I am a bit surprised at the forecasts and data coming out by the leading agencies and institutions on silver mine supply. According to my research, the USGS understated U.S. silver mine supply while Thomson Reuters GFMS over-estimated global silver production for 2013.
Let’s take a look at U.S. silver production first. If we look at the table below recently released by the USGS, domestic mine supply fell compared to the same period last year.
Total production for 2012 was 1060 metric tons (mt). If we subtract out December’s production (101 mt) we would get a total of 959 mt for Jan-Nov 2012…. 3 metric tons more than the same period this year. Furthermore, if production for December is 84 mt, then total production for 2013 will be 20 mt less at 1040 mt (2012 = 1060 mt).
These figures are according to the USGS data. However, if we go by figures released by the public companies in their quarterly and annual reports, we see a much different picture. Here are the production figures for the top 7 silver mines in the United States:
(*Red Dog estimated production)
Hecla’s Greens Creek mine in Alaska increased production from 6.3 million oz in 2012 to 7.4 million in 2013. The second largest supply of silver in the U.S. comes from the world’s largest Zinc producer called the Red Dog mine in Alaska. Teck who runs the Red Dog mine doesn’t release silver production figures, so both the USGS and GFMS need to estimate production.
Because zinc and lead production at Red Dog increased 4-6% in 2013, I estimate silver production at 6.1 million oz (conservative, it could be higher). Also, even with the huge landslide at Rio Tinto’s Kennecott Copper mine last year, silver production increased from 2 million oz in 2012 to 2.8 million oz in 2013.
I realize production growth from Kennecott in 2013 may not seem realistic, especially to the conspiracy theorists, but copper and gold production also increased at the mine. The folks at Kennecott just did a great job working around a complete mess.
Production from Coeur’s Rochester mine in Nevada remained flat y.o.y., but U.S. Silver’s Galena mine suffered a decline of 150,000 oz.
Hecla’s Lucky Friday mine came back online in 2013 adding 1.4 million oz, while Revett Minerals shut down their Troy mine in Montana at the end of 2012, removing 1 million oz from the total domestic mine supply.
So, the net change in production from all these mines was an increase of 2.4 million oz. If we subtract Rochester’s production from the group, because it’s in Nevada, the total increase of silver production from the category labeled “The Other States”, was still an increase of 2.4 million oz.
Converting 2.4 million oz into metric tons, we get nearly 75 mt. So, how did U.S. production decline (according to the USGS) if the top U.S. Silver mines show a net increase of 75 mt?
If we look at the USGS chart above, the losses originate from the “Other States” group. Currently the Jan-Nov total is 726 mt. If we add an estimated 61 mt for December, total production from the other states would reach 787, or 18 metric tons less than the 805 mt figure in 2012.
You will notice that Nevada’s silver production will be nearly the same as it was in 2012 (250 mt), when we add a forecasted 19+ mt for December. Again, how did the USGS report a decline in U.S. silver production from the “Other States” when the company data shows a growth of 75 metric?
The only area where silver production could fall in the U.S. would be from by-product copper production coming mainly from Arizona. However, copper production in the U.S. is up 5% compared to last year. I doubt by-product silver production from copper mines declined in 2013.
I believe U.S. Silver production in 2013 was actually higher by 2-3 million oz.
GFMS Forecasts For 2013 Global Silver Production Are Incorrect
This brings me to the Silver Market Update put out by GFMS in Nov, 2013. GFMS estimates silver production to increase 27 million in 2013. Here is a slide from their presentation:
In this chart GFMS shows the biggest winners and losers. They report that the U.S. adding about 6 million oz, Mexico 4 million, and the Dominican Republic a little more than 3 mil oz. Furthermore, there was an increase coming from Tahoe’s Escobal mine in Guatemala, starting commercial production Q4 2013.
Escobal will become a big player with forecasted silver production in 2014 of 18-20 million oz. Unfortunately for Tahoe Resources, the locals are not too happy with their Escobal mine. There have been murders and killings on both sides of the protest.
This is by no means a small matter by a few disenfranchised locals:
(Guatemala City/Ottawa) Contrary to Tahoe Resources’ recent claims, tens of thousands of people oppose its Escobal project in southeastern Guatemala. Repression and violence have been the outcome of company and government efforts to install the project without social support. A recent high-court decision in Guatemala reinforces the legitimacy and importance of local decision-making processes.
More than half of the communities in the municipality of San Rafael las Flores, where the Escobal project is located, have declared opposition to the mine. In five neighbouring municipalities, in the departments of Santa Rosa and Jalapa, a majority have voted against the mine in municipal referenda, in which tens of thousands of people participated. The most recent vote took place on November 10th in the municipality of Jalapa, department of Jalapa. Over 23,000 people participated with 98.3% voting against mining and 1.7% in favour.
This is a perfect example of what Jim Sinclair states “As the wrong way to go about starting up a mining project in a foreign country.” Jim believes you must have the support of the locals, or the project will be doomed for failure.
