Global Demand Opens Big Opportunity for Mexico Silver Producers
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Why are resource and mining investors paying close attention to big companies like Tesla? There are a number of reasons. For example, silver, copper, nickel, and iron are metals required in the production of electric vehicles, with demand predicted to climb by up to 14 times by 2030.
Tesla has chosen to become a technical partner or to invest in several nickel producing assets, like Goro mine on the small Pacific island of New Caledonia and in the US. Nickel is required for lithium-ion batteries used in electric vehicles.
Battery elements like nickel hit new highs recently due to supply concerns sparked by the Russia-Ukraine conflict, and Elon Musk has predicted battery supply constraints for next year, making in-house production vital to growth.
The same narrative can be applied to other large manufacturing companies and tech conglomerates deciding to secure their own supply chain, especially in strategic metals, to maintain their responsibility to ensure stability and growth to their shareholders. When companies own their entire supply chain, they can increase their margins and provide better value to their owners.
On a global scale, copper is produced multiple times more than silver, but silver is in an interesting position where supply and demand has not been sustainable: there’s higher demand than there’s supply. For instance, global silver mining production for 2021 was on the order of 0.84B Oz Ag, whereas the demand for that year was approximately 1.03B Oz Ag, a clear supply deficit. Savvy investors and shareholders are left trying to foresee how the market for silver will look in the future and how to secure steady production for mega-factories that provide materials to companies like Tesla.
To present some greater detail, the demand of silver can be divided into several sectors;
- Industrial uses (including energy and solar panels, photovoltaics, electronics, superconductors, brazing and soldering, wires, engines, mirrors, glass, chemical production, etc.)
- Investments (coins, physical investments, hedging)
- Medicine (including hygiene in water purification, food packaging, filtering systems, antibacterial and antimicrobial coatings)
Of these, industrial applications represented around half the demand and investments nearly a quarter. Amid the increasing trends of electric vehicles (EVs) and solar energy in developed economies, some experts forecast the industrial demand for silver to increase significantly in the coming years, exacerbating this supply-demand negative delta, ultimately pushing both miners to produce more and the recycling supply to become more effective in its process.
Therefore, for a country like Mexico, which in 2020, alone contributed close to 23 percent of the global silver mining supply, making it the No. 1 silver producer in the world, the expectation for silver demand seems particularly bright for the upcoming years, with global silver demand expected to grow beyond 1.1B Oz Ag.
The sectors where this increase is being motivated comprise industrial production; sustainable energy production; over 101M Oz Ag in 2020 for solar panel production; and the automotive industry, utilizing over 55M Oz Ag. It is estimated that silver is increasingly being used in modern car manufacturing as an elemental component for electronic systems, as a prime electrical conductor, in engines and in safety features. Both hybrid and EVs utilize silver in their production and its use is projected to continue to rise as more governments commit to producing electric vehicles in order to reduce their reliance on fossil fuels.
Mexico is in a terrific position to leverage these macroeconomic trends, and historic uses for silver naturally provide a good benchmark for the future as its investors seek a safe haven. More recently, silver producing companies reported consolidated full-year 2021 production results from their mining operations in Mexico, as detailed below:
- Industrias Peñoles S.A.B. DeC.V., 64.4M Oz Ag
- Fresnillo Plc., 53.1M Oz Ag (in 2020)
- Newmont Corp., 27.8M Oz Ag (in 2020)
- First Majestic Silver Corp., 12.8M Oz Ag
- Pan American Silver Corp., 7.4M Oz Ag
- Coeur Mining Inc., 6.8M Oz Ag
- Fortuna Silver Mines Inc., 6.4M Oz Ag
- Endeavour Silver Corp., 4.8M Oz Ag
- Excellon Resources Inc., 1.2M Oz Ag
- Gold Resource Corp., 1.2M Oz Ag
- Great Panther Mining Ltd., 1.2M Oz Ag
- Avino Silver & Gold Mines Ltd., 842.4K Oz AgEq (with 245.4K Oz Ag)
These companies and several others contributed to a whooping 180-plus million ounces of silver produced in one country, ensuring Mexico remains the largest silver producer in the world. This continues to speak volumes about the investment opportunities for both domestic investors and foreign capital, where companies from Mexico, Canada and the United States maintain the majority of the silver production in the country.
With all these silver producing assets in a mining-friendly economy, with proper mining policies and more than adequate mining investment attractiveness, we can ask ourselves: What will be the next strategic metals for acquisition by some of the world's most powerful corporations?