World’s Largest Silver Producing Company States Big Decline in Production

The world’s largest silver producer saw its production decline substantially in the first half of 2013.  Many assume this decline came from Fresnillo, which is known as the largest primary silver miner in the world.  However, it was recorded by KGHM Polska Miedz, the largest by-product silver producer on the planet whose annual silver production was 41 million oz in 2012.

Silver production at KGHM Polska Miedz declined a whopping 17% from 653 tonnes in 1H 2012, to only 544 tonnes 1H 2013.

KGHM Polska 1H 2013 Production

According to KGHM Polska Meidz’s 1H 2013 presentation, the decline in silver production was due to lower silver content in processed concentrate, lack of delivery of purchased concentrate with higher silver content and to a change in the schedule for the maintenance shutdown of the Precious Metal Plant.

The decline in silver production was not confined to just the second quarter, it also fell 17% during the first quarter of 2013.  The brown line above the silver bar shows that this was a planned decline.  I have emailed the investors relations department to see if the drop in silver production is attributed more to falling ore grades or a temporary situation of maintenance and etc.

Regardless, to see the worlds largest silver miner’s production decline 109 tonnes in just 6 months is a big deal.  If this trend continues, KGHM Polska Miedz’s total silver production may fall from 41 million oz in 2012 to only 34-35 million oz in 2013.  KGHM Polska Miedz is a large copper miner located in Poland.

If we look at the chart below, we can see who are the top silver mining companies in world:

2013 Top Company Silver Production

Even though Fresnillo is the largest primary silver mining company in the world, it ranks as the number three producer.  BHP Billiton’s Canningtion mine in Australia contributed the overwhelming majority of the company’s total silver production (39 million oz) in 2012 at 32 million oz and is the largest single primary silver mine in the world.

KGHM Polska Miedz’s Net Profits fall 50%

As with most other base metal miners, KGHM Polska Miedz saw its 1H 2013 net profits fall 50% from $1.353 million pln (Polish currency – Zloty) in the 1H 2012 to $682 pln in 1H 2013.  This was due to lower prices of copper and silver as well as a lower USD/PLN exchange rate.

During the Q2 2013, copper sales accounted for 78% of KGHM Polska Miedz’s total revenue while silver represented 17%.

I have had several individuals inquire to the cost of producing silver in the by-product mining industry.  It is nearly impossible calculate this cost as conditions vary tremendously from one base metal mining company to another.  Even though 70% of silver production comes from by-product mining, as base metal prices decline, these companies are going to need all the by-product revenue they receive from silver and etc. to fortify their balance sheets.

Lastly, I believe we will see the global peak in silver production occur first in the base metal mining industry.  As the world’s energy supply peaks and declines, the demand for base metals will fall proportionally which will negatively impact the supply of silver.

Thus, another good reason to invest in silver for the future.

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16 Comments on "World’s Largest Silver Producing Company States Big Decline in Production"

  1. Interesting to note that with so little production around the world of primary and base silver mining pricing of the metal can stay low for any length of period.

    I know the last few weeks have seen a rise in silver, but I’m wondering how long the supply side changes will take to drive the price upwards.

    Great article.

    Aaron

    • Aaron… my guess is that it would take 2-3 quarters of steady declines in silver production from primary-base miners to really impact price. That being said, I believe the real move higher in silver will come irregardless of the typical orthodox supply and demand forces.

      Lastly, I actually believe the typical supply & demand forecasts put out by some of the large banking institutions (for a pretty penny) will become increasingly worthless going forward due to a declining energy supply as well as the collapse of the fiat monetary system.

      steve

  2. They could be selecting low silver yielding ore with the price decline? That’w what they have geologists for.

    • brendan… sometimes in the mining industry when the price of gold or silver increases substantially, companies may elect to mine lower quality ore that was unattractive at lower prices. However, when the price declines, they do the opposite and mine the high grade ore.

      Even though many people believe this occurs to a large degree in the mining industry… it only does so on a small to moderate level.

      steve

      • Maybe, as silver is only a by product for them, they gain more when silver is low by mining where there is more base metal and less silver, whereas if silver is high, they can go with less base metal and more silver content.
        Well at least it would make sense to me.

  3. So what’s the summary……as energy and oil rise so will the metals follow? Or does the silver, because of a supply shortage and technological usages have its likely own path upward, regardless? And is the extent of that upward path dictated by the timing of the peaking of the energy sector?

  4. Which is the most profitable silver-minining Company now an in the future(4-5 years at least)
    in your opinion??

    • Ingo…. ah ha, you are asking the right question. I will be putting this data in my SINGLE PAID REPORTS, but I will tell you who is the most profitable Primary Silver Miner…

      FIRST MAJESTIC

      Fresnillo is up there as well, but they now make more revenue on gold than silver and they only report financials twice a year. So, they are not apart of my top 12. However, I still recommend them.

      steve

  5. When you eventually come out with this paid report which I’ll be purchasing will the paid subscribers be eligible to ask you questions about possible future trends about other sectors besides gold,silver, mining, but still energy related??

    • Adam…. yes, of course they can ask questions. I am doing ground work on how energy constraints will impact different sectors of the economy. I see the big RV Industry going down the toilet as one of the first causalities. Then I see big trouble on the horizon for the GREAT SUBURBAN RESTAURANT INDUSTRY. Even though jobs are still growing in this sector due to the fact that Americans enjoy eating out, this will return to be more of a wealthy class past-time in the future.

      steve

      • Thank you Steve because I know over the years the room for error how one invests their money will shrink substantially

  6. As a side note Steve, the heavy equipment sector (mining, forestry, farming) has seen a major slow down in new units sold. The latest retail sales results for CAT are again, disapointing.
    The sale of used equipment however, is going very hot, with the worlds largest auction house of Ritchie Brothers having over 30,000 units in their inventory and sales of over 60 billion dollars.
    Further evidence of tight liquidity and low product price, when producers buy used rather than new.

    • OutLookingin… yes, I have seen some of the figures. There’s a big Ritchie Brother’s facility a few hours from my house and yes, they are doing high sales. Even though the mining industry is trying to save a buck by purchasing USED equipment now, they will pay for it in the future when repairs will eat up their supposed savings.

      Furthermore, many of these sales are from relatively newer equipment from companies who have fallen on hard times recently as forecasted growth did not meet expectations.

      Anyhow, large mining companies who operate existing and new mines, don’t have the luxury of buying use equipment per say due to the fact that they need to run these machines 24-7 and it is better to pay a bit more for NEW than less for used that could break down more hurting their production schedule.

      steve

  7. 475 tons!

    • judejin… wow, I just noticed that. Even though the Shanghai Exchange is adding silver to its warehouse stocks certain days, the net result seems to be lower and lower. I wonder how long this can last before they can’t meet delivery requests.

      steve

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