Silver Supply Can Not Meet Industrial Demand. Not Even Close. Silver Non Existent by 2026
Silver Supply Can Not Meet Industrial Demand. Not Even Close. Silver Non Existent by 2026
Invest in the top 5 Pure Silver Miners listed below.
summarized brilliantly from our friend Vince Lanci of Goldfix
Metals Focus just put out its weekly report. This piece breaks down that work.
1- Bottom Line: Wake Up Call
This report’s title asks the right question. It is titled: Can silver mine supply meet increasing industrial demand? The conclusion is a resounding no.
Given the current situation and mining dynamic, unless industrial demand decreases (thrift or slowdown) or recycling of jewelry and investor coins increases significantly (highly unlikely), “Only continued drawdowns from above-ground stocks that can balance the market in the next few years”
This is a wake up call for the industry in frankness from a notably unperturbable organization. The tone is not panic, by any means, but the facts as presented do raise questions.
2- Analysis: Only Above Ground Stocks and Scrap Can Save Silver Supply Now
Unless there is a global economic slowdown, (unlikely for the next 6 months as banks are now in an interest rate lowering cycle) above groundstocks will be used to fill the gap between Supply and Demand. The wildcard is China of course with their insatiable demand. That can also turn negative.
The silver industry is now in an unenviable position after years of economic neglect of having to be bailed out of its deficit problems by forces outside its control unless some of the aforementioned things happen.
Absent an economic act of God or an industry-specific innovation, demand will be only satisfied by considerably higher price.
The industry is increasingly not in control of its own fate, and will have to rely on intermediaries like banks who scour and procure metal from existing supply (usually clients holding out for a better deal, or their own stocks) , and producers of concentrate who are selling their materials in increasing frequency before silver is extracted to China.
Here are some of the points that lead to this conclusion
Silver Mining Supply continues to dwindle, fall short of growing demand
Above Ground stocks will be increasingly tapped to cover the shortfall
Much of the shrinking supply comes from decreasing ore yields
Over the past decade, silver grades have fallen by 22%
Silver mine price inelasticity is a feature, not a bug, with over 55% of silver being a by-product of another mined metal
Despite higher prices, mines will not be able to ramp up much production.
Costs are killing profits even at higher prices
Operating costs have outpaced revenue growth
CAPEX keeps rising from mining cost inflation with mining cost inflation and degrading ore quality
Strikes, and environmental blocks reduce supply
There are structural impediments to new supply coming online from both primary and secondary miners
Streamers: streaming and royalty agreements now account for around 4% of total silver supply as miners forego silver profits for primary cashflow
Neglected Shareholder value will take precedence over new supply capex if prices should rise, taking form of dividends and buybacks
Increasingly dependent on recycling and demand to cover shortfalls
Hoping for investor demand to slack is not going to happen as prices rise
Jewelry demand will decrease if prices rise, but not significantly
Recycling of existing product is not going to cut it
Only Above Ground Stocks and Scrap can Save Silver Supply Now
Above ground stocks come every day as found from vaults etc but sometimes have to be sourced with great difficulty in a world now moving into a mercantile mindset.
The LME opening a vault in Asia is the only way to reliable deal. Asia must be acknowledged as a demand center and therefore potential source of metal
China is taking LATAM concentrate at a large pace reducing further open mine output as we speak
Above ground stocks come every day as found from vaults etc but sometimes have to be sourced with great difficulty in a world now moving into a mercantile mindset.
The LME opening a vault in Asia is the only way to reliable deal. Asia must be acknowledged as a demand center and therefore potential source of metal
China is taking LATAM concentrate at a large pace reducing further open mine output as we speak
3- Final Note: The Industry is Upside Down With Financialization
There are structural impediments to new supply coming online from both primary and secondary miners.
Streamers: streaming and royalty agreements now account for around 4% of total silver supply as miners forego silver profits for primary cashflow
Neglected Shareholder value will take precedence over new supply capex if prices should rise, taking form of dividends and buybacks
This is a byproduct of having to prioritize finances over operations; no doubt a product of their own profligacy in the past, but not lately. Put another way, banks enabled this, and the banks will increasingly be looked to to fix it by weaker players. Stronger ones will seek to grow organically
4- MF Report: “Can silver mine supply meet increasing industrial demand?”
[all emphasis and comments added]
The silver market is experiencing its fourth consecutive year of structural deficit, driven primarily by increasing industrial demand. This deficit is expected to persist and so notably deplete above ground stocks. A critical question now facing the market is whether mine supply can respond to restore balance.
