*Note; Much of the silver supply comes from byproduct of gold mining. 2015 many not see falling silver supply to an extent. Silver prices should remain low because of this.*
Why gold mine output is not yet falling
Logic suggests there should be a sharp reduction in mined gold output due to lower gold prices, but this has not been the case.
Lawrie Williams | 31 August 2015 08:42
LONDON – The fall in the gold price over the past few years has generated numerous predictions that this would lead to a big drop in global gold production. Mining companies ought to close unprofitable mines, halt expansion plans, and put new projects on hold. But this has not been the case. Global gold production has continued to rise and is predicted by mainstream gold analysts Metals Focus, GFMS, and the CPM Group, to continue to do so this year. Heading into 2016, it should stabilise before beginning to fall in 2017, failing a gold price recovery.
There are a number of reasons why the originally anticipated reductions in output have not yet taken place. The industry has become bloated during the years of rising gold prices, leaving scope for cost-cutting at all levels, thus enabling the companies to bring mines back into profit despite lower gold prices.
One aspect of cost reduction has been to mine to higher grades, but maintaining tonnages through the mill and thus reducing unit costs. This leads to higher gold output. This is one of the big anomalies in falling prices – they can stimulate production increases.
Closing a mine down is not quite as simple nowadays and no longer just a case of cutting off the power supply and sending the workforce home. There are all kinds of social, logistical, and environmental costs, that often make shutting a mine down a more expensive option than keeping it open, which instead forces management to cut costs to the bare minimum and hope for a gold price turnaround. Extraneous factors can change a mine’s economics and recently we have seen both a huge drop in oil prices, which represent a substantial cost element to many operations, and a sharp rise in the value of the dollar against local currencies. This has made the fall in gold prices in local currencies not nearly as severe as in US dollar terms, granting miners some flexibility to managing their cost base.
True, we have seen new mining projects put on hold, or cancelled altogether, although no doubt they will be resurrected by some future generation. We have also seen exploration expenditures cut dramatically, meaning that new discoveries are not being made at anywhere near the same rate as in the past. But these both will affect potential production a few years hence, but are not making much impact on current output. But what has been happening is that mining projects already in the pipeline and too far down the development schedule, have come online and their production has more than countered any decline from mines that may have exhausted their reserves.
But coming back to the currency impact, a look at the table below will show that although the US dollar price of gold has fallen by around 6% since January 1st this year, it has actually risen in the currencies of 17 of the world’s top 20 gold producing nations.
Top 20 Gold Producing Nations (tonnes) and gold price performance in their local currencies year to date
RankCountry2014 gold production (t)Gold Price performance YTD – Local Currency1.China462.0– 3%2.Australia272.4+8%3.Russia266.2+2%4.USA210.8– 6%5.Peru171.0+4%6.South Africa167.9+7%7.Canada151.3+8%8.Mexico110.4+8%9.Ghana104.1+19%10.Brazil90.5+25%11.Indonesia89.5+6%12.Uzbekistan85.0+1%13.Papua New Guinea67.2+2%14.Argentina60.0+2%15.Tanzania50.8+16%16.Kazakhstan49.2+24%17.Mali48.6+2%18.Chile44.5+8%19.Colombia43.6+25%20.Philippines40.4-2%
Source: Metals Focus, 24hgold, lawrieongold
In the case of several of the above, the gold price rise in their domestic currency so far this year has been in double-digit percentages. While the advantage of such currency variations tends to be reduced over time (increased inflation of imported goods rises), in the short-term they provide a real benefit, thus favourably changing the economics of the operation.
But would a small percentage fall in global gold output make much difference to the gold price anyway? A 2% fall in global output say, would only mean around a 60-70-tonne downturn on an annual basis. The Shanghai Gold Exchange recently has been moving this amount of physical gold in a single week without positively impacting the price! Fundamentals may win out in the end, but for the immediate future it looks like the gold price will continue to be dominated by global power-plays between the West and the East. And as long as COMEX futures set the price, no amount of mine closures will likely make any difference. Things may be a-changing in this respect, but such shifts may yet take some time to make a real impact.
Silver News, Press Releases & Events
Silver Recycling Volumes Forecast to Stagnate Over The Next Three Years — Even If Prices Rally Significantly
New Report Indicates Low-Level of Silver Recovery from Majority of Industrial End-Uses
(September 9, 2015 – Washington, D.C.) The Silver Institute today released “Silver Scrap: The Forgotten Fundamental,” a report produced by Metals Focus, the London-based independent precious metals research consultancy, on behalf of the Silver Institute. The study provides detailed information on recycling broken down by region and by five sectors: industrial end uses, photography, jewelry, silverware and coins. This analysis then forms the bedrock for the forecast in scrap volumes out to 2017 and how those volumes might vary with price.
Highlights from the report include:
“The report illustrates the fact that one of the major contributors to the silver supply complex, scrap supply, has been shrinking, and is forecast to grow only modestly in the near term, further underscoring the strong fundamentals of the silver market,” stated Michael DiRienzo, Executive Director of the Silver Institute.
