JP Morgan Review of Global Silver Supply

                       Silver Ore Getting More Expensive to Mine                                   

In this new analysis from JP Morgan on global silver supply trends, they confirm that mines supplying the world with silver will face several challenges going forward to stem the recent trend of decreasing mine supply. This lines up with comments often heard from mining CEO's when questioned on this topic. The bottom line is that while there are adequate silver reserves out there to be mined, many factors are combining to make it more expensive to extract them for global supply.

Obviously, that would suggest it will take higher silver prices (as well as strong lead, zinc, copper, and gold prices) to create incentive for miners to risk the new capital constantly required to replace existing reserves as they are mined (silver is often a by product of lead, zinc, copper, and gold mines). Below is an excerpt from the JP Morgan analysis.

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Expectations for Mine Supply Growth to Remain Very Challenged

"As shown in Figure 1, over the past few years global silver mine supply has declined by approximately 6 percent to under 800M ounces in 2019. Figures 5 and 6 display production trends for primary silver and by-product operations, respectively. Silver mine production from primary mines has declined by over 50M ounces (or approximately 18 percent from 2015 through 2019).

Silver production as a result of by-product operations has only declined marginally since 2015 (down 4M ounces or less than 1 percent). The decrease in by-product production has been driven from lower silver from primary gold mines (down approximately 13 percent), offset by increases from lead and zinc, and marginally from copper.

Over recent years, both primary and silver by-product mine production have been impacted by continued lower processed ore grades as well as by disruptions. As an example, Fresnillo reported lower production of over 6M ounces (or nearly 12 percent in 2019 from the year prior driven by lower ore grades at its Fresnillo, Saucito and San Julián mines). Operational disruptions from blockades, labor strikes, and social challenges also continue to impede production. Blockades at Newmont’s Penasquito mine last year drove production to approximately 21M ounces (or nearly 50 percent) below expected levels. Higher costs and lower grades also led Buenaventura to report silver production declining by over 20 percent in 2019 compared to 2018.

Going forward, we anticipate mine supply growth to remain very challenged. Lower processed grades, which in turn result from longer-term downward trends in exploration success, will pressure operating costs as well as production levels. Upticks from mining operations such as Penasquito returning to more normalized levels and the potential for the aforementioned Escobal mine to receive operating permits will likely be more than offset by structural trends with lower processed grades.  . . . ."

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