Zeal020113ASubmitted by Adam Hamilton, Zeal

A MUST READ analysis of global silver mining production since 2001 over the world’s top silver producing nations.

Over the course of silver’s secular bull, the miners have steadily increased production in order to meet fast-growing demand.  And in 2012 while US production declined, global silver mine production exceeded 24k metric tons (770m+ ounces), an all-time production high and 28% increase over 2001.  As an investor interested in silver’s structural fundamentals, this rapid growth begs a question.  Where in the world is this silver coming from?

 

Freedom Girl Now Available From the Silver Bullet Silver Shield Collection at SDBullion.com!!

Freedom Girl

 

In our modern information age we can ask questions like this and easily find the answer.  And we need look no farther than the data provided by the U.S. Geological Survey.  The USGS is a global authority in collecting, analyzing, and disseminating information on both domestic and international mineral supply and demand.  And for silver it dutifully provides annual detailed country-level mine production data.

 

My preferred way to distill data like this is visually, via crafting a custom chart to paint a clear picture.  And in the chart below I plot the bull-to-date global silver-mining trends for the world’s top dozen silver producers using the USGS’s initial 2012 estimates that were released just this week.

 

Zeal020113A

 

With production volume scattered across such a wide spectrum, I indexed each country’s output at 100 beginning in 2001 (the first year of silver’s secular bull).  If a country is at 125, its silver mine production is up 25%.  And inversely if it’s at 75, it is down 25%.  Indexing ultimately allows us to easily compare the production trends of the top producers on a single chart.

 

Also included in this chart is the raw production data of the world’s top silver miners.  And it is important to note that these 12 countries are responsible for the lion’s share of mined supply, their combined total accounting for 90% (21.4k mt).  Interestingly #12 Canada produces nearly twice as much as the next closest country.  In fact, only 5 countries outside the top dozen actually produce greater than 100 mt of silver annually.

 

Starting at the top, you’ll notice that silver mine production is dominated by three countries.  And Mexico, China, and Peru have long been the three-headed monster of the silver market.  Back when silver’s bull began in 2001 these three countries were the leaders, accounting for about one-third of the global mined supply.  And as a result of strong growth from each over the last decade, they remain the leaders while accounting for now nearly half of the mined supply.

 

Mexico comfortably sits atop the silver-mining world.  This country is host to massive silver belts, including the illustrious Sierra Madre belt that flanks the Sierra Madre Occidental mountain range.  Silver has long been one of Mexico’s major exports, dating as far back as the 16th century when the Spanish colonials shipped it back to their homeland via large galleons.

 

It is believed that about one-third of all silver mined in the history of the world has come from Mexico.  But even with such rich history, this country’s silver mineralization is nowhere near depleted.  The miners continue to make big discoveries.  And these discoveries have great economics as seen by 50%+ production growth over the last decade.

 

Mexico’s prominence is also apparent in its continued attractiveness to the juniors.  In my latest round of research focused on junior silver explorers, I found Mexico to be the top destination for these companies.  With Mexico’s plush geology and friendly mining laws, about half of all silver juniors own a project in Mexico.

 

In the #2 spot we find China.  And per the USGS’s latest update to 2011’s numbers that increased Chinese production and lowered Peruvian production, it turns out that 2012 was China’s second year in a row as runner up to Mexico.  This is quite notable, as China had never before cracked the top two.  With Mexico and Peru holding the top-two spots from 1999 to 2010, this is certainly a big shuffle at the top.  China is no longer the third wheel!

 

China’s journey to #2 is the result of massive production growth, mainly via byproduct production from primary base-metals mines.  Over the last 11 years its silver production has doubled, with the addition of 1.9k mt (61m ounces) to its annual output.  By volume this growth is unmatched by any other country.  And China’s silver production is expected to continue to rise, eventually giving Mexico a run for its money.

