Two-Thirds Of The Top Primary Silver Miners Suffered Production Declines In 2017

By the SRSrocco Report,

It has been a rough year for many primary silver miners as two-thirds have suffered declines in production.  Also, many high ranking silver producing countries are also experiencing a pronounced reduction in their domestic silver mine supply.  According to the data put out by World Metal Statistics, Chile"s silver production is down 20% in the first eight months of the year, while Australia is down 19%, Mexico declined 2% and Peru lower by 1%.

The Silver Institute will be releasing their 2017 Silver Interim Report shortly which will provide an update on current silver production and forecasts for the remainder of the year.  However, I believe global silver production will take a big hit this year due to several factors including, falling ore grades, mine closures, and strikes at various projects.

For example, Tahoe Resources was forced to shut down its Guatemalan Escobal Mine in July due to a temporary suspension of its operating license by the country"s Supreme Court.  However, even after the Guatemalan Supreme Court reinstated Tahoe Resources Escobal Mine"s license in early September, an ongoing road blockade has hampered the ability of the project to continue mining.  Regardless, Tahoe"s silver production declined a stunning 6.7 million oz Q1-Q3 2017 versus the same period last year.

Now, on the other hand, silver production at Fresnillo"s operations in Mexico jumped by nearly six million oz during the first three-quarters of 2017 primarily due to the start-up of its San Julian Mine phase II expansion and a ramp-up of its phase I:

While the gain in silver production at Fresnillo"s operations helped to offset the significant decline at Tahoe"s Escobal Mine, two-thirds of the top primary silver companies in the group experienced a reduction in mine supply this year.  Hecla"s silver production fell by 3.7 million oz in the first three-quarters this year due to an ongoing strike at its Lucky Friday Mine in Idaho.  Moreover, output at Silver Standard"s Puna operations in Argentina fell by 3.2 million oz due to a 36% decline in ore grade at is open-pit Pirquitas Mine.  Silver Standard"s Pirquitas Mine is one of the few open-pit silver operations in the world.  The overwhelming majority of primary silver mines in the world are underground operations.

Overall, production at these top primary silver miners fell 9 million oz in 2017 compared to the same period last year:

Now, if Tahoe Resources Escobal Mine was not forced to shut down or if Hecla"s Lucky Friday Mine"s strike was resolved, overall production at these top primary silver miners would have likely increased by approximately one million oz this year.  Unfortunately for Tahoe"s Escobal Mine and its investors, it may be quite some time before full production resumes.  As I have mentioned in previous articles about the troubles plaguing the Escobal Mine by the local and indigenous peoples living by the operation, there are two very different opinions on the underlying problems.

While I have stated that the negative issues put forth by the local and indigenous peoples about the Escobal Mine are likely more valid than the pro-western stance taken by the Tahoe Managment or the Mainstream financial media, time will tell how this is resolved.  However, the notion put forth by Tahoe Management that the problems are stemming from "non-locals" who are supposedly radicalizing the locals around the plant, is unfounded when we understand that it is a huge ground-roots movement led by a large percentage of the inhabitants surrounding the mine.

According to the article, Tahoe Resources’ Social Licence in Guatemala Non-Existent, as Uncertainty Plagues Escobal Permits:

Tahoe CEO Ron Clayton is also wrong when he states in a recent press release that community opposition comes from “non-locals”. Lack of social license has dogged Tahoe Resources since the beginning of its project. Since 2011, tens of thousands of residents in eight municipalities around the Escobal mine have voted in municipal plebiscites demonstrating their opposition to the project, or any mining in the area, out of concern for their water supplies, health, and local agriculture. Five municipalities refuse to receive any royalty payments from Tahoe’s mine operations and are now parties to the legal proceedings over discrimination of the Xinka Indigenous population and the Ministry of Energy and Mines’ failure to consult with them.

As the article states, five municipalities refuse to receive any royalty payments from Tahoe"s mine operations and are now supporting legal proceedings.  This does not sound like a small group of non-locals instigating trouble.  Rather, this has been an ongoing issue ever since the Escobal Mine was initially planned, during its construction phase and ever since it produced its first ounce of silver in 2014.

