The world’s largest silver producer saw its production decline substantially in the first half of 2013. Many assume this decline came from Fresnillo, which is known as the largest primary silver miner in the world. However, it was recorded by KGHM Polska Miedz, the largest by-product silver producer on the planet whose annual silver production was 41 million oz in 2012.
Silver production at KGHM Polska Miedz declined a whopping 17% from 653 tonnes in 1H 2012, to only 544 tonnes 1H 2013.
I believe we will see the global peak in silver production occur first in the base metal mining industry.
From the SRSrocco Report:
According to KGHM Polska Meidz’s 1H 2013 presentation, the decline in silver production was due to lower silver content in processed concentrate, lack of delivery of purchased concentrate with higher silver content and to a change in the schedule for the maintenance shutdown of the Precious Metal Plant.
The decline in silver production was not confined to just the second quarter, it also fell 17% during the first quarter of 2013. The brown line above the silver bar shows that this was a planned decline. I have emailed the investors relations department to see if the drop in silver production is attributed more to falling ore grades or a temporary situation of maintenance and etc.
Regardless, to see the worlds largest silver miner’s production decline 109 tonnes in just 6 months is a big deal. If this trend continues, KGHM Polska Miedz’s total silver production may fall from 41 million oz in 2012 to only 34-35 million oz in 2013. KGHM Polska Miedz is a large copper miner located in Poland.
If we look at the chart below, we can see who are the top silver mining companies in world:
Even though Fresnillo is the largest primary silver mining company in the world, it ranks as the number three producer. BHP Billiton’s Canningtion mine in Australia contributed the overwhelming majority of the company’s total silver production (39 million oz) in 2012 at 32 million oz and is the largest single primary silver mine in the world.
KGHM Polska Miedz’s Net Profits fall 50%
As with most other base metal miners, KGHM Polska Miedz saw its 1H 2013 net profits fall 50% from $1.353 million pln (Polish currency – Zloty) in the 1H 2012 to $682 pln in 1H 2013. This was due to lower prices of copper and silver as well as a lower USD/PLN exchange rate.
During the Q2 2013, copper sales accounted for 78% of KGHM Polska Miedz’s total revenue while silver represented 17%.
I have had several individuals inquire to the cost of producing silver in the by-product mining industry. It is nearly impossible calculate this cost as conditions vary tremendously from one base metal mining company to another. Even though 70% of silver production comes from by-product mining, as base metal prices decline, these companies are going to need all the by-product revenue they receive from silver and etc. to fortify their balance sheets.
Lastly, I believe we will see the global peak in silver production occur first in the base metal mining industry. As the world’s energy supply peaks and declines, the demand for base metals will fall proportionally which will negatively impact the supply of silver.
Thus, another good reason to invest in silver for the future.