Silver Producers Enjoying Sunny Solar Revolution

The cure for what ailed silver appears to be in the sky as the rise of solar energy spurred demand for the grey metal, a key component in solar panels, and helped to spark a price rebound in 2016/17

After falling for five consecutive years from 2011, the silver price finally turned a corner in 2016 and continued the upward curve in 2017, never dropping below the US$15/oz mark during the first half of the year. Thanks to the seemingly unstoppable global march away from fossil fuels and toward renewable energy, added to silver’s vital use as a conductor for solar panels, industrial demand is well-placed to rise in the coming years and underpin the grey metal. As the world’s largest silver producer, this is good news for Mexico.

“Silver is an intimate part of solar technology, and solar panels can operate for around 20 years,” says Peter Megaw, Chief Exploration Officer at MAG Silver and the man behind the Juanicipio discovery in Zacatecas, one of the most significant silver development projects in the world. “This means that the turnover is not too high and we will not see oversupply. It is clear that many countries around the world are starting to look more seriously at solar power.”

As both corporations and governments come under increasing pressure to clean up their energy usage, solar is taking on a vital role in global electricity generation. In 2016, total global installed solar power capacity rose by 50 percent on the previous year to reach 305GW, according to data from SolarPower Europe. That is up from just 50GW in 2010. By 2020, Bloomberg New Energy Finance expects this figure to increase to 605GW.

While China and the US are leading the charge, Mexico’s contribution is growing. According to Mexico’s National Electricity System Development Plan (PRODESEN), the country’s installed solar capacity rose to 145MW in 2016 from just 56MW the previous year, a jump of 157 percent. Solar energy generated 160MWh electricity last year, up 104 percent from 78MWh in 2015.

“Silver demand for photovoltaic applications rose 34 percent last year, the strongest increase since 2010,” says Michael DiRienzo, Executive Director of The Silver Institute, a nonprofit institution that aims to increase public awareness of silver use. “Silver is the metal of choice for most solar panel manufacturers, so it is a win-win situation.”

PRICE BOOST

Further improving the outlook, silver supply is declining. According to figures compiled by The Silver Institute, global mine production of silver fell by 0.6 percent to 885.8 million ounces in 2016, the first yearly drop since 2002, while scrap supply also fell for the fourth consecutive year. Many of the big silver deposits are old and nearing the point of exhaustion, and with the downturn in the silver price between 2012-2016, exploration was not at the top of the agenda.

“There are very few pure silver mines that exist in the world and supplies are not quite as robust as they once were,” says Greg Crowe, President, CEO and Director of Silver One Resources, a junior exploration company. With supply waning and demand on the rise, the markets are responding. In 2016, the annual average silver price grew by 10 percent to US$17.14/oz, the first rise since 2011. The price was more volatile in 2017 but crucially the metal never dropped below the important US$15/oz benchmark.

Silver miners in Mexico are responding to demand with plans to boost output in 2017. In May, the world’s largest silver miner Fresnillo announced plans to spend US$160 million on exploration in 2017. The company, whose seven mines are all in Mexico, produced 50.3 million ounces in 2016 and is targeting 65 million oz/y by 2018. This will be helped by the beginning of Phase 1 of San Julian, which is currently ramping up, with Phase 2 slated to begin production in 2018, as well as construction at Juanicipio, a giant silver deposit in Zacatecas that Fresnillo is operating as part of a JV with MAG Silver. The mine should be processing 4,000t/d by 2019.

US outfit Coeur Mining has remodeled its flagship Palmarejo asset in Chihuahua into a fully underground operation in a bid to increase production by 50 percent in 2017. The company is also conducting a new drilling program at the La Preciosa development project in Durango, with a view to carrying out a new Preliminary Economic Assessment (PEA) and mine plan.

Canadian Endeavour Silver plans to double its portfolio of three mines in Mexico within three years, to increase production by 50 percent. Bradford Cooke, the company’s President and CEO, is planning to add further value to the group’s silver production by tapping into the solar market.

“We have historically used the power grid but, now that Mexico has opened up the energy sector to mining companies, the company plans to install solar and wind panels in mine sites, initially at Terronera,” he says. “If it proves to be economically viable, we plan to install more alternative energy solutions.”

As the world’s top silver producer, the world’s thirst for solar power is great news for Mexico. The grey metal has exceptionally high electrical and thermal conductivity, making it ideal for any electronic device. But it is also extremely reflective – communities in China have been using it in mirrors for centuries – making it ideal for photovoltaic panel construction. The metal is turned into a paste and used as a conductor on the front and back side of crystalline solar cells. Taking into account all the other uses for silver, including X-ray technology, food packaging and jewelry, demand for the grey metal is only expected to rise.