The report can be downloaded free of charge at: Silver Scrap: The Forgotten Fundamental Report
The Silver Institute is a nonprofit international industry association headquartered in Washington, D.C. Established in 1971, the Institute’s members include leading silver producers, prominent silver refiners, manufacturers and dealers. The Institute serves as the industry’s voice in increasing public understanding of the many uses of silver, and also creates programs across many platforms that benefit the white metal. For more information on the Silver Institute, or silver in general, please visit: www.silverinstitute.org.
Metals Focus is one of the leading precious metals consultancies. They specialize in research into the global gold, silver, platinum and palladium markets, producing regular reports, forecasts and bespoke consultancy. Metals Focus can be reached at www.metalsfocus.com.
Glencore is one of the top silver producers as by-product of their other mining operations. The question to be asked is how will Glencore's silver production be affected? From Glencore's production report we see Glencore production of silver was.... Total Silver 34,908,000 oz for 2014 and 39,041,000 oz for 2013. (see here) https://www.glencore.com/assets/investors/doc/reports_and_results/2014/G...
Please let me hear your input as to what Glencore's bankruptcy will have upon the global silver supply.
France24 business news guy just had a report that Qatar lost some big money on Glencore (and VW!). Up next, something about Canadian Oil Sands! ;-/
Silver Bullion Coins on Allocation at Major National Mints
Silver Investment Bars Also in Short Supply
(Washington, D.C. October 13, 2015) – Retail investors in recent months have seized the opportunity to significantly increase their holdings of silver bullion coins and, to a lesser extent, bars. Due to strong demand, the U.S. Mint, the Royal Canadian Mint, Australia’s Perth Mint, the Austrian Mint and the British Royal Mint have put their silver bullion coins on allocation, where the volume of distribution of coins is controlled due to bottlenecks in the manufacturing process. This is an unprecedented industry-wide phenomenon. In recent history, putting bullion coins on allocation has only occasionally been done by the U.S. Mint. The practice points to considerable tightness in the silver coin business at the moment.
Globally, silver bullion coin sales reached an all-time high of 32.9 Moz in the third quarter of this year, according to GFMS Thomson Reuters data. This volume was a 74% quarter-on-quarter and 95% year-on-year increase. Sales in North America, Europe, Japan and other Asian countries (predominantly China) saw quarter-on-quarter growth of 74%, 72%, 95% and 202%, respectively.
As a result, lead times for silver coins have been stretched from immediate delivery to 3-4 weeks in some cases. This is an unusual occurrence in the industry, with several dealers stating this is the first time they have experienced lag times for certain coin products. Additionally, the shortage is apparently both a supply and demand issue. While demand is very strong, given the slow global economic outlook and attractive silver price, the mints are finding it difficult to source the blanks needed to produce the coins.
“It is clear that investors are continuing to demonstrate their desire for silver bullion coins and we encourage national mints across the globe to examine their manufacturing pipeline to ensure that this strong demand is met with immediate fulfillment,” stated Michael DiRienzo, Executive Director of the Silver Institute.
Silver bars are also experiencing a slight shortage, although confined to bars under 100 ounces, specifically one ounce and ten ounce bars. Delivery times have increased from immediate to a 10 day delay in the most extreme cases, especially in the U.S. and Canada. The increase in demand in recent months has been primarily driven by bargain buying, particularly after prices fell below US$15/oz. The demand remained buoyant when prices reverted back above US$15/oz, however, as shortages in products spurred ever more investor interest in the white metal.
The Silver Institute is a nonprofit international industry association headquartered in Washington, D.C. Established in 1971, the Institute’s members include leading silver producers, prominent silver refiners, manufacturers and dealers. The Institute serves as the industry’s voice in increasing public understanding of the value and many uses of silver, and also creates programs across many platforms that benefit the white metal. For more information on the Silver Institute, or silver in general, please visit: www.silverinstitute.org.
Hecla Mining Co. (NYSE: HL) said Tuesday that silver production dipped in the third quarter but gold output was up, with “strong, consistent” silver output at the Greens Creek Mine in Alaska but lower production at Lucky Friday in Idaho due to lower grades and mechanical issues that have been resolved. Hecla, the largest primary silver producer in the U.S., in July increased its guidance for 2015 silver production to between 10.5 million and 11.0 million ounces from 10.5 million ounces previously. On Tuesday, the company said it looks for year-end production to be at the high end of its current guidance, plus 185,000 ounces of gold. Gold production is now expected to be 59,000 ounces at Greens Creek and 126,000 ounces at Casa Berardi. Third-quarter silver production was 2,591,546 ounces, down 9.7% from the same quarter a year ago. See rest of article ...https://www.kitco.com/news/2015-10-20/Hecla-Mining-3Q-Silver-Output-Dips... *note* So the largest primary silver producer in the US can only produce about 1/4 of the silver for the US mint Silver Eagle program this year!
