Silver production is stagnating causing higher shortages

April 18 2019

The production of the largest primary silver mine in the world fell by no less than 15% in the first quarter of 2019 compared to a year ago. At the same time, the price of the white metal isdown, with a price of around 15 dollars an ounce at the time of writing.

All-in Sustaining Costs of silver

There are several reasons causingthe production of silverto fall. In the example of the mine in question they state decreasingorequality. A reason for the decrease in orequality and the reasonwe at GoldRepublic want to zoom in on the production price. The production of silver has a number of steps. These steps are shown in a clear manner in the attached video. What becomes clear is that the production of silver is a complicated and costly process. Silver production can therefore only continue if the market is prepared to pay at least that production price. Silver producers speak of so-called "All-In Sustaining Costs" (AISC) which is expressed in dollars per ounce. We can observe that in many cases these costs are higher than the worldwide spot price of an ounce of silver.

Consequence

The consequence of the low price of silver is that production is no longer profitable and even costsmoneyfor the miningcompany. And operating at aloss is something that no company can sustain for a long time. Producers are scaling back, stopping exploration with the result that production decreasesor mines close. And that concerns precisely those mines that focus primarily on silver. After all, most of the production comes from mines that focus on other metals and supply silver as a by-product.

Conclusion

Low prices are having a negative impact onthe production of silver forthe primary silvermines. With an AISC that is above the price of production, it is a matter of time before production suffers,and we can already see that in the numbers. After all, there has been a shortage for years, with total demand around 100 - 150 million ounces higher than totalproduction. With a metal of which more than 60% is used in industry, one wonders whether theselowprices can be sustained.

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