Silver, Gold Prices to Mark Investment RhythmsThu, 10/17/2019 - 17:31
Q: What is Americas Gold and Silver’s outlook for the Mexican mining sector for 2020 and what are its main strategies to boost its precious metals production?
A: Many people are excited about the price of silver and for us that is the most prominent development. Most analysts are projecting US$18-19 per ounce, which is higher than it has been in the last three to four years. When you think about the fact that the average silver producer generates costs above the current silver price, that will be an important movement because for the first time in years, this positive change will have investors putting more money in. Internally we are expecting the silver price to be in the US$18-19 price range in 2020. The other products we produce in Mexico, which are zinc and lead, have been hampered by the US trade war with China. In 1Q18, zinc was around US$1.60 and lead prices were at US$1.20, and prices have fallen with the trade war. If the situation changes, then we would be looking at much more positive pricing for these two metals, as well as for copper.
In 2020, we will also be a gold producer and we are very positive on gold prices as well. We are looking for US$14.50 for gold in 2020. We are bullish on commodities, which is something new for us because we have not been bullish on pricing for years. We are forecasting much higher prices and we are pretty excited about what is coming in 2020.
Q: What types of ore bodies does Americas Gold and Silver have in its Mexican assets?
A: We have two types of ore bodies: higher grade lead-zinc with lower grade silver and higher-grade silver with lower grade copper. We have a silver-zinc area with extremely high-grade silver and we have developed up to that section, but we have not taken any of that silver out yet. This year at our Mexican mine, we will produce 600,000 ounces of silver and if we see silver hit US$18-19, we will then produce 120 million ounces. We can triple our silver production within the existing mine and we can even reach an additional 3 million ounces if we move further into our silver-copper ore, although we do not want to do that until we do see higher prices. We will continue to mine zinc but we will move to the higher silver portion of that zinc. We have very high-grade zinc-with low grade silver and lower grade zinc with high grade silver, but we will only move into that if the prices increase accordingly. This would decrease our zinc production from around 44 million pounds to 35 million, but it would triple our silver.
Q: What advances have been made to the San Rafael and El Cajon mine projects?
A: In 2018, we ramped up commercial production to 12,000t/d and then increased that to 18,000 before the end of the year. In 2019, we reached full capacity, and had time to optimize our processes. We made the great decision to put in extra quotation cells to lengthen the cycle, which increased recovery by 4-5 percent in zinc and between 2 and 3 percent for silver. This is part of the natural mining cycle: start with a greenfield mine, get it running to have a cash flow, reach full capacity and then optimize. Now we feel that the mine is optimized and we will start looking for new material. We will begin drilling to make the mine longer because we paid US$16 million to build the mine and then invested another US$10 million to increase its capacity, all paid through cash flow. We made US$7.5 million in 1Q19 and the 2Q19 is also going very well.
If silver continues as it is, we will buy out San Rafael and in five years El Cajon will start ramping up. If silver prices increase greatly, we can spend money to expand our mill and operate both projects.
Q: Why did Americas Gold and Silver decide to keep its San Felipe project?
A: The gold environment has gotten better and we were able to raise US$10 million instead of selling the asset for US$7 million. Premier had issues dealing with some of the processes of the new regime in Mexico and wanted to change the agreement. We wanted to sell this asset and acquire more precious metals operations. Ultimately, as gold prices increased, our stock doubled as well. Because we now had the resources, we terminated the sale.