Silver Production Drops as Demand Increases

Since silver bottomed this year at the end of May it has risen over 13%, and most of that rise just since the beginning of last week.  The gold silver ratio has dropped from its 30 year high of 94 to 86.7 at the time of writing.  That 86.7 is still nose-bleed high compared to a 100 year average around 45.  Maths and reversion of the mean makes for a tantalising prospect.  For context in 2011 the GSR hit 30.  A repeat of that would see silver almost triple even if gold stayed at current prices.

Apart from reversion of the mean, another fundamental is supply and demand.  On the supply side we are seeing some early signs of weakness even against these rising prices.

Mining yields of the top 8 primary silver miners are continuing to decline.  Those top primary silver mines and companies are:

1. Cannington Silver Mine
2. Fresnillo PLC
3. Pan American Silver
4. Polymetal International
5. Hochschild
6. Escobal Mine (no data for 2018)
7. Buenaventura
8. Hecla

The anomaly (of continual declines) of 2015 was purely off the new massive high grade Escobal mine coming online with an incredible 13.5 oz per tonne yield.  Since then the world’s 3^rd biggest silver mine has been suspended and fierce protests from the local Guatemalan people continues throwing a huge cloud of doubt over the mine.

Cannington Mine which is about 200km south east of Mt Isa, has seen a dramatic decline in both yields and production from a peak of 44m oz in 2005 at a yield of 16.5oz/tonne to just 12.5m oz last year at a yield of just 6.2oz/tonne.

Looking to this year and already there is serious concern with two of the largest seeing substantial declines in production.  The largest miner, Fresnillo, just released their first half 2019 results showing a 13% decline in their 3 giant mines (Fresnillo, Saucito, and San Julian).  Peru’s biggest mine, Buenaventura’s Uchucchacu, saw a 40% decline in part due to 2 weeks of strikes in January, an ongoing and unresolved structural issue for the mine.  More broadly Peruvian silver production dropped by 10.6% to May 2019 from official government figures.

For some context from the demand side, in just the last 4 weeks 53.4m oz has been deposited into the SLV ETF alone.  On Monday alone 8.9m oz was deposited into SLV.