Lastly, it looks like global silver production will take a big hit this year.  We could see world silver mine supply fall by 40-50 million oz in 2017 if the trend continues for the remainder of the year.  One country that I did not report on about silver production was China.  According to the World Metals Statistics, they show Chinese silver production down by a stunning 25% in the first eight months of 2017.  However, I don"t believe the decline is that high.  Even though the World Gold Council stated that Chinese gold production was down 10% so far this year, I doubt their silver production fell 25% this year.

We will have to wait and see what production figures the Silver Insitute will release in their 2017 Silver Interim Report when it"s published in the next few weeks.  Regardless, the world"s economies are being propped up by a massive amount of debt, derivatives and money printing.  When the markets finally crack, global silver production will fall considerably as for demand for base metals will drop like a rock.  We must remember, 58% of world silver production is a by-product of copper, lead and zinc production.  So, when base metal demand falls, so will base metal production.

Thus, as the market and economy continue to disintegrate, global silver supply will fall right at the very same time investment demand surges.

Check back for new articles and updates at the SRSrocco Report.

Has Peak Silver Arrived?

Whilst a lot of precious metals investors are solely focusing on gold, we would almost forget about silver, also called ‘the poor man’s gold’ although things are changing fast on this market as well.

2016 was the first year in more than a decade wherein the primary silver production (coming from mines either as a main product or a by-product credit) decreased. After seeing a total silver production of approximately 668 million ounces in 2007 increasing to 891 million ounces in 2015, we saw a (first) decrease to 886 million ounces in 2016.

Source: The Silver Institute

As you can see on the previous image, the total recovery from scrap and the inflow from hedges decreased as well, causing the total silver supply to decrease by approximately 3% to 1.007 billion ounces, the lowest level since 2013.

Whilst the total demand for silver also decreased to 1.028 billion ounces, 2016 was the fourth consecutive year with a supply deficit. Sure, the deficit was just 21 million ounces, but that’s entirely due to the lower demanf for jewelry and investment purposes. As you can clearly see in the same table, the demand from those two end-uses was 519 million ounces in 2015, but fell to just 414 million ounces in 2016, a decrease of 105 million ounces.

Source: Ibidem

One of the arguments of bears is the decreasing use of the precious metal in the photographic sector. It’s absolutely impossible to deny that, but it’s also already clearly visible in the trend since 2007. In 2007 the silver demand for the photographic sector was 117 million ounces 12.32% of the total world demand, but last year, the sector needed just 45 million ounces of silver, which is now just over 4% of the total world demand.

This means that even if the demand for photographic uses would drop to zero (which isn’t impossible, although the sector demand has remained relatively stable since 2013), this would most definitely NOT cause a shift of the demand curve. One main contributor to the steady demand would be the increased use of the photovoltaic sector, where the silver demand reached its highest point éver.

So the supply side of silver isn’t really slowing down (yes, the total demand was lower due to lower demand for investment uses), but the silver demand from industrial sectors is still at an elevated level.

Source: Ibidem

This also means the supply side will have to (try to) keep up with the demand. According to the Silver Institute, only 30% of the mine supply is coming from mines which have the commodity as a primary product. 12% comes from primary gold mines, whilst an additional 23% is mined as part of primary copper deposit. With the current low gold and copper price, not a lot of new mines will be developed which will put pressure on the supply side of the equation.

Fortunately 35% of the mine supply came from lead-zinc mines, and as these two commodities are performing well, it’s not unlikely more lead and zinc mines will be brought into production, boosting the silver output in the process. That being said, several larger zinc mines have been shut down and are still shutting down, and it looks like the average grade of the precious metal as a by-product in the ‘advanced stage’ zinc mines is dropping, perhaps even to a level where smelters don’t deem the silver to be payable due to low recovery rates in the process.

Long story short: the demand for silver is there ‘to stay’, but will the supply side be able to keep up with the demand? Scrap supply seems to have peaked, whilst it won’t be easy to increase the mine supply.

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