And it didn’t help Tahoe Resources PR one bit when their contracted head of security, Alberto Rotondo gave direct orders to assassinate members of the community of San Rafael Las Flores.
“The preliminary investigations found that Rotondo gave the order to attack the community, he also ordered the crime scene to be cleaned up and change the police report.”
The information reveals Rotondo making several statements: “God dam dogs, they do not understand that the mine generates jobs”. “We must eliminate these animals’ pieces of shit”. “We can not allow people to establish resistance, another Puya no”. “Kill house sons of Bitches”
Rotondo was apprehended at the airport La Aurora, when he trying to flee the country. Wire tapping of conversations between him and his son reveal that he planned to leave Guatemala for a while, because “I ordered to kill some of these sons of Bitches.”
I’ve known about the problems with the Escobal mine for quite some time, but it just seemed like a good time to share this news with my readers.
Getting back to the subject at hand, GFMS shows that Poland will suffer the biggest decline at 6 million oz. I looked at KGHM Polska Miedz’s Q4 2013 report and they show a decline of 4 million oz… so GFMS was close on this call.
Here are the figures from the data I collected:
MEXICO (2012= 170 mil oz) (2013 = 169.5 mil oz)…. FLAT
PERU (2012 = 112 mil oz) (2013 = 118 mil oz) … UP 8 mil oz
AUSTRALIA (2012 = 57 mil oz)(2013 = 54 mil oz)… DOWN 3 mil oz
POLAND (2012 = 41 million oz)(2013 = 37 mil oz)… DOWN 4 mil oz
U.S. (2012 = 32.6 mil oz)(2013 = 35 mil oz)… UP 2.5 mil oz
CANADA (2012 = 21.3 mill oz)(2013 = 20.3 mil oz) DOWN 1 mil oz
The net change in production from these top countries is an increase of 2.5 million oz. I believe GFMS overstated the U.S. and Mexico’s production while over-estimating the decline in Poland. I did not include Russia, China, Bolivia or Chile in the top group because I don’t have estimates on their production for 2013.
Early in 2013, Mexico’s silver production was down 10%, however several mines ramped up production during the second half of the year bringing overall production to the same level as 2012. This table comes from Mexico’s INEGI website showing April 2013 production figures down 10%. Silver is Plata in Spanish.
If we assume that production grew moderately in China and slightly in Russia, Bolivia and Chile, I don’t see production increasing 27 million oz in 2013, forecasted by GFMS. I estimate global silver production growth in 2013 will be closer to 15-18 million oz.
Thus, total production for 2013 will likely be a little more than 800 million oz. GFMS 2013 World Silver Survey reported production in 2012 at 787 million oz. Adding 15-18 million oz to that figure we would get 802-805 million oz.
I do realize GFMS had partial data when they released their silver production forecast in Nov, 2013. However, I’m surprised that they listed the U.S. as the largest winner over Peru. It will be interesting to see what GFMS reports as their total silver production in 2013 when they release the 2014 World Silver Survey in May.
Global Silver Production May Increase 30+ Million Oz In 2014
We may see an increase of 30+ million oz of silver production in 2014. This will come from increased production from Tahoe Resources Escobal mine (18-20 mil oz), ramp up of several mines in Mexico, and Peruvian miner Volcan adding two new projects at 6 million oz.
Some may see this as a bearish indicator for the price of silver. I don’t. Again, I look at the price and value of silver on a long-term basis. Even if the world produced 900 million oz of silver… at $25 this would be $22.5 billion. That amount is peanuts compared to the liquidity being thrown around by Fed and Central Banks.
Furthermore, the world still hasn’t realized that the supposed wealth held in paper assets are in fact LIABILITIES. Paper assets derive their value from a growing economy. Unfortunately, the world is peaking in global oil production irregardless of the Great Shale Energy Hype. As global oil production declines on top of falling net oil exports, the value of most paper assets will implode.
Final Word On Peak Silver
A few years ago, I wrote two articles on Peak Silver. I stated that global silver production would decline shortly after global oil production peaked. I still hold to that forecast. In the article, I said there was a chance if the global economy did not rebound in 2009, then 2008 could be the year global silver production peaks.
I based this forecast from what took place during the 1930’s depression. The chart below shows how U.S. & global silver production declined during the depths of the depression.
Due to the tens of $trillions of liquidity the Fed and Central Banks threw into the financial markets, the 2009 Global Depression was averted. This allowed BAU- Business As Usual to continue in the world and mining sector.
If the financial system collapsed along with the broader markets, I truly believe global silver production would have fallen considerably in the years following 2009. Furthermore, easy money and low-interest rates allowed the world to extract and consume expensive low EROI oil that it really could not afford.
The end of this decade will be nothing like the beginning. The Financial Industry will come under the weight of peak oil. Paper assets will lose value and investors will be forced to move into physical assets to protect their wealth.
Gold and Silver will offer a WAY OUT to the PAPER PONZI SCHEME. Unfortunately, only a few will see the light before it’s too late.
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