Silver drop will squash production: Miner CFO

Silver has suffered a gut-wrenching year, losing a third of its value. But the CFO of one of the biggest silver miners says possible production cuts could soon provide a floor for the battered precious metal.

According to Pan American Silver's most recent quarterly report, the company experienced a total cost of $17.29 per ounce of silver mined in the first quarter of 2013. With the silver price recently dipping down to $18.18 per ounce at the end of June before recovering, the company's margin on production is starting to look awfully thin. That, in turn, could have an impact on the company's operations.

"The recent drop that we've seen in precious metal prices has definitely been challenging the industry, and in our case we have a portfolio of mines, and some are lower cost and some our higher cost. And when we look across the industry, for sure, we see that the current price is challenging those higher-cost operations," Pan American Silver CFO Rob Doyle told "Futures Now" on Thursday.

"We are seeing some supply-side response to the recent drop in precious metal prices," Doyle said. "So I think fundamentally, at some point, there will be a floor that comes into play."

In other words, a lower silver price could cause miners like Pan American Silver to shut down some of their most expensive mines. This, in turn, could provide a floor for the silver price, because supply would eventually be reduced.

But what has caused the incredible silver sell-off? Doyle blames technical factors and lemming-like selling.

"The market is certainly dominated by some large technical players, and I certainly believe that the precipitous drop we saw in precious metals have somewhat fed on itself," he said. "As the market moved lower, the moves were so vicious that it fed on itself and created more selling."

(Watch full segment: Where Silver's Going: Silver CFO)

Gregor Gregersen, director of Silver Bullion Pte., arranges a stack of silver bullion bars.
Minshi Ahmed | Bloomberg | Getty Images
Gregor Gregersen, director of Silver Bullion Pte., arranges a stack of silver bullion bars.

On the whole, Doyle sees silver prices eventually going higher, partially because of silver's role as an industrial metal in addition to a precious one.

"The fundamentals of silver are very strong," Doyle said. "We see good industrial demand for silver, and believe in the long term that silver prices will rebound as the fundamental picture becomes clearer."

If silver prices keep dropping, though, it sounds like Pan American Silver is prepared to take a hard look at its global operations and decide where mining silver is simply no longer worth it. And that could be the metal's "silver lining."

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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