Global Silver Mining Up in 2015 Despite Falling Prices
Global silver mining production increased in 2015, despite declining prices. Mexico, the world’s leading silver mining country increased its production 3.5% in 2015 according to the Mexican government. Sales of the world’s largest primary silver mining company, Fresnillo plc, located in Mexico, grew 11% in 2015 year over year.
Mexican Silver Mining Has Increased Over the Past Decade
Mexico has increased its silver mining production over 100% during the past ten years, with 2015 marking a decade high of nearly 5,000 tonnes.
Last week, investment Bank Société Générale projected that silver mining output will fall 9.2% in 2016 from 2015 levels and fall 13% in 2017 from 2015 levels. Last fall, the Silver Institute projected a 5% decline in 2016 silver mining production.
Mexico may hold the key as to whether global silver mining production does indeed fall in 2016.
Unlike oil production which is controlled in part by an agreement among oil producing nations (OPEC), silver has no such controlling body. Also unlike oil, silver producers are increasing mining production to combat a silver deficit/shortage as they struggle to keep up with growing industrial (for the electronics and solar industries) and investment demand while prices fall. Oil producers, in contrast have been over producing into an oil glut, that helps keep the price of oil low.
Primary silver miners may have no choice but to keep mining
For many of Mexico’s silver mines, silver is the only or primary product they produce (some also produce gold). If silver mining is their only or primary business, they may have to keep at despite falling prices, if they can. Some miners have resorted to “high grading” their mines to save money whereby they extract the cheapest and easiest silver they can while cutting back on exploration costs. Miners may achieve their current production goals as a result of this strategy, but at the expense of being able to meet their targets in future years as they deplete a good portion of their low hanging fruit.
Mexican Silver Miner Outlook
At least one Mexican silver miner has cried “uncle”. Endeavour Silver Corp. earlier this year told investors that they will moth ball one of their unprofitable mines in Mexico due to declining silver prices.
Endeavour Silver announced that its second largest of three silver mines will see reduced production during the 2016 before the eventual placement of the mine on “care and maintenance” in the fourth quarter of 2016.
The company’s other two mines, the Bolañitos and Guanaceví mines, continue to be profitable at current metal prices, but cash flow is not sufficient to fund all of the company’s exploration and mine development projects.
In recent years, many silver mining companies ramped up production in light of lower silver prices in order to meet their financial obligations and rising silver demand. For some miners, however, no amount of added production could make their silver mines profitable as silver prices fell. These silver miners have realized that producing silver at a loss and hoping to make up the loss on volume is a losing strategy, one that forced Endeavor Silver to announce earlier this month they would cut production at one of their unprofitable mines.
Other Mexican Silver Miners – Full Speed Ahead
Despite the falling silver price, Fresnillo announced earlier this year that it anticipated increasing silver mining production as much as 8% this year. In January 2016, another Mexican silver mining company, First Majestic Silver Corp announced that they intended to increase silver mining production about 8-20% in 2016, largely from the operation of a new mine.
About 85% of total annual silver supply comes from mining of which about 30% comes from primary silver mines and 70% from mines that produce silver as a by product of base metals copper lead and zinc. The remaining supply coming from recycled silver or “scrap” silver like old silverware, silver bars and coins. When the price of silver is low, less scrap silver comes to market.
With stagnant global economic growth, demand for copper, lead and zinc is expected to remain flat or decline and with it mining production for those metals. A decline in base metal mining will also mean a decline in the production of silver from base metal mines.
Silver demand in 2016 is expected to increase in 2016. In order to meet demand, end users of silver will be looking to see if Mexico can turn out another increase in silver mining production in 2016.
This article by BGASC is not, and should not be regarded as, investment advice or as a recommendation regarding any particular course of action.