 

Rounding out the big three is Peru, where most of its silver is found high in the Andes Mountains.  And Peru is certainly no slouch considering it had a recent stint as the world’s #1 silver producer, edging out Mexico from 2002 to 2009.  Silver has long been engrained in Peru’s culture.  In fact, the ancient Incans were so enthralled by this soft-white metal that they referred to it as the “tears of the moon”.

 

Peru’s production is up 34% since 2001.  And though its output has trended down a bit over the last few years, the mining companies have had great success renewing their reserves and making new discoveries.  With the world’s largest reserve base (120k mt), by far, Peru is highly likely to revisit its 2009 all-time production high in the near future.

 

Next up is Australia.  And as you can see by its production trend, this country has been quite consistent over the last decade or so.  Interestingly over half of Australia’s output comes from a single mine.  And this massive Cannington mine owned by BHP Billiton ranks as the largest silver and lead mine in the world.

 

Russia has been one of the top performers by percentage growth over the course of silver’s bull.  And considering this country’s huge geographical and geological potential, it sure ought to be among the top producers.  Attributing to Russia’s nearly 300% bump in production is the restart of the massive Dukat mine and an increase in byproduct output from its large gold mines.

 

The South American country of Bolivia has grown to become a silver powerhouse over the last decade or so.  And this is actually quite surprising considering its geopolitical issues over this same span.  Large operations like Sumitomo’s San Cristobal mine and Coeur d’Alene’s San Bartolome mine successfully navigated their ways around Bolivia’s challenges to account for a big chunk of this country’s 200%+ growth since 2001.

 

Poland is another country where the bulk of its silver comes to market as a byproduct of primary base-metals mines.  And nearly the entirety of its output comes from three massive copper mines that are owned by KGHM Polska.  Poland’s flat production from an isolated source is a sign of consistency, yet also a clear display of fruitless exploration and/or new development.

 

Chile’s silver output has also been fairly consistent over the years, with much of its 16% decline coming just last year.  A big chunk of Chile’s silver is a byproduct of its large copper and gold mines, however there are a handful of primary silver mines that do make material contributions.

 

Chile has struggled a bit with water, energy, and labor challenges, but these are typical Latin American growing pains that will work themselves out.  Looking forward Chile will see a big boost in production in the near future once Barrick Gold finally gets its massive Pascua-Lama gold/silver mine online.

 

In the #9 spot is the United States.  And as you see by its downward trend, the US has experienced quite a fall from silver prominence.  Since 2001 US silver output is down an appalling 40%.  And if you go back to its peak levels in the 1990s, things are even worse with a decline of well over 50%.

 

Provocatively prior to the turn of the 21st century silver’s big three were Mexico, Peru, and the US.  China was not in the picture yet.  In fact, as recently as 1997 the US was the world’s #2 silver producer, responsible for nearly 14% of the global mined supply that year.

 

It really is amazing that one of the world’s top silver producers could tumble in such epic fashion during one of the most powerful bull markets this metal has ever seen.  Factoring into this decline is large-mine depletion, pinched economics for harder-to-access ore, regulatory burdens, and a lack of new discovery.

 

Though the US has several historic primary silver districts (the most prolific being in Idaho, Montana, and Colorado), they were the first to shut down during the bear-market years of the 1980s and 1990s.  And as a result, the majority of the US’s silver these days is a byproduct of copper and gold mining.  Making matters worse, the US’s production of both of these metals is also way down in recent years.

 

In stark contrast from the US, Argentina has seen incredible production growth over the last decade or so.  Amazingly in 1998 it ranked as the world’s 27th largest silver producer, with output of only 36 mt.  It really has come out of nowhere to join the world’s elite.

 

Argentina has actually long been known to host robust mineralized systems.  Unfortunately as a result of antiquated mining laws it took awhile for the miners to realize the resources held within these systems.  Thankfully Argentina’s decades-long lag behind its Latin American cohorts finally started to burn away following some big reforms in the 1990s.  And when the miners finally got on the ground they found a wide range of mineral deposits, including several large ones that were primary silver.

