Silver Production Yields Tumble

This week was notable for the Fed committing to continue printing USD hand over fist and keeping rates at zero to promote borrowing hand over fist (with borrowing seeing banks ‘creating’ even more money supply again through fractional reserve expansion).  At home the RBA is doing the same.  It is therefore a very real stark contrast to look at the new supply of a real monetary asset in comparison.

The 2020 results are out and the following chart shows total silver production (blue bars in millions of troy oz) from the world’s top 7 primary silver producers and the amount of raw ore processed to get it (red line in millions of tonne).  It should be no surprise amid COVID related closures that both dropped in 2020.  That this coincided with surging demand no doubt contributed to the silver price rising as much as 40% last year and finishing up 35%.

However more importantly, and not immediately apparent in the above chart, is the yield.  If we look at that first year of 2005, it took processing 9.4m tonne of raw ore to get 123m oz of silver, a yield of 13 oz/tonne.  At peak production in 2019 of 23.2m tonne, the supply of new silver only yielded 140m oz, or a yield ratio of 6, half that of 2005.  In other words they had to process twice the amount of ore to get the same amount of silver.

The authors of the above charts put that into perspective:

“In just 15 years, these top silver producers’ average yield fell from 13 oz/t to 5.8 oz/t.  Thus, the total processed ore increased by 10.8 million tons while production increased by 5 Moz.  Typical underground haul trucks can move 20-65 mt of ore in one load.   If we assume an average of 40 mt of ore per haul truckload, that would be an additional 270,000 loads to produce the same, or even less, silver.  With more than a quarter-million truckloads of ore to produce the same amount of silver, no wonder the cost to produce silver is going up.”

By contrast more fiat money is created by key stroke by the Fed.  We colloquially call it ‘printing’ money and the meme catchphrase ‘printers go brrrrr’ perpetuates the image.  However, little as ‘laborious’ as actually printing notes happens.. its all digital and has absolutely no intrinsic value borne of real cost and real lack of supply.

Whilst much has been written this year about the real price discovery of silver amid the futures actions by the bullion banks, at some stage reality has to hit and true price discovery driven by supply and demand prevail.

The above data just winds that silver coiled spring all the tighter…