Global silver production up 3.8% in 2014
by Lawrence Williams, MineWeb According to precious metals specialist research consultancy Metals Focus, a company which was primarily formed by former GFMS analysts and marketers following the latter’s acquisition by Thomson Reuters a couple of years ago, global silver output may have peaked in 2014. The consultancy is one of the primary analytical firms involved in researching precious metals supply and demand, and in its latest Precious Metals Weekly newsletter gives us some insight into what it sees happening this year in terms of global silver production. Indeed, as with gold, the weakness in the silver price is at last beginning to have an impact on global mine production and Metals Focus sees mine output flattening out after several years of fairly strong production growth. As the consultancy points out the mining cycle is such that new mine decisions are largely taken when prices are high, but that it may take several years to bring a big new mine into production and by the time it comes on stream the price situation may have changed dramatically. The silver price has been falling for the past three years and is now around 65% below its 2011 peak which leaves many silver producers now sitting on all-in sustaining costs (AISC) levels close to, or even higher than the value of sales. With no real price respite in sight this will undoubtedly lead to new projects being curtailed and possible mine cutbacks and closures – indeed this is already beginning to happen.
Metals Focus reckons global new mine supply last year to have risen by 3.8% to reach 854 million ounces, a new record high. However it also points out that over 50% of this production increase was due to one new mine, Tahoe Resources’ big Escobal operation in Guatemala which opened in the second half of 2013 and even then, with its initial output, was largely responsible for bringing its host country up into 15th place in the world’s Top 20 silver producers – See: World top 20 silver producers – countries and companies. For 2014 it will rank even higher up the table of global silver producing nations – almost certainly to a place in the Top 10.
ith the majority of silver production coming as a byproduct from base metals and gold mining operations (four of the top five silver producers last year were primary base metals or gold miners), growth in these is not wholly dependent on the silver price, but then prices have also been depressed in these sectors too. Metals Focus points out that gold is 36% off its peak, copper 45%, while lead and zinc are both down by 54%. Even so, the opening of a major base metals operation with substantial silver byproduct can also have a significant impact on overall silver supply. In 2014 Codelco’s Ministro Hales copper/silver mine in Chile was just such a case in point. Over the first three quarters of 2014 this operation more than doubled Codelco’s silver output, Metals Focus notes, increasing by-product silver supply by 144% to 15 million ounces. Mexico remains the world’s largest silver producer, but this will not have been in doubt given that in 2013 it produced some 15 million ounces more than the No. 2 producer, Peru with No.3, China, only another 100,000 ounces further back (according to the GFMS figures quoted in the Mineweb article referenced above.) Here the world’s No. 1 silver mining company, Fresnillo, continues to dominate. It produced some 45 million ounces last year and is targeting production of 65 million ounces by 2018. This would be achieved from the continued ramp up of Saucito II, which came on stream late last year and from the start-up of San Julián in Q4.15. The Saucito II project is expected to be particularly low cost, with all-in sustaining costs estimated by Fresnillo at only $3.7/oz. Peru’s 2014 output is seen as rising around 2% due to the start-up of Toromocho, Alparmarca and the Cerro de Pasco Oxide Plant, which collectively added some 6 million silver ounces. These offset lower output at Antamina, where grades and tonnes processed declined. It will be interesting to see how China fares in the global country-by-country production table when this is forthcoming given it was so close behind Peru in 2013. But looking ahead to the current year, Metals Focus reckons the new project pipeline is now less robust, being a reflection of the lower price environment, which has reduced the expected return of various projects. As such, a number of these have been mothballed over the past 18 months. Second, at current prices, it reckons around 25% of the primary silver sector (60 million ounces of annual production) is loss-making on an AISC basis, which it sees as resulting in some cost cutting closures or production cutbacks emerging this year unless there is a strong positive movement in the silver price. The silver supply/demand balance is always very controversial depending as it is on both industrial and investment demand. The former is fairly predictable and the latter far less so leading to some analysts seeing the metal as in huge surplus while others see it as being in deficit. But regardless, the likely price outcome this year will remain very much dependent on gold. Should the latter’s price see a decent rise this year, silver will likely show an even bigger increase in value in percentage terms. But if gold falls, as some predict, the silver investor would likely be in for yet another torrid year regardless of any flattening, or even a potential fall, in global new mined output.