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Analysis

mexico, silver champion

Thu, 10/17/2019 - 16:02

Seen as a safe-haven investment, silver is benefiting from the current climate of market volatility and geopolitical uncertainty. Silver has gained some of the ground lost in 2018: its average price in 1H2019 was US$16.28/oz, with a high point of US$20/oz. Moreover, as the Silver Institute notes, the white metal has an attractive price point when compared with gold, based on the gold:silver ratio at approximately 82. The cutting of interest rates by central banks around the world is another argument in favor of a bullish silver outlook for 2020. “We are expecting the silver price to be in the US$18-19 range in 2020. For the first time in years, investors will be putting more money into silver mining projects,” says Darren Blasutti, president and CEO of Americas Gold and Silver Corporation. Octavio Alvídrez, CEO of Fresnillo, adds that he is cautiously optimistic about the price of silver: “We expect prices to stabilize in 2021 and are planning accordingly.”
While silver trades more as a precious metal than an industrial metal, industrial fabrication corresponds to 60 percent of total demand. Sectors such as automotive are increasingly silver-intensive. Therefore, industrial silver demand cannot be ignored as a factor impacting price, and analysts anticipate a sustained, if modest, increase in the short-term. The Silver Institute forecasts growth in silver’s use in a variety of additional sectors, such as water purification, chemical applications, LED lighting, flexible electronics and screens, as well as anti-microbial applications in textiles. In connection with this, Mitsubishi’s Head of Business Development Jonathan Butler pointed out to LBMA: “Growth in global solar photovoltaic installations will continue to drive demand for silver, despite a slowing of the Chinese economy; demand for silver in electronics will also have a positive year.”
Updating policies and regulations to boost Mexico’s competitiveness is urgent. What the country needs to understand is that its extraordinary mineral wealth will not be sufficient to maintain its position as the world’s silver champion. Concrete measures must be executed to boost investment. Brendan Cahil, CEO of Excellon Resources, pinpoints two main changes the new government should make. First, “Mexico needs to take the shackles off exploration.” Globally, there have been very few discoveries in the last decade or so. In Mexico, the last major silver discovery was Juanicipio in 2005. This is a worrisome trend. As Cahil explains, “ore is not at surface level anymore, and we need to start looking in trickier places.” The second reform Cahil would like to see is related to Mexico’s concession scheme. “As world-class deposits will likely not be found in small concessions, the government must enable exploration companies to have efficient access to large pieces of land.” In connection with this last point, James McDonald, President and CEO of Kootenay Silver, elaborates: “Concessions in Mexico often enter a limbo stage, which can last for years, where they are neither valid nor available for new applications.” Reforming the system so as to swiftly free up concessions that are not fulfilling requirements would stimulate investments in exploration. “We would see millions of dollars more spent in the country in exploration as a result,” McDonald says.
As the industry remains watchful for the necessary changes to be put into place, key players are constantly at work minimizing risks and maximizing productivity. In this regard, consistent innovation is key. A company with an exciting bet on innovation as a shield from risk is Endeavour Silver. The Canadian miner is on-track for developing its first newly built mine, Terronera, in Jalisco. It will potentially be Endeavour’s fifth and largest mine. Bradford Cooke, the company’s CEO, explains: “Terronera is a chance to start from scratch and create model mines with one decade-plus life. We are especially focusing on the concept of autonomous equipment, which has a huge cost benefit.” In respect to this, Endeavour is planning to introduce automated scoop tramps. This technology is faster, safer, more productive and more reliable than its man-handled alternative. As Godfrey Walton, Endeavour’s President and COO, notes, “our suppliers are very excited by this commitment to innovation. There is a great deal of interest in being part of something new.”
Parallel to the introduction of newer, more sophisticated mining techniques, leading silver companies in Mexico find it crucial to optimize their asset portfolio so as to guarantee long-term value for shareholders. Coeur Mining’s example is illustrative in this sense. The company has made it a priority to maintain a well-balanced portfolio in high-quality mining jurisdictions. Palmarejo, in Mexico, is the company’s largest asset, while its Canadian and US mines provide resources for short-term growth. As Mitchell Krebs, Coeur’s president and CEO, explains: “There are many things that can go wrong in mining, and we are shielding our investors and shareholders from volatility, as well as providing a good pipeline for future growth.”