 

Interestingly primary silver deposits are quite rare since this mineral is usually subservient to higher concentrations of accompanying base metals and/or gold.  Less than a third of global mined silver actually comes from primary silver mines!  Argentina is a geological exception though, with well over half its output coming from primary silver mines owned by such companies as Silver Standard, Pan American, and Hochschild.

 

Moving to Kazakhstan we see a material decline in production over the course of silver’s bull.  Like Poland, the vast majority of Kazakhstan’s silver output comes from byproduct base-metals production from a single large company (Kazakymys).  This massive country has great silver potential, but lacks attractiveness due to its precarious political environment.

 

Rounding out the top 12 is Canada.  And like the US, Canada’s silver story tells of a fall from greatness.  Mining historians will recall the great Cobalt Silver Rush early in the 20th century that made Canada a global silver powerhouse.  And even as recently as 2002, the Great White North still held its head high as the world’s #5 silver producer.

 

Unfortunately many of the same things that plagued the US also hit Canada hard.  And with primary silver mines now all but extinct (the exception being the recently revived Keno Hill camp) coupled with declines in byproduct output, Canada has seen a staggering 60% plunge in silver production.

 

Overall silver’s global mining trends are quite revealing in the grand scheme of this metal’s structural fundamentals.  There have been some great growth stories, and some pretty alarming declines.  And as investors the information we get by drilling down into country-level dynamics can certainly assist in our trading decisions.

 

Since geographical logistics don’t matter much when it comes to investing in the physical metal, the trading I’m referring to involves the mining stocks.  And believe me, mining companies are very sensitive to where in the world they seek to explore/develop/produce their silver.

 

One major takeaway we can gather from this information is that total output and/or growth rates don’t necessarily translate to opportunity for the miners.  Some of these countries are host to geopolitical situations that all but block foreign investment.  And some are producing silver solely as a byproduct, ultimately lacking geologically favorable primary silver deposits.  These situations are not conducive to mining companies looking to directly leverage silver.

 

Another takeaway is that Latin America is definitely a silver hot spot these days.  Some of the best growth trends are coming from this part of the world.  This observation is further supported by the fact that in 2012 half the production from the top dozen came from Latin American countries.  Back in 2001 they were only responsible for 43%.

 

One other observation I can add is somewhat counterintuitive to what the trends are showing.  But per my recent research looking at the universe of silver juniors, I found there to be a lot of exploration activity in the countries that are the two biggest losers over the course of this bull.  Nearly a third of all juniors have a project in the US, with nearly a third also having a project in Canada.

 

While the silver-mining industry in these upper North American countries is struggling, they both have a distinct advantage when it comes to exploration.  The miners know where the silver is.  The US and Canada both hold historic silver-mining districts that were shut down due to economics.  These districts have plenty of resources remaining.  And with higher prices and better technology, the juniors are finding great success in their exploration endeavors.  I suspect we’ll see a US and Canada silver revival in the coming years that will finally turn around their decade-long downward trends.

 

At Zeal we love poring over data like this to give us better insights into a given sector.  And we implement it into our exhaustive research that turns out high-probability-for-success stocks to trade in our newsletters.  In our last two research reports profiling these stocks, our focus was on silver.  And even amidst this downtrodden mining-stock environment, several silver stocks that we recommended in our newsletters are sporting excellent unrealized gains.

 

If you’d like the detailed fundamental profiles of our favorite silver stocks at your fingertips, buy your reports today!  And if you crave a unique and exciting market tilt, something you won’t find with the mainstream herd, consider a subscription to our weekly and/or monthly newsletters.  Investors all over the world have enjoyed our acclaimed contrarian market analysis and trade recommendations for over a decade!  Get your subscription today!

 

The bottom line is global silver mine production is on the rise.  And it is certainly interesting to see where in the world the silver is coming from.  Just this week the USGS released its 2012 country-level production estimates, and these latest numbers tack onto some fascinating trends over the course of silver’s bull.

 

We are seeing a big shuffle at the top with China making a move.  And the Latin American countries are continuing to show their force, now collectively responsible for over half of the world’s mined silver production.  Drilling down on these country-level dynamics really helps us to better understand a big component of silver’s structural fundamentals.  And with this knowledge we are better equipped to invest in this growing sector.

