Silver Stock Report
by Jason Hommel, May 26th, 2008
The CPM Group’s 2008 yearbook is available for $75.
The yearbook is 185 pages and filled with data about the supply and demand fundamentals of the silver market, and is a very reliable source of primary data.
On page 29, the yearbook lists Near-Term Mine Development Projects, annual production, due within 5 years. Many on their list were major companies, but they forgot a few, which is understandable, since the junior mining sector is not their primary area of expertise; they are primarily consultants. But I follow the junior mining stocks a bit more closely, of course; that is my primary business.
The public is tracking many companies at our wiki, www.miningpedia.com. So, I took about an hour to go over our publicly available data, and found many junior mining companies that have silver projects that the CPM group didn’t list. This is a good list of companies to review as possible investments if you are bullish on silver. I own a few of them, but not all of them.
Project, Company, Country New Silver Supply NOT listed by CPM Group:
Caribou, Blue Note, New Brunswick: 1.4 million oz. silver, 2007
Galena Silver, USA Silver, Idaho: 2.3 million oz. silver, 2007
San Jose Project, Minera Andes, Argentina: 3.1 million oz. silver, 2007
Sunshine Mine, Sterling Mining company, Idaho: 2.8 million oz. silver, 2008
Miguel Azua: Calvario, Silver Eagle mines, Mexico: 1.0 million oz. silver, 2009
Prairie Creek, Canadian Zinc, NW Territory, CAN: 1.2 million oz. silver, 2009
Jerusalem, Dynasty Metals and Mining, Ecuador: 0.5 million oz. silver, 2009
Fuwan, Minco Silver, China: 6.4 million oz. silver, 2010
Tejamen, Oremex, Mexico: 4.2 million oz. silver, 2010
La Guitarra, Genco, Mexico: 5.2 million oz. silver, 2010
Rosemont, Augusta Resource Corp., Arizona: 1.5 million oz. silver, 2011
The trading symbols of these companies are all listed at miningpedia.com, or Yahoo! Finance.
Further notes for CPM Group, and their readers:
Minefinders will probably produce 4.2, not 4.8 million oz. of silver per year, due to an extended mine life.
Barrick’s Pascua Lama project can probably be safely pushed forward, indefinitely, or at least out another 10 years and not be seriously considered.
Update 2019: I was correct. Project still has not started Mining. https://en.wikipedia.org/wiki/Pascua_Lama#History_of_the_project
What does the new silver mine supply mean for silver prices going forward? Probably very little.
Total mine supply was about 550 million ounces. New mine supply in 2007 that might have been overlooked by the CPM group, was about 1%.
New investor demand was much larger than new mine supply.
Silver Investment demand for 2006, was about 50 million ounces.
Silver Investment demand for 2007, was about 75 million ounces.
Silver Investment demand for 2008, for Silver Eagles, has doubled, from 10 million ounces, to a pace of over 20 million ounces, and probably would have been higher, if there were not shortages and rationing.
Many coin shops have told me that their business volumes increased about 10 times in January and February, prior to when there were many reports of shortages starting in March.
I would estimate that 2008 might see silver investment demand of about at least 150 million ounces, as a conservative estimate, and investment demand would have to decrease in the second half of the year to get under about 150 million ounces, and that is not very likely.
Therefore, I’ll project that new silver investor demand for 2008 will be about 75 million new ounces, for a total of 150 million ounces.
Whereas, new silver mine supply for 2008, according to the CPM Group’s 12 listed mining projects, and including my adjusted numbers, is about 42.5 million ounces. (This does not take into account old silver mines that may be shutting down, reducing ore grades, and thus reducing supply).
The four largest new projects for 2008 are:
Apex silver, to produce 17 million ounces annually, from San Cristobal in Bolivia. (maybe?)
Coeur d’Alene, to produce 8 million ounces annually, from San Bartolome in Bolivia. (maybe?)
Minefinders, to produce 4.8 (4.2) million ounces annually, from Dolores in Mexico.
Pan Am Silver, to produce 4.1 million ounces annually, from Manantial Espejo in Argentina.
Bolivia silver production is at significant political risk, in my opinion, due to nationalizations, and continued threats of such.
Including new Bolivia production, the total new silver mine supply for 2008, (42.5 million ounces) is simply not nearly enough to meet existing and my projected 2008 investor demand (75 million ounces), and prices will likely continue to move up strongly.
The four largest new projects for 2009 are:
Goldcorp, to produce 31 million ounces annually, from Penasquito, Mexico.
Coeur d’Alene, to produce 10.4 million ounces annually, from Palmarejo, Mexico.
Silver Standard, to produce 9.6 million ounces annually, from Pirquitas, Argentina.
Harmony, to produce 4 million ounces annually, from Hidden Valley, Papua New Guinea.
In my opinion, it is too early to say what mine supply will mean for silver prices in 2009, since silver prices could well be $30/oz. or higher by then, with between 2-5 times more investor demand than today, or up to 400 million ounces demanded by investors due to continued inflation, war, etc.
But we can be sure that in the next year or two you will hear many false and misleading reports about how new mine supply ought to create some kind of “surplus” that investors won’t want to buy.
I was surprised to read a recent report by Eric Roseman, who does not appear to be a hired shill by the investment bankers, but who writes for the more trusted Sovereign Society, where he seemed to buy into the notions of those false reports in his recent article, “A Silver Divergence: Rising Supplies Begin to Weigh on Poor Man’s Gold in 2008”.
He starts out, “silver will face the tacit test of price resilience under the growing bombardment of new production.”
But new production is no “bombardment” it is not nearly enough to meet rapidly growing investment demand.
He continues, “The bulk of global demand for silver going forward will have to come from investors.”
But that’s poorly phrased. The bulk of global demand for silver continues to be all forms of industrial demand (including jewelry and silverware) at over 900 million ounces. Investment demand for 2007 was 75 million ounces, and I expect 2008 investment demand to reach at least 150 million ounces. So, the bulk of demand for silver continues to be industrial, not from investors.
He notes, “Barclays believes mine production will grow by 6.5% in 2008, faster than last year’s increase of 3.6% and possibly the largest surplus of silver in over 20 years.”
According to the CPM Group and my figures, mine supply of 550 million ounces may increase by 42 million ounces (not including mines that shut down, which would reduce supply), so that figure of a 6.5% increase sounds a bit too much.
But with investment demand of 75 million ounces in 2007, already doubling in 2008, investment demand is far more than increased mine supply, and thus, there will be no surplus, but rather, a continued deficit.