4’15’s $14.77 average which was the worst for any quarter since Q3’09’s $14.72.  Meanwhile gold averaged $1185 per ounce in Q1’16, a far-superior 7.3% higher than Q4’15’s $1105 trough which was gold’s worst quarter since Q4’09’s $1099.  These Q1’16 average prices really help highlight silver mining’s economics.

A mid-sized silver miner might produce 10m ounces annually, which is worth $149m at Q1’s average silver price.  Yet a mid-sized gold miner producing 300k ounces a year can generate revenues 2.4x higher at $356m.  These comparisons hold even with silver’s accelerating new bull so far in Q2’16, which has produced much-higher average silver prices of $16.64 quarter-to-date compared to $1255 for gold.

Despite silver’s excellent 11.7% increase in average prices so far this quarter, that mid-sized silver miner would still only see yearly sales of $166m at these levels.  That compares to $376m for that mid-sized gold miner, still 2.3x higher.  The cash flows silver mining spins off at these low silver prices often aren’t sufficient to sustain mid-sized mining operations, so elite silver miners have been actively diversifying into gold.

While mining more gold makes the silver miners much stronger financially, it also dilutes their exposure to silver which is the main reason investors buy their stocks.  Unfortunately there are effectively no pure silver miners left anymore in the mid-tier and major ranks, and very few among the small but super-risky silver-mining startups.  Silver miners’ increasing gold operations certainly complicates analyzing them.

Their Q1’16 reports weren’t due out until 45 calendar days after quarter-end, and as usual these miners generally like to push that legal limit.  So this is the first week where comprehensive Q1’16 operating and financial data across the silver-mining industry is available.  I always like to dig into these quarterly reports to get a handle on how this industry is faring fundamentally, which helps me make investing decisions.

I want to look at the elite silver miners’ results, the biggest and best companies out there with the most-widely-held stocks.  And they are all owned by the overwhelmingly-dominant silver-stock ETF, which is the SIL Global X Silver Miners ETF.  As of this week SIL had $286m in assets.  That was a whopping 6.2x larger than its next-biggest competitor’s mere $46m, the SLVP iShares MSCI Global Silver Miners ETF.

But since there aren’t that many silver miners out there, SIL also includes 9 of SLVP’s 10 holdings.  As of the middle of this week, this flagship SIL silver-stock ETF had 21 holdings.  SIL is the leading way for stock investors to invest in silver stocks today.  I painstakingly analyzed the top 17 of these component companies’ Q1’16 quarterly reports this week, which collectively accounted for 96.0% of SIL’s total weighting.

13 of these top silver miners as determined by SIL’s managers trade in the US and Canada, and 12 of them had published their quarterly results by the middle of this week.  The lone straggler was Silvercorp Metals, which had its fiscal year-end on March 31st.  Because full-year results must be fully audited by a CPA firm before filing, that final fiscal quarter’s deadline is extended to 90 days.  So there’s no Q1 data yet.