 

Scott Wright

 

February 1, 2013

 

So how can you profit from this information?  We publish an acclaimed monthly newsletter, Zeal Intelligence, that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research as well as provides in-depth market analysis and commentary.  Please consider joining us each month at … www.zealllc.com/subscribe.htm

 

Thoughts, comments, or flames?  Fire away at scottq@zealllc.com .  Depending on the volume of feedback I may not have time to respond personally, but I will read all messages.  Thanks!

 

Copyright 2000 – 2013 Zeal Research (www.ZealLLC.com)

 

OPM Silver Round Promo 2 with Border

  1. It doesn’t look too good for US/Canada. You sell all/double of your own production in bulk investment coins of one kind. And there seems to be no way of increasing the production.
    Watcha gonna do, when every citizen of your countries want their own ounce? LOL, you wait some, then you sell a bit..
    Then you wait some more.

    • There’s no way of covering the demand if every citizen of the world want their own ounce. Supply now with recycling = 1 billion oz. World population 6.5 billion.

  2. brother john stated recently that any shortage is dirctly tied to manipulated low prices – we have both high demand and lack of economy for primary mines..  the good news, there is plenty of silver in the ground. the other good news ( lol ) is that it will stay put until prices gap up permanently.

    • If mines don’t keep up with demand (due to unnaturally low prices) silver could get somewhat extinct, ABOVE ground. And that’s what matters if you have to have silver. Also, mine production may not be able to respond quick enough to a demand and price surge. There weill be all this silver stuck in the ground, customers screaming to take delivery, and no logistics or time to scoop it up.

    • Imagine you run a grain farm. It’s harvest season, things are looking great.
      A whole string of busses stuffed with rich tourists pulls over, hungry for bread and prepared to pay top dollar. Whatcha gonna do? Prices are high, reserves are right there. All you need to do it harvest, mill, and start baking. Even if the market is forced to wait, you can’t make real money unless you serve them. No-one on those busses is going to buy a coupon from you for tomorrow’s bread. OK, in the silver bizz, this DOES happen, but you need to be pretty hard core to stay healthy trading tomorrow’s harvests.

    • Yes…ABOVE ground…supplies could get tight due to hoarding.  But if I remember correctly, the argument was that silver would become extinct in the ground…hogwash!  Will silver become more expensive to mine…most likely. 

    • Yes, there’s also 2 – 100 parts per trillion (2-100 µg/m3) of silver in seawater. It’s all about the measures you’re willing to take extracting it above ground. So, since silver doesn’t vaporize (like some other forms of “money”), it won’t become extinct.

  3. The problem in the U.S. is the non-existent Mill Sites and related environmental laws.  There’s a lot of silver in the Rocky Mountains but the question is where are you going to take the ore once it’s dug out of the ground?  You need a Mill Site to process the ore to extract the silver but these don’t exist anymore.  You will have about as much luck as taking photo’s of the Doo Doo Bird or Bigfoot. 
     
    To open a Mill Site takes years and easily costs $5 million to $20 million.  Then one swipe of a pen by a politician and your gig could be shut down overnight so no one is willing to make the investment.  Not to mention the roller-coaster ride of the metals prices.
     
    So don’t lose any sleep over the U.S. starting to produce their hoard of silver mines.  With current red tape and related environmental legislation it simply can’t happen anywhere near $30 an ounce.  Maybe if silver went to $100 or $150 the investments would begin but it would still be years before any sizable production would hit the market.  So until then expect shortages and a tight market. 

    • So the bright side of this is, that when (not if) people choose to remonetize silver, there’s plenty of it for the money base to expand. Based on realistic terms, tightly connected to the energy available, of course that is.
       
      This to happen, we simply just need the rig to collapse. Today, that seems to be an easy one.
       
      There is also silver in the seawater. plenty of it. In the end, it’s all about the EROEI – ratios that matter.

