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Analysis

WEATHERING THE SILVER STORM

Mon, 10/22/2018 - 17:41

In 2017, global silver mine production declined by 4.1 percent to a total of 852.1 million ounces. However, silver demand for industrial uses did increase 4 percent to 599 million ounces, mainly from PV applications, electronics, brazing alloys and solders. The Silver Institute says this was offset by a decline in demand from coin and bar investment and jewelry fabrication.
Average silver prices up to September 2018 took a blow, coming in at US$16.2/oz, down 5 percent from US$17.04/oz in 2017. In the beginning of February, prices slid below the US$17/oz mark and have yet to recover, coming in on Sept. 14, 2018, at US$14.21/oz. As a result, operators are implementing cost-cutting measures to help them mitigate the decline. Endeavour Silver has temporarily halted operations at the El Compas plant in a cost-cutting measure. “Enhanced cost discipline is the prudent course of action for mining companies during times of lower metal prices, especially when investing to develop new mines,” says CEO Bradford Cooke. “This austerity program is our proactive response to the current low metal prices.”
MEXICO KEEPS ITS CROWN
Despite overall low prices compared to 2011 highs of US$35.12/oz, it is worth noting that prices at this point were inflated due to the recession caused by the housing market crash in the US. When excluding the effects of this event, averages have actually risen from pre-crash levels of US$14.99/oz in 2008 and US$14.67/oz in 2009.
Mexico’s output in 2017 reached 196.4 million ounces, up 5.4 percent from the 186.3 million ounces registered in 2016. After Mexico came Peru with 147.5 million ounces, China with 112.6 million ounces, Russia with 42 million ounces and Chile with 40.5 million ounces. With a global production total of 852.1 million ounces, this means the Top 5 countries produced over 63 percent, with three Latin American countries notably making it into ranking.
ZACATECAS ON TOP
Fresnillo remains the most important silver producer for another year, not only nationally but on a global level. Its Saucito and Fresnillo mines in Zacatecas contributed to the state being the largest producer in Mexico, with 21.2 million ounces and 16.5 million ounces, respectively. But in terms of the biggest producing mine in 2017, Fresnillo was pipped to the post by Goldcorp’s Peñasquito mine, also in Zacatecas, which produced 11.5 percent of national production, or 21.5 million ounces. Fresnillo’s San Julian in Chihuahua, after its first full year in commercial production, came in fourth with 10.5 million ounces of silver produced, while the Top 5 was rounded out by Fortuna Silver’s San José mine in Oaxaca, contributing 7.5 million ounces. These five mines alone contributed almost 40 percent of the total silver mined in Mexico.
Of the country’s 196.4 million ounces produced in 2017, 42.1 percent of this was mined in Zacatecas. Chihuahua came second in terms of production with 17 percent, followed by Durango with 11.7 percent, Sonora with 7 percent, Oaxaca with 5 percent and others making up the remaining 17.2 percent.
Conservation Measures
Several new promising silver projects are slated to come online up to 2022, most notably Industrias Peñoles’ Rey de Plata project in Guerrero, which is expected to produce 4.7 million oz/y by 2019 with an investment of US$303 million. Further into the future, the Juanicipio project belonging to Fresnillo and MAG Silver is one of the most promising, with an estimated 10 million oz/y to add to Fresnillo’s portfolio.
Durango’s silver production, affected by Primero Mining’s problems at San Dimas, looks set to recover in the next few years. San Dimas was purchased by silver giant First Majestic Silver in May 2018 and operations have been running smoothly ever since. Added to this are promising projects from Telson Resources and Fresnillo. Terronera is expected to come online in late 2018 to produce 200,000 ounces and Fresnillo is expanding La Ciénega for an extra 1.3 million oz/y by 2019.
Silver prices have been flat but, for certain operators, this can be an opportunity for diversification. Americas Silver Corporation, for example, has begun to move into its zinc and lead reserves, stockpiling its high-grade silver for when prices inevitably pick up. “When looking at some of our competitors, their silver grades are dropping because they have been mining their highest-grade silver ores to survive in this price environment,” says Darren Blasutti, the company’s President and CEO. “Our reserve grades will continue to rise because we are now mining our lowest-grade silver ores.”