Silver mine supply, after two decades of consistent year-on-year growth, peaked at 900.1Moz ( 27,996t) in 2016. During that period, the silver price, despite some volatility, averaged $13.3/oz. Since 2016, the silver price has averaged $20.7/oz, with current spot prices at around $31.5/oz. However, despite these higher prices, mine supply in 2024 is projected to be 62.8Moz (1,954t) lower than the 2016 peak, representing a 7% decline. Looking ahead, the structural deficits are expected to support silver prices, which are forecast to ultimately reach record highs over the next five years. However, mine supply growth is likely to remain modest, with only minimal increases globally.
Despite higher prices, mines will not be able to ramp up much production. implicitly the scrap and above ground recyclable will be more important
The price inelasticity of silver mine supply is largely due to the fact that 55% of silver is mined as a by-product of base metal operations. Although silver can be a significant revenue stream, the economics and production plans of these mines are primarily driven by the markets for copper, lead and zinc. Consequently, even significant increases in silver prices are unlikely to influence production plans that are dependent on other metals.
Silver Academy endorses miners that are pure silver mines (not silver as by product mines)
We have selected our picks based on the strength of:
Their balance sheets
Their Ore grades
Their Metallurgy
Their Management talent
and most importantly their volume of ounces in the ground
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and a drop in copper prices will serve as a floor for silver supply growth.
This dynamic is further accentuated by the prevalence of silver streaming deals at key base metal mines. Producers often enter into these agreements because silver does not drive the core economics of their operations, allowing them to trade future silver revenues for lower cost of capital. These streaming and royalty agreements now account for around 4% of total silver supply, further disconnecting by-product silver production from silver market fundamentals.
Not all silver, however, is mined as a by-product. This year, approximately 28% of global silver supply is expected to come from primary silver mines, where production is directly tied to silver prices. Despite significant price increases since 2016, primary silver production has fallen, accounting for most of the supply decline since the peak. This reduction is, in part, due to decreasing ore grades. Over the past decade, silver grades have fallen by 22%, meaning that prices must rise by an equivalent percentage to maintain margins.
In addition to geological challenges, regional dynamics have led to the closure of key mines. For example, Guatemala’s Escobal mine, which produced 21 Moz (653t) of silver at its peak in 2016, has been suspended since 2017 following a court proceeding brought about by community opposition.1 Guatemala’s Constitutional Court upheld the suspension in 2018, citing a failure to consult with local Indigenous communities as required by law. A court-mandated consultation process with the Xinka people is ongoing with no set completion date. Similarly, in November 2023, following pressure from environmental groups, Panama’s Supreme Court ruled that the contract to operate for First Quantum’s Cobre Panama mine was unconstitutional, removing 2.8 Moz (87t) of silver from the market.
Rising production costs have further constrained silver supply. Despite higher silver prices, operating costs in many cases have outpaced revenue growth, leading to little or no improvement in operating cash flow for silver-focused mining companies. Moreover, capital expenditure requirements have continued to rise, with mining cost inflation requiring increasing investment just to maintain current production levels. As a result, many silver miners have been free cash flow negative in recent years.
However, the marginal economics of many primary silver mines mean that, should prices rise as projected, a threshold will be reached where higher revenues translate into improved free cash flow. At that point, the future of primary silver mine supply will depend on how management allocates capital. In recent years, shareholder returns through dividends and share buybacks have been muted, falling well below the highs of the 2011-2012 cycle. With shareholder pressure for returns increasing, some growth in free cash flow is expected to be directed toward shareholder returns not growing production volumes.
Shareholder value will come before new production
In addition, escalating ESG constraints, persistent community opposition, and ongoing cost inflation and procurement challenges related to mine development have intensified the risks associated with bringing new mines into operation. Some management teams will prefer to pursue growth through mergers and acquisitions (M&A) rather than new mine developments. Nonetheless, some companies will pursue project development, including both greenfield and brownfield expansion, as well as the potential restart of operations currently on care and maintenance.