    • Yes, I do some work in the mining industry and there’s still a lot of silver left.  The problem is permitting, environmental and costs.  It would take many years if not decades to get the industry back to a level of significant production.  Most of the mines are collapsed and need to start again from scratch.
      Many of the more productive areas are surrounded by million dollar homes and ski resorts like Aspen, CO.  There’s no way they’re going to allow any large scale mining and milling in that area.  So all of this silver might as well be on the moon.
      On paper this can make you re-think about investing in silver but when you look at the impossibilities of the environmentalists plus areas like Aspen, CO allowing this mining and milling, then you get the picture.  There’s no way any large scale mining is going to happen in our lifetimes.  So keep stackin’ as the shortages will only increase over the next 5 years.

    • “Maybe if silver went to $100 or $150 the investments would begin but it would still be years before any sizable production would hit the market.  So until then expect shortages and a tight market.”
       
      PB, That’s my point. Also, this development will make silver remonetize globally. Given the spring power that’s loaded in today’s market, and the natural delay times of the mining industry reacting to the situation, we might be at several hundreds, or thousands, before that happens. And at that time, the energy situation will look totally different, also.
       
      Keep stackin’! We will be rewarded, BIG time.

  4. Powerball, you’re notes are right on. Costs can be $100,000,000 for an ‘all in’ silver mine when equipment is taked into account.
     The regulatory costs,  the vicious nationalization of public and private silver mines and violent labor strikes shut down mines were not explored.  Willingness to take the risk when silver mining costs are close to the retail price of silver is not covered.  EROI is critical.  If silver was or is so plentiful, the reality of present shortages would not be noted. Maybe someone could come up with a heat map showing rule of law and country-wide in relation to silver production.  I would bet on Mexico as one of the best candidates to take advantage of this silver boom.
    I think that as commodities like food, water and energy become scarcer countries with valluable resources will bunker in. The countries where silver is discovered and mined will not allow this non-renewable asset to leave the country at these low prices.  Hot wars and murderous labor wars are being fought over scarce resources.  Many of these countries are either no friends of ours, have stated they are not going to allow silver (or gold) to leave their borders(China and Russia) or the country is plagued by the lack of rule of law.   I could put the USA in the third category but we would have to be a significant silver producer.  The US barely makes the cut today and that is a shame.

    • On the other hand, AG, the USA IS an agricultural powerhouse, so if a lot of other countries that have mineral resources want to be fed, they better be willing to pony up some goodies.  An oil cartel is one thing but food could become a whole new ballgame.

  5. School is still out on this subject, I think. 
    However, what IS clear to me now that I have purchased sufficient pairs of scissors for each room in my home,  is that now I am SAFE from home invasion attack.  Yep, the Homeland Security Department has stated that “when an intruder with a gun enters your place of residence, just grab a pair of scissors to defend yourself.  Are you fucking kidding me????
    I hate to date myself, but it reminds me when I was a child and was taught in school that should there be a nuclear attack, to immediately get under my desk to protect myself.
    Your government officials are beyond fucking nuts!  Totally insane, and twice as dangerous is my diagnosis….

    • “I hate to date myself, but it reminds me when I was a child and was taught in school that should there be a nuclear attack, to immediately get under my desk to protect myself.”
       
      Actually, that was decent advice.  Most schools are not in primary nuclear impact zones, so flying glass from the over-pressure of a blast that is several miles away IS a huge danger in schools and other buildings with many windows in them.  No, this was not great protection but you do what you can with what you have when you can.

  6.  Gee, those Mexicans sure are leaving a lot of easy money lying around.  It’s a shame, they could put their people to work if only they had the get-up-and-go to do it..  right?
    The USGS is a federally financed agency.  The FED is having a little problem with silver longs.
    Don’t forget to buy any dip they can muster.

  7. Silver surplus in countries that are not exactly friendly to the USA/EU, massive regulations strangle US and Canadian silver production because of costs. They don’t want the silver left here mined, it is a piggy bank they hope to tap later when prices spike.

Leave a Reply