Supply Crunch Coming as Silver Miners Scale Back

Wednesday, December 4, 2019
By Paul Martin

By Stefan Gleason
ActivistPost.com
DECEMBER 4, 2019

Through the first half of 2019, silver significantly underperformed gold. Put another way, gold gained relative to silver – culminating in the gold:silver ratio registering a 27-year high of 95:1.

That market signal was received by the mining industry. Since there are few primary silver producers, and those that do mine silver also typically mine gold and some base metals, precious metals miners had an incentive to invest more into gold production and less into silver.

Precious metals analyst Adam Hamilton wrote in a recent commentary,

As silver wasted away in recent years, its bombed-out prices heavily impaired silver mines’ ability to generate operating cash flows and profits. The silver miners were forced to adapt and shifted their focus and capital into adding gold production rather than boosting silver output.

Hamilton notes that the top 17 components of the GlobalX Silver Miners ETF (SIL) produced a total of 72.2 million ounces of silver last quarter, amounting to a 4.4% year over year decline. At the same time, their total gold output increased by 11.9%.

What this suggests is that the silver market is being under-supplied. In fact, the Silver Institute recorded a 2.4% global silver supply shrinkage in 2018.

And things certainly aren’t looking up this year.

Silver’s mining supply problem could be a super-bullish driver of higher prices. Higher prices will eventually incentivize increased production from the mining industry. But it will take much higher prices sustained for some time in order to move the needle of mining production in any significant way.

Silver Mining ETF Sham: These Stocks Are Primarily in Other Metals

As silver miners have become less silver-centric, their stocks can be expected to show less correlation to the silver price. In fact, some stocks that have “silver” in their name derive a large majority of their business outside of the white metal.

Consider Pan American Silver (PAAS), a $3.6 billion company that makes up a 5.4% weighting in the Silver Miners ETF (SIL).

While Pan American is indeed a producer of silver, its business comes mainly from other metals. According to BMO estimates, only 33% of Pan American Silver’s revenue in 2019 will come from silver production.

SIL’s third-largest holding is Korea Zinc. It is base metals smelter, not a silver miner. It processes some silver, but that particular aspect of its business amounts to just 17% of annual revenue.

The Rest…HERE

Comments are closed.

Join the revolution in 2018. Revolution Radio is 100% volunteer ran. Any contributions are greatly appreciated. God bless!

Follow us on Twitter