GLOBAL COPPER INVENTORIES TO DECLINE SUBSTANTIALLY THIS YEAR- How Much Will it Affect Silver Production?

Submitted by SD Contributor SRSrocco:

Costs are increasing faster than the price of commodities are rising.  Even though some copper miners are making decent profits, it is not enough to supply all the FUTURE CAPEX spending that these companies have in their pipelines.  We must remember, the so-called forecasted increase of global silver production is based on these scheduled base metal mines becoming commercial.

Author: Dorothy Kosich
Posted: Friday , 31 Aug 2012
RENO (MINEWEB) –

Substantial production losses and outages at existing copper mines will cause global copper inventories this year to fall to 47 days of consumption from 52 last year, Scotiabank economist Patricia Mohr has forecast.

While refined copper stocks average 61.1 days of consumption from 2000-2009, “LME inventories have actually declined in 2012 and overall global inventories are expected to fall to 47 days of consumption from 52 last year, despite the recent increase in bonded warehouse stocks in China,” said Mohr. “This reflects substantial production losses & outages at existing mines this year-Escondida (Chile -75,000 tonnes), Collahuasi (Chile), Los Bronces (Chile -60,000 tonnes), Grasberg (Indonesia -100,000 tonnes) and Lumwana (Zambia -60,000 tonnes).”

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Folks… just look at amount of production losses at the big copper mines.  This is nearly 300,000 metric tonnesFreeport’s Grasberg mine was down 45% the first six months of 2012 compared to last year.  The largest percentage of the copper declines came from Chile.  As I mentioned in my previous article…. Chile is going to face serious energy shortages unless there is Billions of dollars invested in electric generating plants and infrastructure.

If overall copper production declines in 2012, it will also impact silver production as well.  We may see another percent decline in by-product silver from copper mining in 2012.

Here is another part of the article:

“Major Canadian gold miners are also examining project expansion more critically, in part due to high capital cost inflation,” she added.

Recent announcements by BHP Billiton of project delays, “reflect concern over capital-cost escalation in the face of more subdued metals prices,” Mohr advised. “In copper, capital cost inflation (which normally lags metals prices) has averaged 22% per annum from 2002-2011 and is projected to increase by 15-20% this year.”

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Costs are increasing faster than the price of commodities are rising.  Even though some copper miners are making decent profits, it is not enough to supply all the FUTURE CAPEX spending that these companies have in their pipelines.  We must remember, the so-called forecasted increase of global silver production is based on these scheduled base metal mines becoming commercial.

UPCOMING POST ON SILVER ORE GRADES

I had a spirited debate on silver ore grades recently with several bloggers.  They both mentioned that silver miners were utilizing lower grade ores and waste rock to maximize profits as the price of silver increased.  This is an excellent way for miners to increase profits and to mill ore that wasn’t cost effective with the price of silver lower.

I have to say…. anything that makes silver miners more profitable and successful is good in my book.  That being said, it still does not change the overall fact that silver ore grades are falling greater than 5% a year on average.

This chart of the silver ore grades at SilverCorp will be included in my next article-post to describe this ongoing phenomenon:

If we consider that SilverCorps overall ore grade was 456 g/t in 2007 and is estimated (by their quarterly report) to average 245 g/t in Fiscal 2013, this turns out to be a 8% annual decline rate for the 6 years.

I will provide additional data to prove that Silvercorp has a LOM PRODUCTION PLAN until 2019 showing a continually declining average ore grade.  This is not because they are mining waste rock or selecting lower grade ores… its because of its planned declining ore reserve.

Again… we must remember the KISS — KEEP IT SIMPLE STUPID understanding of my concerns.  The lower the ore grade… the more energy is needed to produce the same or less silver.