Only Above Ground Stocks and Scrap can Save us
The timing of new supply will be critical, as developing a mine takes many years. This means that it is implausible that new production could balance the current deficits over the short to medium term. For those shortfalls to end, we are instead dependent on recycling and demand to react to the forecast price rally. This would come soonest in the price sensitive areas (mainly jewellery and silverware). However, we also need that to happen to retail investment (which may not immediately occur should investors buy into the rally, rather than profit take) and to industrial demand through thrifting and substitution (which itself can take a year or two as products are redesigned and recertified). As such, it is only continued drawdowns from above-ground stocks that can balance the market in the next few years
Many nations are slowing or stopping silver flows to US companies for various reasons. In LATAM its labor strikes and “environmental risks”
The World’s top producer of Silver a gnats eyelash away from Nationalizing Silver
Silver Academy’s top 5 picks
Pure Silver Miners (Not Silver as by product miners)
Andean Precious Metals: TSXV: APM, OTCQX: ANPMF
The company operates the largest commercial silver oxide processing plant in Bolivia's Cerro Rico region - the San Bartolomé facility. This strategic asset has produced over 65 million ounces of silver equivalents since 2009, demonstrating Andean's significant production capabilities.
Their robust balance sheet provides the company with financial flexibility and stability in a volatile industry.
The company follows a two-pronged growth strategy, focusing on organic growth in Bolivia and expansion through mergers and acquisitions in the wider Americas. This approach positions Andean for sustainable long-term growth and diversification.
Andean has successfully extended the life of the San Bartolomé mine from eight months to potentially 10 years or more, showcasing the company's operational expertise and ability to maximize asset value.
The company is committed to sustainable mining practices and community engagement, contributing approximately $75 million annually to the local economy through wages, royalties, and taxes. This dedication to social responsibility strengthens Andean's social license to operate.
By acquiring Golden Queen Mining Company (USA), Andean Precious Metals has taken a significant step towards achieving its vision of becoming a multi-jurisdictional mid-tier producer in the Americas, while positioning itself for sustainable long-term growth
Aya Gold & Silver: TSX: AYA, OTCQX: AYASF
Aya Gold & Silver Inc. is a leading silver producer, uniquely positioned as the only pure silver mining company listed on the TSX, with a strong operational base in Morocco. The company has recently reported record revenues of $13.7 million in Q2 2024, reflecting a remarkable 42% increase from the previous year, showcasing its robust growth trajectory and commitment to maximizing shareholder value. With ongoing expansions at the high-grade Zgounder Silver Mine, Aya is set to increase its processing capacity to 2,700 tonnes per day in 2024, further solidifying its market presence. Additionally, Aya's strategic exploration efforts have led to significant mineral resource estimates, including a recent discovery at the Boumadine project, which highlights the company's potential for future growth and profitability. Committed to sustainability, Aya Gold & Silver integrates responsible mining practices into its operations, ensuring long-term value creation for its stakeholders
Dolly Varden Silver: TSXV: DV, OTCQX: DOLLF
Dolly Varden Silver Corporation is a leading mineral exploration company making significant strides in the heart of British Columbia's Golden Triangle, focusing on its 100% held Kitsault Valley Project. This project boasts an impressive resource estimate of 64 million ounces of silver and 1 million ounces of gold, positioning Dolly Varden as a key player in the precious metals sector. The company is committed to sustainable mining practices while leveraging its rich history, including the past-producing Dolly Varden and Torbrit silver mines, to unlock further potential in the region. With a strong management team and recent discoveries enhancing its growth prospects, Dolly Varden Silver is poised for a bright future in the booming silver market. Investors can look forward to exciting developments as Dolly Varden continues to advance its projects and expand its resource base.
Outcrop Silver: TSXV: OCG , OTCQX: OCGSF
Outcrop Silver & Gold is focused on its high-grade Santa Ana silver project in Colombia. Recent drilling has discovered high-grade shoots within multiple veins, including up to 6.9 kg/t silver equivalent over 1 m width. This has led to a maiden resource estimate of 24.1 million indicated and 13.5 million inferred ounces of silver equivalent. The resources grade very high, with indicated at 614 g/t and inferred at 435 g/t silver equivalent. Metallurgical testing demonstrates excellent recoveries of 93% for silver and 97% for gold. Santa Ana contains over 48 km of mapped veins, providing substantial upside as only 17% have been drilled so far. Outcrop plans ongoing drilling to expand resources and make new discoveries across the large vein system.
Kuya Silver: CSE: KUYA, OTCQB: KUYAF
Kuya Silver is at the forefront of silver mining with its dual-track strategy, actively mining the high potential Bethania Silver Mine in Peru and developing the historic Silver Kings Project in Ontario. With robust mining and exploration programs underway, Kuya is poised to unlock significant value from its assets. Kuya Silver's experienced management team, led by industry veterans, is dedicated to maximizing shareholder value through strategic growth and operational excellence. As the demand for silver continues to rise, Kuya Silver stands ready to capitalize on emerging opportunities in the market.
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