Was going to forward sell output to paydown debts with gold and silver. not sure if this eventuated or not but if they were talking it probably means they were already doing. Thanks silverwood.
Talking about it over at Silverdoctors site in relation to the silver mines possibly getting flooded or shut down .
So you can only beat up the mining sector for so long before the "no new supply reality" causes shortages and price bubbles. So that is my take on why the easing of red tape...Congressman: U.S. House-Passed Mining Legislation Necessary For Defense, Economy ...read it here
Buried in this articles, despite the bearish headline, is some positive thoughts for why you can only strangle the golden goose for so long. Read it here;
The best highlight of the story is this..."
Looking at the supply side, GFMS’ senior mining analyst, Jeanette Tourney, said global mine supply is expected to peak in 2015.
“Beyond this year, mine production will begin to contract. We don’t think there will be sufficient new production,” she said.".
I am connecting some dots here and seeing that TPTB are going to ease off of the beatings of PMs or else they will create a price bubble due to metal shortages. But that reminds me of that old saying...the best laid plans often can go astray! Keep stacking our payback is coming.
A fairly large and well known building engineering firm that specializes in the mining sector shares the office building where I work.
Last year the guys were pretty busy. In the summer they talked about finally not having to work crazy hours and right now they are bored stiff because there is no work.
Make of it what you will. It's possible that they have become uncompetitive. Or not.
As i recall a big deal was made about the Chinese copper stockpiles being hypothicated and they only had a fraction of the bars that they claimed. Now we have Dr. Copper looking rather ill, and clearly the supply is plentiful compared to consumption, leading to the price decline. Manufacturing is slowing in most economy sectors globally and i expect copper price to continue to fall. I am a little surprised the price is not lower but either way the mines will have to regulate their production or suffer further glut prices. This will affect the supply of silver (as a by-product) eventually. Keep stacking while you can.
Interesting timing but after the Fed showed us they mean business and gold and silver get whacked yesterday and today, we have these bearish news coming out today...
So I will bring to your attention the strong increase in silver production by Goldcorp in this 10/29/15 reporting. Here is a portion of their summarized financial results which you can find in the above link
Three Months Ended September 30 Goldcorp's share (1)
Gold produced (ounces)
Gold sold (ounces)
Silver produced (ounces)
Silver sold (ounces)
So we can see from the above facts that Goldcorp which is a large by-product silver producer increased its yoy production of silver 3,497,700 ounces almost a 45% increase. So the bear is still in control until we see declining silver production along with steady or increasing demand...keep the faith stackers!
Yamana Gold produces quite a bit of silver from it operations and its YOY production is slightly lower.
PRODUCTION SUMMARY - FINANCIAL AND OPERATING SUMMARY
Silver produced (millions of ounces) for 2015- 7.05 compared to 2014- 7.40, less than a 5% decline. You can find this information here;
I think ultimately supply/demand will be what brings the whole shemozzle into reality. Every thing else can be disguised and hidden until that solar panel company scratches it's head and says, where is the silver gone? Looking forward to that day.
https://www.zerohedge.com/news/2015-10-29/ghost-cities-finally-died-chin... This will further decimate the miners of lead zinc copper and hence by default silver.
Yes, I agree the ultimate cause for silver price to rise will be because of the supply/demand dynamics. You can look at all the COT reports and look at all the charts, etc. etc. but that may only help the paper traders in the long run. So I'm glad to see you posting here because there is much information out there. By bringing that info and posting it here will help all those who come to read and understand. By the way are you any relation to Won Hung LO?... lol
Wun Hung Lo at your service. I changed my name so people wouldnt take the piss out of me!!!!! never mind.
Wy So Lo wrote: I think ultimately supply/demand will be what brings the whole shemozzle into reality. Every thing else can be disguised and hidden until that solar panel company scratches it's head and says, where is the silver gone? Looking forward to that day.
If you're suggesting and hoping that one day there will be a shortage of physical silver, you will be very disappointed. There's a reason why silver trades at $15-16 oz today, weak industrial demand and supply that doesn't stop coming online. Same reason why oil trades at $45 and every commodity trades at 15 year lows, deflation.
I appreciate your confirmation of my view. As industrial demand drops, by virtue of a dying economy, the base metals supply will have to contract to accommodate the overall decline in demand. As the vast bulk of silver supply comes from an inelastic by-supply, the falling price of the base will decimate the supply of the secondary, silver. The global shift in the specific areas of silver demand will likely continue as most currencies are suffering debasement and even hyper-inflation against the very dollar that silver is priced in. This will only lead to more demand for sound investment and massive extensions in the areas of medicines and solar. Todays price of gold is $1598 and silver is $21.75. Our exchange rate with usd has gone from around $1.10 down to .71c as of today. The rapid awakening of the global investment sphere, to the fundamentals of precious metals(as seen in India) will be, imho the sudden death of the over supply meme.